Q1. Management Control Problems in Philips China


Management control is the alignment of people’s behaviour and decisions with the organisation objective and strategy. Roberts, H (2007)

Philips believed that changing to a matrix organisation allowed improvement in the synergies between the businesses. Implementing a change is to improve a situation, not to set back an organization. In this case, it caused loss of structure and oversight unclear responsibilities and lack of accounting measures. The current problems before shifting to a more centralised strategy (TOP) are listed below:

    • No clear line of responsibilities of the business units (accounting control) – decentralized units without coordination from the country corporate organisation.

    • The double line reporting (from country PD to both regional PD and the country corporate organisation) imposed some problems in the responsibility such as who should assess performance and who should decide when the Regional PD and country organisation had different opinions?

    • The country corporate organisation only act as a functional service provider responsible in deploying programs and policies. The PD’s, who have their own budgets, answer to the higher level PD’s and act in their own interest. This does not allow the country corporate organisation to impose changes and collaborate between the BU’s in creating synergies between the units.

    • Goal Congruence ≠ Behavioural Congruence- The different BU’s strategies  does not allow the organisation to pursue a common goal as the respective PD is acting on behalf of the regional PD’s policies. The diversified units within each PD’s could differ significantly resulting in units acting as independent companies with independent goals and strategies

    • Philips was unable to capture, create and aligning a common culture within the organisation when growing through Merges & Acquisitions (M&A) and Joint Ventures (JV).

    • Corporate organisation need to communicate, educate and enable a feel of  ownership to the processes within the PD’s (Executives saw imminent need for integration but units did not)

    • Lack of Effective Governance structure. Different types of control measurements used in different parts of the organization (amongst JV’s and  wholly owned foreign enterprises WOFE)

    • Organizational Coordination Problem – as a direct result of the matrix organization (i.e. structure and work design) leading to lack of synergies and coordination among the business units and increase in internal transaction costs.

    • Lack of motivation – caused by cultural misfit between the different organizations merging with Philips through M&As and JVs resulting in goal incongruence, i.e. unit’s or personal goals different from organizational goals.

    • HR problems – limiting the need for training, knowledge sharing and information processing à Low capability development to match increasing growth.