Case Analysis " How Philips Nearly Went Bankrupt"
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1. Consumer Behavior – MKT 521 (Sec-1) Case Analysis of “How Philips Nearly Went Bankrupt” Prepared By Md. Khairul Bashar Id: 2020-3-91-026 Student EMBA East-West University Prepared For Dr. Md. Nazmul Hossain Adjunct Faculty of Business Department East-West University, Dhaka Date: 03/09/2022

2. Page | 2 Executive Summary Netherlands-based Royal Philips Electronics (Philips) is a leading global manufacturer and marketer of consumer electronic products. The company was adept at technological innovations but was largely unsuccessful in translating its technological prowess into marketing success. The case details the reasons behind this shortcoming and gives an account of the various restructuring exercises undertaken by the successive Presidents of Philips to set things right at the company. The case discusses in length a major restructuring program called 'Towards One Philips'and describes how it aimed at finding a lasting solution to Philips ‘problems. An account of the company's new approach to strategy setting, called 'Strategic Conversations, ‘is also presented along with the rationale for such approach. Finally, the case presents the benefits accrued to the company as a result of its restructuring exercises. At the very beginning of the report, I try to find out the fault or the wrong steps of Philips have taken so that from a leading company their business nearly went to bankrupt. After that I have discussed regarding the initiative that have been taken by Philips so that they can overcome the challenge from the case studies perspective I also suggest my view regarding their contingency plan and what could be do more, finally I have shared my learning and try to integrate that with our countries business perspective.

3. Page | 3 Table of Contents Title:____ “How Philips Nearly Went Bankrupt” Executive Summary.........................................................................................................................2 1.0 Answer to the question No-1 1.1 Reason Behind Philips Failure ................................................................................ 4-5 2.0 Answer to the question No-2 2.1 Philip’s Strategy to Overcome the Challenge ......................................................... 6-6 3.0 Answer to the question No-3 3.1 Personal View as Writer.......................................................................................... 7-9 4.0 Answer to the question No-4 4.1 Learning & Implications ....................................................................................... 9-11 References..........................................................................................................................12 Appendix (Questions)........................................................................................................12

4. Page | 4 Answer to the question No: 1 Philips one of the largest electronics companies of the 20th century and product were sold in over 180 countries around the world. Philips was always known for producing a lot of thought leadership a lot of forward-looking concepts visions of the future but Philips was rate rose to bankruptcy that lost more than three billion Dollars each year. The reason behind Philips fall are discussed below: Reason behind Philip’s Failure  Unable to create the blue ocean for them: As an innovative company they should patient and licensed their product & technology. Instead of focusing lots of diversified product they could focus on core quality product with excellent customer service, they failed to create brand equity when their Iron and vacuum were famous in Singapore they could push their main product TV, Audio system into the market and finally they failed to create emotional attachment with their consumer so that consumer became loyal to them beyond the logic.  Unable to follow consumer trend shifting: Phillips were slow to respond to market trends they fell behind in technology and they were not actually reeling to embrace a new technology and design. There was an awful lot of products which were just more mundane regular gray boxes.  Lack of technological innovation: LG's came very strong and really got a foothold and dominated the market and that has caused Phillips to sort of be left behind with its rapid innovation. LG were Offering cheaper solutions to consumers when by saying they have the most brilliant and clearest pictures. Philips stuck with the analog continuing to produce analog CRT televisions when their rivals were making digital LCD as CRT TV was basically a cash cow for them. Philips had to sawed-off their audio division because they found consumers no longer buying CDs.DVDs instead they were going online for downloading of music.  Inconsistent in adopting design: Philips reputation for cutting-edge design was at risk. Shawn Carney is one of the world's leading designers and his first instinct was to turn down the job offer from Phillips. Because their range was so uninspiring and he wasn't entirely convinced looking across the wider portfolio of the company. Phillips wasn't the consistency of adopting design.  Large product portfolio: Philips was over diversify. Many products and spreading itself too thin even if it had a superiority in southern technologies, over a hundred and twenty separate businesses

