l c f a iC e n t e f o r M a n a g e m e n te s e a r c h r R

Balanced Scorecard Implementation Philips at

"our aim for adopting the balanced scorecard solution ls to consistently communicalestrateg,'deep down into Philips' 80 businesses and support more than 10,000 managers with tools to turn strateg; into. acrion by sharing knowledge, aligning octions,moniloringprogressand learning."l - P e t e rG e e l e n f P h i l i p sc o r p o r a t e C o n t r o l , R e s p o n s i b l f o r t h e B a l a n c e d o e S c o r e c a r d r o j e c t ,i n 2 0 0 1 . P "The balanc'edscctrec'ard servesno! only as the starting point /itr identfving those areus v,here breukthroughs in per/ormance are mosl needed, but also as an i n.rt ument IrdLhtnKprogre.\t. r Jttr - A n n u a l R e p o r t ,P h i l i p sE l e c t r o n i cN V , 2 0 0 1 . s

. r ' om ,

l:rrtes

::.com

INTRODUCTION
After a dismal financial perfbrmance during the 1990s,Netherlands based Royal P h i l i p s N V ( P h i l i p s )e m b a r k e d n a r e s t r u c t u r i n e x e r c i s e t o t u r n t h e c o m p a n y o g , around.The efforts continued the late 1990s,as even during the mid-1990s, till the companyreportedlosses. Due to high manuf-acturing costs,the productscould not be pricedcompetitively. This led to the companyinitiatingjob cuts,sellingunprofitable businesses, closingdorvnseveral and manufacturing facilities. Rapid changes the externalbusiness in environment and growing competition due to Asian manufacturers made Philips realize the need to transform into a flexible organization and shift focus liom high-volumebusiness high-valuebusiness. to In orderto bring in the desired Philipsembarked an improvement change, on program, in all its divisionsand departments acrossthe world, encompassing the employees. all The program, called BusinessExcellencethrough Speed and Teamwork (BEST), described setof methods a and toolsthroughwhich Philipsaimedto improvebusiness and financialperformance. BEST was a company-wide initiativeaimed at achieving e x c e l l e n cie e v e r ya s p e co f b u s i n e s a t P h i l i p s n t s P h i l i p su s e ds e v e r a t o o l s a n d a p p r o a c h ea s a p a r t o f B E S ' | . S o m eo f t h e s ew e r e l s P h i l i p sB u s i n e s E x c e l l e n c M o d e l( P B E ) ,P r o c e s S u r v e y o o l s( P S T ) ,a n d B a l a n c e d s e s T rvas used to communicate Scorecard. The BalancedScorecard the strategyacross P h i l i p s ' d i v i s i o n t h a t h a d m o r et h a n 1 2 0 . 0 0 0 m p l o y e e s p r e a d c r o s s 5 0c o u n t r i e s s e a 1 -fhe in the rvorld. Balanced enabled employees Scorecard the understand existing the p o l i c i e s , n d p l a n s l o r t h e f u t u r e . ' f h e i n i t i a t i v et o i m p l e m e n t a l a n c e d c o r e c a r d a B S camelrom the top management. top management, all the divisionsidentified The and the factorsthat were importantto createvalue and they were groupedunder four perspectives competence, process, customers financial. and A f t e r e s t a b l i s h i ntg e ' C r i t i c a lS u c c e sF a c t o r s ' ( C S F sk , y i n d i c a t o rts m e a s u r t h e h )e s o e CSFs were decided. Someof the indicators Iike achievingrevenue groMh, employee satisfaction, customer satisfaction were commonfor all the business units while other indicators differed.BalancedScorecard was also usedto measure corporateresults. Accordingto the company, "BEST is integrated everybusiness performance in review cycle, providing measurementtools and focus through Business Balanced Scorecards."'
"Royal Philips Electronics lrnplements I-otus Collaboration and KnorvledgeManagement Solutions ExtendIts Infrastructure." \\ \\.prneu.'su com. January,5, 2001. to \\ ire. | Philips,Annual Report.1999.

-attienl.

i com.

- ,t ; o n t i c

, ))r3 .
tion of

r,)U-1.

r005..
r r g eI n
.

A' n- r 'i l i "

nrrl 15
f " ' - ' '

