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25 May 2011

Philips will shift away from products

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M aarten de Vries, Global CIO and head of supply at Philips, tells CXO how the company’s IT department is adopting an even greater role in shaping the innovative future of the company.

With the brand promise of 'sense and simplicity' the driver behind Philips' innovations, one could deduce that the company's IT leader had little influence in shaping its creative direction. After all, IT is an inherently complicated, arcane industry populated by socially reclusive technophiles beavering away in strip-lit backrooms, right? Not quite. At Philips, IT plays an extremely important role in innovation, says Philips' Chief Supply and Information Officer, Maarten de Vries.

"There are three layers of IT innovation at Philips - cost innovation, process innovation and business model innovation," says De Vries. "We link IT to Philips' overall health and wellbeing strategy, and have defined a strategic framework for IT in the form of a pyramid. The bottom of the pyramid is the foundation of IT, the cost innovation, where IT works at the required service levels to implement foundational processes, such as enterprise resource planning. The second layer is what we call the enabling layer. This is where IT enables the Philips businesses to drive value through process improvements, so this is process innovation. And at the top layer of the pyramid - the business model innovation - is the co-creator layer, where IT plays a role in the creation of products."

Globally dominant in the sectors of consumer lifestyle, lighting and healthcare, Philips is one of the world's most recognisable brands, drawing on its 'sense and simplicity' to deliver leading products that meet the varied needs of its customers. Its innovation is reflected in the 48,000 registered patents, 35,000 registered trademarks and 56,000 design rights the company owns, and it is the field of IT that enables Philips to continue to push the boundaries of design, creation and innovation.

"Through our IT solutions we enable the improvement of customer-facing processes, marketing processes and business intelligence solutions," says De Vries. "Moving forward, Philips is going to shift away from products to become more involved with solutions and services. So strategically, IT is going to play an even greater role at the top of the innovation pyramid, driving business innovation." Examples put forth by De Vries include consumer lifestyle and healthcare solutions, with the IT department strategising how, when and where the next wave of Philips innovation will come from and be targeted to.

Enabling business

It is an exciting time for Philips' IT department. The typical line toed by most CIOs is one of aligning IT with the business, of being seen as more than just a cost centre and of diversifying beyond simply 'keeping the lights on'. This has been the generic rhetoric of every CIO since the global economic downturn. And while De Vries' own stance is not markedly different, there is a greater emphasis at Philips that its IT will drive, innovate, solve and deliver, rather than simply assist the business in a secondary, reactive manner.

"I've experienced favourable circumstances at Philips over the last few years in that there have been a lot of opportunities for me," reveals De Vries. "As a global company, Philips can offer a lot of opportunities, and I have spent time in different regions, different continents and different roles, from Asia to Europe, and from finance to now working in IT and supply. So it has been important for me to be able to work outside of my comfort zone and stretch my own capabilities, and I think that has helped me tackle the functional side of IT while also meeting the innovation challenges too."

Additional challenges that De Vries has had to overcome recently have evolved around the economic crisis: something that has permeated all areas of business throughout Europe and beyond.

"We launched our current IT strategy in 2008, which was before the crisis really took hold," says De Vries. "Part of the strategic framework involves organising ourselves in a different way, analysing which parts of the business we need to strengthen, our competencies, and which parts we will outsource as a utility. So we basically had this game plan in place before the crisis, and this is still the case - the crisis isn't a new element to our strategy, apart from perhaps speeding up some of the things we would have executed anyway."

As  Chief Supply and Information Officer, De Vries is charged with juggling Philips' IT strategy, developing advanced technologies and applications, creating useful and game-changing innovations and also managing the Philips Supply. Recently, to support Vision 2015, Philips has evolved its value chain from supply product supply chain to a customer value chain; a subtle shift, but one that will bring great value to the company and enable its growth strategy, as De Vries explains.

