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CorporateStrategyPhilipscase 1
Internationalization Strategy and
Organizational Structure
Emelie Gustafsson
Jacek Nagrski
Katherine Nunes
Johan Sandstrm
Michael Steiner
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Questions!
WhatwerePhilipsInterna8onaliza8onstrategiesoverthedecades(especiallypre-andpost-1960s)?
Examineit'sdevelopmentover,me
ExaminetheInterna,onaliza,onstrategyandorganiza,onalstructure
Lookforthereasoningandside-effects
Whatorganiza,onalstructuredoyouthinkwouldfitbestPhilips'strategyandproductpor?oliotoday?Proposeone.
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Todays Agenda
1. BACKGROUND2. INTERNATIONALIZATIONSTRATEGY3. ORGANIZATIONALSTRUCTURE4. REASONSANDSIDEEFFECTS5. NEWORGANIZATIONALSTRUCTURE
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CorporateStrategyPhilipscase 4
1. BACKGROUND
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Philips history in short
Founded191inEindhoven,Netherlands Itallstartedwithlightbulbs Todayac8vewithin3areas;Healthcare,Ligh8ngandConsumerlifestyle Movingfromdecentralizedtocentralized
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Founded;Eindhoven Startedtoexport Broadenproductline Decentralizing
192-1930 1930-1960
Moredecentralizing,par8allyduetoimpendingwar
BuildonstrengthofNOsbecauseofbombingsinHolland
NO/PD-matrixstructure
1960-192
Low-wageelectronicsmanufacturing
Lotsofinnova8onbutlowmarketshares
YellowBooklet;disadvantageofPD/NO-
matrix
Concentra8ngproducts
192-1990
Closedinefficientplants,around3layoffs,highcompensa8onbylaw
Focusedmoreoncorebusiness PDsmoredecisionpower Reducedmgmt.board R&Dconcentra8on
1990-2001
100factoriesclosed,6layoffs
TargettoincreaseROAfrom17to24%
Elimina8ngthePD/NO-matrix 40%increaseinadver8sing Performancegoesup!
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CorporateStrategyPhilipscase 7
2. INTERNALIZATION STRATEG
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Evolved from a national to a worldwidebusiness strategy
Global Transna8onal
Interna8onal Mul8na8onal
Focusonlowco
sts
Focusonlocaladap8on
High
Low
Low HighCorporateStrategyPhilipscase
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Philips moved from Multinational to aGlobal/Transnational company
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Adaptedmanagementtolocalneeds
Worldwideunifiedmanagementprac8ce
GlobalandLocalPrac8cesinParallel
ManagementPrac8ce
ManufacturingandMarke8ng
ResearchandProductDevelopment
Differen8a8ontofitlocalforeigncondi8ons
Generic,undifferen8atedproductsworld-wide
Differen8a8onofforeignmarkets,butintegra8onofac8vi8eswherepossible
Localproductdevelopmenttofitlocalmarketneeds
Centralizedproductdevelopmentforglobalneeds
Localdevelopedproducts,butgloballycoordinatedtransferof
knowledge
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Market Imperative have been the maindriver of Philips internationalization
MarketImpera8ve;Accesstonewmarketsextendsproductlifecycle
Limitedhomemarket
Increasingcompe88onathomemarket
Accesstolow-costfactors
Strategicmovesonforeignanddomes8ccompe8tors
Changesinpoli8cal,legal,andsocialenvironment
KnowledgeImpera8ve;Foreignins8tu8onsgiveaccesstouniqueandvaluableknowledge
Accesstokeydevelopmentpeople,enablesresearch,developmentandinnova8on
Accesstokeypatentsabroad
Managementimpera8ve;Managerstakepersonalinterestinforeignac8vity
Interna8onalfirmsaracttalents
Careeropportuni8esabroadmo8vatetheorganiza8on
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Of course there are some counterforcesof Internalization
CulturalVaryingconsump8onpaerns
Ins8tu8onalPerformancestandardsNa8onalpriori8es,economicandsocialpolicies
Localiza8onLocalizedcustomerneedsCustomerpreferencesLocalknowledgeandexper8se
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CorporateStrategyPhilipscase 12
PHILIPS VS. MATSUSHITA
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Globalization vs. Multi domestic
Globaliza8on(Matsushita) Productisthesameinall
countries.