si n e s s 6 i ness sincss-

Control SYstems Management BACKGROUND NOTE

w ci p h i l i p sw a s f o u n d e d n l 8 9 l b y , G e r a r d h i l i p s( G e r a r d ) h o e s t a b l i s h ea t a c i l i t ya t P i to producccarbon filament lalnpsand a Eindiroven. snralltorvn in the Netherlands, i , . e i e c t r i c ap r o d u c t sG e r a r d ' s ' o u n g eb r o t h e rA n t o n ,j o i n e dt h c b u s i n e s sn 1 8 9 5a s a l ) r as Gerard'scompanyhad emerged one of the largest 1900s, By thc earl-v salesperson. on lamps. Philips laid strong emphasis of and marketers carbon-fllanrent producers FirstWorld War, the company Beforethe stafi of the righr {ionr its inception. iesearch . n c e d h a c l s t a b l i s h en t a r k e t i n g o m p a n i e is t h e U S a n d F r a n c e t n 1 9 1 4 ,a l l t h e r e s e a r c h called and broughtunderone organization wlereconsolidatcd of ef-forts the company ( l R e s e a r c hL a b o r a t o r i e s R e s e a r c h . a b s ) . I n 1 9 1 8 , t h e c o m p a n y b e g a n Philips me l m a n u t ' a c t u r i n g d i c aX - r a y t t r b e s . In the 1920s,Philipsbeganthe massproductionof consumergoods,and startedto were key focusareas diversify its productrange.X-ra,vradiationand radio reception the company's innovationsin these areas were protectedthrough for Phiiips anrJ g , p a r e n t si.n f h e 1 9 2 0 s P h i l i p sa l s o b e g a nm a n u t a c t u r i nv a c u u mt u b c s l n 1 9 2 7 ,t h e its .o.pun," introduced first radio. Within a spanof five years,it was ablc to sell a n f f p r l i l l i o n i a d i o s . I n 1 9 3 3 ,P h i l i p so p e n e d r o d u c t i o n a c i l i t i e s o r X - r a y e q u i p r n e ni t t h eU S . 'l'he that followedthe stock marketcrashof 1929had of Grcat Depressionr the 1930s f s , n i t n e g a t i v er n p a c o n P h i l i p s ' b u s i n e s ls . t h e m i d - 1 9 3 0 sP h i l i p ss t a r t e d c a r c h i n go r a '*'ho rvassent products. executive An into saleable new ideasthat could be converted s . g t o t h e U S i n 1 9 3 7c a m eu p r v i t h t h e i d e ao f m a n u f a c t u r i ne l e c t r i c h a v e r sP h i l i p s s i n 1 9 3 9 . P h i l i p sa l s o l a u n c h e d o d i u m a n d g b e g a nr n a n u f a c t u r i nc l e c t r i cs h a v e r s based lamps and sound recordingequipmentthat year. By this time, the lnc:rcury p o c o n r p a n h a da s m a n l ' a s4 5 , 0 0 0 e o p l e n i t s r o l l sw o r l d w i d e . v In d a l n t h e 1 9 , 5 0 s n d 1 9 6 0 s ,P h i l i p st o o k r a p i d s t r i d e si n t e c h n o l o g y e v e l o p m e n t . like appliances 1950. it developedits f-rrstlarge screenprojectionTV. Consumer clectric irons, reliigerators.u'ashing machines.and vacuum cleaners were also b . i n t r o d u c e i n t h e m a r k e td u r i n gt h e 1 9 5 0 s D u r i n gt h i s p e r i o d ,P h i l i p sl a u n c h e d l a c k d -fransistor-based sound were radio stationsand stereophonic and rvhite televisions. i i i n t r o d u c e dn t h e l a t e 1 9 5 0 s .l - h e y ' c a r 1 9 6 3 u ' a s s i g n i f i c a n t n P h i l i p s ' c o r p o r a t e This rventon fbr historyas it unveiledthe CornpaclAudio Cassette soundrecording. the year saw the companyintroducing The satne 1obecorne hugehit rvith customers. a a souttcirecordingdevicc used for rccording speech for subsequent Dictaphone, i d o p l a l , b a c kP h i l i p ss t a r t e rrie s e a r c h n i n t e g r a t e c i r c u i t si n t h e e a r l y 1 9 6 0 s ; n 1 9 6 5 , . o p uce i d t h e c o r n p a n y r o d-'-\-"dt s f l r s t i n t e g r a t e c i r c u i t .l n 1 9 6 4 ,P h i l i p sb e g a nr e s e a r c h n in 19(a, tb'' connan\. intlo:lt':':C color T\/s in the 3rr' .lrtvelcpingco!or Netherlands. -l'he n . r s i n t r o d u c t i oo f n e \ \ , p r o d u c tc o n t i n u e dn t h e 1 9 7 0 sP h i l i p s ' r e s e a r cih l i g h t i n g n were made in the led to the introductionof energy saving lamps. Breakthroughs of storage,and transmission images, sound, and Cata,leading to the processing, ln systems. 1912.Philips disc and opticalcommunication of development the compact on rvhich\4'ent tc becomeone of the music companycalledPolyGramr, a cstabliihed . i r r v o r l d ' sb i g g e s tm u s i c c o m p a n i e sv i t h i n t e r e s t sn m u s i c p u b l i s h l n gm u s i c a lt a l e n t ancl formatdevelopment, rnusicretailing. recording and development, search
'l-he sold in a singlc stockmarkctcrashin the US on October29.1929.sarvl6 rnillionshares -lucsday). S t b l l ' h e s t o c kn r a r k e r n d c xd e c l i n c d ) 8 6 . 2 p e r c e n b c n v e c n e p t e m b e r da1(lllack -l s 1 9 2 9 a n d J u n e I 9 1 2 . h i s s h r u n k i n v e t m e n t si r n d s a ri n g s a n d l e d t o t r t d c s p r e a d t d ill i u n c m p l o l r n e nr e s u l r i n gn a d e p r c s s r o n t h c L I St h a tc o n t i n u e t h r o u g h h c 1 9 3 0 s t. G p o l r G r a m g a s c r c a t c ciln 1 9 7 2 .u i t h t h c m e r g e ro 1 ' D e u t s c h C r a m n l o p h o n e s e l l s c h a t l c Ie P ( D C G ) . a m u s i c c o m p a n \ o * n c d b r S i c m e n s , { G .a n d I ' ] h i l i p s h o n o g r a l r s c h n d u s t r t e . s y ( P P I ) .a * h o l l 1 ' - o r i n e d u b s i d i a r o f R o l a l P h i l i p s .I n t h e 1 9 8 0 s P h i l i p sb o u g h tS i e m e n s ' t i i i s t a k e n l ' o l y G r a mI.I o u e ' " e r . n 1 9 9 8 . t s o l dt h c c o m p a n ) o S e a q r a m
oz+

tsalanced Scorecard lmplementation at Philips

li . l

a
:SI -1n

n)
.h
- f

in In the 1970s,Philips began acquiringbusinesses the US. In 1974, the company player the in Magnavoxs,followedby Signetics6 1975.It launched laserdisci acquired l , b s i n 1 9 7 8 .I n 1 9 8 i , t h e t e l e v i s i o n u s i n e s o f G T E S y l v a n i a a U S - b a s e di g h t i n ga n d of the lampsbusiness In maker,was acquired. 1983,it acquired equipment electrical In Westinghouseo. the sameyear,Philipsbroughtthe compactdisc (CD) to the market the idea of optical-discaudio with Sony. Thus, Philips pioneered in collaboration 1983, Philips scaled many new peaks and in 1984, Philips reproduction.After p r o d u c e dt s 1 0 0m i l l i o n t hT V . i at periodfor Philips.After a reshuffle the helm and The late 1980swerea tumultuous which involvedreducing the workforce,effectinga changein exercise a restrucfuring internalprocesses that the time to market could be so the culture,and streamlining reduced,Philips sprangback to profitabilify. In 1994, the company earneda net Philips income of Dutch Guilders 2.1 billion". However, despitethe restructuring, done in high-cost remainedan inefficientcompany.With most of its manufacturing It that could not be pricedcompetitively. was it to countries, continued makeproducts in and, with around214,000employees 1996,it in also present too many businesses, Not surprisingly,Philips slipped back into the red, continuedto be overstaffed. of reportinglosses aroundDutch Guilders590 million in 1996. and another In October 1996, after yet another change in the top management intensive restructuringexercise that included job cuts, outsourcing component Philips manufacturing, and sellingoff unprofitable well as non-corebusinessesr0, as a was broughtback to profitability.The year 1997saw Philipsgenerating profit of 2.60 bilfion on salesof e 29.66 billion. In 1998,the company'sprofitsjumped to p P o 6 . 0 5b i l l i o n o n s a l e s f 3 0 . 4 6b i l l i o n .A f t e r t w o g o o dy e a r s , h i l i p s ' p r o f i t s l u n g e d to 1.59billion in the fiscal 1999,partly due to the lossesincurredon a failedjoint The ventureran into for cell venturewith LucentTechnologies manufacturing phones. in By roughweather because problems productdesignand chip development. 1999, of liom I I divisions,and more Philipswas down to eight divisionsand 80 businesses, in a company. than 120businesses 1996.Thus,it became more focused In 2000, Philips realigned its consumer electronicsdivision to make it more transparentand flexible. At that time, Philips operatedthrough 80 businessunits, operating undersix productdivisions(Referto Exhibit I for the detailsof divisionsat facilitiesin over 25 countr,es Philips).The companyhad production in and a presence over 150 countries. 2000, Philips' profits bouncedback to e 9.66 billion due to In (Referto Exhihit ll for Philips' selected favorable economicconditions financialdata 1 b e t w e e n 9 9 7a n d2 0 0 1 ) . ln the financialyear 2001-02,Philipssufferedhuge losses 3.2 billion, leadingto of (Kleisterlee), around55,000layoffs.In 2003, GerardKleisterlee, President and CEO, Philips,cameout with a sfrategy focus on healthcare, to consumer lifesryleproducts,
t

an IO las

sh
, L rl lg

l a in rad lbr, ent iips and the ln iike :lso iack \ ere 'raIe
IOn

: rhe uent 9 65 . hon

tho

rling r the , the rilips aient

.inglc :nber

.chatl iu strie mens'

Magnauox was an electronicscompany foundeCby Edwin Pridham and Peter Jensen in l9l7. o Signetics,founded in 1961,was a major manufacturer ICs, and logic, analog,and memory of circuits. ; jointly by Philips ,.ac MCA, a USA-basedcompany,was an The Laserdisc, developed medium. analogopticaldisc storage 8 WestinghouseElectric Company, founded b1'George Westinghousein 1886, is a Massachusetts, refrigerators, USA-basedCompany selling televisions,dishwashers, freezers, ovens.washingmachines. etc. n in it. Guilderwas the currency the Netherlands 2002,when the Euro replaced till 'o Philipssold several businesses suchas cableoperations, navigation car systems, recordlabel (PolyGram), video rental(SuperClub),etc.

