History of Philips Corporation The Philips Corporation was established in 1891 by Anton and Gerald Philips in Eindhoven, the Netherlands. Philips started off as an innovating business in carbon-filament light-bulbs. Even though their competitors were trying to diversify business as soon as possible, Philips maintained light-bulbs as its core business for a long time. Later on, Philips became a leader in industrial research. The Company was selling to other countries in 1899 which included Japan, Australia, Canada, Brazil, and Russia. (Bartlett, 2008). In 1912, Philips started building sales organizations in U.S., Canada and France. All other functions remained in Eindhoven. The decentralization continued when Philips started to create local joint ventures. The result was a decentralized sales organization with a very broad production line. During the years of the war in the 1930’s, Philips transferred its overseas assets and moved their research to England and top management to the United States. The plant in the Netherlands was heavily damaged by the war, so they decided to go with country-specific market conditions. The National Organization was created and took major responsibility for financial, legal, and administrative matters while research remained independent and growing. Adaptive marketing was the main focus in each country depending, on the customers’ needs. As the years went by, Philips made a strong push to develop new technologies starting in the 1950s and 1960s. The company also wanted to translate these technologies into products while adapting, producing, and selling these products within individual national markets. During this time period, most of the companies in the electrical products market were being formed and racing to diversify. However, Philips decided to stick with what they knew best and continued to produce only light-bulbs. “In doing so, their strong focus enabled the company to create significant innovations” (cbcsd.org). Philips also became a leader in industrial research by creating physics and chemistry labs to address both production and scientific problems in the United States and Europe. The labs developed a tungsten metal filament bulb that brought great commercial success. Philips simple structure and significant innovations gave them the financial support they needed to compete in a time period where competitors were seeking major growth.
Along with these positives, Philips had several problems that caused them to regress in the industry. One of their main issues was the inability to bring products to market, also known as their local responsiveness. “Philips was largely dependent on centralized operations and decisions, thus they lacked the flexibility to successfully operate in a multinational environment” (cbcsd.org). Philips has been in business for 120 years with determination to build upon their heritage as they strive to put the consumer first.
Royal Name Change In 1916, while celebrating its’ 25th anniversary, Philips Electronics received permission to use the royal title “Royal Philips Electronics” (New York Times, 1998). On February 20, 1998, Philips Electronics decided to take up the offer. “In the Netherlands, the right to adopt the Royal prefix for a company’s name is an honor bestowed by the country’s monarch, Queen Beatrix” (Clarke, 1998). Perhaps a branding strategy, the Dutch conglomerate made the decision to change its name to Royal Philips Electronics.
Struggles of the 1960s and 1970s After years of success, in the 1960s and 1970s, Philips found its structure no longer effective. Many changes had taken place in its market place. The newly created Common Market led the way to diminishing trade barriers, which in turn brought forth increased international competition. Philips found it no longer able to bring new products, such as their newly invented audiocassette, to the market before its competitors quickly swooped in and took over the market share for the new products. Other competitors found ways to reduce their costs and lower their prices. Philips placed blame for its losses on the lack of understanding of the responsibilities between its product divisions and national organizations. CEO Hendrick van Riemskijk stated “As operations become increasing complex, an organizational form of this type will only lower the speed of reaction of an enterprise” (Bartlett, 2003). Quickly, he outlined each party’s responsibilities and the relationship that was to be between the two of them. In doing this, he “tilted the matrix toward the PDs (product divisions) to allow Philips to decrease the number of products marketed, build scale by concentrating production, and increase the flow of goods among national organizations” (Bartlett, 2003). The CEO also opened up what he called “International Production Centers”. These centers were made up of the most efficient local plants. The desire or objective was for the managers of these plants to have more control over their expenses. Unfortunately, in order for this plan to work, the less efficient plants had to be closed. This was something easier said than done—which tended to bring about slow progress. In the late 1970s, a new CEO, Dr. Rodenburg, came onto the scene. He continued on with his predecessor’s strategy with one change. Basically, he replaced the commercial and technical managers with a single layer of management. The practice of the dual leadership had been in existence since the days of brothers Gerard and Anton Philips. Rodenurg’s hope was that by reducing the number of managers, he would in turn reduce the number of duplications, miscommunications and ultimately be able to get products to the market in shorter time span.

