* 1900 – Philips was third largest light bulb producer in Europe due to recruitment of Gerard Philips’ brother, an excellent salesman. (C85) * From the beginning, Philips developed a tradition of caring for workers. Built company houses in Eindhoven along with bolstering education and paying employees very well (C85) * Philips refused to diversify in the beginning, keeping a one-product focus and creating significant innovations (C85) * Became leader in industrial research, which led to development of a tungsten metal filament bulb that was a great commercial success (C86) * 1912 – Philips built sales organizations in U. S. Canada, and France (C86) * 1919 – Philips entered Principal Agreement with General Electric, giving each company the use of each other patents (C86)
* After this, Philips began evolving into a decentralized sales organization instead of a highly centralized company, with autonomous marketing companies in 14 European countries, China, Brazil, and Australia (C86) * Philips greatly increased self-sufficiency during the war had allowed most National Organizations (NO’s) to become experts at responding to country-specific market conditions, becoming a valuable asset in the post-war era (C86) * NO’s had the “real” power, reporting directly to the 10 members of the management board (previously 4 members), and each NO regularly sent envoys to Eindhoven to represent its interests (C87) * Wisse Dekker reorganization in 1982 had promising intentions, closing inefficient operations and focusing more on core operations.
Dekker also supported technology-sharing agreements and entered alliances in offshore manufacturing (C90) * Van der Klugt reorganization in 1987 set profit objectives of 3 to 4% and made beating the Japanese companies a top priority (C90) * Van der Klugt identified various businesses as core and noncore. 3 of the 4 businesses defined as core were strategically linked; components, consumer electronics, and telecommunications and data systems. The 4th was lighting and was regarded as strategically vital because its cash flow funded development (C90) * Restructured Philips around these 4 core global divisions rather than the former 14 PDs, allowing Van der Klugt to rim management board (C90) * Made the R&D budget the direct responsibility of the businesses being supported by the research, requiring that each research lab become focused on specific business areas (C90) * Jan Timmer was appointed president in 1990, and he had spent most of his 35-year Philips career turning around unprofitable business (C91) * Timmer established new performance rules and asked hundreds of top managers to sign contracts that committed them to specific financial goals (C91)
* Cor Boonstra joined Philips in 1994, and years as CEO of Sara Lee had earned him a reputation as a hard-driving marketing genius (C92) * Boonstra realized that “We need a more structured and simpler manufacturing and marketing organization to achieve a cost pattern in line with those who do not have our heritage”. C92) * 3,000 jobs were shifted to Asia, shifting production to low-wage countries (C92) * By 2000, Boonstra was able to achieve his objective of a 24% return on net assets (C92) * By 2001, Philips best hope of survival was to outsource most of its basic manufacturing and become a technology developer and global marketer (C93) * Realized that thirty-year quest to build efficiency into global operations failed (C93) Internal Weaknesses: * National Organizations (NO’s) took major responsibility for financial, legal, and administrative matters, while 14 Product Divisions (PD’s) in Eindhoven were formally responsible for development, production, and global distribution…Basically NO’s control of assets and PD’s distance from operations caused problems (C86) * Philip’s ability to bring products to market started to falter.
Philips invented audiocassette and microwave in 1960’s but let its Japanese competitors capture the mass market (C87) * From 1971 to 2001, 7 chairman experimented with reorganization, yet financial performance remained poor and global competitiveness was still in question (C87) * During 1971, Hendrick Van Riemsdijks’ newly created organization assessed disadvantages of their matrix organizational structure, “…As operations become increasingly complex, an organizational form of this type will only lower the speed of reaction of an enterprise. ” (C87) * Van Riemsdijk proposed tilting the matrix toward the PD’s to allow Philips to decrease number of products, build scale by concentrating production, and increase flow of goods among NO’s…implementation was slow (C90) * When Van der Klugt was appointed in 1987, Philips had lost its long-held consumer electronics leadership position to Matsushita and was one of only two non-Japanese companies in the world’s top ten (C90)
* Net profit margins lagging at only 1 to 2% (C90) * Unanticipated losses of $2. billion in 1990 and a class-action lawsuit by angry American investors led to Van der Klugt and half of the management board being replaced (C91) * Jan Timmer reorganization in 1990 led to an employee reduction of 68,000, or 22% of Philips…$700 million in employee compensation for layoffs followed (C91) * 1994 McKinsey study estimated that value added per hour in Japanese consumer electronic factories was 68% above that of European plants…NO managers were able to keep their heads down due to the distance they had from Eindhoven (C91) * Timmer’s earlier divestment of some of the company’s truly high-tech businesses and 37% cut in R&D personnel left it with few who understood technology of new “15 core technology businesses” (C92) * Cost-cutting and standardization led to low worker morale (C92) * In 2001, Philips showed first quarterly loss since 1996 and this had grown to 2. 6 billion euros by the year-end (C93)