1. A case study on Restructuring Philips

2. CONTENTS: Brief history of the Philips. Introduction to the case. Programs launches to solve the problems i.e the strategies. The benefits. Conclusion. Our contribution to the case.

3. HISTORY : 1st Phase :- (From 1891 to 1900s) Philips was established in the year 1891. Founder : Gerard Philips ( who established a facility at Eindhoven , Netherlands, to produce incandescent electric lamps) Anton joined the business in 1895

4. 2nd Phase : (1910 to 1940s) 1914 – All the research efforts of the company were consolidated and brought under one organization, called Philips research laboratories . 1920s- Philips began the mass production of consumer goods, and started to diversify its product range. 1930s – A negative impact on Philip’s business due to the great depression of the 1930s that followed the stock market crash of 1929. 1937 – An executive was sent to the US, who came up with an idea of manufacturing electric shavers.

5. 3rd Phase :- ( 1950s to 1980s ) In the 1950s and 1960s, Philips took rapid strides in technology development. 1950s – developed its 1st large screen projection TV, consumer appliances . 1960s – in early 1960s Philips started research on integrated circuits. 1970s – introduction of new products continued. 1980s – Philips acquired GTE Sylvania’s television business in 1981.

6. 4th Phase :- ( 1990s) Philips scaled many new peaks…….. In May 1990, Jan Timmer took over from Cor van der Klugt as the company’s president and CEO. (Though Philips had been a whiz at technological innovations throughout its history, it was not able to translate its strength in research and development into robust financial performance. In mid 1990, the company faced a major financial crisis and was on the brink of bankruptcy.)

7. INTRODUCTION TO CASE In May 1990 when company posted losses of $2.6 billion , top management launched a set of initiatives. Major initiative was ‘Operation Centurion’. In 1990 Philips initiated job cuts, sold non unprofitable businesses and closed down may manufacturing facilities worldwide. In 1999, Philips embarked on a worldwide marketing campaign for the first time and changed their company’s image as technology-oriented company to one that was market-oriented.

8. Contd… In 2001, Philips launched a company wide restructuring program called ‘Towards One Philips’ (TOP), to foster greater cooperation among its various divisions and to make it a unified company. Initiated by Gerard Kleisterlee, President and CEO of Philips, TOP program helped not only in lowering costs but also promoted a spirit of collaboration

9. OPERATION CENTURION PROGRAM Difficult to convert its innovations into saleable products quickly Biggest problem was a highly bureaucratic corporate culture that was resistant to change. Performance appraisal and promotions depended upon the personal relationships of employees with their superiors. Head office in Eindhoven was overstaffed Operation centurion was initiated in late 1990 under the guidance of C K Prahalad. Key objective of Operation centurion was to instill a sense of urgency across the company.

10. Contd... Centurion Sessions were held for each business division. The session focused on reviewing the state of business and the plan of action for that business. Under Operation centurion, 22 corporate task forces were set up, to look into issues like R&D effectiveness and corporate governance. In 1994, company’s net income rose to 964 million euro. Workforce was reduced by 52,000 to 238,000 employees. Strategies adopted by Timmer saved Philips from bankruptcy.However, Overstaffing remained a major concern. The company had revenues of $37 billion in 1996 with 262,500 employees, compared to Japanese rival Sony’s $43 billion with just 151,000 employees.

11. Contd… Another problem was the loss-making businesses in the Philips Group. Also, Philips had invested a large amount of money in products that failed to generate revenues. Once again, Philips went into red in 1996 as a result of these problems. In October 1996, CorBoonstra took over from Timmer as President of Philips.

12. RESTRUCTURING UNDER BOONSTRA Boonstra’s first move was to get rid of business that were making significant losses. Another problem he faced was excessive vertical integration in the company. Boonstra closed down 50 of Philip’s 220 manufacturing facilities world-wide over a four year period. Boonstra realized that Philip’s marketing efforts were far from satisfactory. So company’s focus was shifted from technology development to marketing and promoted Philips as a brand, associate with customer needs rather than highlighting the company’s technological expertise.

13. Contd… In tune with this strategy, Philips came out with a series of advertisement with the theme ‘Lets make things better.’ The year 1997 saw Philips with aprofit of 2.60 billion euros on sales of 29.66 billion euros. In the fiscal 1998, the company’s profit jumped to 6.05 billion euros on he sales of 30.46 billion euros. By 1999, as a result of Boonstra’s restructuring efforts, Philips was down to 8 divisions and 80 businesses, from 11 divisions and more than 120 businesses in 1996. however, Boonstra too found it an uphill task to get rid of the bureaucratic culture in Philips. In 2001, Boonstra retired and was succeeded by Kleisterlee

14. TOWARDS ONE Philips Kleisterlee called his initiative “Towards one Philips”(TOP) and through it, he aimed to make Philips work as single, unified company. Apart from bringing in a cultural change, the initiative also aimed to cut costs, develop a range of new technologies and products, and improve relationship with customers.

15. Contd… To implement new ways of working at Philips facilities worldwide, a TOP project team was set up. Commenting on the TOP program, RenierVree, a project leader with Philips, said, TOP is about improving the ways we work together and recognizingthat change is necessary to create opportunities and achieve growth and focus on smart ways to collaborate. The key to making TOP successful is the team work between the local organizations and the TOP team.

16. Contd… Kleisterlee identified around 600 projects that could potentially save the company as much as 500 million euros. cost cutting was achieved through the process standardization and through the introduction of new way of working where different Philips entities shared support function such as IT, purchasing, HR and Finance. By 2002, Philips had established a shared service center in Bangkok that consolidated all accounting functions in the city area into one unit.

19. Kleisterlee introduced “strategic conversation” as a way of setting strategy.

26. The “Strategic Conversations” move also benefited the company enormously. The TOP program was extremely useful in cutting costs to acceptable levels.

27. Changes made in Human Resource Management under TOP program :