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    A03 Philips Matsushita

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    ‘aman Management Text, Coes, ant Reaings ‘At Teast the last question seemed 10 be one that concemed the Roddicks. Commented Anite: Leadeiip of company should encourage the next _eteraton not jst flo, bu overtake. ‘The complaint Gordon and I ave is that we ae not being overtaken by our staf. ‘Announcing the 1990 results, Gardon added: “Te thing we now have to dois duce the dependence ofthe brsiness on Anite and Gordon ‘You can itor create stuctse where the business is unable to do witout you because you ang on Al the bis, or you can create a srctre where they tre please toate yoo, but they can do without you. ‘That is ou am APPENDIX: The Body Shop: A Timeline of Key Events and Milestones, 1976 Fut shop opens in Brighton (Marc). Second shop opens in Chichester November. 1977 Fest aches granted 197% Fist fanchise ouside the United Kingdom—in Begum. 1984 The Body Stop goes pois a the UK. unlisted sears market in Ap 1985 Anita Rodck seco the Veuve Cliguot Business Womaa ofthe Yes 1985 SAVE-THE WHALE campaign lances with Greenpeace. ‘Now milion headguaner and 320.000-square-fot warchousé and production facility opened, vironmeatl Projets deparmeat and Body Shop ining school established 1987 FRIENDS OF THE EARTH campaign launched. Scar, te epany’s oom independent video company, is esblshed Named Company ofthe Year hy the Conederin of British Industry (CBD. 988 Queen awards Arita Roddick the Oder of the Bish Empire (OBE). “Te fint U.S. branch of The Body Stop opens in New York Sopwerks,« 33,00-square-fot Soap factory, opens in Easterhouse, Sealand 1989 The Rody Shop is votad Retr ofthe Yet “STOP TH BURNING" rainforest esmpaign lunch, 1990 AGAINST ANIMAL TESTING campaign is launched. The fst Body Shop opens in Tako. ‘Among many 1990 awed ac the Queen's Award for Export, UK. Hal of Fame Mating Avacd, the Animalia Avard for aninal proiston, the U.K. Environmental Management Award the Inernatioal Women's Forum Award, andthe U.S, Eevironmental Prtetion Apency’s Enviromental ‘Aevement Award (Chapter 1 Cre Barer Mangement: Motivations ond Memes 7 Case 1-4 Philips and Matsushita: A Portrait of Two Evolving Companies ‘Throughout their long histories, N,V. Philips (Neth srlads) and Matsushita Electric Industral (Japan) Jad followed very different stategis and emerped ‘sth different organizational capabilities. Pilipshad ‘wilt a worldwide portfolio of independent national erganizations able to gin access to the company's renowned technological prowess and apply and adap it to meet local market canitions. More re- ‘ertly, Mateushita had used overseas expansion to leverage its centralized bighly eflicient operations in Japan, exploiting. global-scale economies in re- tearch, development, and production 10 overtake Philips a the word leader in consumer electronics. During the 1980, both companies experience challenges. to their historic approaches, expert mented with strategic and organizatonal changes, nd attempted to alter company cultures. While Phi ‘ps pursed mote radical reorganizations aimed at lobaliing its busineses and restoring financial ste silty, Matsushita tried to decentralize more decison soaking and assets in an atemp to build suooger organizations abroad. In 1990, it was unclear to ob- servers just how successful these changes would be snd how auch each company should—and coulé— “nowy its strategy its organization, andits culture in ‘uruit of new organizational capabilites. ‘Remach Asteite Rate W. Lighfoo propa ts exe ander the spe of Pose Chega A. Bae 4 be fr dt Gacuson rater than lsu eer fein or ineflnive ang of ox ase ato. The seston on Huu sume “Mattia Else InSutial (MED in 1957," HBS Case 39-14, by Samana hoa (NSEAD) and Chisoper A Berle Coppak © 190 by the Prien ed alos of Harvard lee To ne copa cl (U7H9S-LI7 or wae he Pub Inking Divide, Hara Busnes Seto, Boson, MA 0216, Nope ofr pabcuon ay tener suena retical ‘ton sed ins preset wet a a 0 reanr—clectoie, mest peeping, rebrdg, oF Stenvse—wiou Ge permisono Haran Bess Sho Philips: Background? In 1892, Gerard Philips and his father were two of ‘he many capitalists to open small light bulb factories in Holland. Their Eindhoven-besed ven- ture almost failed. After trying unsuccessfully 0 sell the company, they realized that they necded commercial talent, and recruited Gerard's Brother, ‘Antoa, an excellent salesman and manager, join the company. By the late 1890s, Philips. was growing quickly, and by 1900, it was the tid largest light bulb producer in Europe. From its