Standardizing Infrastructure Lowers Costs at Philips

Cost cutting strategies

Cost cutting generally starts with the low-hanging fruit, i.e. costly inefficiencies that are easy to fix. But low-hanging fruit has a tendency to grow back, says Kathy Burkle, and sometimes the only solution is to cut down the tree and start over.

Burkle is program director, international mergers and acquisitions/divestitures, for Philips Electronics, a $34 billion company with headquarters in Eindhoven, The Netherlands. She is based in Sunnyvale, Calif. Philips is the world's top producer of lighting products, the third-largest maker of consumer electronics, and a significant force in medical imaging, small appliances and semiconductor markets.

Faced with recession pressures, Philips is currently trimming costs, and Burkle is among those leading efforts to streamline operations with a more unified approach to the company's IT infrastructure. She and her IT colleagues at Philips are trying to head off and in some cases reverse costly duplications and incompatibilities that have resulted from years of relative IT independence among the company's divisions. In effect, they're replanting those trees so they won't bear troublesome fruit, low-hanging or otherwise.

Burkle didn't start out with a career in computers in mind. Her undergraduate and master's degrees are in special education for slow learners. "That could be one reason I get along in this work," she jokes.

She began inauspiciously in the late seventies with Philips Lighting, at the time a smallish maker of light bulbs and lighting fixtures. Philips paid for some computer courses and hired her as an entry-level programmer.

Over the next two decades, the Lighting Division grew nearly 13-fold, from $62 million to more than $800 million, and Burkle grew with it.

When she was asked to move to the Semiconductor Division in 1999, with responsibility for enterprise technical infrastructure, Burkle jumped at the chance. "It was an opportunity to play more of a global role," she says. "It involved full responsibility for all enterprise operations, as well as the infrastructure and the relationship between the Semiconductor Division and the corporate IT organization."

Recently, Burkle was promoted to her new job in mergers and acquistions. Her initial focus in the new job will be on the development of a global corporate IT program in support of mergers and acquisitions.

Philips' IT organization is looking to make some fundamental enterprisewide changes that will result in long-term savings and efficiencies for years to come..

"We're not looking at standardizing business-specific areas or applications," Burkle says. "Rather, we're looking at the infrastructure behind that—networks, e-mail systems, groupware, knowledgeware, desktops and so on. Each organization within Philips has established its own infrastructure and support groups, at the expense of what we could have gained by exploiting synergies across all of Philips. We're working to standardize in those areas and get our diverse and somewhat autonomous product divisions on board, because this is clearly one way to drive down costs."

Standardization means lower support costs and, down the road, lower development and implementation costs. But standardization doesn't always come easily. "You have to get everyone on board," Burkle notes. "You have to get everyone to agree that this is what we're going to do because we're going to think about Philips first, as opposed to thinking about the interests of the individual business units.

"In IT, we're constantly put in a position where we're chartered with things like standardization, but our own business unit or product division may have a different motivator based on its own business requirements," she says.

"If you can catch cross-business synergies on the front-end, you stand a better chance of establishing the right infrastructure than you do at the tail-end," she says. For example, when Philips—like most companies—was looking for Y2K solutions several years ago, the company "jumped on the ERP bandwagon," Burkle recalls. Individual business units made their own ERP decisions, based on their own business needs, without much consideration for how those decisions would affect shared IT services.

"When you come back and decide to look at shared services in accounts payable, or you want to standardize front-end purchasing, now you have to go back to the ERP environments and break them apart. If we had planned for the shared services on the front-end, I think we could have avoided some of that," Burkle says.

Standardization isn't free, either, she adds. Often, it requires an investment. "Let's say—and this is just an example—we standardize on Dell and Compaq laptops for everyone in Philips. At the moment, we have every kind of laptop known to man in use at the company—and by the way, they're not all running Windows 2000. Some go back to Windows 95. We also have an engineering community that uses its own machines with their own standards.

"In order to really see economies of scale and other advantages of standardization, an investment will have to be made at some point. Then you can start looking at efficiencies and economies and best practices."

Where some see threats to IT's budget and clout in many organizations' sagging profits, Burkle sees opportunities, at least within Philips. "I think IT will gain a bit of prestige as we go forward and attempt to use IT better to move toward shared services in support organizations," she says.

"The biggest challenge is eliminating conflicting goals, keeping our focus and sticking with it. How often do we fail to stay the course? We really need to recognize what it's going to take to reach the efficiency levels that we talk about and stay with the plan. Otherwise, we'll never achieve our goals. It seems like the next big initiative comes on board, and then you lose focus on your goals."

About the Author

Bob Mueller is a writer and magazine publishing consultant based in the Chicago area, covering technology and management subjects.