65

ControlSYstems Management
the and technologies, reduced numberof divisionsto five bir 2003, after and enabling to unit in 2002. The companycontinued sell the non-core the saleof the components D i a c t i v i t i e s n i t s f i v e d i v i s i o n s . u r i n g t h e 1 9 9 0 s ,P h i l i p s ' m a i n f o c u s r v a so n h i g h and into components and the companyrvasvertically integrated volume electronics, By the 2000s, Philips had become a company that focused on semi-conductors. Betrveen the 1990sand the 2000s. and enablingtechnologies. lifesty,le, healthcare, evolution,and focusedon becominga grorvthcompany a Philips underu,ent strategy evolution). (Referto Table I for Philipsstrategy

Table I: Philips StrategyBvolution

High VolumeElectronics I 990s Portfolio Restructurtng Volatility Let's makethingsbettcr Healthcare Lifestyle & 2000s O n eP h i l i p s Growth Value Creation Sense and Sirnplicity

Source; Gerard Kleisterlee, " European Competitivenessin Titnes o/ Change," Conference, June 8, 2007. European Competitiveness and earneda net profit of 2.8 billion. a By 2004, Philipshad achieved turnaround that would complementits business. The companycontinuedto acquirecompanies with centralized 2005, Philips had become a lean and focused organization, By 'l'he was global,as functions. marketing approach planning,logistics, and accounting The numberof business unitshad come earlier. regionalapproach adopted against the down to three, and the number of creating teams liom 2l to 12. Through the 2003 and the approach, companywas ableto save 400 million between centralized bu A 2 0 0 6P h i l i p s o l do f f t h e s e m i c o n d u c t o r s i n e s s . t t h e e n do f 2 0 0 6 , s 2 0 0 5 .I n A u g u s t . t s P h i l i p sf u n c t i o n e d h r o u g h 1 3 0 p r o d u c t i o n i t e si n 2 6 c o u n t r i e sP h i l i p s ' s a l e sa n d locatedin around150 countries. The numberof employees the at serviceoutletsrvere (Referto Exlibit III for Philips' selected financialdatafiom end of 2006 was 121,700 2002-06).

THE NEED FOR BALANCED SCORECARI)

During the late 1990sthe externalenvironmentwas changingrapidly and Philips neededto respondquickly to these changes.However, the existing organization structureat Philips did not supportthis kind of change.The companv'soperations and the productswere most often sold in the were spreadacrossseveralcountries, With growing wage levels,selling and country in which they were manufactured. manufacturingin the same country was not a lucrative value proposition. This was especiallythe case in some of Philips' major markets in Western Europe where the cost of manufacturinghad increasedsignificantly. At the same time, the grou'ing influence of Asian companies \ike LG and Samsung increased competition in the

\us\rrssscs\\x\rt\\\r\\1s\t\\ert\\E
rs'srt. \e-1.:- -rr*rus Nc\'r\s s1gs\rsr's 1st\s\\s\t \\ese t\rrrgs: rss\e\\\r1s in and valueadding.A silo mentalifyhad developed the organlz;:':more innovative, The employeesrvere more loyal to the businessunit bureaucracy. due to years of vision of ::' which they were working rather than the company as a whole The was emploYees nalrow andthey failedto seethe big picture'

66

Balanced Scorecard lmplementation at Philips 1er eh .nd on 0s. in) Philips' management felt that it needed to bring in change in order to ensure continuit,v and to balance the interests shareholders employees. of and This required the companl' to revierv its operations. especiallythose businesses that lacked the strategic edge. It reorganizedand reduced the number of businessunits and encouraged differentunits to uork together. All thesemeasures transformPhilips to formedthe foundation the Business of Excellence programs the company. in In Philips,the Corporate guidedthe companytoward achieving Quality Dcparlment b u s i n e s e x c e l l e n c b y ' g i v i n g t h e n e c e s s a riy p u t sa n d p r o v i d i n gt h e i n f r a s t r u c t u r e . s e n The departrnent functionedundcr the board of the company and reportedto the Qualit;,'Policy board. The Quality Policy board had six membersfrom diff'erent p r o d u c g r o u p s I ' h i l i p sw a n t e d o o f f e rc o n s u m e ris n o v a t i v e r o d u c t s f h i g hq u a l i t y t . t n p o and providethent the best in terrnsof services. order to achievethis objective,it In introduced qualitl intprovement a programthat was applicable across its processes all -fhe a n d l ' a c i l i t i c s n d a r n o n g l l i t s e n r p l o y e e s . p r o g r a m , E S T , w a s i n t r o d u c e dn a a B i J u l y 1 9 9 9 ,c o n s i s t e d f a s e t o f t o o l st h r o u g hr v h i c ht h e c o m p a n y o u l d i m p r o v ei t s o c p r o c e s s c s .c c o r d i n g o t h e c o m p a n y" W e a r c a l l c o m m i t t e do i m p r o v i n g r o c e s s e s A t . t p i n - l i n eu ' i t h t h e c o r n p a n y "s t r a t c g i t a r g e t sT o t h i s e n d ,P h i l i p sh a sa d o p t e d E S T t o s c . B r e a c ht h i s g o a l . I t i s o u r a m b i t i o n o b e o n e o f t h e b e s tc o m p a n i e i n t h e r v o r l d :t h e t s r b c s lt o t r a d c r i t h .r r o r kf o r .a n t li n v c s i n . " l l t B E S T i n v o l v e df o c u s i n g n b u s i n e s p r i o r i t i e si,n c r e a s i n t h e c a p a b i l i t y f b u s i n e s s o s g o processcs, bringingin bette teamrvork. and r Underthc BEST program, qualitybecame a c r u c i a lf u n c t i o nt h r o u g h* h i c h P h i l i p sr n a n a g e dt s b u s i n e s a n d i m p l e m e n t e d s i s it strateglcs. Philipsusedseveraltools and approaches BEST. one of the main tools usedwas in t h e P h i l i p sB u s i n e s s x c e l l e n c eP B E ) M o d e l . w h i c h w a s b a s e do n t h e E u r o p e a n E ( Foundation Quality Management for (EFQM) excellence model (Referto Exhibit IV for more infbrmation EFQM). PBE rvassupported othertools like the Balanced on by p S c o r e c a r d ,r o c e s s u r v c ) , t o o l sa u d i t s q u a l i t ya s s c s s m e n t l,a c k b e l t ,e t c . p B E h a d . , b nine criteria on the rvhole,of rvhich three of the importantones were leadership, processes, results (Referto'fable II fbr more information thesecriteria). and on To transformthe vision of the companyinto reality, Philips usedthreetools, rvhich w e r e t h e B a l a n c e d S c o r e c a r d ,p o l i c y d e p l o y m e n t ,a n d c u s t o n e r s a t i s f a c t i o n m a n a g e m e n t . s i n g t h e B a l a n c e d c o r e c a r dP h i l i p sa i m e d a t c o m m u n i c a t i n t h e U S , g company'svision and strategy the employees to and lettingthem knorv the role they were required play in realizingits mission(Referto Exhibit V for mission,vision. to and valuesof Philipsand Exhibit Vl for Philips'strategy). Policy deplo)'ment was usedto translate top-leveltargetsinto operational targetsin the organization. Philips encouraged constant communication and dialoguebetween successive management levels in order to achievea consensus the targetsto be on achieved, and developbetlerunderstanding between the top level management which set the strategy and the emplovees who were involvedin converting the strategy into action.Throughcustomer satisfaction management, Phitipsaimedat makingthe voice of the customer heard all through the organization,and to convert customer c o m p l a i n t sn t o o p p o r t u n i t i eb 1 ' a c t i n g n t h e m .P h i l i p sw a s o f t h e v i e w t h a t i f a s a i s o company, it respondedto the customersby bringing in products,services,and information rhatthel,required. customers the rvouldrespond throughbrandlovalr,v.
rr "Business E x c e l l e n c er v * ' * , p h i l i p s . i e . ."

