A New Century, a New Round

Scott Campbell - Christina Connolly - Maureen Stafford

MBAM 619.11

March 30, 2009

versus

Foundation

• Founded in 1892 by Gerard Philips in Eindhoven, Holland

• Tradition of caring for its workers• Innovation as a core strength

– One product focus on light-bulbs (initially) + Gerard’s technological prowess enable significant innovations

• Strong research vital to company’s survival

• Philips built its success on a worldwide portfolio of responsive national organizations

Foundation

• Founded in 1918 by Konosuke Matsushita in Osaka, Japan

• “Seven Spirits of Matushita” and cultural and spiritual training are key

• First Japanese company to adopt the divisional structure– “One-product-one-division”– Internal competition fostered among

divisions

• Matsushita built its success on its centralized, highly efficient operations in Japan

Tangible and Intangible Assets

Physical Assets: new labs

Regulators: Common Market erodes trade barriers

External Assets

Financial Assets

Suppliers

Customers

Employees: competitive/loyal

Owners

Brand Capital, Relationship Capital, Knowledge Capital

Individual Capital, Team Capital

Human Capital: strong experts

Intellectual Capital

Society

Competitors: Sony, Matsushita, General Electric

Organizational Fiscal

Responsibility Boundaries

Market Boundaries

Society Boundaries

Intangible Assets

Supply Chain Boundaries

Organizational Boundaries

Tangible Assets

Tangible and Intangible Assets

Physical Assets External

Assets

Financial Assets

Customers

Employees

Owners: Matsushita’s legacy

•Brand Capital *Relationship Capital: Hitachi, Sharp, Phillips,

Mitsubishi, dist partners *Knowledge Capital: efficiency,

low cost, VHS development

*Individual Capital: Unique positions *Team Capital: Unique product divisions

Human Capital: Unique positions with each division

Intellectual Capital: Mastering of low-cost, fast production with

premium VHS standards

Society: Japan, Southeast Asia, Central and South America, Canada, United States, Wales

Competitors: Phillips, Sony, JVS, Hitachi, Sharp, Mitsubishi

Organizational Fiscal

Responsibility Boundaries:

Division’s ability to

generate, 60% earnings to

headquarters

Market Boundaries: Production

capacity, quality of product, new technological innovations

Society Boundaries: fluctuation of

the Yen

Intangible Assets

Supply Chain Boundaries:

Output capacity,

distribution partners, budgetary limitations

Organizational Boundaries:

Division limitations, 40% profit/ division

Tangible Assets

McKinsey 7-S Framework

Structure

Systems

Style

Staff

Skills

Strategy

Shared Values

Structure: National Organizations (NOs) had informal power over Product Divisions (PDs). NOs consisted of two managers: technical and commercial, with some having a 3rd, financial manger

Systems: NOs allowed for customer specialization, this proved later to be a problem with NOs having so much informal power.

Style: Strict accountability when company was unprofitable, drastic employee/manager cuts were made on a regular basis

Staff: Originally training was important. Friendly competition turned into a loss of control with NOs

Skills: Product innovation, thrived on simplicity of product line

Strategy: Trying to stay afloat, drastic cuts were made over time, many systems/procedures were also adjusted

Shared Values: Began as employee friendly/driven comp. Later with problems, lost that focus.

McKinsey 7-S Framework

Structure

Systems

Style

Staff

Skills

Strategy

Shared Values

Structure: Each product was made into its own unique division, to function independently and promote internal competition

Systems: Competitive Divisions, MCA, METC, and MECA allowed Matsushita to develop innovative production and development systems in an efficient manner

Style: 60% profit to headquarters and 40% back to the division provided an extremely profitable organization, while insuring its own future success

Staff: Staff was unique in each division, and could expect lifetime employment

Skills: Efficient, low-cost production

Strategy: Achieve worldwide presence, whether by the Matsushita image, or producing for competitors

ARC to Align with Strategy

Goals:

Objectives:

Tasks:

Rewards:

StrategyWork Culture

Infrastructure

Results

Values, Beliefs & Assumptions

Organizational Practices

Behaviors

Values, Beliefs & Assumptions

Organizational Practices

Behaviors

Values, Beliefs & Assumptions

Organizational Practices

Strategy

Results

Strategy

Results

Strategy Culture

Results

StrategyStrategyStrategyStrategy CultureCulture

Attempts at Reorganization

Goals/Objectives:

Actions Taken:

Gerard Philips1892

Van Reimsdijk & Rodenburg 1970s

Results

One-product focusUse new factories and machines for

production efficiencies

Transferring assets& labs overseas,

reliance on national

organization (NO)

Employee focusedTradition for caring

Built emp. houses, promoted edu.,

paid employees well, Allowed NOs ability

to make Autonomous

decisions

Gerard Philips1892

Work Culture

Yellow Booklet: est.Responsibilities btwn

NOs and PDs

International ProductCenters (IPC) were built to increase the flow of goods

among NOs. Sizing down dual comm & tech mangers

to one

Shift power awayfrom Nos toward

PDs

Implementation was slow.

