1. Read Philips Global Restructuring:

1. Why did Philips organizational structure make sense early on in its existence?
2. Why did this structure start to create problems for the company later on?
3. What was Philips trying to achieve by tilting the balance of power in its structure away from national organizations and toward the product divisions? Why was this hard to achieve?

Philips' Global Restructuring structure. When trade barriers were high, this did not matter so much, but the significance of its effect became important when trade barriers were starting to fall and more fierce competitors came in to the marketplace. These competitors included Sony and Matsushita from Japan, General Electric from the United States, and Sam. sung from South Korea. Each of these competitors gained market share by serving increasingly global markets from centralized production facilities where they could achieve greater scale economies and hence lower costs. Philips' response was to try to tilt the balance of power in its structure away from national organizations and to- ward product divisions. International production centers were established under the direction of the product divi. Established in 1891 in Eindhoven, the Netherlands, Koninklijke Philips NV is one of the world's oldest multi- national corporations. Philips began making lighting e, diversified into a range of busi- nesses that included domestic appliances, consumer elec. tronics, and health care products. From the beginning, the small Dutch domestic market created pressures for Philips to look to foreign markets for growth. Some argue that this is the case for most European companies and, thus, the many companies from Europe that are globally competitive by essentially being "born global." By the start of World War II, Philips already had a global presence. During the war, the Netherlands was oc cupied by Germany. By necessity, the company's organi- zations in countries such as Australia, Brazil, Canada, the United Kingdom, and the United States gained consider able autonomy during this period. After the war, a struc ture based on strong national organizations remained in place. Each national organization was, in essence, a self- contained entity that was responsible for much of its own manufacturing, marketing, and sales. Most R&D activities, however, were centralized at Philips' headquarters in Eindhoven. Reflecting this de centralized national structure, several product divisions were also created. Based in Eindhoven, the product divi- sions developed technologies and products, which were then made and sold by the different national organiza- tions. During this period, the career track of most senior managers at Philips involved significant postings in vari ous national organizations around the world (a career de velopment practice often seen still in multinational corporations) For several decades, this organizational arrangement worked well. It allowed Philips to customize its product offerings, sales, and marketing efforts to the conditions that existed in different national markets. Later on, how ever, flaws were appearing in the approach. The ecen tralized, country-based structure involved significant duplication of activities around the world, particularly in manufacturing, which created an intrinsically high-cost sponsible for local marketing and sales, and they often maintained control over some local production facilities. One problem Philips faced in trying to change its struc- ture was that most senior managers had come up through the national organizations. Consequently, they were loyal to them and tended to protect their autonomy. Despite several reorganization efforts, the national or ganizations remained a strong influence at Philips until not too long ago. Former Philips CEO, Cor Boonstra, fa- mously described the company's organizational structure as a "plate of spaghetti" and asked how Philips could compete when the company had 350 subsidiaries around the world and significant duplication of manufacturing and marketing efforts across nations. Boonstra instituted a radical reorganization. He replaced the company's 21 product divisions with just 7 global business divisions, making them responsible for global product development, production, and marketing. The heads of the divisions re- ported directly to him, while the national organizations reported to the divisions. The national organizations re. mained responsible for local sales and local marketing ef- forts, but after this reorganization, they finally lost their historic sway on the company. Philips, however, continued to underperform its global rivals. By 2008, Gerard Kleisterlee, who succeeded