PROJECT MODULE: TRANSFORMATIONAL CORPORATE STRATEGY (MODULE 4)

PROJECT NAME HOW PHILIPS EXPLOITS ITS TECHNOLOGY EDGE

DATE

EXAMINER:

EXTERNAL EXAMINER:

16 January 2012

Professor E Schmikl

Prof P Gerber

SUBMITTED BY Kgomotso Thando Mtembu

Declaration:

“I hereby declare that this assignment is entirely my own work, and that it has not

previously been submitted to any other Higher Education Institution. I also

declare that all published and unpublished sources have been full acknowledged

and properly referenced. This includes figures, tables and exhibits. Where

modified by me, this has also been indicated.”

Signed: ……………………………………

Print Name: ……………………………………

Date: ……………………………………

CONTENTS PAGE

1. EXECUTIVE SUMMARY.........................................................................................................................3

2. BACKGROUND INFORMATION..............................................................................................................3

2.1 Question 1:.................................................................................................................................3

2.2 Question 2:.................................................................................................................................4

Figure 1: Market Pull Model..........................................................................................................4

Figure 2: Technology Push Model………………………………………………………………5

2.3 Question 3:.................................................................................................................................7

2.4 Question 4:.................................................................................................................................7

3. BIBLIOGRAPHY.....................................................................................................................................8

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1. EXECUTIVE SUMMARY

Although Philips Research will remain an important driving force in realizing Philips’

vision to become an even more market-driven and people-centric health and well-

being company by continually evaluating key issues and trends in society to ensure

that people’s needs are at the heart of our innovations, now and in the future. It is

clear from the Case Study that there is still a lot of room for improvement.

The company needs to move towards formulating the purpose from the knowledge,

technology and innovation this can be done by balancing the ‘market pull’ and

‘technology push’

Philips’ management will therefore need to utilise the knowledge gained from the

various research projects more effectively, this can be done by:

Conversion and communication of existing knowledge

o This can take place through four mechanisms i.e. socialisation,

externalisation, combination and internalisation. All four processes

realte to the basic distinction between tacit and explicit knowledge

existing in the organisation

Knowledge creation and acquisition processes

o The development and circulation of new knowledge, offers a dynamic

strategic opportunity. There are three mechanisms, organisational

learning, knowledge creation and acquisition, and knowledge transfer

Knowledge transfer processes

o In order for knowledge to be utilized effectively in needs to be shared

with the relevant people.

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2. BACKGROUND INFORMATION

2.1 Question 1:

What three methods has Philips introduced to exploit its research base? How successful has it been so far?

Philips through Ad Huijser has introduced the following three methods:

1. Linking the company’s scientists to the six divisions, this is accomplished by

making business pay for the undertaken research, the integral part of this method

is the Chief Technology Officer who works ian each division and scouts for new

technology devised either in Philips or outside, that could help commercial efforts

2. The second method is the recruitment of Business Development Officers who are

based in the company’s worldwide research laboratories and their role being to

provide a critical view of ideas coming from research and also suggest ways to

commercialise them as they have more background than research scientists,

which means they provide a different perspective

The Business Development Officers also set targets for the ideas to be pursued

inside laboratories and a timetable for potential commercialisation, they also

provide a conduit between Philips research staff and other businesses with which

companies might want to form partnerships with.

3. The last method is the attempt to quantify the outputs of Philip’s research employees.

How successful has it been so far:

With the introduction of these approaches by Ad Huijser, there has been a slight improvement in the research environment within Philips but there is a lot of work that still needs to be done for the company to maintain its customer base and also have a competitive advantage within the industry.

Philips should therefore work towards implementing the following concepts:

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Knowledge creation can be considered as the development and circulation of new

knowledge within the organisation.

Innovation is the generation and exploitation of new ideas.

