Business Excellence at Philips

Ir. Leon Tossaint

Former Vice President Quality Management, Philips Consumer Electronics
Honourable Board Member SFPO

Introduction

The Quality Program ‘Philips Business Excellence’ (PBE) had a strong

impact on the effectiveness and competitiveness of Philips’ business
performance over the last decades. The EFQM Business Excellence
Model was not only the structure for Strategy Development and
business reporting but also for assessing yearly all organizational
units –at all levels- on leadership effectiveness, process
improvements, customer satisfaction, people engagement and
ultimately on improved competitive positioning and achieved business
results.
The power of ‘Philips Business Excellence’ lies in the fact that this
program encompasses all aspects of managing and improving a
business, and in the complete involvement of all managers and all
employees in this ‘Journey for Excellence’.

1 ‘Philips Business Excellence’ the Quality Program at

Philips.

In the late 1980th Philips played a crucial role in establishing the ‘European
Foundation for Quality Management’ (EFQM). In that period the Philips top
launched their own ‘Philips Quality’ Program driven by the concept : ‘process
improvement has to result in customer satisfaction’. All operational units were
assessed based on this ‘Philips Quality’ concept and the knowledge from these
assessments became a strong input in the development of the EFQM ‘Business
Excellence Model’ and Assessment Approach.
Therefore the implementation of the EFQM Model was the logic next step for
Philips, which was introduced by the Board of Management in 1999 during a
Quality Conference for the ‘Philips Top 400’. All Business and Operational units
–including Corporate Philips and the Board of Management- had to apply the
EFQM/Business Excellence Model and Assessments.
In addition ‘Quality Improvement Teams’ and ‘Black Belts’, both based on the
Six-Sigma methodology, became part of this ‘Philips Business Excellence’
(PBE) program. Especially through the involvement of so many employees
within the PBE Program, impressive improvement results could be realized.
For each of the core processes ‘Process Survey Tools’ (PST’s) have been
developed. These process maturity grids had a strong impact on improving all

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processes towards World-Class Level and on standardizing the core processes
across all Philips’ Divisions.

2 ‘Philips Business Excellence’ (PBE), Model and Assessment

At the launch of ‘Philips Business Excellence’ (PBE) it has been decided that all
organizational units had to apply the PBE Model and had to implement yearly
PBE self- and peer assessments. This included also all Corporate Staff
Departments and the Board of Management Office. This was a strong message
to all managers in Philips : PBE is a ‘must’ and is the Philips ‘Business Model’
and ‘Company Standard’ for assessing approaches, improvements and
business results.

Within the PBE Model there is a clear relationship between Processes/Approach

(criterion 1-5) and Results (criterion 6-9). The link between Processes and
Results are Performance Indicators (PI’s). In Philips we have build a coherent
set of PI’s –not only for ‘what get’s measured get’s done’- but more important
to make a transparent link between the Strategic Goals and the Operational
Targets further deployed to the level of each individual employee.
The PBE Model also provided an effective structure for Business Tools used
within Philips like :
 The ‘One-Page-Strategy’, a compact ( 1-A4) structure for Strategy
reporting, based on the elements of the PBE Model, and easy to
communicate within the organization.
 The ’Balanced Score Card’ is implemented at all levels for the total
business reporting, with the clear PBE Model structure : knowledge
->processes->customers->financial results.
 The yearly ‘Employee Engagement Survey’, is structured according to
the PBE Model. Employee perception is requested on : Leadership,
Strategy, People related Processes, Customer Orientation and Results.

