PHILIPS STRATEGY CHANGE AND IMPLEMENTATION

Submitted by

Group 12
Aravind P PGP/20/201
Amelie Poirier IE/20/001
Azhakusundhareswaran K PGP/20/204
Louis Francois IE/20/002
Nishi Ranjan Tarai PGP/20/280

Submitted to
Prof. Sumit Mitra
IIM Kozhikode
Contents
1. EXECUTIVE SUMMARY ................................................................................................... 2
2. INTRODUCTION OF THE COMPANY ........................................................................... 3
3. PHILIPS STRATEGY ......................................................................................................... 4
4. GLOBALIZATION ............................................................................................................... 4
5. THE IMPLEMANTATION AND NEED FOR BCS: ........................................................ 5
6. PHILIPS STRATEGY EVALUATION .............................................................................. 7
7. THE BSC AT WORK IN THE BUSINESS UNITS ........................................................... 9
8. OTHER STRENGTHS INCLUDE: .................................................................................. 10
9. BENEFITS OF BALANCED SCORECARD ................................................................... 11

1. EXECUTIVE SUMMARY

Philips is a large multinational company, having presence across the globe. External environment was changing very

rapidly during late 1990s. Being a global company, Philips needed to change the business structure as the existing

structure was not aligned with the global change. Competition from Asian companies like Samsung and LG increased

significantly. Consequently Philips realized its existing operation needs to more flexible, innovative and value added.

The organization used scorecard to identify the critical factors performance of the company which can help to

strategize the future course of action. Keeping focus on the success factors, multiple indicators had been designed

measure markets and operation. I has identified critical success factors as

Competence: Knowledge, technology, leadership and teamwork

Process: drivers for performance

Customer: Value proposition

Financial: Value, growth, productivity

The company used traffic light system to measure performance of indicators in research business units. The result was

shared across the organization to avoid the similar mistakes.

 2. INTRODUCTION OF THE COMPANY

PHILIPS - Koninklijke Philips N.V. - is a Dutch technology company of electronics, healthcare and lightining. It is

one of the largest electronics companies in the world and it is the electronic leader in Europe. In fact, it has 114,188

employees in more than 60 countries. In 2016, it had a turnover of 24.53 milliards euros. Today, Philips chairman is

Joeren Van Der Veer who shares the supervisory board with 6 others stakeholders from 6 different countries. Philips

has for CEO Frans Van Houten, who also share the executive board with 11 people. This company sells 65 products

in Healthcare, lighting or audio products. Indeed, it is one of the most diversified electronics company in the World.

Before analysing the companys strategy, it is important to develop its history in order to understand the moves the

company made for more than a century. Philips was founded in Eindoven, Netherlands, in 1891, by Gerard Philips and

his father Frederik. At first, and till 1915, the company specialized its production in making carbon filaments lamps

and became quickly one of the largest producer in Europe. In 1925, Philips entered the healthcare market by making

the X-ray tube and began its diversification and then its expansion entering China, Brazil or Australia. During the

30s, Philips developed radios transistors. In 1925, they began to produce TV and in 1939 they produced their first

electric shaver. Before World War II, the diversification did not stop. Beside, this expansion and product

diversification became ever wider in the 60s, 70s and 80s with audio cassettes products, innovation in images

transmissions, energy-saving lamps or for example the compact disk in the 80s. During that period, the success of

Philips is global: for instance, in 1984, Philips produced 100 million TV in the World. However, in 1990 in Europe,

Philips faced a big crisis for a world-known company. While Europe was Philips best territory, in the first three months

of the year 1990, the companys profits fell down to 1.9 million of pounds, compared to the 75 million of pounds they
had the year before in Europe. Actually new facts have now to be taken into account. In fact, new actors like Japanese

or Korean competitors entered the market, and globalization had started.

This is the moment when Philips board decided to change the strategy.

3. PHILIPS STRATEGY
The Philips strategy change in 1990 allowed the company to enter the Globalization. To do so, it is important to

describe first the strategy developed by Philips before the change, which means before 1990. Even if the World was

still cut in two parts (Communists vs Capitalists), Philips have been considered as an international company since

1945, because of its presence in many countries.