Centralizedcontrol-liledecision-makingauthorityonthelocallevel
Effec8vewhendifferencesbetweencountriesaresmall
Advantages:cost,coordinatedac8vi8es,fasterproductdevelopment
Mul8domes8c(Philips) Productcustomizedfor
eachmarket
Decentralizedcontrol-localdecisionmaking
Effec8vewhenlargedifferencesexistbetweencountries
Advantages:productdifferen8a8on,localresponsiveness,minimizedpoli8calrisk,minimizedexchangeraterisk
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CorporateStrategyPhilipscase 14
3. ORGANIZATIONAL STRUCTURE
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WW2 and decreased sales during the60s, increased power of NOs
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PD1
PD2
PD3
PD4
NO1 NO2 NO3 NO4
REAL
POWER
Loca8ons
Products
.
.
.
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Organizational structure at 1960, withdecreasing sales
Na8onalOrganiza8on(NO);Financial,Legal&administra8veresponsibility
ProductDivisions(PD);Development,produc8on&Globaldistribu8on
Formalcorporatelevel;Geographic/Productmatrix
Inreality;NOhadtherealpower In1954Interna8onalConcernCounciliscreated,consistsoftheheadsofNO
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Reduce # of products production plantsfor increased sales during 70s
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PD1
PD2
PD3
NO1 NO2 NO3 NO4
REAL
POWER
Loca8ons
Products
.
.
.
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Continued decrease in profit during the 80sforce Philips to close even more plants, gooffshore and reduce products even more
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PD1
PD2
PD3
NO1 NO2 NO3 NO4
REAL
POWER
Loca8ons
Products
.
.
.
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At 1982 the responsibility is given evenmore to PD
Close40of200inefficientplantsinEurope Focusonsomemainbusinessesandacquireknowledgewereneeded
Startoffshoremanufacturing PDwasthefinaldecisionmakers S8lldeclinedsaleandstagnatedprofit
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1987 the business gets even morefocused
Findfourcorebusinessestofocusat KeepstrengthenPDpowercomparedtoNO Start4globaldivisionsinsteadof14PD ReplaceInterna8onalConcernCouncilwithpolicymakingGroupManagement,consis8ngofPDheads. EachPDmovestotheirmostcompe88vemarket R&Dbudgetincreases Buildingefficientspecializedmul8marketproduc8onfacili8es.Close75outof420remainingplants
Layoff3000employeesCorporateStrategyPhilipscase 21
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Close to bankruptcy in 1992 forced Philips tofocus the business even more, and increase
their innovativeness
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PD1
PD2
PD3
NO1 NO2 NO3 NO4
REAL
POWER
Loca8ons
Products
.
.
.
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1990
Philipswasalmostbankrupt Addi8onal6000employeeswerelaidoff. EveryNOwanttoprotecttheirunit Focusingresources,bysellingpartsofthebusinesses
LowefficiencycomparedtoJapanesefirms Bemoreinnova8ve Cost-cungandstandardiza8onleadtoignoringdemands(productmyopia)
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In 1996 businesses were sold off they
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Philips
Division1 Division2 Division3 Division4 Division5 Division6 Division7
In 1996 businesses were sold off, theyincreased their presence in Asia and
changed their structure which resulted in
positive ROA
CorporateStrategyPhilipscase 24
PD1
PD2
PD3
NO1 NO2 NO3 NO4
REAL
POWER
Loca8ons
Products
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1996
Sold40of120majorbusinesses(focusing) Needofmoresimpleandstructuredmarke8ngandmanufacturingorganiza8ontocompetewith
asia. Produc8ontolowwagecountries,moreconcentratedinasia.