founding, Philips developed a tradition of cating for workers. Anton actively supported Eindhoven Yooruit (or “Forward, Eindhoven!”), 4 group that brought together business leaders ‘0 fadéress social isues in Eindhoven, including housing, a workers sickness fund, and rereational facilities, Philips became the first Dutch corpora tion o erete disability and sickness insurance for ‘ts workers; it built company houses, bolstered ‘education, and provided local services; and i paid its employees so well tht otter local employers complained. When Philips incorporated in 1912, it set aside 10% of profits for employees. Technological Competence and Expansion While larger companies were racing (© produce diversified lines of electric products, the young Philips & Co, made only light bulbs. This one product focus and Gerard's technological prowess enabled the company to create significant labor saving innovations. Company policy was to scrap ‘old plane and use new machines of factories when= fever advances were made in new production tech- nology. Anton wrote down assets rapidly ard, after they had been fully depreciated, set aside substan- tha reserves for replacing ouldated eyuipana ‘To catch up with competitors such a8 General Electric, Gerard soon opened both a physies and a 74 Trenton! Managment Te, Case ond Rennes chemistry lab, These labs addressed production problems as well as more abstract scientific ones "The labs developed tungsten metal arent bul that was a great commercial success and gave Philips the financial strength to compete agains its giant vals, Holland’ sinal size soon forced Philips to Took ‘beyond Dutch borders for enough volume 19 mass prodace—even though expanding abroad meant competing ia series of local markets. In 1899, ‘Anton hited the company’s fst export managers to build up a network of foreign agents. The managers spent a fall § to 10 months of every year traveling to establish new markets in suc diverse places as Japan, Australia, Canads, Bruil, and Russia, When tho company incorporated in 1912, the Philips brothers also appointed several Dutch= men with extensive knowledge of foreign markets to Philips” supervisory boa. In 1912, a the cleetrc lamp industry started to show sign of overcapacity, Philips stated. build: ing sales organizations aboad in Uhe United States, Canada, and France, and other carefree coun tres, Anxious about the prospect of antirst leg islation, General Electric did ite to prevent Phil» ips from entering American markets at that time Al other funetions remained highly centralized in Findhoven. In many foreign countries, Philips created joint ventures with domestic companies to sain acceptance in local markets, Meanvhile, new technologies required more precise manufacturing techniques, and Philips in tegrated backward ino machine tool making. ‘When World War T imecrupted deliveries of gis bulbs and argon gas, Philips integrated backward ‘nto glass bulb production, ar separation and even ceardbostd packaging. Thus backward integration spurred product and process development, and gave the company 9 quality advantage over its competion. In 1916, Philips entered into it first technology sharing agreement with General Electric and in 1919, into the “Principal Agreement,” which gave each company the use ofthe others patents, The agreement also divided the world into “three spheres of influence”: General Blectic: would ‘control North America; Philips would contol Hol- Tend; both companies agreed to compete freely in the rest ofthe world. General Electric also took a 20% stake in Philips ‘Mier 1919, Philips began evolving from a highly centralized company whose sales were con- ‘docted tough third panties to a decentralized sales organization with autonomous marketing ‘companies ia 14 European countries, China, Bra- ‘il, and Australia, Ta the 1920s, the company ‘opened more sales organizations in Asia, Afica, and Europe. Foreign share ownership grew so large tat in 1920, Philips had to create a holding company to secure Dutch control ‘Over time, the company broadened its product line sigeificently. In 1918, it began producing electronic vacuum tubes; eight yeas later its frst radios appeared, capturing @ 20% world market sare within a decade; and during the 1930s, Philips began producing X-ray tubes. The Great Depression brought with it trade buries end high turfs, and Philips was forced to bulk Tocal pro duction facilities to protect its foreign sales of these products. Organizational Development (One of the eartiest tations at Philips was joint leadership between commercial and technical fonctions. Gerard, an