Eindhoven University of Technology
MASTER
Assessing Philips Consumer Lifestyle's consumer-centricity
Kaufmann, T.F.
Award date: 2011
Link to publication
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• Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain Eindhoven, January 2011
Assessing Philips Consumer Lifestyle’s Consumer- Centricity
by
Togbor Ferdinand Kaufmann
BSc Industrial Engineering and Management Science — Eindhoven University of Technology 2009 Student identity number: 0559828
in partial fulfilment of the requirements for the degree of
Master of Science in Innovation Management
Supervisors: dr.ir. J. P. M. Wouters, TU/e S. Papamichalis, Philips Consumer Lifestyle dr. J. J. L. Schepers, TU/e R. Veugen, Philips Consumer Lifestyle TUE. School of Industrial Engineering. Series Master Theses Innovation Management
Subject headings: customer satisfaction, organization development, customer relationship marketing, marketing: case studies, consumer goods
2
Abstract
I. ABSTRACT This master graduation thesis examines the consumer-centricity in the case of Philips Consumer Lifestyle. On a strategic level, Philips Consumer Lifestyle is aiming to become more consumer-centric and expects that this will lead to a more valuable consumer experience. This study validates this approach by assessing both the development of Philips Consumer Lifestyle’s consumer-centricity and its consumer experience. For consumer- centricity, the domains: culture, structure, processes, and financial metrics are examined. For consumer experience, the official Philips Consumer Lifestyle metric: Net Promoter Score (NPS) is used. Finally, a link between consumer-centricity and consumer experience is made. While results suggest that Philips Consumer Lifestyle is becoming more consumer-centric, a clear indication that this development is paying off in a more valuable consumer experience could not be proven.
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Management Summery
II. MANAGEMENT SUMMERY This chapter presents a self-contained summery of the complete report. It is intended to highlight the main topics of the report and provide a short overview over the conducted study.
The study took place in the context of organizations shifting their focus from products to providing services. The organizations that make this shift are now trying to provide valuable services to their consumers instead of selling the “best” product. An approach to increase this perceived value is to provide personalized offerings. Providing offering on the individual consumer basis is called consumer orientation or consumer-centricity. To apply the consumer-centric approach, companies need detailed knowledge on their consumers. This enables them to identify consumer needs and to maximize the individual consumer’s perceived value. Given the advances in information technology, it has become possible for companies to collect a vast amount of information on consumers (Kumar A. , 2007). It is now also possible to collect this information and build up detailed knowledge for companies targeting a large number of consumers (Shah, Rust, Parasuraman, Staelin, & Day, 2006).
The shift from product-centricity, where the aim is to sell products, to consumer-centricity, where the aim is to deliver value to the consumer, is associated with organizational transformations (Sheth, Sisodia, & Sharma, 2000). According to Shah et al. (2006) the transformation is hampered by four organizational barriers: culture, structure, processes and financial metrics. The model by Shah et al. (2006) is the basis of this thesis.
Philips Consumer Lifestyle has made the strategic decision to become more consumer- centric. The problem of Philips CL is that there is currently no measure for consumer- centricity. It is therefore difficult to manage the transition. It has, in an addition, not been researched whether more consumer-centricity will lead to an improved perceived consumer experience. To solve these problems, two research questions were formulated. The main research question was phrased as:
How to measure the consumer-centricity of Philips CL?
The second problem was addressed as:
How to link consumer-centricity to consumer-experience?
To answer these questions a retrospective study was designed that measured the dimensions of consumer centricity for 2007 and 2009. For consumer experience, the scores of the at Philips Consumer Lifestyle used Net Promoter Score (NPS) metric were used. The intention was to develop a practical measure for dimensions of consumer-centricity, use the results to calculate an overall consumer-centricity score and relate this score to the consumer experience of Philips Consumer Lifestyle.
4
Management Summery
Using the model of Shah et al. (2006), four dimensions of consumer-centricity (culture, structure, processes and financial metrics) were defined.
To measure the organizational culture at Philips Consumer Lifestyle, the Competing Values Framework (CVF) by Cameron and Freeman (1991) was used as the theoretical background. This enabled the categorization of Philips Consumer Lifestyles organizational culture of as being internally or externally oriented. Using the Organizational Culture Assessment Instrument (OCAI) (Cameron & Quinn, 1999) was used. The degree of externally orientedness was taken as the degree of consumer-centricity.
The organizational structure was assessed using a model by Day (2006) that evaluates the structural alignment with the market in four steps. The model focuses on the consumer facing units of organizations. The focuses of the assessment of this dimension were therefore the Philips Consumer Lifestyle units: Direct Sales, Marketing Communication, Marketing Intelligence, Consumer Care and Sales Organization. The assessment was done using semi-structured interviews during which the interviewees commented on the situation in 2007 and 2009.
For the process domain, the value creation process, the multichannel integration process, and the information management process were assessed. No theoretical model was found that could be used to measure the consumer-centricity of Philips Consume Lifestyles processes. A 3-point scale that assesses each process on two dimensions was therefore developed. The scales measured whether Philips Consumer Lifestyle had: not partly or fully implemented a solution to a central issue of the processes consumer-centricity. The assessment was done the same way as that of the structure dimension.
The assessment of the financial metrics domain was based on two measures. According to Johnson and Schultz (2004), Philips Consumer Lifestyle should employ two consumer-centric key performance metrics (KPIs). The degree to which consumer-centric KPIs were used was the first measure. Second, a technique called “Disclosure Index” was used to assess the annual reports of Philips Consumer Lifestyle of 2007 and 2009. This language analysis led to a score that could be used as a second measure for the consumer–centricity of the financial dimension.
After standardizing the score, the following results were attained:
Consumer-centricity of the dimensions
Dimension 2007 2009 Culture 0.49 0.51 Structure 0.00 0.33 Process 0.33 0.42 Financial Metric 0.21 0.56
Due to the absence of a clear theoretical foundation of the calculation of a consumer- centricity score, score for consumer-centricity were calculated using five alternative models: 5
Management Summery an additive, a multiplicative, an exponential, a logarithmic, and a logistic model. This lead to the following results:
Consumer-centricity scores using alternative models
Consumer-Centricity Model 2007 2009 Additive 0.26 0.45 Multiplicative 0.00 0.04 Exponential 2.81 6.17 Logarithmic 0.71 1.04 Logistic 0.74 0.86
Due to data limitation, no clearly superior models could be derived. Considering the rule of parsimony, the additive model is preferable since it less complicated than others and the consumer-centricity score does not become zero if one dimension is assessed as zero, like with the multiplicative model.
A clear link between the calculated score for consumer-centricity and consumer experience could not be found. While regardless of the applied model, the consumer-centricity of Philips Consumer Lifestyle increases, the NPS scores decreased. It was expected that an increased consumer-centricity would lead to higher NPS scores. A possible explanation for this is the reorganization of Philips Consumer Lifestyle that took place in 2008. This reorganization might have lead to the found dip in NPS score from 2007 to 2008. From 2008 to 2009, the score increases.
The main managerial implication of this study is that especially advances in the information management process could facilitate the development in over areas as well and lead to higher consumer-centricity. Philips Consumer Lifestyle should develop a consumer database that enables the construction of complete consumer profiles. Using these profiles, it will be possible to provide services that are consistently fitted to the consumers, thereby providing higher value for the consumer. It will also be possible to measure the value of consumer using consume-centric metrics such as customer/consumer lifetime value (CLV). These metrics would enable Philips Consumer Lifestyle to focus on its most profitable consumers and attain a higher profitability.
This study has contributed to academic literature by providing an operationalization of the model by Shah et al. (2006). Using the for this thesis developed methods, it will be possible to apply the model in various setting and empirically test the theory. Further studies should validate the model by Shah et al. (2006) across industries and validate a model for the calculation of a consumer-centricity score. It should further be empirically validated more consumer-centricity leads to more valuable consumer experiences.
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Preface
III. PREFACE This report is the result of my master graduation thesis project at Eindhoven University of Technology (TU/e). After some initial problems with project cancellations I was given the opportunity to graduate at the marketing department of the TU/e. In the course of discussing possibilities for the project, I became interested in the topics: loyalty and servitization. These topics turned out to be a priority of Philips Consumer Lifestyle in the form of transforming from a product oriented to a consumer oriented company. I am therefore content that I was able to do this project at Philips Consumer Lifestyle. Throughout this study, I received a lot of support from the involved parties. At this point I want to thank the most influential people.
First of all, I would like to thank Sarah Papamichalis and Rogier Veugen, my supervisors at Philips Consumer Lifestyle, for their patience and support. They gave me the opportunity to do this project at Philips Consumer Lifestyle and brought me into contact with many people that contributed to this study.
I would also like to thank my supervisors at Eindhoven University of Technology, Joost Wouters and Jeroen Schepers. They provided me guidance throughout this project and their constructive feedback.
Last but not least, I also want to thank my family, friends and my girlfriend for their support.
Togbor Kaufmann Eindhoven, January 2011
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Table of Contents>
IV. TABLE OF CONTENTS
I. ABSTRACT...... 3
II. MANAGEMENT SUMMERY...... 4
III. PREFACE ...... 7
IV. TABLE OF CONTENTS ...... 8
1. INTRODUCTION ...... 10
2 ASSIGNMENT & PROBLEM FORMULATION ...... 12
2.1 Philips Consumer Lifestyle ...... 12
2.2 Problem Formulation ...... 13
2.3 Research questions ...... 14
3 METHODOLOGY...... 17
3.1 Research Method ...... 17
3.2 Data collection methods ...... 17
3.3 Measuring Consumer Experience...... 18
3.4 Measuring The Dimensions Of Consumer-Centricity ...... 20 3.4.1 Measuring Culture...... 20 3.4.2 Measuring Structure ...... 23 3.4.3 Measuring Processes ...... 24 3.4.4 Measuring Financial Metrics ...... 27
3.5 Modeling Consumer-Centricity & The Link To Consumer Experience ...... 29
4 RESULTS ...... 32
4.1 Consumer Experience ...... 32
4.2 Culture ...... 33
4.3 Structure...... 37
4.4 Processes ...... 38 4.4.1 The Value Creation Process ...... 38 4.4.2 The Multichannel Integration Process...... 39 8
Table of Contents>
4.4.3 The Information Management Process ...... 41 4.4.4 Summarizing the Process Domain ...... 42
4.5 Financial Metrics...... 43
4.6 Overall Consumer-Centricity & Conusmer Experience ...... 44
5 CONCLUSION ...... 48
5.1 Discussion ...... 48
5.2 Managerial Implications ...... 50
5.3 Theoretical Implications & Further Research ...... 50
5.4 Limitations ...... 51
6 REFERENCES...... 52
7 INDEX ...... 57
7.1 Table of Tables ...... 57
7.2 Table of Figures ...... 57
APPENDIX I. INTERVIEW LIST ...... 59
APPENDIX II. THE OCAI ...... 60
APPENDIX III. RESULTS OF THE OCAI ...... 62
APPENDIX IV. NPS QUESTIONNAIRE CURRENTLY USED IN PHILIPS ...... 65
APPENDIX V. GENERAL NPS STATISTICS ...... 66
APPENDIX VI. CALCULATIONS FOR WORDS IN ANNUAL REPORTS ...... 67
APPENDIX VII. CONSUMER-CENTRICITY DIMENSION SCORES ...... 68
APPENDIX VIII. SENSITIVITY ANALYSIS ...... 69
APPENDIX IX. VISION 2010 STRATEGIES ...... 75
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Introduction
1. INTRODUCTION This introduction will present the research topic of consumer orientation, introduce the study’s main concepts, and describe how this study contributes to the research topic. Subsequently, this report’s structure will shortly be outlined.
The context of this study is that manufacturers who were traditionally producing physical goods are currently facing decreasing competitive advantages through technology with associated cutbacks in product margins (Gebauer, Krempl, & Fleisch, 2008). At the same time, it was found that consumers increasingly demand personalized products and services (Kumar & Petersen, 2005). A key issue in realizing an increased profitability is consumer loyalty (Evanschitzky & Wunderlich, 2006). Consumer loyalty has been identified to be among the most important predicators of long-term profitability (Salegna & Goodwin, 2005). An approach for managing consumer loyalty is creating more value for consumers. Organizations are therefore trying to increase the individual consumer’s perceived value by creating personalized offerings. This approach has been called customer orientation, customer-centricity, or user centricity (Veryzer & de Mozota, 2005; Sheth, Sisodia, & Sharma, 2000; Kumar & Petersen, 2005). While the names vary, the central issue remains the creation of value for the customer (Shah, Rust, Parasuraman, Staelin, & Day, 2006). In this study, the approach will be called consumer-centricity. Deshpandé, Farley, and Webster, (1993), define the consumer-centric approach as: putting the consumer’s interest first while not excluding those of all other stakeholders in order to develop a long-term profitable organization.
The consumer-centric approach, with its focus on the creation of individual consumer value, is often contrasted against the so-called product-centric approach where the basic philosophy is to sell products for a mass market (Shah, Rust, Parasuraman, Staelin, & Day, 2006; Vargo & Lusch, 2004). Product-centric organizations focus on how to make better products and how to produce these products more efficiently. Especially advances in production techniques had enabled manufacturers to produce for various market segments (Sheth, Sisodia, & Sharma, 2000). To apply the consumer-centric approach, companies need detailed knowledge on their consumers. This enables them to identify consumer needs and to maximize the individual consumer’s perceived value. Given the advances in information technology, it has become possible for companies to collect a vast amount of information on consumers (Kumar A. , 2007). It is now also possible to collect this information and build up detailed knowledge for companies targeting a large number of consumers (Shah, Rust, Parasuraman, Staelin, & Day, 2006). For companies targeting a mass market, this means that they can shift the focus form fulfilling the needs of few customers (e.g. Wholesalers) to fulfilling needs of many consumers who use their products and services.
The shift from product-centricity, where the aim is to sell products, to consumer-centricity, where the aim is to deliver value to the consumer, is associated with organizational transformations (Sheth, Sisodia, & Sharma, 2000). According to Shah et al. (2006) the 10
Introduction transformation is hampered by four organizational barriers: culture, structure, processes and financial metrics. The model by Shah et al. (2006) is the basis of this thesis.
