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Philips Makeover: From Diversity to Simplicity

Philips Company is undergoing a lot of business “makeover” in the form of new target markets, innovative products and executive reorganization. The Dutch company lagged behind the competition scale in the past few years and Chief Executive Kleisterlee is determined to get the company on track. Under Kleisterlee’s leadership, the company has jumped 23 notches in the global rankings and brand value has soared to $7. 7 billion since 2004. However, Philips is just getting started. Kleisterlee divulged more “reorganization” plots and acquisition plans to meet new business goals (Schenker, 2007).

While experts expressed conflicting opinions regarding this strategy, Kleisterlee is optimistic that their plans will double profits by 2010. Refocusing the Market Kleisterlee simplified the more than half dozen divisions to only focus in three primary markets. This condensed the operation and created focus in the company. In their 2008 plan, they unveiled to take this reorganization a notch higher by officially merging divisions, leaving only three primary sectors to oversee each target market. The three new sectors are:

• Consumer Lifestyle sector from the merger of the existing Consumer Electronics unit and the Domestic Appliances & Personal Care unit • Philips Healthcare from the Medical Systems unit and Home Healthcare Solutions • Lighting division. This move defines the target markets of the company, reduces costs and solves the problem of overlapping of purposes between different divisions. On the other hand, the present effort had shown major improvements in brand image and value, introducing new target sectors could result to confusion in the customers and retailers.

Executive Restructuring Introduction of new focus sectors resulted to executive reorganization as well. Their plan unveils installation of a CEO in charge of each sector. The additional leadership will further enhance the focus of each sector. However, the different sectors are so diverse that putting them under different heads can result to inappropriate rivalry within the company and promote factions between the employees. New Products

As part of the reorganization effort, Philips bought companies to complement its offerings and achieve new goals. This effort paid off as evidenced by the progress in the company’s position in BusinessWeek’s ranking of the most innovative companies from No. 67 in 2006 to No. 38 in 2007. However, the acquisition of new companies, which resulted to horizontal growth, contradicts their simplification goals. While they succeeded in creating more focused sectors, Philips expanded their product base.

This can contribute to their branding problems and confusion in the customers. According to Paul O’Donovan, a London-based consumer electronics analyst, while Philips exhibited phenomenal success in their new products particularly the LCD TVs, the victory could be temporary. He cited the possibility of Chinese makers being able to produce similar products and compete with the brand in the coming months. Conclusion One of the challenges of Philips is their wide range of products.

While their quality is competitive, they have problem establishing a distinct niche people can associate with their name. Regrouping their products to more focused and specialized categories is an effort in that direction. While their target markets are still too varied to give them a clear identity, putting each sector under strong leadership could steer the company to a more meaningful differentiation and more competitive products.

Instead of promoting Philips as an assortment of products, they can push for more specialized advertising, establishing the brand not just in one but three different sectors. They should carve an identity that will not only serve their 2010 goals but reclaim their place in the industry. Reference Schenker, Jennifer L. Philips Maps Out a New Direction. BusinessWeek. Retrieved July 18, 2009 from http://www. businessweek. com/globalbiz/content/sep2007/gb20070910_101622. htm.

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