Lead Through Discomfort: Philips CEO Roy Jakobs

17:25Roy Jakobs:So I'm just going to ask you briefly about your time at Elsevier as well. Yeah. Good experience?

17:31Steve Sedgwick:Very good experience. Very good experience. So why Elsevier? So maybe it's interesting too, because when I told my wife that I was leaving Shell, she said, okay, you're leaving this amazing conglomerate with a huge career trajectory, that's a big decision. It's a big decision. And it's also the decision of leaving the comfortable road and actually choosing the unknown road. And even people around me at Shell, I don't remember to say kind of, we cannot understand how you kind of can leave this company and exchange this card with the Shell on it because this institute you will not find anywhere else.

18:04Steve Sedgwick:For me, it was two things. One, I felt after 10 years, my learning could actually accelerate by exposing myself to different environment, different sector, and as such kind of see what you have learned if you can also apply that in a successful manner in a different way. Secondly, Algevier was in need of a huge digital transformation.

18:28Roy Jakobs:Yeah.

18:29Steve Sedgwick:And something that also from a technology background has been intriguing me all my life is digital transformations. So it gave me the opportunity to not only design it, implement it, and see how we do that kind of massive digital change. And again, it was an area of science that has an impact on the world. I was amongst the best kind of journals and the best scientists that kind of come up with great, great innovations. What are the biggest mistakes you've made up to that point?

18:54Roy Jakobs:All I can hear is, you know, it's been a very successful group. What are the biggest mistakes you've learned from up to that point where you've absolutely got it wrong and you've made the wrong decision?

19:02Steve Sedgwick:So I give you one with that individual, right? So thinking about restructurings and layoffs in a too rational and business sense, that was one. I think the other one in the change in Elsevier, the modeling that we had initially in the strategy, how quickly this would go, we vastly underestimated the speed of digital transformation. We thought this would take longer. And actually it accelerated so quickly. We never could have thought that this could even happen because we were also market leader. So we thought, okay, we are part of this, we shape this. But actually technology was catching up so quickly.

19:47Steve Sedgwick:Never underestimate the speed this can go beyond your own thinking and own models and own assumptions because there are multiple dynamics at play that are just maybe not within your site.

19:56Roy Jakobs:I recorded another podcast with another great CEO earlier this week and he talked about the importance of speed of decision-making. But sometimes you can rush these decisions. But equally say, he said, never underestimate how important it is to be able to make quick decisions as well. How are you making those? Do you like making decisions quickly or do you like being very considerate? Or sometimes you feel you just have to go with it quickly.

20:19Steve Sedgwick:You always need to have two lines of thinking where you need to act upon and also take the decision speed accordingly. One is you need to do scenario planning. Of course, that's something that I learned at Shell. They're very big on that. But that's 30, 40 years out, right? if you talk digital it is about years months or weeks so my learning is whenever there are bigger changes at the horizon first take a longer term perspective what's your view in the next 3-5 years and you better take some time to think that through because that will shape decisions that you will take with longer term implications but then in the moment we need to be extremely decisive so whenever because the world that we act in now is won by the businesses and people that act faster on the things that they see happening that impact their business.

21:13Roy Jakobs:So you can have that great training scenario planning and then you've just got to react sometimes and the plan's out the window.

21:20Steve Sedgwick:No, I would not even say the plan's out the window. Yeah. Because the magic of the plan should be you have a North Star that actually you can still get to. But the decision every day is left, right. How do I get there? Or do I need to change and adapt the course? There might be also instances that you say, okay, I need to completely reset the plan because there's a new reality shaping that I didn't foresee. Hopefully not every day. Well, there is every day at the moment.

21:43Roy Jakobs:There is. We're recording this, I should say, amidst a potential trade war over a barely inhabited piece of North Atlantic land.

21:52Steve Sedgwick:True, but it's a good example. When we were a year back, the whole start of this trade war and escalation, You could see, okay, we need to act very fast and this is in the moment. I said, you need to take a step back. Actually, this started to happen after COVID. After COVID, the world realized there's a too big of an interdependency and people felt discomfort with that because they saw that the world came to a standstill because supply chains were broken. People could not get all what they needed. So they started to think about more self-reliance. That's the point in time that China started to say to us, my dear friends of Philips, if you want to stay in China, you need to have 90 % localization in three years time if you want to continue to do business with us.

