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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"Philips has always been great at innovation, but it has had big problems with marketing."¹

- Paul O'Donovan, Analyst at Gartner Inc. in 2004.

"Throughout the 1990s and back even longer than that, Philips has been unable to grow. We have remained more or less a $30 billion company, which on the one hand has created excellent intellectual property and research and development but on the other hand failed to consistently translate that into winning market positions."²

- Gerard Kleisterlee, President and CEO of Philips in 2002.

Introduction

Netherlands-based Royal Philips Electronics (Philips) was on the verge of bankruptcy in May 1990 when the company posted losses of $2.6 billion. At this point, the top management of the company launched a set of initiatives aimed at turning the company around. One of the measures initiated was ‘Operation Centurion'which aimed to bring about drastic changes in the work culture of the company and reduce costs.

The restructuring efforts continued throughout the 1990s when Philips initiated job cuts, sold unprofitable businesses and closed down many manufacturing facilities worldwide.

These efforts helped in improving the financial health of the company but were not able to address concerns like the bureaucratic work culture and the company's poor marketing of its products.

Philips had a history of breakthrough inventions but the company failed to market them effectively. In late 1999, Philips embarked on a worldwide marketing campaign for the first time in its history. Thus, the company made a clean break from its past image as a technology-oriented company to one that was market-oriented.

Gerry Kaufhold, senior analyst at In-Stat, a technology research firm based in Massachusetts, US, commented, "Historically, they've been a great engineering company with less than fantastic marketing, so this signals sort of an awakening by Philips."³

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1] Andy Reinhardt, "Philips: Back on the Beam," BusinessWeek, May 03, 2004.

2] Jennifer L. Schenker, "Fine-Tuning a Fuzzy Image," www.time.com, Spring 2002.

3] Lee Hall, "Philips Puts On $100 Million Digital Push," Electronic Media, September 21, 1998.