Regarding to organizational effectiveness theories.

Built in 1891, the company had high potential in the past. However, despite the numerous subsidiaries and an enormously large work force, the company failed to maintain a good performance level. In the 1990s, the company lost around $2.2 billion although a lot of focus had been on the improvement of performance. There are a number of reasons that are responsible for the failure of the company.

The first and foremost reason for the dwindling for the progress of Philips was the fact that there had always been the problem of the relative distribution of power between the national organizations and the product divisions of the company. The product divisions were responsible for the manufacturing and the Research & Development sector while the national organizations were to monitor the day to day business of the company in different countries. Technically, the product divisions should have been given more importance, as they focused on and acted globally. though the same did not hold valid when it came to the real scenario.

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Since the company originally was from Netherlands, most of the managers of the company were Dutch. The Board of members belonging to a particular region posed a risk to the working of the national organizations. The national organizations were basically designed to work autonomously so that the needs of different countries, being different from each other, could be served. At times, the purpose of providing of autonomy was not really fulfilled. Yet the national organizations were still more important than the product divisions. There were attempts that had been made to give more power and credit to the product divisions, which acted universally, rather than the national organizations, which differed across countries. However there was little that changed the situation.

Along with structural issues that the company was facing, there were environmental issues too.

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