Report: Evaluating Philips Using the Balanced Scorecard Framework

This report provides a strategic analysis of Royal Philips using the Balanced Scorecard framework. It begins with an executive summary and an introduction to Philips, highlighting its long-term goals and stakeholders. The core of the report applies the Balanced Scorecard, evaluating Philips across four...Read More

Phillips Balance Scorecard
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Executive summary
This report discusses Philips long-term objectives. It uses the Balanced Scorecard tool to make
an assessment of the company from a strategic perspective. The four strategic perspectives are
discussed also their related objectives are declared. The strategy map is formulated and the
leading and lagging indicators are clarified.

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Contents
Introduction....................................................................................................................................3
First: Philips long-term goals and its stakeholders....................................................................3
Second The Balanced Scorecard at Philips.................................................................................4
Third: Philips KPI's and KPD's...................................................................................................5
Fourth: Philips strategy maps......................................................................................................6
Fifth: Critical analysis of the issues concerning the implementation of the balanced
scorecard in Philips........................................................................................................................6
Conclusions.....................................................................................................................................7
References.......................................................................................................................................8

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Introduction
Royal Philips is a leading company specialized in offering technology-based products that enable
improving the people's lives. The company depends on advanced technology and deep customer
insights to be able to offer integrated solutions. The company headquarter is based in the
Netherlands. It is a leader in patient monitoring, diagnostic imaging and health informatics. It has
74 thousand employees and operates in more than 100 countries (Philips 2018). The following
section provides the Balance Scorecard assessment tool and analyzes issues related to its
implementation in Philips.
First: Philips long-term goals and its stakeholders
Philips strives to improve the lives of people by making it healthier and more sustainable through
its innovative products. The Philips long-term goal is to improve the lives of three billion people
by 2025. It adopts two approaches, social and ecological to improve people's lives. The company
aligns its goals to the UN sustainable development goal 3 that aims to ensure healthy lives and
well-being for all people at all ages. The company has allocated EUR 7.5 billion for its health
technology businesses within the next five years that represent a major part of the sustainable
planet program. Philips also has a goal of achieving zero waste in 2020 to its landfill. The
company seeks to minimize its environmental impact of healthcare that could happen as a result
of the medical equipment. The company derives significant value from its diverse stakeholders
and engages them to work in partnership. The stakeholders' feedback is considered by the
company in its planning and actions. The company stakeholders include its employees,
customers, suppliers, governments, NGO's and investors. The company has launched a multi-
stakeholder project with the Sustainable Trade Initiative (IDH), some NGOs, and electronics
companies in 2011 and expanded in 2014 and 2015 to include more suppliers (Philips 2016).

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Second The Balanced Scorecard at Philips
A Balanced Scorecard is a tool for managing the organizational performance including the
financial and nonfinancial measures. The scorecard consists of four perspectives that could be
applied to Philips according to (Chavan 2009; Isoraite 2007; Philips 2017; Kaplan 2010), as
follows:
2.1 Financial perspective
Philips financial indicators reveal that its sales rose to EUR 17.8 billion in 2017, with an annual
increase of 2% of the nominal value. Its net income accounted for EUR 1.9 billion in 2017 with
an increase by EUR 379 million compared to 2016. The company could make an annual savings
of EUR 483 million. Accordingly, the objective is to ensure the good management of the budget
and considerable investment in the right sectors.
2.2 Customer perspective
This perspective shows how the company could achieve its vision and how it should appear to its
customers. Philips sustainable innovation aims to develop a new generation of products to ensure
the healthy lives of its customers. The green products offer a significant improvement to the
environment in one or several green focal areas. Accordingly, the objectives are:
 To ensure the healthy lives of the customers.
 To assure the environmental sustainability through the green products.
2.3 The internal business processes
It aims at satisfying the stakeholders of the company through certain processes. Philips has a
leadership position in personal and professional healthcare. It enables new linkages among the
care providers and the customers. Its products allow higher productivity and enhance the

