Restructuring Philips

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Case Details:

Case Code : BSTR170
Case Length : 19 Pages
Period : 1990-2005
Organization : Philips
Pub Date : 2005
Teaching Note :Not Available
Countries : Netherlands
Industry : Consumer Electronics

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Operation Centurion Program

Timmer realized that Philips' poor performance could not be blamed on weak markets alone. Competition from aggressive Asian companies like Sony was intensifying especially in Europe. Philips was finding it hard to get its innovations converted into saleable products quickly. The company's manufacturing costs were high, and this put a lot of pressure on its profit margins.

The biggest problem was a highly bureaucratic corporate culture that was very resistant to change. Facing the tough challenge to change the company's culture, Timmer remarked, "You just can't change a deep-rooted corporate culture in one or two years. It takes at least five years or longer."...

Restructuring under Boonstra

One of Boonstra's first moves was to get rid of businesses that were making significant losses. Philips' 32% equity stake in Grundig was brought down to 5%. Boonstra also sold off Philips' cable operations, car navigation systems, and the Super Club video-rental chain. Another problem Boonstra faced was excessive vertical integration in the company...

Towards One Philips

By 2001, more than a decade had passed since Philips began restructuring. Timmer's Operation Centurion did not succeed in changing the company's bureaucratic culture. Boonstra's efforts too could not achieve a culture change. Now it was Kleisterlee's turn to fight bureaucracy in the company and bring in a culture that promoted teamwork. Kliesterlee called his initiative 'Towards One Philips' (TOP), and through it, he aimed to make Philips work as a single, unified company. Apart from bringing in a cultural change, the initiative also aimed to cut costs, develop a range of new technologies and products, and improve relationship with customers.

Promoting Collaboration

The TOP program also called for extensive collaboration among product divisions - a big change from the past when Philips was run as a set of disparate companies that acted independently (See Exhibit V for corporate structure of Philips in 2004)...

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