This study provides three academic and practical contributions. First, it contributes to the research topic of consumer-centricity by operationalizing the model of Shah et al (2006). Until now, the model by Shah et al (2006) had not been applied in practice. The theoretical effects could therefore not be empirically confirmed. Using the methods developed for this thesis, this is now possible. Second, an operational measure for consumer-centricity is developed. Consumer-centricity has often been contrasted against product-centricity, but there is limited knowledge of what consumer-centricity actually is and how it can be modelled. This study fills this gap by providing alternative models. Third, it is tested whether more consumer-centricity actually leads to a higher perceived value for the consumer. While it is frequently claimed that a more consumer-centric organization will be able to provide more perceived value to consumer (Shah, Rust, Parasuraman, Staelin, & Day, 2006; Frow & Payne, 2007), the link between both concepts has until now not been academically explored.
This report is structured as follows. First the situation of Philips Consumer Lifestyle and the problem it is facing will be described. Based on this description, the resulting research questions for this study will be discussed. Chapter three covers the methodology used to answer the research questions. Chapter four presents the results of the analysis. Finally, chapter five concludes this report by discussing the results and their managerial and theoretical implications.
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Assignment & Problem Formulation
2 ASSIGNMENT & PROBLEM FORMULATION This chapter will give a short overview over the current situation of Philips Consumer Lifestyle and the arising problem. Based on this problem definition, research questions will be developed and placed in a consistent research model. This chapter will close with a short description of the intended objectives of the study.
2.1 PHILIPS CONSUMER LIFESTYLE
Philips Consumer Lifestyle (Philips CL) is one of the three business sectors of Koninklijke Philips Electronics N.V. (Philips). In 2009, Philips realized a turnover of 23.2 billion € resulting in a profit of 424 million €. Philips had about 116.000 employees at that time. Due to financial considerations, in 2007, Philips announced the Vision 2010 strategy. The Vision 2010 formulated Philips’ mission as:
Improve the quality of people’s lives through timely introduction of meaningful innovations
The strategies that were announced to realize this mission can be found in Appendix IX.
As part of the Vision 2010, in 2008, the former sectors Philips Domestic Appliances & Personal Care (Philips DAP) and Philips Consumer Electronics (Philips CE) were merged into Philips CL. The mission of Philips CL is to cater to consumers’ needs in relation with health and wellbeing. The newly set up sector had approximately 18.400 employees in 2009 and achieved a turnover of 8.5 billion €.
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Assignment & Problem Formulation
Figure 2-1: Organogram of Philips CL in 2009
Chief Executive Officer
Sales Cluster Business Units Business Functions
Cluster Western BU Television Marketing Europe & North
Cluster Emerging BU Personal Care Supply Markets
BU Audio / Video & Innovation & Cluster International Multimedia Development
BU Domestic Design Appliances
Strategy & Business BU Health & Wellness Development
BU Accessories Finance
Human Resources
Philips CL’s organization is based on three pillars: Sales Cluster that home the Sales Organizations (SOs) and are the local representation of Philips CL, Business Units (BUs) that develop and manufacture the products and services to be sold via the SOs, and Business Functions (BFs) that support operations in the other pillars. This organization structure was devised to enable Philips CL to become more consumer-centric and realize its ambition of becoming a leading global brand in consumer lifestyle.
2.2 PROBLEM FORMULATION
Traditionally, Philips CL had focussed on the creation of highly innovative products. In recent years however, the margins realised through product sales are shrinking. This development was found to be mainly grounded in Asian competition that is entering the market with a high volume, low margin strategy. Philips CL did react to this challenge with a product- centric approach: to maintain high profit margins, it positioned itself as a quality brand asking for premium prices. Nonetheless, it is becoming increasingly difficult to retain the technological lead over the low priced competition, thereby justifying a premium price. A primary reason for this is the fact that both Philips CL and its competitors are sourcing from 13
Assignment & Problem Formulation the same original design manufacturers (ODMs). The situation is aggravated through the current economic crises where product sales in general are under pressure.
Since the above described product-centric reorientation is not expected to be successful in the long run, Philips CL is shifting the focus from product- to consumer-centricity. The consumer-centric reorientation is to create more value for consumers through a high quality consume experience. Due to a consumer experience’s complexity, is supposed to presents a unique solution for consumers that is hard to copy by competitors. It is further expected that this offer will enable Philips CL to ask for a premium price due to the higher perceived value for the consumer and create more revenue per consumer by having more loyal consumers.
The strategic decision to become more consumer-centric in order to create more valuable consumer experiences has been made. The implementation of the chosen strategy, however, remains to be a challenge. The problem of Philips CL is that there is currently no measure for consumer-centricity. This hampers the management of the transition form product- to consumer-centricity since it not clear which actions will lead to more consumer- centricity. By developing a measure for consumer-centricity that is based on the work of Shah et al. (2006), Philips CL expects to be able to facilitate the transition.
An additional problem for Philips CL is that while it is assumed that a more consumer-centric organization will lead to consumer experiences of higher value, this link has not been scientifically researched. To make this link, the both consumer-centricity and consumer experience have to be well understood. Philips CL operationalized consumer experience using the NPS methodology (Reichheld, 2003). Using the to be developed measure for consumer-centricity, it is believed that this link can be examined.
2.3 RESEARCH QUESTIONS
In the following paragraphs both terms customer and consumer are repeatedly used. The consumer is the user of the product or service, while the customer is the one who buys the product or service from Philips CL. This study is focused on the business-to-consumer (B2C) relationship of Philips CL. In Philips CL jargon, there is therefore talk of the consumer. However in literature, the term customer is more common. As many other academic studies, the proposed study will use the terms customer and consumer interchangeably (Parasuraman & Grewal, 2000). If the difference is made and customer and consumer are in fact different parties, this will be explicitly mentioned.
The first described problem lacks a measure for consumer-centricity. To the engage this problem, the following research question was formulated:
How to measure the consumer-centricity of Philips CL?
To answer this question, it has to be known:
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Assignment & Problem Formulation
1. What the dimensions of consumer-centricity are, 2. How the dimensions of consumer-centricity can be measured, and 3. What the relationship between the consumer-centricity and it dimensions is
A literature study revealed two suitable models that are suitable for the development of a measure for consumer-centricity (Galbraith, 2002; Shah, Rust, Parasuraman, Staelin, & Day, 2006). The already mentioned model by Shah et al. (2006), however, was found to be more based on empirical research and was therefore chosen as the basis for this thesis.
According to Shah et al. (2006), the transitions from Product- to consumer-centricity is governed influenced by four organizational barriers: culture, structure, processes, and financial metrics.
Figure 2-2: Organizational barriers hindering the transformation from product centricity to consumer- centricity (Shah, Rust, Parasuraman, Staelin, & Day, 2006)
Shah et al. (2006) state that these barriers can be shrunk by:
1. Leadership commitment 2. Organizational realignment 3. Systems & process support 4. Revised financial metrics
The underlying rationale of this model is that changes in the organization environment will be followed by employees’ behavioural changes (Raaij & Stoelhorst, 2008). This means that by changing the organizational environment (i.e. culture, structure, processes, and financial metrics) the organizations consumer-centricity can be influenced (Shah, Rust, Parasuraman, Staelin, & Day, 2006). The organizational barriers can therefore be used as dimensions for a consumer-centricity measure.
The first part of the above research question was therefore answered using theory. There is, however, only limited literature on the measurement of the defined dimensions of consumer-centricity and the nature of their relationship to consumer-centricity. Filling this
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Assignment & Problem Formulation gap is the main contribution of this thesis and the methods to do so will be discussed in the next chapter.
The second problem of Philips CL was addressed using the research question:
How to link consumer-centricity to consumer-experience?
The aim of consumer-centricity is, by definition, the delivery of value to the consumer (Shah, Rust, Parasuraman, Staelin, & Day, 2006). Since this value is delivered through a consumer experience (Diller, Shedroff, & Rhea, 2005; Vredenburg, 2003), the hypothesis that the consumer-centricity of a company affects its consumer experience is reasonable. The link between the dimensions of consumer-centricity and the consumer experience has, however, not been empirically explored.
Since more consumer-centricity is supposed to lead to more value for the consumer (Shah, Rust, Parasuraman, Staelin, & Day, 2006), it is hypothesized that more consumer-centricity leads to a more valuable consumer experience. To explore this hypothesis using theory, the relationship between the factors under examination should be widely explored. In this case, however, the link between the four dimensions of consumer-centricity and consumer experience lacks a strong empirical basis. A way to make this link is to measure the development of both consumer-centricity on the one hand and the development of the consumer experience on the other hand.
Philips CL made the decision to measure its consumer experience using an adjusted form of the Net Promoter Score (NPS) methodology. For a detailed description of the original NPS methodology please refer to Reichheld (2003). While being popular among practitioners, the NPS methodology has been criticized to be uncorrelated to the actual firm’s performance (Morgan & Rego, 2006). It has also been criticized for neither being linked to the firm’s financial performance nor future revenue growth (Keiningham, Cooil, Andreassen, & Aksoy, 2007). This study is, however, not based on a link between NPS and revenue growth. In this study, NPS is used as a gauge for consumer experience. No literature was found that questions the ability of NPS to gauge consumer experience, it was rather that academics applied the NPS methodology for this measurement (Frow & Payne, 2007). There is therefore no reason to reject NPS as a measure for the overall consumer experience.
Official releases of Philips CL’s NPS scores are being released since 2007. In total NPS scores are available for three years: 2007, 2008, and 2009. Due to the time constraints associated with a master’s thesis, it is not possible to study phenomena over a longer period of time. The alternative is to use historic data. Since NPS scores are available for the years 2007 to 2009, the examination of the dimensions of consumer-centricity should therefore also focus on this time frame. This implies a retrospective approach to answer this question.
The methods used to answer both research questions are described in the next chapter.
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Methodology
3 METHODOLOGY This chapter will describe the general setup of the conducted research. The chapter will start by presenting the basic methodological approach for the analysis. Subsequently, an overview of the data collection will be given. As a third step the methods used to answer the research questions will be presented.
3.1 RESEARCH METHOD
When the research object is broad and complex, interviews are the appropriate research method (Homburg, Workman, & Jensen, 2000). Barr (2004) states that: “qualitative research allows the researcher to add to the existing theory aspects that might have remained unnoticed using a quantitative approach”. Since the chosen topic of this research is broad, it was chosen to apply a qualitative approach.
As stated in the research questions, the time frame for the study is 2007 to 2009. When retrospective questions are not linked to the actions, interviewees experience difficulties to distinguish between situations (van der Vaart, 1996). In this study, interviewees are questioned on situations rather than their own actions. To enable the interviewees to make more accurate statements, the study is limited to two moments in time that are expected to bear the biggest discrepancies: 2007 and 2009.
3.2 DATA COLLECTION METHODS
Interviews were conducted in two waves. The first wave was used as an initial screening of the concept and to ensure that the intended result of the study is relevant for Philips CL. Afterwards, Interviews to answer the research questions were conducted. Two aspects bounded the interviewees’ level of seniority. First, Interviewees should have an overview over as many aspects as possible concerning the consumer experience. Second, since the research topic concerns the implementation of strategic choices interviewees should be close to the people executing the plans. It was therefore chosen to interview primarily Philips CL employees from senior to middle management. Interviewees were selected to represent a complete overview on parties involved in delivering the Philips CL consumer experience. This means that experts from all parts of the organization that have a touch point with the consumer were interviewed. The choice to not only interview experts on the four dimensions (culture, structure, processes, and financial metrics) was made because the essence of the concept is to enhance the creation and delivery of valuable consumer experiences on a global level. It is therefore reasonable to regard the model from the perspective of the consumer experience. A strict focus on the dimensions of consumer- centricity did therefore not provide a complete overview of the situation. All interviewees were asked about their assessment of the situation in 2009 and their retrospective assessment of the situation in 2007. In total, 27 interviews were conducted. Interviews 17
Methodology generally lasted one hour. A list of the interviewees can be found in Appendix I. When possible, interviews were recorded with the interviewees consent.
A second source of information is the company’s internal documentation on its policies and aims concerning the dimensions. Since “company documentation provides insights into the employee and group interpretations of organizational life and can help researchers to gather information that is not assessable through interviews or questionnaires”, (Cassell & Symon, 1994) this information was used to add to the information obtained through interviews. A second important function of documentation is its use to triangulate other collected data.
3.3 MEASURING CONSUMER EXPERIENCE
The value that addresses a consumer need is delivered through a consumer experience. According to Frow and Payne (2007) a consumer experience is the “user’s interpretation of his or her total interaction with the brand”. This implies a consistent delivery across all interactions (touchpoints) that should seamlessly interconnect and form an interconnected system of products and services. The consumer experiences should be coherent, consistent and complete (Fisk, 2009). In addition, the experience should be distinctive, relevant, and adding value at any touchpoint to the consumer. Diller, Shedroff, and Rhea (2005) show the facets of an integrated consumer experience:
Figure 3-1: Breadth of an integrated experience (Diller, Shedroff, & Rhea, 2005)
The facets: product, service, brand, channel, and promotion are commonly within the control of the experience providing organization. Organizations, however, have less control over: communication media, customer support, alliances, and retail presence.
Two important factors of the consumer experience are the product and the service. The shift towards a consumer orientation implies that the importance of services increases compared to the importance of products. As Vargo and Lusch (2004) point out, consumer generally do
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Methodology not require goods, they need to perform activities themselves or need others to perform these activities. A consumer-centric orientation means therefore the provision of services to the consumer; goods are a means to perform these services.
The Net Promoter Score (NPS) is the official consumer experience measurement tool within Philips CL since January 2008. Initial scores are, however, available since 2007. The application of NPS at Philips CL is following closely the recommendations by Reichheld (2003). This means that the main question is “Based on your experience with your
The implementation of NPS at Philips CL has a strong focus on the product. Other parts of the consumer experience such as services, consumer care, or promotion are receiving less attention. According to an interviewee, the currently used NPS methodology performs reasonably well in measuring the consumer experience of the current Philips CL portfolio. This is mainly due to the fact that there are no standalone services at the moment and offerings that are service dominated (like e.g. Directlife) are too new and of a too limited scale to currently justify a change of the NPS methodology. The interviewee could not state empirically confirmed weights for the effect of the individual components of the consumer experience and estimated the weight of the product to be about 75% with the remaining 25% evenly distributed among the other factors.
