philips CEO speech in JapanOct.docx
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philips CEO speech in JapanOct.docx
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philipsCEOspeechinJapanOct
TransformingPhilipsfromahighvolumeelectronicscompanytoagloballeaderinHealthcare,LightingandConsumerLifestyle
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NikkeiGlobalManagementForumOctober29th:
“ManagementStrategiesforRealizingGlobalCompetitiveness”
∙Clickheretodownloadthepresentationslides
Transformthecompanytobecometrulymarket-driven
1Introslide
LadiesandGentlemen
It’sagreatprivilegetoaddresssuchadistinguishedaudienceonthebroadthemeofglobalcompetitiveness.
I’dlikemakeastartwithaveryobviouspointthat’spartlyhiddenbehindtheharmless-soundingword“competitiveness”.Youcan’thavecompetitivenesswithoutcompetitors.Tradingblocs,countries,industries,companies,technologiesandevenindividualsallcompetewitheachotherintheglobaleconomy.
It’scommonwisdomtosaythatcompetitionmakesonestronger.Ibelievecompetitionmakesuschangeandgrow.Mytopictodayistheprocessoftransformationthatcompaniesmustundergotobecometrulycompetitiveonaglobalscale.
EverychildknowsexactlywhatTransformersareandso,Ibelieve,doyou….TheywereinventedrighthereinJapan.
TransformersonlybecameabigworldwidehitthissummerthankstoaHollywoodmovie.OnemomentTransformersareharmlesschildren’stoyswithfamiliarshapes,andthenextamysteriouschangeturnsthemintorobotswithawesomepower.
ButevenHollywood’swildestimaginationisdwarfedbythepaceandscaleofchangeintherealworldunleashedbycompetition.
TodayIwanttotalkaboutTransformersinbusiness–andIhopeyou’llallowmeusemyowncompany,PhilipsElectronics,asacasestudyinchange-ledinnovation.SomystoryisallabouttransformingPhilipsfromahighvolumeelectronicscompanytoagloballeaderinHealthcare,LightingandConsumerLifestyle.
Weseehugechangesoutthereaffectingotherindustries–pharmaceuticals,telecomsandITtonamejustafew.IhopewhatIhavetosayaboutchangemaybeapplicabletoyourownareaofbusiness.
Slide2.Smilingcurveslide
Ourtransformationjourneystartedinthelate1990swiththeobservationthatthedaysofverticallyintegratedtechnologycompanieswerecounted.Intheworldofelectronics,wefoundthatmostaddedvaluewasincreasinglytobefoundatthetwoendsofthechain.Ontheonehand,alotofvalueiscreatedonthetechnologyside,i.e.inR&D,bymeansofpatentsandthecreationofstandardswiththecorrespondinglicensingprograms.
Ontheotherhand,inaworldwheretheconsumerisfacedwithendlesschoices,astrongbrandanddirectcontactwiththeconsumerprovideexcellentopportunitiesforcreatingaddedvalue.Themiddlepart,thestraightforwardassemblyofelectronics,isnolongeranactivitywithwhichcompanieslikeourscandistinguishthemselvesorachieveacompetitiveedge.
Thisphenomenonisknownasthe‘SmilingCurve’,whichStanShih,thewell-knownfounderoftheTaiwanesecomputercompanyAcer,formulatedfortheHighVolumeElectronicssectorinthe1990s,andintoday’sdigitalworld,thisphenomenonisevenmoreapparent.
Soafterwenotedthis,theveryfirstthingwedidwasgettingridofourmanufacturingactivitieswherewedidnothaveacompetitiveadvantage.Mindyou,we’restillproducingalotofproductsourselves.Inlightingforexample,orinourrotatingshavingheads,thereisalotofhightechmanufacturingthatnoonecandobetterthanus.Butassemblytypeofworkhasallbeenoutsourcedlongago.
Buttherewasmoretodo.Werealizedthatincreasinglythetraditional,verticallyintegratedelectronicsindustryincreasinglywaspartingintothreedifferentsectors–atechnology-focused,componentstypeofindustry,amanufacturingindustryandanapplicationsindustry.Eachoftheseplayadifferentgame,withdifferentrules,andeachattractsdifferentstake-andshareholders.
WeatPhilipswereoneofthefirstcompaniestoanticipatethisdevelopmentandfundamentallyrepositionourselves.Wehavemadethestrategicchoicetoplaytheapplicationsgame.Thisdecisionformedthebasisofthetransformationprocesswehavesubsequentlypursued.
Slide3.Redefiningstrategy–becomingmarketdriven
Choosingtheapplicationsgamewasnotanobviouschoice,becauseatthattimePhilipswasverymuchperceivedandoperatingasatechnologycompany.OurvolatileSemiconductors,ComponentsandConsumerElectronicsdivisionswereattheheartofthecompany,whilethemoreapplicationorientedMedical,LightingandDomesticAppliancesbusinessesweresolidperformersinthebackground.
