Homework Help is Here – Start Your Trial Now!
Business
Management
Question: Why did Phillips’ organization structure make sense in the 1950s and 1970s but create problems for the company in the 1980s?

Question: Why did Phillips’ organization structure make sense in the 1950s and 1970s but create problems for the company in the 1980s?

Understanding Business
Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
See similar textbooks
icon
Related questions
Question
100%

Case Study: added image

Question: Why did Phillips’ organization structure make sense in the 1950s and 1970s but create problems for the company in the 1980s?

 

Established in 1891 in Holland, Phillips is one of the world's oldest multinationals. The company began making lighting products and over time diversified into a range of businesses that included domestic appliances, consumer electronics, and healthcare products. From the beginning, Holland's small domestic market created pressures for Philips to look to foreign markets for growth. By the start of World War Philips already had a global presence. During the war, Holland was occupied by Germany. By necessity, the company's national organizations in countries such as Britain, Australia, Brazil, Canada, and the United States gained considerable autonomy during this period. After the war, a structure based on strong national organizations remained in place. Each national organization was a self-contained entity responsible for much of its own manufacturing, marketing, and sales. Most R&D activities, however, were centralized at Philips' headquarters in Eindhoven, Holland. Reflecting this, several product divisions were created. Based in Eindhoven, the product divisions developed technologies and products that were made and sold by different national organizations. During this period, the career track of most senior managers at Philips involved significant postings in various national organizations around the world. For several decades, this organizational arrangement worked well. It allowed Philips to customize its product offerings, sales, and marketing efforts to the conditions in different national markets. By the 1970s, however, flaws were appearing in the approach. The structure involved significant duplication of activities around the world, particularly in manufacturing, which created an intrinsically high-cost structure. When trade barriers were high, this did not matter so much, but by the 1970s, trade barriers were starting to fall, and competitors, including Sony and Matsushita from Japan, General Electric from the United States, and Samsung from Korea, were gaining market share by serving increasingly global markets from centralized production facilities where they could achieve greater scale economies and hence lower costs. Philips' response was to tilt the power balance in its structure away from national organizations and toward product divisions. International production centers were established under the direction of the product divisions. The national organizations, however, remained responsible for local marketing and sales, and they often maintained control over some local production facilities. One problem Philips faced in trying to change its structure was that most senior managers had come up through national organizations and were loyal to them and tended to protect their autonomy. Despite several reorganization efforts, the national organizations remained a strong influence at Philips until the 1990s. In the mid-1990s, Cor Boonstra became CEO. He famously described the company's organization structure as a "plate of spaghetti" and asked how Philips could compete with 350 companies around the world and significant duplication of manufacturing and marketing efforts across nations. Boonstra instituted a radical reorganization. He replaced the company's 21 product divisions with just seven global business divisions, making them responsible for global product development, production, and marketing. The heads of the divisions reported directly to him, while the national organizations reported to the divisions. The national organizations remained responsible for local sales and marketing efforts, but after this reorganization, they finally lost their historic sway on the company. Philips, however, continued to underperform its global rivals. By 2008, Kleisterless, who succeeded Boonstra as CEO in 2001, decided Philips was still not sufficiently focused on global markets. He reorganized yet again, this time around just three global divisions: health care, lighting, and consumer lifestyle (including the company's electronics businesses). The divisions were responsible for product strategy, global marketing, and shifting production to low-cost locations (or outsourcing production). The divisions also took over some sales responsibilities, particularly dealing with global retail chains such as Walmart, Tesco, and Carrefour. However, some sales and marketing activities remained at the national organizations to accommodate national differences. In the second decade of the twenty-first century, Philips continued to evolve. It sold many of its electronics businesses, and in 2016, it divested its original lighting business. The remaining activities of the company were now much more focused on the global healthcare area, which has proved to be a fast-growing and profitable business for Philips. It continues to operate with global product divisions, with national and regional subsidiaries reporting to the product divisions, and is primarily responsible for local sales, marketing, regulatory approval of medical equipment, and in some cases, product development.
