Question

After a dismal financial performance during the 1990s, Netherlands based Royal Philips NV (Philips) embarked on a restructuring exercise, to turn the company around. The efforts continued till the late 1990s, as even during the mid-1990s, the company reported losses. Due to high manufacturing costs, the products could not be priced competitively. Rapid changes in the external business environment and growing competition due to Asian manufacturers made Philips realize the need to transform into a flexible organization and shift focus from high-volume business to high-value business.During the late 1990s the external environment was changing rapidly and Philips needed to respond quickly to these changes. However, the existing organization structure at Philips did not support this kind of change.
At Philips, the initiative to implement the Balanced Scorecard system came from the top management at its headquarters in the Netherlands. All the subsidiaries of Philips across the world were instructed by their quality departments on how to go about with the implementation. During the periodical management reviews, the Balanced Scorecard was used as an instrument to evaluate actual performance against the targets and to monitor future plans. Philips used the traffic light system with the green light indicating a target that had been met, amber indicating performance in line with the target, and red denoting a problem area, to measure the level of achievement of the key indicators. The employees were more loyal to the business unit in which they were working rather than the company as a whole.

Answer the following Questions:
A. Discuss the reasons for the requirement of quick changes at Philips.
B. Examine how Philips successfully utilized Balanced Scorecard as a tool to communicate corporate strategy.

Answer 1

Answer:

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Answer 2

The answers are given as follows:

Explanation:

A. The reasons for the requirement of quick changes at Philips were:

• 1. Incompetitively priced products were not profitable because of high manufacturing costs.

• 2. There were rapid changes in the external environment for the businesses.

• 3. Competition from Asian Manufacturers was increasing, which lead to the downfall of Philips.

B. This is how Philips successfully utilized Balanced Scorecard as a tool to communicate corporate strategy:

• 1. Philips guided all the divisions across the world on how to use the new strategy.

• 2. They used the balanced scorecard to determine the actual performance in contrast to the targets and also to scrutinize its future plans.

• 3. They also employed the traffic light system in which green light indicated the accomplished targets, amber light indicated the in-line targets, and red light indicated problematic areas. All of this was done to evaluate the level of achievements of the key indicators.