CENTER FOR Massachusetts

INFORMATION Institute of
SYSTEMS Technology
RESEARCH

Sloan School Cambridge

of Management Massachusetts

Transforming Royal Philips:

Seeking Local Relevance While Leveraging Global Scale

Martin Mocker, Jeanne W. Ross, and Eric van Heck

February 2014

CISR WP No. 394

 2014 Massachusetts Institute of Technology. All rights reserved.

 Research Article: a completed research article drawing on one or
more CISR research projects that presents management frameworks,
findings and recommendations.
 Research Summary: a summary of a research project with
preliminary findings.
 Research Briefings: a collection of short executive summaries of key
findings from research projects.
 Case Study: an in-depth description of a firm’s approach to an IT
management issue (intended for MBA and executive education).
 Technical Research Report: a traditional academically rigorous
research paper with detailed methodology, analysis, findings and
references.
CISR Working Paper No. 394

Title: Transforming Royal Philips:

Seeking Local Relevance While Leveraging Global Scale
Author: Martin Mocker, Jeanne W. Ross, and Eric van Heck
Date: February 2014
Abstract: In late 2013, Royal Philips was roughly two years into a daunting transformation.
Following years of declining financial performance, CEO Frans van Houten aimed
to turn the Dutch icon into a “high-performing company” by 2017. Over its 120-year
history, Philips had developed a highly diversified portfolio of innovative products
and services with a broad geographic reach, granting individual units substantial
freedom in how they operated. Now, Philips was looking for a way to create value
from its culture of technology-based innovation and the potential to serve many local
markets in diverse businesses; but at the same time it wanted to leverage its global
scale and scope by finding commonalities across the group. To do so, Philips
announced the Accelerate! transformation program in 2011, including a fundamental
makeover of Philips’ approach to products and processes, how people worked
together, as well as of the overall IT landscape.
Keywords: Business Complexity, Transformation, Agile, Enterprise Architecture
30 Pages
 Massachusetts Institute of Technology
Sloan School of Management

