Speech by Frans van Houten at Erasmus University, opening of the academic year, 5 September 2011: "Innovation as a driver for change"


Spoken word takes precedence

September 5, 2011

Good afternoon, Ladies and Gentlemen,


As you may know, I have a special bond with Rotterdam and the Erasmus University. About 30 years ago I studied business economics on this campus, of which I have very good memories. I also think back with pleasure to the various jobs that I was able to do alongside my studies in the industry of Rotterdam. As a student assistant I even gave mathematics tutorials at the Erasmus University to first-year economics students. And I enjoyed my time as a member of the Rotterdam Undergraduates Association.

 

Now I am here again many years later… In the intervening period an incredible amount has changed. In Rotterdam, at the Erasmus University, and at Philips. And these transformations have not ended. On the contrary. The whole world is changing at an ever-higher tempo. You are familiar with the words that sum it all up: globalization and emerging markets; ageing of the population and migration; digitalization, the Internet and the role of social media.

 

Whether we experience changes as something pleasant or something painful, we cannot hold them back. The world does not have its own ‘Stop’ or ‘Restart’ button. Today I would like to share with you my vision of how we can shape our future through constant renewal, how we can be the subjects rather than the objects of history. In doing so, I shall first look at innovation and renewal at Philips. I shall then give you my thoughts on the necessary renewal of Europe, the Netherlands and our universities.


Renewing Philips

 

In industry it is no longer possible for companies to live on past glories. In only a few years Google powered past Microsoft and Apple powered past Nokia. We live in a 24/7 world in which competitive advantages can soon be lost. And Philips has to contend everywhere with fast, aggressive competitors, not least the new players from Asia who are challenging the world.

 

The market, the wishes of the customer, competition – all these things are changing at breakneck speed. In a world like this you have to seek to gain an advantage through renewal and innovation. It starts with an original product that meets the user needs. A good product requires advanced technology, top design and strategic intellectual property. If you do not have advanced engineering skills in-house, you cannot make quality products. At Philips we are proud of our strength as inventors and designers and I wish to further reinforce that.

 

At the same time we are aware at Philips that technology and design alone are not sufficient.  ‘Innovation’ is more than ‘invention’. An invention only becomes an innovation when you can sell it successfully. Your business model, marketing, the sales channels, your internal organization – all these things have to be right. And you have to be faster and better than your competitors. Only then you can create value through innovation. An innovative company not only has to innovate successfully but it also has to continue re-inventing itself.

 

Innovation is the core business that Philips stands for.  It is our ambition to make Philips a winner through innovation. That ambition is realistic, because Philips has huge potential: the innovativeness of our researchers and designers; the strength of our brand; our global presence and access to sales channels; our key products and the dedication of all our people. To benefit from this potential, Philips is now increasing its R&D budget, despite the economic headwinds. But what is even more important: I want to make our investments in innovation much more effective.
 
Our product portfolio responds to important global trends such as the ageing of the population, sustainable energy solutions and the desire for an increasingly healthy lifestyle. We have chosen to focus on new growth markets: healthcare, energy-efficient lighting and consumer lifestyle. We have, therefore, a good starting point and big potential, but that is not enough; you have to be fast and you have to execute your strategy consequently and ambitiously. 

 

Compare it with a session of simultaneous chess. We have chosen the right boards. But in order to win our matches, we have to make a lot of good moves very quickly, because in simultaneous chess you don’t have much time to think. What matters now is effectiveness in the company’s whole value chain, and the correct and fast execution of the strategy. And this is where the problem lies. Greater daring, speed and entrepreneurial spirit are needed.

 

How are we going to improve and speed up this effectiveness and the execution of strategy at Philips?  By adapting our culture and organization as quickly as possible to the requirements of the present. We are an organization with more than 70 businesses operating in more than 100 countries. In our vision we are a diversified company with dynamically operating businesses that are attentive to the wishes of their local markets and have different business models. Since I was appointed CEO of Philips I have started a radical internal renewal with the ‘Accelerate!’ program. First of all this program is intended to change the culture at Philips. Our employees have to feel strong enough to take individual responsibility and take quick action. They have to be prepared to act more as entrepreneurs. We have some good examples of this. At Consumer Lifestyle we have increased sales of docking stations for MP3 players and mobile phones from zero to more than 100 million euros in two years. That was only possible because of the initiative of a small group of people who saw and seized an opportunity. Healthcare in Best successfully launched the technology known as Image Guided Intervention, which makes heart operations much simpler and safer. At Lighting we focus on LED lighting. And of course I would like to see many more such entrepreneurial examples and clear choices.