ion.
3SS. --r
1CU

.as )me the and )06. and the 'onl

llps lon ons the tno ,\as the ing the

rle. lon tln the

67

ControlSYstems Management
Table II: PBE Criteria
Leadership Leadersdefine the goals and show direction. They set the priorities, lead by This holdsgood for the and manage overallprocess. inspirecommitment, example, improvement' true for managing but in management general is especially Processes excellent results cannot be achievedby luck. They will only be Sustainable resultsin processes deliveroutstanding that with world-class consistently achieved be must therefore robust,simple,and dynamic.They rvay.Processes a predictable and requirements improveover time. business to needto be adaptable changing Results basis.Measuringall the achievegreat resultson a sustainable Great companies - is criticalin determining how results not only financialperformancc business by Theseresultsare measured our excellence. far we are on the road to business the societyat large,and of course, financialcommunity' our customers, employees, Handbook. ; Source Philips Semiconduclors, Quality Reference Philips had identified the factors that were As a part of the BalancedScorecard, value.Thesewere calledCSFs.The CSFs and crucialfor runningits business creating process,customers,and perspectives competence, were grouped under tbur out the way in which value was financial.At the top level, Philips wantedto bring severalfactorslike customersatisfaction Philips considered createdby the business. performance. the first step,financialand As and customervalue creationto measure to customerCSFs, which provided an advantage the companywere identified.This was followed by the identification of process CSFs, which werc determined and finance had maximum impact on the customers consideringwhich processes 'l'able According to Philips, (Refer to III for BalancedScorecardperspectives). "Financial indicatorstell us what u'e need to achievein the common languageof tell us how to achievethe desired in money. Indicators- the other threc categories '' f i n a n c i arle s u l t s . " was usedto set and existingperformanae the desiredperformance The gap between The targetswere generallyset for about two to four years.All of them the targets. Analysis of the market size, customer realistic,and time-based. were measurable, were some of the criteriathat were innovation,and performance . base,brand value usedto setthe targets. in Scorecard Philips.At the top management Therewere threelevelsof the Balanced level was the strategic review card, at the middle managementlevel rvas the unit card. level was the business review card.and at the lower management operations card' the leveland introduced empioyee Philipsaddedanother In 2003.

't "Plan," rvuw'.philips.corn.

68

at BalancedScorecardlmplementation Philips Table III: Philips - BalancedScorecardPerspectives

Perspective Factors Critical Success

by' tbr

Competence Knowledge Technology Leadership Teamwork Processes Customers Financial Drivers for performance Value Proposition Value Growth Productivity Source; Andra Gumbtrs and Bridgel L1'ons, "The Balanced Scorecard at Philips 2002. Electronic's,"StrategicFinance, l'{ovember criteriaat the top level. At that level, the the Initially, Philipsdetermined Scorecard product sales,etc., into like customersatisfaction, focus was on convertingfactors the throughout that the CSFswcrc linked with the scorecard In order to ensure CSFs. company, the Corporatc Qualrty departmentat Phiiips came out with specific w d g t, g u i d e l i n e s . c c o r d i n g o t h e s e u i d e l i n e s h r e ec r i t c r i a e r ee s t a b l i s h e- i n c l u s i o n , t A Inclusionmeantthat the CSFs at the lower management continuity,and robustness. level in order to achieve I leve must be alignedrvith the CSFsat the top management I t s C t o p - l e v em e t r i cg o a l s . o n t i n u i t y t a t c d h a t C S F sm u s tb e l i n k e dt o a l l t h e l e v e l s . t l management at that the cycle time of measurements the lower-level was alsospecified CSF goal meantthat if a lower-level shouldbe equal.Robustness and the higher-level higher-level CSF'goalswould alsobe met. that it had beenachieved mustensure guidelines establish to CSFsfor each qualitydepartment alsodeveloped The corporate units were askedto unit level.All the business at of the four perspectives the business select those CSFs for which they had major responsibilityand control. The surveys to the unitsanalyzed dala flom customer management eachof the business of arrive at the factors of perceivedperformancevis-ir-vrsthe price of competing by CSFswerechosen CSFs.Process products. Theservereusedto decideon customer in required processes orderto deliverthe requirements in reviewingthe improvements metrics unit level, standard For the financeCSFs at the business of the customers. basedon CSFs were ascertained used in financialreportingwere used.Competence to requiredto deliverthe CSFspertaining processes, and the competencies resources Labs,locatedin Eindhoven, in For example, PhilipsResearch and customers, finance. perspective, one of the objectiveswas implementingthe BEST in the processes the In programin Philips Research. the peopleperspective, objectivewas managing which would bring optimum benefitfor in development a rva,v HR and management the staffand Philips. units were requiredto arrive at the key the CSFs, the business After establishing that were commonto all the to indicators measure CSFs.Somecf the key indicators grovth, customer profitablerevenue and employee units u'ereachieving the business development. excellence and organizational and achievingoperational satisfaction, that werealready indicators the Scorecard, performance the While designing Balanced p r e s e n t i n t h e c o m p a n ) s u c h a s p e o p l e c a p a b i l i t y ,s a l e s e x e c u t i o n ,c u s t o m e r and were etc. were taken into consideration loyalty, brand preference, satisfaction, (Referto Table IV for indicators measure CSF at to perspectives to allocated different business unitsin Philips). 69

be sln hev

the
lo\!

our
in

\\'ere CSFs and I \\'as

iCtlOn

.i and This nined lance rilips, ge of :sired io set them iomer \\ ere lment ,s rhe . card.