5. Page | 5 ranging from vacuum cleaners to video games. All over the place seeming to confuse expansion with success Philips diversification.  Lack of marketing capabilities: Korean Revolution was in full flow and the new players in town Samsung and LG employed aggressive marketing campaigns targeting younger consumers with their newer cheaper and technologically.. They engage the younger generation then they were born in the 80s and 90s onwards.  Strategic drawback: Philips CEO wanted to unite the company into a one Philips initiative but the problem of this is that each business unit still has their own profit and loss accounts and this made it very difficult for them to really drive revenue because they are all competing against one another it was a strategic draw back for them.  Lack of focus on core product: Philips was a company in disarray producing a vast range of unconnected products the company had lost its core focus apart from the TV and audio business they also have the appliances due to the fast business they couldn’t focus on their core business area.  Operational Inefficiency: As it was a big organization decision making process very decentralized and made among multiple hates and over a prolonged period of time they made it very difficult for Philips to be able to launch products. Sony's workforce was a hundred thousand people fewer than Philips yet their revenues were fifteen percent higher. Philips had more than 500 plants scattered all over 50 countries and that production capacity was not optimized and this operational inefficiency was most seen in Philips. Answer to the question No: 2 Philip’s to overcome the Challenge are written below:  Acquisition: Philips brenell acquisitions Prix between 2007 and 2010 and it spent close to eight billion dollars in acquisition. Philips billion dollar loss in 2011 appeared to reflect a disastrous financial performance but it was the result of vast sums of money being invested to transform the company's fortunes so even though it had a net loss of 1 billion in 2011 it's not really a bad thing.

6. Page | 6  Restructuring: Philips restructure the whole company so that all these separate business units were not as separate anymore as before and that was the first step to take the big vision the communication to the leadership and the restructuring of the company. The restructuring was matched with a change in attitude now all employees were united under the company's new direction into health care.  Strategic Focus: The CEO to continue to build on the strategy of focusing on three key areas which are lighting consumer business and healthcare having acquired medical companies in the USA and Asia. Phillipsburg planning has shift away from consumer electronics towards healthcare. Philips split into two separate companies knighting and healthcare.  Focused on Diversification: I think the new CEO did very well to read the outside world to read the transformation that was going on in in health care and he decided to change the company in a pure health technology company. Philips identified health care as an industry that would rapidly grow in importance and they predicted the demand would be greatest amongst Asia's new middle class look at China.  New way of dealing healthcare: Philips have tailored their healthcare technology to Prepare for this spike in senior citizens. High penetration of Internet usage gave them the opportunity to empower people to look after their own health with digital programs. Hundred and twenty Singaporeans are enrolled in the system and they can do their routine checkups from the comfort of their own homes Rather than going into the hospital.  Creating Brand Equity: Philips not merely selling medical hardware but providing new ways of delivering healthcare and similar. Technology is also being used in far more remote areas. Philips has transformed itself to become a respected health care provider and their modern medical technology now improves people's lives in some of the most remote parts of Asia.  Building trust with lifesaving service: It's difficult for expectant mothers to travel to the health center for regular check-ups they rely on home visits. Philips initiative to starting health care support in remote area in consideration of the fact of mother's dying during pregnancy or during delivery as well as neonatal mortality. Doctor used to collect and data are sent to a center of excellence center with experts which can be far away where the doctor has his version of the app looking at these data giving the right suggestions.