Center for Information Systems Research

Transforming Royal Philips: Seeking Local

Relevance While Leveraging Global Scale

In late 2013, Royal Philips was roughly two Although running Philips like a financially
years into a daunting transformation. When driven holding of many different businesses had
Frans van Houten became CEO in 2011, he fostered innovation and entrepreneurship, it had
described Philips’ situation as a “burning plat- also introduced significant variation in how the
form.” Following years of declining financial per- different parts of Philips were operating.
formance, he aimed to transform the Dutch icon We allowed a lot of freedom to our busi-
into a “high-performing company” by 2017. 1 nesses in our markets to operate in the
Over its 120-year history, Philips had developed way they wanted. —Rob Theunissen
a highly diversified product portfolio and broad By management’s count, Philips had over 80
geographic reach. Philips was doing everything business models, each of them relying on unique
from selling shavers in China and MRI scanners
business processes. This variation was strang-
in the USA to providing the lamps lighting the ling Philips with high cost and long lead times.
Eiffel Tower. Historically, Philips had engaged
in these wide-ranging activities by granting Philips was looking for a way to create value
considerable autonomy to its general managers: from its culture of technology-based innovation
and the potential to serve many local markets in
If you ask people who are long retired diverse businesses, but at the same time to
what they appreciated in working for eliminate the inefficiencies typically associated
Philips, many would answer that at with multi-national conglomerates.
Philips you have a lot of freedom! That’s
why we’re such great innovators. That’s We are not Samsung shipping the same
why we have such a fantastic global devices worldwide; our products reflect
footprint. —Rob Theunissen, the specific needs of each market. [But,]
End2End Transformation Leader we also want to maintain the principle of
“globally scalable” to exploit the econ-
1
Financial Times, July 4, 2013, Philips must learn to
work as one unit: http://www.ft.com/cms/s/0/901470fe-
e2f7-11e2-bd87-00144feabdc0.html#axzz2lQK4N3HG
This case study was prepared by Martin Mocker and Jeanne W. Ross of the MIT Sloan Center for Information Systems
Research and Eric van Heck from Rotterdam School of Management, Erasmus University Rotterdam, The Netherlands. This
case was written for the purposes of class discussion, rather than to illustrate either effective or ineffective handling of a
managerial situation. The authors would like to acknowledge and thank the executives at Royal Philips for their participation
in the case study.
© 2014 MIT Sloan Center for Information Systems Research. All rights reserved to the authors.
 omies of scale that we can realize across
the world. 2 —Jeroen Tas,
Executive Vice President and
Chief Information Officer
And leveraging global scale and scope required
finding commonalities across the group.
We will have to prove we can create
economies of scale, skill and scope even
in a diversified business portfolio.
—Rob Theunissen,
End2End Transformation Leader
In other words, Philips had to be able to
eliminate the complexity that kept it from
leveraging global scale, while exploiting the
complexity that supported local innovation and
helped to differentiate it from competitors.
I would like to observe that some com-
plexity is rewarded and other complexity
is unrewarded, and [in our transforma-
tion] we have tried to anchor that notion
with our leaders. —Frans van Houten,
CEO and Board Chairman
It was clear to management that this required no
less than “trying to reinvent the operating model
of a diversified high tech company,” 3 including
a fundamental transformation of Philips’ ap-
proach to products and processes, how people
worked together, as well as of the overall IT
landscape.
Background:
Philips—A Diversified Technology Group
Koninklijke Philips N.V. (Royal Philips, or more
commonly Philips) was founded as Philips & Co.
in 1891 in Eindhoven, The Netherlands, by father
Frederik and son Gerard Philips (who was later
joined by his brother Anton) to “manufacture
incandescent lamps and other electrical
products.” 4
2 Interview with Jeroen Tas in CIO – IT in the
Boardroom, Volume 9, Issue 2, 2013 (translated from
Dutch, adapted)
3 shrinking audio and video business to Japan’s Funai
Quoting Rob Theunissen
4
Philips Annual Report 2012
Mocker, Ross, and van Heck
Incorporated in 1912, Philips quickly diversified
into numerous businesses besides light bulbs.
Probably best known today to consumers for its
Philishave electric shavers, Sonicare electric
toothbrushes, and Senseo coffeemakers, the
company had at some point also ventured into
vacuum tubes, generators, and medical imaging
systems (X-Ray, PET, MRI, CT scanners, etc.).
In the past, Philips had also manufactured and
sold radios, TV sets, audio cassette recorders,
and semiconductors. The company had also
introduced the world’s first home VCR and
laser disk player and had partnered with Sony to
launch the CD, DVD and Blu-ray standard.
Philips has exited several of these product lines
by now.
Throughout its history Philips’ products have
been widely respected. In 2013, Philips was the
most valuable brand in The Netherlands—
outranking even Shell and Heineken—with
Interbrand ranking Philips 40th among the 100
most valuable brands globally. 5
Despite its brand value and many innovations,
early in the new millennium, Philips’ financial
performance was flagging. By 2011, its stock
price and shareholder return had been under-
performing the AEX and Euro Stoxx 50 indices
for 10 years. From 2000–2010, Philips lost more
than 40% of its revenue and its profit margin
had dropped from 25% to 7% (after losses in
2001, 2002, and 2008 and a meager 2% margin
in 2009; see Appendix 1 for details of Philips’
financial performance).
To bolster performance Philips had spun off its
semiconductor business in 2006 and by 2013
Philips had divested or was planning to divest
its TV, audio, and video businesses. 6 But in
5
http://www.interbrand.com/en/best-global-
brands/2013/top-100-list-view.aspx; competitors ranking
in 2013: GE: 6, Siemens: 45, Sony: 46, Samsung: 8,
Panasonic: 68
6
In 2006, Philips had spun-off its semiconductor business
into NXP Semiconductors. For its TV business, Philips
had entered a joint venture with Hong Kong-based TPV
in 2012. While Philips’ attempt in 2013 to sell its
(http://uk.reuters.com/article/2013/01/29/uk-philips-
idUKBRE90S0C820130129) had failed, Philips was said
Page 2 CISR Working Paper No. 394
2013, Royal Philips still operated in 15 so-called
Business Groups (comprising over 60 Business
Categories) 7 that were grouped into three
Sectors: Lighting (e.g., city street lighting,
automotive lighting, consumer luminaires,
building lighting, etc.), Healthcare (various
imaging systems, integrated healthcare solu-
tions, specialized healthcare software, etc.) and
Consumer Lifestyle (e.g. personal care, mother
and child care, household products, computer
accessories, etc.). With these products, Philips
served customers in over 100 countries that
were clustered into 17 “logical markets,” such
as DACH (Germany, Austria, and Switzerland),
North America, China, etc. These 15 business
groups and 17 markets, along with functions
(e.g. business functions such as marketing and
logistics, as well as support functions such as
HR, finance, IT, etc.), constituted the three axes
of Philips’ organizational structure. 8
On April 1, 2011, Frans van Houten was named
CEO, succeeding Gerard Kleisterlee, who had
been at the helm of Philips for more than a
decade.
After bringing in several new leaders, van
Houten formed an Executive Committee
(ExCo). The idea was to “allow functions,
businesses and markets to be represented at the
highest [management] level” outside the Board
of Management. 9 See Appendix 2 for the
composition of the ExCo. While the ExCo
wanted to leverage what it viewed as Philips’
competitive strengths (called “CAPs” for Capa-
bilities, Assets, and Positions) such as deep
market insight, technology innovation, its global
to “proceed to investigate other opportunities” for this
business
(http://www.broadbandtvnews.com/2013/10/25/philips-
to-take-legal-action-against-funai/).
7 At the heart of the Accelerate! transformation was
For example, within the Lighting Sector, Automotive
Lighting was a Business Group comprising Business
Categories such as Headlights and Signaling and Interior
Lighting.
8
Philips Business System v1.1, company-internal
document, February 2013.
9 11
http://www.philips.com/about/company/management/m
anagement/index.page
Mocker, Ross, and van Heck
footprint, brand, and people—it also needed to
turn the business around.
To do so, that same year Philips announced the
Accelerate! transformation program that was
“all about bringing meaningful innovations to
our customers in local markets—and doing so
faster and better than the competition.” 10
Financially, the transformation promised to
deliver EBITA margins of 11–12% by the end
of 2016 and of 10–12% by the end of 2013
while growing sales at a CAGR of 4–6%
between 2014 and 2016. 11
The Philips Business Transformation:
Accelerate!
Philips had executed several transformations in
the past but some prior efforts were not
perceived as having lasting impact or even
failed. Accelerate! was considered the com-
pany’s most ambitious transformation program
ever.
We’re designing and implementing an
operating model that [enables us to]
create economies of scale, skills, and
scope by harmonizing our ways of work-
ing where possible, but without losing
the agility, speed, and efficiencies that
are required to serve that customer in
that market competitively.
—Rob Theunissen,
End2End Transformation Leader
Accelerate! was intended to promote locally
relevant product innovations while standardizing
business processes. It required new organizational
roles, accountabilities, and incentive systems to
support desired behaviors, as well as a new culture
of cross-functional collaboration.
Products: Creating Locally Relevant
Innovations and Integrated Solutions
10
Frans van Houten as quoted on
http://www.annualreport2011.philips.com/content_ar-
2011/en/message_from_ceo.aspx
http://online.wsj.com/article/BT-CO-20130917-
700699.html; see Appendix 9.
Page 3 CISR Working Paper No. 394
a conviction that Philips’ success depended on
creating “locally relevant innovations.”
Over the last 30 years Philips has become
a very global company, and I sometimes
use the word globalistic because it is
negative. There’s nothing wrong with
being global but not at the expense of
being local in the eyes of our customers.
[…]We looked at what is Philips really
good at? Innovation! But if we put our
hearts and minds to it, we can also be
very good at being locally relevant. To
truly satisfy customer needs, you cannot
just offer a global solution because you
over-simplify the differences between
regional markets and individual cus-
tomers. —Frans van Houten,
CEO and Board Chairman
Locally relevant products addressed the specific
needs of a particular market that might differ
from the needs of other markets for a similar
product.