"During the crisis we have basically focused on four elements in supply - cost, cash, consolidation and risk management. Cost is quite obvious: it is our focus on total cost of ownership and reducing costs together with our suppliers' cash and looking at the payment terms we have with our supplier lines. We also work on innovations like supplier financing, leveraging our balance sheets and helping our suppliers or partners. Supplier consolidation involves growing with those suppliers which we see have a future with us, an approach that means we are clearly focused on the financial health of our supply base, enabling the team to emerge much stronger from the crisis."

Employee engagement

An effective way of riding out the financial crisis is to nurture a tight working environment, one that is conducive to creativity, loyalty and synergy, with every team member feeling valued and a vital part of the company's overall success. Philips has been able to cultivate such an environment, particularly in the IT and supply areas where de Vries has been instrumental in ensuring the company's high standards are achieved on a daily basis.

"If you have a clear strategy and set the right agenda, you can focus your organisation through good leadership," says De Vries. "We have a huge focus on engagement at Philips. We spend time to make sure that our leadership is engaged with the broader employees, and we have dedicated actions within IT and supply to pull together in the right direction."

One tangible measure of this approach is Philips' 'Leading to Win' program, a new philosophy behind the company's global way of managing the performance and development of all its employees..

"We look at two axes," he says. "The first axis is the 'what': measuring the objectives you deliver against. The other axis is the 'how': how you have been able to deliver on these objectives (your behaviours). The 'how' should be in line with the company values. That is a change in how we direct people because the 'how' and the 'what' are both equally as important in the performance evaluation of our employees."

It's not just employees who benefit from the engagement practices laid down by De Vries and his team. The management leaders at Philips have been urged by Gerard Kleisterlee to work on several initiatives in order to drive the business forward, something de Vries has taken to with great vigour. "When I came in on IT, and then later on the supply side, I worked on getting both functional areas on to the agenda of the supervisory board. On a quarterly basis we have dedicated quality sessions on IT and supply with the board of management, and less frequently with the supervisory board, to make sure that our objectives are fully aligned with the members of the board.

"We have created a structure where the IT function is not only embedded into the three sectors of consumer lifestyle, healthcare and lighting, but is also better in the functional areas, because IT is finally automating processes, having linked IT to the core global processes of our company, which are embodied through what we call functional boards."

But how do these functional boards operate in real terms? "An example of a functional board is the sales leadership board, which consists of a chairman - the top sales leader - from each of the three sectors. IT is a member of this sales leadership board, and it has a very important role to play in terms of enabling process innovation, which includes improvements of the Philips processes, where it is linked to CRM or linked to pricing processes for example."

Supplier sustainability

Alongside economy and engagement, the environment takes pride of place in the pantheon of Philips' great concerns. As a market-leader in the fields of lighting, healthcare and consumer lifestyle, Philips is well placed to instigate change, and it is a responsibility that the company takes very seriously.

Philips' own research has revealed that electrical lighting accounts for 19 percent of all electricity consumption, and so the company is committed to delivering better and more affordable energy-efficient solutions to its customers. Such a strategic outlook obviously impacts upon Philips' IT department, and it is on the issue of sustainability where de Vries has been largely instrumental.

"Sustainability is at the centre of everything Philips does, and on the supplier side we have created a global team that has been set up to tackle the key challenges in this field," says De Vries. "The team is managed out of China because much of the issues we face in supplier sustainability are related to the emerging markets, so China, India and Latin America are all important."

Linked to the EICC (Electronic Industry Citizenship Coalition), Philips shares its sustainability practices and ideas with fellow electronics companies, which includes auditing suppliers to ensure a consistent level of sustainable practice across the board. "We have an approach to help our suppliers reach the required level through auditing and collective action," says De Vries. "If they cannot reach these required levels then we have to take action, and that might sometimes lead to delisting of a supplier, although generally we adopt a softer approach, looking to train and advise rather than exclude."