7. Page | 7  Innovation: Philips pressure measurement prototype using light can measure how bad the blocking is it 50% blocked or is it 95% blocked far safer and more precise than electric catheters. Philips invention could revolutionize the diagnosis of heart disease the roots is really in light bulbs and what this technology could mean in the real world is that you replace all the electrical. Wiring in a catheter by optical fibers these characters will become cheaper and therefore they can be used more easily in treatment and diagnostics of patients whether it's life-changing health initiatives. Answer to the question No: 3 After analyzing the scenario I would say Philips made mistakes in several area that caused them such trouble that they were close to bankrupt. They could avoid different strategy to save their running business. As a decision maker my initiative discussed below: 1) Focus on core product by using intensive growth strategy: Philips was no one electronics manufacturer at a time, because they were a trusted brand to consumers and they have a local production which allows them to drive a faster turnaround time and they could easily reduce their operational cost using these advantage they should focus on developing their core products Like: TV, Radio etc instead of irrelevant diversification. I would use my initial strength first try to hold more market share and would develop product and market first, then slowly go for diversification. 2) Understand consumer pulse: Another important area Philips ignored that they failed to understand consumer pulse so as a decision maker my priority would analyze consumer buying decision behavior. People were making significant difference between brands and were highly involved so I would follow the latest trend and would gradually shift with the innovative technology so that helps to hold. 3) My strategy to Create Blue Ocean for Philips  High capital investment on new technology: After the initial growth first I would focus on high investment on innovation and new technology what the competitor did. As a leading company I would hire a designer will mold the product with cutting edge design, invest more on research competitor’s analysis, upcoming technology with the modern trends so that competitor cannot reach up to me. If I could introduce new technology what LG/Samsung did the LCD display or introduce our consumer with new device Philips Music Pad which can download music from the internet people would be more attracted to our product.

8. Page | 8  Patient and licensing: Innovation is not enough as we have invested huge amount for new technology like LCD display, Philips music pad, cutting edge design I would license them as well so that competitors couldn’t use same technology that would give us competitive advantage.  Creating brand equity: Investing high also helps to create brand equity, I would try to create such image with trendy promotional campaign that people would believe TV means Philips, music instruments means Philips by doing this we would consider as a established brand to our consumers. Such strategy helps us to sustain ling in competitive market.  Create strong distribution channel: The distribution channel was not strong enough and the company were in top so they did not bother regarding the situation, I would offer a good margin to the local distributor so that they feel more interested to sell our product as well as I would try to have our own retailing shop in different location for our global business that would help us to reach our consumer easily.  Exclusive sales right: I would try to introduce our product with exclusive sales right to some famous retailer shop in the globe like: wet seal, borders, and the limited, sharper image so that people feel attracted to have our products.  Service center to reduce post purchase dissonance: Consumer should be our main priority so I would set different service center in different location so that instant service can be ensured to the consumer, that helps to reduce the post purchase irritation and consumer became loyal to the company. 4) My defense strategy for Philips  Position defense: As a market leader my focus to create such image that competitors fears to compete. I would introduce my company with most innovative and trendy so that others will not show the same tagline when they are competing. Eg: I will promote our Tv as most advanced and updated technology oriented with cutting edge design so that my competitor will fear.  Flank defense: as I was lack in technology so in that support I should promote our product that hide our weakness, we could call or CRT mirror as better quality picture with eye care support that will work as flank defense for my product.  Preemptive defense: I already have vast diversified products in the market if we could use properly that strength with our trendy marketing policy that will work as counter effort for our competitor’s product.  Counter offensive defense: When my competitors introduce new technology I could introduce new technology with different name so that my loyal consumer will not shift to my brand to others. Eg: same LED technology can be introduced with new name like LED better resolution Tv, LED with better sound quality or Philps Music pad 1 so in.

9. Page | 9  Contraction Defense: In addition to all these I would cut my poor performance item immediately or less selling item as soon as possible to avoid any negative image to our company. 5) Create Hedonic Value of our Product: After having all of these when we will be in a stable environment of business I will focus to create hedonic value of our products. I will promote our product as a luxury and standard as we have established brand value. My primary target would be promoting our Philips Musicpad, Trimmer. TV or other popular item with 90’s famous celebrity like:  Actress Melissa Barrera. Actress, Margot Robbie. Actress, Kristen Stewart, Jennifer Lawrence. ...  Sports star Nathan MacKinnon, Canelo Alvarez, Jadeveon Clowney,Damian Lillard ·  Actor Tom Hanks, Mel Gibson, Tom Cruise So that we could create a perishable product and untouchable brand image to our consumers. Answer to the question No: 4 From the case study of Philips we can learn different strategy to survive in competitive market. It’s an informative story where we get to know how Philips fall and what were the initiative they have taken to get back in the business. I will try to share my learning and the probable implication phase here: Learning from Philips and the Implications in our Business strategy 1) It’s not always good to have over diversification with the product and the business. For business growth it’s very important but every business should find their own strength first they should focus on the core product development. After having a well brand image a company can go for diversification slowly. As a market leader company should not target niche market their main target should be standardize and specialized on specific market where no one can compete them. Implication: If we see the one of the service provider company in our country named “Sheba XYZ”, they have over diversified service around 40+ which became inefficient for them. Instead of so many they could focus on some specialized business like: Painting, Plumbing, Pest control, Repairing would help their growth.