engineer, and Anton, a busi- ressman, began a subtle competition where Geran ‘would try #9 prodace more than Anton could sell land vice versa. Nevertheless, the two agreed that strong research and development efforts were vital to Philips” eurvival Daring the late’ 1930s, in anticipation of the impending wer, Philips transfered its overseas assets t0 two tus, British Philips and the North ‘American Philips Corporation; it slso moves most of its vital research laboratories to Redbill in Surrey, England, and its top management t0 the ‘United States, Isolated front Deir parent, the indi- vidual country organizations beeame more inde- pendent during the war Chapter 1 ‘eecause waves of Allied and German bombing Jad pummeled most of Philips’ industrial plant in ‘he Netherlands, Philips’ management board de sided to build the postwar organization on the rengths of the national organizations (NOs), ‘Their greatly increased selt-sufiiency during the ‘var ad allowed them to become adept at responding t0 country-specific market, conditions—a capability that became a. valuable asset in the postwar era. For example, interna ional wrangling precluded any agreement on television wansmission standards, and each nation decided at different times whether to adopt PAL, SECAM, or NTSC standards. Furthermore, con. sumer preferences and economic conditions var- ied. In some counties, rch, furiture-encased sets were the norm; in others sleek, contemporary models dominated the market. In the UK, the only ‘way 10 penetrate the market was to establish 2 rental business; in richer couatres, a major marketing challenge was overcoming elitist preju- fice aguins television, In this environment, the independent NOs had a great advantage in being able t0 sense and respond to the differences Product development was a function of local narket conditions: Philips of Canada created the fompany’s firt color TV; Philips of Australia treated the fist stereo TV; and Philips of the UK created the fist TVs with teletext. ‘While NOs took major responsibility for nan tial, legal, and administrative matters, 14 product Aivisions (PDs), located in Eindhoven, were for. tally responsible for development, production, and global distribution. (In reality, the NOs" con- trol of assets and resources and the PDS’ distance jom the operations often undercut this formal role) The research function remained independent and expanded intemationally with eight seperate laboratories in Europe and the United States. Within the NOs, the management structure mimicked the legendary joint technical and com- mercial leadership of the v0 Philips brothers. NOx were led by a technical manager and 4 commercial manager. In some locations, a finance ‘manager filed out the local management team Cosatoner Management Mogaton and Mevaies 75 These three managers reached decisions collec lively. Below them, cross-functional coordination was promoted at tree levels. Product tears, com: prising junior managers from the commercial and technical functions, set product policies and car ried out scminstrative functions. Cros-funetional coordination also occured at the product group level trough the group management team, Whose technical and commercial members met moathly to review progress and resolve intefunctional differences. Finally, the senior management com- miuee of each subsidiary (with top commercial, technical and financial _managers) reviewed progress to ensure that product group directions fit ‘with national strategies and prints. Management adopted a type of geographic! product matix to manage this organization. NOs reported directly to the management board, which Philips enlarged from 4 members to 10 t0 handle this incteased responsibility. Top management Wished to remain in control of operations and believed that without such an expansion, the center ‘would atrophy into a supervisory body. To Tead the ‘management board, a four-man “presidium” was created, ‘The board encouraged interaction with the highly autonomous NOs. Bach NO sent envoys to Eindhoven to represent its interests, and top man- agement made frequent country Wists. To factors filitated communication. Fis, all top managers had been with the company for most of their careers and usually had foreign tours of duty, 0 they had a good sense of the whole organization, Second, English was spoken by all top managers ‘and used in all key company documents. In 1954, the International Concer Council wa extblished to formalize regular meetings among the principal ‘managers from all the NOs and the board of management ‘The overwhelming importance of foreign oper tions