Case study: Philips : Innovation and change management in global organizations

During the 20th century, Philips has developed a very strong brand image and a broad physical presence around the
world through the sales of its electrical appliances. The Philips brand has always been a reference in the industry, both
for the quality of the products and for their innovative aspect. Also, the firm was one of the first to introduce the concept
of sustainability into its corporate culture and strategy. Indeed, early on, Philips started to care for the social rights of
its employees and against the pollution generated by its factories. Over time, it also started to diversify its activities.
While in the beginning the firm was almost exclusively active in the lighting industry, it has developed core competencies
in the healthcare industry (medical equipment) and in the customer lifestyle industry (day-to-day consumer products
and electronic devices). The three business units enable the company to reach different markets and largely contribute to
the firms economic rise around the world. But in business (and even more in technology), times change and companies
have to stay open up to their internal and external environment if they want to keep up and stay competitive.
Expectations towards the case study
The purpose of this case study is to try to understand what a company can do to renew itself over time and to overcome
crisis situation. Particularly, analysis of the activity of a global company will inform us of the change mechanisms that
must enter into action. Actually, in order to adapt itself to the external realities of the economy, Philips has had to lead
several internal revolutions. The three revolutions that are going to be presented in this document have taken place at
different times in Philips history and all have their influence on what the company is today and on what it will be in the
future. When analysing these three revolutions (managerial, cultural and operational), it will be interesting to connect
the output of our observations with the theory of the Adaptive Cycle. More specifically, it will be interesting to observe
how the revolutions fit into the four quadrants of the model and how they influence the capacity of Philips to react to
change. It will also be of high interest to understand how change can be introduced, integrated and how it can add value
to the overall company structure.
Interviews & research background
Regarding the methodology and our working background, we based our research exclusively on qualitative elements. On
one hand, we interviewed three employees working at Philips, in departments related to our field of analyse. The main
interview was realized on the 6th of December 2012 at Philips HQ (Amsterdam) in the presence of Ton van Veen
(Sustainability Director Netherlands), Renee Walraven (Consumer Marketing Manager in the Avent Department) and
Leonie Boelens (Integral Project Leader and M&CC Sustainability Officer in Eindhoven). A questionnaire had been
designed and distributed before the interview so that the participants were aware of the content of the interview. In
addition to the interview, we also attended to a speech given by a former Dutch Technology Head of Philips, Jan Post. This
speech, given during an Alumni event late in November, was very inspiring for us as it was related to the Philips ability
to produce and diffuse meaningful innovations. The combination of the interview and the speech created a consistent
practical background for our research.
Besides this practical background, we tried to make theoretical assumptions and to establish connections with the
research material that has been put at our disposal in the framework of the VODC course. In order to go into detail, we
also relied on specialized literature on Philips and on corporate business reports issued by the firm itself.
All in all, we believe that these elements have formed a complete body of qualitative knowledge we explored through this
case study.
The different (recent) revolutions inside Philips
The 1st revolution: Creative destruction and business potential stimulation
In the late eighties, Philips had to start struggling against fierce competition and the emerging of the Asian economies has
reinforced this trend. In 1990, after the firm had lost a lot of market share to competitors in many different industries,
the company, which employed around 300.000 people at that time, was at risk to go bankrupt. At corporate level, it
seemed obvious that a strategic change in the leadership was unavoidable. A massive change programme was then
introduced in 1990 by the former CEO Jan Timmer. The change programme, known under the name of the Centurion,
was so aggressive that thousands of people (45.000) were fired, the business units were all reorganized and the
corporate strategy was totally redesigned.
More specifically, as the firm was losing its fight against its Japanese competitors (Sony, Canon, etc.), Timmers idea was
to integrate a set of Total Quality Management and Continuous Improvement programmes at all levels of the
organization. The change process was enforced from the top and touched heavily all the level of hierarchy. In fact, Philips
changed its behaviour from a comprehensive and open leadership to become more strict and dominant. Actually, the
leadership behaviour was in phase with the idea to force a breakthrough in order to stop the bleeding and to ensure the
survival of the company. The Centurion programme took about 5 five years before organizational equilibrium was
reached again. After this period, Timmer estimated that continuous improvement would no longer be realized through
brute force, but through upgrading managerial skills, detecting opportunities, empowering staff and enhancing

communication. The new slogan Lets make things better reflects the new spirit of Philips. This first revolution in
Philips recent history can be characterized as systemic and rational.
