Let’s first discuss what happened in the electronics industry during the last 30 year and what impact it had on Philips. As trade become global, so did various business organisations. In addition to this, one could observe the rise of the big and multi-national players. To compete with them, Philips could not allow itself to remain a local player. Its national organisations could no longer afford having “private” productions facilities. The need for global strategy and consolidation was in the air.

On the other hand, many firms turned to Asia and other offshore locations for cheaper labour and emerging consumer markets. In particular in Europe, Philips, because of being faithful to its employees and committed to local countries (partially because of local labour laws) was late in following the industry trends. E.g., in 2000, it was the last semiconductor company that still had production facilities in the Old World.

Factors mentioned above forced major players in the market to adopt new strategies, consolidate its production resources, restructure old businesses, focus on core ones, play the game of scales, develop and implement new business processes. It seemed to become company’s destiny to be very innovative and set the industry trends in terms of technology: Philips invented audio-cassette, CD disk, and long list of other successful ideas, yet, in business world it remained a follower of the crowd. Having received a weak financial heritage from 1960s, Philips management struggled to improve company’s performance and didn’t want to take high risks. Very often it just mimicked industry leaders in their business strategies, e.g., GE’s “#1 or #2 or out”.


Now, taking into account the wide spectrum of the electronics industry we better zoom in and discuss various Philips product divisions apart.

Time didn’t preserve all of them in the same shape as they were there back in 1970, however, one can still talk about five  of them as they exist in 2006: Consumer Electronics (CE), Domestic Appliance Products (DAP), Lighting, Medical Systems, and Semiconductors.

As of 20 years ago and today, division attractiveness versus competitive position is illustrated in Exhibit 1. As it can be seen from this exhibit, in 2006 DAP, Lighting and Medical are most promising Philips businesses, while CE and Semiconductors struggle for surviving.

Exhibit 1.a Two dimensions of profitability – 1986

Exhibit 1.b Two dimensions of profitability – 2006

The same conclusion can be drawn if we focus on the market growth-share relationship depicted in Exhibit 2. Though all division are responsible for its own P&Ls, for the last 10 years, DAP and Lighting provided cash for growth of Medical division, mainly through extensive M&As, while CE and Semiconductors were left on their own.

Exhibit 2 BCG’s market growth-share matrix

In electronic industry, the new century also brought shift from analogue world to digital one. Without doubt that was quite a change for Philips. As we will see later on, company’s ability to stay competitive in the digital domain will determine its prospect on bright future.

In the next chapter we will discuss per Philips division other factors that caused growth or decline in their performance.


Table 1 in Annexes presents analysis of suppliers, buyers, entrants, substitutes, complementors, and competitors per product division as of today.


Comparing to the situation back in 1980s, we observe more tendency to outsource manufacturing and quite often design of new products too to the third parties. In past Philips used to do it all itself. On one hand this new approach freed Philips from operational issues in manufacturing and allowed the management to focus on the core business issues. On the other hand, throughout this shift, Philips was slow on the learning curve of managing the performance of the third parties (with some great failures, e.g., the lunch of one Philips mobile phone was dropped due to delay in design from a third party, causing €80m lost in profits in 2003).

In last few years, as company outsourcing policy matured, as well as due to the rise of many third parties, Philips became more careful in picking the partners and now is exercising its buyer power more often, using it into its advantage.


During last 30 years, the buyers become bigger, more demanding, more consolidated, and more global. This all weakened Philips’s position and reduced the bargaining power it had once within local retailers.

In the medical domain, clients, usually hospitals, started to demand not only technical solutions and support, but also financial instruments to buy the former. This all gave GE, a Philips competitor, better position since GE owned a financial division. Secondly, the business model had changed. Larger part of revenues is now generated from after-sale support, and once locked-in by the competitor customer are unwilling to shift to Philips products, even if they are more technically sound.


In mass consumer products, and home lighting, we observe the rise of cheap producers from China, which very often come up with reengineered products and have little respect to the intellectual property.  Cheap labour and low R&D costs make them practically unbeatable. The only way to compete in this environment is continuous innovation.


Usually less-technical substitutes for electronic equipment are less effective in terms of performance; hence, there is little thread in there. More innovative solutions are coming now and then, e.g., low emission diodes (LEDs) as substitution to the conventional lamps. However, Philips has proven to stay competitive in terms of technology, hence once again, this threat is minimal.


In consumer products Philips used its diversity to establish numerous alliances and cross-selling strategies, which allowed it to remain competitive. The same was achieved in medical systems, however, more through intensive M&A strategy then product standardisation.

By the end of 1990s, DAP established a number of successful complementary alliances (see Exhibit 5 for product pictures), for instance:

  • With Douwe Egberts (Senseo coffee)
  • With Nivea (wet Philishaves)
  • With Nike (sportive wearable radios and mp3-players)
  • With Unilever (anti-crease agent, provided by Robijn)

In semiconductors, the customer became more demanding, and now they require not only a chip itself, but also complete software and very often system (full box) solutions on top of this. Mainly because of internal organisational issues, Philips failed to compete here with other solution providers.


Philips competitors are strong companies, mainly with Asian origin, very often with better financial performance in past and stronger organisational structure capable to changes in the new, agile, and dynamic business environment.

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