100Bus&7divisionsinsteadof21PDsandNOs Focusingonmarke8ng&brand Posi8vereturn CorporateStrategyPhilipscase 25
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2001 ->
Outsourcingproduc8onwithhighcosts Firstlosssince1996
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CorporateStrategyPhilipscase 27
4. REASONS & SIDE EFFECTS
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SWOT - pros and cons of thisdevelopment
S W Lowerstructuralcosts Increasedprofitability Concentratedproduc8on InvestmentswhereitmaerstofuelfuturegrowthInternalExternal
Helpful Harmful
O T Porolioofbusinessesthatcorrespondstokeyglobaltrends Layoffsarecausinghugeexpenditures Problemswithcontrollingopera8onsof
differentbusinessesindifferentcountries ReluctanceofNOmanagers
Opera8nginfieldswherecompe88venessisveryconcentrated
Irreversiblelossofsomeproductdivisions(soldoff)
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NOhadtoomuchpower Needofscale Globaliza8on
Weakglobalcompe8veness
Losingmarketshares Poorperformance Crea8onoftheCommonMarketanderodedtrade
barriers
CorporateStrategyPhilipscase 29
Reasoning
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Reorganiza8onlayoffscausedhugeexpenditures
Unan8cipatedloss$2.5billion Replacementofthepresidentand
halfofthemanagementboard
Irreversiblelossofsomeproductdivisions
Opera8nginafastchangingenvironment,wherenew
productsareintroducedwithinsmallspaceof8me
ReluctanceofNOmanagers
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Side-effects
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CorporateStrategyPhilipscase 31
5. NEW ORGANIZATIONALSTRUCTURE
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Boardofmanagement
Healthcare Consumerlifestyle Ligh8ng
Group
Management&Services
Ourthought: Todays organizationalstructure
SalesManu-
facturingR&D
LO1
LO2
LOn
S
TAFF
STAFF
STAFF
SalesManu-
facturingR&D
LO1
LO2
LOn
STAFF
STAFF
STAFF
SalesManu-
facturingR&D
LO1
LO2
LOn
STAFF
STAFF
STAFF
SalesManu-
facturingR&D
STAFF
STAFF
STAFF
LO1
LO2
LOn
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SalesManu-
facturingR&D
LO1
LO2
LOn
S
TAFF
STAFF
STAFF
Healthcare
Our thought: Todays organizationalstructure
IndependentProductDivisions
MorepowerforseparateproductlinesHigherresponsivenessforeachproductline
Func8onLoca8onmatrixapproach
MatrixapproachasresidualS8llhighinternalcomplexity
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CorporateStrategyPhilipscase 34
GrowthgeographiesareallgeographiesexcludingUSA,Canada,WesternEurope,Australia,
NewZealand,SouthKoreaandJapan
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New organizational structure
Todaysorganiza8onalstructurerepresentsa
transi8onphase
towardsa.
Ohno,notagainanewsystem!
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New organizational structureM-Form organized along product
Ligh8ng Healthcare
Innova8on&Emerging
Businesses
ConsumerLifestyle
CEO
Staff
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New organizational structureU-Form for each division
ProductR&D Marke8ng
SalesManufacturing HR
Product
Healthcare
Ligh8ng
ConsumerLifestyle
Innova8on&EmergingBusinesses
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New organizational structureM-Form
Advantages:
Corporatecanfocusonstrategiccontrol
Facilitatesdiversifica8onandgrowth
Disadvantages: Divisionsmay
competeandnotcooperate
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Questions?
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CorporateStrategyPhilipscase 40
BACK UP SLIDES
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Philips1990
GhoshalBartle:TheMul8na8onal
Corpora8onasan
Interorganiza8onalNetwork(AMJ,1990)
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New organizational structure
M-structuredividedingeographicalunits,each
ofthemconsistsofan
u-form(includingproductlines).
Mo8va8onwhy?
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Back-up; organizationalstructure/evolution
Vision2010aimstofuelgrowththroughsharpenedstrategiesforHealthcareandLigh