Work Culture Work Culture

InfrastructureNOs had individual pwr, managed by tech, commercial & finance heads, even though product divisions (PD) were

formally responsible

Ability to respond to country-specific mkt conditions

Closed less efficient plants, introduced IPC, cut management to one person

Power struggle continued btwn Nos & PDs

Attempts at Reorganization

Goals/Objectives:

Actions Taken:

Gerard Philips1892

Van der Klugt1987

Results

Reduce financial problems

Shut many European plants down, sold/acquired

businesses

Continue to shift pwr to PDs

Gave PDs formal product mang.

Responsibilities, NOs resp. for

local profits

Wisse Dekker1982

Work Culture

Beating the Japanese competition.

Est. 4 core businesses.

Closed significant amount of plants.Reduced R&D

spending

Shaking up “lifetime employment” myth

by cutting jobs

Thousands of jobs were slashed &

shifted management from HQ

Work Culture Work Culture

InfrastructureReduced Management board, giving

final decisions to PDs

Sales still declined, profits were stagnant

Structured business around 4 core bus. & away from 14 PDs

Unanticipated losses came with class-action suit & ½ management replaced

Attempts at Reorganization

Goals/Objectives:

Actions Taken:

Gerard Philips1892

Cor Boonstra1996

Infrastructure Drive to be more standardized

Turn around the bankrupt company,

expand software, services & multimedia

Cut more jobs, committed managers

to financial goals

Accountability for losses

Moral is low

Jan Timmer1990

Work Culture

More structure, simpler manufacturing

& marketing org.

Sold 1/3 of the businesses, shift

production to low-wage countries,

replaced PDs with 7 div & 100 bus units, increased mkt efforts

Employees shifted to other locations

Na

Work Culture Work Culture

ResultsR&D personnel cuts left company with few

who understood technology, thus no innovation

Moved HQ to Amsterdam

Performance improved, reaching 24% return on net assets

Attempts at Reorganization

Goals/Objectives:

Actions Taken:

Gerard Philips1892

Results

Increase sales, outsource activities

where they can’t add value

Closed European plants

Na

Trying to shift to core

competencies of technology developer

& global marketer

Gerard Kleisterlee2001

Work CultureWork Culture

Infrastructure Eliminating more overhead/costly production plants

Shareholder pressures rise, reported losses

Attempts at Reorganization

Goals/Objectives:

Actions Taken:

Gerard Philips1892

Toshihoko Yamashita 1982

Results

Konosuke Matsushita (KM)1918

Work CultureWork Culture Work Culture

Infrastructure

To build a successful company through fairness and giving back to the world around them

Divisional structure led to a competitive environment

Opening of “National Shops,” Various attempts at product line extension, Outsourced production, Licensing agreements, METC, Worldwide production

Productive environment with lifetime employment

One-product, one-division

Successful development of efficient, superior VHS production and good relationships

Operation Localization: personnel, technology, material and capital

Increased number of local nationals in key positions, local division given choice over products sold, quantities, prices, and features

Allow local division to have more control over their operations

To “help overseas companies develop the innovative capability and entrepreneurial initiatives”

Operation Localization

Overseas productions remained too dependent on the central organization

Attempts at Reorganization

Goals/Objectives:

Actions Taken:

Gerard Philips1892

Yoichi Morishita1993

Results

Akio Tanii1986

Work CultureWork Culture Work Culture

Infrastructure

Relocated major regional headquarters functions to North America, Europe, and Southeast Asia

Brought foreign subsidiaries under control of METC, then put METC under parent companyPurchase of MCA

Make each division contribute to initiative and innovation

Fully integrate domestic and overseas operations

More local operational control

$17.5 billion in liquid financial assets until the bubble burst in 1992

Make the environment less expensive and more adaptable

“Simple, small, speedy and strategic”

Sold 80% of MCIShifted production to offshore companies

Cut headquarter staff and decentralized responsibility Moved 6000 staff to operating positions- great resistance to the radical changes

Streamlined, decentralized operations

The driving down of prices and increased competition meant that Matsushita struggled

Attempts at Reorganization

Goals/Objectives:

Actions Taken:

Kunio Nakamura2000

Infrastructure

Work CultureWork Culture

Results

Raise profitability to 5% of sales“Super manufacturer of products”“Meet customer needs through systems and services”

Flatten the hierarchy and empower employees

All key headquarter functions that related to international operations were transferred to overseas regional offices

Integrated one-product divisions into multi-product production centersMarketing centers for Panasonic brands and National branded products

Empowered employees at multi-product centers

Earnings estimates had to be adjusted downward and there with Matsushita looking like a good buyout opportunity