fo Philips, the commensurate status of for ign subsidiaries within the corporate hierarchy, tnd even the cosmopolitan appeal of many of the subsidiaries" locations encouraged many Philips managers to take extended foreign tours duty, 16 Trannaonl Monegemen Tex, Cas, an Raines working in a sores of tvo- or tree-year posts. This elite group of expatriate managers identified strongly with each other and with the NOs, and hed no difficulty representing their song, NO- ‘oriented views to corporate management, Further, Philips fad no trouble atacting highly capable Focal nationals to their subsidiaries, Changing Eeonomies and Attempts at ‘Reorganization Inthe 1960s, the creation ofthe Common Market eroded trade barriers within Burope and diluted the Intionale for maintaining independent, country- Tevel subsidiaries. New wansisto=- and printed cicuit-based technologies demanded large pro- fction runs possible ony in global-scale plans, fand many of Philips’ competitors were moving production of electronics 1 new facilites in low. Wrage areas in East Asia and Central and South ‘America, Furthermore, despite its many techio- Togieal innovations, Philips" ability to bring prod ets fo market began to falter. In the 1960s, the ‘company invented the audiocassete but Jt its Sopanese competitors capture the mass market Almost 20 years later similar problems still ex- ‘sted. Although Philips developed the V2000 vi cocassetteformat—superier technically to Sony's ‘Beta or Matsushita's VHS—it could not success- fully market che product. Indeed, North American Philips rejected the V2000 ostright, choosing in stead fo outsource, brand, an sell a VHS product, ‘Within direc years of introducing its own format, Philips was forced to abandon V2000 and produce ‘a VHS product under license from Matsushita ‘Over two decades, five chairman experimented with reorganizing the company. Hendrik van Reimsdik (1971 to 1999), Dr, Rodenburg (1979 to 1982), Wisse Dekker (1982 to 1987), Cor van der Klvgt (1987 to 1990), and Jan Timmer (Grom 1990) ali red o make the company more flexible, tnd above al, more profitable, ‘Van Reimsdijk and Rodenburg Reforms Concemed about the growing. problems focing Philips in 1971, the newly-appointed chairman van Reimsdik ereated an organization committe to prepare a policy paper on the division of tasks, Fesponsbilities, and competences between the product divisions and the national organizations ‘Their report, dubbed the “Yellow Booklet,” our lined the disadvantages of Philips’ matrix organi- zation in 1971 ‘Without an agreement [dafning the relaonship tween atonal opabzations and product visions) if impossible vo detecine in any sien station wich of the two pare is ‘esponsbl, Joint responsibil. while sometimes iving rise to “constvctive ttn,” ean also lead to operational fnefciencios. As options become ineresingly complet. an o-anizatona form of this ‘ype ean lover the sped of restion ofan Cutrpise, Unclear defn of te viding ines ‘etween the various ares of responsibility ean prevent the aw of information fom fufiling tre funeton. (On the basis of this report, van Rela pro- posed a change in de managerial relationships be- thveen product divisions (PDs) and national orge nizations (NOs)—"titing the matix” in. his ‘words—to allow Philips to increase the scale of production, decrease the numberof products mat- Keted, concentrate production, and increase the fiow of goods among national organizations. He proposed converting the most efficient local plants Jo intemational production centers (IPCs), each supplying many NOs. In so doing, van Reims hoped that PD managers would gain control over ‘manufectoring operations, but implementation was difficult due tothe political and organizational dif- fieuty of closing local plants. By the end of the cade, sever IPCs had been established, but the [NOs seemed as powerful and independent as ever. Dr. Rodenburg continued the thrust of van Re- imsaijk’s reforms, reinforcing the tempt to sim plify conto by zeplacing the dual commercial and technical leadership with single management a both the corporate and national organizational levels Wisse Dekker Reorganization, 1982 Unsatisfied with the company's slow response and concemed by its slumping financial performance, Chapter 1 Cros Borer Moneement: Motions ond Mentiey 77 Wisse Dekker outined @ new global strstegy upon ‘becoming CEO in 1982. Aware ofthe cost edvan- tage of Philips’ Japanese counterparts, he created more IPCs and closed many small, inefficient plants, particularly in Eorope. He was outspoken about the need to shift production out of the Netherlands and