NPS is being criticised for not taking the consumers’ alternative options, the consumers’ involvement with the product or service, cultural influences, or the individuals’ characteristics (age, gender, education, etc.) into account (Morgan & Rego, 2006; Gupta & Zeithaml, 2006; Ruf, 2007; Grisaffe, 2007).As a result, the comparison of NPS scores across BCCs (Business/Country combinations) is problematic. To be able to draw conclusions on the BU or sector level, a metric called NPS Leadership is used by Philips CL. NPS Leadership compares Philips CL to its competition in BCCs. NPS Leadership is defined as:
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Methodology
• NPS Leadership: NPS score is at least 5 percentage points higher than Best competitor and the difference between two scores is statistically significant at 80% confidence level • NPS (Co-)Leadership: NPS score is within 5 percentage points of best competitor or leads by more than 5 percentage points but the difference is not significant at 80% confidence level
BCCs’ NPS scores are afterwards weighted against their revenue contribution to the total Philips CL revenue. Not all Philips CL BCCs are always considered. BCCs can be excluded from the analysis due to mainly commercial reasons. Excluded from the analysis are also cases were the BCC is about to be divested. Since NPS Leadership is calculated to developed action guidelines, a costly analysis of these to be divested BCC would not be useful. A second reason for exclusion is that the BCC is considered to be too small. For Philips CL, the threshold is placed at less than 1% of the general adult population and a minimum sample size of 50 interviews.
Calculations for NPS Leadership are conducted by the GMM (General Marketing Management) Market Intelligence department. For this report, they were extracted from the official NPS releases (GM&C Marketing Intelligence, 2009, 2010).
3.4 MEASURING THE DIMENSIONS OF CONSUMER-CENTRICITY
This chapter describes the methods chosen to measure the degree of consumer-centricity at Philips CL.
3.4.1 Measuring Culture
Organizational culture can be defined as the “the pattern of shared values and beliefs that help individuals understand organizational functioning and thus provide them with the norms for behaviour in the organization” (Deshpandé, Farley, & Webster, 1993). Culture is a basic driver for human actions and can therefore either facilitate or hamper consumer- centric behaviour (Shah, Rust, Parasuraman, Staelin, & Day, 2006). It was also found that different strategies require different organizational cultures (Homburg, Fassnacht, & Guenther, 2003). The transition from product-centricity to consumer-centricity implies therefore the need for changes in organizational culture.
A literature review revealed two potentially usable frameworks for the analysis of Philips CL’s organizational culture: the Organizational Culture Profile (OCP) (O'Reilly, Chatman, & Caldwell, 1991) and the Competing Values Framework (CVF) by Cameron and Freeman (1991). While being relatively narrow on its definition of culture types, the CVF offers high face validity, has been used in several studies, and bears a strong theoretical basis (Scott, Mannion, Davies, & Marshall, 2003; Cameron & Quinn, 1999). Since the CVF was used in the majority of studies on consumer-centricity and organizational culture, and makes a clear link 20
Methodology between both, it was chosen as the framework for the assessment of organizational culture in this study. In this study, Philips CL is assessed as a whole; sub-cultures are not taken into account. Categorizing Philips CL into one specific type of culture is viable since organizations generally adopt one dominant culture (Cameron & Quinn, 1999; Deshpandé, Farley, & Webster, 1993). In contrast to the differentiation and fragmentation perspectives where organizations are claimed to have several cultures, this so-called integration perspective allows to make statements on an organization wide level (Wilson, 2001). For this research, the integration perspective is preferable since it is the most popular perspective and studies on consumer-centricity generally apply this approach (Wilson, 2001; Shah, Rust, Parasuraman, Staelin, & Day, 2006; Deshpandé, Farley, & Webster, 1993).
Figure 3-2: Organizational Culture Types (based on Cameron & Freeman, 1991)
Organic Processes (flexibility, spontaneity)
Type: Clan Type: Adhocracy Dominant Attributes: Cohesiveness, participation, Dominant Attributes: Entrepreneurship, creativity, teamwork, sense of family adaptability Leader Style: Mentor, facilitator, parent-figure Leader Style: Entrepreneur, innovator, risk taker Bonding: Loyalty, tradition, interpersonal cohesion Bonding: Entrepreneurship, flexibility, risk Strategic Emphasis: Toward developing human Strategic Emphasis: Toward innovation, growth, new resources, commitment, morale resources Internal Positioning External Positioning (smoothing activities, integration) (competition, differentiation) Type: Market Type: Hierarchy Dominant Attributes: Competitiveness, goal Dominant Attributes: Order, rules and regulations, achievement uniformity Leader Style: Decisive, achievement-oriented Leader Style: Coordinator, administrator Bonding: Goal orientation, production, competition Bonding: Rules, policies and procedures Strategic Emphasis: Toward competitive advantage Strategic Emphasis: Toward stability, predictability, and market superiority smooth operations
Mechanistic Processes (control, order, stability)
The CVF presents the following culture archetypes:
1 The hierarchy culture is based on the principles developed by Max Weber and aimed at enabling organizations to produce product and services efficiently (Cameron & Quinn, 1999). The internal market functions through economic market mechanisms. 2 The clan culture describes organizations that seem more like extended families than economic entities (Cameron & Quinn, 1999). In those organizations, success is defined in terms of internal climate and concern for people. 3 The adhocracy culture “is an organizational form that is most responsive to hyperturbulent and hyperaccelerating conditions that increasingly typify the organizational world in the twenty-first century” (Cameron & Quinn, 1999).
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Methodology
4 The market culture is characterizing an organization that functions as a market itself and is focused on transactions with mainly the external environment (Cameron & Quinn, 1999).
Deshpandé, Farley, and Webster (1993) state that under the premise of high environmental complexity, the four culture archetypes in the CVF can be ordered according to their degree of business performance since business performance correlates with consumer-centricity. Deshpandé, Farley, and Webster (1993) were not able to prove a clear ranking of cultures concerning their business performance. It was, however, found that cultures with an external orientation outperform those with an internal orientation. This is because externally oriented organizations spend more time and effort on their external environment (i.e. consumers) and are therefore also concerned with fulfilling the needs of the external environment. In conjunction with the model by Shah et al. (2006), this means that the move from product-centricity to consumer-centricity is facilitated by a shift from an internally oriented culture to an externally oriented one.
To assess Philips CL on the basis of the CVF, the Organizational Culture Assessment Instrument (OCAI) (Cameron & Quinn, 1999) was used. The OCAI is an updated version of the original tool developed by Cameron and Freeman (1991) that enables the categorization of an organization’s culture on six dimensions:
1. Dominant Characteristics 2. Organizational Leadership 3. Management of Employees 4. Organizational Glue 5. Strategic Emphasis 6. Criteria of Success
The complete OCAI questionnaire can be found in Appendix II. The OCAI has been used in various studies and has been found to be both reliable and valid (Cameron & Quinn, 1999). Based on the obtained scores, it is possible to draw conclusions on how much Philips CL’s culture corresponds to the generic culture types from the CVF. The assessment of Philips CL’s organizational culture is based on 19 completely filled-in and returned OCAI questionnaires. Since the questionnaire was sent out to 28 people, this means that the response rate was 68%. The questionnaires were filled in after the interviews had taken place. Seven of these questionnaires were sent out and returned via email. Some respondents, however, had confidentiality concerns. Therefore, a second wave of OCAI questionnaires that did not allow inferences on the respondents was sent out using an online survey tool1. Due to the anonymity of the respondents it was not possible to determine the reasons for non-responses.
1 Surveygizmo, Widgix, LLC, www.surveygizmo.com 22
Methodology
Considering the above mentioned integration perspective that is adopted in this study, the anonymity of the respondents does not hamper the quality of the responses. To obtain scores for the internal orientation of Philips CL’s culture, the scores for the clan and the hierarchy culture types were added. The sum of the scores for the adhocracy and the market culture is the score for the external orientation. The results were then analyzed for significance using the statistical software PASW Statistics 18.0. Since the results were not normally distributed, a Wilcoxon Singed Rank test was applied.
3.4.2 Measuring Structure
“Structure refers to the relationships among parts of an organized whole”, Hatch (1997). The structure of an organization has both a physical dimension (e.g. buildings or geographical locations) and a social dimension (i.e. the relationships between people, their positions and the organizational units they belong to). For the purpose of this thesis, the focus is on the social dimension of organizational structure for two reasons. First, it was found out, that the shift from product to consumer-centricity does generally not affect the geographical location of the organization (Homburg, Workman, & Jensen, 2000), and second, because the consumer generally does not experience the physical dimension of Philips CL; Philips CL does not own retail stores.
Organizational structure focuses the attention on topics (Jacobides, 2007). A structure supportive to consumer-centricity is therefore essential for implementing a consumer- centric orientation in an organisation. A literature study prior to this research revealed the model of Day (2006) to be most suitable for assessing the organizational structure of Philips CL concerning its consumer-centricity. The model is based on empirical research by Homburg, Workman, and Jensen (2000) and in line with later publications (Shah, Rust, Parasuraman, Staelin, & Day, 2006; Fisk, 2009; Day, 2006) since it directly refers to tangible structural elements (e.g. account managers). Day (2006) translated the model of Homburg, Workman, and Jensen (2000) into four stages of structural evolution:
Stage 1. Product or Functional Silos: This structure suffices for smaller or highly focused companies. When the offering becomes more complex, problems with the accountability to consumers, and consumer and market priorities. Stage 2. Informal Coordination: Functional silos are being bridged by adding product managers and account managers. Consumer-connecting activities are being improved through the development of informal networks. Stage 3. Formal Coordination via Integrating Functions: Consumer teams and key account managers receive more formal power. This power derives from their deep understanding for the consumers’ needs and their ability to identify emerging needs. The consumer facing units still have limited influence on resources and rely on their persuasive abilities.
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Methodology
Stage 4. Fuller Structural Alignment: Consumer-facing units offer integrated solutions and are supported by product-facing units. Often, organizations adopt a matrix structure with a strong consumer dimension. Autonomous business units are set up to serve market segments.
The rationale behind this model is that the more power is given to consumer-facing units, the more consumer-centric the organization. The stages represent distinctive levels of power given to those units. More power to consumer-facing units will lead to more alignment with the market since consumer facing units will spread the voice of the consumer in the organization. This means that a higher stage in this model represents more alignment with the market and therefore more consumer-centricity (Shah, Rust, Parasuraman, Staelin, & Day, 2006).
At Philips CL, the consumer facing units can be found in the Sales Organizations (SOs) that are the local representations of Philips CL and the business functions (BFs) that support operations. The involved BFs are:
• Direct Sales • Marketing Communication • Marketing Intelligence • Consumer Care
The assessment of Philips CL’s structure was focused on the above parties. The results are based on five interviews, one with an employee at a SO and one at each of the involved BFs. The interviewees commented on the structure of Philips CL and how it had changed from 2007 to 2009. To make the assessment, the recordings and notes from the interviews were reviewed for comments on how well their BF was integrated with the other parties involved in providing the consumer experience. If an interviewee described a situation of clear functional silos or full integration, the statement was evaluated as respectively stage 1 or stage 4. A not as clear statement was examined for a statement of whether collaboration was managed informally or formally (e.g. formal category meetings) resulting in an assessment of respectively stage 2 or stage 3. Since the results are non-normally distributed and the scale is ordinal, the median of the resulting scores is used as the overall score for Philips CL.
3.4.3 Measuring Processes
Shah et al. (2006) stated that the “processes for developing and sustaining customer relationships differ from those aimed at the execution of efficient customer transactions”. More consumer-centricity implies that the number of unique products and services increases. Unique personalized products and services generally require communication across organizational boundaries since the delivery of these products and services is more complex than that of standard products (Kumar A. , 2007; Kates & Galbraith, 2007). While 24
Methodology making the management of consumer information within the company more complex, the increased number of personalized products and services also require more consumer information than the delivery of standard products and services. This is because personalized product and services require detailed consumer information (Vesanen, 2007). A way to obtain this increased amount of information is to build a relationship with the consumer that enables the company to learn about the consumer and build consumer profiles. The processes that manage this relationship and disseminate the consumer information within the company are called customer relationship management (CRM) processes (Payne & Frow, 2005). Hence, when the relationship with the consumer becomes more important, the CRM processes also become more important. While a number of processes can be stated that play a role in the transition form product- to consumer- centricity, in literature, there is agreement that the CRM processes are among the key processes for consumer-centric companies (Shah, Rust, Parasuraman, Staelin, & Day, 2006; Kates & Galbraith, 2007; Kumar A. , 2007; Kumar & Petersen, 2005). This study will therefore focus on CRM in the process domain.
Payne and Frow (2005) state that: “CRM is a strategic approach that is concerned with creating improved shareholder value through the development of appropriate relationships with key customers and customer segments”. Excellent CRM should therefore boost Philips CL’s ability to become more consumer-centric. When determining the performance of a CRM program, five distinctive processes should be taken into account (Payne & Frow, 2005):
1. The strategy-development process that includes not only a business strategy but also a consumer strategy 2. The value creation process that is at the heart of the exchange process 3. The multichannel integration process that encompasses all the consumer touch points 4. The information-management process that includes the data collection and data analysis functions 5. The performance-assessment process that ties the firm’s actions to performance
Boulding, Staelin, Ehret, and Johnston (2005) commented that companies should benchmark their processes to examine their consumer-centricity. Since the strategic domain is partly represented by the analysis of Philips CL’s organizational culture, and the performance assessment process is linked to financial metrics, both the above described processes are not researched within the process domain. The analysis will focus on the value creation process, the multichannel integration process and the information-management process.
A review of existing literature did not result in a validated assessment scale for these processes that is publicly available. Payne (2006), however, formulated two central questions per process that should be answered. These questions were than translated into operational questions that could be used for the assessment:
25
Methodology
3-1: Operationalization of central questions of the process domain
Process Domain Original Question Operational Question Does Philips CL ensure that its value How should we deliver value to our proposition is valuable for the consumer? consumer? Value Creation Process Does Philips CL’s value proposition How should we maximize the provide high lifetime value to the lifetime value to our consumers? consumer? What are the best ways for us to get Does Philips CL apply a multichannel to consumers and for consumer to strategy that enables the provision of get to us? personalized products and services Multichannel Integration Does Philips CL know what an Process What does a perfect or outstanding outstanding consumer experience for consumer experience, deliverable at its consumers is and is it delivering an affordable cost, look like? this outstanding experience? Does Philips CL apply a multichannel How should we organize information strategy that enables the provision of on consumers? Information personalized products and services? Management Process How can we replicate the mind of Does Philips CL have the ability to consumers and use this to improve construct detailed consumer profiles the CRM activities? that include the consumers’ interests?
