Case #4.

WESTINGHOUSE

In 1969, Westinghouse's top management noted with concern that its chief rival, General
Electric, gained 25 percent of its sales abroad compared to only & percent by Westinghouse. Top
management was determined to compete more vigorously against GE in foreign markets. At that
time, Westinghouse had a separate operation, Westinghouse Electric International Company,
which was located in New York, away from corporate headquarters in Pittsburgh Between 1969
and 1971, overseas volume increased to 15 percent of sales; and the chairman, Donald C.
Burnham, said, "I've set a goal that 30 percent of our business will be outside the U.S. I hope to
get there and then set a bigger goal." The spurt in foreign sales was largely the result of the
aggressive pursuit of overseas acquisitions. This marked a substantial change in foreign
operating practice, an as much as Westinghouse had depended almost entirely on exports and
licensing agreements for its foreign sales since World War I, when its three European
subsidiaries were confiscated.

From 1969 to 1971, the International Company operated alongside four other Westinghouse
divisions. These were operated as companies that were each in charge of a group of diverse
products. A major complaint of the International Company was that the four other companies
tended to view foreign operations as merely an appendage to which they were unwilling to give
sufficient technical or even product assistance. Since the International Company had to depend
on the product groups for anything that it was going to export, there were problems of gaining
continued assured supplies. The product companies were quite willing to divert output abroad
when they had surplus production but were reluctant when there were shortages. This was
largely because the International Company rather than the Product Company got credit for the
sales and profits. Likewise, the products groups were reluctant to lend their best personnel to the
International Company to assist in exportation of highly technical orders or to lend support to
production from foreign licensing and subsidiaries.

As a partial result of these complaints, Westinghouse eliminated the international division of

1971, The four product0based companies were than put in charge of worldwide control of
production and sale of their goods. (Westinghouse produces more than 8000 different products).
The philosophy was that the people in those divisions would have a greater capability of selling

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(because of their access to product technology) than the disbanded company. Second, since they
would now be evaluated on their foreign successes, they would be willing to divert resources to
international development. Another factor that affected the decision to move to a worldwide
product organization from that of an international division was that GE had made a similar move
with apparent success a few years earlier.

At the time that responsibilities were shifted to the domestic division many of the managers from
the formerly New York - based International Company did not conceal their belief that "those
unsophisticated hicks back in Steeltown couldn't be trusted to fins U.S. consulates abroad let
alone customers." Although management in each of the four product companies was free to
pursue foreign business or not, each chose to do so. Between 1971 and 1976, foreign sales grew
to 31 percent of the Westinghouse total. During this five-year period, product diversity continued
to grow. The product emphasis was further accentuated in 1976, when the company was
recognized into thirty-seven operating groups known as great deal of autonomy, including a free
hand abroad.

From 1976 through 1978, foreign sales of Westinghouse fell to 24 percent of its total. The
extension of responsibility by product units further complicated cooperation among units and
created problems of duplication in foreign markets, Many horror stories surfaced, For instance, a
company salesperson called on a Saudi businessman who pulled out business cards from sales
people. Who had visited him from twenty-four other business units.

His question was "Who speaks for Westinghouse?" In another situation different units had
established subsidiaries in the same country. One had excess cash while another was borrowing
locally at an exorbitant rate. In many cases, large projects would require the ultimate cooperation
among business units to carry out different parts. Art times, units could not agree in time to put
together a package and lost out of foreign competition such as Brown Boveri from Switzerland
and Hitachi from Japan. In a case in Brazil, three different sales groups were calling on the same
customer for the same job.

By 1978 the vice-chairman and chief operating officer of Westinghouse was Douglas Danforth.
He was highly interested in international expansion not only because he expected greater he had

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previously worked in the Mexican and Canadian subsidiaries. In early 1979 he enlisted a
Westinghouse executive to head an exhaustive study of the firm's international operations and to
make a recommendation within ninety days. The study group interviewed Westinghouse
personnel in the United States and abroad. It also determined how other firms were handling
their international operations. The recommendations wad to move to a matrix system with a head
of international operations. The international operations were then to be organized along
geographic lines including three regions. This was adopted. To get a consensus among the people
in charge of product and geographic areas was a major departure from Westinghouse's product
orientation. Danforth told the company's top 220 managers that "some of you will adjust and
survive and some of you won't.

Dabforth announced that he wanted 35 percent of Westinghouse's sales to be coming from

abroad by 1984. Seventeen countries were identified as having the highest potential, and these
were examined in detail. To carry out the planned growth, it has been necessary to much country
unit plans with product unit plans. In other words, if a product unit wants switch gear in Brazil
increased by 40 percent and the Brazilian country manager wants to inquiries it by 50 percent
they must either work out an agreement or refer the decision upward in the organization to the
next higher product and geographic heads. Disagreement can effectively go as high as the top-
level operating committee, which consists of the chairman, vice-chairman, three presidents of
product groups, the top financial officer and the president of the international group. The 1980
annual report showed export sales of $ 1.2 billion and sales from foreign production of $1.1
billion. The combination comprised 27 percent of Westinghouse's total.

Questions:

(i) What have been the organizational problems inhibiting the international growth of
Westinghouse?

(ii) What organizational characteristics may affect the successful implementation of

the matrix management at Westinghouse?

(iii) How can a firm such as Westinghouse go about implementing a goal to increase
the percentage of its sales accounted for by foreign operations

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