10. Page | 10 2) Understanding the market trend is another important issue to be focused for a market leader. They need to change with the time as consumer are getting updated. Leader Company should have proper idea regarding consumer interest, considering these they should focus on new design, technology and innovative marketing strategy with eye catchy tagline so that consumer feel attracted to have your product. Implication: Keya cosmetics was one of the popular company in toiletries item at a time but could not hold the position, they should follow the market trends with product development. They need to change their product packaging and should introduce variety in specific products like: soap, oil, detergent that would help them to create strong completion in the market again. 3) Large company like Philips who have a lot of diversified business over the world should have proper chain of command, authority and responsibility should be delegated and parent company need to have proper control over other branches so that if any crisis happens everyone can response at a time so that crisis can be dissolve. Implication: Beximco ltd have different level of business and it’s a large group of company so they should be very much careful about their organizational structuring and control over different level of business less control over concern can create lots of organizational politics that could be backfiring for them. 4) Proper resource management is another issue need to focus on any business, if you are not able to create leadership in your organization , if your workforce are not motivated towards organizational goal , if the other resource like: plant, machinery, land, capital are not utilized well it will be very difficult to survive in a competitive market. Implication: Utilizing resource is most important factor for generating profits so large company like Walton ect they need to have proper resource management policy so that as a local company they could compete with internationals. We have cheap labor, local benefit so we need to focus on latest technology so that people likes to have our product instead of other international giants. 5) Ignoring modern technology can be dangerous for any company ,a company’s target will be always be one step ahead to the competitors and seek the latest technology install it earlier to have competitive advantage. If requires a company should have the acquisition strategy and restructure the whole business so that can hold the business position in the market. Implication: It’s also implies company like Akij Motors, ACI Motors their target should be introduce new design and modern technology to our design consumer , if they are able to have high capital investment and able to install all the modern things in our

11. Page | 11 local products they could easily grab our attention. On the other hand foot ware company like Sampi Orion merge they can fight better with the popular brand BATA, APEX or Partex and Nadia furniture can have acquisition to fight with the giant of market Autobi /Hatil 6) Only backward integration is not enough for a business to lead the market , a leading company should have proper distribution channel so that they can reach the customer easily and to do so a business needs to have strong distribution channel which will help them to promote the product in the market and reach consumer easily. Implication: Akij introduced a mineral water named “Rivera” to me it is one of the finest water I have tested but it’s just available in few location as they were not able to have strong distribution channel of their product. They should find proper channel to strengthen good product like this it will boost the sales. 7) You can diversify your business, it’s not a sin but first you should have proper brand image, you need to find your core strength and resources and utilize that properly, here Philips diversified into health care business it was a great move they knew there is opportunity and they were able to utilize their resource accumulate them and finally turned back with their healthcare initiative. Implication: Company like square they were on of the finest brand in medical sector in our country so using their strength they should diversified into producing medical equipment, important machinery like: MRI, City Scan,X-RAY ect if they can manufacture such technological equipment here that will reduce the treatment cost and would be helpful for so many needy family. 8) Now a days every business should have their online platform, it can help you to reach such remote area customer you may not even thought of them, and it helps to create new business opportunity. Using the online platform you can have better understanding of consumers’ needs and demands and by communication that you will have great acceptance to the consumer and will have a strong relationship with consumers. Implication: Health care service now a days became online in many countries but we were still not able to do so, popular medical company of our country like: Square, Apollo, United, Popular etc. should adopt such strategy so that people can have energy service as well as general medical treatment on online.