This commitment from Philips extends far beyond its laboratories and HQs. The company has developed ways to reduce its environmental footprint throughout every sector of the business: in manufacturing, procurement, its products and even in the communities where the company operates. Every product introduced by Philips will have undergone rigorous testing to ensure its environmental friendliness. There is an EcoDesign process employed by Philips that identifies the environmental impact of their various products in terms of energy efficiency, hazardous substances, weight and lifetime reliability, and recyclability. Its green product sales are verified annual by an independent third party, such is the commitment of the company to prove its green credentials. IT has to work within the same rigorous parameters.

With EcoVision4, Philips has, by 2012, committed to the generation of 30 percent of its total revenues from green products, doubled investment in green innovations to a cumulative €1 billion, and an improvement of its operational energy efficiency by 25 percent with a reduction of its CO2 emissions by 25 percent as well, all compared with the base year of 2007. Philips' EcoVision4 environmental action program began in 2007 and will run through 2012, next to its , which runs from 2010 to 2015. EcoVision5 raises the bar in Philips' overall approach to sustainability and its ambitions throughout the company by broadening the scope of the program well beyond the way it interacts with the environment.

"Additionally, there is a huge focus on collaboration and productivity where we have implemented what we call a Connect Suite in the company, with one example being Connect Meeting," says De Vries. "So we have been rolling out high definition video conferencing, and at the moment we have 38 rooms live. Soon that will be 50 rooms live, allowing us to create a possibility for the people to collaborate much better and to work in virtual teams instead of travelling by air and basically consuming vast amounts of CO2. Another example is our One Printing Initiative, which is an aim to reduce printing by up to 30 percent. We also have supply chain initiatives to reduce CO2, so there are a number of initiatives going on in the IT area and the supply area to drive this."

The potential within
As is the norm for a CIO of such a prominent company, De Vries' role is increasingly hard to define. If the goalposts are not being moved by external economic or market pressures, objectives and initiatives are constantly being reassessed internally by the powers that be. CIOs have long had to learn to juggle the various pressures of their role in order to remain viable, and De Vries is no different. In addition to supplier sustainability, environmental awareness and IT innovation, he has to also manage and inspire a large team; something he feels is made all the more rewarding by unlocking the knowledge that resides within the company.

"This all comes back to engagement with your employees," says De Vries. "As part of the Connect Suite we have launched a number of collaboration tools, which is a measure that is very much linked in to two key KPIs in the company. The first KPI, as mentioned, is engagement - to improve the employee engagement. Secondly, it was to improve the productivity of our employees." Philips has recently introduced a new social media platform internally called Connect Us. Utilising a sophisticated set of tools within the suite, the Connect Us software has brought together various disparate sections of the company, and united them with a single platform for collaboration and discussion. "First of all we created a speed of resolution and information in the company that was far, far higher than anything used previously," says De Vries. "This was all designed to unlock the potential of the total organisation, of the total crowd, basically. This is similar to crowd sourcing, where you make the experts in the company visible and you connect the people to those experts - and it is something that was basically impossible before."

The resulting feedback from this initiative has been universally positive. "Previously, when an employee or a manager had a question it would sometimes take days or weeks to receive an answer," says De Vries. "Now you have a situation where people, within the hour or maybe two, have an answer, or a referral to an appropriate person or source. We track some of these examples and share them back with the organisation to create a fertile loop of engagement around Connect Us."

And by tapping into that potential from within, Philips is better equipped than ever to achieve its aims of sustainable practice, employee engagement and constant innovation, all on the back of de Vries and his team's insight, desire, sense and simplicity.

Philips' EcoVision5

In 2009 Philips reviewed its sustainability strategy and decided to make sustainability an integral part of the company's overall vision and driver for growth. Since then, the EcoVision5 project has laid down a number of goals and targets for 2015, including:

  • Bringing care to 500 million people (Healthcare division)
  • Improving the energy efficiency of its overall portfolio by 50% (Lighting division)
  • Double its collection of recycling amounts and recycled materials (Consumer lifestyle division)

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