 

We are also going to devote much more attention to the specific needs of local markets to stimulate local entrepreneurship. That can only be done by giving local people the scope to respond to those local needs and influence worldwide product policy. In Brazil they prepare coffee in a different way than in the Netherlands. And hospitals in China have different needs than those in the United States. One size does NOT fit all. Our Healthcare business in China, for example, increased 25% in sales per year, as a result from more local operational freedom.  We should not think that we at the centre know everything better.

 

In addition, we are going to invest more, and will not be afraid to focus on markets and products where we see new opportunities. We call this ‘Resource to win’ which means that if we really want to win in the market, we have to be prepared to deploy sufficient resources. You could also call it putting your money where your mouth is. And if that means that the results of a business unit come under pressure in the short term, then so be it. Lasting success calls for persistence.

 

Last but not least, we want a culture of transparency and accountability. If a decision turns out wrong – and that can happen sometimes, as it’s part of entrepreneurial activity – the person responsible has to provide information frankly and ask for support. Then, where necessary, we can quickly adjust the strategy or tactics. As senior executives we need to keep our finger on the pulse and be absolutely meticulous. I want to know not only what the figures are for sales of LED luminaires in Europe. I want to know in which countries sales are going up and in which countries they are not. Then we can take support measures to ensure that those who are lagging behind also perform well.

 

With the Accelerate program we can renew Philips and give it the impulse to innovate successfully. But it is not only Philips that needs this. The present situation also calls for a new push for entrepreneurship and innovation in the Netherlands and Europe. And … that also applies to our universities.


Universities

 

Universities like the Erasmus have had to adapt considerably since I studied here. One only has to think of the huge increase in the number of students, the changing content of subject areas, new rules for financing, and increasing international academic competition.

 

Individual universities need to specialize even more in their areas of strength and seek to excel internationally in those areas. The Netherlands has universities that can stand out. But to do so, each individual university has to make clear choices. We can only be powerful if we get rid of unnecessary overlaps and inefficiencies. The competition is not between Delft and Eindhoven, between Rotterdam and Tilburg; the real competition is between our universities and those in the rest of the world.

 

The present age also calls for close collaboration between universities and companies. Nowadays, innovation is not something that you can do on your own, but in an ecosystem in which several companies, government authorities and R&D institutions work closely together and in which you involve the users in your efforts right from the beginning.

 

At Philips we are working together on research programs with a lot of universities, particularly in the field of Healthcare. In the Netherlands we have a wide choice of academic partners. For example, Philips was one of the architects of CTMM, the Center for Translational Molecular Medicine, in which companies and universities work together with the support of the Dutch government. With the University of Utrecht we have made breakthroughs in cancer research in a joint research project; while the Free University of Amsterdam and Philips are collaborating in the field of nuclear medicine.

 

We are working together with the Erasmus Medical Center in projects in interventional radiology, oncology, cardiology and gynecology. This year we have also made the acquaintance of Medical Delta, an alliance in the field of biomedical technology between universities, university hospitals and local governments in Rotterdam, Delft and Leiden. Our first experiences were very positive and we are now holding intensive talks with Medical Delta on the joint development of catheter-based diagnostic and treatment techniques and on minimally invasive surgery. I sincerely hope that the cooperation between Philips and Medical Delta will move forward and lead to important innovations. 

We want to go a long way. In China we are even doing joint product concept development with universities, for instance for the effective washing and cleaning of vegetables – something of great relevance in view of the concerns regarding chemical pollution in China. This kind of cooperation can also take place outside China if universities are prepared to build the bridge between theory and practice and also to participate in applied research. This also requires universities to show more entrepreneurial spirit.

 

Europe and the role of the Netherlands

 

Regions and countries also have to be able to renew themselves radically. Europe offers an excellent example of how necessary and difficult that can be. Europe has now been re-inventing itself for sixty years, time after time, in the European Union. The Euro countries are now trying to transform their still young monetary union. That is no easy matter. Individual countries, including the Netherlands, are reluctant to give up their national powers. But we know that the interests of all Europeans will suffer if each individual country only seeks to protect its own national interests in pursue of only the positive, economic benefits, which we also in this country often take for granted.