Disruptive innovation takes an existing market and identifies existing technologies that

will offer simpler, less expensive products or services than have been offered previously

Following the above mentioned concepts Philips needs to adopting a technology strategy:

Two main phases for developing technology strategy:

1. Survey of existing technologies:

– An organisation-wide survey of existing technologies

– Examination of related areas, such as patents and intellectual property possessed by the organisation

– Technology scan outside the organisation to identify what is available

– Consideration of technologies in relation to the maturity of products possessed by the company

2. Development of technology strategy against two criteria:

– Technology developments versus competition

– Costs of further development versus the time to undertake such development

– Because organisations and markets differ so much, it is not possible to develop a single framework that embraces all technology and innovation

– However, two underpinning principles provide some guidance:

1. Core competencies: those technologies and production skills that empower organisations to adapt quickly to changing opportunities

2. Five major technological trajectories: most organisations can be fitted into one of five types of technology that will show what scope is possible for future technological strategy – listed separately

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2.2 Question 2:

How does Philips attempt to employ what it calls “market pull”? Is it really market pull,

as defined in the chapter, or is it, in reality “technology pull” with a more commercial

bias?

Prior to commencing with answering the question, the author has deemed it necessary

to define “Market Pull” and “Technology Push” in order to align the employed model

accordingly:

Market Pull Definition:

The market pull model suggests that the stimulus for innovation comes from the needs

of society or a particular section of the market (Figure 1). These might be needs

perceived by an entrepreneur or they might be clearly articulated by consumers.

According to this model a successful approach to innovation would be to research the

market thoroughly first, assess what needs exist, how far they are met by existing

products and processes and how the needs might be met more effectively by means of

a new or improved innovation. The theory then is that once the appropriate technology

is developed a receptive market is assured because the innovation process has been

tailored to meet a definite need.

Figure 1: Market Pull Model

Therefore this model adds a stage of exploring market need before the invention stage

of the technology push model. This approach might be characterised by the classic

saying, ‘necessity is the mother of invention’.

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Technology Push Definition:

The technology push model is a simple linear model that suggests that the

innovation process starts with an idea or a discovery – it is sometimes called

‘idea push’ (Figure 2). Sometimes this is by a creative individual who has the

knowledge and imagination to realise its significance and the practical skills to

transform the idea or discovery into an invention. Inventors don't always foresee

the ultimate commercial applications of their invention. However more often

nowadays the starting point is basic scientific research or applied research and

development (R&D) in organisations. This proceeds through design and

development into a product that can be manufactured effectively and

economically and then sold on the market.

Figure 2: Technology Push Model

The market is seen as a receptacle for the output of scientific research and

invention; therefore an increase in basic and applied R&D should lead to an

increase in innovation. In the past government support for innovation in many

countries consisted of bolstering science and the R&D supply aspect.

In his book Enabling Innovation Boru Douthwaite (2002) criticised this process

and dubbed it the ‘over-the-wall model’. An R&D team assumes it knows enough

about the users’ needs to develop a new product without involving them in its

specification or design. The team simply develops the product and tosses it ‘over

the wall’ to users in the belief that there's a need for it, the technology is complete

and ready to use, and users are technically skilled enough to use it without help.

Based on the above definitions, the author firmly believes that although Philips is

working towards a ‘market pull’ model, the company is not there yet.

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The following reasons support the above statement:

In an effort to work towards the ‘market pull’ model. Ad Huijser has

recruited business development officers, even though this is a step

towards the right direction, the role of these business development officers

is mainly aligned to ‘technology push’ rather than ‘market pull’, for instance

they still concentrate internally with the organisation, critic the work of the

research scientists based on their business knowledge, rather than

engaging the customers and stakeholders both internally and externally, in

various ways, i.e.

o Identify the key users and stakeholders – Who will the

technology benefit? Who will it disrupt? Understand all of the key

players that will be affected by the introduction of the technology.

What are their constraints? What are their motivations?

o Build a stakeholder map – A simple stakeholder map will serve as

a valued reference point throughout the course of research. It

brings awareness to secondary users, barriers to entry and other

influencers that may not be immediately apparent. Hang it on a

wall, reference the map as you refine the technology, and continue

adding to it as more information is gathered.

o Construct Workflows – What are the key steps in relevant

processes affected by the technology? Build a diagram that

illustrates every consecutive step. Are there inefficiencies present?