Resources

Resources

Tangible Assets

Financial Resources

Physical Resources

Technological Reputation Human

Intangible Assets

-innovations produced successful financial strength

-new plants & equipment

-International presence

-Experts for innovations & new product development

-positive morale when company valued employees with benefits and training

-Adapt to market needs

Resources

Resources

Tangible Assets

Financial Resources

Physical Resources

Technological Reputation Human

Intangible Assets

•VHS format distribution for multiple companies•Efficient, inexpensive processes•Motivate through competition

•Superior VHS format and production•MCA media software

•Multi-national locations•High quality, inexpensive product

•Divisional, competing counterparts•Visionary CEOs

• 60% to headquarters/ 40% to division• Outsourced production•METC•10% ROS from Japan

Value Creation Process

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Inbound Logistics

Operations Outbound Logistics

Marketing and Sales

MARGIN

-Financial Policy -Legal -Organizational Form

- Accounting - Incentive Systems

-Bulked up efforts in mkt

-Autonomy among NOs

-Employee training

-Worldwide customization, mkt demands

-Outsourced non-value added tasks

-R&D dev. one product focus

-moved bus. to other countries during war

-Alliances w/ other companies

Value Creation Process

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Inbound Logistics

Operations Outbound Logistics

Marketing and Sales

MARGIN

--Outsourced VHS producer -Organizational Form

--Profit Distribution Policy - Competitive Environment

- Pay less for a superior product

- VHS Format

-Low cost materials

-Divisional, competitive structure-Belief in lifetime employment

-MCA media software-MECA-METC

- Distribution partnerships

- Performing outsourced VHS production

- Superior product- Divisional competition

Architecture

Product Division (PD)

National Organization (NO)

Technology Manager Finance MangerCommercial Manger

Formal Network

Informal Network National

Organization (NO)

Technology Manager Commercial Manager Finance Manger

Product Division (PD)

Architecture

Routines & Culture

• Routines– Allowed NOs and PDs relationship to affect

company’s success, a great deal of turnover and organizational changes in short period of time

• Culture– Shared values were disjointed from founder’s ideals.

As company saw more problems, the employees centric company no longer took precedence

– Morale was low

Routines & Culture

• Matsushita wanted his company to encompass independent product centers

• Once a new product was established, it was spun off into its own operation

• That operation could retain 40% of its profit, with the remaining 60% going to headquarters

• Competitiveness between operations was encouraged

SWOT Analysis

Internal

External

Negative: Asian

competitors out

performing them

Positive: Expanded

geographically to

abaid war

bombings, kept the

company alive

Strengths: Product Innovation

& Development, employee

relationship @ beginning

Weaknesses: Great deal of

turnover, lost foucs of core

competencies

Opportunities: capatialize on

foreign presence

Threats: Shareholder

accountablilty, lack of formal

structure in company

SWOT Analysis

Internal

External

Negative or potential to be negative

Positive

Strengths: Geographical shifting capabilities, Internal competition, Output capabilities

Weaknesses: Canabilism due to competition, lack of resources for new development, outsourcing leads to low recognizability

Opportunities: Exclusively outsourcing, New technological developments, Geographic centralization of operations

Threats: Loss of outsourcing business, innovationof new technology

Sustainable CompetitiveAdvantage through ARC

Resources Competitive AdvantageCapabilities

Strategy

Goals

Objectives

-New labs, good technicians, international presence

- Innovations, product development & efficiencies

- One focus on major product line, allowed for superior performance

-return back to simplicity, few products, increase employee morale, reestablish innovations and efficiencies

Sustainable CompetitiveAdvantage through ARC

Resources:- MECA- METC- MCA-Divisional Competition- Worldwide production and presence

Capabilities:-Advanced new product development-Outsourced producer-Geographical shifting

Strategy: Use internal competition to achieve

innovation and competitive advantage

Goals: Achieve worldwide, superior market share

Objectives: Sustain a profitable technology company

Competitive Advantage: Ability to shift both geographies and resources to achieve the best product with efficient spending

The 21st Century

• By 2001, it becomes evident that Philips’ best chance of survival was to outsource even more of its basic manufacturing and become a technology developer and global marketer

• In 2002, company HQ moved from Eindhoven to Amsterdam– In a sense, the move to Amsterdam can be considered a return to the

company's roots, because Gerard Philips lived in Amsterdam when he came up with the idea of building a light bulb factory and also conducted his first experiments in the field of mass production of light bulbs there

• Philips Lighting, Philips Research, Philips Semiconductors (spun off as NXP in September 2006) and Philips Design, are still based in Eindhoven

• Philips Healthcare is headquartered in both Best, Netherlands (just outside Eindhoven) and Andover, Massachusetts (U.S.)

The 21st Century• In February 2001, the company’s first losses in 30 years

continue to accelerate– CEO Nakamura announces round of emergency measures

designed to cut costs– Goal to move Matsushita beyond its roots as a “super

manufacturer of products” and begin “to meet customer needs through systems and services”

• In May 2003, the company put "Panasonic" as its global brand, and set its global brand slogan as, "Panasonic ideas for life”

• In January 2008, name changed to “Panasonic Corporation”