Revitalizing PhilipsPresented By:

Group 8

BACKGROUND

• Philips – one of the largest electronics and electrical equipment corporations in the world• Organizational Structural Changes – an integral part of

Philips’ history• Changes derived from:

- Changing Macroeconomic conditions- Changing Consumer needs- Focus on different objectives by different CEOs• Latest Structural Change took over by Boonstra, appointed

as CEO of Philips on October 1, 1996

ENVIRONMENTAL COMPLEXITY OF PHILIPS

Simple + Stable= Low uncertainty

Complex + Stable= Low-Moderate uncertainty

Simple + Unstable= High-Moderate uncertainty

Complex + Unstable= High uncertainty

Environmental Complexity

Philips - Organizational Structures

1930• Change headed by Gerard Philips and his brother Anton• World War II – the driver of the change • Implementation of N.O.s (National Organizations)• Each N.O. focused on particular region

1971

• Change headed by CEOs Henk van Riemsdijk/Dr. Rodenburg• Facing pressure from Japanese companies• Conversion of some efficient plants into IPCs supplying many Nos and recasting of Main Industry Groups(MIGs) into

Product Divisions (PDs)• Replacement of dual leadership with single management at corporate and NOs

1982

• Changes headed by CEO Wisse Dekker• Focus on Acquisitions and divestitures• Off-shore Manufacturing• PDs given formal product management responsibility and NOs responsible for local profits• Reduced size of management board

1987

• Changes headed by CEO Cor van der Klugt• Reorganized 14PDs into 4 core PDs – Components, Consumer Electronics, Telecommunications and Data, Lightning• Went into Joint Ventures with GEC in medical systems and Whirlpool in domestic appliances• Headquarters staff reduced. PDs staff increased. Global workforce reduced by 38000 by 1990• Plants reorganized to be more efficient and multi-market oriented• Unexpected loss and rumors of imminent bankruptcy

OPERATION CENTURION

• Jan Timmer became CEO in 1990• Aimed to cut jobs – 68000 jobs within 18 months.• More stringent performance goals for managers. • Disposal of loss making businesses – computers and

defence electronics businesses, SRAM chip business etc.• Investment in future technologies like – HDTV, built in CD-

ROMs on TVs etc.

The BOONSTRA ERA (1996 – 2001)

• Became CEO in 1996, was an outsider to head the company.• More focus on increasing shareholder’s value – a focus that was

missing in Philips for the last 20 years.• Revamping corporate businesses, fixing, closing or selling non-

performing businesses.• Building profitable growth from the resources and securing

market leadership position in enough businesses.• Further process improvements to achieve best in class standards.• Succeeded by CEO, Gerard Kleisterlee as 11th CEO in 2001

The BOONSTRA ERA (1996 – 2001)Sound & VisionCar SystemsBusiness ElectronicsComponentsSemiconductorsIndustrial ElectronicsLightingDomestic AppliancesMedical SystemsPolygramMediaOriginGrundig

Consumer ElectronicsComponentsSemiconductorsLightingDomestic AppliancesMedical Systems

1996

2000

Problem Statement

Keeping Philips on a continuous financial and technical growth trajectory while dealing with issues

related to increase in competition from other organizations.

Key Problems

1. Dilemma between Marketing v/s Manufacturing (relatively easier)2. More Emphasis on vertical relationship between PDs3. Enhancement of profitability from its Core Consumer Electronics Business4. Making money in North America, the largest regional market5. Creation of a new global forum by current CEO 6. Tilt in autonomy from National Organizations to Global Product Divisions7. Implementation of Best-in-class Corporate Core Processes and Value addition8. Monthly and Quarterly Monitoring Reconciliation9. Improvement in usage of Technology for overall Business growth

ANALYSIS

Dilemma between Marketing v/s Manufacturing

With the improvement in retail sector, many retail chains were opening up which squeezed margins for the manufacturers.

Moreover, Philips had to invest more in advertisement as they could no longer rely on store personnel to communicate product benefits.

As a result, Philips was in a dilemma as to what- manufacturing or marketing – should get preference.