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customer value. In 2017, the sales accounted for EUR 17.8 billion with 4% sales growth and
enhanced profitability. Accordingly, the objectives are:
 To provide a high level of personal and professional healthcare products.
 To enhance the customer value.
 To increase the sales volume.
2.4 Learning and growth perspective
Philips has developed the employee engagement index as a single measure of the overall
engagement level of the employees. It offers a combination of the perceptions and attitudes. It is
related to employee satisfaction, advocacy and commitment. The employee engagement score is
usually above the high-performance rate of 69%. The products offered by Philips contain
sophisticated information technology and it has confidential data related to the customers.
Accordingly the objectives are:
 To ensure the highest levels of employee satisfaction.
 To incorporate the latest technology to enhance the processes and ensure high security to
the client's information.
Third: Philips KPI's and KPD's
The Balance Scorecard requires a balance between the leading indicators of the performance
drivers (KPD) (leading indicators) and the outcome measures (KPI) (lagging indicators)
(Mandzic, Widodo & Wilson 2017).
The leading and lagging indicators of Philips are as shown in the following table according to
Philips (2017), as follows:

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Perspective Lead Lag
Financial Assessment whether the
planned budget was met.
Review of the financial
report to know if the
budget was met.
Customer The number of new
customers.
Feedback assessment.
The internal business
processes
The increase in the
customer value.
The increase in the sales
volume.
Learning and growth Assessment of the
satisfaction rate of the
employees.
The score of the employee
engagement index is
above the high-
performance rate.
Fourth: Philips strategy maps
The strategy maps provide causal relationships that connect all of the factors through the four
perspectives of the Balance Scorecard. It reflects the strategies in a dynamic way and show how
the organization could create value (Wu 2012; Accountants 2012; Rohm 2012).
Financial perspective
Customer perspective
The internal business
processes perspective
Learning and growth
perspective
Philips long term goal is to improve the lives of three billion people by
2025
Sales increase Net income
increase
Sustainable innovation Green products
Stakeholders' satisfaction Higher productivity
increase
Employees' engagement IT management

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Fifth: Critical analysis of the issues concerning the implementation of the balanced
scorecard in Philips
The Balanced Scorecard has to be formulated at the corporate level of the organization. then it
has to be cascaded down to the strategic units and the support department. Philips is required to
implement the balance scorecard at all of the organizational levels and to be linked to the
performance in implementing strategy to achieve synergies. Also cascading the Balance
Scorecard to R&D is expected to integrate technology planning with the business strategy
(Zizlavsky 2014; Wynder 2010).
Conclusions
The Philips long-term goal is to improve the lives of three billion people by 2025. It adopts two
approaches, social and ecological to improve people's lives. The company seeks to minimize its
environmental impact of healthcare that could happen as a result of the medical equipment.
Philips financial indicators reveal that its sales rose to EUR 17.8 billion in 2017, with an annual
increase of 2% of the nominal value. Philips has developed the employee engagement index as a
single measure of the overall engagement level of the employees. It offers a combination of the
perceptions and attitudes. Philips is required to implement the balance scorecard at all of the
organizational levels and to be linked to the performance in implementing strategy to achieve
synergies.

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References
Accountants, TAOICP 2012, 'CGMA tool: How to develop a strategy map', The Association of
International Certified Professional Accountants, Australia.
Chavan, M 2009, 'The balanced scorecard: A new challenge', Journal of Management
Development, pp. 393 - 406.
Isoraite, M 2007, 'The Balanced Scorecard method as a tool evaluating performance of local
authority', Economics and Management: Current Issues and Perspectives, vol 2, no. 9, pp. 76–
82.
Kaplan, R 2010, 'Conceptual foundations of the Balanced Scorecard', Harvard University, USA.
Mandzic, N, Widodo, M & Wilson, R 2017, 'The balanced scorecard', Victoria University,
Australia.
Philips 2016, 'Annual report', Philips, The Netherlands.
Philips 2017, 'Annual report', Philips, The Netherlands.
Philips 2018, About Royal Philips, <https://www.philips.com/a-w/about/company.html>.
Rohm, H 2012, 'Make performance improvement strategic', Balanced Scorecard Institute, USA.
Wu, H 2012, 'Constructing a strategy map for banking institutions with key performance
indicators of the balanced scorecard', Evaluation and Program Planning, vol 35, pp. 303-320.
Wynder, M 2010, 'Chemico: Evaluating performance based on the Balanced Scorecard', Journal
of Accounting Education, vol 28, pp. 221–236.

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Zizlavsky, O 2014, 'The balanced scorecard: Innovative performance measurement and
management control system', Journal of Technology Management and Innovation, vol 9, no. 3,
pp. 210-222.