To measure how Philips CL scores on these questions, a measurement scale was constructed. Cooper and Schindler (2003) stated that the number of points on a measurements scale should generally be three to seven. Considering the fact that the measurement scale used in not yet validated and to maximize reliability, the number of points on the scale should be small. Cooper and Schindler (2003) also stated that the number of points of a scale is dependent on the number of scale dimensions and the sensitivity required. The scale for the assessment of each process is two-dimensional, since for each process, two questions are answered. The total score for the process domain is therefore based on six dimensions. To achieve a relatively high sensitivity, a large number of points on the measurement scale is therefore not needed. To ensure a high level of reliability while still achieving a high level of sensitivity this study employs a 3-point scale. Since the aim is to improve the consumer experience, only facts that actually affect the consumer experience are being considered. Situations where a topic is being considered but no actions were not yet taken, are therefore not taken into account. This results in the following levels for the 3-point measurement scale:
1. Philips CL has not implemented the solution 2. Philips CL has partly implemented the solution 3. Philips CL has fully implemented the solution
Using information obtained via interviews with Philips CL specialists for the concerning topics, the measurement scale was applied to the questions. For the value creation process, the multichannel integration process, and the information management process, respectively 5, 7, and 5 interviews were used. The overall score is the median of the obtained scores. The validity of the answers is warranted due to the fact that the 26
Methodology interviewees are experts in the concerning field and have in-depth knowledge about the situation at Philips CL in both 2007 and 2009. All interviewees described the general situation of their domain how the processes affected this situation in 2007 and 2009.
3.4.4 Measuring Financial Metrics
Financial metrics are useful in motivating employees to perform consumer-centric actions and for making the effects of decision measurable and visible (Srivastava, Shervani, & Fahey, 1998; Shah, Rust, Parasuraman, Staelin, & Day, 2006).
To evaluate the consumer-centricity of the financial metrics, Shah et al. (2006) recommended assessing the number of employed consumer-centric key performance indicators (KPIs). Johnson and Schultz (2004) define consumer-centric metrics as metrics that are used “to reorganize the firm's mission around the customer”. In the context of Philips CL this means that consumer-centric financial metrics are those that direct attention to Philip CL’s mission to provide value to consumers. A consumer-centric metric should therefore provide insights on the individual consumer level and enable Philips CL to improve its consumer experience.
Academic literature on this topic is scarce. Johnson and Schultz (2004), however, state that at least 2 of an organization’s KPIs should be consumer-centric. They do not state the total number of KPIs their recommendation refers to. Deriving a recommended percentage of consumer-centric KPIs is therefore not possible. In academic literature, the recommendation is to employ a maximum number of KPIs of 10 or 20 (Parmenter, 2010; Allio, 2006). Considering that Philips CL employed 5 KPIs in 2007 and 6 in 2009, the number of KPIs at Philips CL seems within the common range and the recommendation of having at least 2 consumer-centric KPIs is applicable for Philips CL.
The data used for assessing whether Philip CL applies the required number of consumer- centric KPIs is based Philips CL documents. Using this data, the used KPIs will be checked for whether they are on the individual consumer level and enable Philips CL to improve its consumer experience.
Shah et al. (2006) put emphasis on the use of financial metrics as a tool for making the consumer centric behaviour measurable. Financial metrics are then used to facilitate consumer-centric decision making. Essential for the financial metrics to facilitate consumer- centricity is, however, how much importance is placed on the consumer oriented metrics (Shah, Rust, Parasuraman, Staelin, & Day, 2006). It is therefore not sufficient to examine the number of consumer-centric metrics; the emphasis that is placed on consumer-centricity should also be assessed.
To examine emphasis that was placed on consumer-centric financial metrics at Philips CL in both 2007 and 2009, a method called “Disclosure Index” is applied. When applying this method, it is assumed that the amount of disclosure on a specific topic proxies the quality of 27
Methodology the topic in the concerning disclosure (Beattiea, McInnesb, & Fearnleyc, 2004). While this assumption is not necessarily true, this method has been used for about 50 years and was found to be useful (Marston & Shrives, 1991).
In this study, a list of items was developed ex ante. Shah et al. (2006) and Galbraith (2002) offered comparisons of the competing philosophies: product-centricity and consumer- centricity. Using these comparisons, it was possible to determine word pairs that represented both philosophies:
Table 3-2: Words pairs used to examine the annual reports
Product-centric Consumer-centric Sell Serve Product Consumer Transaction Relationship Growth / Grow Loyalty / Sustain Market Share Satisfaction / Value Data Knowledge Quality / Feature Solution Mass Personalized Product Development Relationship Management
These word pairs are used to count how often product- or consumer-centric words appear in the annual reports of Philips CL of 2007 and 2009. Since Philips CL is a business sector of Philips, there is no annual report exclusively for Philips CL. For this study the sector reports for Philips CE and Philips DAP were used for 2007 and the sector report for Philips CL was used for 2009. Both Philips annual reports were used in the Portable Document Format (PDF). The sector report for CE and DAP had a total length of 12 pages (pages 70 to 81) in 2007; the sector report on CL had a length of 6 pages (pages 89 to 94) in 2009. Using the integrated search features of Adobe Acrobat 9 Pro (a software to view and edit PDF files), it was counted how often the specific words appeared in either annual report section. Names (such as Philips Consumer Lifestyle) were excluded from the calculations. To account for slight word variations, only the first half of the word to be counted was used in the search.
To derive an overall score for consumer-centricity of the annual reports, the words were counted and the percentage of consumer-centric words was sent off against the percentage of product-centric words. To find out if the found differences were statistically significant, the differences between years and between product- and consumer-centricity were tested. Since the obtained word counts were not normally distributed, a Wilcoxon Signed Rank Test was applied. Statistical tests on the results were performed using the PASW Statistics 18.0.
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Methodology
3.5 MODELING CONSUMER-CENTRICITY & THE LINK TO CONSUMER EXPERIENCE
Shah et al. (2006) found that culture, structure, processes, and financial metrics are interlinked. It is, however, not clear if this relationship is for example additive or multiplicative. In addition, in academic literature, there is no indication on the relative relevance of the dimensions. Since there is no theoretical basis for a model for consumer- centricity, five alternative models were developed.
Since the relative weight of the dimensions is unknown, it is assumed that the weight of all dimensions is equal to 1. In order to compensate for varying scales, all obtained scores for the dimensions of consumer-centricity were transformed to range from 0 to 1. To compensate for the fact that the overall scores for culture, processes, and financial metrics are compiled from multiple parts, the scores for each domain are averaged.
29
Methodology
3-3: Tested Models
<
< 1 < 1 < <
CC
< CC CC < <
Range 0 0 < CC 0 < CC 54.60 0 1.61 0.5 0.98
- - - centric, centric, - centric. - - e a is centricity. -
first steps Rationale Each dimension contributes directly to the organization’s consumer one dimensionIf is not consumer One the towards consumer centricity been have it becomes taken, higher toeasier attain levels. With an increasing level consumer of it becomes centricity, difficultmore to levelattain a higher consumerof centricity logarithmic, as Same but but ther attainable maximum level consumer of centricity the whole cannotorganization be consumer
)
)
)
푀푒푡푖푐푠
푀푒푡푖푐푠
푎푙 푀푒푡푖푐푠
푀푒푡푖푐푠 푀푒푡푖푐푠
퐹푖푛푎푛푐푖 퐹푖푛푎푛푐푖푎푙 − 퐹푖푛푎푛푐푖푎푙 + 퐹푖푛푎푛푐푖푎푙 퐹푖푛푎푛푐푖푎푙 + × + 푃푟표푐푒푠푠푒푠 4 1 푃푟표푐푒푠푠푒푠 − 푃푟표푐푒푠푠푒푠 + 푃푟표푐푒푠푠푒푠 푃푟표푐푒푠푠푒푠 + × + 푆푡푟푢푐푡푟푒 푆푡푟푢푐푡푟푒 − 푆푡푟푢푐푡푟푒 + 푆푡푟푢푐푡푟푒 푆푡푟푢푐푡푟푒 + × + 퐶푢푙푡푢푟푒 퐶푢푙푡푢푟푒 − ( 퐶푢푙푡푢푟푒 ( + 퐶푢푙푡푢푟푒 퐶푢푙푡푢푟푒 1 푒푥푝 ( = = 푒푥푝 + 푙푛 = 1 퐶퐶 퐶퐶 =
= 퐶퐶 퐶퐶 퐶퐶 Model
-
-
If one Consumer The pace of centric. - The relationship relationship The Initially slow Initially slow
.
Name Additive: between domains is the and eachlinear dimension has an equal weight. domain not is consumer centric,the then whole not is organization consumer decreasing.growth is Logistic: growth is followed by fast growth and finally turning back to slow of a period growth Multiplicative: Multiplicative: Logarithmic: Exponential: Exponential: centricity increasing is rapidlymore with a higher level the of dimensions.
30
Methodology
The table shows the models with a name and a short description. In the formulas, the variable CC represents consumer-centricity.
Due to the fact that this research focuses on two years, but examines four dimensions of consumer-centricity, it is not possible to apply a statistical method such as regression. A regression requires more data instances than independent factors (Hair, Black, Babin, Anderson, & Tatham, 2005). This means that for this study, data for at least five years would have to be examined. This means it was also not possible to analyze the fit of the models. It was, however possible to conduct a sensitivity analysis for the alternative models. This sensitivity analysis was used to examine which dimensions of consumer-centricity were especially sensitive when applying the alternative models. In addition, using the results form the sensitivity analysis, the models were compared using the variance-to-mean ratio. Due to the absence of statistical fit measures, the selection of a preferred model was made based on plausibility combined with the rule of parsimony stating that a simple model is preferable if the models provide equivalent predictive value (Graziano & Raulin, 2007).
Due to the limited number of instances, it was also not possible to calculate a statistic such as correlation for the relationship between consumer-centricity and consumer experience. To make a link nonetheless, the development was analyzed graphically. For this analysis, the NPS (Co-) Leadership scores were not transformed and directly used for the graphical analysis. This is because a further transformation would not provide additional insights for the question whether there is a positive relationship between consumer-centricity and consumer experience. It should however be noted that the scales for the alternatively modelled consumer-centricity scores and for NPS (Co-) Leadership are different. A direct comparison based on the rate of in- or decrease is therefore not possible.
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Results
4 RESULTS This chapter describes the result of this analysis. It will start with presenting the extracted results on Philips CL’s consumer experience assessment, continue with the results on each individual dimension of consumer-centricity and finally present the calculations for the overall consumer-centricity score and its link to consumer experience.
4.1 CONSUMER EXPERIENCE
The following paragraphs will present the results on NPS (Co-) Leadership of Philips CL (additional results on NPS can be found in Appendix V). Philips CL calculated the following scores for NPS (Co-) Leadership:
Figure 4-1: NPS Leadership of Philips CL2
100%
90%
80%
70% 63% 69% 66% 60% Follower 50% Co-Leadership 40% Leadership 30% 25% 23% 20% 24% 10% 12% 8% 11% 0% 2007 2008 2009
It can be seen that there was a decline in (co-) leadership from 37% in 2007 to 31% in 2008. According to the official NPS release 2009, this is mainly due to NPS declines in the BU TV. A factor that also might have contributed to the decline is that as of January 2008 the sectors CE (Consumer Electronics) and DAP (Domestic Appliances) were merged into CE. The associated reorganizations within Philips CL might have played a role in the inferior consumer experience. A third possible explanation for the decline in NPS Leadership might be the extension of the revenue coverage that went from 28% in 2007 to 45% in 2008.
From 2008 to 2009, NPS (co-) leadership score rose to 34%. The revenue coverage increased from 45% in 2008 to 54% in 2009. This statistically significant increase was mainly attributed
2 The numbers for 2008 do not add up to 100. This is due to rounding. The combined (co-)leadership (Leadership plus Co-Leadership) score for 2008 adds up to 31%. 32
Results to the increase in NPS Leadership. From the consumer centric perspective, an important development was the adoption of NPS by the board of management as a key performance metric as of 2008. From that time, the NPS methodology was used widely at Philips CL, indicating a stronger emphasis on the consumer experience to employees. These employees might then have worked to provide a better consumer experience.
Concluding, painting a clear picture of the consumers’ perceived value of the consumer experience is difficult. The organizational changes that took place between 2007 and 2008 could account for the decreased value of the consumer experience. The strengthened emphasis on the consumer experience within Philips CL since 2008 might be responsible for the improved evaluation of the consumer experience by consumers in 2009.
