philips lighting finally ditches healthcare and consumer product divisions

Philips Lighting has finally decided to part ways with two long-running R+D side projects so that it can finally focus once again on being the preeminent lighting company in the world.

The history of Philips, and why exactly Philips now sells a product range as diverse as MRI machines, L-prize winning lamps, and lady epilators, is actually quite simple:  The Philips brothers decided early on to focus on light bulbs (as opposed to Edison, who focused on creating an entire system of electrical generation, distribution, and light sources).  Because of this focus, Philips became really good at producing blown-glass pieces with the air evacuated from inside.  You know what else needs blown-glass bulbs with interior vacuums?  X-ray tubes and vacuum-tube transistors.  Presto!  X-ray tubes led to medical imaging; vacuum tubes led to radio, then to TV, and then to other consumer electronics.

OK — so this is a gross simplification of Philips’ history.  In 1914 Philips established the famous NatLab, a physics-based scientific R+D facility that pioneered materials research for many decades to come, setting up Philips with a string of fundamental innovations based on hard-core scientific R+D.  But still, you can basically trace all of Philips’ product lines to their fundamental beginnings in light bulbs, x-ray lamps, and vacuum tubes.

The problem with all the sprawling growth that Philips chased during the 20th century is that it suffered the fate of many conglomerates:  It didn’t manage the individual product lines as well as independent, highly-focused global competitors.  By the 1980’s it was in very bad financial shape and nearly bankrupt.  The “sharp pencil boys” cut funding for R+D, effectively eliminating fundamental research and turning Philips Research into an expensive contract-engineering firm.  To quote Wikipedia:

Philips as a whole took a turn for the worse and by the end of the 1980s bankruptcy seemed a very real possibility. Under research director Kees Bulthuis the position of long-term fundamental research at NatLab came under more and more pressure, especially after Philips introduced decentralized financing. Bulthuis reduced research budgets by the equivalent of 60 million euro in three years’ time. Hundreds of NatLab employees were fired and departments were closed, including the entire mathematics department in Brussels. By 1989 the NatLab, which had formerly been on the Board of Directors budget, drew two-thirds of its income from contracts with the product divisions. This made the role of the NatLab far more limited than before: it became a source of expertise rather than a source of innovation. Fundamental research, research driven purely by curiosity, was strictly reined in and priority was given to the interests of the product divisions.

Ooops!  No more fundamental innovations.  Can you guess how the next couple decades went?  Philips sold off the semiconductor division (renamed NXP) in 2005.  It became un-competitive in TVs and consumer electronics.  It missed being the next Apple:  Even though it produced LCD screens, semiconductors, invented CDs and DVDs, owned Polygram records, had fantastic consumer distribution and hell — it even employed the guy who created the iPod at Apple — it completely missed the boat.  Its consumer electronics division wound up being happy it merely created accessories for Apple products and was ditched last year in a bungled sales attempt.  Philips doubled-down on healthcare, milked consumer appliances for cash, and meanwhile the lighting division just kept chugging along, carefully managing the radical transformation impacting our industry.

Which is why I find it quite problematic to see the business press try to frame this split as “Philips ditches lighting”, as if Philips Lighting is somehow the problem.  Well, I think the best thing to happen to Philips Lighting is to finally ditch the extraneous conglomerate product lines and focus on being the best LIGHTING company in the world.  Hopefully this split will allow Philips Lighting to finally find a real brand (that doesn’t have to be the lowest-common denominator across three unrelated divisions) and refit its business processes to best serve lighting customers.  Not teenagers looking for headphones, yuppies shopping for espresso machines or hospitals shopping for ultra-expensive capital equipment.

I’m proud to be part of Philips Lighting and I’m excited at this long-coming and obvious turn of events.  I think Philips Lighting can finally get back to its roots and maintain its leadership position in the lighting industry.