How did Philips become the leader of customer electronic s company in the world in the postwar era? What distinctive competence did they build? What distinctive incompetence?
To answer above questions, we should look into many important aspects, including business strategy, organizational structure, global business environment, etc.
Business strategy is very crucial to a company’s success and also can explain why it failed. It is can be seen, in Philips’ case, that what an important role it played.
In early years, Philips focused research and development on only one product – light bulb. This successful business strategy provided Philips with three significant advantages over its competitors. Firstly, the one-product focus strategy enabled Philips put all the efforts and resources upon achieving technology competence in customer electronics industry. The company also made policy to scrap old plants and use new machine and factories whenever advances were made in new production technology. With advanced technology and high quality, Philips became the third largest light bulb producer by 1900. Secondly, it provided Philips with sufficient fund to R&D department and other technology investments. That’s how Philips obtained so many patents, for example, PAL, SECAM, NTSC, etc. Thirdly, it also allowed Philips to maintained many R&D specialists and skillful employees. They contributed to the production of electronic vacuum tubes, radios, X-ray tubes, television sets, etc. High quality of employees enabled Philips to be creative and dynamic, and always be ahead of other competitors.
But, after Philips run on a worldwide production, its business strategy changed to decentralize the product line and focus on the cost saving. Philips suffered three main challenges due to its business strategy. Firstly, it broadened product lines and lost the concentration. Secondly, Philips cannot hold the excellent employees like old days. Its research power is quite limited and is losing its position in industry. Now it’s very hard for Philips to come up with some new technology. And not only on the human resource, they are also doing cost saving to R&D. When van der Klugt is in charge, he cut R&D funds on basic research to 10%. And the challenge came. How Philips can launch new products with limited R&D researchers and funds. And most importantly, Philips has no long term goal. The deficiencies in company’s organizational structure bothered Philips all the way down since 1960s and let it has no time to make detailed plan for the future. . It has no long term goal but to improve the company profits. The board and CEO are looking at financial numbers of net profit margin which behind its Japanese competitors, and also, return on net assets.
Philips also pays a heavy attention on the operation management. Since Holland’s market is small and the Great Depression brought the trade barrier and high tariffs,