Transcribed Image Text:Established in 1891 in Holland, Phillips is one of the world's oldest multinationals. The company began making lighting products and over time diversified into a range of businesses that included domestic appliances, consumer electronics, and healthcare products. From the beginning, Holland's small domestic market created pressures for Philips to look to foreign markets for growth. By the start of World War Philips already had a global presence. During the war, Holland was occupied by Germany. By necessity, the company's national organizations in countries such as Britain, Australia, Brazil, Canada, and the United States gained considerable autonomy during this period. After the war, a structure based on strong national organizations remained in place. Each national organization was a self-contained entity responsible for much of its own manufacturing, marketing, and sales. Most R&D activities, however, were centralized at Philips' headquarters in Eindhoven, Holland. Reflecting this, several product divisions were created. Based in Eindhoven, the product divisions developed technologies and products that were made and sold by different national organizations. During this period, the career track of most senior managers at Philips involved significant postings in various national organizations around the world. For several decades, this organizational arrangement worked well. It allowed Philips to customize its product offerings, sales, and marketing efforts to the conditions in different national markets. By the 1970s, however, flaws were appearing in the approach. The structure involved significant duplication of activities around the world, particularly in manufacturing, which created an intrinsically high-cost structure. When trade barriers were high, this did not matter so much, but by the 1970s, trade barriers were starting to fall, and competitors, including Sony and Matsushita from Japan, General Electric from the United States, and Samsung from Korea, were gaining market share by serving increasingly global markets from centralized production facilities where they could achieve greater scale economies and hence lower costs. Philips' response was to tilt the power balance in its structure away from national organizations and toward product divisions. International production centers were established under the direction of the product divisions. The national organizations, however, remained responsible for local marketing and sales, and they often maintained control over some local production facilities. One problem Philips faced in trying to change its structure was that most senior managers had come up through national organizations and were loyal to them and tended to protect their autonomy. Despite several reorganization efforts, the national organizations remained a strong influence at Philips until the 1990s. In the mid-1990s, Cor Boonstra became CEO. He famously described the company's organization structure as a "plate of spaghetti" and asked how Philips could compete with 350 companies around the world and significant duplication of manufacturing and marketing efforts across nations. Boonstra instituted a radical reorganization. He replaced the company's 21 product divisions with just seven global business divisions, making them responsible for global product development, production, and marketing. The heads of the divisions reported directly to him, while the national organizations reported to the divisions. The national organizations remained responsible for local sales and marketing efforts, but after this reorganization, they finally lost their historic sway on the company. Philips, however, continued to underperform its global rivals. By 2008, Kleisterless, who succeeded Boonstra as CEO in 2001, decided Philips was still not sufficiently focused on global markets. He reorganized yet again, this time around just three global divisions: health care, lighting, and consumer lifestyle (including the company's electronics businesses). The divisions were responsible for product strategy, global marketing, and shifting production to low-cost locations (or outsourcing production). The divisions also took over some sales responsibilities, particularly dealing with global retail chains such as Walmart, Tesco, and Carrefour. However, some sales and marketing activities remained at the national organizations to accommodate national differences. In the second decade of the twenty-first century, Philips continued to evolve. It sold many of its electronics businesses, and in 2016, it divested its original lighting business. The remaining activities of the company were now much more focused on the global healthcare area, which has proved to be a fast-growing and profitable business for Philips. It continues to operate with global product divisions, with national and regional subsidiaries reporting to the product divisions, and is primarily responsible for local sales, marketing, regulatory approval of medical equipment, and in some cases, product development.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Understanding Business
Understanding Business
Management
ISBN:
9781259929434
Author:
William Nickels
Publisher:
McGraw-Hill Education
Management (14th Edition)
Management (14th Edition)
Management
ISBN:
9780134527604
Author:
Stephen P. Robbins, Mary A. Coulter
Publisher:
PEARSON
Spreadsheet Modeling & Decision Analysis: A Pract…
Spreadsheet Modeling & Decision Analysis: A Pract…
Management
ISBN:
9781305947412
Author:
Cliff Ragsdale
Publisher:
Cengage Learning
Management Information Systems: Managing The Digi…
Management Information Systems: Managing The Digi…
Management
ISBN:
9780135191798
Author:
Kenneth C. Laudon, Jane P. Laudon
Publisher:
PEARSON
Business Essentials (12th Edition) (What's New in…
Business Essentials (12th Edition) (What's New in…
Management
ISBN:
9780134728391
Author:
Ronald J. Ebert, Ricky W. Griffin
Publisher:
PEARSON
Fundamentals of Management (10th Edition)
Fundamentals of Management (10th Edition)
Management
ISBN:
9780134237473
Author:
Stephen P. Robbins, Mary A. Coulter, David A. De Cenzo
Publisher:
PEARSON
SEE MORE TEXTBOOKS