Saturday, December 24, 2016

Reaping What You Sow...My Years With PHILIPS!

Reaping What You Sow...My Years With PHILIPS 
by Bryan J. Neva, Sr.

Do not be deceived; God is not mocked, for whatever a man sows, that he will also reap.  - St. Paul (Letter to the Galatians 6:7)

I recently called an old friend to wish him and his family a Merry Christmas and a Happy New Year. We were friends and colleagues for almost two decades first with a company called ATL Ultrasound and then with PHILIPS Medical Systems (the famous old Dutch electronics firm).

In the years before PHILIPS acquired ATL in 1998, the company's management style was quite progressive, fair and supportive (which was the management norm in the 1990s). After PHILIPS acquired ATL, the management style slowly reverted to a 1950s style of top-down management by fear and intimidation. We were frequently reminded that we should be thankful just to have a job while our workloads steadily increased and our salaries steadily decreased.

And when the 2008 recession hit, the company's management style went from bad to worse, and we became even more overworked and underpaid. Especially at the end-of-the-year when PHILIPS wanted all their new systems installed so they could record the sales and show a huge profit for their shareholders. They couldn't be like normal companies and end their fiscal year on September 30th; they had to end it on December 31st during the holiday season. There were many, many Christmas Eves and New Years Eves when we were all out installing new systems just so PHILIPS could record the sales. I don't think we ever had the chance to enjoy the holidays when we worked for PHILIPS. And the thanks we got for working our tails off was, "Well, you get to keep your job!" Several years ago, my friend and I both quit in disgust.  He had almost 30 years with the company and I had almost 20!

PHILIPS management behavior is quite typical of a Mergers and Acquisition (M&A) firm.  They buy profitable companies, drive out the competition, and then start making draconian cuts and disruptive changes all while managing with an iron rod in order to quickly recoup their investment and earn double-digit returns for their shareholders.

The standard modus operandi for M&A firms like PHILIPS is to first realize cost savings by consolidating back-office operations like human resources and payroll.  Then they make cuts in management (they keep the mean, bad managers and rid themselves of the compassionate, good managers), and then they eliminate redundancy by downsizing the workforce (they rid themselves of the higher-paid, experienced workers (like my coworker and me), and keep the lower-paid, inexperienced workers).  After these, they target salaries by restructuring pay-plans, freezing salaries, and making it extremely difficult to even get a measly cost-of-living pay increase. Then they'll cull the workforce by requiring managers to rate their employees: the big raises go to the top-rated employees while no raises go to the bottom-rated employees (the mean, bad managers will use this to get rid of employees they personally dislike regardless of their actual measured performance). Then they'll try to increase productivity and sales revenue by working their employees even harder (12 hours a day/60 hours a week is the norm). And finally, they'll cut production and manufacturing costs while keeping the sales prices high. (The customers are essentially paying more for a lower quality product.) The problem is that there are not enough cuts in any company for an M&A firm like PHILIPS to recoup their initial investment within five years or to make the double-digit returns their shareholders demand.

For PHILIPS, making a profit wasn't even the issue, it was how BIG of a profit they were making, and it was how quickly they could recoup their investment. And they lived up to the old Dutch stereotype of being penny-wise, pound-foolish, and big cheapskates! Their motto back then was, "Sense and simplicity." We used to sardonically say that PHILIPS' motto should be, "Senseless and stupidity!"

As progressive as they might seem, the Europeans are actually notorious for their hard-nosed, winner-take-all, profit-at-any-price management style. To PHILIPS employees aren't even human beings with hopes and dreams and families they’re trying to support, they're just easily replaceable resources, cogs-in-the-wheel, units-of-production, or line-items on a spreadsheet. The managers and employees who thrived at PHILIPS probably had some degree of psychopathic tendencies without an ounce of compassion or empathy for others.

ATL made state-of-the-art, top quality, and highly reliable ultrasound systems that lasted years (many of them are still in service today).  Most of their manufacturing, including electronic circuit boards, was done here in the United States. After PHILIPS took over, most of the manufacturing slowly shifted overseas to China (they only assembled the final products here in America); the circuity, cabling, and structure were not as durable or as reliable as they used to be; and they released products long before all the hardware and software bugs were all worked out. The results were quite predictable: their quality and reliability declined precipitously. As for us field engineers, there weren't enough hours in the week to keep up with the high demand for repairs.  

PHILIPS obviously did not care about their customers (the healthcare providers), the patients they treated, or the field employees like us that had to face the music every day trying to clean up their mess and make apologies and excuses for their poor quality products. Years ago when I first started working in the medical device industry, there were dozens of companies that manufactured all sorts of medical imaging equipment thereby allowing competition in the industry and giving customers a choice in who they did business with. Back then, companies competed on performance, quality, service, and price. Now due to industry consolidation, there are only a few big players left in the U.S. industry: PHILIPS, GE, and Siemens; although, in the past several years they're starting to get more competition as several Asian companies are entering the U.S. marketplace (I noticed that the reliability and performance of the Korean and Japanese medical devices were significantly better). And that's what the medical device industry needs right now as the cost of healthcare in the U.S. is exponentially rising: more competition!

Similarly, the big three American automakers rested on their laurels for years as their quality and reliability declined. It wasn't until they started getting more competition from the Japanese automakers when they finally started to focus more on building better automobiles. Competition works better for the consumer, while industry consolidation (i.e. M&A) and oligopolistic practices only hurt the consumers.

My old colleague made an astute observation, "How can PHILIPS treat their employees and customers so badly and expect to stay in business?" The answer is they really cannot. But that's the whole point of an M&A firm like PHILIPS: staying in business isn't in their long-term business plan. They buy profitable companies like ATL, exploit them for all they're worth, run them into the ground, and then divest themselves of them when they're no longer profitable! In short, they use them then throw them away like yesterday's trash. PHILIPS epitomizes everything that's wrong with Corporate America (or Europe) today with its short-term thinking, winner-take-all, profit-at-any-price attitude, and their mistreatment of their customers and employees in the name of the business.

Recently, I ran across an Internet advertisement for quality professionals at PHILIPS.  Frans Van Houten, the CEO of PHILIPS, has a video where he talks about the need to improve quality at PHILIPS.  His punch line at the end of the video was, "The ultimate cost of not being focused on quality is that we have no future." Well, Duh Frans! My colleagues and I were raising the red flag about the declining quality of PHILIPS' medical equipment years ago. Why didn't you and your fellow executives in Holland listen to us then? You don't have to be a well-educated genius to figure out that you'll reap whatever you sow. If you plant weeds you can't expect flowers to grow. It's nice that PHILIPS is finally starting to focus on improving the quality of their products, but I can assure you the only reason is that their poor quality has probably caught up to them and has begun to seriously affect their bottom line!


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