For more than two years from 2007 to the present, there have been too many things in the world, and the global economic crisis should be regarded as the heaviest page.
In the crisis, there is always a turn for the better. The transformation story of Philips “A decade of grinding a sword†may be the stone of his mountain.
In the late 1990s, Philips was a high-volume, technology-driven electronics manufacturer with varying business performance and financial volatility. Today, we have transformed into a high value-added, market-oriented “healthy, comfortable, quality life†company with flexible and tenacious business performance and financial stability. Why did we carry out this radical reform in the past? How did we do it?
At the end of the last century, Philips was in a situation that had to change: we were involved in too many fields, the business was complicated, the relationship was loose, and there was no clear vision and strategy. From the outside world, Philips is a company that can hardly grasp the business focus in a short time; internally, because the company's structure is too complicated, coordination management is extremely difficult. A lot of business, a lot of minority shares, formed a structure that was entangled and difficult to sort out. For investors, they are not sure which part of the business they bought. For managers, this complex structure hinders quick and effective decision making.
In the mid-1990s, our weaknesses have been translated into a series of loss-making financial reports that seriously threaten the company's vitality. We are beginning to realize the seriousness of the problem. The bursting of the technology bubble in 2000 once again sounded the alarm for us. At the time, we clearly realized that Philips had no choice. We must be a company with a clear, transparent, agile and dynamic presence. We must focus on the business area and streamline the organizational structure. We decided to base ourselves on three business units: healthcare, quality living and lighting.
Stripping non-core business
The first driving force behind the transformation of Philips is the evolution of the electronics industry. In the late 1990s, the world economy was brewing a new revolution, and the era of fully integrated electronics companies was coming to an end. Most companies need to choose one of the following three areas as their core business. These three areas include: technology and components; production and assembly; application design and marketing. We also had to make a choice, and Philips' final strategic choice was to focus on the application area.
This choice is accompanied by another important decision: production outsourcing. As we all know, it is now difficult to gain competitive advantage and create value in the production field, so we decided to outsource many of our production. Of course, we still maintain our own production, but only for products with obvious competitive advantages, such as razors and lighting solutions.
Therefore, we decided to focus on the “healthy comfort, quality of life†field, and streamline the structure, focusing on the R&D, design, branding and sales of the application business. In this regard, we have taken some “big-bang†initiatives to separate the bulk of the business, including the component division and the semiconductor division, and merge the consumer electronics and home appliance and personal care divisions into the Quality Life Division.
Due to the decision to focus on the application business in the field of “health, comfort and quality of lifeâ€, our separation of components and semiconductor business is a matter of course. But reasonable does not mean that it can be done easily. Over the years, these businesses have become the core of Philips. Therefore, it will involve emotional problems.
Before deciding, you must be cautious in listening to the opinions of the parties inside and outside the company. Once a decision is made, it must be enough courage and effort to carry out the decision.
Achieving transformation will inevitably face difficult choices, and being kind to employees is the key. Selling the semiconductor business is an example. After all, this is a business with 37,000 employees and a revenue of 4.6 billion euros. The future development of the semiconductor business and the protection of employees' interests during the transition period are important considerations during our negotiations. Although we will not take any responsibility for the department and its employees after the divestiture, we did not leave them in the negotiation process.
Grasping the timing is also a very important factor for the divestiture of the semiconductor business. Decision making is not necessarily the best time to implement. Subject to the limitations of the financial and market environment, you may have to postpone action. When we decided to divest the semiconductor business, the market conditions did not allow us to sell it at a reasonable price, so we must wait patiently.
Choose the area that will be focused
The second driving force for our transformation is the global socio-economic and life-changing trends. This motivation helps us choose the areas that we will focus on in the future.
First, the health care industry is increasingly important on a global scale, both in terms of social and economic development. At the end of the last century, our medical insurance business was relatively small. Soon after I became the CEO of the company, many people began to ask me when I would sell the medical business. However, we have never had such an intention. In China, Europe, the United States, and Japan, the population is aging. Chronic diseases are on the rise worldwide. We decided to rapidly expand our healthcare business.
The second important trend affecting our decision-making is that energy efficiency and environmental pollution reduction have become one of the most urgent tasks for governments and industries. The global promotion of energy conservation and reduction of greenhouse gas emissions provides tremendous opportunities for our lighting business. Over the past decade, we have continued to strengthen our leadership in the energy efficient lighting market through active expansion in the LED field. In China, our LED solution illuminates the 610-meter-high Guangzhou TV Tower. Our leading lighting solutions are improving people's lives by making their living environment more beautiful and safer in a more environmentally friendly way.