4.2 CULTURE
The application of the OCAI resulted in the following results (a more detailed table with the OCAI results can be found in Appendix III: Table 4-1: Results of the OCAI 2007 2009 Average Average Average Average Average Average Average Average Description Clan Adhocracy Market Hierarchy Clan Adhocracy Market Hierarchy 1 31.67 15.83 21.67 30.83 28.33 16.67 16.67 38.33 2 25.83 27.50 20.83 25.83 18.33 24.17 32.50 25.00 3 29.17 20.83 19.17 30.83 30.00 16.67 20.00 33.33 4 20.83 21.67 32.50 25.00 15.00 18.33 35.83 30.83 5 34.00 41.67 26.67 3.33 12.00 27.50 50.83 14.00 6 15.00 30.00 36.67 18.33 7.50 28.33 41.67 22.50 7 5.00 14.00 71.67 11.67 3.33 8.33 83.33 5.00 8 16.67 25.00 22.50 35.83 23.33 26.67 20.00 30.00 9 23.33 6.67 10.00 60.00 19.17 5.83 9.17 65.83 10 24.17 24.17 28.33 23.33 20.83 26.67 26.67 25.83 11 22.50 14.17 36.67 26.67 24.17 18.33 35.83 21.67 12 30.00 22.50 26.67 20.83 31.25 22.92 28.75 17.08 13 18.33 19.17 27.50 35.00 18.33 19.17 27.50 35.00 14 30.83 25.00 27.50 16.67 29.17 21.67 29.17 20.00 15 21.67 21.67 25.00 31.67 13.33 16.67 36.67 33.33 16 25.83 21.67 24.17 28.33 25.00 12.50 36.67 25.83 17 11.67 5.00 10.83 72.50 11.67 5.00 10.83 72.50 18 27.50 27.50 22.50 22.50 14.17 20.83 40.83 24.17 19 32.50 30.83 16.67 20.00 16.67 18.33 38.33 26.67 Min 5.00 5.00 10.00 3.33 3.33 5.00 9.17 5.00 Max 34.00 41.67 71.67 72.50 31.25 28.33 83.33 72.50 Std. Dev 7.65 8.53 13.02 15.67 7.83 6.95 16.37 15.96 Average 23.00 21.33 27.27 28.84 19.16 18.68 32.38 30.01
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The left column shows the case number (respondent number). Next to the case numbers, the average scores obtained for each respondent are displayed. The four rows at the bottom of the table show descriptive statistics for the obtained data. It can be seen that the standard deviation for both Average Market and Average Hierarchy is higher than that of Average Clan and Average Adhocracy in 2007 and 2009. To examine the cause of the differences in standard deviation, the data was analyzed for outliers. The average score for the market culture of case 7 was the only instance that showed an extreme deviation from the mean, indicated by a z-score of more than 3.28 (Field, 2005). For a complete list of the calculated z-scores, please refer to Appendix III. To lower the found standard deviation an option is to exclude e.g. case number 7 from the analysis. An exclusion of cases is, however, only justified for theoretical reasons or measurement errors (Field, 2005; Hair, Black, Babin, Anderson, & Tatham, 2005). Since none of these reasons were found to apply to case 7, no responded was excluded from the analysis.
Looking at the overall scores, a shift towards the Market and the Hierarchy cultures is found.
Figure 4-2: Overall organizational culture at Philips CL
The Clan 35 30 25 20 15 10 5 Average 2007 The Hierarchy 0 The Adhocracy Average 2009
The Market
Figure 4-2 displays the how the cultural profile of Philips CL has changed over from 2007 to 2009. The scores for 2009 bear strong similarities with the average scores that Cameron and Quinn (1999) found for 127 companies in the Transportation, Communication, Electric, Gas, and Sanitary industry. In 2007, the overall organizational culture at Philips CL resembled more that of a Public Administration organization with more emphasis on hierarchy than market characteristics.
To check if the found differences are statistically significant a series of Wilcoxon Signed Ranks tests was performed3.
3 The distribution of the scores was not always normally distributed. The non-paramedic Wilcoxon Rank Sum test was therefore preferred over the parametric t-test. 34
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Table 4-2: Significance of the changes in cultural form 2007 to 2009
Average Clan Average Adhocracy Average Market Average Hierarchy 2009 - Average 2009 - Average 2009 - Average 2009 - Average Clan 2007 Adhocracy 2007 Market 2007 Hierarchy 2007 Test Statistic (Z) -2.629 -2.463 -2.439 -1.232 Significance (p) 0.009 0.014 0.015 0.218
The test results show that there are statistically significant differences between the scores obtained for 2007 and 2009 for the Clan, the Adhocracy, and the Market culture types (p < 0.05). A statistical difference between the scores for the Hierarchy culture type for 2007 and 2009 could not be confirmed (p > 0.05).
To examine the found changes, it is useful to look into the individual dimensions. The strongest differences seem to be grounded in the management of employees that is affecting the organisational glue. Organizational characteristics that are not in line with the others hamper an organizations ability to reach a high level of effectiveness in the long-run (Cameron & Quinn, 1999). To enable this high level of effectiveness, making changes to decrease the incongruencies are needed.
Figure 4-3: Management of Employees at Philips CL
The Clan 40 35 30 25 20 15 10 5 Average 2007 The Hierarchy 0 The Adhocracy Average 2009
The Market
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Figure 4-4: Organizational Glue at Philips CL
The Clan 35,00 30,00 25,00 20,00 15,00 10,00 5,00 Average 2007 The Hierarchy 0,00 The Adhocracy Average 2009
The Market
The two cultural dimensions that changed most between 2007 and 2009 are Management of Employees and Organizational Glue. In both cases, there was a shift towards a stronger Market culture while both the Clan culture and the Adhocracy are becoming less important. Since the market culture is an indicator of consumer-centricity, this shift can be seen as the achievement of more alignment with the Philips CL mission. Four interviewees, however, reported that the shift towards a more competitive culture (market culture) has weakened the fellowship among Philips employees.
Interestingly, Management of Employees is the only case with decreasing scores for the Hierarchy culture type. In interviews it was revealed that the strong emphasis on hierarchy is often seen as an obstacle by respondents. In contrast, respondents emphasised the need for more risk taking and empowerment of front-line employees. One respondent said:
“[Philips] CL used to apply the first-time right strategy. Considering the required shortening time-to-market, this approach is no longer working out.”
Concluding, it was found that the organizational culture at Philips CL is dominated by both the Hierarchy and the Market culture. From 2007 to 2009, there has been a trend towards a strengthening of botch culture types. The trend towards an emphasis on two culture types at Philips CL can be seen as the development of a stronger culture. A stronger culture is an indication for a shared vision (Cameron & Quinn, 1999). It is therefore found that Philips CL is developing a stronger shared vision. Considering that The Hierarchy and The Clan culture types are found to be representatives of product-centricity and The Market and The Adhocracy represent a consumer-centric culture, a score for this domain can be constructed by summing up both culture type pairs. While the shift towards a stronger external orientation was found to be statistically significant, a shift from 49 to 51 is not a big step. In
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Results light of the fact that cultural changes are slow paced (Cameron & Quinn, 1999), this is not surprising.
4.3 STRUCTURE
Interviewees reported that in 2007 the consumer facing units were fragmented. One interviewee stated:
“Very often we went to a customer and heard that another sales man had been there a few days ago. It would have been much better if we went together.”
This statement indicated a situation where there was no collaboration between the departments. To bridge the functional silos that were still present in 2007, Consumer care was integrated into the Marketing BF so that in 2009 effectively two parties, the SOs and corporate Marketing form the consumer facing interface. As two interviewees reported, both marketing functions were still regarded as being a support to the BUs’ operations and lack formal power. In addition, in 2009 BFs have been integrated and positions, such as category managers, have been added to SOs to be able to provide a more unified interface for the consumer. According to the interviewees, the BU have traditionally been the most powerful departments within Philips CL and a power shift towards consumer facing units is slowly taking place. A result of this situation is that consumer knowledge that was attained at the Marketing Intelligence unit is not directly fed to the SOs. One interviewee stated:
“We do not give our information to the sales people. We send them to the BUs”
Information was collected but it remained unclear how this information was transferred to the consumer facing units. There was no indication of a formal mechanism that made sure that consumer information was made available to all consumer facing units.
Overall, three interviewees described the situation in 2007 retrospectively as functional silos, two commented that especially at the SOs, positions were being created to approach the consumer in a more unified way. In 2009, the majority of the interviewees claimed that bridging positions such as category managers were in place, but that they still lacked formal power as compared to the BUs. One interviewee reported that in 2009 formal category meetings were being held that enabled Philips CL to attune its offering. Another interviewee reported:
“We are working fine together, there are no problems.”
This statement was interpreted as a situation where there were no problems at all in the collaboration with the other consumer-facing units. The interviewee reported that his or her unit was fully integrated and that there were no communication problems. This statement was assessed as describing a stage 4 structure.
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Results
The application of the in chapter 3.4.3 described methodology leads to the following results on the structure of Philips CL:
Table 4-3: Results on structure
Stage 1 Stage 2 Stage 3 Stage 4 2007 3 2 - - 2009 - 3 1 1
As can be seen, the median of the interviewees rated the consumer-centricity of Philips CL to be on stage 1 in 2007 and on stage 2 in 2009.
4.4 PROCESSES
This chapter will discuss the process domain of the analysis. First, the assessment of each of the three examined processes is presented. Subsequently, an overview over the process domain is given.
4.4.1 The Value Creation Process
The analysis of the value creation process resulted in fairly stable results:
Table 4-4: Consumer-centricity of the information management process
Year 1 – No 2 – Partly 3 – Full 2007 - 2 3 Value Proposition 2009 - 2 3 2007 - 4 1 Lifetime Value 2009 - 3 2
All interviewees said that the official Philips CL value creation process ensured that that the consumer receives a valuable proposition. According to two employees, the most important tool for this is the Value Proposition House (VPH). According to the VPH handbook (Global Marketing Management) that was released before 2007, the VPH is an integral part of the value creation process. The VPH is a tool that is being used inside Philips CL to map the total value that an innovation will provide to the consumer. Both the starting and the endpoint of the value creation process are being gauged against the VPH.
“We use the value proposition house to make sure that consumer needs are addressed. [...] This is working fine.”
In an interview it was, however, commented that in some value creation projects, the VPH was seen more as a duty than a tool for achieving higher consumer value. In these cases, the VPH was not receiving proper attention. The interviewee stated that this occurred mostly when the project was aimed at improving an existing product or service and not at creating a radically new innovation. In these cases part of the VPH was simply copied from prior 38
Results projects. The interviewees that voiced concerns about the development of the value proposition were mainly concerned with the interoperability of Philips CL products and services. One interviewee stated:
“If you believe it or not, our TVs cannot communicate with our audio systems”
As for the consumer lifetime value, during interviews it was voiced that the business function Philips Design is very active in this respect. One interviewee stated:
“Philips Design is very active in mapping all of the touchpoints [...] I am pretty sure that we know how consumers use our products.”
This statement was evaluated as claim of full consideration for the lifetime value. At Philips Design, methodology called “Experience Walkthrough” is being used to track all touchpoints a consumer has with a product or service. While there is knowledge of the consumer lifetime experience, three interviewees reported that for products, after the point of sales, the consideration of the consumer lifetime value decreases significantly. The interviewees explained this with the heritage of Philips CL as a high quality product supplier whose profit was generated with product sales. All later touchpoints of Philips CL with a consumer were seen as a cost factor that should be minimized:
“Formally, we did not want consumers to call us since each call cost money. The products should there be as perfect as possible.”
This was evaluated as a statement of partial consideration for the lifetime value since there was consideration for the lifetime value; this was, however, only limited to the product. In light of this, most attention was given to the product and the pre- and point of sales experience. According to the interviewees, this situation has shifted more towards a consideration of the holistic consumer lifetime value since 2007. In 2009, however, especially the BUs who were facing tight budgets were still focused on the initial value the consumer received.
4.4.2 The Multichannel Integration Process
For the multichannel integration process, the interviews resulted assessments:
Table 4-5: Consumer-centricity of the information management process
Year 1 – No 2 – Partly 3 – Full 2007 2 5 - Multichannel Strategy 2009 - 7 - Outstanding Consumer 2007 5 2 - Experience 2009 2 4 1
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The interviewees reported that Philips CL had traditionally relied heavily on retail partners such as the Metro Group4 (Media Markt, Saturn, Makro etc.) to sell its products and services. A more recent addition to Philips CL’s distribution channel portfolio are internet retailers such as Amazon5. These customers contribute with a major part to Philips CL’s turnover (according to an interviewee about 90%) and are therefore considered to be very important for the business. At the same time Philips CL recognizes the advantages of being in direct contact with consumers:
• Growth: the ability to offer more customized products and services • Profitability: For customized products and services, Philips CL can ask a premium price that is not easily comparable to competitor prices. • Consumer engagement: When customizing a product or service, the consumer is more engaged with Philips CL. The consumer is then more likely to remain loyal to Philips CL and dive a higher NPS rating. • Feedback: A direct sales channel enables Philips CL to collect direct feedback thereby facilitating learning for future product and services.
For these reasons, Philips decided to set up an online direct sales channel with the assignment not to become a direct competition for Philips CL’s retail customers. In 2009, this online store was fully operational. In 2007, the online direct sales channel received little attention and was not mentioned in the year’s annual report. According to an interviewee online channel was regarded more as a support for the traditional retail channels to provide additional information. As one interviewee reported, part of this change in the communication strategy was that also a shift of attention from Above the Line (ATL) mass market advertising campaigns to Below the Line (BTL) advertising campaigns targeting smaller market segments. While all interviewees reported that Philips CL had a more personalized multichannel strategy in 2009 compared to 2007, they all claimed that there in 2009 there was still no fully integrated approach towards the consumer. One interviewee said:
“We are present on a lot of channels, but I don’t know what the consumer already talked about with the people from the helpdesk.”
Two interviewees reported that, in contrast to 2007, in 2009 Philip CL had a much clearer picture of what an outstanding consumer experience is. One interviewee claimed that:
“...we now know much better what the consumer wants.”
The essence of the description of consumer needs that is operated with in Philips CL is that the consumer is served via an integrated set of channels that provide personalized value. In 2007 fulfilment of these requirements was not possible due to a scattered approach towards
4 Metro AG, www.metrogroup.de 5 Amazon.com, Inc., www.amazon.com 40
Results the consumer that was reported by all interviewees. According to them, consumers received conflicting information from different parties within Philips CL. Due to the merger of the former sectors CE (Consumer Electronics) and DAP (Domestic Appliances) into CL, the number of parties communication with the consumer could be decreased. In addition, two interviewees reported that by strengthening the position of category managers, the number of situations where consumers received conflicting information could be decreased from 2007 to 2009. One interviewee claimed that Philips had in 2009 a fully integrated approach due to an alignment of its online communication channels.
4.4.3 The Information Management Process
The analysis of the information management process resulted in the following assessment:
Table 4-6: Consumer-centricity of the information management process
Year 1 – No 2 – Partly 3 – Full 2007 5 - - Unique Consumer 2009 5 - - 2007 4 1 - Detailed Consumer Profile 2009 4 1 -
As can be seen, all interviewees were clear about Philips CL’s ability to identify unique consumers. Interviewees mentioned that in 2007, a project called Shape to Value was started that aims to integrate Philips CL’s IT structure and merge its databases. With this initiative, the level of complexity of the IT infrastructure could be decreased enabling a more unified approach towards consumers. An example of this change is the management of consumer data for e-mail sending in the years 2006 and 2009.
