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that fits your needs. Whether your small business is growing or brand new your state farm agent is there to help. On the phone or in person. Like a good neighbor, state farm is there. Hello and welcome to Decoder. I'm Nilay Patel, Editor and Chief of The Verge and Decoder is my show about big ideas and other problems. Today I'm talking with Roy Jakobs, the CEO of Royal Phillips, which makes medical devices ranging from MRI machines to ventilators.
Phillips has a long history. Their company began in the late 19th century as a light bulb manufacturer. And over the past century and change it's grown and shrunk in various ways. That famous light bulb business? Yeah, it was spun out into a separate company called Signify in 2018, which now makes and sells Phillips-branded light bulbs like
the popular U-line. There's an incredible history of this sort of thing at Phillips, which has had a hand in basically every part of the electronics business you can think of. This is the company that invented the cassette tape. It helped to invent the CD with Sony. It's made everything from radios to generators to electric shavers. It was even a founding
investor in TSMC, which now dominates chip manufacturing. But it sold that stake in 2008, while also spinning off its own semiconductor business into what is now the very successful NXP. Basically, while every other company has been trying to get bigger, Royal Phillips has been pairing itself down to a tight focus on healthcare. Where I talked about that, and why that market is worth the focus. And whether European companies have a different
attitude towards size than American firms. And of course, we talked about AI. Phillips makes complex diagnostic tools like those MRI machines and ultrasound systems, and there's a lot of interest in adding AI to these tools to help find medical issues earlier than ever. But I wanted to know how that actually works and what it takes to not only develop these tools, but also to put them in place with doctors and hospitals around the world.
Ryan and I also talked about a serious ongoing controversy at Phillips that he had a pardon. In 2021, after years of consumer complaints, Phillips was made to recall millions of its breathing machines, including home UCPAP machines and hospital ventilators, because the foam used in them was deteriorating and being breathed in by users, causing serious
health issues. These ventilators were eventually tied to more than 500 deaths. Where his predecessor stepped down in 2022 amid the scandal, that's when Roy became the CEO, and he immediately started a massive restructuring plan to rescue a company in crisis, including several waves of planned layoffs. But although Roy wasn't in the top job, he was with Phillips
throughout the entire decade the faulty machines were being sold. There's reporting and court filing showing that Roy himself was involved in the decision to keep selling the effective machines, even though Phillips had received at least 3,700 consumer complaints during the 11 year period leading up to the recall. That's a pretty big decision, with literal
life or death consequences, and you'll hear us talk about it in detail. It was not a comfortable topic, and Ryan went back and forth on the nuances of how he made the choices he did, as well as whether the resulting scrutiny by the FDA and DOJ has changed how he makes decisions. This was a fascinating and at times tense conversation, and I'm glad we had the opportunity to talk about this part of Phillips history and death. Alright, Royal
Phillips CEO Roy Yackeps. Here we go. Roy Yackeps, you are the CEO of Royal Phillips. Welcome to Decoder. Great to be here. Thank you for having me. Yeah, I'm very excited to talk to you. You have made a lot of very complicated, very high stakes decisions as you've begun the process of changing the Phillips over the past years. I want to ask about a lot of them. Let's start at the very start though. Phillips
is a very old company. It's had multiple identities. It has had multiple lines of business. It's spun out some very famous businesses. You're trying to change it, refocus it. What would you say Phillips is today? So Phillips is a health technology company. At heart, it's an innovation company. So what we're good at is solving problems in the world, based
on our deep technology, insights and capabilities. And what we have done over the recent years is that we looked at which are the challenges that the world is dealing with, which we would be best cater for to support. As we know, health care is an area of major challenge, significant increase in demand. The amount of patients keep growing. Patients getting more chronic diseases. And they also age longer. So the world and every country has to deal
with big demand for health care. While at the same time, we see big tension as they are just not enough people to take care of these patients. So there's a tension area that innovation technology can really help in. And that's actually where we have said we will put our innovation capability at Phillips to work to an essence provide more and better care due to the world. That is the opportunity you've identified. There is a lot of opportunity
there. There's a lot of reason to innovate there. One of the things that strikes me about Phillips in particular is that it used to be a giant conglomerate, like a 1980 style conglomerate that was innovating across multiple lines of business. You've been there a long time. You've watched the company kind of restructure probably decoder listeners most famously associate Phillips with the Hue light bulbs. That was the lighting division. I got spun out into
a company called Signify. You were there when that happened. Walk me through some of this process of taking the big conglomerate and turning into lots of little pieces. Because here in the United States, mostly what we see is conglomerate is getting bigger. Walk me through going through that process in reverse. It goes back to very much at the heart of who Phillips is, right? We are in 133 year old or young company depending on how you look at
it. The way how we have managed to stay relevant over all that time is indeed continuously also reinventing yourself where you can apply and deploy your resource in the best possible
way to create value. While we originate from being a lighting company, having specific innovation capabilities about bringing light to people in their homes, and then from that and the understanding that you have going into radio, going into television, but also going into healthcare already in the 1920s, we indeed grew to becoming a conglomerate in the 80s,
90s early 2000s. But what also become clear in the current world is that developments are going so fast in all these segments that actually from a need to serve them well, as well as from a company perspective, how you need to focus your resources to drive the biggest impact, there was a need to focus more. Actually, we were too fragmented in kind of where we were playing and all had distinct investment needs, all had very fast rapid environments
accelerated with the digital transformation. And then actually, you saw that you want to be successful and therefore you better focus on a specific domain. And that actually made us come to the choice of focusing on healthcare because we feel we can make a difference there. It's a relevant domain which we have been playing in for 100 years, but now we are going to set,
we are going to dedicate all of our focus in there. What we still said, I think, which is also differentiating in that is that we said, but we will not look at it through a traditional lens of healthcare being only taking care of sick people. We said we also will keep the trust of self-care. So actually, we are still active in the home because we believe over time and actually to load balance healthcare better, you need to start to take care of people in the home more.