In the Consumer Lifestyle sector, for example, a
beard grooming product designed for the North
American market targeted different ethnicities,
whose needs and preferences with regards to
facial hair differed from other customer groups.
In another example, the Philips team in China
realized that expectations of the lifetime of
entry-level shavers in China were far below
those held in Europe—instead of seven years,
the accepted lifetime of a shaver might be two
years. In order to serve this market segment’s
expectations with regard to pricing, Philips had
to redesign its shavers and how they were
assembled and delivered. The food sector also
presented significant local differences.
Addressing the impact of recent food scandals
around milk contamination in China,12 Philips
introduced soy milk makers allowing people to
produce their own milk from soybeans. In
Russia, Philips was selling a multi-cooker for
preparing local recipes like Borscht, in one step:
people could put ingredients into the cooker in
the morning and time the machine so that they
12
http://en.wikipedia.org/wiki/2008_Chinese_milk_scand
al
Mocker, Ross, and van Heck
had a freshly prepared meal when arriving home
from work.
Creating these locally-relevant innovations
required deep market insight and an under-
standing of the context in which products were
used. Hence, many of these products were de-
veloped locally.
On a strategic level, delivering locally relevant
products were seen as a way to address the
threat from, for example, Asian competitors
who could produce and sell standardized prod-
ucts globally at lower cost.
We typically lose out when a market
commoditizes and we no longer differ-
entiate, further aggravated by us being
too slow or expensive. Like in tele-
visions, mobile phones, chips, etc. But by
embracing local market distinctions and
deeply understanding customer needs,
there are always possibilities to differ-
entiate. This makes us more successful.
—Frans van Houten
For locally relevant innovations, Philips tried to
reduce the cost that came with providing a large
variety of products by using product platforms.
These platforms allowed the re-use of common
key parts of one product in similar products
elsewhere.
Take the Chinese soy-milk maker. Based
on that same platform, we’ve developed
now a soup-maker for France and for
large parts of Europe. So we really work
with product platforms which we can
apply in different ways. —Pieter Nota,
Executive Vice President and
CEO Consumer Lifestyle,
Board Member
Besides increasing local relevance, another way
to address competition was moving beyond indi-
vidual products. In particular, Philips was iden-
tifying ways to help customers solve their
problems by introducing integrated solutions.
Integrated solutions combined multiple products
and thus were harder for competitors to com-
moditize.
Page 4 CISR Working Paper No. 394
 For example the next frontier in health
care [is] driving productivity through
the whole continuum of healthcare, help-
ing doctors to collaborate effectively and
driving more patient flow at lower cost.
Though scanners, x-ray and ultrasound
machines are high-end products, they also
will commoditize and that game will be
cracked by the Asians eventually. But if we
integrate our medical scanners with clini-
cal decision support software and work-
flow management to create more holistic
solutions, deeply integrated within the
organization of our customers, that will
differentiate us from standard equipment
vendors. So, the more complexity such a
solution entails, the more we can keep the
Asian competitors at bay, because they are
perhaps good at high volume, one-size-fits
all products, but less good at being a
solutions partner with hospitals in the
local context. While this is obviously more
work for us and more difficult to execute,
we are looking to make such rewarded
complexity our competitive weapon.
—Frans van Houten,
CEO and Board Chairman
Another example of adding value and gaining
competitive differentiation through complexity in
products were so called connected products like
the Hue, a light bulb that could be controlled for
color and timing over the Internet via a mobile
app.
Who would have thought that we can sell
three [Hue] lamps for $200? [We thought
about] how can we reinvent the value
proposition of lamps? Can we add value
to it, make it more complex, put more in it,
helping us to differentiate? And we have
done it by making digital lighting a home
automation game. So we are capturing
value from the adjacency in home control
systems, which is way more complex, [but]
attractive as it creates more value for our
lighting solutions. —Frans van Houten
Locally relevant innovations, as well as integrated
and connected products were mostly aiming to
Mocker, Ross, and van Heck
improve Philips’ top-line growth. At the same
time Philips set out to standardize processes.
Processes: Standardizing Globally
While Philips wanted its businesses to create
products that were relevant to local markets, it
did not want them to design their own processes.
We have hundreds of product managers. I
cannot allow hundreds of product man-
agers to invent their own process. It’s
unrewarded complexity when everybody
invents their own process, as it hampers
cross learning and efficiency.
—Frans van Houten
The idea was that locally relevant products and
integrated solutions would differentiate Philips
from big companies that competed primarily on
scale using globally standardized products. Stan-
dardizing processes around the world would help
reduce cost and, together with its global brand,
also help Philips compete with smaller local
players.
To win in the next decade, we need to
win against both the big Samsungs and
these small agile, nimble startup com-
panies. So, we need to leverage our size,
but at the same time stay small. In order
to do that, we need to be extremely
customer centric and innovative while
standardizing processes, platforms, etc.
where possible. —Rob Theunissen,
End2End Transformation Leader
The challenge of standardizing business proc-
esses lay in Philips’ diversity.
How do you standardize across 60 cate-
gories in 17 markets that do anything
from building a light bulb to building a
fully customized hospital suite, with lead
times of 24 hours or lead times of almost
a year? How do you deal with that di-
versity? —Rob Theunissen
It was clear that selling an integrated healthcare
solution to hospitals was not the same process as
selling an electric toothbrush. So instead of
going to a single global process, Philips decided
to standardize processes within four different
business models.
Page 5 CISR Working Paper No. 394
The four business models were Products (i.e.,
off-the-shelf products like shavers in the
Consumer Lifestyle sector but also MRI
scanners in the Healthcare sector), Services (like
providing training or maintenance services),
Software (e.g., a web-portal for doctors), and
Systems (solutions integrating multiple prod-
ucts, services, and software, e.g., uniquely
customized municipal lighting solutions). See
Appendix 4 for more detailed definitions of
Philips’ business models. In 2013, 70% of
Philips’ business was covered by the Products
business model, but management expected sig-
nificant growth in the other three models. Each
of the 60 Business Categories was gearing up to
follow one of these business models.
Processes were expected to be largely stand-
ardized within a business model, even across
different sectors. But each business model
differed from the other business models in
several core processes.
Whether you deliver an ultrasound
machine from stock or a toothbrush or
lamp—while there may be different
levels of complexity, the delivery process
is kind of similar. But clearly whether
you sell shavers to Walmart is different
from selling a complete healthcare solu-
tion to a hospital. These are different
business models, because the sales are
different, the way you price quotes and
configure the solution is different, the
way you manage and account for the
delivery, etc. —Jeroen Tas,
Executive Vice President and
Chief Information Officer
Taking an end-to-end view of its business
processes, Philips identified three core proc-
esses: idea-to-market (I2M, concerned with
turning an idea into a product, service, software
or system, bringing it to the market and
managing the product lifecycle), market-to-
order (M2O, concerned with marketing the
product and generating sales (orders)), and
order-to-cash (O2C, concerned with the
processing of an order including, for example,
fulfillment, distribution, invoicing, payments
Mocker, Ross, and van Heck
handling). See Appendix 6 for a description of
these processes.
In a company as diverse as Philips that had
previously granted large degrees of freedom to
design processes locally, Philips needed to find
a way to convince people that standardization
was possible and attractive.
Across all sectors, we have had to
overcome the belief that we are different
and therefore it’s not possible [to
standardize]. But we are getting there;
people realize the benefit of learning,
higher speed, scale leverage, and re-use.
—Frans van Houten,
CEO and Board Chairman
To overcome the doubts, the entire management
team of each business participated in a work-
shop for its business model. The workshop
guided participants through a Winning Value
Chain (WVC) exercise.
In the WVC workshop, participants reviewed a
generic list of around 100 high-level processes
used by most companies with similar business
models (see Appendix 5). Through a series of
discussions and exercises, participants were ex-
pected to identify those high-level processes that
were differentiating Philips from its competitors.
In the end, we get to about 10–15
[differentiating processes] in the first go.
But then half of them are probably not
differentiating. It’s just where you have
poor capabilities. So that brought the
number down to around five in each
business model. —Rob Theunissen,
End2End Transformation Leader
While finding processes that required differ-
entiation was important, the reverse implication
was at least as important for Philips: all non-
differentiating processes had to be standardized
and follow common industry practices.
In one of those workshops within
Lighting we figured out we had 17
different ways to send an invoice across
business groups. And if we are not able
to build a business case that these proc-
Page 6 CISR Working Paper No. 394
 esses are a differentiator, then by de-
fault, it’s just a standard process.
—Edgar van Zoelen,
Senior Director,
Head of Delivery, Lighting and
Cross sector Digital Enablement
Processes that were closer to the customer (I2M
and M2O) were more likely to require differ-
entiation in local markets than those that were
farther away from the customer (O2C).
The litmus test is: it’s a differentiating
capability if your customer is willing to
pay for it, or the consumer, or an ac-
quiring party is willing to pay for it.
People started to get that actually being
able to be very efficient in transporting
goods from A to B can never be differ-
entiating. —Mats Beem,
Senior Vice President,
End2End IT Landscape Simplification
The only other reasons to exempt processes
from following a global standard were legal and
regulatory.