out of Europe, earning a reputa- tion as a “Euro-pessimist.” He insisted his objec- tive was simply to create @ sense of urgency. He focused on core operations by selling some bosi nesses (€. Welding, energy cables, and furniture) while acquiring an interes in Grundig and West- inghouse's North American lamp actives, Pilps also began to enter into more technology sharing agreements, incloding a joint venture with Control Data Corporation to develop an optical storage system for data and a cooperation agree- ment with RCA and Intel to produce certain integrated circuits. Dekker pushed alliances in offshore manufacturing with the Beijing Radio Factory and in high-tech product development with companies such as AT&T, Toppan Printing, and Kyocera. Dekker also continued his predecessors initia tive to replace dual leadership (commercial and technical) with single general managers. He tied to energize the management board by cutting the number of members, bringing on directors with strong operating experience, and creating subcom- ries to deel with dificul issues. Finally, he continued to “tlt the matrix” by giving PDs formal product management responsibility while [NOs were responsible for profits in thei counties. He created a Corporate Council composed of ‘he heads of the NOs and PDs and with responsi- bility for coordinating strategy. He also redefined the product planning process to incomporate inpat from the NOs, but giving global PDs the final ‘decisions about long-range product direction. Ey- ery spring, the 10 key NOs met with the Philips board of management to discuss their four-year plans. In Apri, the heads ofthe NOs and PDs met ‘Treafet, PD beats ide four-year product plans within the strategic guidelines set by the board of management and one of the boart's steering committes. In October and November, the board met again with PD heads to discuss corporate strategic issues? ‘Many of Dekker’s changes resulted in a cultural shift within company. Gone were the Philips mid- wives, the Philips nursery schools, and the Philips doctors. In 1982, Dekker eliminated indox-finked ‘wages. While he was CEO, Philips laid off 36,000 ‘workers and closed 40 factories in Europe alone. Van der Kiugt Reorganization, May 1987 ‘Upon Dekkers retirement, the new chsirinan, Cor vvan der Klugt, tried to steer the company back toward an industry leadership position. Now num- ‘ber two inthe indastry behind Matsushita, Philips ‘was one of only two nonFapanese consurnerelec- tronics companies in the world’s top 10. Its profit margins of 1% to 2% lagged behind General Blectric’s 9% and its Japanese competitors’ stan- dard 4%. Van der Klugt made extching up with and beating the Japanese companies a top priiy ‘As Van der Klogt reviewed Philips strateay, he designated various businesses at core (those that shared related technologies, bad strategic impor tance, or were technical leaders) and non-core (stand-alone businesses that were not targets for ‘world leadership and could eventually be sold if required). OF the four businesses defined as eore, thre were strategically linked: Eleoma (compo- nents manufacturing), Consumer Electronics, and ‘Telecommunications and Data Systems. The four, Lighting, was regarded as strategically vital because its high profitability funded targeted de- velopment efforts. The non-core businesses in cluded domestic appliances and medical systems. In 1987, Philips pooled its domestic appliances ‘business with Whirlpool and reached an agreement to merge its medical systems business in a joint venture with General Electie Company ofthe UK. Continuing efforts to strengthen the product divisions relatve tothe national organizations, van der Klugt restructured Philips around the 4 core elobel product divisions (father than 14) and gave Ue PDS new stature i the management eran. He then trimmed the management board, sppoint- ing the displaced board members, the heads ofthe label produet divisions, aind the heads of key functional divisions to @ new Group Management Commitee to take over the board's policy-making responsibility, Finally, be sharply reduced the 3,000 stcong hesdguarters sa, reallocating many of them to the PDs. To link PDs moro direciy to markets, van der Kiugt sent the mauagers of many product lines (not divisions) ko Philips’ most competitive mar- els, where consumer tastes were sophisticated and whete new ideas and technologies were being eveloped, For example, digital audio tape and tletrc shaver product lines were moved to Japan, ‘whereas management of medical technology and domestic appliances was moved to the US.” Globalizing product