In the late 1990s, Philips confronted a greater challenge than ever before: the company had to reinvent itself. In the second part of a trilogy, Studio040 examines the bureaucracy within Philips and the part it played in the emergence of the disastrous sleep apnoea affair. ‘It had long been known at the top of the company that those devices were inadequate,’ he says.
According to interviews conducted by Studio040 with those well-versed in the company, Philips is less and less the firm that enabled Eindhoven to grow into the technological hotspot it is today. The Eindhoven-based company now mainly makes headlines with new announcements of reorganisations and problems with the FDA—the US Food and Drug Administration—over products that do not function as they should.
Layoffs
In February this year, Philips announced that it was cutting 90 jobs in the Netherlands, including positions in Best and Eindhoven. This news followed an announcement made six months earlier that 400 jobs would be eliminated in the Frisian town of Drachten.
Earlier, in early 2023, the company had revealed plans to cut 6,000 jobs globally—of which 1,100 were in the Netherlands. This came just a few months after October 2022, when Philips announced 800 job cuts in the Netherlands as part of a global reduction of 4,000 positions.
Over two years, Philips reduced its workforce in the Netherlands by 20 per cent, while worldwide job losses amounted to around 13 per cent. To put this in perspective: during the large-scale reorganisation known as Operation Centurion in the 1990s, about 16.5 per cent of jobs were lost, with 45,000 out of more than 300,000 employees being given notice.
Spaghetti
The gigantic bureaucracy that had to be done away with in the 1990s is still there at the company. “Boonstra said Philips was spaghetti and he wanted to turn it into asparagus. To transform the company from a big tangle of strands into a manageable number of streamlined divisions. It never succeeded, that much is clear, but it is much less spaghetti,” says Jan Post, who was a top executive at Philips for many years.
That picture is also confirmed by former employee Rens van Leeuwen, who worked at the company for 44 years and served on the works council for six years. “What keeps coming back is a far too thick management layer at the top. At Philips, there are 10 to 15 management layers between the shop floor and the top. If you want to manage 100,000 people and you have a maximum of 10 per manager then five management layers are enough.”
Brilliant Minds
‘If you want to report a problem to management, you’re told it’s someone else’s responsibility and passed from one manager to another,’ says Van Leeuwen. ‘Responsibilities are spread across far too many managers, so it’s unclear to them whether they have the authority to make a particular decision.’
‘As a result, a lot of good ideas from the shop floor end up being discarded. Philips is still able to attract brilliant people, but you have to give them meaningful work—and at the moment, that happens all too rarely. The real expertise is on the shop floor; as a manager, your job is to guide the output. If you never set foot in a lab, you’ll never truly understand electrical engineering.’
“A number of products and functions are placed outside the Netherlands. This has been the case for some time, Poland, Batam in Indonesia, China, India and if things don’t go well there, then people no longer know how the lines of communication are within the company and how to make contacts internationally. Then you have the distance barrier, language barrier, culture barrier, and the knowledge barrier,” Van Leeuwen continues.
‘But remarkably, this also plays out in the Netherlands,’ says Patrick Meerts of the FNV. “In Drachten the other day, they told me that so do not know what the organisation is like either. If your supervisor is in China or Indonesia, it’s all quite complicated. But an executive or a human resources department around the corner is past glory.”
Sleep apnoea
One of the problems that broke the company recently, the widely publicised sleep apnoea affair, is also related to this. The problems with sleep apnoea devices continued to simmer on within the company for a long time before effective action was taken.
‘The sleep apnoea problem was known much earlier,’ says Arjan Huizinga, who has been doing collective bargaining with Philips on behalf of the CNV union for more than a decade.
“If you let it fester too long, after a while you get a big pus. In my experience, they have hoped to keep it under wraps. This is not good for customer confidence. The claims world is not so big in the Netherlands but it is in the United States, where all kinds of lawyers pop up wanting money. Then the problem becomes very big and it takes years to recover from that. They should have responded to it proactively”,
Best
‘Within the development department in Best, the sleep apnoea affair was met with astonishment,’ Van Leeuwen indicates. “In Best, an incredible amount of money and time is spent on patient safety. Much of the development capacity is spent on meeting FDA requirements and the even more stringent MDR/IVDR, the European counterpart of the FDA.”
“There is a huge and influential Quality&Regulation department within Philips Best that is purely concerned with checking that all new developments, improvements and modifications are sufficiently tested according to FDA and MDR/IVDR regulations. Every developer is aware of this. In the Philips Best organisation, the sleep apnoea affair could never have arisen.”
“Philips made little mention of this, but the instructions for use of the apnoea devices said: “clean with washing-up liquid”. But Americans like to clean with ozone, which is very aggressive. Moreover, I personally think the FDA is also to blame. It could also have discovered this at the US facility where apnoea devices are developed. That’s what the whole FDA was set up for, to be able to trust that products coming onto the market can be used safely.”
Wrong acquisition
Jan Post thinks the affair is due to a wrong acquisition. “Philips bought the apnea device company in 2005 and there was a decent gross margin on this product. That’s why it was attractive to buy such a company, it was a gold mine.”
But the Philips management never managed to cash in on that goldmine, a problem that had broken the company before, Post outlines. “We don’t have great experiences with such acquisitions. We once bought Magnavox, an American television brand to gain a foothold in the United States. Americans are not the best manufacturers, there is a lot of brains and research, but production is not as good. That was also a problem then and again now.”
Post does not think the affair arose because of the company’s internal bureaucracy. “I think it was just a misguided acquisition. But it is not representative of the problems at today’s Philips. Illustrative, though? I find that hard to say. You buy a product, you misjudge the production quality, those things happen.”
Outsourcing
Another problem is that Philips outsources developments to suppliers, says Van Leeuwen. “For the development of the MRI scanner, at a certain point we had to have a special chip. Once, the company could make that itself but now we have to build knowledge together with a supplier so that not all knowledge is under Philips management anymore, NXP in this case.”
“There are very reliable and competent suppliers to Philips. Usually they are happy with development orders from Philips and usually they handle them well so that a win-win situation arises. But there always remains a risk, the same goes for the supplier by the way.”
‘High-level outsourcing is what they call it,’ says FNV’s Patrick Meers. “High-quality technology you can get another company to develop. Procurement Department will then calculate whether it is cheaper to have something developed yourself or by another company – so it is only about money. But that way, the knowledge you pay for is built up outside your own company. If that company, quits or goes bankrupt, you lose your knowledge. And those companies that are brought in often make a profit, while Philips sits bleeding.”
Source: Studio040
For Eindhoven News: Chaitali Sengupta