What are the opportunities to innovate these processes?

o Observe! – Put technology aside and understand the processes

from users and stakeholders.’ perspectives. What are the key

challenge areas? Are there workarounds that could be addressed

by product features and/or expanded functionalities? Understand

these processes from users in a variety of backgrounds

and skill levels. Observe in the field to understand context.

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o Get feedback on concepts – Use storyboards to illustrate how

your technology will affect a process. These can act as simple

prototypes before investing too much time and energy in a

particular application. Focus on the output (not technology!)

Multiple storyboards often provide a basis for comparison which

can enable users to speak more openly.

It is also clear that Philips innovation is based on basic scientific research

or applied research and development (R&D) rather than from the needs of

society or a particular section of the market. These might be needs

perceived by an entrepreneur or they might be clearly articulated by

consumers. This also shows that Philips is engaging the ‘technology pull’

model with commercialization rather than the ‘market pull’ or even the

balance of the two.

In order to move towards ‘market pull’ model, Ad Hujser and his team

needs to start asking themselves the following:

Copyright © Boston Device 2011echnology Commercialization Tipso Who are the customers and users?

Often your customers are different than your end users.

Understanding the varying perspectives is critical to evaluating

market pull.

o What are their needs and constraints?

What are the end users.’ pain points? Understanding needs

and constraints from the various perspectives is helpful in

shaping the market pull picture.

o Are there other stakeholders?

Many times there are other stakeholders that influence the path

to commercialization of a new technology.

It is therefore important for Philips to open up to changes around the market in

order to remain competitive

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“Most patenting is driven by a technology push. Innovation in the market

place is driven by market pull. It’s in that alignment of market pull and

technology push that so much ends up on the cutting room floor.” By ASHLEY

STEVENS, President of AUTM and former head of Boston University’s Tech

Transfer Office, therefore Philips needs to shift their perspective by focusing on

market pull before pushing their technology too far. When evaluating potential

applications, they need to put their technology aside to understand the market

conditions and user needs, also possibly identify problems that need to be

solved.

2.3 Question 3:What are the problems is any, with seeking links with other companies when attempting to exploit technology innovation?

The author has identified the following problems in seeking links with other companies whilst trying to exploit technology innovation:

Disadvantages of Strategic Alliances

The problem with strategic alliances is that there are a number of problems which must be overcome for them to be a success, including:

- Incoherent goals, with one business not benefiting greatly from the agreement- Insufficient trust, with each partner company trying to get the better deal- Conflicts over how the partnership works- Potential to reduce future opportunities through being unable to enter into

agreements with your partner’s competitors- Lack of commitment to the partnership- Risk of sharing too much knowledge and the partner company becoming a

competitor

The main problem with strategic alliances is being able to develop a partnership which is beneficial to both parties. Often a partnership is beneficial to the smaller business, perhaps due to the wide-scale distribution channels that are gained, but the benefits for the established business aren’t quite so clear.

Even when this problem has been overcome the problem of trust arises. Without a degree of trust partnerships become beset with administrative problems and suspicions.

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The best way to overcome this is to be transparent and reassess the alliance at regular intervals to ensure that both parties are gaining from the agreement. If they aren’t then perhaps the terms of the agreement need to be changed.

Finally, be careful that a partnership doesn’t end up being more of a hindrance than a benefit. Partnering with a company within a certain field will make it harder, if not impossible, to partner or win contracts from other competing companies within the same industry.

Sometimes the risk can be even closer to home, where the partnering company gains sufficient knowledge for them to become a competitor rather than a partner.

Another problem involves potential technology leaks, particularly when alliance partners are competitors.

Partners may also fail to reap the full benefit of an alliance because of conflicts with corporate R&D. Technology alliances most often originate at the product or division level. In such cases, the goal may be to get a product to market as quickly as possible. This may clash with long-term corporate goals and lead to turf battles between R&D and divisions. At the very least, coordination problems can arise.

To minimise the above mentioned problems, Philips can assess potential partners/alliances based on the following:

Assess and value partner knowledge:

• What were the strategic objectives in forming the alliance?

• What are the core competencies of our alliance partner?

• Which partner contributes key alliance inputs?

• What specific knowledge does the partner have that could enhance our competitive strategy? Is that knowledge or some of the knowledge embodied in the alliance?