Figure 4-5: Consumer e-mail data management from 2006 to 2009
As can be seen, the IT infrastructure in 2009 enables the sending of e-mail from one central database, making it less likely that the consumer receives inconsistent information. In 2009, however, there were still about 300 portals each using their own infrastructure. It is
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Results therefore hardly possible to link consumer profiles across portal, resulting in duplicate entries. For retail customers, a project called OneBI was set up to combine data from different databases and extract customer profiles. According to managers involved with the project consumer data is being collected in a separate database, but due to organizational boundaries, a complete database for consumer data is not available.
Apart from the fact that consumer data is not centrally collected, another problem is that available data is often incomplete making it very difficult to, as above mentioned, replicate the consumer’s mind and use this to improve CRM activities. In 2009, out of 10 million marketable consumers, 50% of the genders were known and 30% of the consumer ages were known. There was no information on their interests. One employee, however, reported that within his/her departments, more detailed information is available. Overall, majority of the interviewees claimed that there was not enough consumer information to replicate the consumer’s mind in 2007 and 2009.
4.4.4 Summarizing the Process Domain
To give an overview on the consumer-centricity of the process domain, the results obtained summarized for the years 2007 and 2009. In total, was possible to reach 18 points in both years with 6 points being the minimum.
Figure 4-6: Consumer Centric Process Maturity
6 7 8 9 10 11 12 13 14 15 16 17 18
Dual Value Creation Maturity 2007 Multichannel Integration Maturity Infomration Management 2009 Maturity
It becomes clear that while there have been advances from 2007 to 2009, there is still space for making this domain more consumer centric. While the Value Creation Process has been operating on a high level of maturity in 2007 and 2009, both the multichannel Integration Process and the Information Management Process are not operating on the same level of maturity.
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4.5 FINANCIAL METRICS
In this chapter the results of the analysis of the financial metrics will be presented. As described in chapter 3.4.4, first the number of consumer-centric KPIs was researched. Afterwards, the consumer-centricity of Philips CL’s annual report was examined.
Philips CL applied a total number of five KPIs in 2007:
• Employee Engagement • Productivity • Revenue • EBITA (earnings before interest, taxes, depreciation, and amortization) • Cash
In 2008 NPS was added to the list of KPIs so that in total six KPIs were used in 2009.
Among Philips CLs indicators, only NPS can be called consumer-centric since it translates the voice of the consumer to a quantitative statement. Considering that Philips CL should employ at least two consumer-centric KPIs (see chapter 3.4.4), this means that Philips CL employed no consumer-centric KPI in 2007 and half of the required number of consumer- centric KPIs in 2009.
To examine the consumer-centricity of the external communication, the annual reports of Philips have been examined. In 2007 the section on Philips CE and Philips DAP was examined and in 2009, the section on Philips CL was examined. The analysis resulted in the following word counts:
Table 4-7: Use of product-centric and consumer-centric words in annual reports
2007 2009 2007 2009 Product-centric CE + DAP CL CE + DAP CL Consumer-centric Sell 4 0 0 0 Serve Product 30 12 24 39 Consumer Transaction 1 0 6 2 Relationship Growth / Grow 36 17 1 1 Loyalty / Sustain Market Share 1 0 17 13 Satisfaction / Value Data 3 1 2 0 Knowledge Quality / Feature 2 3 6 4 Solution Mass 2 1 2 6 Personalized Product Development 2 6 0 0 Relationship Management Sum 81 40 58 65 Sum Percentage 58% 38% 42% 62% Percentage
In 2007 42% of the word counts were consumer centric while in 2009 62% of the word counts are consumer-centric. This indicated that the language in the annual reports has 43
Results become more consumer-centric. To test whether the found differences between years and between product- and consumer-centricity are significant, Wilcoxon Signed Rank tests were used6.
Table 4-8: Significance of the differences in word counts
Consumer-centric Consumer-centric Product-centric Consumer-centric 2007 – Product- 2009 – Product- 2009 – Product- 2009 – Consumer-
centric 2007 centric 2009 centric 2007 centric 2007 Test Statistic (Z) -0.350 -0.631 -1.615 -0.106 Significance (p) 0.726 0.528 0.106 0.915
Intuitively, there is a significant difference between the use of product centric word in 2007 and 2009. A statistically significant difference could, however, not be confirmed. The same goes for all other tested combinations. For all combinations, p was higher than 0.05, indicating that there is no statistical significant difference between the tested variables. The inability to confirm a significant difference is likely linked to the fact that the non-parametric Wilcoxon Singed Rank test does not take the interval between values into account. For this test, the difference between 30 and 12 (the counts for “product”) is therefore the same as the difference between 2 and 1 (the word counts for “mass”). The tendency that the language in the annual reports shifts towards consumer-centricity still remains. Additional descriptive statistics for the word count can be found in Appendix VI.
Especially interesting is the word pair: product-consumer. This word pair clearly shows a shift towards consumer-centricity; the use of the word product decreased from 30 in 2007 to 12 in 2009 and the count of “consumer” increased from 24 in 2007 to 39 in 2009.
Concluding, Philips CL employed no consumer-centric financial metric in 2007 and half of the recommended number of consumer-centric financial metrics in 2009. This means that in 2007 0% and in 2009 50% of the recommended number of consumer-centric financial metrics was used. The use of consumer-centric words in the annual reports of 2007 and 2009 increased from 42% to 62%.
4.6 OVERALL CONSUMER-CENTRICITY & CONUSMER EXPERIENCE
The above results are used to calculate average scores for the four dimensions of consumer- centricity for the years 2007 and 2009:
Table 4-9: Average Scores for the dimensions of consumer-centricity
Dimension 2007 2009 Culture 0.49 0.51 Structure 0.00 0.33
6 The distribution of the word counts is not normal. The Wilcoxon Signed Rank test was therefore used instead of the t-test. 44
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Process 0.33 0.42 Financial Metric 0.21 0.56
The exact calculations can be found in Appendix VII. To obtain the scores for consumer- centricity, the formulas described in chapter 4.6 lead to the following results for 2007 and 2009:
Table 4-10: Consumer-centricity when applying the alternative models
Consumer-Centricity Model Increase 2007 2009 Additive 0.26 0.45 76.3% Multiplicative 0.00 0.04 DIV/0 Exponential 2.81 6.17 119.8% Logarithmic 0.71 1.04 46.2% Logistic 0.74 0.86 16.7%
As can be seen, for all applied models, the score for consumer-centricity increases. To examine if the found score increase is sensitive to are measurement errors, a sensitivity analysis was conducted.
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Table 4-11: Differences between the consumer-centricity in 2007 and 2009 when considering errors
Δ Δ Δ Δ Δ Dimension Level Additive Multiplicative Exponential Logarithmic Logistic 0.39 0.20 0.03 3.03 0.34 0.13 0.44 0.20 0.04 3.19 0.33 0.13 Culture 0.49 0.20 0.04 3.35 0.33 0.12 0.54 0.20 0.04 3.52 0.32 0.12 0.59 0.20 0.05 3.70 0.31 0.12 0.00 0.11 0.00 1.62 0.20 0.08 Structure 0.33 0.11 0.03 2.26 0.18 0.06 0.66 0.11 0.06 3.14 0.16 0.05 0.16 0.20 0.02 2.84 0.35 0.14 0.25 0.20 0.03 3.08 0.34 0.13 Process 0.33 0.20 0.04 3.35 0.33 0.12 0.41 0.20 0.05 3.64 0.32 0.12 0.50 0.20 0.05 3.96 0.31 0.11 0.11 0.13 0.02 1.89 0.24 0.09 0.16 0.13 0.02 1.94 0.24 0.09 0.21 0.13 0.02 1.99 0.23 0.09 Financial 0.26 0.13 0.02 2.04 0.23 0.09 Metric 0.31 0.13 0.03 2.09 0.23 0.09 0.46 0.13 0.04 2.55 0.21 0.08 0.71 0.13 0.06 3.28 0.19 0.07
The table show the domains’ score levels that were used for the sensitivity analysis and the resulting difference (the score for 2009 minus the score for 2007) of the consumer-centricity scores. The complete tables with the calculations on sensitivity can be found in Appendix VIII. Regardless of measurement errors and applied model, the sensitivity analysis showed that in all cases the consumer-centricity of Philips CL increased.
Table 4-12: Variance of the models for consumer-centricity
Additive Multiplicative Exponential Logarithmic Logistic Dimension 2007 2009 2007 2009 2007 2009 2007 2009 2007 2009 Culture 0.000 0.000 0.000 0.000 0.049 0.237 0.002 0.001 0.000 0.000 Structure 0.007 0.007 0.000 0.002 1.729 4.310 0.020 0.014 0.003 0.002 Process 0.001 0.001 0.000 0.000 0.138 0.664 0.004 0.002 0.001 0.000 Financial 0.002 0.002 0.000 0.000 0.500 1.464 0.008 0.005 0.001 0.001 Metric Variance- to-Mean 0.009 0.005 0.018 0.008 0.180 0.212 0.011 0.004 0.002 0.001 Ratio
It was also found that the results are especially sensitive to changes on the structure dimension and if the number of consumer-centric KPIs changes. This is not a surprising result since changes of these two factors require the biggest steps since they are based on a scale
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Results with 4 points for the average structure and 3 points for the KPIs. Looking at the variance-to- mean ratio (the variance of the consumer-centricity in the sensitivity divided by its mean), it can be seen that the exponential model is most prone to measurement errors.
Due to the limited number of instances, the calculation of statistical effect measures such as e.g. correlation is not possible. To display the relationship between both, Figure 4-7 that displays the development of both factors from 2007 to 2009 was made.
Figure 4-7: Development of the consumer-centricity and the consumer experience from 2007 to 2009
7,00 39,00
6,00 38,00
5,00 37,00
4,00 36,00
3,00 35,00
2,00 34,00
1,00 33,00
0,00 32,00 2007 2009
Additive Consumer-centricity Multiplicative Consumer-centricity Exponential Consumer-centricity Logarithmic Consumer-centricity Logistic Consumer-centricity NPS (Co-)Leadership
While all scores for consumer-centricity increase, NPS (Co-) Leadership declined from 37 to 34, representing a decline of 8%. This is surprising since it was hypothized that an increase in consumer-centricity would lead to an improved consumer experience.
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Conclusion
5 CONCLUSION This chapter concludes this report by shortly discussing the results and their implication for the answer to the research questions, the managerial and theoretical implications, and the limitations of this study. In the end some concluding thoughts can be found.
5.1 DISCUSSION
The thesis’s first research question was how to measure consumer-centricity. It was found that while the topic of consumer-centricity is popular among practitioners as well as academics, clear guidelines for how to measure the consumer-centricity of an organization are scarce. In this situation, this study made was able to develop a consistent set of methods to measure the dimensions of consumer-centricity; already available metrics were combined with several newly developed ones. This application of the literature on consumer-centricity is the first application of the models describing the domains of consumer-centricity (see e.g. Shah, Rust, Parasuraman, Staelin, & Day, 2006; Galbraith, 2002; Kates & Galbraith, 2007; Fisk, 2009) known to me. The application of the developed methods allowed not only the calculation of scores, but also to derive managerial implications since it has now become clear which organizational changes will lead to score increases.
The methods used to calculate consumer-centricity were found to be sensitive to especially changes in organizational structure and the number of consumer centric KPIs. Considering the fact that structure is the only dimension of consumer-centricity that was measured on a one-dimensional scale, a high reliability of the assessment is important. The reliability of the assessment could, however, not be tested in this study due to limited data availability. The number of KPIs is influential since it determines 50% of the score for the financial metric dimension and is measured on a 3-point scale. Nonetheless, the model shows a high level of face validity since it is in line with the subjective observation that that Philips CL has moved at a fast pace towards a complete implementation of consumer-centricity. Considering that none of the alternative models resulted in substantially different conclusions, the application of the rule of parsimony leads to a preference for either the additive of the multiplicative model. The additive model is, however, preferable since it seem implausible that an company that has a score of zero for the structure domain but scores high on the other three dimensions has a consumer-centricity of zero.
A clear link between the consumer-centricity and the consumer experience of Philips CL for the years 2007 and 2009 could not be made. Though a positive effect of consumer-centricity on the consumer experience was expected, consumer-centricity increased and consumer experience decreased. In theory, however, a higher consumer-centricity should lead to a higher NPS (Co-) Leadership score. A number of reasons could be causing this discrepancy:
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Conclusion
1. Faulty weighting: The scores for all four dimensions of consumer-centricity increase from 2007 to 2009. Faulty weighting of the domain indices is therefore not likely to be the root cause for this discrepancy. 2. NPS Leadership is a lagging indicator: NPS scores are influenced by the consumers’ past experiences. NPS Leadership increases should therefore lag behind advances in consumer-centricity. 3. NPS (Co-) Leadership is an inaccurate measure for consumer experience: NPS (Co-) Leadership is influenced not only by factors affecting the consumer experience; it is also a benchmark of Philips CL against its competition. Changes in competitors’ performances distort the result. 4. Unaccounted Events: In conjunction with the restructurings in conjunction with the implementation of Vision 2010, the consumer experience might have suffered. When this situation is settling, NPS (Co-) Leadership scores will increase.
Looking at the NPS (Co-) Leadership scores for the three years 2007, 2008, and 2009, the second and the fourth explanation seem most likely. To illustrate this development, the results of the additive model were set-off against the NPS (Co-) Leadership scores. Adding a linear trend line to consumer-centricity and presenting it against NPS (Co-) Leadership leads results in the following graph:
Figure 5-1: Development of Consumer-Centricity & Consumer Experience from 2007to 2009
0,6 40
0,5 35
Additive Consumer- 0,4 30 centricity NPS (Co-)Leadership 0,3 25
0,2 20 2007 2008 2009
Similar graphs can be made for all alternative consumer-centricity models, since in all cases consumer-centricity increases. It can be seen that NPS (Co-) Leadership suffered a dip from 2007 to 2008. From 2008 to 2009 the NPS (Co-) Leadership increased, the score for 2009, however, still was below the score for 2007. At this point, it is not possible to point out a definitive reason for the absence of a link between consumer-centricity and consumer experience.
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Conclusion
5.2 MANAGERIAL IMPLICATIONS
First of all, Philips CL is advancing towards more consumer-centricity. It can, however, not yet be called a consumer-centric company because Philips CL is, with the exception of the direct sales online channel, not able to offer personalized experiences.
