IT revamp will help Philips £1.2bn cost reduction target following ‘challenging’ 2014

Philips’ net profits suffered a blow last year, but the manufacturer is pinning its hopes on its streamlined IT landscape to support cost savings of over a billion by next year.


Philips’ net profits suffered a blow last year, but the manufacturer is pinning its hopes on its streamlined IT landscape to support cost savings of over a billion by next year.

Describing 2014 as “a challenging year for Philips”, chief executive Frans van Houten diverted attention from profit doom and gloom to Philips' ongoing digital strategy and cost reduction program, which is underpinned by its IT overhaul, in this morning's financial update.

The restructuring of the firm's global IT has been in the pipeline since 2012, when it signed a deal with Cognizant to help rationalise its sprawling estate.

Now, Philips is putting its efforts into splitting its most valuable channels, healthcare and lighting, into two separate companies; both of which will be based on ‘lean’ principles to be rolled out across its global quarters. A refined IT landscape is vital to transform its 70 different business models into four recyclable processes, Philips said.

But in this morning’s presentation, Philips made clear that this transformation is ongoing. It mentioned plans to roll out a new, integrated IT landscape, but did not state when.

It added that “investments are being made to standardise processes, data and new IT backbone” as well as funding to support a “culture for such a major change.”

Despite this, Philips promised a one percent productivity boost bolstered by an improved customer relationship management system and digital investments.

Philips, predominantly an SAP shop, uses several instances of including its Service and Marketing Cloud and last year teamed up with the cloud-based CRM vendor to develop an online patient record platform. In 2010 it signed a deal with T Mobile subsidary T Systems to take over its data centres and run its SAP service desk. 

In a blog on BT's website last year, Philip's technology transformation vice president Alan Nance said that the entire firm was preparing to move its IT services, storage, compute, security, analytics, connected devices, cross-supplier service management and high-volume transport to a SaaS model. He cited 14 different SAP systems with 65,000 work instructions across the firm. 

In this morning's results the firm said that restructuring across the organisation, including IT, would bring 1.6 billion (£1.2 billion) in savings by next year.

It added that it will “continue to transform finance, HR and IT to increase productivity and effectiveness.”


Chief executive Van Houten highlighted a new software development methodology which allowed a healthcare technology team to increase its number of releases four-fold within a year. This allowed the health informatics team to introduce a record number of products at the 2014 Radiology Society of North America meeting - a crucial sales spot.  

Lean manufacturing

Philips Consumer Lifestyle team - the division which focuses on toothbrushes and vanity products- ran Kaizen events (a lean continuous improvement process) in its Austrian manufacturing site. This contributed to an 82 percent reduction in lead time and an increase in quality levels, Philips said.

Increase in IT staff

Temporary workers in IT service units helped boost Philips employee levels by 1,150 in comparison to Q4 in 2013.

Image credit: ©Philips 

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