But if you say it cannot be standard,
you’d better bring a lawyer, because
then it has to have a legal or a compl-
iance background. —Mats Beem
A key insight that helped convince people of the
possibility to standardize most processes was that
the actual process was different from the content
that flowed through the process.
In a [sales] account management process,
do you think selling [a product] to a
hospital is different than selling to Wal-
Mart? An account is an account. The
content is substantially different, but how
you have strategic meetings with the
account, how you determine the future,
what are the needs you can create with the
customer, what is the value they want to
create, how you can add value. The con-
tent is completely different, but the process
is exactly the same. —Wim van Gils,
Senior Vice President,
Global Commercial Excellence Leader,
Group Business Process Owner M2O
Mocker, Ross, and van Heck
An initial team of about 30 designers was
working out the details of the high-level process
groups, eventually providing around 350
business process descriptions including inputs,
outputs, purposes, and KPIs for the different
business models. Those had been completed for
the Products business model and by the end of
2013, management expected to have done the
same for the Services business model as well as
supporting processes (like IT, legal, HR) that
were part of any business model.
Of course, once designed, all those processes
would have to be implemented in the field.
Some business managers were skeptical as to
whether this would go smoothly.
On a very high level, everybody agrees
that we need, e.g., order processing.
Healthcare will say yes, Lighting will
say yes. […]But I still have my doubts
whether from a laboratory perspective
they can design processes that fit a
variety range of businesses like Philips.
So very quickly, when they start to
implement and push the businesses to
accept the new standard, that can create
a lot of disruption in the organizations,
compromise, or they will recognize that
functionality is missing. —Eddy Walles,
Supply Chain Improvement Manager,
Business Group Consumer Luminaires
Roles and Accountability:
Creating Ownership
Senior executives agreed that executing new
standardized processes and fulfilling Philips’
strategic goals was a challenging task:
Getting people to change their routine is
very hard. To systematically work in an
integrated fashion, we need to redefine
people’s roles. We need a different cul-
ture and behavior, new incentives.
—Frans van Houten,
CEO and Board Chairman
Early in Philips’ history, the different respon-
sibilities and competencies of the brothers
Anton (who was leading sales) and Gerard (who
was leading the technical side), led to splitting
Page 7 CISR Working Paper No. 394
Philips into commercial (i.e., “markets”) and
technical (i.e., “businesses”) leadership. 13 Over
time, the technical leaders had dominated,
leading to Philips’ reputation for innovativeness.
To promote the creation of locally relevant
innovations, CEO Frans van Houten created the
position of Chief Market Leader on June 1,
2011. As a member of the ExCo, this new role
helped to empower the market side of the
Philips matrix.
In the past, the business groups were in
the lead and the markets were positioned
below, also organization-wise. Business
groups had Sales Organizations who
were supposed to sell the products, but
not ask too many questions. Now we’ve
put them really at par. —Pieter Nota,
Executive Vice President and
CEO Consumer Lifestyle,
Board Member
Instead of moving from one extreme to the
other, Philips made businesses and markets
responsible for reaching their targets and “win-
ning in the market” in a collaborative fashion.
To that end, Philips introduced “Business
Market Combinations” or BMCs. There were
400 BMCs which were virtual “end-to-end”
teams, rather than real organizational entities.
BMCs served a specific market with a certain
product category, like male shaving in China or
automotive lighting in North America.
In the past Philips took too simplistic an
approach to it by saying, ‘Well, you’re
accountable,’ implying that those who
aren’t are the second class citizens. I
want to have an equal play between
businesses and markets, and people need
to work together, come to joint solutions.
This requires courageous conversations,
but it is better to have these, instead of
permitting underperformance.
—Frans van Houten,
CEO and Board Chairman
13
C. Bartlett, “Philips versus Matsushita: A New Century,
a New Round,” Harvard Business School Case Study,
January 17, 2008.
Mocker, Ross, and van Heck
In the BMC concept, business categories and
markets shared profit and loss (P&L)
accountability: business category leaders were
responsible for the long-term realization of the
P&L over one to multiple years, while market
leaders held shorter-term P&L responsibilities
to optimize on the market axis. Businesses and
markets jointly agreed business plans and
confirmed these with a “handshake” and worked
together to realize them.
I’ve consciously opted for a collabor-
ative P&L model, believing that there is
a role for a more strategic P&L leader-
ship by the business units, creating value
propositions with good profit potential,
while at the same time the operational
P&L realization is very much depending
on market leadership, on demand crea-
tion with customers, and on the best
price realization. A lot of the value
comes from the collaboration. The best
companies find a way to run the matrix
effectively. —Frans van Houten
The BMC model also pushed accountability
further down the organization and allowed van
Houten to introduce a “management by excep-
tion” style of leadership. But doing so could put
the desired process standardization at risk: 400
BMCs might create significant process variety
to best serve local needs.
To address this risk, Philips also introduced
additional roles: Business Model Owners,
Business Process Owners (BPOs), and Business
Process Experts (BPEs). 14
Each of the three sector leaders also served as
Business Model Owner for at least one business
model, across all sectors. Pieter Nota as the
CEO of the Consumer Lifestyle sector was also
responsible for the design and implementation
of all the processes associated with the Products
business model. Whereas BMCs naturally took
a local perspective that might prioritize a busi-
ness case helping their P&L over compliance
14
Philips was introducing two further roles: Integrators
and Business Information Owners. They were either not
yet fully defined or not yet assigned to anyone.
Page 8 CISR Working Paper No. 394
with process standards, Business Model Owners
were supposed to take an enterprise-wide
perspective on the trade-off between long and
short-term effects of granting exceptions to
process standards.
Each individual business case may make
sense from the local perspective, but if
you add them up at the global level and
start assessing them in the context of our
strategy, many of those cases make less
sense. […] So we’re building govern-
ance around our processes and related
IT investments. For instance, Pieter
Nota as the Products Business Model
Owner sits in SteerCos discussing
whether we should allow deviation from
the model or not. At this stage you’ve got
to create that kind of discipline around
it. It has to come from the top down.
—Jeroen Tas,
Executive Vice President and
Chief Information Officer
In addition, Philips had also assigned Executive
BPOs to help define and enforce process standards
across business models. For example, Ronald de
Jong—besides being Chief Market Leader—was
also the Executive BPO for the M2O process
across the whole group. Similarly, there were
Executive BPOs for the I2M and O2C processes
across all business models. Executive BPOs
appointed BPOs within the three core end-to-end
processes and were expected to design processes
that satisfied the needs of all business models.
While Philips had BPOs prior to Accelerate!, they
were relatively low in the organization. Now,
Executive BPOs were part of the Executive
Committee, making end-to-end process improve-
ment a leadership task.
We have Innovation to Market, Market
to Order, and Order to Cash BPOs per
business model. But we also hooked
them to a company-wide group across
the business models because I want to
avoid creating new complexity by
saying, well, standard Products and
Systems are totally different. Actually,
they are not. They are only different in
Mocker, Ross, and van Heck
sub-segments of the end-to-end process
flow. —Frans van Houten,
CEO and Board Chairman
Besides looking for commonalities across busi-
ness models, the job of BPOs was also to allow
for customer integration.
Having four business models is nice, but
how do we bring them together? I play
the custodian of the customer in that
discussion. I know customers who have
seven interfaces with us as a brand
which is unreasonable. So the ease of
doing business with us as a brand, has to
come together. —Wim van Gils,
Senior Vice President,
Global Commercial Excellence Leader,
Group Business Process Owner M2O
Business Process Experts (BPEs) put the
designs of the BPOs into action. The BPEs were
primarily responsible for teaching and coaching
people in the field on new process standards in
day-to-day work, but they also engaged with
BPOs on process design and continuous im-
provement.
Real learning happens for 90% ‘on the
job,’ so you need people on the shop
floor where the action is to actually
raise their hands and ask: “This is not
the way according to the standard, why
are you deviating?” To get the right
level of discipline in place. […] The
BPE’s co-create the designs to create
ownership and ensure practical
relevance. You can’t design in an ivory
tower. In execution they maintain com-
petency levels, drive continuous im-
provement and check execution against
the standard. —Rob Theunissen,
End2End Transformation Leader
BPOs and BPEs were mostly roles that people
assumed in addition to their existing respon-
sibilities. BPEs had a dotted-line reporting rela-
tionship to BPOs, who in turn had reporting
relationship to either Business Model Owners or
Executive BPOs. The BPO and BPE community
was regarded as critical to the success of process
standardization. In total, Philips was creating a
Page 9 CISR Working Paper No. 394
network of 400 BPOs and BPEs on all organi-
zational levels.
People and Culture:
Promoting Cross-functional Collaboration
Management realized that Accelerate! was
introducing a daunting change to the company
and the ExCo set out to lead Philips through
those changes.
In 2011, we started this whole trans-
formation. We realized along the road
that we were underestimating two
things: the need for a more well-
articulated North Star—if you do all this
hard work, who will we become, how
attractive is the future prize? […] And
the other one was change management
which is essential to implement the
change effectively, getting people to
actually change their ways. The art of
change management was highly absent
in the old Philips; we have made a
massive step up in this area.
—Frans van Houten,
CEO and Board Chairman
The ExCo started by developing and distributing
a new vision and mission alongside a set of
desired behaviors for Philips to show why it was
