Page 2: Benchmarking performance
Jan Timmer called the top 100 managers of the company together for the first time, which included the Board of Management, Product Division and Country Managers. They decided to benchmark the performance of Philips against their competitors. This involves comparing key indicators against those of other organisations. They were forced to conclude that drastic changes were required as Philips’ performance did not measure up to the competition. Three main steps were initiated:
- Restructuring and cost-cutting. The first and most painful step was to do more work with fewer people. Changes were to reduce the number of staff by around 15%, roughly 45,000 people. The changes also involved product rationalisation. The company was simply involved in too many product areas and the business justification for this was weak.
- Creating a movement for change - the Centurion programme. There was a need for a fundamental change to the way the business did things in order to get a reasonable return on capital employed. At the heart of this was a return to the basic principles of cost management which involved making products which customers wanted to buy and earning a margin. There was also a need to increase the accountability of individual business units. At the same time it was important that individuals should become aware of customer needs and then recognise the need to achieve world-class performance. Throughout this period the establishment of benchmarks helped to identify and sharpen activities so as to achieve this. ‘Operation Centurion’ led to the creation of a smaller business with more focused activities, its central theme though was to influence the way Philips was managed. New styles and attitudes to management were needed.
- Implementing change. Change projects were developed at all levels from corporate-wide task forces at the top of the organisation down to local change projects on the shop floor. For example, company-wide task forces introduced ‘Customer First,’ aimed to make staff aware that customers’ needs are the number one priority and this led to many initiatives, including ‘Customer Day.’ Local projects included reducing the backlog of orders.
The top 100 managers of the company continued the process by holding discussions and decision-making meetings with managers at the next levels (Centurion II and III) until thousands of managers were involved in a worldwide cascade of meetings.
At ground level within the organisation this then translated into “town meetings” eg: meetings between everyone in a particular unit. The heart of these meetings was the two way communication process (up and down). All employees were asked to raise challenging questions, to express their opinions and make suggestions. Managers gave information, answered questions and made decisions - on the spot.