Within the same idea, but from a different perspective, the firm launched the change programme Accelerate! in 2011,
which has been proposed by the current CEO of Philips, Frans van Houten. This programme aims to unlock the potential
of the firm at every levels in order to increase its overall competitiveness. It is said that Accelerate! aims to significantly
boost profitable growth by reducing complexity (and working capital) and driving productivity. It is centred on three key
behaviours: eager to win (competitiveness), take ownership (empowerment) and team up to excel (exploitation of the
working capital). At first sight the programme can be seen as for very comprehensive, as it actually represents a
fundamental step for Philips to overcome the crisis times the firm is confronted with since 2009.
In parallel to the abovementioned change programmes, Philips also strives to reach two other business objectives: to be a
sustainable actor of the globalisation and to be a meaningful innovator to the customer. Both objectives summarise a
strong willingness to remain an international innovator in the future. These objectives involve two other revolutions in
the sense of Christensen and Perez.
The 2nd revolution: To be a sustainable actor of the globalisation
According to its involvement in massive change programmes over time, Philips seems to understand the business as
usual dangers and focused its effort on helping the company to grow again. Then, from the end of the Centurion (1995)
up to the Accelerate!, Philips has developed a strategy of geographic expansion. Actually, the firm did not want to miss
the train of globalisation. More especially, the firm wants to make use of the globalisation in order 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. To this end, Philips keeps on outsourcing the majority of its manufacturing in order
to reduce costs. Cost reduction is a must for Philips to remain competitive in terms of pricing. 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. In order to ensure the viability of its supply chain, Philips has developed
two main commitment/control tools. These tools are the following:
Charts: in the framework of the Eco-Vision programme, which for example aims to improve the energy efficiency of its
plants by 50% and to increase the usage of recycled materials in its products by 2015, Philips suppliers are held to sign a
set of charts. That commits them to respect the sustainability targets imposed by Philips.
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. Given the size and the complexity of its supply chain, the firm
has to focus its efforts on suppliers which develop a risk profile. In 2011, Philips audited 212 of them in terms of
continual performance. Besides them, suppliers from new acquisitions (Saeco, Apex, etc.) have also been audited and
evaluated.
These tools can be considered as a way to control if suppliers which seem to meet the requirements are performing well
continuously. Beside the control aspect of the process, they also constitute an opportunity for both parties to be in
contact with each other and to share ideas in order to improve their relationship.
The 3th revolution: To be a meaningful innovator to consumer
Philips seems to be very aware of the fact that nowadays economy is driven by customers desires and needs. Over time,
Philips has changed its approach from a push organization, which aims to produce in mass, to a customer-centric
organization. Even if Philips has always been considered as an innovative company, this change has many consequences,
both at strategic and operational levels.
As the customer becomes the centre of attention, the company has to listen to him, understand him and propose him
something that can satisfy him. From there, Philips has developed different approaches aiming to reach excellence in
customer satisfaction.
a) Local empowerment
In a concern to get closer to its customers, Philips has developed a solid physical presence in each market it is active in
over time. The first goal of these local cooperatives is to run the business accordingly to the corporate strategy even
when far away from the head-quarters. In order to understand local specifications and to understand which products are
the most desired by local customers, their mission is also to analyse the market and explore any opportunities Philips
could make profit from. To Philips, local empowerment is best strategy to position itself in the heart of international
innovation. In practice, the results of the market researches conducted by the local cooperatives are communicated to
head-quarters in the Netherlands which owns the decision making power. A good example is the concept of soya milk
makers in Asia (in especially in China). Local cooperatives have detected that Chinese appreciated the fact to make their
own soy milk at home, rather than buying pre-made alternative. Consequently, Philips HQ gave its approval and support
to the cooperative to develop a new concept of soya makers. After two years of developments and tests, the concept is
now patented and sold locally in China.

Philips intends to empower local organizations so that the overall structure can faster react to market changes and to
develop disruptive innovations (cfr. Accelerate!).
b) Research Centres of Excellence
As customers needs do not stop evolving over time, massive investment in R&D must be made by a firm like Philips. In
highly internationalized organizations, geographic expansion is often accompanied by a qualitative dimension. In fact,
Philips considers that manufacturing abroad must be supported by technological development early on. By Philips, this
qualitative dimension is materialized by its research centres. In the early ages, these centres were working quite
autonomously without discovery of sufficient innovations in line with the corporate strategy. This lack of innovative
effectiveness was due to the following issues:
Inadequate transfer in research results,
Duplication of activities,
Fragmentation of dispersed research laboratories,
Excessive orientation towards technology for technologys sake,
Insufficient guidance.