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Since 2000, based on the PBE (EFQM) Model, every organizational unit applies
yearly PBE Assessments. Every Management Team executes a PBE self-
assessment for their organization and in addition they invite colleagues from
other units for a peer-assessment to verify their self-assessment and to provide
‘external’ input. For this reason all managers in Philips have been trained as
PBE Assessor, according to the EFQM rules, and are EFQM certified.
Through a PBE self-assessment, Management Teams review the progress made
on improvements, on the results achieved against the targets. Based on the
assessment outcome the MT initiates new improvement projects. During a
peer-assessment, a team of 6 assessors (respected colleague managers from
different Divisions, Regions or from Corporate) assesses the organization on the
effectiveness of their strategy, on the improvements made, on the increase of
the competitive strength and on their contribution to improve the business
performance of total Philips. Peer assessors bring their own broad business
experience into the peer-assessment process and ‘take home’ many learning
experiences (‘best practices’, described and benchmarked). This ‘cross-
fertilization’ is a strong added value of this PBE assessment process and
strengthens the synergy within a large multi Divisional / multi-national
Company. Peer Assessors deliver input on new improvement initiatives and
their ‘PBE score’ is the official result on the PBE progress, reviewed by the
Philips Board of Management.

3 Process Excellence Approach

To have a benchmark for World-Class Process Performance, process experts

from Philips and other global Companies have developed the so called
‘Process Survey Tools’ (PST’s). PST’s have been described for all key
processes like Marketing & Sales, Product Development, Purchasing,
Manufacturing, Supply Chain Management, Finance- and Human Resource
Management. These PST’s are maturity grids describing sub-processes in a 10
level maturity grid, from ‘basic approach’(level 1) up to World Class (level 10).
Teams of process experts use these PST’s to assess the actual process maturity
within an organization and advise on what/how to improve to achieve the next
level of process maturity. Besides the intensive exchange of know-how between
experts this PST approach has a substantial contribution to the harmonization
and standardization of all key processes across the Divisions and Region within
Philips.
Philips made these PST’s available also for other Companies through the EFQM
network.

Within the operational units Quality Improvement Teams (QIT’s) are active
to improve the operational processes. QIT’s are mostly initiated by employees
who are operationally working in processes, who recognize problems and are
strongly motivated to solve those process problems.
QIT members are trained on problem analyses/solving (six sigma), and are free
to invite any expertise needed and to involve suppliers or customers. QIT
members can contact/visit other operational units to learn from solutions
already applied and to benchmark on approach and targets.
To stimulate the thousands of QIT’s within Philips, yearly Team Competitions
are organized where all Teams can present their approach and results and
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receive feedback from their colleagues and Management Team. Yearly the best
QIT of each operational unit is invited to join a ‘Team Winners Conference’. At
these global QIT Events the Division Top Management provides feedback to
each QIT on what has been achieved, but most important rewards the
improvements made by each team and the collective impact all QIT’s have on
improving the Divisions’ results.

Learning from the experience of other large Companies like General Electric,
Philips introduced a ‘Black Belt’ Program early 2000. Through this Program,
Black Belts (BB’s) are appointed with a focus on achieving drastic
improvements in complex processes, e.g. across Business Units or across
Regions. To become a BB, young ambitious employees (‘High Potentials’), are
selected and invited by Top Management and are trained as Six Sigma experts.
These BB’s are full-time –for a period of 2 years- leading BB-teams in analyzing
complex process problems and in implementing successful solutions.
Impressive results have been achieved through BB projects.
One important aspect of a BB-Program is to ensure that BB’s after they have
successfully finished their BB projects can be guaranteed an interesting next
step in their carrier path.

4 Results achieved through ‘Philips Business Excellence’

Results achieved through the ‘Philips Business Excellent’ (PBE) Program can be
best describe using the 9 Criterion of the PBE Model. These results are
generated by the collective effort of the entire organization, including PBE
Assessments, PST Assessments, QIT’s and BB’s.
I have of course to chose a limited number of examples, and most are from my
former Division Philips Consumer Electronics, where I was Vice President
Quality Management in the period 1995-2006, leading the PBE Program World-
Wide. However most processes are generic within Philips and so the described
examples count for most of the Divisions within Philips.

