Despite Philips’ decline, former researcher Marcel Pelgrom believes that the company would still benefit from a Natlab-style industrial research laboratory.
Once I had a stormy love affair. It lasted for 27 years and during those years, we met almost daily. From the moment we saw each other, I was sure: this is the love of my life! Everything one can wish from a platonic relationship was there: devotion, mutual trust, freedom, passion and a lot of inspiration. Mentioning my relationship always raised my profile, wherever I was in the world.
Of course, there were rough patches. Eleven years in, the money ran out and a split-up seemed inevitable. But our relationship survived, and although our goals started to diverge and we started to fight more often, our relationship still had moments of amazement, vibrancy and inspiration. Then, as often happens, the family-in-law threw me out. I won’t dwell on the frustration that gave me, but I never found a love as deep as this one.
When I recently learned that Philips’ Natuurkundig Laboratorium is in a bad shape, my heart broke. The love of my life is sinking into oblivion. Despite the medical focus, Philips has found no cure to keep the Natlab alive.
The spiderweb of activities that was Philips in the 1960s and 1970s has broken down over the last decade. At that time, the conglomerate produced everything that vaguely can be called electronics: from kitchen appliances to telephone exchanges, from light bulbs to military night vision goggles. Philips sold its products all over the world.
The Natlab, which comprised roughly half of the worldwide Philips Research organization, played a dominant role. Natlab researchers worked on innovation in physics, chemistry and materials, and electronics at an almost Nobel prize level. Founded in 1914, as an active response to the emerging pressure of new patent laws, the Natlab became a patent generator, a knowledge base, a problem solver, an innovation machine and, last but not least, an educational institution. It was the scientific and technological foundation on which the entire Philips building rested.
In those mid-century decades, Philips moved to where labor was available, after the labor force around Eindhoven was absorbed. In 1975, some 65 Dutch cities housed a Philips factory. For low-cost consumer products with expensive transportation costs, factories were established on all continents. The worldwide search for labor also applied to bodies with brains: the Natlab founded sister laboratories in Germany, Belgium, France, the UK, the USA, China and India.
Philips followed the local-for-local strategy until the late 1970s. Then the global conditions changed: Japan Inc. became an industrial superpower. It erased the US consumer industry and challenged Philips on a global scale. With Natlab inventions like the compact disc, Philips withstood the pressure.
However, by the late 1970s, it became clear that the large conglomerate carried too many scars from the past. It lacked the agility to react fast whenever threats or opportunities appeared. There was too much inefficient bureaucracy and unhealthy competition between business lines and country organizations. Often decisions had to be taken to the top level, where short-term profit trumped long-term strategy. A few bad investments brought the company close to bankruptcy: the ‘Mega attempt’ to catch up in process technology (the late 1980s), the Trimedia media processor (the late 1990s), the Superaudio compact disc (1999) and Zeus, Philips’ take on the flat screen TV (mid-1990s), to name a few.
Other companies fared better. When I joined the Natlab in 1979, there were three more-or-less equally sized electronics companies: Siemens, IBM and Philips. Each had around 400,000 employees and a turnover of 25 billion dollars. All three companies had major research laboratories to support their innovation. All three went through the same global changes: competition from highly automated and quality-tuned countries like Japan and later Korea, clustering scattered production facilities, major changes in the consumer markets and huge ambitions in upcoming fields and new markets.
Siemens pretty early on decided to leave the consumer markets and go for infrastructure, energy, industry and medical electronics. IBM focused on all aspects of computing but had to retreat from consumer markets with its personal computer. While both companies topped the 100-billion-dollar turnover mark around 2010, Philips hardly reached 35 billion and dropped to 20 billion dollars over the last 10 years. While Siemens and IBM divested some of their assets, Philips stripped nearly the entire portfolio.
Obviously, some Philips activities were better off alone. The divestment started in the 1930s when the drugstore chain “Eendracht, Toewijding, Overleg en Samenwerking,” known as Etos, was sold. In my early years at the Natlab, the military branches went to Thales and everything under the business line Scientific and Industry (such as ASML) was sold. Medical Instruments was one signature away from that fate, too.
Philips made a different choice compared to IBM and Siemens: it was going to battle for the consumer market instead of focusing on industrial electronics. Was this decision pushed by the mighty Consumer Electronics division?
Nevertheless, in 2002, Philips still held worldwide top-3 positions in major markets, including lighting, consumer electronics, medical systems, shavers, color picture tubes, DVD recorders, mobile displays and many more. In addition, it had large equipment factories and component and semiconductor divisions that were leading in areas that mattered to Philips.
The Natlab was often the starting point for innovation in these fields. It provided a communicating-vessels mechanism for technical knowledge exchange: innovations originally intended for a particular product often proved useful for other products as well. For example, a new design for AD converters could be applied in measuring instruments, medical equipment, cellphone towers and other applications. Financially, the divisions could argue about sharing costs or profits, but that never got in the way of leveraging technical synergy or moving people through the company.
Early this century, top management saw no way forward for the conglomerate. In 2006, the semiconductor division was sold off for a pittance. This clearly showed a lack of strategic insight in a technology-driven market, as semiconductors are the most important driver of innovation these days.
Other pillars disappeared too under the scrutiny of the bookkeepers, like the component division. For unclear reasons, Philips reversed course and started to focus on medical, though with an attitude still full of consumer ambitions and way of working. The results are apparent, with the recent sleep apnea machine recall as a tragic all-time low.
Siemens and IBM prove that industrial research laboratories aren’t obsolete these days – the latter produced four Nobel prize winners, by the way. Alphabet, Apple and more young tech giants also present papers showing a quite high level of advanced research work. In another organizational format, but with the same characteristics: young scientists with a deep understanding of the laws of nature, freedom to explore wild ideas, cross-fertilization and serendipity.
Using the old metric of spending 1 percent of revenue on (true) research, Philips can support some 600-800 research scientists and engineers. This is still a formidable force that, in the long term, can have a huge impact on the company. It would be a real loss if this fine institution disappears from the world stage.
Main picture credit: Ronald Otter