worth going through the transformation (see
Appendix 3). At the same time, the leadership
team worked to develop a common language.
Iconic language is important so that
people can remember it and start re-
peating it and associate it with the
expected behavior. —Frans van Houten
Introducing this common language was far from
easy though. People referred to similar things
using different terms. For example, there were
multiple titles for individuals with responsibility
for integrated sales and operational planning:
S&OP managers, SIOP managers, and Inte-
grated Business Planners.
All three seemingly mean something dif-
ferent creating a license to buy different
tools, use different KPIs, different organi-
zational structures. They all talk to different
sources, different consultants, and they all
Mocker, Ross, and van Heck
build their tools and ways of working. If
you want to standardize you need one
language. […] One of my personal big
learnings is the amount of internal,
unrewarded complexity organizations
create by not being clean in operating
model language. —Rob Theunissen,
End2End Transformation Leader
By 2013, Philips had created a common
terminology that people throughout Philips were
actively using, which included terms like “end-
to-end,” “teaming-up to excel,” “winning value
chains.” 15
But management also needed to find ways to
coordinate all the new roles and foster an
environment of trust.
We want to work end to end to deliver
relevant innovation to our customers,
faster and with better results. But people
were used to throwing things over the
wall, causing disconnected flow. They
often mistrust each other. We need to
bring them together and team-up. […]
Just writing an Executive Decision from
my desk is not going to solve that.
Instead we invested deeply in change
management of people’s attitudes and
behaviors. —Frans van Houten
One intervention to get people from product
development, sales, operations, and other areas
to work together across functional silos was the
Accelerate Leadership Program (ALP, for
executive level management), and the similar
ATP (Accelerate Team Program, for operational
teams). More than 1,500 executives had
participated (some even twice) in the ALP
program that was designed as a three-day offsite
training to bring together leaders from different
functions who were all working on a specific
business problem. The idea was to create “end-
to-end” teamwork across functional silos. In
every ALP program, the team made an
assessment of a current situation, established a
15
The full end-to-end process that combined
differentiating and standardized parts and allowed Philips
to successfully compete in the market was called a
“winning value chain.”
Page 10 CISR Working Paper No. 394
vision of a compelling target state, then con-
ducted a root-cause analysis to find the reasons
that kept them from moving to the target state
and they assessed their own role in what kept
them from achieving a better result.
First of all, people deny that the problem
is there. So, in the end you need to bring
the people in one room. Then people
start blaming each other: “I could do it
if only you did this.” And then “end to
end” comes in and people start realizing
that “We could be successful if I do this,
and I help you with that!” Now we are
talking about input-output relationships,
teaming up to excel. To make the whole
chain successful means that we need to
learn to work together instead of saying
“I’ve done my job but you’re failing. The
weakest link of the chain determines the
success for all of us. So let’s collaborate
and help each other to fix performance
end to end.” —Frans van Houten,
CEO and Board Chairman
In one example, a team in Healthcare analyzed the
root cause for having thousands of price
escalations in one year. These price escalations
were generated by the 3,000 account managers
who tried to get a different price than the one set
by the product teams for their customer. As price
escalations started to queue up, the handling time
grew to six weeks. In response, the product teams
hired additional people which increased cost and
bureaucracy. Account managers spent the major-
ity of their time in internal discussions instead of
with customers and looked ineffective in their
eyes. The ALP helped surface the various per-
spectives from the different camps:
The business units put a high minimum
price because they say the salespeople
“give away” my product too cheaply.
The thought of the business unit was: by
putting a high minimum price they need
to come to me and things will go better.
Of course, in the end it doesn’t go right,
we just lost time, instead of working
together to define a better winning
proposition for the customer.
—Frans van Houten
Mocker, Ross, and van Heck
By the end of the ALP, participants had agreed
that the solution was to train account managers
and provide them with the right information to
empower them, instead of trying to impose
central controls that had slowed them down.
The intensive discussion and cross-functional
debate characteristic of ALPs also contributed to
management’s goal of getting people to speak
the same language.
The Business-Driven IT Transformation
We believe we are defining the future of
corporate IT. —Joseph F. Norton,
Senior Vice President,
Deputy CIO and Head of
IT Infrastructure and Operations
The Accelerate! transformation set out to
redefine how Philips did business. To support
the new processes, Philips also needed to
change its information technology (IT) systems.
So together with the end-to-end work, I
always had the ambition to replace IT
and make it an asset rather than a
liability. I want to have IT that provides
integral information on a real time
basis, so that we can manage our end-to-
end processes well. —Frans van Houten
Two weeks after becoming CEO, Frans van
Houten hired Jeroen Tas as Philips’ Chief
Information Officer (CIO). Tas and his team
quickly determined that Philips’ existing legacy
systems were not suitable to support the new
way of doing business.
We take 10,000 business processes, all
uniquely different, and say, we really
only need three core business processes
[I2M, M2O, O2C]. But if you have this
ball of twine, with a litter of kittens tying
it all up into knots for 30 years, how do
you cleanly insert that in that en-
vironment? You can’t! So what we’re
doing is decommission everything and
building all new. —Joseph F. Norton,
Senior Vice President,
Deputy CIO and Head of
IT Infrastructure and Operations
Page 11 CISR Working Paper No. 394
For example, Philips was running a total of
around 60 different Enterprise Resource Plan-
ning (ERP) systems 16 that would have taken
multiple years to combine, limiting Philips’
options for creating cross-business solutions.
So we started thinking about how we can
create a true plug and play business,
because maybe we will evolve new
businesses that may be composites from
part of consumer lifestyle and part of
health care. There’s low probability you
can just “tweak” your way into a solid
solution. So we’ve got to go on to a new
landscape that accommodates our new
business models and at same time allows
for rapid adaptation should the market
demand it. But you cannot go on a new
landscape without the associated busi-
ness change. So the way we see it is that
we are not changing IT, no, we’re
changing the way we run the business,
enabled by a new IT landscape.
—Jeroen Tas,
Executive Vice President and
Chief Information Officer
As a result, Jeroen Tas and his team designed a
new “green field” IT landscape for all of
Philips: the so called Philips Integrated
Landscape (PIL).
The Philips Integrated Landscape
The main pillars of PIL were several “platforms,”
i.e., the digital manifestation of the core processes
(I2M, M2O. O2C), as well as supporting business
processes like HR, legal, etc.
The platforms make sure that we are re-
using our common components.
—Anosh Thakkar,
Vice President and
Head of Architecture and Platforms
Key technologies were selected for each
platform: The first to be implemented was a
16
Speech given by Frans van Houten at Rotterdam School
of Management on Oct 4, 2013, summarized at
http://www.rsm.nl/will-you-join-us-for-the-rsm-
leadership-summit-2014/about-the-summit/2013/philips-
presentation/
Mocker, Ross, and van Heck
standard CRM system, Salesforce.com, as the
foundation for M2O; I2M processes would be
built on a PLM 17 system; and an SAP ERP
system would support O2C. An integration
platform would allow these different process
platforms to talk to each other, and a data
platform (called “information factory”) would
enable all platforms to share data (see Appendix
7 for a high level depiction of the PIL
architecture). The plan was that these platforms
would be supported by less than 100 global
applications—significantly less than the more
than 10,000 applications Philips had prior to
Accelerate!.
In theory, the design of PIL depended on how
the processes were designed. But building plat-
forms was time-consuming, so IT leaders de-
cided to proceed without full process detail.
This approach was consistent with plans to rely
on standard, common practices. Thus, PIL drew
from those practices embedded by vendors like
SAP and Salesforce.com in their software sys-
tems.
For instance, if we select Sales-
force.com, we know it supports con-
sumer goods industries; we know it
supports project companies like
Schneider Electric, HP, and Cisco, so
they probably can support our Systems
model as well; and they support software
companies. So we made an assumption
that by selecting Salesforce.com we
could fulfill most of the needs of our
different business models. And similarly
we sat down with SAP for our ERP and
with PTC for our Product Lifecycle
Management platform. —Jeroen Tas
After deciding on the key technologies for each
core process, Philips verified the assumptions in
“lead deployments”—countries or businesses
that were representative of the rest of the
company.
These lead deployments help us to drill it
down to the lowest level of work instruc-
tions. For Salesforce.com, we started in
17
PLM stands for Product Lifecycle Management.
Page 12 CISR Working Paper No. 394
 our biggest market in the U.S., and our
most complex sector, Healthcare. And
then we started bringing in others. And
now we have a single instance of
Salesforce.com. —Jeroen Tas
In 2013, the M2O platform had been built out to
a large degree with Salesforce.com, and Philips
was in the process of selecting lead deployments
for other parts of PIL.
The PIL architecture was designed in a modular
way with “smart decoupling,” to allow for re-
using modules, but also for a “plug and play”
replacement of parts should technologies or
needs change. One key element for sharing data
across different modules in this flexible way
was the construction of the “information
factory” data platform. The idea was to separate
all core data (like data on customers) from the
actual applications. While applications would
work with their own data, the “master copy” of
the data would reside centrally outside of
applications. That way, all applications —even
those deployed in a public Cloud —would rely
on the same data, e.g., to enable serving
customers consistently across different business
models. While implementing the information
