Breaking the inertia and transforming successfully: Looking at the transformation strategies of international enterprises from Philips

Bai Jian, general manager of Philips Taiwan, was invited by the Institute of State-owned Enterprises of Tamkang University to give a speech at the EMBA to share "Looking at the Transformation Strategies of International Enterprises from Philips" on his birthday. He pointed out that Philips' corporate transformation and change plan has two main axes. One is to think about the mission and vision to redefine the business scope; the other is to adjust the core strategic direction.

Bai Jiansheng said that when companies face huge changes in the external operating environment, the rigid success formula (action inertia) in the past not only fails to lead the company to continue profitable growth, but even puts the company into an existential crisis. At this time, the strategic actions taken by the company to transform its business methods are often the elements that enable the company to successfully transform and grow.

The Internet Bubble Impacted the Core Business

Royal Philips of the Netherlands is a multinational electronics company with a history of more than 120 years. Between 1996 and 2000, it first Later, it faced high financial losses and the Internet bubble began to bubble in 2000, which directly impacted the company's original core business unit, namely semiconductors and components. Therefore, in order to survive and pursue sustainable growth, it launched a series of corporate transformation and change plans.

Philips pointed out that before the mid-1990s, Philips was very product- and technology-oriented. From the launch of the first light bulb in 1891 to the subsequent vacuum tubes, audio tapes, video players, CDs, etc., they were all popular innovative inventions. For these terminal consumer electronics products, a vertical supply chain of semiconductors and electronic components was established that required huge investments.

In order to master key components to facilitate the development of end-use consumer electronics products, technology- and product-oriented supply chain development of semiconductors and electronic components was indeed necessary at that time.

“Later on, internal management costs increased, vertical integration efficiency declined, and the Internet bubble in 2000 had a huge impact on the original semiconductors and related components, so drastic organizational changes began.” Bai Jiansheng said.

Organizational changes to enhance brand value

After the abolition of 97 non-core and loss-making business departments, based on the mission and vision of "improving people's lives through meaningful innovation" , with an innovative direction focusing on providing people with overall solutions, redefining the business scope into three major areas: "health care, high-quality life industry and lighting", breaking away from areas of high volatility, high capital intensity, and low profitability, and transforming to focus on areas with profitable growth opportunities.

Bai Jiansheng said that before the mid-1990s, Philips, which focused on the consumer electronics industry, adopted "high vertical integration" as its main core strategy. After the reorganization of its business scope, it focused on integrated brand management and enhanced brand value as its strategic thinking direction.

At this stage, we look for new market opportunities from global trends, connect innovation capabilities with the needs of local markets, and use strategic mergers and acquisitions as a means. Under the merger and acquisition criteria of "high growth + high profits + optimized organizational capabilities", we acquired 40 new businesses and strengthened the three horizontally extended business portfolios of healthcare, quality life and lighting.

Philips gave an example. By focusing more on the innovative strategic thinking direction of people-centered overall solutions, Philips has won numerous awards every year in the past few years. For example, in 2014, 47 products won the iF Award, and 39 products won the Red Dot Award. It was also ranked among the top 100 global brands in 2014 by Interbrand, with a brand value of US$10.3 billion, a significant increase of 234% compared to ten years ago.

The most impressive thing is that in the process of organizational change and transformation, the most common employee resistance did not occur.

Bai Jiansheng said that according to surveys today, after the organizational transformation, as many as 75% of employees are proud to work at Philips. This should be attributed to Philips' smooth organizational communication culture, which is not just formal communication. Informal communication at the corner coffee can be seen at Philips at any time.

Strategic focus and vision blueprint

The American Fortune magazine once praised Philips's successful transformation as a classic case of "transformation textbook". Philips' transformation not only has a clear and focused strategic direction, but also has a deeply popular organizational vision blueprint as a guide.

Philips emphasized that Philips is committed to building a healthier world through innovation and aims to improve the lives of 3 billion people every year by 2025. At the same time, people with the same passion will serve here and work together to create outstanding value.

Zhang Junhui, associate professor of EMBA at Tamkang University’s Institute of State-owned Enterprises, believes that looking at the transformation strategies of international companies from Philips is similar to John, the father of leadership change. John P. Kotter's view coincides with that. Successful organizational change originates from a "sense of crisis", is guided by "organizational vision", and develops corresponding strategies and focused goals. Through continuous communication, authorized actions, continuous promotion of change, and infusion of new organizational culture.

Peter. Peter F. Drucker also said that the biggest management challenge in the 21st century is to lead change, and the most important strategy for enterprises is to abandon yesterday. Donner. Donald N. Sull also pointed out that only by breaking the accumulated "action inertia" can we ensure successful transformation.