4.1 Leadership

The Management Review System is strongly structured around the Strategic

Goals and Operational Targets, which are deployed from the Division’s top level
to each of the operational levels, even to the individual employee level.
Therefore Leaders communicate intensively the Strategy, Goals and Targets
with all employees during the so called ‘Town Meetings’. Twice a year Leaders
report in these meeting events on the progress achieved and individual
employees can discuss directly with their Division’s Leaders on how to further
improve the business, how to strengthen the Divisions’ competitive position
and what has been learned from mistakes. This approach has strongly
motivated employees which is evidenced by the high scores on questions from
the yearly ‘Employee Engagement Survey’ (EES) like :
 ‘Philips Leaders communicate a Vision of the future that motivates me’.

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  ‘Leaders show a clear role model behavior in line with the Philips Values’
 ‘The Philips Management Style brings the best out of me’
Business Leaders are the powerful engine to drive the Business Excellence
Process, they participate in PBE Assessments, drive improvement initiatives,
coach the Black Belts and stimulate QIT’s.

4.2 Strategy

The Strategy process, originally a ‘once a year’ quite complex –‘limited to the
top’- process, has been developed into a transparent continuous process,
involving many layers of the organization.
A simplified reporting structure, the so called ‘One-Page-Strategy’, with a clear
Vision/Ambition and concrete Strategic and Operational targets was easy to
communicate to all employees. This approach is quite effective which became
clear from the high scores on the EES survey on questions like : ‘The Strategy is
clear, motivating and a driver for a successful future’.
The development of new Business Models for the Customer/Trade relationship
was a very successful strategy to strengthen the competitive position with the
larger Trade Channels. These Business Models have been embraced by the
Leading Trade Channels and later also adopted by the main competitors.

4.3 People

A People Performance Management System has been established to guide

employees in their personal development and to create early signals on their
talents and leadership capabilities. Within this system also the Division Targets
are yearly deployed to the individual level of each employee.
Within Philips there is a strong emphasis on creating a ‘Caring’ and ‘Learning’
organization.
All young ‘high potentials’ have a ‘top manager’ as coach (similar as Black
Belts), to guide those employees in their personal carrier development and to
intensify their learning to improve their leadership capabilities.
All QIT members receive specific trainings on six-sigma, teamwork, problem
solving. QIT’s are supported by process experts on problem analyses and
implementing solutions. QIT’s get feedback from (top) management on the
effectiveness of their proposed solutions and are challenged on their learning
experiences. QIT members are able to expose their ‘extra capabilities’ (beyond
their normal job), which often results in new and unexpected carrier
opportunities.

4.4 Partnerships & Resources

Strengthening the relationship with key Suppliers and Business Partners is of

strategic importance for Philips to grow the business, to broaden the
technology base, to share the risks and to improve the competitive position. In
this context a ‘Lean and Mean’ approach has been implemented allowing
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Philips to focus on their Core Competences / Core Businesses and still offering a
broad product range and service package to the customers.

The strong global position of Philips enables a strong global partnership

network especially in the upcoming markets like China, India and Brazil. This
has resulted in an advanced competitive position for Philips in these Regions.
Suppliers are strongly involved in the PBE Program, they participate in PBE
assessments and in QIT Teams. All Suppliers and Business Partners are
encouraged to implement the PBE/EFQM Model in their own organization.

4.5 Processes, Products and Services.

Process Management has been key since the 90th and in that period all
operational units have been ISO 9000 certified. Through the PBE Program,
process improvements are strongly linked to business improvements and
focused on achieving the business targets. Effective instruments for process
improvement are the PBE Assessments, the Process Survey Tools, and the
QIT’s.
The BB approach is very effective in drastic process re-engineering.
An example of adapting processes to business goals is the change of the
‘Product Creation Process’ into a ‘Business Creation Process’, driven by the
needs to launch new products on time in the market, products which are
innovative, users friendly, of high quality and profitable. Reducing the process
of ‘Time to Market’ substantially has improved the competitive position for
many Philips’ products and services.
Based on the strategy to develop new Business Models for the Customer/Trade
relation, the ‘International Key Account Management’ process has been
introduced and has proven to be very effective for aligning with the strategies
of the key Trade Partners. This approach of extending the Philips’ Marketing &
Sales process via the Trade Partners up to the final Consumer has impressively
increased Customer Satisfaction.

