As profits at Dutch giant Royal Philips Electronics come under pressure, its CEO Frans van Houten tells CNBC's Christine Tan how he plans to put the spark back into the 120-year-old company.
Q. When you took office in April this year, you've had to announce a loss in the second quarter and issued two profit warnings. Did you ever think economic conditions would deteriorate so badly?
The run-rate of our performance in early 2011 was not to be happy with. We saw that we were growing less than the market and our profitability was certainly not world class. So the programs that I’ve put in place are there to accelerate innovation, get more products to the market and penetrate all these great opportunities in Asia and out of emerging markets because there is a lot of growth to be had. The economic environment has deteriorated but that does not fundamentally change the opportunities that we have and see.
Q. You recently put your loss making TV operation in a joint venture deal with Taiwan's TPV Technology. It's taking longer than usual to complete. What was behind the delay? And are you happy with the outcome?
Philips and TPV were keen to create a joint venture in order to combine the strength of the Philips brand and innovation with TPV’s supply chain strength. Of course we had to iron things out and make sure the joint venture started on the right footing to make sure we fully understand what we get together into. It’s like a marriage. You want to make sure that you’ve done your due diligence on both sides so the collaboration will be successful. This has taken a few weeks more than I originally anticipated. As parties talk, sometimes you need a week more and frankly I think it’s worthwhile to take time to make sure that the foundation of the joint venture is honest and healthy.
Q. Despite your efforts to reinvent the company, the company share price is down more than 40 percent. Do you think you will be able to restore the company share price to its former glory? How long do you think that will take?
We have set our targets, we communicated our midterm targets of 10 to 12 percent EBIT and 12 to 14 percent return on invested capital. I think everybody can do their math of what that means. It is for me to deliver that and for other people to determine how the share price will react to that.
Q. You've talked a lot about innovation in this particular interview. How do you foster that culture of innovation within the company? What steps are you taking?
Innovation is partly in many people’s minds associated with research and development. But to me innovation is everywhere. Innovation is getting better solutions for customer needs. You foster it by encouraging people to all the time think about how can I improve and bring better solutions. But also by fostering the willingness to take risk and try things. As long as we engage our customer in the process, we will get to innovation that’s going to be successful.
Q. In what areas do you think your employees can improve?
I think it is fundamentally important that everything we do is driven by customer insight. We need to win the customer. That is where it starts, and that is where it ends.
This is an excerpt taken from CNBC’s longest-running feature program Managing Asia. Catch the show with anchor Christine Tan on 4th November 1830 (SIN/HK) and over the weekend on CNBC.