From bottom to top: Turning around the top team

From bottomHere is a brief excerpt from an interview of Pieter Nota by Udo Kopka and Michiel Kruyt for the McKinsey Quarterly, published by McKinsey & Company. It serves as a case study of change at Philips, one that illustrates the importance of the “soft stuff.” To read the complete interview, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

To learn more about the McKinsey Quarterly, please click here.

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When Pieter Nota joined Philips, four years ago, to run the Dutch technology group’s Consumer Lifestyle sector, he found a business in poor shape. The market shares of several important products were falling in the wake of harsh trading conditions and a lack of earlier investment. Sales of the company’s televisions were declining alarmingly following a brief spike ahead of the 2010 FIFA World Cup. More fundamentally, an overcentralized and functionally led organizational structure was proving ill suited to the task of managing the two formerly separate companies (small domestic appliances and consumer electronics) first brought together under the Consumer Lifestyle umbrella, in 2008.

The story of the unit’s subsequent turnaround, from Philips’s problem child to part of a group that recently announced its tenth consecutive quarter of strong revenue and profit growth, is one of astute portfolio divestment and renewal, clear strategic choices, more disciplined operations, and a rigorous focus on performance management. Underlying and driving the recovery, however, has been a less visible, but no less important, improvement in the effectiveness of the Consumer Lifestyle sector’s top team—that handful of senior executives who provide the energy, inspiration, and vision for any enterprise. As the accompanying exhibit illustrates, the results of successive surveys carried out from May 2011 to May 2014 demonstrate a remarkable rise in team-effectiveness scores rating alignment on strategic direction, the quality of execution, and the ability to change.

As an outsider to Philips, how did you determine what the most serious issues were?

One of the first things I did when I joined, in late 2010, was to write an open letter to about 700 people—basically, the group we call the Consumer Lifestyle leadership and a layer below them. I invited them to tell me what they thought was working well in the business and what wasn’t. This gave me a pretty good idea of what was cooking and a lot of useful insights: the sense that two of our biggest businesses, small domestic appliances and consumer electronics, were not functioning well together; the frustration with the lack of investment and innovation, particularly in domestic appliances; and empowerment issues in the sales organizations. All that came out of this exercise.

What were your initial actions as the new CEO?

Consumer Lifestyle was the biggest of Philips’s three businesses at the time, and it was not performing well. The business environment was flat, and we were challenged on both sales and profits. It became clear quite quickly that we might have to divest the TV business. Given TV’s central place in the group’s history, this was pretty drastic. The emotional response was how I imagine it would be if Unilever were to suggest getting out of detergents.

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Here is a direct link to the complete interview.

Pieter Nota was born in 1964, in the Netherlands. He graduated with a degree in business administration from Erasmus University, and has served as Chief executive officer, Philips Consumer Lifestyle, at Philips and is a Member of the Executive Committee (2010–present).

This interview was conducted by Udo Kopka, a director in McKinsey’s Hamburg office, and Michiel Kruyt, a principal in the Amsterdam office.

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