22:35Steve Sedgwick:So there was a clear policy that was related to you need to be much more on the ground. US has exactly the same philosophy. They said, okay, we need to be more self-sufficient because these dependencies, especially in a world that's becoming more and more unfriendly place, you cannot afford because it actually makes you vulnerable. So we need to build up our own strength.

23:02Roy Jakobs:I'm going back to 2010. You've joined this amazing company, Philips. They've asked you to come in and revamp the digital side of the lighting side of it, which is moving so quickly. And of course, fairly soon afterwards, IPO'd as well. And I remember being actually on the Amsterdam exchange for that IPO. Tell me a little bit about your career at Philips before you were the CEO. Yep. The good and the bad.

23:24Steve Sedgwick:Yeah, so the good and the bad. So when I started 2010, straight after the change to the new CEO, quite some turmoil at that time. This is Franz at the time. Franz came in. And there I saw, again, from a leadership perspective, CEO succession never easy. A lot of people left at that time, the board, because they thought they would be the CEO. So there was quite some pressure on results because this decision started to happen. A lot of Chinese strong pressure coming in. TV was still there. So big portfolio decisions had to be made. So that was the first part of that journey. And that's quite painful because also if you start to make decisions, A, it impacts legacy that you have been working on for long.

24:05Steve Sedgwick:So I think a learning perspective is as you go through some of these journeys, think through what you leave behind and what you take on for the next steps. I had to quickly also move because there was a different business model implemented where France kind of reorganized and said, okay, we're going to work with businesses, markets, and regions. and I also saw that there was a need to really dial up the impact in markets and I said okay I want to go to a very interesting market the Middle East and Turkey region because 15 countries a huge diversity and why did you seek out that region because of your love of people because your love of different cultures because your love of learning why actually it was the combination of what I believe really shapes you and what I like a there was a lot of diversity of culture people.

24:50Steve Sedgwick:I'd like to see can you be successful in Iran, to Saudi, to Israel, to Turkey. Can you bring the best out of countries which have abundance of funds and they want to spend it and how do you write big projects there in Saudi, in UAE but also how can you help Jordan? How can you work with Syria? How can you actually still supply very pressured places that need care? You wanted to make an impact. I wanted to make an impact and I wanted to make sure sure that actually we could have in that very diverse region across the board not only going after the big money so that was then the third element was this was a region when i stepped in that was not in a good shape so we were not doing well so this was a case where we needed to turn around and i did seek out that challenge because i believe you get better from challenges and you better go to the tough places to later on kind of learn for so you actively seek out the biggest

25:46Roy Jakobs:challenges in your career? I do. You make that decision.

25:49Steve Sedgwick:I strongly believe that you grow through discomfort.

25:53Roy Jakobs:Yes.

25:53Steve Sedgwick:And that's where I actually also have learned the most from the most challenging roles. And when I came to the Middle East and learning there was that, of course, you want to make quick impact as a new leader. But at the same time, you also need to have a certain respect for the fact that it takes time to turn things around. Some things you can quickly fix, but the most important to culture and the people and building that foundation takes a bit of time. You get your cultural sensitivities wrong. That could be very difficult for your career. So that was for me kind of a learning of patience, which I'm not necessarily the best in.

26:30Steve Sedgwick:But also it's more important, even if you step in at the first moments to focus on getting that foundation right, building for the long term, then focusing on winning the next week, the next month, the next quarter. And that's difficult if you're a competitive guy because you want to win all the time. But again, there you need to think through what it takes to win in the long run. Because we are shepherds of, Philips is a 130-year company. We need to make sure that Philips is there for the next 100 years. That takes more than a quarter mindset.

26:58Roy Jakobs:I'm going to spin forward to you becoming the CEO. Is that the best decision you've ever made business-wise? It's probably the biggest.

