Today, Philips is the world’s leader in its industry. To achieve this remarkable result and win the highly-valued reputation all over the world, the company has gone through the long path of organizational evolution. This paper will summarize the Philips case study to identify the remarkable points in the company’s organizational evolution.
Philips Electronics NV was founded in 1891 in Holland as a small player operating the local market. Currently, it is one of the world’s largest multinational corporations with complex structures and multiple branches. The company business began from the lighting products and outgrew into the diversified manufacture of domestic appliances, healthcare products, and electronics.
Philips managed to occupy significant positions in the global market by the beginning of World War II. The war placed its limitations on the company organization worldwide since Holland was occupied and the main branch could no longer control other branches around the world. As a result, each branch has become a self-contained entity with its production and marketing strategy. Still, the main center in Eindhoven, Holland continued to supervise most R&D activities.
The events taking place during the 1940s resulted in the problem of reduplication of business structures in Philips divisions around the world. The outcome was considerable company underperformance that the rivalries took advantage of. By the 1970s, the problem grew considerably, which led to the first significant effort by the company management to balance power away from the national branches to the twenty-one product divisions. The task of the product divisions was to establish an effective link between the main office and national divisions. This organizational structure continued to implement until the 1990s when the situation at the global market has induced the new decision to optimize the existing organizational overlaps by limiting the number of product divisions to only seven business divisions.
Reorganization in the 1990s demonstrated that the company’s effectiveness of Philips was earlier reduced due to the specific approach to the senior management selection. Since most of them came from national organizations, they maintained their loyalty to those structures and tried to protect their autonomy. The outcome was the poor production and sales effectiveness due to numerous overlaps in the organizational structures. Organizational reframing did bring considerable benefits to the company, but the problems remained. Further upgrades were needed.
This structure remained in use until 2008 when the company leadership came to the conclusion that the further simplification of the company structure is needed. After that year, Philips shifted to the structure with one center, three product divisions entitled according to the business segments of operation including healthcare, lighting, and consumer, and the national entities reporting to the three product divisions. Another significant organizational update was the relocation of production to low-cost countries to improve competitiveness with the global players. In addition, the company leadership transferred the sales responsibilities to the product divisions with some minor operations left to the national branches with an objective to consider the local specificity.
As a final point, the Philips company case overview has demonstrated the importance of effective company organization to evade the operational overlaps and ensure better business effectiveness. To come up with the current structure that seems the most effective throughout history, the company needed one hundred and seventeen years and three major company reorganizations.