In the nineties, Philips understood that one of the most important factors in innovation success was to coordinate
learning and other change-related activities across international boundaries within the whole firm. In order to structure
and rationalize the production of knowledge, the company decided to distribute research activities to specific centres,
according to its competencies. For instance, the research centres of Aachen and Hamburg have been merged and the
resulting centre is responsible for investigating in light generation and man-machine interface. Another example is the
Chinese labs which are dedicated to research in the wireless communication technologies.
Based on this, the nine research centres of Philips spread over the globe have turned over time into Centres of
Excellence, which are in possession of strong (technical, market and managerial) competencies and which are able to
link research among each other and to coordinate it with Business Units strategic targets. Even though it seems to cut a
little bit in the exploratory potential of the research centres (only 30% are dedicated to basic market research), this
change seems particularly convenient because it concentrates skills and competencies in one location, which is a sound
asset to really move forward in R&D.
c) Technology Incubators
In response to previous attempts of radical innovation, which failed to be integrated into the corporate innovation
system, Philips decided to create a technology incubator in the heart of the Technology Campus of Eindhoven in 2006.
Founded in the sixties, the Technology Campus has always been used as traditional research centre until the intervention
of Ad Huijser, CTO of Philips between 2002 and 2006: he believed that sustainable firms growth was only achievable
through radical innovation. By radical innovation, Huijser meant technology products that were totally new to the firm
and to the customers. It is well known that driving radical innovation in large established firm is difficult: these firms
naturally create antibodies fighting against time-consuming and costly projects which only open doors to niche markets.
Huisjer observed that sometimes Business Units rejected even great innovative concepts because they did not want to
take the risk to step out of their core competency. Thanks to the technology incubator, the idea is to develop these stateof-the-art technologies within a protected environment, where they have sufficient time and expertise to nurture.
For an innovative project, the access to the incubator is restricted to the following conditions:
Intellectual property of the technology (protection),
Potential market of 100 million (sales objective),
Disruptiveness of the technology in the market (competitive advantage),
Alignment with Philips long-term corporate strategy (change integration),
Motivated and capable team (capability).
Once in the incubator, the ventures enjoy a nurturing environment and Philips funding to conduct their researches. The
performance of the ventures is monitored on monthly basis by the Philips Research Committee and is subjected to
informal reviews led by the incubator management. The research in itself consists in two parts: the exploration (invest in
opportunities detection) and the exploitation (monetise the existing assets through patents and technology licensing).
Once a new technology is discovered, matured and tested by its venture, it is time to value it on the marketplace. If it is
judged to have strategic value for Philips, the technology can be integrated into one of the operating divisions of the firm
(spin-in process). At a lower scale, if the technology is judged as for promising, it is spun out through a partnership with
the venture (spin-off process). This process allows Philips to maintain some participation in promising concepts while
sharing the risk with other actors. In the worst case, non-promising ventures are discontinued and moved away from the
incubator (spin-out process).
Recognising the success of an initiative (out of eleven projects, two ventures have been spun in, four have spun out, one
has been cancelled and the rest is still part of the portfolio), Philips has created two new incubators since 2006. These are

even more market-oriented and are also looking for new business opportunities inside the firm.
Partnerships
In order to reach new markets and to create synergies, Philips promotes brand partnerships with other companies. The
best example to give is the partnership with Senseo in the elaboration and promotion of the super popular coffee
machines. Other examples are the ones of Nivea (shaving equipment) and InBev (Perfect Draft machine). By doing this,
Philips can stay focus on its main competency (manufacturing the products) while relying on partners to add value to
their products (increase of the customers experience). In addition, this kind of partnerships allows Philips to count on
different expertise (marketing, design, etc.) coming from different sources, which can lead to a better exploration of the
market opportunities.