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4.6 Customer Results

Trade Satisfaction has been measured yearly by independent agencies for

Philips Consumer Electronics (PCE) as well as for all their major Competitors.
This is a key measure to improve competitive market performance. An example
of such a measure is shown for PCE Europe :

Next to Trade Satisfaction, also Customer (Consumer) Satisfaction is measured

for each of the ‘Customer Touch Points’ :

At every occasion where a consumer of a Philips product or service is ‘in touch

with Philips’, the consumer perception has to be measured and understood.
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Most of these measures at each ‘Customer Touch Point’ show comparisons with
the Competition. For each measure targets are defined and improvement
projects installed to increase continuously customer satisfaction at each ‘touch
point’.

4.7 People Results

People Satisfaction has yearly been measured for all Philips’ employees on
many aspects, structured by the PBE/EFQM Model through the so called
‘Employee Engagement Survey’(EES).
By using an external/independent research institute for this survey, data could
be compared with results from other companies. The ‘top 20 companies’ within
this global database offer the ‘High Performance Norm’ which serves as the
benchmark for every subject.
An example for PCE over the period 2004-2005 shows

As a result of the many improvement projects and initiatives within the ‘Philips
Business Excellence’ Program, the ‘High Performance Norm’ could be reached
for e.g. Leadership, Internal Communication, People Development and Team
Work.

4.8 Society Results

Philips’ international reputation for being a Company with Social Responsibility

and a high priority for Sustainability, has been recognized by the ranking of the
Dow Jones Sustainability Index.
In 2010 (and many years before) Philips has been recognized by Dow Jones as
the Global Leader in Sustainability within the Cyclic Goods Market.

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Philips’ global leading position as ‘Green Company’ (recognized by Green
Peace, 2010) is strong compared with all their main Competitors. This is a clear
result of the ‘Green Product Development Drive’ Philips started in the early
2000th . In fact through the implementation of the PBE/EFQM Model in 1999 the
Social Responsibility and Sustainability Program got a high level of
management attention and top level priority.
To show their Social Responsibility, each Philips location (globally many
hundreds) has yearly a couple of improvement projects involving/supporting
the social environment of that location. Through measuring ‘Society
Satisfaction’ the effectiveness of these initiatives have been proven.

4.9 Key Results

Through the implementation of the ‘Balanced Score Card’ a transparent

structure was provided for all key Business Targets, derived from the Strategic
Division Targets and deployed to all Business and Operational Units up to the
individual level. In this way all PBE improvement projects and all QIT projects
had clear targets to support the strategy and to achieve the Key Business
Results.
The Division’s PBE score, measured through peer assessments at all business
units and at HQ’s, is a generic Performance Indicator reflecting the overall
improvement of approaches and results of the Division. The PBE score has
monthly been reported to the Board of Management as a Key Result.
To monitor progress on process improvements, each process has a set of
Performance Indicators.
In addition the Process Survey Tool score (achieved through peer assessments)
provided an overall measure on the maturity level of these processes and on
their speed of moving towards World-Class.
The ‘Lean and Mean’ approach had a great impact on cost reductions at
operational level as well as at Corporate/Regional level. Continuous drastic cost
reduction has always been a major drive within Philips. Reducing the risk profile
through partnerships resulted in a ‘Asset Light’ organization.
All these initiatives have enabled Philips to anticipate effectively on changes in
the Market and on changes in the global economy (financial crisis).
From the Quarterly Financial Publications, over the last years, it became
evident that Philips could consistently show positive financial results, better
than expected by the (external) financial experts, adding value to Shareholders
Satisfaction.

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