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Research Briefing

Architecting a Digital Transformation at Royal Philips

Most established companies must rethink their value propositions in light of what digital technologies make possible.
By Jeanne W. Ross, Martin Mocker, and Edgar van Zoelen
Abstract

Most established companies must rethink their value propositions in light of what digital technologies make possible. Recognizing the viable opportunities for integrated customer solutions is not easy. The bigger challenge, though, is transforming your company to deliver digital offerings consistent with your targeted value proposition. This briefing highlights the journey companies are taking to successfully transform for the digital economy.

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MIT CISR research suggests that to succeed in the digital economy, established companies must redefine their value propositions. These new value propositions take shape through a portfolio of digital offerings, which we define as information- enriched customer solutions wrapped in seamless, personalized experiences. But instead of reimagining their value proposition, many established companies are scoping transformations that merely digitize existing processes.[foot]For a discussion of the distinction between digitizing processes and becoming digital company, see J.W. Ross, C.M. Beath, and I.M. Sebastian, “Digital ≠ Digitized,” MIT Sloan CISR Research Briefing, Vol. XVII, No. 10, October 2017[/foot] Such companies are prey to more creative competitors—both existing and new.

To deliver on a digital value proposition, companies must fundamentally re-architect. In other words, they must redesign their processes, systems, roles, data, and habits to allow them to iteratively create, enhance, and replace digital offerings. This briefing examines how Royal Philips is transforming its value proposition—and its entire company—to seize the opportunities presented by digital technologies.

Philips is offering integrated healthcare solutions utilizing the capabilities of digital technologies, with a goal of improving the lives of three billion people per year by 2025.

Royal Philips, a company long known for innovation, has boldly defined a digital vision focusing its innovation on creating a healthier world.[foot]This research briefing is based on the case study of Philips’s digital transformation by M. Mocker and J.W Ross, “Transforming Royal Philips to Reinvent Healthcare in the Digital Age,” MIT Sloan CISR Working Paper No. 425, December 2017.[/foot] Philips has divested product lines that do not support this vision (e.g., audio/video, lighting) and expanded offerings related to the company’s established line of medical equipment (including MRI and CT scanners and X-ray systems), clinical software, and personal devices (e.g., thermometers, sleep apnea masks).

Inspired by how technology can enable a healthier world, Philips is now offering integrated healthcare solutions utilizing the capabilities of digital technologies, with a goal of improving the lives of three billion people per year by 2025. To achieve that goal, the company is developing digital offerings that support healthcare providers and individuals along a healthcare continuum, from healthy living and prevention through diagnosis, treatment, and home care.

For example, in the consumer space, Philips’s uGrow solution provides new parents a detailed picture of how their baby is developing, produced from data culled from a range of connected devices such as thermometers, scales, baby bottles, and baby monitors. The solution—a “maternity nurse in your pocket”—will eventually suggest when to seek help from a healthcare professional.

In the clinical space, Philips’s IntelliSpace Oncology and IntelliSpace Cardiovascular offerings integrate patient data (such as lab and radiology results) with scientific findings into briefings designed to inform doctors’ diagnoses. Physicians typically have little time to analyze what is often massive amounts of individual patient data (such as lab and radiology results) when diagnosing a case. To support physicians’ efforts, Intellispace solutions identify important anomalies and changes in a patient’s condition (e.g., a growing tumor, a new issue with a blood vessel) and help in recommending optimal therapies. Testing the new Intellispace algorithms on past cases revealed that, in 20 percent of the cases, doctors had recommended suboptimal treatment. Philips expects that use of these solutions will literally save even more lives than previous approaches.

In the hospital space, Philips has developed eICU, a solution combining bedside monitors and analytics software that provides centralized, remote oversight of intensive care units. This solution helps ICU doctors and nurses to prioritize urgent care cases and identify candidates for ICU release.

Of course, converting an innovative product company into an integrated healthcare solutions provider demands a fundamental business transformation.

[W]e need to manage the company much more as an integrated operating company, rather than a portfolio company. And that means from strategy to performance management to culture and behavior, it all needs to be more integrated, which is hard work.
FRANS VAN HOUTEN, CHIEF EXECUTIVE OFFICER

We identified four major steps in Philips’s transformation journey (see figure 1) that we believe are characteristic of the digital transformations of established companies.

Figure 1: The Digital Transformation Journay

DIGITIZING THE BUSINESS

When Frans van Houten became CEO of Philips in April 2011, he found that the company’s emphasis on product innovation had led to a proliferation of product variety, which resulted in non-value-adding complexity in processes and systems. Van Houten led a business transformation that involved standardizing three core processes: idea-to-market, for bringing a concept to market and managing the product lifecycle; market-to-order, around marketing and selling the product; and order-to-cash, related to fulfilling and distributing orders, invoicing, and handling payments. MIT CISR refers to this kind of transformation as the digitization of operations.

To support the process standardization, the company de- signed Philips Integrated Landscape (PIL), a new greenfield IT backbone that relies heavily on enterprise systems like SAP and Salesforce.com. Included in PIL is an “information factory” data platform that provides access to enterprise custom- er and product master data.

The implementation of PIL systems and standardized processes related to order-to-cash are still in progress, but Philips already has enough of an operational backbone to allow the company to develop and support digital offerings.

EXPERIMENTING WITH DIGITAL TECHNOLOGIES

Philips’s digitization was an early step in the company’s transformation to a digital healthcare company. In late 2014, Philips began experimenting with using digital technologies to enhance its product offerings.

For example, Philips began to experiment with analytics and artificial intelligence to help professional caregivers interpret X-rays results. The company also developed several apps with increasing functionality to enable individuals to track results from use of personal devices like sleep apnea masks and electric toothbrushes.