factory would be a lot of technical work, the
decision to share data across businesses was
made by top management.
Things like how you manage your data
require cross business model decisions.
How you want to manage your customer
data. Do you want to do that by business
model or at a group level? We say we
want to do it at the group level, because
it would be silly if one customer couldn’t
be served across different business
models. —Pieter Nota,
Executive Vice President and
CEO, Consumer Lifestyle,
Board Member
Another principle evolved around “configu-
ration instead of customization.” In the past,
Philips had substantially changed—or cus-
tomized—even those IT systems it had bought
from vendors to reflect the specific needs of
each business. As a consequence, every time a
Mocker, Ross, and van Heck
vendor provided an update to a system, Philips
needed to test and potentially adapt its
customizations, causing delays and high cost.
It was a six-month project just to apply a
security patch. There are companies that
spend less than €7,000 on that simple
SAP adjustment. At Philips, it can be
more than triple that cost because of the
complexity. So many connections, so
many different settings, and highly cus-
tomized. Now we have to redo almost
everything to make sure the system runs.
—Edgar van Zoelen,
Senior Director,
Head of Delivery, Lighting and
Cross sector Digital Enablement
To avoid these situations in the future, Philips
was determined to implement standard systems
as supplied by vendors. Following the reasoning
from the Winning Value Chain workshops,
businesses should no longer request specific
adaptations of systems supporting non-
differentiating processes.
[In the past] the argument often was, ‘I
spend 100,000 in making something
special in SAP. And I can demonstrate I
get 300,000 back in one year. Why not
do this?’ The real question is, why don’t
you spend the 100,000 in a domain
where you can differentiate in the mar-
ketplace? It’s not about the individual
business case. It’s about, where should
your money, energy, effort and brain
share go? It shouldn’t go in a place
where you can never make a difference.
—Mats Beem
Senior Vice President,
End to End IT Landscape Simplification
But even if businesses needed changes to
accommodate distinctive processes, Philips’
intention was to configure the standard system
instead of customizing it.
For example, quotation in sales account
management differs very much from a
systems business model where you could
have a €2 million quotation with sub-
quotations versus a quotation for 50,000
Page 13 CISR Working Paper No. 394
 baby bottles in our Products business
model. But that doesn’t mean you can’t
use the same platform. You just need to
make sure that you configure your quo-
tation process for that platform differ-
ently in a Systems business model as
opposed to a Products business model.
—Anosh Thakkar,
Vice President and
Head of Architecture and Platforms
Unlike customization, configuration was usually
done through settings residing in files or
database tables outside of the actual system, so
they were less affected by updates to the actual
system.
To help avoid the kind of system customization
that Philips business units had previously
demanded, the BPO network was charged with
governing exception requests related to core
platforms.
We won’t do anything unless the BPO
community, who represent our Markets,
Sectors and Functions, acknowledges
that this is the right thing to do. We’re
no longer going to ask some guy in some
business unit deep down what their
needs are. No, we are dealing with [the
BPO] to prioritize what’s going into [the
systems]. She or he is responsible to
make sure he gets the input from the
markets and the sectors. It used to be the
other way around: I’m a business unit
and I need to go and do this.
—Jeroen Tas,
Executive Vice President and
Chief Information Officer
The plan was to have PIL in place by 2017. By
late 2013, major parts of PIL had been designed
and pilots had been run to confirm the technical
feasibility, but the bulk of the implementation
work was still in front of Philips. And while
Philips had already decommissioned many of its
over 10,000 applications, the remaining 6,000
was far from the target of less than 500 legacy
applications. To promote a transition towards
utilizing PIL and to “starve” the legacy land-
Mocker, Ross, and van Heck
scape, Philips introduced a cap on new invest-
ments in legacy systems.
Getting the Business-IT Partnership
Back on Track
IT is a business partner again rather
than a hated function. IT now starts
shaping how we do business better.
—Frans van Houten,
CEO and Board Chairman
Before building PIL, Jeroen Tas needed to
change the way the IT unit was working
together with other parts of the business.
I spent a lot of time personally with the
leadership. I told them: ‘I have good
news and I have bad news. The good
news is, IT is coming back to the
business. The bad news is, IT is coming
back to the business, so you have to
manage it. So you cannot just sit there
and beat up IT and then go on with life.
It’s your stuff, it’s your cost. And my role
is to help you make the right tradeoffs.’
—Jeroen Tas
Tas initiated three new practices to change the
relationship between IT and the rest of the
business.
Getting IT Portfolio Management
Under Control
The first initiative aimed at changing the way
Philips managed IT demand. Previously, costs
for “consuming” IT services were charged back
to business units using revenue as the basis for
allocation: the more revenue a unit was making
compared to other units, the more IT costs were
charged to that unit. The result was that it was
not entirely clear to business units what they
were paying for and how they could influence
their IT charges. Because business units were
not charged directly for what they had
“ordered,” every unit was ordering a lot. To
address this, Tas introduced a practice of
defining and pricing IT services and then
charging business units based on what type and
how many services they actually consumed.
Page 14 CISR Working Paper No. 394
In a related effort, Tas focused on scaling back
Philips’ huge portfolio of IT projects. To do so,
he insisted that every project had business
leaders committed to getting value from its
deliverables:
For the big projects, I asked the business
to show me the business case and
whether the business case was signed off
by the business controller. I checked
who was on the projects’ steering com-
mittee and whether these guys were
actually truly engaged and showing up
at key meetings. And whether change
management was part of the budget [as
an indication for understanding] that
you can never do IT alone. —Jeroen Tas,
Executive Vice President and
Chief Information Officer
Around 60% of projects failed this test.
I cut a couple of big ones that lacked a
solid business case and governance and
appeared to be heading south just to
make a case. And the reason we started
with that is because you can have im-
mediate effect. If you stop a project, you
stop money going out of the door.
—Jeroen Tas
Tas also changed the roles of “IT business
partners.” These relationship managers had been
eliciting and collecting the wish lists of their
business unit partners. In their new role, they were
to work with business leaders on cost-benefit
assessments and the creation of roadmaps for the
combination and sequencing of individual projects
into programs intended to build IT-enabled
business capabilities.
Optimizing IT Outsourcing
In a second initiative, Philips’ IT outsourcing
relationships were turned into so called “output-
based partnerships.” In the past, the IT unit had
relied mostly on time and material contracts where
vendors charged Philips based on how much time
their people spent working for Philips. Those
contractors were managed by Philips like internal
employees. Besides incentivizing vendors to keep
their people as long as possible on tasks for
Mocker, Ross, and van Heck
Philips, this model took responsibility for end-
results away from vendors.
[They were] standing at the sideline
saying, ‘I’m delivering experienced and
qualified resources. How you utilize
those resources at Philips is up to you.’
—Job Verkerke,
Director, IT Procurement
In May 2011, Philips terminated most of these
contracts and sought new vendors. The result was
a reduction of 1,200 contractors. Additionally, 350
employees were transferred to the new vendors
and another 150 who had managed the contractors
were let go. In place of the time and material
contracts, the IT unit contracted with Cognizant
and Wipro as new strategic partners who were
paid for the delivered output.
So we said, we’re only paying you for
what you deliver and we basically don’t
care how you guys do it. Whether you
put ten people or a robot on it, we don’t
care as long as you deliver according to
the agreement and you are an active
member of the team. —Jeroen Tas
In some areas, improvements were immediately
noticeable:
The moment we changed the contract,
our vendors for application support and
maintenance started writing scripts. Be-
cause a lot of what they were doing
could be automated, but they never had
an incentive to automate it. —Jeroen Tas
Redesigning How IT Operates
The third initiative restructured IT around four
core IT capabilities and defined so called “multi-
disciplinary teams” (MDTs). The MDTs were
designed to mirror how the businesses were
organized to further enable the business to take
ownership of IT. Everyone in IT worked in a
discipline aligned with one of four capabilities:
 Business-partnering (i.e., portfolio manage-
ment);
 Architecture and Platforms;
 Delivery (e.g., project management and
application development); and
Page 15 CISR Working Paper No. 394
 Infrastructure & Operations (i.e., infra-
structural services and maintenance). 18
See Appendix 8 for a visual depiction of what
was called the “new IT operating model.”
The core IT processes and deliverables of each
discipline were following industry-wide stan-
dards like TOGAF for architecture, ITIL for
operations, and Scrum for delivery. 19 Members
of the different capability-groups should work
together in cross-functional teams.
What we don’t want is each of these four
disciplines to be their own functional
silos. So we introduced the concept of
the multi-disciplinary team. —Jeroen Tas,
Executive Vice President and
Chief Information Officer
The change in the way in which IT worked
together in MDTs with other parts of the
business was most visible in the delivery part of
the IT unit as it moved from a waterfall model
of delivering projects to an “agile” mindset. 20
The idea was to avoid moving sequentially
through the stages of software development,
from requirements gathering to design and
implementation of systems.
In the past we worked in a waterfall,
where we asked, ‘What do you want?’
And we wrote down all the requirements.
And then we let the business sign in
blood and started building the system.
And a year later [when the system was
built] it turned out that it was not exactly
what the business needed, or that it
wasn’t needed anymore.
—Huub Vermeulen,
Delivery Manager, Lighting
Instead, an incremental and iterative approach to
application development was employed that did
18