The problem is that the company was not really global to enter this new age. Indeed, as developed above, the fast

growing history and diversification of Philips allowed the company to have many products in very different areas and

worldwide. To match their market, they developed a decentralised, international organisation structure based on a

matrix system with 9 product groups and 60 countries (national organisations) with separate national managerial

decisions, which could lead to friction with the central headquarter. This strategy was highly diversified, each country

controlled their own production and so their own products. The products werent produced and assembled in a single

plant. In 1990, Philips had 346 plants in the World and 65% of them were in Europe while only 10% were in Far East.

Philips has a high domestic market labour cost, relatively to its Japanese or Korean competitors. This strategy worked

in an international world but not in a Global one, in which everything is more competitive, faster and more effective.

Indeed, Philips had to rethink their strategy in order to enter the globalized world. It had to think about a more

decentralised strategy in terms of location for its plants but a more product focus strategy: having one line of

production for one product in a single country. (Exhibit 2)

4. GLOBALIZATION
Philips focused on geographic expansion with its inclination towards globalization. After its strategy mission

Centurion(1995) and Accelerate!, it had focused on globalization. Philips wanted globalisation to transform itself

from a functional organization to a process-driven end-to-end collaborative network, able to deliver innovative and

sustainable products at a lower cost. Philips hugely utilizes outsourcing to keep its costs low. Cost reduction is a must

for Philips to remain competitive in terms of pricing.

 BEST

PBE - Philips
PST - Process BSC - Balance
Business Excellence
Survey Tools Score Card
Model

But an outsourcing strategy involves many concerns regarding the reliability of the suppliers, the quality of the

products they deliver and the sustainability of their manufacturing processes.

To enhance the viability of its supply chain, Philips created two commitment/control tools.

1. Charts: Through this, Philis reinforced its eco-vision program and inclination towards recyclable materials.

In this, the suppliers sign a set of charts. That commits them to respect the sustainability targets imposed

by Philips.

2. Audits: signing a chart is not a guarantee of quality, nor performance in the long-term. In order to control

their suppliers operations, Philips proceeds to on-site audits. Due to complex huge supply chain, it has to

focus its efforts on suppliers which develop a risk profile.

These tools can be considered as a way to control if suppliers which seem to meet the requirements are performing

well continuously. It also helps in frequent interaction and relationship development with suppliers.

5. THE IMPLEMANTATION AND NEED FOR BCS:

Introduction
In 1990, the dismal financial performance lead to reconstruction

Need
To shift the focus from High Volume to High Value Business

Strategy Introduced BEST Business Excellence through Speed and

Teamwork in 1999
In the late 1990s the external environment was changing rapidly. The then structure did not support the change.

Competition from Asian Companies like Samsung and LG increased. All these changes made Philips realise that its

operations needed to be more flexible, innovative and value added. There was a focus on the removal of SILO

mentality. So, there was re-organization and reduction of business units in the company and had an existing Corporate

Quality Department functioning under the Quality Policy Board.

BEST

Philips wanted to improve the quality of the product and create more innovative products. For this, BEST (Business

Excellence through Speed and Teamwork) was introduced in July 1999, applicable across all processes, facilities and

employees. BEST involved focusing on business priorities, increasing the capability of business processes and

bringing in better team work.

PBE

The Philips Business Excellence Model is based on the European Foundation for Quality Management (EFQM). This

aims at sustainable excellence in which quality, efficiency and sustainability are the key elements. The basis of the

EFQM Model is the Total Quality Management (TQM) concept. The EFQM Model consists of nine criteria that are

subdivided into five Enablers and four Results

LEADERSHIP

Define goals and show directions

Set priorities

Lead by example

Inspire commitment

Manage overall process

PROCESSES

Achieve sustainable excellent results

World class processes

Deliver outstanding results

Processes must be robust, simple, dynamic

Adaptable to changing business

Improve over time

RESULTS

Measuring all the business results of a company is very critical

It determines business excellence

Measured by customers, employees, society and financial community

6. PHILIPS STRATEGY EVALUATION

High Volume Electronics Healthcare and lifestyle

(1990s) (2000s)

Portfolio One Philips

Restructuring Growth

Volatility Value Creation

Lets Make Things Better Sense and Simplicity

The Balanced Scorecard

It is used to align the company vision, focus employees on how they fit into big picture, and educate on what

drives the business. The benefit would be to manage the complex international company into streamlined process and

product flows.