ControlSystems Management
Units in Philips Table IV: Indicators to Measure CSFS at Business
Perspective Financial Indicators Profit realized Incomefrom operations Working capital Operationalcashflow Inventoryturns Processes in cycletime 7oreduction process changes Numberof engineering utilization Capacity time Orderresponse Process capability Customers survey Rank in customer Marketshare Repeatorder rate Complaints Brandindex Competence Leadership competence o/o ofpatent protectedturnover Trainingdaysper employee Quality improvementteam participation Source; Andra Gumbus and Bridget Lyons, "The Balanced Scorecard at Philips " Electronics, StrategicFinance,November2002. targetsand goalsfor all the divisionsrr was usedto establish Scorecard The Balanced Eachdivisionin Philipshad strategy. the across world and link themto the company's its own vision and mission that was in alignmentwith the corporatevision. Each to divisionwas drivenby a strategy realizethe vision and mission.Therewas a setof driversto drive the mission(Referto Exhibit VII for the vision statement key business the objective of Philips and sfrategyoverview of Philips Lighting). For instance, in markets, existingmarkets, profitablegrowth in developing Lighting was to achieve drivers to The key business and with leading global customers. in new segments, supply achieveprofitablegro\tth were end user innovation,marketingexcellence, people.The division used the Balanced and committedand competent excellence, focus, customer like to Scorecard focuson essentials buildingtechnologyleadership, etc. costs, delivery,controlling manufacturing, brand,sourcing, ' ' I n P h i l i p s . a c hd i v i s i o nwas divided into severalbusiness units, Main divisionsin Philips e care and domesticappliances, personal lighting.medicals)'stems, electronics, areconsumer

70

BalancedScorecardlmplementation philips at
In a similar manner'Balanced Scorecard was usedin several manufacturing unitsand factorieslocatedacrossthe world. For example,philips' Semiconductor china had framed its valuesand mission in line with thoje of the iornpuny (Refer to Table v for the vision,mission, and strategy philips Semiconducto., of bhinui. vision, mission, and sfrategy provided the strategic direction for the chinese operations. The business facilitators were leadership, people,policies,and processes. The leadership enablers were developing a markei diiven and continuous improvement mindsetand nurfuringopen t*o-way communications with employees and stakeholders. People enablersincluded recruiting, developing,and retaining talented people.The processes were demandcreation, be achieveiLy definingkef to customers managing and thesecustomer relations, co-developing upstream customersJ etc. The other processes were creatingnew productsand businesiopporfunities and achievinga breakthrough performance the supply chain. in Table v: Philips Semiconductor china -vision, Mission, and Strategy

A world where everyone can always connect to information, entertainment and services Mission To be the leadingprovider of semiconductor-based solutionsfbr connected mass marketconsumer and communication applications China. We will contribute in to Chinese drive to prosperity. Strategy Grow China market shareliom 5ohto 8vo in 2005. Engagein Chinesestandards efforts to generate long-termbusiness. source: scott McGregor, "Ll/inning Customers, winning products, winning vision," www.philips.com, September 2, 2002 I The results were measuredusing the Balanced Scorecard.The financial perspective was achievingrevenues US$ 2 bitlion by 2005. The processes of perspective was customerintimacy, driving standardization, designingnew, low cost products,stacked lead time, and achieving flexibiliry to changesin demand.The competence was to be measured through employeesatisfaction and motivation, size and quality of the talent pool, IP management, loyalties, and licensing. The customer perspective was measured throughmarket share,customerloyahy, presscoverage, etc. For Philips Lighting, the Balanced Scorecardduring the late 1990s had cSFs like Training, Quality Improvement Competitionro,philips euality Award (peA 90)15 under learning,cycle time, wastage, and assetutilization under processes, Surveysand ICSL under customers, and EpR, Sales/wage, inventory and cash under the financial perspective (Refer to Table vI A for Balanced Scorecard at philips' Domestic Appliances and PersonalCare Division and Table VI B for Balanced Scorecardat Philips' Consumer Elecfronics Division). ro qlc was launched in 1993and encouraged employees form quality improvement the to teamswith the aim of. en-couraging improvedcustomer serviceand quaiity,promoting structured teamwork effective of improvement and use tools,andrecognizing iewardin! and successful improvement projects initiatives. and 't It a for lQo 90 was Philips'qualityawardfor the nineties. provided structure managing improvement systematically by peA 90 sets-ou-t evaluating improvemeni activities. and that the achieved duringthe ryI9*qt for qualityimprovement unitsthroughout company 1990s. award The wasgivenby thephilipsGroupManagement committee.

ilips )ns'had :aCh et of nent ilips

trcL5!
l i

's to

pplv
nced )cus,

rrlips care

7l

ControlSYstems Management
Table vI A: Balancedscorecard at Philips DomesticAppliancesand PersonalCare Division
Perspective Customers Indicator CLIP Description Committed Line Item Performance measuring deliverability during product performance and Time flame betweennew product release market time to Market sharein value Salesper stock keeping unit to balanceproduct portfolio Scoreon processsurveyfor demandgeneration model Excellence Scoreon PhilipsBusiness % of people having a personal management file development Quality

RenewalRate Value share per Sales SKU Processes PST DG

Competencies PBE Score %oPersonalMD files

% participation yo of people participating in ImprovementTeams in QIT Source:Philips Corporate Quality Bureau' 2002'

Table vI B: Balanced Scorecard at Philips consumer Electronics Perspective Finance Indicator Contribution margln Sales Customers End user satisfaction Brand index Tradeuser satisfaction Processes Sales Plan reliabilitY Commercial on release volume Commercial on release time Competencies Training EmPloYee performance PBE score Description Contributionto fixed cost and profitability sold Value of products survey ofthe end users Satisfaction Market share in value / market share in volume surveyamongthe trade users Satisfaction Forecastaccuracyof the sales plan. Actual sales compared with quarterly rolling forecast Number of hrst mass shipments / stroke number deliveredin a period as plannedand agreed Number of commercial releaseswithin the agreedtime tolerance Per Period Total training hours / number of employees Number of fulfilled performance appraisal / number of emploYees ExcellenceModel Scoreon Philips Business

Source: Philips Corporate Quality Bureau, 2002

1)