For the duration of Accelerate!, there is also an IT-
End2End discipline for specific transformation needs.
19
TOGAF stands for The Open Group Architecture
Framework, see www.opengroup.org; ITIL stands for IT
Infrastructure Library, see www.itil-officialsite.com;
Scrum is an agile (software) product development
methodology, see www.scrum.org.
20
See e.g., agilemanifesto.org.
Mocker, Ross, and van Heck
not rely on full specification of all requirements
upfront.
We had these thick requirements
documents. And I was looking at this,
saying, ‘You’ve got to be kidding.”
Who’s reading this, […]doing IT that
way is fundamentally flawed, because it
assumes that you can know what things
are going to look like five years from
now, that you’re capable of translating
that into a level of detail and still hold it
together and comprehend. I just don’t
believe people can do that. —Jeroen Tas
In the new approach, funded and initiated
projects started with a “boost session,” a
workshop that could range from anywhere
between 30 minutes and two days. The work-
shop’s aim was to get a high-level under-
standing of the business problem to be solved
and to define a “Minimum Viable Product.”
This was done via “user stories” depicting how
people using the system (or “product”) to be
built would work once the system was in place.
Multiple competing output-based partners sent a
team to these workshops. A few days after the
workshop, they would submit an offer (a so
called “Statement of Work”) for the project.
By 2013, Philips was running 150 Scrum teams
in this agile way (up from seven teams two
years earlier). Scrum teams were examples of
multi-disciplinary teams as they included people
from all major functions within IT as well as a
business representative.
The team is like rowing a boat, and
there’s a partnership between Philips IT
and Philips business to avoid the
‘There’s a hole in the boat, but thank
God it’s not on my side’ issue. Together
as a boat you’ll win or not.
—Charel van Hoof,
Senior Vice President and
Chief Information Officer, IT Delivery
A typical Scrum team consisted of Philips
employees and external (output-based) partners.
The output-based partner provided the Scrum-
master (a kind of project manager versed in the
Scrum methodology) and developers while
Page 16 CISR Working Paper No. 394
Philips employees provided the “product”
owner, business analysts, and tech leads. Busi-
ness analysts worked on mapping the business
process flows into systems and their links. The
tech leads cooperated with architects to ensure
that whatever was built by the project leveraged
existing IT-based components and complied
with architectural and infrastructural standards.
The product owner was always a Philips’
business employee (non-IT) very close to the
business problem to be solved.
It’s critical to have a good product
owner. Somebody from the business who
really understands where the value is
coming from, who can manage the
business stakeholders, and make sure the
solution is going to be deployed so that
the actual value is captured.
—Huub Vermeulen,
Delivery Manager, Lighting
He or she also had to prioritize the requirements
that were addressed by the team in two-week
long “sprints,” putting the most value-adding
requirements first. After each sprint, a working
solution was ready to check to see if it ad-
dressed the problem. The goal was to create
value as fast as possible.
[In a supply chain redesign project] we
first focused on a small part of this
supply chain network, and we were able
to route containers differently. And that
saved us €50,000 a week. So 1.5 months
after the project start we already started
saving. And that’s a huge difference
from the past, where we completed the
projects as a whole and then we started
getting the savings. —Huub Vermeulen
The quick iterations also helped to uncover
solutions early that did not represent what the
business needed:
The entire IT ecosystem is now built
around the agile mindset where all activ-
ities are centered around the delivered
business value and the short cycled
iterations of continuous improvement,
allowing us to ‘Fail Fast.’ The faster you
realize you are on the wrong track, the
Mocker, Ross, and van Heck
faster you can change your game and
focus on what does bring the intended
value. —Edgar van Zoelen,
Senior Director,
Head of Delivery, Lighting and
Cross-sector Digital Enablement
A key task of the product owner was also to
manage stakeholders and respect different and
sometimes conflicting interests without losing
sight of his or her own objective.
For example, the product owner’s focus
might be saving supply chain costs, but
the business process owner has another
interest. He wants to standardize the
capabilities. So you can imagine that
there were some clashes. […] And then
we also have our business groups, and
we have our markets. And they all have
their own vision of things.
—Huub Vermeulen
The teams were only constrained by a preset
budget, architectural standards, and Philips’
overall strategy and transformation objectives.
Otherwise they were expected to run auton-
omously to achieve their own priorities (set by
the product owner) and solve issues among
themselves, rather than waiting for higher-level
management to step-in. For example, an out-of-
office reply by one of the executives within IT
delivery read: “I expect the MDTs to take full
ownership and use their empowerment to drive
activities forward. […]For urgent matters that
cannot be solved within the Multidisciplinary
teams, please contact […].”
If the team truly takes accountability,
there is a natural drive of the team to be
successful and you have the leverage of
peer pressure for potential non-
performance within the team, which is
much stronger than if the boss tells you
what to do. —Edgar van Zoelen
After each project, a business sector controller
approved the degree to which the targeted
financial impacts had been realized.
People clearly enjoyed working in this type of
setting.
Page 17 CISR Working Paper No. 394
 Our (Scrum) teams are happier than
they were before. They are really laugh-
ing loud, having fun, creating value and
getting higher [internal] customer satis-
faction scores. —Edgar van Zoelen,
Senior Director,
Head of Delivery, Lighting and
Cross-sector Digital Enablement
Nevertheless, changing how IT and other parts
of the business worked together was not easy:
[The biggest risk] is that business
reverts back into the “I want this, you go
and do it” mode, the old pecking order.
We’re one team, we’re going to help
each other achieve our business goals.
That’s very hard if people have worked
differently for 20 years. It’s not that
people don’t buy in on the logic, I think
they do. They revert back to their old
behaviors, because they are deeply
ingrained. So the biggest obstacle is
mindset. —Jeroen Tas,
Executive Vice President and
Chief Information Officer
However, Philips IT had made significant
progress. The tight bureaucracy had been
reduced substantially. For example, whereas in
2011, 72 signatures were needed to start a
project, in 2013 four signatures sufficed. As a
result, Philips saw the time it took to get a
project started decrease from an average of five
or six months to 100 days in 2012 and to 40
days in 2013. The future target was a maximum
of 20 days. In addition, through a combination
of measures, IT cost in 2012 had been reduced
by €150 million, a significant part of the 25% IT
cost reduction goal.
The Challenge Ahead
In late 2013, the Accelerate! transformation was
in full swing and initial results were promising.
For example, the Consumer Lifestyle sector was
starting to benefit from locally relevant inno-
vations.
Over the last 12 to 18 months, we’ve
seen a very significant step up in the per-
formance in the top line and the bottom
Mocker, Ross, and van Heck
line. And that is largely driven by
locally-relevant innovations.
—Pieter Nota,
Executive Vice President and
CEO Consumer Lifestyle,
Board Member
Philips had regained shareholder’s confidence
as its share price had doubled since its most
recent low point in late 2011. It also achieved
the mid-term goals for 2013 set in 2011. Still, a
major challenge in this transformation was to
have an organization of 115,000 people under-
stand and buy into the newly introduced
concepts.
So the people that are in the program,
they fully got it. And that group is
getting bigger every day. But I still think
we have quite an amount of change
management to do once we actually go
out there and reach each and every busi-
ness market combination, because there
is still a load of people who we need to
explain this to. —Charel van Hoof,
Senior Vice President and
Chief Information Officer, IT Delivery
For example, a key concept of the trans-
formation was to be able to deliver more locally
relevant innovation while leveraging global
scale, which was not easy to realize.
This requires us to think in terms of
global platforms and customization for
local customer needs. People need to put
in the effort to work through these
issues, instead of taking the short cut.
This transformation requires people to
differentiate between what complexity is
wasteful and therefore should be elim-
inated, and what complexity is rewarded
as it extracts more value from our cus-
tomers. People struggle with my eager-
ness for nuance and depth. But the
market is like that, to be truly successful
you will have to learn.
—Frans van Houten,
CEO and Board Chairman
Despite these challenges, many employees were
excited about the transformation effort:
Page 18 CISR Working Paper No. 394
 I think this is the coolest part of the
journey. We are all part of a huge trans-
formation in a global organization. How
many people can truly say they can have
an impact on something fantastic like
this? It can be tough at times, but by
teaming up and being persistent we are
able to deliver great results!
—Edgar van Zoelen,
Senior Director,
Head of Delivery Lighting and
Cross-sector Digital Enablement
And while Philips had made a lot of progress in
defining business models, designing business
processes, new roles and responsibilities, and
while results from pilots looked promising, the
bulk of putting these concepts into action still
had to be done—something Philips hadn’t
always succeeded with in the past.
Philips always had bright and smart
people, very often good strategies and
very often lousy execution. Now we are
Mocker, Ross, and van Heck
embracing operational excellence, con-
tinuous improvement and becoming a
learning organization. We are putting in
place a business system which will allow
us to innovate and achieve success in a
repeatable manner. This system says
‘here is how we work at Philips.’ It
enables us to start new businesses and
bring them to global leadership, time
and time again. —Frans van Houten
It was clear to management that this was a
make-or-break transformation for Philips.
Now, we’re still in the middle of this
[transformation], but for the sake of the
company we will have to make it work
and we will make it work. As long as we
acknowledge that this learning journey
is as much about system design as it is
about changing our capabilities, mind-
set, and behaviors. —Rob Theunissen,
End2End Transformation Leader
Page 19 CISR Working Paper No. 394
 Appendix 1: Philips Financial Performance