dovelopment and produc- tion efforts also required firmer control over NOS, expecially North American Philips Corp. (NAPC). Although Philips hed obtained a majority equity interest in its Noth American company after ‘World War Il, NAPC did not always respond to directives from the center, Referring to its much publicized choice of Matsushita's VHS video cas Seite format over its parents V2000 format, NAPC’s chairman said, “We made the best deci sions forthe parochial interests of our stockbold- fers, They were not always parallel with those of Philips worldwide." To prevent repays of such experiences, in 1987 van der Klugt purchased the remaining 42% of NAPC for $700 million. Reflecting the growing sentiment among some managers that R&D was not market-oriented RUMTT 1 Pipe Research Tabs by Locaon and Specialy, 187 ee Tindboven, The Netalands 200 Redhill, Surey, England 450 Hamburg, Germany 380 ‘Aachen, West Gerany 230 Pasi, France 350 Brossele 50 ‘arliff Manee, Now York FY Sonny, California 150 ‘Sc: Fis a Wek nc 1, 8 16 enough, van der Klugt halved spending on basic research to about 10% of total RAD. The head of, R&D asserted that Philips should not be spending 0 much ine “pondering the fundamental laws of nature,” but shovld be developing marketable products. To achieve this sim, research became the “direct responsbilily ofthe businesses being sup ported by the research,” with each research tab cused on specific business areas (see Exhibit 1) In oiber changes, marketing staffers joined the Inboratory team during final research stages, and researchers from the lab worked with product evelopment engineers. Finally, Philips announced that after five to eight yeas in the lbs, researchers ‘would be eotated into different business functions, ‘occasionally to return end bring with them busic inaly, van der Klugt continued the elfor 10 build efficient, global-scale plans by losing 75 of the company's 420 remaining plants. To cut costs, hhe also. climinated 38,000 of its 344,000 cemployees—21,000 through divesting businesses. Layoffs of white- and blue-collar workers like further shook up the myth of lifetime employment at the company, though not without sting reac- tions: in one episode, 810 workers laid off from & Belgian stereo plant actually sited ‘Van der Kluge anticipated that all these restruce ‘rings would lead to a fnancial recovery by 1990. Unanticipated losses for that year, however—more than 4.7 billion Dutch guilders ($22 bilion)— Specialy ‘Basie research, cleconies, nanacturng techoloay Microclecronics, television, defease Communications, ofc equipment, media imaging Fier opis, Kay ystems ‘Microprocessors, chip materi and design Aiea ineligence prical systems television, sopercondactiviy, defense Inverted icaits Chapter 1 Cro Barder Manegnen Mbation and Menalies 79 provoked a classaction law suit by angry Ameri- ‘ean investors, who alleged that postive projec- tions by the company had been misleading. Ina surprise move, van der Klugt and half of the management board were replaced on May 14, 1990. (Exhibits 2 and 3 show the extent of Philips financial difficulties) Jan Timmer Reorganization, 1990 ‘The new president, Jan Timmer, had spent many years abroad turing. around unprofitable busi- rneses within Philips and had led the consumer products division under van der Klugh. Having teamed the nickname “the butcher of Eindhoven” for his cost-cutting in other parts of the company, ‘Timmer angounced layoffs of 10,000 workers in July 1990, and, four months later, announced cuss fof another 45,000 workers over 14 montis, In addition tothe job cuts, he vowed to “change the way we work"; he established new performance rules and asked hundreds of top managers to sign contzaets that commited them to specific financial goals ‘The layoffs came slowly, however. Philips was required by law 1 pay 15 montis’ salary as severance pay to Kinchoven workers and histor- cally had paid middle managers three yeas’ sev- erations had not been transfered to the overseas ‘companies with the sam rigor. ROL measures were meaningless because overseas companies were fi- anced by the parent company, and te profit center concept was undermined by the fact thatthe divi- sons received only acost-based transfer price and a modest 3% royalty. Performance in overseas com panies was measured on sales and marketshare In the late 1970s, however, sales and profit numbers began to be compiled and reviewed on a worldwide basis and by the early 1980s, product divisions were receiving the globally consolidated return on siles reports that had previously been ‘consolidated in MIETC statements, About