Philips Electronics
During the economic boom years Philips electronic's market value rose by 1708% from $3.25 a share in 1990 to an astonishing $55.51 in 2000 (NYSE, n.d.). This reports analyses how they achieved this sucess with a tightly controlled management structure and use of carefully selected partners in order to supply the range of products Philips produces today.
Corporate Structure
Philips employs a compact workforce of 121,000 spanning over 100 countries. Alike with main competitor Sony, this allows close monitoring of staff, with minimum expense. Similar to other large organisations, Philips comprises of a three tier management scheme effectively managing the interests of shareholders whilst maintaining optimum market value.
Board of Management
Responsible for the general management of the company and the deployment of strategies and policies, the Board of Management consists of seven members: President Chief Executive Officer (CEO), Lifestyle CEO, Healthcare CEO, two Lighting CEOs, Chief Financial Officer and an Executive Vice President; each harbouring 10 years experience and at least 5 years in-house
(Board of Management, 2009). With such credentials, it is apparent that this experience and expertise are major factors in the success of this top tier, providing the most advantageous team.
Group Management Committee
The Group management committee, consisting of seven members, (a member from the top tier, Chairmen of product divisions and other officers appointed by the Supervisory Board), ensure that both business issues and practices are evenly distributed and that company policies are implemented. The Committee guarantees uniformity and regularity throughout the company.
Supervisory Board
Elected by shareholders, the ten members of the Supervisory Board oversee the policies of the Board of Management and general course of affairs within the company. By involving shareholders confidence in the company is maintained thus potentially increasing market value.
Business Model
With over 100 factories worldwide Philips have been able to develop close relationships with both suppliers and customers. This minimises their distribution costs, and maximises their fluency of the manufacturing process returning a favourable profit margin.
Philips currently works alongside four main partners. This symbiosis combines wealth and expertise across a plethora of markets to the benefit of both parties. Other competitors like Sony, Nokia and Apple adopt the same approach linking with a variety of other institutions.
Sara Lee
Figure 1: Senseo Coffee Machine
(Smart, 2004)
Sara Lee and Philips formed a successful partnership in 2001. Philips designed a coffee brewing system and Douwe Egberts’ Sara Lee coffee pods to create the Senseo coffee machine
(Senseo announces Three New City-Inspired Coffee Pods, 2005) (see figure 1). At the launch Philips shares rose by 17%
(NYSE, n.d.) and by 2004 Senseo coffee machine sales had risen 70% with profits topping $106million
(Brewer, 2004). By producing a machine that only utilised the unique Douwe Egberts pods Philips ensured the repeated sales of their partner’s product thus securing the profits and success for both sides.
Yahoo
Figure 2: Phillips Streamium SLA5520
(Digital audio receivers, 2007)
January 2004 saw the partnership of Yahoo and Philips to deliver Yahoo’s content through a range of home entertainment devices (see figure 2) designed by Philips
(Philips and Yahoo! Enter Global Partnering Deal, 2004). Yahoo uses its established customer base to promote the Phillips’ products and in return receives a premium. For Phillips cheap worldwide advertising/promotion. For Yahoo large revenue for little/no work. It’s a ‘win win’ situation. The success of the partnership, for Philips, can be measured by the 14% increase in share prices since its announcement.
Inbev
Figure 3:
PerfectDraft brewing system HD3600
(PerfectDraft, 2004)
In August 2004 Inbev, a leading global brewer, presented a home draught beer dispensing appliance called ‘
PerfectDraft’ to Philips, an idea with mutual benefits to both companies. In 2005 the partnership was threatened when Heineken, along with Krups, tried to stop the sale of ‘
PerfectDraft’ claiming it was similar to its own, patented, ‘
BeerTender’
(Mercer, 2005). Although unsuccessful in court, the fact that Heineken felt vulnerable by the similarity has led me to conclude that the ‘
PerfectDraft’ partnership would be a profitable one. Despite the cheaper alternative, ‘
BeerTender’, on the market, the company stocks continued to rise throughout late August and early September by 11%.
Bayer Schering Pharma
Figure 4: Philips Achieva XR MRI Imaging System
(Healthcare News, 2007)
Philips diversified with Schering (now Bayer Schering Pharma) in November 2005 producing breast cancer diagnosis equipment. Schering manufactured the contrast agents injected into the patient and Philips produced the optical imaging equipment used for analysis
(Philips Electronics and Schering Enter Into Long-Term Alliance for New Disease Diagnosis, 2005). This alliance caused Philips share price to rise by 26%, and despite Philips not expecting to deliver the machines until 2010, the partnership has portrayed Philips favourably as a company excelling in the healthcare spectrum and associated sales in the 2008 recession increased by 6%.