• What are the core partner skills relevant for our products and markets?

• Are we realistic about partner skills and capabilities relevant to our strategy and capabilities?

Determine knowledge accessibility:

• Have learning issues been discussed in the alliance negotiations?

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• How have key alliance responsibilities been allocated to the partners? Which partner controls key managerial responsibilities?

• Do we have easy geographic access to the alliance operations?

• Does the alliance agreement specify restrictions on our access to the alliance operations?

• Has our partner taken explicit steps to restrict our access? If yes, can we eliminate these restrictions through negotiation or assignment of managers to the alliance?

Evaluate knowledge tacitness and ease of transfer:

• Is our learning objective focused on explicit operational knowledge?

• Where in the alliance does the knowledge reside?

• Is the knowledge strategic or operational?

• Reality check: do we understand what we are trying to learn and how we can use the

knowledge? Establish knowledge connections between the alliance and the partners.

• Do parent managers visit the alliance regularly?

• Has a systematic plan been established for managers to rotate between the alliance and the parent?

• Are parent managers in regular contact with senior alliance managers?

• Has the alliance been incorporated into parent strategic plans and do alliance managers participate in parent strategic planning discussions?

• What is the level of trust between parent and alliance managers?

• Do alliance financial issues dominate meetings between alliance and parent managers?

Draw on existing knowledge to facilitate learning:

• Have the partner organizations worked together in the past?

• In the learning process, have efforts been made to involve managers with prior experience in

alliance management and partner ties?

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• Are experiences with other alliances being used as the basis for managing the current alliance?

• Are we realistic about our partner's learning objectives?

• Are we open-minded about knowledge without immediate short-term applicability?

Ensure that partner and alliance managerial cultures are aligned:

• Is the alliance viewed as a threat or an asset by parent managers?

• In the parent, is there agreement on the strategic rationale for the alliance?

• In the alliance, do managers understand the importance of the parent's learning objective?

The above can be undertaken under the Portfolio of Virtual Network of Partners Projects as seen in Fig 3, BS-PM Learning Organisation Value Chain Schematic.

2.4 Question 4:Given the difficulties of quantifying research output, would you look for a more radical solution as suggested by some in the case? What are the benefits and problems of such an approach?

The author believes that in business at times radical changes are needed in order to achieve radical results and therefore agrees with critics in that transformation is required in Ad Huijser’s research establishments, and suggests that this starts with the transformation of processes (Fig 4)

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Figure 4: Process Transformation

This first step defined as the step towards the radical solution will ensure the following advantages:

Demonstrate a clear understanding of how and why transforming research processes can help create agile, effective, competitive, high value-adding organisation

Explain the relevance of the process-centric approach to the modern organisation in its global business environment.

Establish, through organisational maturity audit, the gaps between current and aspirational business vision/ strategy, appropriate technology, processes, people and their skills, as the basis for developing and applying a Process Framework.

Identify and define business and process needs from the customer’s perspective

Link the strategic issues of change to end-to-end process design through the requirements definition process

Deliver cross-functional, end-to-end, value-adding processes

Construct, from customer information, an affinity map highlighting breakpoints, moments of truth and business rules

Apply the impact severity matrix to inform the design of the TO-BE process

Construct the resultant action plan in which business rules are clearly defined, breakpoints eliminated and moments of truth optimised thus providing the

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business perspective that technology people can model and use in the development of the most effective applications

Capture performance measures - Process KPIs and Activity Measures - related to strategic business objectives

Based on knowledge of the power and authority networks in an organisation define how effective communication and consultation significantly assists successful design, development and implementation of technology

Begin developing a performance measurement, implementation, monitoring and ongoing improvement programme to ensure that the benefits of effective change can be demonstrably achieved and perpetuated as the environment evolves

Subsequent to the first step, in order for Philips to maintain or even improve its market share it is important for Ad Huijser to adopt the Innovation Process, Fig 5.