BalancedScorecardlmplementation Philips at IMPLEMENTING BALANCED SCORECARD

rcI

At Philips,the initiativeto implement the BalancedScorecard systemcame from the top management its headquarters the Netherlands. the subsidiaries Philips in All at of across world were instructed their quality departments how to go aboutthe the by on implementation. The top managementestablishedannual targets for the entire which cascaded company, doq'n as goalsand targetsfor all business unitsthroughout the organization. In order to achieve future goals, it rvas necessaryto understandthe present performance and the effbrts required to achievc the desired output. Through the Balanced Scorecard,Philips aimed at identifying the factors that could help in goals. Each indicatorof the BalancedScorecard strategic achievingthe company"s for and success. Employees all had a definedowner accountable its implementation the with the owner.Accordingto Chris Farr, over the rvorldcould share bestpractices Former Vice-president, Quality and Regulation,Philips Medical System North America, "Employees have helped to create measuresthat are meaningful to have analyzed In employees what makesthe customers and to business. this process, enterprise."l6 successful gainedgreater and understanding ofthe business business further,all the literature In order to improvethe BalancedScorecard availableabout Throughthis, a and companyinformationwas takeninto consideration. the company, genericframeworkwas developed, which was improvedfurtherwith inputsflom the a wherethe employees. 2000, Philips circulated brochureacrossthe organization In weredescribed. Scorecard main stepsin designing Balanced the Philips useda reportingsystembasedon For implementing BalancedScorecard, the in Lotus Notes, which was introduced 2001. Through this system,the management that were of takento improvesomeof the indicators could reviewthe progress actions not performing up to expectations. strategy documentfor all the businesses and ln2002, Philipsbeganusing a one-page were condensed into a one processes, and strategies through which the operations also formed a part of the one-page page,simplified format.The BalancedScorecard contained four the The document strategy document and was usedto measure results. direction,which specifiedvision, mission, columns.The first column was strategic e , o ' B u s i n e s s n a b l e r s 'w h i c h i n c l u d e d c a n d s t r a t e g yT h e s e c o n d o l u m n c o n s i s t e d f . pafinerships resources, and processes. The people,policy & strategy, & leadership, and the using the BalancedScorecard, the resultsmeasured third column comprised year (Referto Exhibit VIII for for fourth column had detailsof initiatives a particular division). document PhilipsSemiconductor of one pagestrategy and the Philipsuseda systemknown as BBS onlineto communicate operate Balanced to BBS online helpedthe management monitorthe Scorecard across organization. the that were criticalto the success ofthe business, reviewthe and evolutionofthe factors progress the performance indicators. Using BBS online,eachof the business units of ln scorecards track the indicators. casethere was and could compiletheir respective any variation from the goals,the userscould fill in the data pertainingto action to be taken to improve the performance.Through the system, at any point of time, users could find out the areasin which they were lagging behind and the correctiveaction they needed take. to BBS online was used in Philips right fiom the planning stage,to convert the strategy into measurablegoals. By using the system, details of the CSFs and performance Employeesalso used BBS online indicatorsof each businessunit could be accessed. about the performanceindicatorsand the way they handled to sharetheir experiences the deviation.
'o Andra Gumbus and Bridget Lyons, "The Balanced Scorecard at Philips Electronics," StrategicFinance,November2002.
t)

:ld

'nl

tr\

tal

ng ke nd

) .ll lel

Control SYstems Management

B B S o n l i n e f o r t h e P h i l i p s l i g h r i n g d i v i s i o n d i s p l a y e dt h e f i n a n c i a lp e r s p e c t i v e U c v t m e a s u r e dh r o u g hs h a r e h o l d e ra l u e a n d r u o n t h - r v i ss a l e s . s i n g B B S o n l i n e 't h e custonler throughthe numberof largeaccounts. \\'asmeasured perspective customer and on-timedelivery share, market satisfaction, In 2006, Philips createdan online BalancedScorecardfor every unit. The data Through an includedthe financialresultsand the scopeand areasof inrprovement. the time taken fbr reportingthe resultsto the online card. Philipsrvasablc to reduce from l'1 daysto 5 dal's. top managemcnt

RESULTS MEASURING
r v a su s e da s a n S re l D u r i n gt h e p c r i o d i c am a n a g e m e n t v i e $ ' st.h e i l a l a n c e d c o r e c a r d agaillstthe targetsand to rnonitor futttre evaluateactuil pcrfornrance to instrument trrirt a r I p l a n s . ' h i l i p su s e dt h e t r a f l i c l i g h t s ) ' s t e n$ i t l i t h e g r e e nl i g h t i n d i c a t i ] l g t a r s c t a and red denoting in pc-rlbittlancc linc rvith thc target, rndicatine had bcenmet.atrtber l k e f i n , l l . u , , r t sl . ' a n l o f t h e o t t a p r o b l e m r e a . o m e a s u r eh e i e v e lo f a c h i e v e m e n tf t h e to indicators rvas reportcd u,ith red next to it, the emplovees werc supposed rvassharcdacrosstlte colnpanyso tliat other thc irtrrnediately'flx probleln.The data u s co t ' t r a l l i c r s l e m p l o y e ec o u l c a v J i d m a k i n gs i m i l a rn r i s l a k c ( R c f ' e t o T a b l cV I I l b r s ILescarch). a l i g h ts y s t c m t P h i l i p s Table VII: Traffic Light System at Philips Rcsearch Objcctive Process
P e r f o r m a r t c eI n d i c a t o r

Actual

Q3 2002
B u i l d i n ga n d a sustaining strong position the Supporting of reputation PhiliPs as an innovatlve comPany electronics d N u m b e ro f i n v e n t i o n i s c l o s u r c s Number of Patent filings I rcsearchcr Numbcr of invited PaPers{br externaljournals'iconl'erences (per researcher Year) Per Total number of coverage of different research subjects in ( n a t i o n ad a i l yp r e s s r v o r l d u ' i d e ) l ou ilell lunctioning of employeestransfencd to other as Philipsorganizations a Partof total transfers P r o g r e so f i m p l e m e n t a t i o n s q o o f k e ) f u n c t i o n sh a v i n g a n rvith a well identifiedsuccessor d d e f i n e d e v e l o p m e n tl a n P Grecn Ycllow Green

Q'l2002
Grccn (lreen Grcen

Green

Crecn

'l'ransfer of human c a p i t atl o P h i l i p s ' PDs of lmplementation BEST ManagingHR and management for development optimum benefit for the staff and PhiliPs a Ensuring creative a n de x c i t i n g environment

Rcd

Rcd

Grecn Yellorv

Green Ycllou

I evaluated 7o of sectors services as green'by'emPloYees

Yellorv

Yellor.r

"Driving Exc'ellencein Philips Reseurc:h Jor the soLryce;Dr H .-l (Rick1 Haruig, '\larch 20, 2043' Eindhot'en, PhilipsResearch, Bttsiness,"
1t

lmplementation Philips at Scorecard Balanced

The Balanced Scorecard was widely used to measure results all across the auto datatransferringsystems For example,in Philips Medical Systems, organization. were used to transfer the data from the internal systemsto the Balanced Scorecard. With auto transferfacility, the time taken to compile the datawas reduced,and so was the possibility of human error. The employeesgot to know the results immediately and understood what had to be done to carry out the required changes, when were carried out All necessary. the quarterly businessreviews of all the subsidiaries high importance,the Balanced using the Balanced Scorecard.In several areas of to enabledmanagers createthe right conditions for improvementprograms Scorecard at breakthroughs Philips. and performance Questions for Discussion: l. model help Philipsbring in of How did the implementation BalancedScorecard Explain citing examplesfrom different changeand continuify in the organization? o divisions f Philips.