A central factor hampering the further development seems to be deficits in the IT infrastructure concerning consumers. In 2009, it was not possible to construct consumer profiles that allow Philips CL to provide personalized products and services. There was also no information on the individual consumers’ interests. Due to these deficiencies does not have enough information to provide a personalized experience.
The deficiencies in information management also impact the use of financial metrics. The ability to build individual consumer profiles would enable Philips CL to integrate consumer- centric metrics such as the frequently recommended Customer Lifetime Value (CLV) metric (Kumar & Petersen, 2005; Rust, Ambler, Carpenter, Kumar, & Srivastava, 2004; Payne, 2006). CLV is a measure of the individual value of a consumer for an organization. Measuring CLV would enable Philips CL to select the most profitable consumers and prioritize them. Consumer prioritization has been found to lead to higher average consumer value and return on sales (Homburg, Droll, & Totzek, 2008).
The ability to demonstrate the value of consumers would also emphasize the importance of the management of consumers. This would strengthen the position of consumer facing units within Philips CL, thereby facilitating the shift towards a more unified structure to enable a consistent approach towards the consumers.
On the cultural domain, it was found that there was a shift towards the market culture type. While emphasizing the competitive character of Philips CL, this shift bears the risk of weakening fellowship among Philips CL employees. Homburg and Pflesser (2000) found that artifacts and symbols are important to affect organizational culture. Hence, the success of teams should be highlighted and dysfunctional symbols, such as success stories of individuals, should be eliminated.
5.3 THEORETICAL IMPLICATIONS & FURTHER RESEARCH
From a theoretical perspective, this study questions the often claimed statement that consumer-centricity increased the consumer’s perceived value, thereby enhancing the consumer experience (Diller, Shedroff, & Rhea, 2005; Vredenburg, 2003). A second important implication is that more actionable methods for measuring consumer-centricity should be developed. Literature on the topic of consumer-centricity often has a narrative character (see e.g. Johnson & Schultz, 2004) or lacks the necessary depth to provide actionable guidelines for the assessment of consumer-centricity (see e.g. Shah et al., 2006).
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Conclusion
Further studies should aim to validate the used methodology and add more sensitivity to especially the process domain. Another important direction for future research is to examine the development of consumer-centricity over a longer period of time. By adding more data to the calculations, it might be possible to draw conclusions on the weight of the individual factors in the model. With more data it might also be possible to draw more reliable conclusions on the link between consumer-centricity and consumer experience. Another approach for further research would be to validate this study by applying a cross- organizational approach. While not being Philips CL specific, this approach would also allow inferences on industry differences.
5.4 LIMITATIONS
As all studies, this study’s power is limited by several factors. The most important ones are:
• Retrospectivity: the data used for this study was collected retrospectively. While this has little influence on the reliability of the documents used, it influences the interviewees’ statements. A review of the individual answers given for the OCAI revealed that some respondents valued the options A to D each with 25 for the year 2007. This answer pattern could, however, not be observe in the answers for the year 2009. This suggests that respondents were unable to remember the past situation. A similar phenomenon was also experienced during the interviews, where interviewees were frequently not specific about the past situation. • Integration approach: while this study treats Philips CL as one unified community, my personal observation questions this approach. It seems rather that the situation at Philips CL is rather governed by several subcultures (Sackmann, 1992) that compete with each other. This finding is also indicated by the high level of market culture that was found in the OCAI. • Limited Data: Since official NPS releases were only available for the years 2007 to 2009, the amount of available data is limited. Hence, it was not possible to test the developed model for reliability and validity. • Generalizability: The study is a case study and relies only on data from Philips CL. According to in academic literature, the situation of Philips CL is similar to that of many other companies who are among to become more consumer-centric. The methods describes in this study were, however, not tested with other companies. The generalizability of this study is therefore limited.
51
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European Journal of Marketing , 35 (3/4), 353-367. 56 Index 7 INDEX 7.1 TABLE OF TABLES 3-1: Operationalization of central questions of the process domain ...... 26 Table 3-2: Words pairs used to examine the annual reports ...... 28 3-3: Tested Models ...... 30 Table 4-1: Results of the OCAI ...... 33 Table 4-2: Significance of the changes in cultural form 2007 to 2009 ...... 35 Table 4-3: Results on structure ...... 38 Table 4-4: Consumer-centricity of the information management process ...... 38 Table 4-5: Consumer-centricity of the information management process ...... 39 Table 4-6: Consumer-centricity of the information management process ...... 41 Table 4-7: Use of product-centric and consumer-centric words in annual reports ...... 43 Table 4-8: Significance of the differences in word counts ...... 44 Table 4-9: Average Scores for the dimensions of consumer-centricity ...... 44 Table 4-10: Consumer-centricity when applying the alternative models ...... 45 Table 4-11: Differences between the consumer-centricity in 2007 and 2009 when considering errors ...... 46 Table 4-12: Variance of the models for consumer-centricity ...... 46 Table II-1: Results of the OCAI ...... 62 Table III-2: Descriptive statistics of the OCAI results ...... 63 Table III-3: Z-scores of the OCAI results ...... 64 Table VI-1: Descriptive Statistics for the word counts in annual reports ...... 67 Table VIII-1: Sensitivity of the additive model ...... 70 Table VIII-2: Sensitivity of the multiplicative model ...... 71 Table VIII-3: Sensitivity of the exponential model ...... 72 Table VIII-4: Sensitivity of the logarithmic model ...... 73 Table VIII-5: Sensitivity of the logistic model ...... 74 7.2 TABLE OF FIGURES Figure 2-1: Organogram of Philips CL in 2009...... 13 Figure 2-2: Organizational barriers hindering the transformation from product centricity to consumer-centricity (Shah, Rust, Parasuraman, Staelin, & Day, 2006) ...... 15 Figure 3-1: Breadth of an integrated experience (Diller, Shedroff, & Rhea, 2005) ...... 18 Figure 3-2: Organizational Culture Types (based on Cameron & Freeman, 1991) ...... 21 Figure 4-1: NPS Leadership of Philips CL ...... 32 Figure 4-2: Overall organizational culture at Philips CL ...... 34 Figure 4-3: Management of Employees at Philips CL ...... 35 Figure 4-4: Organizational Glue at Philips CL ...... 36 57 Index Figure 4-5: Consumer e-mail data management from 2006 to 2009 ...... 41 Figure 4-6: Consumer Centric Process Maturity ...... 42 Figure 4-7: Development of the consumer-centricity and the consumer experience from 2007 to 2009 ...... 47 Figure 5-1: Development of Consumer-Centricity & Consumer Experience from 2007to 2009 ...... 49 Figure V-1: Overall distribution of promoters, defectors, & passives from 2008 to 2010. Error! Bookmark not defined. Figure V-2: Average NPS scores ...... Error! Bookmark not defined. 58 Interview List APPENDIX I. INTERVIEW LIST This content was removed for reasons of confidentiality 59 The OCAI APPENDIX II. THE OCAI The Organizational Culture Assessment Instrument (OCAI) is an updated version of the original tool developed by Cameron and Freeman (1991) that enables the categorization of an organization’s culture on six criteria: 1. Dominant Characteristics 2. Organizational Leadership 3. Management of Employees 4. Organizational Glue 5. Strategic Emphasis 6. Criteria of Success To fill in the OCAI, 100 points have to be distributed among four categories (A to D). The categories each represent a culture type: A represents the Clan culture, B the Adhocracy, C the Market culture, and D the Hierarchy culture. To calculate the overall score, the average scores per category. 1 Dominant Characteristics 2007 2009 Philips CL is a very personal place. It is like an extended family. People seem A to share a lot of themselves. Philips CL is a very dynamic and entrepreneurial place. People are willing to B stick their necks out and take risks. Philips CL is very results oriented. A major concern is with getting the job C done. People are very competitive and achievement oriented. Philips CL is a very controlled and structured place. Formal procedures D generally govern what people do. Total (should always add up to 100) 100 100 2 Organizational Leadership 2007 2009 The leadership in Philips CL is generally considered to exemplify mentoring, A facilitating, or nurturing. The leadership in Philips CL is generally considered to exemplify B entrepreneurship, innovating, or risk taking. The leadership in Philips CL is generally considered to exemplify a no- C nonsense, aggressive, result-oriented focus. The leadership in Philips CL is generally considered to exemplify D coordinating, organizing, or smooth-running efficiency. Total (should always add up to 100) 100 100 3 Management of Employees 2007 2009 The management style in Philips CL is characterized by teamwork A consensus, and participation. The management style in Philips CL is characterized by individual risk- B taking, innovation, freedom, and uniqueness. The management style in Philips CL is characterized by hard-driving C competitiveness, high demands, and achievement. 60 The OCAI The management style in Philips CL is characterized by security or D employment, conformity, predictability, and stability in relationships. Total (should always add up to 100) 100 100 4 Organization Glue 2007 2009 The glue that holds Philips CL together is loyalty and mutual trust. A Commitment to this organization runs high. The glue that holds Philips CL together is commitment to innovation and B development. There is an emphasis on being on the cutting edge. The glue that holds Philips CL together is the emphasis on achievement and C goal accomplishment. Aggressiveness and winning are common themes. The glue that holds Philips CL together is formal rules and policies. D Maintaining a smooth running organization is important. Total (should always add up to 100) 100 100 5 Strategic Emphases 2007 2009 Philips CL emphasizes human development. High trust, openness, and A participation persist. Philips CL emphasizes acquiring new resources and creating new B challenges. Trying new things and prospecting for opportunities are valued. Philips CL emphasizes competitive actions and achievement. Hitting stretch C targets and winning in the marketplace are dominant. Philips CL emphasizes permanence and stability, efficiency, control and D smooth operations are important. Total (should always add up to 100) 100 100 6 Criteria of Success 2007 2009 Philips CL defines success on the basis of the development of human A resources, teamwork, employee commitment, and concern for people. Philips CL defines success on the basis of having the most unique or newest B products. It is a product leader and innovator. Philips CL defines success on the basis of winning in the marketplace and C outpacing the competition. Competitive market leadership is key. Philips CL defines success on the basis of efficiency. Dependable delivery, D smooth scheduling, and low-cost production arc critical. Total (should always add up to 100) 100 100 61 Results of the OCAI APPENDIX III. RESULTS OF THE OCAI Table II-1: Results of the OCAI 56.67 61.67 15.83 49.17 53.33 50.83 46.67 51.67 54.17 53.33 15.00 46.67 91.67 70.00 78.33 54.17 36.67 56.67 33.33 External Focus 2009 8.33 43.33 38.33 84.17 50.83 46.67 49.17 53.33 48.33 45.83 46.67 85.00 53.33 30.00 26.00 45.83 63.33 43.33 66.67 Internal focus 47.50 50.00 15.83 45.83 46.67 52.50 46.67 49.17 50.83 52.50 16.67 47.50 85.67 66.67 68.33 54.17 40.00 48.33 37.50 External Focus 2007 52.50 50.00 84.17 54.17 53.33 47.50 53.33 50.83 49.17 47.50 83.33 52.50 16.67 33.33 37.33 45.83 60.00 51.67 62.50 Internal Focus 5.00 26.67 24.17 72.50 25.83 33.33 20.00 35.00 17.08 21.67 25.83 65.83 30.00 22.50 14.00 30.83 33.33 25.00 38.33 Average Average Hierarchy 9.17 38.33 40.83 10.83 36.67 36.67 29.17 27.50 28.75 35.83 26.67 20.00 83.33 41.67 50.83 35.83 20.00 32.50 16.67 Average Average Market 2009 5.00 5.83 8.33 18.33 20.83 12.50 16.67 21.67 19.17 22.92 18.33 26.67 26.67 28.33 27.50 18.33 16.67 24.17 16.67 Average Average Adhocracy 3.33 7.50 16.67 14.17 11.67 25.00 13.33 29.17 18.33 31.25 24.17 20.83 19.17 23.33 12.00 15.00 30.00 18.33 28.33 Average Average Clan 3.33 20.00 22.50 72.50 28.33 31.67 16.67 35.00 20.83 26.67 23.33 60.00 11.67 35.83 18.33 25.00 30.83 25.83 30.83 Average Average Hierarchy 16.67 22.50 10.83 24.17 25.00 27.50 27.50 26.67 36.67 28.33 10.00 71.67 22.50 36.67 26.67 