The drive to implement balanced scorecard at Philips Electronics initiated from the top to down as a directive

from the Board of Management in Europe to all Philips divisions and companies worldwide. The directive went to the

companies and their quality departments, with the effort in the medical division supervised by the Quality Steering

Committee that reports to the president of Philips Medical Systems. Philips Electronics has used the balanced

scorecard to align company vision, to motivate employees on how they fit into the big picture, and to educate them on

what drives the business. An essential aid to communicating the business strategy, the BSC helps as a vehicle to take

key financial indicators and form a quantitative expression of the business strategy. This is used to guide business

reviews to promote the organizational learning and continuous improvement worldwide.

Implementation

Philips balanced scorecard was created based on the understanding what drives the current performance was

the base for determining how to attain the forthcoming results. With this understanding, Philips designed the scorecard

to deliver a shared understanding of organizations strategic policies and the vision of future. The operating principle

in the design was to determine the factors that were critical for accomplishing the companys strategic goals. The tools

have helped Philips Electronics focus on factors critical for their business success and align hundreds of indicators

that measure their markets, operations, and laboratories. The variables for creating the value, which are identified as

four critical success factors (CSFs) on Philips Electronics BSC, are:

Competence (knowledge, technology, leadership, and teamwork),

Processes (drivers for performance),

Customers (value propositions), and

Financial (value, growth, and productivity).

Philips wanted to make implicit assumptions about the way the businesses creates value explicitly through

CSFs. In other words, the goal was to explain assumed relationships such as customer satisfaction into critical success

factors to measure performance. To do so, they the financial and customer CSFs which give a competitive edge was
identified, and then the process CSFs, that have the greatest impact on the financial and customer CSFs giving the

company that edge, were determined. Competence CSFs bring required process, customer, and financial results. The

team established the performance management system that measures the progress toward corporate vision. This

system links the short-term actions with the long-term strategy so that employees understand how the day-to-day

activities help achieve companys stated goals.

BSC helps in communication down the organization about the vital goals and the business priorities. Top management

initially deployed the BSC by setting annual operational targets, which were brought down through organizational

layers as goals for the divisions worldwide and objectives at the business unit level.

The top level critical success factors should be linked to the business strategy and the same be communicated to all

the employees. The BCS has three levels. Strategy Review Card, followed by Operations, and the last one is Business

Unit card. Now the plan is on to introduce another card, Employee involvement card.

The corporate quality department created specific guidelines for metric linkage for the entire company. All the top

critical success factors in the scorecard of a given department should be connected to the low level parameters. This

is important to achieve the objectives. Three criteria were established to accomplish this. The Top-level CSFs shall

be accompanied by the low level CSFs so that the required metrics are met.

The second is continuity: Critical success factors must be connected through all levels, and lower-level measurements

shouldnt have longer cycle times than higher-level measurements. The third is Robustness: Lower level CSF should

result into higher level CSF. Otherwise, they are considered useless. Goals in all card levels align with goals in the

next level above, and goals become fewer and less complex as you drill down through the organization.

7. THE BSC AT WORK IN THE BUSINESS UNITS

At the business unit level, critical success factors were developed for each of the four perspectives of the card

competence, processes, customers, and financial. The departments were asked to choose those CSFs for which they

had major responsibility. The management team of each business unit reached consensus on which CSFs differentiate

the business unit from the competition. A value map for price against performance for competitor products was done.

It helped in deriving CSFs. Process CSFs were based on its influence in translating into customer requirements.

Competence CSFs were identified by determining what human resources and competencies were required to deliver

the other three perspectives of the card. Financial CSFs were some of the standard financial measurement parameters.
 The next was to figure out key indicators at business level to measure the performance of CSF. Assumptions

about relationships between processes and results were quantified and performance drivers determined.

Targets were then set based on the gap between present performance and desired performance for the current

year plus two and four years in the future. The criteria: Targets must be specific, measurable, ambitious, realistic, and

time-phased. Targets are derived from an analysis of market size, customer base, brand equity, innovation capability,

and world-class performance.

Lets look at the implementation of BCS at Philips Medical Systems North America (PMSNA). It helped in

focusing to become a $1 billion company by the year 2001. It simultaneously guided a cultural change effort to increase

accountability for results. Creation of Operations Score card greatly helped in achieving the goals. Data are

automatically put in online BSC report, which immediately provides new results. An upcoming enhancement to

customer service and satisfaction reporting will be the automatic feed of data gathered by the Gallup Organization

into the online BSC report in a similar fashion.