:3. the
:It]il]e I

:3 data ish an : 1(rthe

:,is

illl

'luture
*!'t t;lat :lrilng a . .r1'the rscd lt'r :: othcr : lr-al-flc

in 2. Critically examineand commenton the four perspectives Philips' Balanced are the critical successfactors (CSFs), and examine how they Scorecard.What at were established different divisions and different levels of the company. How ExPlain. werethe CSFsmeasured? 3. Study and comment on the Philips Business Excellence (PBE) model in at processes Philips.What role did variousPBE criteriaplay improvingbusiness ExPlain. context? in this

:002
:ecll :r- !-n

All rights resemed.This case was written by @ 2007,Icfai Centerfor ManagementResearch. Indu P,, under the direction of Vivek Gupta

1'e Il

:'ien

3.ed

l:L-!- n

: llori

: Ii o r t

tir the

t)

ControlSYstems Management
Exhibit I Philips Divisional Structure
Divisions Product Categortes LamPs Luminaries & Gear Lighting,Electronics lighting Automotive& sPecial Battertes Consumer TV, systems Portable audio' audlo

Lighting

Consumer Electronics

Mainstream

monttors' (CD recordable / rewritable)'

:;";;;;
PCB AssemblY

JigiotvcR' rv i vcR' DvD- RW

Video. and DVD

TV)' DTS' (incl' internet DigitalNetworkstJi1K.,O"*s

faxes' Mobile Phones, DCET Phones' Consumer sYstems communication Communications business speaker Remote controls' accessories' SpecialtY rV' institutional LcD Projectors' ;;;, Products cameras' PC networks' itouaUuna systems' speecn lur.iuution and security processing beardtrimmers' hair clippers Shavers, Male shavtng Domestic grooming Appliancesand and skin care' dental Depilators' hair dryers' BodY,beautY PersonalCare care, and Health Home environment Care Food & Beverage Thermometers Vacuumcleaners' Steamirons blenders' Food processors, kettles, Toasters coffee makers'

ComPonenrs

comPonents DisplaY Opticalstorage systems MobiledisPlaY sYstems disPlaY Large solutions electronic Emerging

'76

Balanced Scorecard lmplementationat Philips

Divisions

Product Categories

S e m i c o n d u c t o r sM u l t i m a r k e t p r o d u c t s Consumer systems Telecomterminals Emerging usinesses b Discrete semiconductors Medical Systems X-Ray Radiography, universal R/F, cardiovascular,

Equipment Imaging IT

surgery Image information and management systems Customer support, consultancy, training,
financial services, mainrenance management

rdio ors, {D-

Healthcare
Services

TranscriptionServices Nuclearmedicine Ultrasound

rTS'

Magneticresonance

\es, rker

Computed tomography Source;Philips Annual Report,2000.

rv,
r2q

Exhibit II Phifips - Selected Financial Data (1997-2001)

(ln Million)

ech

r997
ntal Sales Income(loss)liom '/ continuing operations Discontinued 2) operations Cumulativeeffect ofa change in accounting principles Net income(loss) Total employment (in at year-end thousands) Salaries, wages and socialcosts paid

I 998*

I 998*

t999

2000

2001

29,658 |,231

30,459 541

30,459 31,459 31,862 32,339 1,025 I ,595 9,s77 (2,47 5)

263

5,054

4,891 85

2,602 252

6,053 234

5,900 234

1,590 227

9,662 (2,47 5) 219 I 89

8,261

8,209

8 , 17 l

8 , 1 Il

8,479

g , I1 9

77

Management ControlSystems
1997
Income Income(loss)from operatlons Incometaxes lncome(loss)after taxes ( Income loss) beforecumulative effectofa change in accounting principles Net income(loss)

1998*

l99g*

1999

2001

1,714 (276) r,1 9 1

t,zJ I

685 (41)
JJZ

t,289 (162) 8r6 I,025

l,553 (208) 1,238 r,59s

4,258 (t,395) (563) 428

5,688 (1,882) 9,s77 (2.47s)

541

2,602

6,053

5,900

I,s90

9,662 (2,47s)

*The company adoptedUS GAAP liom January 1,2002. The years from l99g onwardsare as per us GAAP. Figuresfor 1998are presented both Dutch GAAp in and US GAAP. Source:Philips Annual Report 2001.

Exhibit III Philips - Selected Financial Data (2002-06)

(ln million)

2005
Sales Incomefrom operations Financial incomeand expenses 26,788 24,049 943 (2,227) 830 (244) 100 609 (14)

2006

24,855 25,715 26,916 l,153 216 2,584 252 t,472 108 2,831 37 1,183 34 919 4,464

Income (loss) l}om continued (2,863) operations Income(loss) from discontinued operations Cumulative effect of change in accounting Principles Net income(loss) Source: SEC Filings. (343)

(3.206)

695

2,836

2,868

5,383

78

Balanced Scorecard lmplementationat philips Exhibit IV

I

EFQM Excellence Model

The EuropeanFoundationfor Quality Managementwas createdby the cEos of some of the Europeancompaniesin 1989. The EFeM ExcellenceModel was introduced 199I and was subsequently in revisedin 1999.It was introduced a as tool for quality award framework but went on to be used as orsanizational improvement tool. EFQM advocates improving organizational performance through self-assessment and improvement activify,measured againstnine benchmarks. Thesebenchmarks are leadership, people,policy and strategy,partnerships resources, & processes, peopleresults, customer results, societyresults, and key performance results. organizations using EFQM employ differentmethods selfassessment identiS, of to the areasof strengthand improvement. The processof selfassessment provides systematiclearningexperience employees. to The organizations that have used EFQM have reported several benefits including better understanding the of performance,creating opportunily to focus on improvement, increasingcustomer and peoplesatisfaction, improvingproductiviry. and

!) )98 -A,P

EFQM Excellence Model

@ffi
:on)

Ub

T
r9

l,e,rdrrsh:p

Pohcy & StraIeS/

Procrs scs

vey Prrfcrmance Re!'dt3

F rrlnrrsllps & les,r':rc;s

Innoratbn & Loar:rhrg f)6l;mg lmpr6usrncnt

Source:www.efqm.org The main drawback of the model is that the improvements that organizations achieve cannotbe ascribed directlyto EFQM. Anothercriticismaboutthe model is its lack of future orientation,and it is not clear whetherthe improvementsachieved using EFQM can be used in achievingfuture performance. Source:www.efqm.org and other sources.

i3i

79

ControlSYstems Management
Exhibit V Philips Vision, Mission, and Values
PHILIPS MISSION introductionof To improve the quality of people,s lives through the timely I meaningfu innovations P H I L I P SV I S I O N Inaworldwheretechnologyincreasinglytoucheseveryaspectofourdailylives, and lit-estyle provider in the areasof healthcare' we will be a leading solut-ions aspiring to become the most admired company ln our enabling technology, industryas seenby our stakeholders' VALUES Delightcustomers Delivercommitments DeveloppeoPle Dependon eachother Our brandPromise p h i I ips'com t Source: Phi t ips Susa inabi I ity Report, 2 006 and v'ww'