 

Europe is extremely important for the Netherlands, now and in the future. Every year, approximately three quarters of our exports go to Europe, of which a significant portion goes to the southern Europe. The total exports to South European countries, which now are under financial pressure, amounts to more than our annual exports to Brazil, Russia, India and China together. Problems in Europe will therefore also drastically affect our prosperity and wellbeing. Instead of focusing on ourselves, we have to again show leadership in strengthening the European Union and the prominent role of European Commission. Let’s not forget that the Netherlands was one of the hands rocking Europe’s cradle. It is important to act decisively in order for Europe to take the needed steps towards greater financial discipline. 

 

Of course it can be painful to let go of acquisitions or wisdom gained from the past in order to pool sovereignty at a higher, European level. We are all attached to our history, and you can draw strength from that. But we should use our historical pride and roots as a springboard to the future, not as a straightjacket that hinders us in modernizing and seizing opportunities. Those who, against their better judgment, try to hold on to yesterday’s certainties and rights will irretrievably miss tomorrow’s opportunities. Change is necessary, therefore, particularly for Europe. Status Quo is not an option; we now have to opt for a stronger euro zone, with greater monetary, fiscal and economic integration, and with fair, enforceable agreements between the member-states. Let’s make sure Europe is not consumed by the current crisis, but make sure Europe renews itself administratively and economically to boost entrepreneurship and innovation, where European leaders, companies and universities join forces and work even closer together.

 

At the same time Asia is rapidly growing and is ambitious. We can profit from the example of the efforts of many Asian countries to strengthen their economy, their businesses and their investments in research and technical education. In Europe, we said already ten years ago in the Lisbon agenda that we ought to be investing more in R&D. We are still not doing that. Let the government, especially at a time of a crisis, take the lead in supporting innovation and new technology. Not only through research, subsidies or tax breaks. The government can also contribute to stimulating the market by being the first biggest customer of innovative products. This is already happening far better in the U.S. and China than in Europe. The government could also cut significantly its spending through targeted investments in innovation, such as in healthcare and street lighting. In other words, investing as a means of getting out of the crisis.

 

I am definitely not a merchant of doom – on the contrary! The rise of Asia can represent a win-win situation for Europe, but then we really have to wake up. We are making far too little progress in Europe with making the labour market more flexible, with promoting scientific and technical talent, with stimulating entrepreneurship and innovation, with reducing bureaucracy and with increasing the amount of venture capital.

 

That also applies to the Netherlands. We too often postpone painful but necessary social and economic interventions. We do not fully realize how the rest of the world is changing and what kind of impact this has on us. In an international economy like the Netherlands, we also need to look beyond our borders. Due to a lack of vision and leadership, there is a danger of thriving on populism and turning inwards. Take the idea that we can solve everything ourselves in our fine little country and that we don’t need any busybodies from Brussels. That sounds tempting, but of course it is an absolute non-starter. Introspection and hostility to Europe will not make the Netherlands one bit more competitive, on the contrary. Instead of that, the Netherlands should be seriously pushing the European agenda. And let us take those tough decisions; let us cherish our own talent and invite foreign talent to come here; let us not put our social and economic stability at risk; and let us promote entrepreneurship and innovation.


Conclusions

 

Ladies and gentlemen, I will conclude. Whether it is about companies, countries and universities, re-inventing ourselves is our challenge. If we want to keep apace with the changes around us, we must dare to transform ourselves. Those who do, can benefit from the change. Those who do not, will face a hard time. I wish all directors and teachers of Erasmus the best of luck and strength on their journey.

 

Finally, to all the students who this week are starting a new academic year I would like to give this advice: be prepared to change and look beyond the boundaries of your present, comfortable world. You too are being challenged. Realise that you are in a new world where you need to work hard for success. So invest in your capabilities. Seek challenges, as we need new knowledge for creating a sustainable world. Be an ally of the future by being entrepreneurial and innovative. At the same time learn to cooperate loyally, because that is essential in achieving success. By being open to change and seizing opportunities, you can take your destiny into your own hands. I wish all of you every success.

 

Thank you for your attention.


Click here to read the Dutch version of the speech