More Emphasis on vertical relationship between PDs necessary?

Till the late 1990s PDs – CE, components and semiconductors were together known as Consumer Appliances.

The PDs followed a vertical hierarchical relationship – a common management process.

This though provided better control over the management decisions as they were taken from the central management but it hindered creativity and innovation which was the core part of Philips.

Enhancement of profitability from its Core Consumer Electronics Business

Philips core business was Consumer Electronics.

Facing severe competition from Japan which were committed to keep costs low,export led global expansion, continuous improvement and time based competition

Now, in the 2000s China was also posing a serious threat to the leadership of Philips.

Capturing North America

• Failure of Consumer Electronics business in US in 1982• Minority shareholders of North American Philips Corporation were bought

out in 1987• Reason: Failure of Philips’ V200 Videocassette standard

• Failure of analog HDTV standard in US in 1992• Failure of CD-i at an estimated cost of 1 billion USD.

• Reasons: Launch Delays, Failure of attempts to co-opt Sony, complex design, overpricing, etc.

• By 1998, approx. 20% of the employees in North America• GE – the biggest competitor in North America in both prospective,

lighting and Consumer Electronics PDs• For changing fortunes, advertisement expenditure increased• Replacement of Local Brand names with brand “Philips” to improve

visibility

The global forum

• Kleisterlee called his initiative “Towards one Philips”• The TOP group comprised of 100 people• Aim to make Philips work as a single, unified companyPros:• Standardization• Sharing of Knowledge• Incorporating new Acquisitions and Divestitures easier• Unprofitable businesses would be dealtCons:• Cultural changes involved• Limitations in acquisitions because of common objectives overall• Expansion more tedious

Tilt in Autonomy

• In 1930s, NOs were autonomous• General Management Boards of NOs given overall responsibility for operations

and policies• NOs reported directly to Board of Management• By 1982, PDs given formal product management responsibility

NOs left responsible only for local profits• By 1990, there was shift in power from NOs to PDs• Boonstra focused completely on PDs and reduced PDs to only 6 in numberPros:• NOs focused only on National Expansion while PDs focused on global expansion• Brand identity and visibility internationallyCons:• Regional focus shifted• Cultural changes involved

Best-in-class Processes and Value Addition• Moving in losses• Solution: Restructuring by Boonstra but not completely

sufficient• Backed by announcement of 6 Corporate Core Processes

• Strategic Control• Efficiency Improvement• Quality Improvement• Human Resource Development• Brand Marketing• Technology Management

• Implementation and Monitoring – a difficult task

Technology Management

• Test Marketing practices had to be implemented with close interaction with customers and launch products• Construction of new campus to house PD & R&D personnel

together so research could be made more market oriented and people centric• The technologies had been filtered from 100 to 20 with

business development officers in lab• Quantified output from research efforts by focus on factors

like Publications and patents

Monthly and Quarterly Monitoring Reconciliation• The major problem being faced by Philips was restructuring

impact it had after decades of restructuring• The question at hand was if it was possible to monthly and

quarterly monitor balance after this restructuring• Since they had to retain their profits and market share a

system had to be brought about in the system where if not monthly at least a quarterly monitoring should be done through performance analysis and market review sessions. • This would be possible if it was incorporated snugly in the new

restructuring.

Recommendations

• Shutting down unprofitable businesses - Strategy followed by earlier CEOs.• Outsourcing production of products like VCRs

• Reduces the overall cost • Help them focus on innovation of new technology.

• Reducing the headcount - helps in increasing speed as it promotes a culture which can foster profitable growth.

• Identify Core competencies - then develop further on those skills example of TVs new market opportunities should be discovered. Philips should develop skills required to capture such market opportunities.

• Philips should concentrate more on its display arm of electronics as it has a growth rate comparable to those of PCs.

• Portfolio Analysis is required to help them make a planned decision – for example: the electronics cluster produces plenty of growth but required significant investment and is easily affected by the ups and downs of the economy.

• National Value Systems can be created for all regions.

Thank You!