6-012-08A Final Exam – Philips Case
December 8, 2014
When Cor van der Klugt takes over the reins of Philips in 1987, the situation of the company is somewhat critical and urgent. The company has not been profitable and competitive in years due to several events such as the two oil crises in Europe and was also registering falling margin in 1981. Although, the last two CEOs that succeeded have started to draw the premises of Philips’ globalization process, it gained a mixed success. Some restructuring measures have been implemented to achieve the global organization objective but were never totally accomplished nor were they internally well received. An example is, the fact that some Philips managers’ positions, and also their relationships with each other are being compromised by structural changes, not to mention a high competitive climate already existed in the company.
In the meantime, the electronics industry is evolving so fast, and an organization needs to be proactive in order to remain competitive, and that is what Philips apparently lacked these past years. Since it is an old organization (1891), its initial organizational design was very different than the one it has today. Over the years, Philips tried to adapt to several challenges, but it is only recently with the aggressive entry of Japanese firms in the electronics industry and the rapid evolutions in technology, that Philips sensed the need to actively institute radical changes that will benefit it in the long run. The new guidance mentioned above, involve modifications in the organizational structure as well as in the strategy and the decision making process of Philips. However, these changes do not come without risks and thus need to be well considered and to be theoretically grounded so that it can foster a successful globalization.
Campagno 2 The central question to this essay is whether or not Van der Klugt is heading in the right direction with his new policies and more specifically what exactly Philips lacked all these years in its journey to become a global multinational. To answer this question, the following sections will try to analyze Philips’ past accomplishments and relate them to international theories in order to understand the implementation process and thus, make some further recommendations on how it should position itself for the future.
First of all, a definition of global strategy and what it takes to be successful needs to be made. The theory about Multinational Enterprises (MNES) Forms says that a global strategy first implies a global industry is already present. Here, in the Philips case, the electronics industry is seen as a driving force that employs millions of people and produces billions in products and software. Moreover, the shift it experienced from semiconductors to large and very large-scale integrated circuits triggered a trend toward integration development of electronics in other technologies, widening the scope of the market and offering new opportunities. The aggressive drive of Japanese firms in the industry also reshaped the market by setting lower wages, moving its location to Pacific Basin, and changing the way to do business with more centralization. With standard products being established, it created homogenous consumers and thus offered the possibility to achieve economies of scale and scope which both are integrating forces for globalization.
Secondly, and according to the theory of global multinational, global strategy requires a worldwide product structure. When Dekker was CEO of Philips, he pushed for manufacturing rationalization by creating more International Production Centers and by divesting businesses that were no longer competitive. More recently, van der Klugt announced that all activities will be located by product and that some product divisions’ core
Campagno 3 activities