27:08Steve Sedgwick:I'm not it's also a great decision but I think I've made many good decisions and I don't have the the idea that they will be just the best or one decision that is trumping everything

27:19Roy Jakobs:before I carry on then what is the best decision you've ever made business-wise I think I would go before my best decision was to say I want my spent my life in business you've become CEO 2021 2022 there's enormous crisis going on in the in the final years of Franz van Houten I was talking to him about it. It was blighting the end of his leadership. It was an enormous recall of CPAP and Biopap machines in the United States, breathing devices. It was an enormous problem for Philips. It's very expensive and reputational. And it could have spelt an even bigger crisis for your company. You've come in right in the middle of this.

27:55Roy Jakobs:Tell me about the key decisions you made then.

27:57Steve Sedgwick:So I think when you are in a crisis, it's very important that you quickly get to a plan that is clear that people are ready around. Having that clarity of how you're going to maneuver out of it, being able to explain that to everyone, but also in that making some quite distinct hard choices about shifting focus from strategy to execution towards quality and patient safety, making sure that what we do really counts and matters. that was I think the most important immediate step that I took secondly then build a team very rapidly that actually with you can execute on that plan but thirdly also don't shy away from taking some immediate decisions to show that you're serious about it that you're going to change the realities so that also the trust starts to quickly rebuild by some of the ones that are watching meaning take the recall very serious and start to really accelerate it acknowledge the impact but also be acknowledging that as we have been proven later patient safety was never damaged yes it was a huge quality issue but ultimately the testing showed the safety was not in play which was a huge huge relief for all of us but then also take the learnings and kind of bring that to the other part of the business i had to lay off 44 000 people 10 000 in total 10 000 total but 4 000 in the first three months those are big big decisions and painting decisions because you also know you don't gain the popularity price by coming in and kind of starting with that.

29:30Roy Jakobs:But you'd shown already, and you've explained this already, if you treat employees with respect, you explain the situation, you don't necessarily lose trust of your workforce. Yes, it's devastating for those 10 ,000 individuals as well, but to keep the morale of the rest of the company, you do this in a respectful way.

29:48Steve Sedgwick:Yes. And people need to see the impact of it because you cannot only say, okay, this is for a good thing. People want to see it coming back but they also saw that actually we started to incrementally but sequentially improve the company performance and direction and impact so they saw okay there is pain but there is a reason why we do it and that actually that builds trust that builds confidence that builds engagement and energy and if i look now kind of to the energy levels because that's the other thing when you come in at a crisis you will see that energy is depleted because people working their butts off because it's not that people are they were working the hardest probably of their lives but actually the reward is not very clear because many people are with us because of the purpose right and that is a key mission that you need to kind of keep alive that you give the

30:38Roy Jakobs:evidence for and then actually people will come along i went to eindhoven and i saw the old phillips lots of empty buildings lots of kind of changing structures and i saw the new phillips and the old phillips as well and what is fascinating it's a company that's been in evolution for a very very long time ever since i've been covering it professionally it's been in evolution as well the decision now from you is very clearly personally and professionally you want this to be one of the premier health tech companies on the planet that's the decision you've made

31:08Steve Sedgwick:how are you getting on with the execution i think we are really getting along well so if i look to the progress we have made in the last three years we have really worked very hard on the fundamentals so the foundation is strengthened and we can really compete with the best to serve our patients, customers and consumers. Secondly and that has been through rigorous execution of the plan and of course not everything goes right and not everything kind of goes in exact line with the plan but if you look to where we started, not growing now we have growth back we had margin, massive loss, we were 7 % we are kind of really expanded that exponentially.

31:49Steve Sedgwick:And XO came and actually put a big vote of confidence, 3 billion vote of confidence. And they said, we really like your plan. And what was more important is not only we like the upside in your stock, we like the management that's executing it and we like kind of how together we can create a longer term trajectory here of value creation. So I think that was a very important point in the mix. And then I think most importantly, the innovation that we have been bringing forward that people are truly excited about because we are looking at technology differently, right? We position ourselves and we're playing it as a platform player, not as a product player.

32:21Roy Jakobs:Every day you get up and you make a decision how you're going to spend your time. You love your family. You play soccer with your sons as well. You love your own health and your own sport. And you are a great and industrious CEO. Tell me a little bit how you decide how you're going to plan your days. I know you like a routine.