Conclusions
As it has been highlighted in this document, Philips seems to be conscious of its weaknesses (internal rigidity and time to
react to market opportunities). This is also the general conclusion coming out of the mouth of the Philips employee we
interviewed. In order to fight against these weaknesses, Philips has developed and still develops a set of business
processes aiming to make the firm more resilient to change.
a) Step out of the crisis through a combination of values:
The first concept to be put into evidence is the one of Centres of Excellence. These centres are necessary to understand
local specifications of the markets, improve existing products and conduct basic research in new fields. For the moment,
and knowing that operatio nal costs are still too high, the Centres of Excellence must emphasis on the development of
products which combine different values: cost effectiveness, innovation and environmental friendliness. This can be
seen as changes (or improvements) in the business approaches that could help Philips to gain competitive advantage and
thus to step out of the crisis quadrant in the sense of the Adaptive Cycle.
b) Explore the opportunities and implement new concepts:
In order to support this philosophy and because Philips knows the importance of radical innovations, the firm developed
the concept of incubators. The firm also tries to share expertise with other firms in order to create unique concepts.
This can be identified as more openness to high-potential concepts in the exploratory phase of the Adaptive Cycle. This
seems to be a critical step to move on towards a meaningful innovation culture.
The incubators and partnerships are also responsible for helping Philips to implement new ideas in its operating
divisions. For example, the ventures coming from the incubator are supposed to be immediately valuable. The ideas and
concepts coming from partnerships are also easier to integrate because Philips can stay focused on its own core
competencies, while partners provide their help for the rest of the integration. Besides this, it also came out of the
interviews that employees feel like entrepreneurs: they can bring their own ideas on the table, lead their own projects
and make use of corporate resources. This is one of the good changes induced by the Accelerate! programme.
c) Control your sources to support your strategy:
The last element is that Philips has already started put in practice its new culture of more sustainability. Actually, the
firm has started to impose (Eco-Vision) controls to its suppliers in order to improve its equilibrium situation in the long
run. This constitutes a method to make the suppliers part of the creation of sustainable and collaborative network.
Collaborative also means that suppliers would be allowed to propose new products and new ways of doing business,
which aims to reinforce the abovementioned concepts.
Personal remark:
All in all, Philips seems to do its best but is still limited by its own assets. The structure is so big and broad that it remains
hard to control as well as hard to change. We have seen that radical changes like the Centurion are effective but cost a
lot in terms of image and working capital. In our views, Accelerate! is smoother than the Centurion but will enable the
firm to assimilate the importance of a sustainability culture. This culture could help Philips to take advantage of its
enhancements in green products and to value this advantage on the market in a near future.
We can also add that in such a big company, crisis times are almost unavoidable and sometimes even necessary. They
force large structures to adopt new values and to continuously re-engineering their business processes. Even more
philosophically, they force companies to open-up their minds to change themselves and to be able to create new market
realities.

Appendix I: questionnaire

1. General question:
Could you please give us a short introduction of what is your function here by Philips?
How would you describe your core business?
Is your organization currently going through any change processes/reorganizations at the moment?
2. Market positioning:
How does Philips select the markets it is going to be active in? and why?
How is the competition? Are you confronted with aggressive competition?
Why Philips decided to leave the television market?
3. Sustainability:
What triggered Philips to change towards sustainability?
How can Philips control the sustainability of your processes around the world?
Is sustainability just a marketing tool to attract new customers or is it a real desire to preserve resources?
4. Innovation:
In practice, how do you select suitable innovative projects?
How can you feel or measure if the projects can be potentially brought in the marketplace?
How do you involve your employees and keep them informed of the innovation processes?
How does Philips can be sure to explore all the market opportunities? How does it proceed to analyse its external
environment?
5. Change situation:
Imagine your organisation went through disruptive change, would the organisation stay functional as a unit or would
it create new (smaller) spin-off, independent organisations to come over the disruption?
How resilient do you think your company is to change? Can it usually react in due time? Can it then moving back to an
equilibrium status?
How did you reflect previous learning experiences? And how are you using them in the future? In other words, how
can you save knowledge?
Do you have to stick to a specific budget while running your innovation activities? If yes, how budget is allocated to
your department? And by who is it allocated?
Do you feel like an entrepreneur while working for Philips?
Does your organisation encourage employees to be entrepreneur? In which way?
Can you feel that Philips is changing its innovation strategy while facing the current crisis time?
Can you feel that the top management is getting stricter and more aggressive for the moment? Can you feel there is a
change of leadership behaviour from their part