Philips of Course (PoC) STRATEGY VERSUS PERFORMANCE

The company was found by Gerard Philips and his father in 1892. While Gerard excelled in the technology he lacked business skills and it almost cost the company a bankruptcy. Soon his brothers Anton, a successful salesman joined the company and took over the business side of it. The company grew very fast from its initial factory in Eindhoven, the Netherlands, and already in the first years of the 20th century exported its products to practically every continent. At the same time, the company stayed focused on the lighting products and invested heavily in research and innovation.

By 1926 Philips began to diversify its product range to radios, then four years later to X-ray tubes, and soon maintained a leading position in these domains. Still, the company kept production in its home country. In 1930s, during the Great Depression, due to trade barriers and high import tariffs, the firm was forced to build local factories to save its oversees sales. Then in anticipating the World War Two, Philips further invested in UK and US divisions that contributed to company’s growth during that period. Eindhoven facilities were destroyed during the war and had to be completely rebuild.

After the war, Philips was rebuild based on national organisations (NOs). This strategy enabled the firm to response better to country-specific markets and technology conditions (e.g., incompatible video formats NTSC versus PAL versus SECAM, different attitudes in size requirements, etc). At that time, globalisation was still beyond the horizon and in such environment, the independent NOs could adapt to the local markets better.

By drawing bottom line on first 70 years of company existence, one needs to highlight two factors that later on created obstacles to overall company performance: (1) misbalance in power to NOs and (2) fanatical focus on innovation. The former (1) was perfectly inline with original style of its owners, one side (NOs) would focus on business, i.e., sales; another, on innovation. In earlier 1960s there were 14 product divisions (PDs) in Eindhoven responsible for development, production, and global distribution. The situation polarised to the extreme when US organisation gave up on supreme Video2000 format for video recorders developed by Philips and adopted Matsushita’s VHS. The latter (2) issue is somewhat interrelated with the fact that PDs and the company centre in Eindhoven were strongly influenced by people who grew out of the technical domain and tried to fiercely push technology. “Let’s make things better” was associated with continuous and often unsound product improvements, and many business people would love to paraphrase it to “Let’s better make things.”

As the consequence, company’s performance plummeted and this all brought the company to a big challenge to stay competitive and profitable in the future. During the next thirty years, Philips top-managers would reshuffle the company many-many times trying to improve the situation. However, it wasn’t until late 1990s when Philips started to show promising signs of the breakthrough in its performance.

Further on this paper will analyse the industry Philips is in and have a closer look on the company’s strategy in the period between 1970 and nowadays. It will also try to map company’s strategy on its performance and finally draw conclusions learned from this case-study.