These initial applications of digital technologies allowed the company to find ways to provide more value to customers through the connectivity, mobility, and insights that digital technologies make possible.

BUILDING AND LEVERAGING DIGITAL PLATFORMS

Although digitally enabled products found a market, Philips’s digital strategy called for developing integrated customer solutions. To enable delivery of a broad portfolio of solutions, Philips is building out several platforms consisting of API-enabled technical and business services, including the Health- Suite Digital Platform (HSDP) and Connected Digital Platforms and Propositions (CDP2). HSDP, which runs on the Amazon Web Services (AWS) cloud platform, provides connectivity, authorization, storage, and other basic infrastructure services.[foot]For an overview of service types offered on HSDP, see the Catalog in the Philips HealthSuite Client Portal.[/foot]

CDP2, which is built on HSDP, provides a repository of reusable services for common business requirements like registering a new device or authorizing a new user. When a new offering is proposed, architects distinguish services that are likely to be unique from those fulfilling common needs, which should be built for reuse.

You have to think far in advance architecturally of what are you trying to build, why are you trying to build it, and how it will evolve, so you can make the right architectural decisions for software and hard- ware, for interface designs, and for backend designs.
LIAT BEN-ZUR, SENIOR VICE PRESIDENT, CONNECTED DIGITAL PLATFORMS AND PROPOSITIONS

The continuous development of new, reusable components is starting to accelerate delivery of new solutions. CDP2 was supporting eighteen digital offerings in mid-2017, up from just four in 2015. Philips expects to have thirty-one offerings by the end of 2017.

REDESIGNING THE COMPANY TO DELIVER DIGITAL OFFERINGS

Philips’s digital vision has generated an abundance of ideas for digital offerings, all of which potentially provide integrated solutions for a healthier world. The executive team re- views ideas and tries to direct resources to proposals that are most likely to lead to development of reusable components. The choice, however, is not always obvious. To improve the odds that a new offering will satisfy customers’ needs and provide a new stream of revenues, Philips is redesigning the company, particularly with respect to product development, marketing, and sales.

The classical process where the [product line] business develops something, then they throw it over the fence, and then the sales force sells it, that doesn’t work anymore. . . The classical boundaries of a development process are challenged, and new opportunities arise.
CARLA KRIWET, EXECUTIVE VICE PRESIDENT AND CHIEF BUSINESS LEADER, CONNECTED CARE AND HEALTH INFORMATICS

Philips ensures value to customers by engaging them in co-creating solutions. Interactions start early in the product development lifecycle. This has led to new responsibilities for account executives, who find themselves engaged in identifying potential solutions.

Account executives engage with their customer on their needs, their pains. It's a whole cycle of getting to what is really keeping them awake at night. It is building that trust and rapport. That is a big task.
WALTER VAN KUIJEN, MARKET SOLUTIONS LEADER

Philips’s salespeople in particular are being affected by the company’s switch to digital offerings. Although in 2016 around seventy percent of company revenues still came from selling traditional products and services, Philips’s salespeople are increasingly selling new digital, integrated solutions. Compared to sales of products, selling solutions requires salespeople to engage with a more diverse group of more senior leaders in order to identify how Philips can help address healthcare needs.

In addition, Philips has introduced new roles for engaging with customers—particularly healthcare organizations—to help them articulate issues and design solutions around them, rather than to just request traditional products and services. For example, the company’s growing group of Healthcare Transformation Services consultants helps customers improve patient journeys and deliver care more effectively.

And to help healthcare organizations attack some of their most complex healthcare problems, Philips offers HealthSuite Labs: standalone, fee-based multi-week engagements including multi-day workshops, intended to help existing and potential customers articulate a vision for change and an approach to fulfilling that vision. HealthSuite Labs sessions assemble a cross-functional group of leaders from Philips and a healthcare client and, in many cases, that client’s stakeholders, such as insurance companies or government leaders. Lab sessions incorporate practices from design thinking and agile development as part of a structured methodology for co-creating integrated solutions in order to improve the way care is provided.

Philips expects to continue evolving its structures, roles, and processes as issues and opportunities emerge.

DIGITAL TRANSFORMATION IS A LONG JOURNEY

In 2017, Philips’s share price was at a fifteen-year high, and revenues and EBITA of the HealthTech business were growing.[foot]Royal Philips, Third Quarter 2017 Results, October 23, 2017, p.23, from the Philips website. Yet like every company we’ve studied, Philips is in the early stages of its digital transformation.

As shown in figure 1, digital transformations for established companies are likely to be long journeys. To deliver a digital value proposition, companies must:

  1. Ensure that they are digitized for operational excellence
  2. Experiment to learn what digital technologies can do that customers will find valuable
  3. Build technical and business platforms to support digital offerings
  4. Redesign their organization to deliver a growing and consistently enhanced portfolio of digital offerings

Of course, this journey is not linear. Architecting for rapid innovation involves enabling continuous adoption of new enterprise processes, experiments with new technologies, and development of new platform services. By embracing constant change, companies can zero in on their targeted value proposition.

© 2018 MIT Sloan Center for Information Systems Research, Ross, Mocker, and van Zoelen. MIT CISR Research Briefings are published monthly to update the center's patrons and sponsors on current research projects.
 

About the Authors

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Jeanne W. Ross, Principal Research Scientist, MIT Sloan Center for Information Systems Research (CISR)

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Martin Mocker, Research Affiliate, MIT Sloan Center for Information Systems Research (CISR)

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Edgar van Zoelen, Global Head of HealthSuite Labs and Ecosystem Management Royal Philips

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