Making things better
A Philips case study

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Page 1: Introduction

Philips 2 Image 2This study focuses on the way in which Philips has transformed its organisation and culture in order to flourish in the modern competitive world. Organisations today operate within an environment of change. As this environment is so dynamic, it is crucial for organisations to constantly ‘reinvent themselves.’

The biologist Brian Goodwin drew a parallel with the natural world when he said of organisms - “what you do not want to do is to get stuck in one particular state of order.” It is important, therefore, to continually adapt and move on. Nowhere is this more true than in the modern business environment, where today’s technology becomes out-of-date within a short span of time and in which there is intense global competition as firms jostle for the new “huge markets” that are opening up.

Turning things round

Philips is one of the world’s leading electronics companies. Its products are diverse and range from coffee makers to silicon chips, from recordings of Mozart’s symphonies to cancer screening systems. Philips has been at the forefront of electronic innovation since 1891, registering some 65,000 patents and has been responsible for many of this century’s greatest, most useful products:

  • Electric Shaver
  • Audio Cassette
  • Video Cassette Recorder
  • Compact Disc
  • Energy Saving Lamps

The 1980s was a significant period for the electronics industry over which enormous changes took place worldwide. These included:

  • a period of high growth for the consumer electronics market.
  • innovative new products were introduced, many driven by Philips, such as VCRs and CDs.
  • the actions of newer competitors, many of which were entering the electronics market for the first time, were underestimated.

This rapidly changing industry was signified by better quality products with higher reliability and value for money. Many of the competitors, particularly from Japan, had advantages over Philips and this was particularly marked in TV sets, a traditional Philips marketplace. These Japanese companies gained economies of scale to provide them with a volume advantage, which enabled them to reduce their prices. The net result was that many well-established companies were simply swept aside, such as Thorn and RCA. This meant that only Thompson (in France) and Philips were left as major consumer electronics companies in Europe.

This was a difficult time for Philips. Over this period it continued to innovate, which helped it to survive many of the threats and challenges to its competitive position, but barely grew. New products such as the Video 2000, a video system developed to compete with Betamax and VHS videos, failed because Philips had begun to lose touch with the market. Market share was falling, as were shareholder returns and share values, which meant that external investors and analysts were becoming more critical.

There was a sense of complacency inside the company - ‘we will survive because we always have and we are Philips!’ The warning signs were largely ignored. Approaching 1990, the company was faced with a serious financial crisis, posing a real threat to the future of the business. The crisis triggered a change of leadership with the appointment of Jan Timmer as Chairman, who embarked upon a reappraisal of the inefficient structure of the company.

Philips | Making things better