Philips is undergoing a major digital transformation strategy to stave off the risk of it “becoming irrelevant” – a challenge all businesses which refuse to adapt to today’s technology-driven landscape will face, according to its head of digital innovation Alberto Prado.
Speaking at FT Innovate in London this week Prado revealed that Phillips recognised that consumers’ changing behaviours were on course to disrupt its business model two years ago, and has since launched a digital innovation programme which has led to the roll out of multiple connected product lines, including its smart light bulb range Hue (pictured).
“We needed to identify disruption early enough to do something with it…There is something happening here that is fundamentally challenging the innovation paradigm and that is that consumers want and demand personalised experiences.
“They want to achieve goals – they don’t want tools but a target; they don’t want a hammer, they want a picture on their walls, and digital technologies can help us achieve this.”
He referred to hardware devices, such as shavers or air purifiers as “generic experiences” that don’t connect consumers with the brand in the right ways.
“We need to understand how to put brains into these products so they become smart, and can provide personalised experiences, that can be relevant for individuals, really change how people connect to things.”
He drew on lessons learned by Phillips while undergoing its own digital transformation, and outlined four major areas in which organisations still grappling with adapting, should follow, which have been summarised below.
- Get buy-in from all the layers of the organisation
"That may sound trivial but it’s not. When people talk about digital they don’t always refer to the same thing – the understanding of digital within companies is very spotty. And typically people at the bottom of the organisation better understand digital than those at the top. However, this kind of transformation needs to be triggered at the top.
“So how do you combine it all? Well digital is much bigger than just sales and marketing. It will not only change the way you can and need to engage with consumers; how you monetise that relationship; pricing; supply; manufacturing – digital heats up the core of your DNA as a company. And in order to define what it is as a company you want to become, as part of this digital transformation, you need a clear articulated vision, and that then needs to be clearly communicated. But you need to have a journey map – to understand how you can, from today, achieve that vision and set out KPIs to highlight what progress you are making on that transformation journey.
"And that vision may also change – it’s not about predicting the future becuase no one can, it’s about being able to adapt. Once you have that plan and vision it's about communication communication communication. Digital does not come on top of what you do it comes instead of what you do, therefore everyone needs to understand how they can contribute to this journey."
- Ensure you have what it takes to attract the right kind of talent, and new skills that you need
"One of the challenges when you start on this journey is at some point you realise you need new skills. And when I say new skills I mean creative technologists, corporate entrepreneurs, software developers, data scientists – you name it – we now we need them.
"And we are realising we are not the only ones – we are competing for talent against the big companies and the starts-ups too that are getting venture capital money – and we need to be able to attract these people.
"At Philips we realised the reason people joined the company years ago is not the same as their reasons would be now. So we need to understand what our story is, and our value proposition in order to encourage these people to come to us with those skills. These people are also technically a younger age – often referred to as millennials and they have different expectations of companies so we must ask ourselves – do we have the right things in place to attract these people. Can we create an environment in which they can flourish?
- Take a start-up approach to innovation
"Philips has always been a hardware-centric organisation, and the hardware creation process tends to be what we call ‘waterfall driven’ – a sequence of activities and a high level of predictability and certainty about outcome.
"The processes have been optimised for a large number of years, and waste is bad and failure even worse. The compensation mechanisms for the people who sit across that are geared towards you not failing, but towards reducing waste and hitting a faster time to market with a cheaper product. But digital innovation is 180 degrees the other way.
"Failure is the measure of progress. If you fail fast and early then you will be able to succeed faster. Digital innovation is about speed and is a totally different way of innovating and co-creating with consumers on products – much of which occurs after the product has come to market. So try to iterate fast and fail fast – and if you need to fail, then fail cheap. You can use it [failure] as a sign of progress, and that is a better place to be than trying to stigmatise it.”
- Adopt new business models - if you don’t someone else will and you will be disrupted, and you will have become irrelevant
"We have a very simple, straightforward business model at Philips. We send boxes and get money in return – it’s a very transactional model. The relationship we establish with consumers is very one off. We of course try and do a bit of engagement via digital channels and influence purchase decisions, but when it comes to product experience we don’t know how customers interact with our products – how could we?
"The products are not connected – we don’t even know if they are using them right, until they call customer service to complain and that’s not good. Digital is opening up new engagement opportunities up, and new ways to monetise those opportunities.
"We are still in the process of trying to figure this out. A lot of our existing structure is geared toward a transactional model and we want to look more to value. So explore new business models because if you don’t someone else will, and you will be disrupted...and you will have become irrelevant."