32:37Steve Sedgwick:I do. And that's also a big learning for me when I became CEO. my plan started with okay the next three years out look like this and i actually have a calendar for three years out which is which was a bit new to me because i like planning but three years is a bit so when you think about this long term you also have it in your in my calendar because there's many set moments that you need to come to then next to that you need to have your agility to adapt to kind of hey how do you spend your time on a daily basis i always say kind of your time that you spend as your CEO needs to be a reflection of your plan.

33:11Steve Sedgwick:So if you're serious about strategy, you need to spend it on strategy. If you're serious about people, spend on people. If you're serious about innovation. So I look at that. Actually, also every three months, I look back how I spend my time and adapt for the coming three months. Then I have my weekly routines. I do sports at least twice a week. I like to do even soccer myself still if I can with some old buddies. Careful, you know we're a certain age. I know, I know. But I also like running. I like tennis. So I keep moving. also in my and it helps me to kind of keep energy but also to reset and i like to do it with others because i'm a people person then family is really important i think the one thing i said that i really take very seriously i said okay i love being a ceo talking about the best decision but even better decision was marrying my wife and i said the one thing i want to make sure when i end as a ceo i have my family still yeah because there are many things that are dear to me in life also Philips but there are some things that are dear and my family is always normal and as long as you

34:09Roy Jakobs:cook your wife some brilliant Italian food on a Friday night yeah is that the point Roy that's

34:13Steve Sedgwick:one of the points holidays are important too so now you need to so you need also there to put your routine right so holidays and I'm joking about it but I do take my holidays with my family and we come together and they love it and they know it's we don't have too many quality moms

34:26Roy Jakobs:in a year but those are quality how much work do you do when you're on holiday family I spoke to a brilliant financier, one of the most richest financiers in Britain the other day. And he said, I was in New Zealand and after two weeks, I was working non-stop because I just had to get back to it. I hope you're different from that.

34:42Steve Sedgwick:I am. So I still work daily. But I have my blocks. I say, okay, I work morning, I work evening, or if there's an EBI schedule. If I don't have to work, I don't work. But I'm also realistic that in nowadays world, I just cannot be saying, okay, goodbye, see you in two weeks. It's just not how it works. And actually, that's what my family knows. What I learned, like in many things in life, you need to communicate well. If you communicate well, people understand why, and then they can live with it, or they say, I cannot live with it, and then you need to kind of determine what you want to do. If you don't communicate, that's when attention comes.

35:18Steve Sedgwick:Final two questions.

35:19Roy Jakobs:They're very short questions. What is your best quality as a businessman and as a person? What is your worst quality?

35:26Steve Sedgwick:I'm a positive leader. I think that's the best quality. I look at things in a positive way. I want to drive forward. I have huge energy for that. And making an impact is the goal. The worst is I'm very determined. Given that I have a lot of energy, I'm quite demanding. I will not stop very quickly. And that might sometimes be stressful for me.

35:51Roy Jakobs:I'll check your team after. It's just how demanding you are. Roy Jacobs, thank you very much indeed for joining us on Executive Decisions. Great talk to you, Steve. Roy Jacobs is a very successful CEO, but his backstory gives us really interesting glimpses of who the man is and how he makes his tough decisions. His grandmothers especially, we talk about them. They had such adversity in World War II and overcame that. And these are lessons he learned. As a young man, he was ill. He just wanted to go out and play football, but he couldn't because he was quite ill. And again, he overcame this and it stuck with him as well.

36:25Roy Jakobs:So when as CEO, he's had to make some really difficult decisions, including laying off thousands of people. It's that backstory, it's that strength, it's that empathy, it's that understanding which has really made him the CEO he is. Thank you very much indeed for joining me on Executive Decisions. I would love to hear your feedback. Drop your thoughts in the comments or a review. And please hit that follow or subscribe button. you won't want to miss the next episode of the podcast dropping on Tuesday where I speak to the CEO of Franklin Templeton Jenny Johnson. My father told me look you're a family member you need to work really really hard because other people are going to say well if she only works that hard I don't have to work even quite that hard so you need to set that example.