IT Directors Forum 1st IT Leaders Conference Cyprus, October 24, 2019 Designed for Digital Prof. Dr. Martin Mocker Professor, ESB Business School Reutlingen University Research Affiliate, MIT Center for Information Systems Research Sloan School of Management [email protected] // @martinmocker A Dutch Icon – Philips, the Netherlands‘ most valuable brand has innovation in its DNA 2011 Interbrand Ranking 01. Coca Cola USD million 71.9 05. GE 42.8 17. Samsung 23.4 Philishave 41. Philips 8.7 46. Siemens 7.9 Senseo Sonicare 69. Panasonic 5.0 74. Shell 4.5 85. 3M 3.9 91. Heineken 3.8 Lighting the Eiffel Co‐inventor of Tower and Empire CD, DVD, Blu‐ray State Building standards Source: Interbrand 2011 https://www.interbrand.com/best‐brands/best‐global‐brands/2011/ranking/ 4 Philips‘ financial performance 2000‐2011 flagging Revenue and net income Revenue (€ B) Net income (€ B) Mean share price Source: M. Mocker, J.W. Ross and E. van Heck, “Transforming Royal Philips: Seeking Local Relevance While Leveraging Global Scale,” working paper no. 394, 5 MIT Sloan CISR, Cambridge, Massachusetts, February 2014. Philips’ financial performance 2015‐2018 recovering In million Euros Adj. EBITA CAGR +11.9% 18,121 Sales 17,780 Adjusted EBITA 17,422 16,806 2,366 2,153 1,921 1,688 2015 2016 2017 2018 Adj. EBITA 10.0% 11.0% 12.1% 13.1% as % of sales Source: Annual reports 2015‐2018 6 What happened? Two transformations that both involve digital technology—and yet are VERY different Becoming DIGITAL Using digital technologies to rapidly innovate digital customer offerings to deliver new value propositions Becoming DIGITIZED Using digital technologies to create operational excellence in business processes Source: Ross, J.W., Beath, C.M., Mocker, M.: “Designed for Digital: How to Architect Your Business for Sustained Success”, MIT Press, 2019 7 Let‘s look at Philips‘ DIGITAL transformation Becoming DIGITAL Using digital technologies to rapidly innovate digital customer offerings to deliver new value propositions Becoming DIGITIZED Using digital technologies to create operational excellence in business processes Source: Ross, J.W., Beath, C.M., Mocker, M.: “Designed for Digital: How to Architect Your Business for Sustained Success”, MIT Press, 2019 8 Philips’ new focus: digital, integrated “HealthTech” solutions to improve healthcare outcomes at lower cost • Vision: “As a focused leader in health technology, we are determined to build upon our rich heritage by touching billions of lives each year with our innovative technology solutions and services.” Goal: “improving the lives of 3 billion people a year by 2025” • This “can only be met through new, more integrated forms of care delivery across the health continuum” to help deliver better healthcare outcomes at lower cost Source:: Philips Annual Reports 2016, 2017 9 Digital Technology plays a crucial role for reinventing healthcare “In the world we are living in, healthcare costs are going up, there are more people with chronic diseases, there is an aging population, and at the same time, less funding [per patient] to pay for it. Technology is the only way forward. Smart technology, predictive analytics, and clinical decision support is the only hope we have globally to bridge the gap.” Carla Kriwet EVP and Chief Business Leader Connected Care Source: M. Mocker and J.W. Ross: Transforming Royal Philips to Reinvent Healthcare in the Digital Age. MIT Sloan Center for Information Systems Research, 10 Working Paper No. 425, Dec 2017. From selling products to digital offerings: integrated healthtech solutions example Source: Adapted from video “Philips Respironics Dream Family ‐ Innovation In Sleep Therapy” available online at: https://www.youtube.com/watch?v=dCGIlMMWbcI 11 Digital offerings at Philips: integrated healthtech solutions “Continuing to only focus on separate products—here is an MRI scanner, here is a CT scanner, here are pathology scanners— doesn’t solve the problem for the customer. It’s not how much better you make a product, it’s how much better you make the system. So we take a holistic systems and solutions approach.” Frans van Houten, CEO Source: M. Mocker and J.W. Ross: Transforming Royal Philips to Reinvent Healthcare in the Digital Age. MIT Sloan Center for Information Systems Research, 12 Working Paper No. 425, Dec 2017. From selling products to digital offerings: integrated healthtech solutions example Health insurance MD Source: Adapted from video “Philips Respironics Dream Family ‐ Innovation In Sleep Therapy” available online at: https://www.youtube.com/watch?v=dCGIlMMWbcI 13 This new focus requires them to re‐design the company (again) “Continuing to only focus on separate products—here is an MRI scanner, here is a CT scanner, here are pathology scanners— doesn’t solve the problem for the customer. It’s not how much better you make a product, it’s how much better you make the system. So we take a holistic systems and solutions approach.” Frans van Houten, CEO “We had to change the way we worked… Roles and responsibilities change in the company. It means that, in terms of culture and behavior, you need to make sure that people [are] prepared to work together for a bigger goal with the customer as the driving force of all we do. […].” Frans van Houten, CEO Source: M. Mocker and J.W. Ross: Transforming Royal Philips to Reinvent Healthcare in the Digital Age. MIT Sloan Center for Information Systems Research, 14 Working Paper No. 425, Dec 2017. Digital Business Design The holistic organizational configuration of people, processes, and technology to define value propositions and deliver offerings made possible by the capabilities of digital technology Source: Ross, J.W., Beath, C.M., Mocker, M.: “Designed for Digital: How to Architect Your Business for Sustained Success”, MIT Press, 2019 15 Five building blocks for digital transformation to define and deliver digital offerings for new value propositions Operational Backbone experiments Do you have reliable operational processes Shared Customer Insights that support the new business models of Do you know what your your digital offerings? customers value (are willing to pay for) when it comes to digital? Digital Platform co-creation How can we rapidly build digital offerings without creating a mess? shared components autonomous teams Accountability Framework External Developer Platform Who’s building these new digital Will you be able to build everything offerings and components and to solve your customers’ problems how? ecosystems all on your own? integration vs. separation Source: Ross, J.W., Beath, C.M., Mocker, M.: “Designed for Digital: How to Architect Your Business for Sustained Success”, MIT Press, 2019 16 I’d be happy to discuss further. In any case, buy this book! Not all companies are digital born—but all must offer customers new digital value propositions, or risk disruption from those who will. This insightful, well researched book is filled with real‐world examples and practical advice to help “big, old” companies reimagine a digital future where rapid innovation fuels growth. —Meg McCarthy, Board of Directors, Marriott International 17.