Wehavecompletelyrebuiltthisportfolio.ThemajorityofourComponentsactivitieshavecontinuedontheirownorwithothers,forexamplethesuccessfulLCDmanufacturerLG.PhilipsLCDwasfoundedin1999.LastyearwehadamajorsuccessinsellingamajoritystakeofoursemiconductordivisiontoagroupofprivateequityinvestorsandfoundingthenewcompanyNXP.OntheotherhandwehaveinvestedalmostEUR5billioninacquisitionsoverthelasttwoyearsalonetostrengthenourhealthcareandlightingbusiness.Andwefundamentallychangedourconsumerelectronicsstrategybygoingbeyondtraditionalaudioandvideotechnologyappliancestoconsumers’broaderlifestyle,emotionalandexperientialneedsandinterests.
Butrebuildingtheportfolioisnotenoughtotransformacompanywithacentury-oldheritage.Werealizedthatifwewantedtobeintheapplicationsbusiness,wealsoneededtomaketheusersofourapplicationsthefocuspointofallourdecisionsandactions.Inshort,Philipshadtobecomepeoplefocusedandmarketdriven,ratherthantechnologydriven.Thisistheessenceofourtransformation,representingahugeturnaroundcomparedwithourpositionintheindustryonlyafewyearsago.Aturnaroundthatmanyofourcompetitorsstillhaveaheadofthem.Letmegointomoredetailsonafewofthethingswedidtoachievethat.
Werelaunchedourbrandin2005aroundthepromiseofsenseandsimplicity,reflectingourvisionthatpeoplewantthebenefitsfromtechnologywithoutthehassles. Theestablishmentofastrong,single,recognizableandappealingbrandhelpedusrisefrom65thto42ndplaceintheInterbrandlistoftheworld’smostvaluablebrands.
Slide4:
BrandIceberg
Simplicityisn’tjustabrandslogan:
it’sourdifferentiation,bothintheproductsandservicesweofferandinthewayweinteractinternallyandwithourcustomersandstakeholders.Simplicityiswayofbehavingthataffectseverythingwemakeanddo.Forinstance,onNovember15thall128,000PhilipsemployeeswillcelebrateSimplicityDay,duringwhicheveryonegetstogethertodevelopideasandproposalsforlivingthebrand.
Thisillustratesthattransformingacompanyinvolvesmanystagesandhasmanylayers–somestraightforwardbusinessschoolassignments,someinvolvingthesofterstuffofpeoplemotivationandculturalchange.
Itinvolvesremodelingtheportfolioofbusinessesandrelaunchingthebrand,asIjustdiscussed.Itinvolvesaprocessofinternaltidyinguptoincreaseefficiencyandimprovefinancialperformancebyoptimizingthebalancesheet.Itmeansasharperstrategyand,asI’vesaid,amarketledapproachthatensuresthebusinessprovideswhatitscustomerswant.That’stheeasypart.
Theharderpart,is,asI’vehinted,thepeople-basedbit.Trulygreatcompanieshavecommoncharacteristics.Anentrepreneurialculture.Aworkforcethat’salignedandengagedtogiveofitsbestbecausethereisenthusiasticacceptanceofthevisionandvaluesofthecompany.Suchpeopledon’tjustcometoworktogetby:
theycometoworktodosomegood.
Andwe’repreparedtoengagecustomers,thoughtleadersandstakeholdersintheproductcreationprocess.LastweekwelaunchedourthirdSimplicityEventinLondon.Thisfeaturesgroundbreakingconceptsandworkingmodelsthatmay–ormaynot–becomePhilipsproducts.Likeajetlag-bustinglightingsystemtosootheandrestoretravelersininternationalhotels.Likeafamily-friendlypre-natalscannersuitethatallowscouplestoexperiencethewonderofanewbaby,withouttechnologygettingintheway.Likeahospitalroomthatfeelsjustlikebeingathome,yetallowsthedoctorstodotheirworkbetter.
Slide5:
Innovation
I’veexplainedyouthatwemadethechoicetobeintheapplicationsindustry,ratherthaninthetechnologyindustry.Thatdoesnotmeanwe’vegivenupinnovation.Onthecontrary!
Webetheavilyoninnovation.We’verisenalmost30placesintheBusinessWeekrankingoftheworld’s100mostinnovativecompanies,puttingusonplace38.
Whathaschangedisourfocusininnovation.Whereinthepastinnovationwasmainlydrivenbythelatesttechnology,wenowtakeuserinsightsasthestartingpoint.AcrossthecompanyweareusingatoolcalledValuePropositionHouse,whichisastandardwayofrepresentingavaluepropositionwewanttobringtomarket,capturingwhat'sinitforthetargetgroup,whytheywouldbelieveit,andwhatmakestheofferingdistinctive.Wealsomakesurewebringthetwoendsoftheinnovationchain(R&Dandmarketing)togetherandweareinvolvingendusersintheveryearlystagesofourR&D.
Wealsochangedinnovationtofocusmuchmoreonrealbreak-throughinnovationratherthanincrementalsteps.Thishasalreadypaidoff.Ournewproductratehasincreasedfromabout25%in2003towellover50%.
Innovationmeansinvestinginideasandthepeoplewhocreatethem.PhilipshasasubstantialR&Dprogram.Butmorethanthat,wearealeaderinexploringwhat’scalled‘Openinnovation”.Insteadofworkingoninnovato
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