Philips 2011 Annual Report Download - page 8

Message from the CEO
8 Annual Report 2011
strategies with the resources and determination to win
our critical market battles and achieve leadership in our
chosen markets.
Of course, making the turn to growth also requires a new,
shared mindset – a customer-focused, agile, can-do
mentality. And with Accelerate! we are creating a new
performance and growth culture centered around three
key behaviors – Eager to win, Take ownership and Team up
to excel – that are crucial for success and anchored by our
General Business Principles.
With Accelerate! providing the roadmap toward growth,
in the summer of 2011 we announced our mid-term
performance goals, to be realized by the end of 2013:
• Comparable sales growth CAGR of 4-6%, assuming real
GDP growth of 3-4% per annum
• Reported EBITA margins of 10-12% for the Group;
15-17% for Healthcare; 8-10% for Consumer Lifestyle
(excluding unrelated licenses); 8-10% for Lighting
• Return on invested capital of 12-14%
Progress on our path to value by 2013
A key part of Accelerate! has been the implementation of
our new operating model, the Philips Business System,
which defines how all parts of the company should work
together to create a faster, less complex and more
competitive Philips. This system has begun to improve
granular performance insights, enhancing transparency
and management accountability, and enabling rapid
corrective action where required.
We also needed to free up money to invest in our
customer-facing activities and innovation – and so pave
the way for profitable growth. For this purpose, we are
optimizing all overhead and support costs not directly
involved in the operational customer value chain. This will
create a lighter overhead structure comprising a single
value-adding layer above the businesses, thereby reducing
complexity and speeding up decision-making. It will also
enable a cost saving of EUR 800 million by 2014. The
overhead cost reduction program is on track, with the
first savings already visible in the fourth quarter of 2011.
In order to ‘resource to win’ we are also making a
targeted additional investment of EUR 200 million to
increase the number of business/market combinations in
which we are the outright leader.
Customer-centricity is an integral element of Accelerate!
Across Philips, we are empowering and strengthening our
customer-facing teams to win in markets by delivering
superior products and services that meet the specific
needs of local populations and bringing them to market
faster. To this end, for example, we moved the leadership
of our Kitchen Appliances business to Shanghai and
acquired leading kitchen appliances companies Preethi
(India) and Povos (China) in 2011. This will ensure we are
better placed to harvest local consumer insights and
match our competitors’ time-to-market.
One of the key drivers of our Accelerate! journey is the
strengthening of our ‘end-to-end customer value chain’.
We can only speed up our time-to-market and become
truly competitive if we take a holistic view – from product
idea and manufacturing to order intake and delivery.
Philips is transforming itself from a predominantly
functional organization to a process-driven end-to-end
collaboration model, embracing business excellence
principles such as LEAN. This should allow us to deliver
innovations to market much faster – and at lower cost
and with lower working capital. Pilots at Lighting, for
instance, show that the collaborative end-to-end
approach is having a significant impact. Breakthroughs in
factory and demand planning, for example, mean our
business group Lamps no longer needs to stock the
majority of its portfolio in commercial warehouses, but
instead ‘packs to order’, which allows much lower
inventory levels and, ultimately, better profitability. And
this approach offers our customers increased service
flexibility, thanks to improved response times.
We are pleased that people engagement continues to be
high and that Philips is able to attract and retain
outstanding talent to strengthen the company. Our new
behaviors – central to our efforts to establish a culture of
entrepreneurship and accountability – have been made an
integral part of our employee performance appraisal and
reward system. And the incentive system for our
executives has been changed to reflect line-of-sight
accountability and is now fully aligned with the key
performance indicators of our 2013 mid-term financial
targets.
We also continued to deliver on our EcoVision
sustainability commitments in 2011, as we strive to bring
care to more than 500 million people, to improve the
energy efficiency of our overall portfolio by 50%, and to
double the global collection and recycling of our products,
as well as the amount of recycled materials in our
products. Our sustainability performance received
widespread recognition during the year. For instance,
Newsweek named Philips the 9th greenest company in the
world, we regained our sector and super-sector
leadership in the Dow Jones Sustainability Index, and our
Lighting sector received a United Nations Leader of
Change Award for its contribution to sustainable lighting
solutions.