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Technologypush

Innovation Market pull

The development of new initiatives in technology

The analysis of customer needs to spark new ideas

Figure 5 : Two main routes to innovation:

Some guidelines that Ad Huijser can follow in the difficult search for innovation:

Question the present business strategies and market definitions

Consider carefully the purpose served by the current products and processes everywhere in

the organisation

The author has identified the main problem in adopting this radical solution as possible

resistance to change by both management and employees; this can be managed

accordingly through a proper change management methodology.

The following methodology would suffice for Philips:

Step One - Confirming the Compelling Need to Change

It is not uncommon for the process to begin with significant discussion about whether

broad-based systemic change is needed, or whether smaller incremental improvements

will do the job. This often requires some external data (market share, competitive

information, etc.) as well as objective internal data (how long does it take to complete

projects vs. plan; are costs per unit increasing or decreasing; is our organization getting

better at what it does; is competitive positioning weakening, etc.).

Step Two - Identifying the Boundary Conditions

Boundary conditions define the limits (or playground) within which change might be

considered. When senior teams begin their discussion some large topics usually

emerge very quickly. Issues such as mergers, acquisitions, international or global

initiatives, large capital investments, strategic alliance partners, equity situations, private

vs. public ownership, etc. may be debated.

Step Three - Creating the Vision of the Desired End State

A group of people aligned around a common vision are a very powerful force.

Step Four - Developing the Core Work Processes

The mention of work processes typically creates mixed reactions. Everyone agrees that

some degree of process is required. Without defined processes a company would not

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Some guidelines that Ad Huijser can follow in the difficult search for innovation:

Question the present business strategies and market definitions

Consider carefully the purpose served by the current products and processes everywhere in

the organisation

be able to produce a consistent payroll. It would not be able to hire people. It would not

have any consistent methodologies for its work. It could never assure any consistency

or reliability.

This step typically surfaces the strongest points of contention in the entire breakthrough

change process. If this step is addressed seriously, issues of organizational structure

begin to resolve themselves. After all, the structure should be designed to support how

the work gets done. Form follows function.

Step Five - Defining Key Roles and Responsibilities

This step is to identify the few key roles in the organization that are central to how the

company’s work gets done and then for the senior team collectively to define them.

Step Six - Modifying the Organizational Structure

Most changes begin with a modification of the organizational structure. Unfortunately,

most changes end there as well – which is precisely why most large scale change is

unsuccessful.

Structure should exist to support what an organization is trying to accomplish (vision

and strategy); how it is trying to do it (core work processes) and the requirements

people have for their work (key roles). Now that these have been identified, the

structure should be reviewed and, if necessary, re-designed.

Step Seven - Establishing the Key Performance Measures

This step calls for the creation of a balanced scoreboard – or dashboard – of the key

internal and external measures that provide a comprehensive view of the organization’s

performance, with as much insight as possible regarding their implications for the future.

At the completion of this process by the senior management team you should have a

limited set of defined measures that provide a balanced understanding of current

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performance, guidelines for improving short-term results, and the ability to assess and

improve long-term organizational performance.

Step Eight - Reviewing System-Wide Tools

Tools are powerful forces in defining how an organization behaves. An enterprise-wide

tool can be one of the most dramatic vehicles to create (or force) organizational change.

Tools that impose their way of working in conflict with established business norms or

practices will be strongly resisted.

Step Nine - Develop Training that Enables Performance

Training is an integral part of organizational design and behavior. It is essential to

ensure that individuals have the knowledge and skills to perform in their current jobs

and prepare for new ones.

Training is one of the most powerful vehicles for a company to create breakthrough

change. It can achieve three simultaneous results. First, it builds alignment to the

desired change. Second, it provides individuals with the knowledge and skills to

implement the change. Third, it creates the opportunity for cross-functional

communication in the implementation of company-wide initiatives.

Step Ten – Aligning the Reward Systems

Though the techniques may differ, two dominant themes emerge. The first is the trend

toward broad band job classification, providing much more flexibility in establishing

individual compensation. The second is a much higher degree of at risk compensation

tied to individual, team and organizational performance.

If possible, reward systems should to be tied to the desired breakthrough change.

Employees will pay great attention to adjustments in the reward system, especially if it is

modified to focus on the desired behaviors and effects of the breakthrough changes.

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