32.50 19.17 20.83 21.67 Average Average Market 2007 5.00 6.67 30.83 27.50 21.67 21.67 25.00 19.17 22.50 14.17 24.17 14.00 25.00 30.00 41.67 21.67 20.83 27.50 15.83 Average Average Adhocracy 5.00 32.50 27.50 11.67 25.83 21.67 30.83 18.33 30.00 22.50 24.17 23.33 16.67 15.00 34.00 20.83 29.17 25.83 31.67 Average Average Clan 9 8 7 6 5 4 3 2 1 19 18 17 16 15 14 13 12 11 10 Description 62 Results of the OCAI Table III-2: Descriptive statistics of the OCAI results 19 1.08 -0.09 51.36 53.33 91.67 18.35 15.00 Focus External External 2009 19 1.22 8.33 0.14 48.87 46.67 85.00 18.02 focus Internal Internal 19 1.92 -0.07 48.54 48.33 85.67 15.75 15.83 Focus External External 2007 19 2.08 0.24 51.88 51.67 84.17 15.10 16.67 Focus Internal Internal 19 5.00 2.99 1.55 29.84 25.83 72.50 15.96 Average Average Hierarchy 19 9.17 4.37 1.49 32.70 32.50 83.33 16.37 Market Average Average 2009 19 5.00 6.95 -0.28 -0.58 18.66 18.33 28.33 Average Average Adhocracy 19 3.33 7.83 -0.63 -0.14 19.03 18.33 31.25 Clan Average Average 19 3.25 1.51 3.33 28.38 25.83 72.50 15.67 Average Average Hierarchy 19 7.94 2.32 26.71 25.00 71.67 13.02 10.00 Market Average Average 2007 19 8.53 5.00 0.97 0.01 21.83 21.67 41.67 Average Average Adhocracy 19 7.65 5.00 0.38 -0.79 23.50 24.17 34.00 Clan Average Average Cases Mean Median Deviation Std. Minimum Maxim um Skewness Kurtosis 63 Results of the OCAI Table III-3: Z-scores of the OCAI results 0.29 0.15 1.47 1.02 2.20 0.11 0.15 0.02 0.11 0.56 0.29 -0.80 -0.98 -0.26 -1.98 -0.26 -0.03 -0.12 -1.94 External Focus 2009 0.80 0.99 0.25 2.01 0.25 0.02 0.11 1.96 -0.31 -0.17 -1.27 -1.05 -2.25 -0.12 -0.17 -0.03 -0.12 -0.58 -0.31 Internal focus 0.36 1.26 1.15 2.36 0.25 0.15 0.04 0.25 0.09 -0.54 -0.01 -0.70 -2.02 -0.07 -0.12 -0.12 -0.17 -2.08 -0.07 External Focus 2007 0.54 0.70 2.08 0.04 0.10 0.10 0.15 2.14 0.04 -0.40 -0.96 -1.23 -0.01 -2.33 -0.29 -0.18 -0.07 -0.29 -0.12 Internal Focus 0.06 0.22 2.26 0.53 0.01 0.32 0.22 2.67 -0.99 -0.46 -0.30 -1.56 -0.25 -0.51 -0.80 -0.25 -0.62 -0.36 -0.20 Average Average Hierarchy 0.19 1.11 0.55 3.09 0.19 0.24 0.24 0.50 0.34 -0.78 -0.01 -1.44 -0.98 -0.78 -0.37 -0.24 -0.32 -1.34 -0.22 Average Average Market 2009 1.27 1.39 0.79 1.15 1.15 0.61 0.07 0.43 0.31 -0.05 -0.29 -1.49 -1.85 -0.29 -0.05 -0.89 -0.29 -1.96 -0.05 Average Average Adhocracy 1.40 0.02 1.19 0.55 0.23 0.66 0.76 1.56 1.29 -0.51 -0.90 -1.47 -0.09 -2.00 -0.09 -0.73 -0.94 -0.62 -0.30 Average Average Clan 0.16 2.02 0.16 0.48 0.42 0.00 0.21 2.82 -0.22 -1.60 -0.64 -0.16 -1.07 -0.32 -0.11 -0.48 -0.75 -0.37 -0.53 Average Average Hierarchy 0.44 0.00 0.76 3.45 0.12 0.76 0.00 0.06 0.06 -0.58 -0.45 -1.28 -0.39 -0.32 -0.20 -0.13 -1.22 -0.32 -0.77 Average Average Market 2007 2.33 0.96 0.66 0.37 0.27 0.08 0.37 0.66 1.05 -0.02 -0.12 -0.92 -1.78 -0.70 -0.90 -0.31 -0.02 -0.02 -1.97 Average Average Adhocracy 0.74 1.37 0.30 1.07 0.09 0.85 0.30 0.96 0.52 1.18 -0.35 -1.11 -2.42 -0.02 -0.89 -0.13 -0.68 -0.24 -1.55 Average Average Clan 4 3 5 6 7 2 9 8 1 10 11 12 13 16 14 15 17 18 19 Descripti on 64 NPS Questionnaire Currently used in Philips APPENDIX IV. NPS QUESTIONNAIRE CURRENTLY USED IN PHILIPS This content was removed for reasons of confidentiality 65 General NPS Statistics APPENDIX V. GENERAL NPS STATISTICS NPS Scores of Philips CL. This content was removed for reasons of confidentiality 66 Calculations for Words in Annual Reports APPENDIX VI. CALCULATIONS FOR WORDS IN ANNUAL REPORTS Table VI-1: Descriptive Statistics for the word counts in annual reports Product-centric words Consumer-centric words 2007 2009 2007 2009 Cases 9 9 9 9 Mean 9.0000 4.4444 6.4444 7.2222 Median 2.0000 1.0000 2.0000 2.0000 Std. Deviation 13.72042 6.14636 8.45741 12.63703 Skewness 1.652 1.430 1.518 2.448 Std. Error of Skewness 0.717 0.717 0.717 0.717 Kurtosis 1.046 0.979 1.319 6.261 Std. Error of Kurtosis 1.400 1.400 1.400 1.400 Minimum 1.00 0.00 0.00 0.00 Maximum 36.00 17.00 24.00 39.00 67 Consumer-Centricity Dimension Scores APPENDIX VII. CONSUMER-CENTRICITY DIMENSION SCORES To transform the results of the OCAI to a range between 0 and 1, the obtained scores are divided by 100. 49 Average Culture Consumer-Centricity in 2007= = 0.49 100 51 Average Culture Consumer-Centricity in 2009= = 0.51 100 The results on Philips CL’s structural consumer-centricity are divided by 3 to make transform the scale from 0 to 3 to a scale from 0 to 1. 0 Average Structure Consumer-Centricity in 2007= = 0.00 3 1 Average Structure Consumer-Centricity in 2009= = 0.33 3 At the process domain, the summarized results are divided by 6, the number of questions answered, to obtain an average score on a scale ranging from 0 to 1. 5 + 3 + 2 6 Average Process Consumer-Centricity in 2007= = 0.33 12 − 5 + 4 + 2 6 Average Structure Consumer-Centricity in 2009= = 0.42 12 − Similar to the process domain, the scores obtained in the financial metric domain are summarized and divided by 2, the number of examinations performed. 0 + 0.42 Average Process Consumer-Centricity in 2007 = = 0.21 2 0.50 + 0.62 Average Structure Consumer-Centricity in 2009 = = 0.56 2 68 Sensitivity Analysis APPENDIX VIII. SENSITIVITY ANALYSIS • For culture, the score was varied in steps of 0.05 points. • Since the scale for structure has four points, the score for the structure of Philips CL was de- and increased in steps of 0.33 points. • Due to the measurement scales used to measure the processes, the minimal step is 1/12. The score for the processes was therefore de- and increased in two steps of 1/12. • For financial metrics, the score for the word count in annual reports was de- and increased in two steps of 5%. Afterwards, the score for the KPIs is de- and increased with the minimal possible step 69 Sensitivity Analysis Table VIII-1: Sensitivity of the additive model 0.13 0.13 0.13 0.13 0.13 0.13 0.20 0.20 0.20 0.20 0.20 0.11 0.11 0.11 0.20 0.20 0.20 0.20 0.20 0.13 2009-2007 0.43 0.44 0.45 0.47 0.48 0.37 0.45 0.54 0.41 0.43 0.40 0.45 0.52 0.45 0.47 0.50 0.38 0.39 0.39 0.40 2009 Additive 0.23 0.25 0.26 0.27 0.28 0.26 0.34 0.42 0.22 0.24 0.27 0.32 0.38 0.26 0.28 0.30 0.25 0.25 0.26 0.26 2007 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.36 0.56 0.81 0.56 0.56 0.56 0.26 0.29 0.31 0.34 Metics Financial Financial 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.25 0.33 0.42 0.42 0.42 0.42 0.50 0.58 0.42 0.42 0.42 0.42 Process 2009 0.33 0.33 0.33 0.33 0.33 0.00 0.33 0.66 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Structure 0.41 0.46 0.51 0.56 0.61 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 Culture 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.26 0.46 0.71 0.21 0.21 0.21 0.16 0.19 0.21 0.24 Metics Financial Financial 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.16 0.25 0.33 0.33 0.33 0.33 0.41 0.50 0.33 0.33 0.33 0.33 Process 2007 0.00 0.00 0.00 0.00 0.00 0.00 0.33 0.66 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Structure 0.39 0.44 0.49 0.54 0.59 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 Culture Culture Sensitivity Culture SensitivityProcess Structure Sensitivity Financial Metrics Sensitivity Metrics Financial 70 Sensitivity Analysis Table VIII-2: Sensitivity of the multiplicative model 0.03 0.04 0.04 0.04 0.05 0.00 0.03 0.06 0.02 0.03 0.04 0.05 0.05 0.02 0.02 0.02 0.02 0.03 0.04 0.06 2009-2007 0.03 0.04 0.04 0.04 0.05 0.00 0.04 0.08 0.02 0.03 0.04 0.05 0.05 0.02 0.02 0.02 0.02 0.03 0.04 0.06 2009 Multiplicative 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2007 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.26 0.29 0.31 0.34 0.36 0.56 0.81 Metics Financial Financial 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.25 0.33 0.42 0.50 0.58 0.42 0.42 0.42 0.42 0.42 0.42 0.42 Process 2009 0.33 0.33 0.33 0.33 0.33 0.00 0.33 0.66 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Structure 0.41 0.46 0.51 0.56 0.61 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 Culture 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.16 0.19 0.21 0.24 0.26 0.46 0.71 Metics Financial Financial 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.16 0.25 0.33 0.41 0.50 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Process 2007 0.00 0.00 0.00 0.00 0.00 0.00 0.33 0.66 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Structure 0.39 0.44 0.49 0.54 0.59 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 Culture Culture Sensitivity Culture SensitivityProcess Structure Sensitivity Financial Metrics Sensitivity Metrics Financial 71 Sensitivity Analysis Table VIII-3: Sensitivity of the exponential model 3.03 3.19 3.35 3.52 3.70 1.62 2.26 2.04 2.09 2.55 3.28 3.14 2.84 3.08 3.35 3.64 3.96 1.89 1.94 1.99 2007 2009- 5.57 5.85 6.15 6.47 6.80 4.42 6.15 8.56 5.21 5.66 6.15 6.69 7.27 4.56 4.67 4.79 4.91 5.04 6.15 7.90 2009 Exponential 2.53 2.66 2.80 2.94 3.10 2.80 3.90 5.42 2.37 2.58 2.80 3.04 3.31 2.66 2.73 2.80 2.87 2.94 3.60 4.62 2007 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.26 0.29 0.31 0.34 0.36 0.56 0.81 Metics Financial Financial 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.25 0.33 0.42 0.50 0.58 0.42 0.42 0.42 0.42 0.42 0.42 0.42 Process 2009 0.33 0.33 0.33 0.33 0.33 0.00 0.33 0.66 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Structure 0.41 0.46 0.51 0.56 0.61 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 Culture 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.16 0.19 0.21 0.24 0.26 0.46 0.71 Metics Financial Financial 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.16 0.25 0.33 0.41 0.50 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Process 2007 0.00 0.00 0.00 0.00 0.00 0.00 0.33 0.66 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Structure 0.39 0.44 0.49 0.54 0.59 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 Culture Culture Sensitivity Culture SensitivityProcess Structure Sensitivity Financial Metrics Sensitivity Metrics Financial 72 Sensitivity Analysis Table VIII-4: Sensitivity of the logarithmic model 0.34 0.33 0.33 0.32 0.31 0.20 0.18 0.16 0.35 0.34 0.33 0.32 0.31 0.24 0.24 0.23 0.23 0.23 0.21 0.19 2009-2007 1.00 1.02 1.04 1.05 1.07 0.91 1.04 1.15 0.97 1.01 1.04 1.06 1.09 0.92 0.93 0.94 0.95 0.96 1.04 1.12 2009 Logarithmic 0.66 0.68 0.71 0.73 0.76 0.71 0.86 0.99 0.62 0.67 0.71 0.75 0.79 0.68 0.70 0.71 0.72 0.73 0.82 0.93 2007 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.26 0.29 0.31 0.34 0.36 0.56 0.81 Metics Financial Financial 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.25 0.33 0.42 0.50 0.58 0.42 0.42 0.42 0.42 0.42 0.42 0.42 Process 2009 0.33 0.33 0.33 0.33 0.33 0.00 0.33 0.66 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Structure 0.41 0.46 0.51 0.56 0.61 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 Culture 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.16 0.19 0.21 0.24 0.26 0.46 0.71 Metics Financial Financial 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.16 0.25 0.33 0.41 0.50 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Process 2007 0.00 0.00 0.00 0.00 0.00 0.00 0.33 0.66 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Structure 0.39 0.44 0.49 0.54 0.59 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 Culture Culture Sensitivity Culture SensitivityProcess Structure Sensitivity Financial Metrics Sensitivity Metrics Financial 73 Sensitivity Analysis Table VIII-5: Sensitivity of the logistic model 0.13 0.13 0.12 0.12 0.12 0.08 0.06 0.05 0.14 0.13 0.12 0.12 0.11 0.09 0.09 0.09 0.09 0.09 0.08 0.07 2009-2007 0.85 0.85 0.86 0.87 0.87 0.82 0.86 0.90 0.84 0.85 0.86 0.87 0.88 0.82 0.82 0.83 0.83 0.83 0.86 0.89 2009 Logistic 0.72 0.73 0.74 0.75 0.76 0.74 0.80 0.84 0.70 0.72 0.74 0.75 0.77 0.73 0.73 0.74 0.74 0.75 0.78 0.82 2007 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.26 0.29 0.31 0.34 0.36 0.56 0.81 Metics Financial Financial 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.25 0.33 0.42 0.50 0.58 0.42 0.42 0.42 0.42 0.42 0.42 0.42 Process 2009 0.33 0.33 0.33 0.33 0.33 0.00 0.33 0.66 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Structure 0.41 0.46 0.51 0.56 0.61 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 Culture 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.16 0.19 0.21 0.24 0.26 0.46 0.71 Metics Financial Financial 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.16 0.25 0.33 0.41 0.50 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Process 2007 0.00 0.00 0.00 0.00 0.00 0.00 0.33 0.66 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Structure 0.39 0.44 0.49 0.54 0.59 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 0.49 Culture Culture Sensitivity Culture SensitivityProcess Structure Sensitivity Financial Metrics Sensitivity Metrics Financial 74 Vision 2010 Strategies APPENDIX IX. VISION 2010 STRATEGIES Vision 2010 announced the following strategies to realize the announced mission: 1. We are a people-centric company that organizes around customers and markets 2. We invest in a strong brand and consistently deliver on our brand promise of sense and simplicity in our actions, products and services 3. We deliver innovation by investing in world class strengths in end-user insights, technology, design and superior supplier networks 4. We develop our people’s leadership, talent and engagement and align ourselves with high performance benchmarks 5. We invest in high growth and profitable businesses and emerging geographies to achieve market leadership positions 6. We are committed to sustainability and focus on making the difference in efficient energy use 7. We drive operational excellence and quality to best in class levels, allowing us the above mentioned strategic investments in our businesses 75