In the expansion of the healthcare and lighting business, acquisitions play a vital role. Through the acquisition, we have not only strengthened the strength of our existing business, but also entered new business areas. Between 2000 and 2003, Philips invested 5 billion euros in various acquisitions for the healthcare division, and a few years later launched a new round of acquisitions. In terms of lighting, in the past five years, we have strengthened our position in LED applications through various strategic acquisitions.
The third striking trend is that the middle class is growing and consumers are increasingly looking for easy-to-use, user-friendly solutions. Their attention has risen from ordinary products to overall solutions that improve healthy living. The design of any product should be based on the user's demand for the product, not the technology itself. Philips has always adhered to the "people-oriented" principle. We still have a strong investment in research and development to develop and apply the most cutting-edge technologies. However, technology should serve the needs of people and must not be turned upside down.
Emerging markets are becoming increasingly important, and this is the fourth important trend we have considered in the transition process. For many years, the fastest growing regions were not the United States, Europe, and Japan, but emerging markets like China, India, and Brazil. For the company's development, we continue to increase investment and expand personnel in these markets. In China, our initiatives have improved. To give a few examples: In November 2009, we established an advanced lighting factory in Yizheng, Jiangsu, which is Philips' largest production base for energy efficient lighting in the Asia Pacific region. During the same period, we announced an investment of 36 million euros to establish a new medical imaging base in Suzhou, a comprehensive facility integrating R&D, production, assembly and procurement. In 2008, we acquired Shenzhen Jinkewei, the second largest patient monitoring company in China. In 2004, we established a joint venture with Neusoft to jointly develop and produce medical imaging equipment.
Brand value
The third driving force behind the transformation of Philips is to establish a unified marketing approach and brand positioning. Our brand promise is “sense and simplicityâ€, which is not only at the product level, but also in all aspects of the company. We are constantly trying various methods to make our products more humane, to enhance our understanding of consumers' wishes, feelings and needs, and to follow the "people-oriented" principle in all businesses. Over the past decade, the value of the Philips brand has increased dramatically around the world, proving that our brand promise has been accepted and recognized by consumers. In the ranks of Interbrand's world's top 100 most valuable brands, Philips rose from 65th in 2004 to 42nd in 2009.
Experience in transformation
I think our transformation is a success. In the two global economic crises of 2000-2002 and 2008-2009, Philips's distinct financial performance fully reflected the vitality brought about by the transformation. Compared with the last time, this economic crisis has become more fierce. However, the decline in Philips sales has been the same as before, and the profit has only decreased slightly. More importantly, our operating profit began to recover quickly after only two quarters. The financial report for the first quarter of this year once again proves our strength. Compared with the same period in 2009, sales increased by 12%, and in emerging markets, it increased by 22%. We achieved an operating profit of 504 million euros, a record performance ever.
For me personally, the process of taking the transition is like playing a lot of chess at the same time. There are always many problems to face, there are many opinions to listen to, and many decisions must be made decisively.
In the transformation process of Philips, leadership and listening skills are very important, and the timing is also critical. In addition, it is also indispensable to find a good balance between ideals and reality. After all, a company without ideals is like a person without a soul. And a company that is out of reality, but like a person loses reason. Out of our ideals, we set ourselves the goal of becoming a leader in the field of “healthy comfort, quality of lifeâ€. And based on reality, we know that it is impossible to lead in everything, so we must make an informed choice about the business we are engaged in.
Another major feature of Philips' transformation is that we are always actively working with all parties. Usually, we communicate with our business partners. On the basis of mutual trust, establish long-term cooperative relationships with important suppliers. We constantly talk to consumers about their product needs.
Ten years have passed, and we can say that we have put a lot of effort into the process of becoming a global leader in “healthy, comfortable, quality lifeâ€. In China and other countries, we offer many solutions for improving people's health and lives. In terms of health care, energy conservation and emission reduction, Philips has developed and maintained long-term cooperation with China in many areas such as improving the quality of life of the people. From chronic disease management programs, breast cancer screening, to training rural doctors, we are working with numerous hospitals and companies to improve China's healthcare system. Philips' lighting solutions have also helped reduce power consumption in many office buildings, homes and streets.
Through this transformation, we have a balanced business layout and market-oriented management, coupled with sound financial performance, we have become a more agile and more dynamic company. In the past decade, Philips' transformation and the rapid growth of China's economy have followed suit. Today, there is a farther future. We have better conditions and stronger confidence. We hope to continue to maintain mutually beneficial cooperation with this rising country. The transformation of the enterprise will never end.
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