To share the metrics with employees, Philips Electronics uses traffic-light reporting to indicate how the actual

performance compares with the target. Green indicates meeting target, yellow indicates in-line performance, and red

warns that performance is below target. The visibility of results using a traffic-light model means ease-of-use with

quick, easily recognizable metrics.

8. OTHER STRENGTHS INCLUDE:

BSC encourages sharing the best practices and helps to communicate the same across the world network. Each element

of the card has an owner whom employees can contact to share success strategies and product fixes. BSC fosters

communication, collaboration, and problem solving. BSC also supports to maintain a knowledge base which can aid

in cultural change. If a metric is in the red zone, the employee can quickly access how to fix potential problems and

avoid repeating others mistakes, saving time and money in problem solving.

Out of more than 250,000, around 22,000 employees have chosen to share project knowledge and interests on a

voluntary basis. Employees working on similar projects can communicate successes and pitfalls using the Yellow

Pages on the employee intranet. The BSC makes the owner accountable for each element on the card.
 9. BENEFITS OF BALANCED SCORECARD

After implementing the balanced scorecard strategy, the company was able to attend improved result in all the critical

success factors. All the factors are measured through multiple parameters.

Success factors Indicators

Economic profit realized

Income from operation

Working capital

Financial Operational cash flow

Inventory turnover

Rank in customer survey

Market share

Customer Repeat order rate

Complaints

Brand index

% Reduction in process cycle time

Number of engineering changes

Internal process Capacity utilization

Order process time

Process capability

Leader competence

Learning and growth % of protected turnover

Training days per employee

Quality improvement team participation

During periodic review of performances, Balanced Scorecard is used to check the actual performance is meeting the

expected target. And hence the results are used to get future plan of action. In Philips, the method has been

implemented in multiple business units. In research unit, it has been used using traffic light mechanism.

Process objective Performance indicator Actual

Q3 2002 Q4 2002

Building and sustaining a Number of invention disclosures Green Green

strong position Number of patent fillings Yellow Green

Supporting the reputation Number of invited papers for external Green Green

of Philips as an innovative journals/conference

electronics company Total number of coverage of different research Green Green

subjects

Transfer of human capital % of well-functioning employees transferred to other Red Red

to Philips PDs Philips organization as part of total transfer

Implementation of BEST Progress of implementation Green Green

Managing HR and % of key functioning having an identified successor Yellow Yellow

management development with a well-defined development plan

for optimum benefit for

staff and Philips

Ensuring a creative and % of sectors / service evaluated as green by employees Yellow yellow

exciting environment

After knowing the result, the employees got to know where they are making the mistakes and how to rectify those.
 EXHIBIT 1 :

Country 1 Product 1 Product 2 Product 3

Do : Management, own Do : Management, own Do : Management, own

independent structure production line, own production line, own production line, own

marketing, own sales marketing, own sales marketing, own sales

policies policies policies

Country 2 Product 1 Product 2 Product 3

Do : Management, own Do : Management, own Do : Management, own

independent structure production line, own production line, own production line, own

marketing, own sales marketing, own sales marketing, own sales

policies policies policies

Country 3 Product 1 Product 2 Product 3

Do : Management, own Do : Management, own Do : Management, own

independent structure production line, own production line, own production line, own

marketing, own sales marketing, own sales marketing, own sales

policies policies policies

EXHIBIT 2 :
REFERENCES :

1. https://books.google.co.in/books?id=_Xand6SKjigC&pg=PA71&lpg=PA71&dq=strateg
y+philips+before+1990&source=bl&ots=8NE850BQJj&sig=U5o7CT31OLe6l3hfdtaq0
OX05AQ&hl=fr&sa=X&ved=0ahUKEwiNiuz_srHXAhVDNY8KHf3nAocQ6AEIMzAF#v
=onepage&q=strategy%20philips%20before%201990&f=false

2. https://en.wikipedia.org/wiki/Philips#Products

3. https://www.philips.com/a-w/about/company/our-heritage.html

4. http://www.adaptivecycle.nl/index.php?title=Case_study:_Philips_:_Innovation_and_change_m
anagement_in_global_organizations:_the_case_study_of

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