Table 1: Philips performance over time; Source: (Semi) Annual Reports,

Brand ranking from Interbrand website, Share price from Wolfram Alpha

Jan-Dec

Jan-Dec
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012
2012

2013
In billion Euro

Revenue 37.9 32.3 31.8 29 24.9 25.8 27 26.8 26.4 23.2 22.3 22.6 24.8 23.5 23.3
EBITA 4.6 -- -- -- 1.9 1.6 1.4 2.1 0.7 1.1 2.6 1.7 1.5 1.1 2.5
EBIT -- -- -- -- 1.2 1.5 1.2 1.9 0.1 0.6 2.1 -0.3 1 0.7 2
Net Income 9.6 -2.5 -3.2 0.7 2.8 2.9 5.4 4.9 -0.1 0.4 1.5 -1.3 0.2 0 1.2
Profit margin
25.3 -7.7 -10.1 2.4 11.2 11.2 20.0 18.3 -0.4 1.7 6.7 -5.8 0.8 0 5.2
(%)
Employees
219 189 170 164 162 159 122 124 121 116 120 125 118 118 117
(in ‘000)
Brand
42 55 60 59 65 53 48 42 43 42 42 41 41 41 40
ranking
Mean share
46.2 31.7 25.6 18.8 21.5 21.6 26.6 29.7 21.4 15.3 23.3 18.1 16.9 16.9 23.3
price (€)

Figure 1: Philips 2012 Performance by Sector

Source: Annual Report

Mocker, Ross, and van Heck Page 20 CISR Working Paper No. 394
 Appendix 2: Philips’ Executive Committee (ExCo) and Organization Chart of Interviewees

Source: http://www.philips.com/about/company/management/management/index.page

Source: Company-internal document, people interviewed for this case study are shaded in blue

Mocker, Ross, and van Heck Page 21 CISR Working Paper No. 394
 Appendix 3: Philips Vision and Mission
Mission: Improving people’s lives through meaningful innovation
Vision: At Philips, we strive to make the world healthier and more sustainable through innovation. Our
goal is to improve the lives of 3 billion people a year by 2025. We will be the best place to work for
people who share our passion. Together we will deliver superior value for our customers and
shareholders.
Behaviors: Eager to win, Take ownership, Team up to excel.
Source: http://www.philips.com/about/company/missionandvisionvaluesandstrategy/index.page

Appendix 4: Four different business models

Philips defined its four business models as follows.
 “Products” businesses offer a catalogue of (configurable) products, components and consumables,
including regulated products such as defibrillators and OEM products such as Automotive lamps.
 “Service” businesses offer knowledge and expertise related to the customer’s assets, including
consulting and training as well as after-market services, such as maintenance or refurbishment.
 “Software” businesses offer a functionality in the customer’s data center or as a subscription “in the
cloud” that may be related to hardware products such as clinical decision support.
 “Systems” businesses offer a (tailored) solution to a customer's unique problem, including third-
party products and configurable systems installed in a project set-up such as municipal lighting.

Source: Philips Business System v1.1, company-internal document, February 2013

Mocker, Ross, and van Heck Page 22 CISR Working Paper No. 394
 Appendix 5: Philips Component Business Model (CBM)
Used in Winning Value Chain Workshops

Source: Company-internal document

Mocker, Ross, and van Heck Page 23 CISR Working Paper No. 394
 Appendix 6: Philips Core Processes
Philips described its processes as follows:
“Three core customer-focused process groups underpin the Philips ways of working and these comprise
the end–to–end value chain. While we distinguish between these process groups and supporting
functions, the winning value chains assume seamless connections to grow our relationships with
customers and consumers.
Figure 2: Philips Business Process Framework

Idea-to-Market (I2M) – The process by which returns are made on innovation investments. This will
be achieved by introducing processes that allow ideas to be brought to market through strong and
relevant collaboration across Philips, supplier and partners. This is a crucial capability for Philips to
have if it is to remain competitive, especially in markets where time to market is crucial. Functions like
R&D, product design and product management fall under I2M.
Market-to-Order (M2O) – Market to Order is about reaching more customers and consumers faster
and turning them into loyal Philips promoters. M2O contains processes which look for leads in the
market place and convert them into opportunities and ultimately orders and thus revenue. In order to
keep our customer and consumers loyal to Philips, it is important to interact with them at various levels.
Digital technologies help us to engage daily with our customer and millions of consumers. The
associated analytics provide unprecedented insights into their needs. Quickly looping insights back into
our innovation teams help us to create future value. Similarly, close relationships with our customers
result in opportunities, which in turn helps us to forecast our growth and investment decisions better.
Order-to-Cash (O2C) – The processes which fulfill orders and support financial transactions. These
processes range from products and service delivery, manufacturing execution, logistics, warehousing,
and the financial revenue flows.
Supporting Processes – Covering functions such as HR, Finance, Procurement and IT. These
supporting processes also have to cater for levels of information security, risk management and
compliance. Compliance relates to items such as privacy, regulation and export controls.”
Source: Internal company white paper, Creating the Philips Integrated Landscape, March 6, 2013
Mocker, Ross, and van Heck Page 24 CISR Working Paper No. 394
 Appendix 7: The Philips Integrated Landscape
Figure 3: High level Architecture for PIL Platforms and Supporting Technologies

Mocker, Ross, and van Heck Page 25 CISR Working Paper No. 394
 Appendix 8: Philips New IT Operating Model

Mocker, Ross, and van Heck Page 26 CISR Working Paper No. 394
 Appendix 9: Selected Slides from Public Presentations on Accelerate!

Mocker, Ross, and van Heck Page 27 CISR Working Paper No. 394
Mocker, Ross, and van Heck Page 28 CISR Working Paper No. 394
Mocker, Ross, and van Heck Page 29 CISR Working Paper No. 394
Source: Presentation by Frans van Houten at Capital Markets Day, London, Sep 17, 2013

Mocker, Ross, and van Heck Page 30 CISR Working Paper No. 394