Exhibit VI Philips StrategY

Increaseprofitabilitythroughre-allocationofcapitaltowardopportunltles and higher returns offering more consistent LeveragethePhilipsbrandandourcorecompetenciesinhealthcare,lifestyle, and categories geographies and tecinologyto grow in selected Buildpartnershipswithkeycustomersandsuppliers'bothinthebusiness-toareas and business business-to-consumer and leverageour continue to invest in maintainingworld-classinnovation position properry strongintellectual competencies our Snengthen leadership Driveproductivirythroughbusinesstransformationandoperationalexcellence c c Sour e: wrw. news enter'p hi I ips'com

80

Balanced Scorecard lmplementationat Philips Exhibit VII Philips Lighting - Vision Statement
as by To be recognized all the stakeholders the clear leader Seningpace in the lighting industry r . o with The bestpartnerto do business The best companyto work for The best company to invest in

A responsible citizen contributing to the sustainability of sociefyat large PHILIPS LIGHTING _ STRATEGY OVERVIEW AMBITION Profitable Growth: r r r r markets In developing globalcustomers With leading In existingmarkets In new segments

as by Recognized our stakeholders "The Clear Leader: Settingthe Pacein the industrY" KEY BUSINESSDRIVERS o r End userdriven Innovation Marketing Excellence Excellence SuPPIY people,living our values Committedand competent A learningorganization(Continuousimprovement) Control of costsand assets

ties

.
a

On the basisof:
a

our

STRATEGIC CHALLENGES Building on Strength: r . . China Key Account Management to Business Business

Think the Future: r r Electr.Applications Consumer Solid StateLighting

23, source: Theo van Deursen, CEO Philips Lighting, www.philips.com,November 2004.

8l

in
N a (|)

E; :Eqi: ;t;il E: ir'E

rEa;EeiEI s;s* s*'$;FE
j c . i d + '
b

s tE i : E ; e 3 E : E ;
i
'

d
v

i
. F
)

in
Fl

s E
Q

s ,
i

. O
E

p e

'
a
ql (J

:
. 6 s l

$ S
' z
i

c S s !
c \ o
; -

a
3 a o i .

,F

F l

{)
9

' x a
q

.=
t

o
r-(
F = , ? i

q)
(h

t{.:

a
c)

.i
1

g HE{ #$Es E5SS s s E3

r \ -3
Q > ' : r ! : . . . . o ( n Y 0 l

,E d

b 9 Fo b s

f- t U i x '.s-

'-= . Sot \ Y = :

Q n o' t

.q

E
E

x )
E I

br o o o a0
q)

ri
a a

()

E ; E EE E - s i a E . # * H H ? d s E z 7 0 E : .e 9 g a E a a L g 8 i
J . . d . S o . . . f ;

.+-f=HE=X

F t E E : i

x XH i - e fe ;g 9 X = i
:; F - E - E = E Ei

E: ; E l E E

.Eg.

-Er -TE ?

H ! i E E . - : e EFtrEE, E ; F ; :

i E C i A E E EE g E
c)

p5

EE

EE

9E

o! q)

i A 5 s E s E * E fF E E g F : ; F : 5 f ;' ; g ; : " : ' " . E

i E #l 'E : : E;E F $ 3 + t s

* n1 ; $ i ; ; n , $ * ' i i rt ; ; E ;3E = ii ;x F E j a 'i

I()
t l v ^

>

'

Y O q ) O X

u 9 F

b 83 F" ER&6"
F - =d
^ -

g : 0 3 ; !

^t.-. 1 4< 9 0

rn ct
a q)

0.) 00 I c/) r;

. = ^ : 6 !
e j

- H s ,E

3.F; F
Y a n w v

.9 >,
.O

Y.IJ ()

-;

fixFeaFaE 5 FS:H3'ii Er) -:i ^ tr=< =

e

= H 9 - ; 9s; F -U u

\o

.o
(J a
X {

. >

$
i ' 6 : S c r

\ x $
) B e

U)
q) .J

fi

i \ A E () " E ;; S o : r Eq Y; 4 3 . 1 $ F . l ;F d . ! & S ' ; s ; * i { E \ i g : : : : ' \ - \ = ()

!

s . oE s 5 E t E

{ \ t

"F E\''z t Es ,: 2 ^ c F ) v ! ,$ -E c -ss.- F -{; * 5 ' J i f * t Ei i;

U .
i = . ^

a
hn

.
o
E

o . : x r

Y ' X Q

i lE$ - ., Y = = c o&E (.)

a t

()

'tr q

O a ql q

' =s : E p f r 3 A E U) s s 5 A E F g . & . . 6
A _

(.) 9

F '= F ' hdnE g b E-y o' EH

5 :: ' - + -= c 3 E s a2 HS"s

- E F i

"

5 + 3 - EE E o F 5 u ;
n u E. a !

a oE E .s 5 E g a E

l o

l 9
q)

::v

i< s

$
b, q)
q)

(t)

ControlSYstems Management
Additional Readings& References:
l. Knowledge ,,Royal philips Electronics Implements Lotus collaboration and com, Its Infrastructure," www.prnewswire Management soiuiion, to Exiend l J a n u a r y5 ' 2 0 0 1 ' ..Winning Customers, Winning Products, Winning Vision,'' Scott McGregor. 12' com' September 2002' wrvw,philips

2'

3.AndraCiumbusandBridgetLyons,..TheBa|ancedScorecardatPhi|ipsE|ectronics,' November2002' StategicFinance, in Philips Researchfor the Business"' Dr.H.A. (Rick) Harwig' "Driving Excellence 4. March 20, 2003' www.PhiliPs.com, 5.steveJohnson'*EFQMandBa|ancedScorecardforlmprovingOrganizationa| uk' April 2003' Performance," **tu io* "urnfield co .,Delivering on our Businesscommitments," www.philips'com, Scott McGregor. 6. 12'2003' September on Strength - Thinking the Future," ? Theo van Deursen,"Lighting: Building November23' 2004' www.philips.com, and Reality"' Vikalpa, January March, I M Pandey,"Balanced Scorecard: Myth 8.

2005. g.

2005' on"' throughTransformati PhilipsPublications'November "Leadership

l0...ThePhi|ipsStrategy:FocusingonProfitab|eGrowth,''PhitipsPublications,May 2006. ll...Phi|ipsQuitsl.echno|ogyRacetoBecomea.Lifesty|e,Brand,''SundayTimes, l3' August 2006' Profitable' Growth"' "Lighting Strategy Accelerating van Deursen, 12. Theo 20' 2006' September wrvw.philips.com.
13. l0' F'ebruary 2007' "Home and Abroad," TheEconomist' l4.PaulDurman."PhilipsMovesintotheLifestyleGame"'T-imesOnline'May20'2007' l5.GerardKleisterlee."EuropeanComp^etitivenessinTimesofChange"'European lune 08' 2007 Conference' Competitiveness l6.JennittrLSchenker,..PhilipsMapsOutaNewDirection,,'BusinessWeek'September 10.2007. l0' 2007' Its Structure"' TimesOnline'September 17. Rhys Blakely,"Philips Streamlines Handbook' QualityReference 18. PhilipsSemiconductors' NV' 2007' Electronics 19. SEC Filings.KoninklijkePhilips 2Q. 21. 22. 23. Philips Annual Reports,2000-07' Report'2006-07' PhilipsSustainabiliry www.PhiliPs.com www.etqm.org

84