the seme time, the company introduced medium-term plan- ning as a means of counterbalancing the short: term perspective created by the company’s finan cial systems, Eventually, the scope of these plans evolved to include worldwide planning and, bythe ‘mid-1980s, corporate management required divi- sons to prepare global product stateges. Hoadquartere-Subsidiory Relations Although parent company units set detailed sales and profits targets for their overseas subsidiaries, Tocal managers weee told they had complete au ERHUDIT $ Changes in Matai Henbguaror Oanization for Intemational Companies 1984 Organization atsstta Bectie —_— : | ‘Corporate 1 [Femoral Fara rand ‘Middle East and Planning [Fggrteisies | =| (ee ee) al tain Amorca | { Overseas ==) Re] (eeemmr | [SESS el Sp | —- —— EEE (es) (| (Se) [==] [elle = “Fay = Sho, 25) (Be) Pe) Pass] ee) (| 2 sen Choir Coe onder Manegment Means and Menalies 87 ‘onomy on how to achieve the targets, "Mike™ Marsuoko, president of the company’s largest Eur copean provdaction subsidiary in Cardiff, Wales, sowever, emphasized that failure to meet targets forfeited feeedom: “Loses show bad bealth and invite many doctors from Japan who provide advice and support Matsushita had over 700 expatviate managers and technicians on foreign assignment for four to ht years, but defended that high number by Seserbing the pivotal role they played in communication, “This communication role," tne manager, “almost always requires a manager from the parent company. Even if & local manager speaks Japanese, he would aot have the lng expetience that is needed to build relation ships and understand our management pro- Exparriate managers were located throughout foreign subsidiaries, but there were a few manage rent positions that were almost always reserved for them, The most visible were sabsiiary ‘general managers whose min role was to trans- Jate Matsushita philosophy sbrosd. Expatriate accounting, managers were expected to. “merci- lessly expose the tut” to corporate headquarters: land Japanese technical managers were sent 10 transfer product and process technologies and provide headquarters with local market informa- tion. Those expatriates maintained relationships With senior colleagues at headquartess who acted as carver mentors, evaluated performance (with ome input from loce! managers), and provided ‘expatriates with information aboot developments atthe parent company. General managers of foreign subsidiaries visited headquarters at least two or three times each year—some a5 often as every month. Corporate ‘managers reciprocated these visits, and on aver- age, major operations hosted at least one head- ‘quarters manager each day of the year. Fave-to ace meetings wore considered vital: “Figures ae imporant,” said one manager, "but the meetings fre necessary to develop judgment." Faxes and afterour phone calls between headquarters and cexpitriate colleagues were a vital management Tink In the mid-1980s, offshore production subsite jes gained some flexibility. They were fee 10 buy minor pars fom local veadors as long as quality could be assured, but stil had to buy key compo ‘ents from internal sources. Subsidiaries now car- ed out routine production tasks independently, calling oa corporate technical personnel. when plans called for major expansion or change. Simi Ina, sales subsidiaries had some choice over the products they sold. Each year the company held a two-week intemal merchandising show and prod uct planning meeting, where sales subsidiary man- agers negotiated over features, quantities, and even prioes of the products they wanted to buy from the parent's product divisions. Corporate managers, however, could overrule the subsidiary if they thoaght iavoduction of a particular product was strategic [New Challenges, New Responses In 1986, a rapidly appreciating yen cut Matsushi ta's exports by a it, cominding managers of the dangers of Matsushita's exchange rete exposure “The financial impact ofthe strengthening yen Wes cushioned by “The Matsushita Bank Effeet”: in 1986, dividend and imerest income from Mat sushit’s cash hoard contbuted almost 10% of pretax profits, obscuring a steady decline in operating margins from the second quarter of 1985 (see Exhibit 6). Company president Yo rmashita was particularly conscicus of Matsushi- ta's dependence on VCR sales, which provided ‘more than one-third of te company’s 1985 sales, as well as its vulnerability in ils export business ‘which now sceounted for half the company’s sales—total color TV sales fell 30% and VCR sales fell 19%.) In response, he initiated two programs—the “ACTION” program aimed at reducing dependence on the VCR and other consumer products, and “Operation Localization” timed at intemationlizing all aspects of Mi sushita’s business (see Exhibit 7) 8 9569 m6 esp oss 5 1 FoR sD» SUS 9 Te BAAINON =F /o65t-495t Bago! sp peo em, % we Teme wae ‘oor 16's 001 ‘ool cist HOOF 60'S ODL Foss oOT eOO'S t we + w 2 wm 6 ss of os “or ue Of 8 ad ee we eel Oe ee oe ke TLC OY 91 ee us, i 0 0 Mie ie Unk WE STA PE CES A MOE (BOFIA. EZ BUSTA EROS Nan OPA, e ouies pd et wear was waar wer 86 661 og oa pe aepRIG AA HS HRC TTR qe nue pe ne XS san 0g pgs SY AG pu op 1 po on ag a 6} PL IN So a on 05 9 G6 ~BHOL I oc ON FD RO OE =; STO HF HEC wos ost at's esrton eee sist ‘nto way oz Oey ESTE cave (a89 aL ssi sot vIct HOOT woe aor ele oer ose WWW wwe sez WN HE oem) tat ose WSTS Tish Ss omET Ss cose SLOTS wesc om mete a wor 1 WN WN OWN wesw sc we ev owese or ec vn 1s re x se ae WN OWN, 8c me ous a0 oct SPINES sw ows see sos v9 A 9 A we & ooo! & (eu 304) spoomP Gs woe wee srt we sores 0 waned sy “uk ER otk ok sect 09 seer as6 a a ea us 6 A SCT A les & 009 A vst «Star 5867 O66 Tp Bp pe STFS anys BE TS wat Jo SOT) GRT-SRGT SHAK HRLT SRG SORT CSUNG ASTON 9 LIMTHX Strategic Redirection at Home In 1979, the first ACTION program adéed several, new targeted areas to Matsushita's more traditional businesses, including semiconductors, robots, jomputers, and other instruments for factory and office automation, These businesses, were to be ‘added without changing existing division Tine. ‘The complexity and size of the tsk required renewal of th initiatives in 1983 asthe so-called ACTION '86 plan. ‘Te objective was to increase sales of Matsushite’s nonconsumer electronics business by 209% per yea, 0 39% ofthe group's total by 1986. The plan refocused the company in four new and growing sectors: office automation (computers, peripherals, telephones, and facsimi- les), new audiovisual (high definition television, liguiderystal and digital TV), industrial equipment (electric. motors, robots, ait conditioning), and electronic components (including semiconductors and electric lamps). Operation Localisation Tn 1982, Yamashita launched “Operation Local ination” to boost offshore production from less than 10% of value added 10 25%, or half of overseas sales, by 1990. He set out a program of four locslizations—personnel, technology, mate- rial, und capital—to suppor the target. To localize personnel, Matsushita increased the mamber of Tocal nationals in key positions over the next few years, In the US, for example, tee of the six company presidents reporting to the CEO of MBCA were Americas, In Taiwan, the majority of production divisions were replaced by Chinese ‘managers. In exch case, however, ocal national ‘managers were sil suppored by senior Japanese ‘advisors who maintained a direct Link with the parent company, To localize technology and material, the company developed its national subsidities’ expertise to source equipment lo- cally, modify designs to meet local requirements, and incorporate Iocal components, and sdapt Corpo processes and technologies fo aecom modate these changes while maintaining te company's quality standards, Finally, to localize capital between 1985 and 1988, Matsushita added production facilites in the US for VCRs and car ‘udio equipment; in the UK for microwave ovens, printers, end electronic typewriters; in France for hii tuners and VCRS; in Spain for VCRs; and in [Asia for motors, air conditioner compressors, ‘TVs, and facsimiles. ‘Between 1980 and 1988, Matsushita added 21 manufacturing companies and 12 sales companies Abroad to bring those respective totals to 60 and 41, In 1980, Matsushita employed 30,000 workers overseas; that total rose fo about 52,000 workers in 1988 and $9,000 in 1990. Despite these efforts, in 1988 overseas production stood at only $35 billion—sill Jess than half Matsushita's 254 warget. President, Yamashita had also hoped that through theie effons, Matsushitas overseas com- panies would develop more of the innovative fapabilty and entrepreneurship that he had long ‘admired in the national orgenizations of rival Philips. Past efforts to develop technological capa Ditties abroad had failed due to the company’s highly centralized R&D structure in Japan. For example, when Matsushita. acquired. Motorola's ‘TV business in the United States, its highly inno- ‘ative R&D group atrophied as American engi- neers resigned in response 10 whit they felt to be ‘excessive functional control from Japan, Despite te localization programs, however, the company had

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