Managing Organizations and Supply Chains by Philips

Table of Content

1. Introduction

2. METHODS AND THEORETICAL BACKGROUND

3. APPLICATION OF METHOD
3.1. MAIN DESIGN PARAMETERS AND ORGANIZATIONAL STRUCTURE
3.2. CONTINGENCY FACTORS AND STRATEGIC ENVIRONMENT
3.3. PAST ORGANIZATIONAL RESTRUCTURING AND FUTURE VISIONS

4. DISCUSSION

5. CONCLUSION

6. APPENDIX

7. LIST OF REFERENCES

Royal Philips Electronics N.V

1. Introduction

Royal Philips Electronics N.V. is a Dutch company that was founded in 1891 and has since then become a major player in the electronic equipment industry. The company is headquartered in Amsterdam and employs 119.001 people worldwide, of which 78% are employed outside the Netherlands. Philips has operations in over 100 coun- tries and identifies the Netherlands, the US, Germany, France, Brazil, Japan and China as their main markets. These countries make up 57.8% of total sales and 82.9%¹ of to- tal assets and are standing mainly in competition with Siemens and General Electron- ics.

From 1990 till last year Philips was in a phase of organizational transformation. With- out restructuring the company’s portfolio in a simpler way Philips would have had ex- tremely difficulties during the finance crises in 2008. Today the organization repre- sents predominantly a classical Managing Diversity of Mintzberg’s five configura- tions² which divides the company’s business into three segments: Healthcare, Con- sumer Lifestyle and Lighting.

In the healthcare sector Philips is leader in areas such as cardiac care, acute care and home healthcare. In 2010 Philips’ healthcare business was able to generate sales amounting to 8.6 billion EUR. The US is the largest healthcare market currently representing almost 50% of the global market.³

Philips’ consumer and lifestyle business is very broad covering areas such as televi- sion, shaving and beauty, multimedia and domestic appliances. Currently this business unit employs approximately 18.400 people worldwide with registered sales of 8.9 bil- lion EUR last year, of which 59.9% were generated in Western Europe and 40.1% in emerging markets.⁴

Philips Lighting spans the entire lighting value chain from lighting sources, electronics and controls to full applications and solutions. The company maintains sales and service organization in over 60 countries and runs manufacturing operations in 15 countries worldwide with sales of 7.6 billion EUR in 2010.⁵

Royal Philips Electronics N.V. 3

2. Methods and Theoretical Background

First information about Philips were taken through a general overview about the com- pany in the Internet with the focus on the organizational structure. These data have been compared with the theoretical analysis of Mintzberg’s configurations⁶. After the review about the key aspects of a divisionalized and diversified company a closer look towards Philips current annual report⁷ was taken. This source offered a lot significant information towards the introduction and part of the application. Data concerning the company’s history and the design parameters especially the board structure has its source mainly from the official homepage of Philips⁸. Additional details about the cur- rent and past situation were collected in various online magazines⁹ to have further facts from a second hand. While writing additional information were acquired from the lecture slides, different literature¹⁰ and Internet researches.

3. Application of Method

3.1. Main Design Parameters and Organizational Structure

Apart of the Board of Management, the Group Management Committee and the Supervisory Board are the most important bodies and represent the “headquarter” at Royal Philips Electronics¹¹.

The executive management (strategic apex) of Philips is entrusted to its Board of Management under the chairmanship of the President and consists of at least three members. All current six members of the Board of Management¹²have collective powers to allocate its financial resources and to appoint the division managers. They share responsibility for the management of the company, the deployment of its strategy, and the achievement of its objectives and results without dictating the strategy of its divisions, called performance control system.

The task of the Group Management Committee, the highest consultative body within Philips, is to ensure that business practices are shared across Philips and to implement policies, which are common for all divisions. The support staff, how it is called by

Mintzberg, consists of the members of the Board of Management, Chairmen of division and certain key officers. Members other than members of the Board of Management are appointed by the Supervisory Board.

The Supervisory Board oversees the policies of the strategic apex and the general course of the company and its affiliates. Further, it serves as an advisor to the executive management.

As stated in the Introduction Philips is nowadays grouped in three sectors, namely Healthcare, Consumer Lifestyle and Lighting. The sizes of the divisions are large be- cause each division has a high degree of diversified product. These business units (BUs) are considered coherent because they are united in different combinations by customer segments, channels, key processes and capabilities as well as technology platforms. Thus Philips seeks to exploit opportunities to leverage capabilities and syn- ergies across BUs by trying to install a related product form within the transition.

Philips is limited vertical decentralized which means that each sector is lead by an au- tonomous division manager (the middle line) who controls all divisional operations without greater interference of the Board. The middle line presents the key part of the organization that has a great responsible for the company’s success and therefore its managers are also assigned to Philips’ Board of Management. This gives an advantage regarding communication and controlling of the divisions beyond an approach based only on quantitative performance. Additionally, the division managers are able to ap- proach their product-market strategies with the corporate strategy closer and more ef- fective. A consequence is that the president of the Board Frans von Houten could in- fluence the three sector managers regarding their strategy and so reduces their auton- omy given through Philips’ divisionalization.

In contrast stand the standardization of output, which is the prime coordinating mech- anism of a diversified organization and which perfectly fits in case of Philips to Mintzberg’s way of designing a Managing Diversity: Each BU products are highly standardized by the manufacture and the performance skills in over than 118 countries. At last Philips’ ideology is another parameter, which shows how the organization is designed. This part is represented by their mission to develop the company as “a glob- al leader in health and well-being, to become the preferred brand in our chosen mar- kets”, so it can uses its “uniquely position for growth through its ability to simply make a difference to people’s lives with meaningful, sustainable innovations.”¹³

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¹See: Table 1: Geographic Composition of Sales and Assets

²See: Mintzberg & Quinn (1996), pp. 705-717

³See: Philips (2011)a, p. 4

⁴See: Philips (2011)a, p. 4

⁵ See: Philips (2011)a, p. 4

⁶See: Mintzberg & Quinn (1996)

⁷See: Philips (2011)a

⁸See: Philips (2011)b

⁹See: Handelsblatt (2011), Finanznachrichten (2011)

¹⁰See: Mintzberg (1989)

¹¹See: Figure 1: Organizational Chart Philips, Philips (2011)c

¹² See: Figure 2: The Management

¹³ Philips (2011)d