Continued Struggles in the 1980s Two new CEOs would emerge into the company’s structure in the 1980s. The first, Wisse Dekker, continued the efforts of his two predecessors by having only one manager, tilting the matrix toward the product division and closing inefficient operations or plants. Along with this, he also reiterated the responsibilities of the national organizations—which was not local profits. Global product divisions would have the final say on the direction for the long run. Further, the company would get back to the basics by putting their focus on their core business. The second CEO to enter in 1987, Cor van der Klugt, took the focus further by narrowing down the company’s 14 product divisions to 4—three of which were related to each other, and the fourth, separate but subsidizing the three’s development. Fewer divisions created a need for fewer management board members and fewer employees. Board members were reassigned to other committees and employees either let go or transferred to other areas. Managers within the company were moved around in order to find the best market fit for their products. Again, tighter control was sought over the national organizations. By the end of the decade, neither CEO’s strategy seemed to be working as the company lost more than $2.5 billion. The next decade would find itself with a new CEO and almost 40,000 fewer employees.
The 1990s—Era of Accountability Staffing cuts continued into the new century with 22% of the workforce being laid off. Those remaining would find new performance rules and expectations. Those who did not make their goals were replaced. New products and services were introduced by the CEO at the time, Jan Timmer. Timmer had been responsible for the latest reduction in workforce. This is important to note, as it wasn’t long that he found himself surrounded by few who understood the technology of the new businesses he brought about. The products failed in the market place, mainly due to ineffective marketing efforts. Once again, competitors were quick to swoop in and pick up the pieces, increasing their market share one by one. Timmer had only himself to blame. After repeated layoffs and product failures, management and employee morale was hitting bottom. “Critics claimed that the company’s drive for cost-cutting and standardization had led it to ignore new worldwide market demands for more segmented products and higher consumer service” (Bartlett, 2003). Timmer stepped down in 1996 and was replaced by Cor Boonstra, who had the reputation as a “hard-driving marketing genius” (Bartlett, 2003). Boonstra announced dramatic changes in the company’s structure. The new structure called for simplified manufacturing and marketing organizations in which company businesses and plants were sold off, production moved to areas with lower wages, the matrix between the product divisions and national organizations removed, and the company headquarters was relocated. A new focus was placed on technologies already in existence and functioning well. Additional money was allocated to marketing to assist with this. By the end of the decade, Boonstra had met his target of a 24% return on net assets.
Outsourcing in the 2000s With a recent double digit return on net assets, the board of Philips moved on to higher targets for its financial ratios. New CEO Gerard Kleisterlee felt the company was not operating efficiently, resulting in costs that were too high. In efforts to cure this, he made the decision to outsource some areas of production. Agreements were made with other countries to take over production which cost 1,000 Philips’ employees their jobs. The next challenge the company would face was beyond their control. A sluggish economy brought forth a year end loss. Kleisterlee’s solution was to outsource even more products and services. In his mind, the company would need to shift its focus off of production and onto development and global marketing. For Philips, it was time “to recognize that its 30-year quest to build efficiency into its global operations had failed” (Bartlett, 2003). Recommendations The leaders of Philips have found themselves in a situation where the organization’s structure is horizontal to a fault, and their efforts to centralize the company have failed. At this point, Philips has two directions it can take as an organization, the first being to continue along the same strategic focus that was in place for thirty years, or to look in another direction for success.

For Philips, continuing along the same lines as before would be the most simplistic scenario, as a look at the company's past results shows a combination of success and failure. Taking a look at which ideas worked during the company's failed effort to centralize, while cutting costs could be enough to move the company toward success. While Philips went through seven chairmen over the course of thirty years who were all brought in to make structural changes, one of them was able to reach a high level of success before turning his position over to another leader. Within the idea of maintaining the current business model there should be a focus on the decisions that were made while Cor Boonstra was in charge, as he was the only chairman to find a the level of success that was expected. His focus was on cutting costs regardless of where the cuts came from, as long as the business would benefit. He also maintained a focus on developing new and innovative digital products, which helped to lift the company from its slump.

However, with the many failures of past chairmen, it may be a signal that Philips should move in another direction, and decrease their focus on becoming a centralized organization. One of the major areas of success throughout the life of the company has been the ability of its national organizations (NO's) to adapt to regional needs. Part of Philips decentralized organizational issues come as a result of these NO's creating their own success apart from the direct guidance of the company's corporate offices. This success should be embraced rather than changed, with the addition of new guidelines and rules for the NO's. Adding slight restraints to the decision making of these NO's should decrease the chances of decisions being made that would negatively affect Philips on an international level, while still allowing the NO's to continue to drive the company to profitability. In addition developing reporting programs to highlight regional needs, can work to help leaders choose which products should be developed based on the broadest level of demand. Product development should also be a point of focus, as Philips already has the capabilities to develop new technologies based on regional and international wants and needs. By doing so, Philips will increase its chances of developing a product that will gain long-term success, which most product manufacturers fail to achieve (Spencer, Klocinski, 2010).

Between these two options Philips decision should fall somewhere in the middle, as leaders should look to embrace past successes while working to ensure a successful future. This can be done by continuing to cut unnecessary expenditures, investing in new innovative products, and allowing NO's to continue to perform successfully within their individual regions. By following these steps, Philips will once again find a path to sustained success while becoming a major power in the consumer electronics world.

References
Bartlett, C.A. (2003). Philips versus Matsushita: A new century, a new round. Harvard Business School. Boston, MA: Harvard Business School Publishing.

Clarke, P., 1998, Philips Electronics NV Goes royal: Electronic Engineering Times.

Philips Electronics NV. (2012). In Encyclopedia Britannica. Retrieved from http://www.britannica.com/EBchecked/topic/456530/Philips-Electronics-NV
Philips Name to Go Royal. (1998, February 20). New York Times. 18.
Royal Philips Electronics of the Netherlands. (2003) About CBSCD. Retrieved from: http://english.cbcsd.org.cn/cbcsd/chm/4818.shtml
Spencer, J., & Klocinski, J. (2010). HIGH TECHNOLOGY PRODUCT SUCCESS: THE CRITICAL MASS DEPENDENCY. Journal Of Global Business & Technology, 6(1), 28-40.