Market Value
The economic downturn, last year, affected Philips’ market value, falling from $41 billion, to $15 billion, and caused Philips to cut 7,000 jobs in January. Shares have plummeted from $39.35 (2/4/08) to $16.72 (2/4/09)
(LG Display says Philips sells off remaining stake, 2009). Working in retail, I understand the detrimental effect the economic decline is having on the electronics market, however, a drop of 63% in market value is quite considerable compared to Philips’ competitors Sony, who only dropped 40 % ($25 billion), and Panasonic, who dropped 45% ($29 billion). Significantly it’s worth noting that Sony cut 8000 jobs
(Sony to cut plants and 8,000 jobs, 2009), and Panasonic is in the process of cutting 15,000 jobs
(McCurry, 2009).
Moreover, Sony released a statement, in their 2008 annual report, claiming a partnership deal with FIFA (Federation Internationale de Football Association) until 2014, producing electronic products and entertainment covering both world cups. Although this only contributed to a small rise in share price (5%), it avoided a decline like Philips shares dropping 24%. I believe this significant devaluation might be due to Philips introducing a €5 billion share buy-back scheme in December 2007 to increase the value of shares. Shares continued to fall and despite recovering €3.3 billion worth by the end of 2008, the scheme was suspended
(Peel, 2008).
Referencing
Board of Management. (2009). Retrieved March 24, 2009, from the Philips website:
http://www.philips.co.uk/about/company/global/management/boardofmanagement/index.page
Brewer, J. (2004, November 3).
Sales of Senseo Coffee Machines Up 70%! Retrieved March 25, 2009, from the Single Serve Coffee website:
http://www.singleservecoffee.com/archives/000644.php
Digital audio receivers. (2007, June 10). Retrieved March 30, 2009, from the Times Online website:
http://technology.timesonline.co.uk/tol/news/tech_and_web/personal_tech/test_bench/article1903661.ece
Healthcare News. (2007, October). Retrieved March 30, 2009, from the Philips Patient Center website:
http://www8.healthcare.philips.com/patient/news/breast.html
LG Display says Philips sells off remaining stake. (2009, November 9). Retrieved March 28, 2009, from the Associated Press, via the Forbes website:
http://www.forbes.com/feeds/ap/2009/03/11/ap6157114.html
McCurry, J. (2009, February 4).
Panasonic to cut 15,000 jobs worldwide. Retrieved March 30, 2009, from the Guardian website:
http://www.guardian.co.uk/business/2009/feb/04/panasonic-job-losses
Mercer, C. (2005, December 2).
Heineken loses patent battle with InBev. Retrieved March 26, 2009, from the Beverage Daily website:
http://www.beveragedaily.com/Products/Heineken-loses-patent-battle-with-InBev
NYSE. (n.d.). Retrieved March 24, 2009, from the Forbes website:
http://finapps.forbes.com/
Peel, L. (2008, October 13).
Philips sales hit as consumers stop spending. Retrieved April 3, 2009, from the Times Online website:
http://business.timesonline.co.uk/tol/business/industry_sectors/health/article4935836.ece
PerfectDraft. (2004, December 4). Retrieved March 30, 2009, from the Pompe ŕ bičre website:
http://pompeabiere.blog-pression.org/post/377/3314
Philips and Yahoo! Enter Global Partnering Deal to Move Internet Content Beyond the PC and into Consumers' Living Rooms. (2004, January 7). Retrieved March 28, 2009, from the Yahoo shareholder website:
http://yhoo.client.shareholder.com/ReleaseDetail.cfm?releaseid=126015
Philips Electronics and Schering Enter Into Long-Term Alliance for New Disease Diagnosis. (2005, November 28). Retrieved March 27, 2009, from the Nano Science and Technology Institute website:
http://www.nsti.org/news/breaking.html?id=81
Senseo announces Three New City-Inspired Coffee Pods. (2005). Retrieved March 24, 2009, from the
BestStuff website:
http://www.beststuff.com/fromthewire/senseo-announces-three-new-city-inspired-coffee-pods.html
Smart, P. (2004, October 7).
Senseo Coffee Machine. Retrieved April 5, 2009, from the Gadget Speak website:
http://www.gadgetspeak.com/gadget/article.rhtm/753/4125/article.html
Sony to cut plants and 8,000 jobs. (2008, December 9). Retrieved March 29, 2009, from the BBC news website:
http://news.bbc.co.uk/1/hi/business/7772597.stm