How can they take care of themselves? And if they then are in need of either measurement or diagnosis or an intervention, we can support them along that patient journey. I have a lot of questions about that because so many tech companies see that as an opportunity, see that as a market. There's a lot of general, I would say consumer confusion about what some of these numbers mean. And then there's the ongoing support. So I have a lot of questions about that.
But I just want to stay on the structure for one more turn. A lot of what I hear about when I talk to executives of companies that are going through M&A or trying to buy something is that in the market today, what you need is scale. Scale that to go by computing capacity from a cloud provider, scale to go by chip manufacturing capacity from one of the fabs, scale to go into market internationally because you can only hire so many software developers, scale, scale, scale.
And you're describing focus, which is often the opposite of scale. We're going to take these companies, we're going to pull them apart and we're going to have overlapping functions, like all the way overlapping functions, different companies. Where does that push come from? Where is the tipping point come from where you say instead of what we need is scale and efficiency, we actually need focus, even if that comes with having literally the overlapping capabilities
of two different companies. Yeah, maybe let me go in because I think it's indeed a very interesting area. And let me also clarify how I explain focus and scale because I think we are going off the both. So when I mentioned focus, it is as we said and discussed before, we were a conglomerate that actually was developing technology that we were using to be successful in electronics, in chips, in healthcare, in lighting. Those are big different segments.
So when I mentioned we decided to focus, we said, okay, we choose one of those, which are in themselves big enough. So the healthcare segment that we look at is a hundred billion market segment. So it's really sizable, it's growing and it has a distinct need where innovation needs to come to bear to actually help it function better. And then you say, within that space,
actually I do need to play at scale. And one of the changes that I made when I became CEO actually is going after the fragmentation by saying when we innovate and the domains we play within healthcare, we need to be able to play at scale. So actually I've been stopping projects, I've been also stopping certain businesses to actually double down on the most attractive areas, but also in the areas where I believe we have the right to win and to scale. So we focus on healthcare,
within healthcare, it's still a very big space. We make choices that in the areas that we kind of are playing in, we scale. Let me give you an example. Informatics. Healthcare Informatics is a very important space. What is a very large space as well? So when we look at where we can provide a meaningful difference is in clinical informatics. So we are the number one healthcare informatics
player in the clinical layer. So if you think about you need an image as an patient, we are the number one player in image systems, actually in a system that actually acquires the images,
then disseminates them and put AI and insights on top. The same in monitoring, where actually when you need to measure patients, we're the number one in monitoring and actually we do that with a very significant software capability, AI capability to actually measure patients, pull the data together and then actually get the insights out of the data to actually serve these patients, but in particular also serve the health system in a better way by actually giving them meaningful
data and don't overwhelm them with a massive load of data. So there is this combination which is I think leading us which is both focus as well playing at scale and scale. You can also really translate into thresholds. You can say, okay, I'm not going to go after business if the opportunity is not above 500 million or a billion or a hundred million. My develops is playing in 100 countries,
but not every country is equally important. So also there in terms of focus you're going to say, okay, I'm going to make certain choices, where can I deploy and support a system best in terms of kind of allocating my resources. So that's something that I very much hold at heart that I want to do things well and if you want to do them well also with quality at heart, you need to make certain choices. You're describing pretty significant changes and how you think about focus how you operate
the company. As you mentioned, Phillips is a very old company. The logo for Phillips is still another part of the company that has been spun off. The light bulbs still have the logo on them. How do you convince other people, consumers, healthcare professionals, patients that the Phillips you're describing today is actually Phillips without all of the history and all the interconnected
signifiers that logo being everywhere. Actually, I experience and I find that the brand that we carry which has been loaded and built over 133 years is a tremendous valuable asset. Because ultimately what people remember is the experience they had with a brand. And yes, that could be enlightening, that could be in radio, that could be in television, but over time, you stay relevant if you build trust in a brand. So people have a certain connotation. Now,
what Phillips stands for at the highest level is technology and innovation. So what people remember were innovation they used, that's actually what Phillips means to them. So if you kind of grow up and you got your first CD player or your first kind of radio or you got your first MR scan under a Phillips brand, that's something that sticks with you. And actually, the fact that we are using it still across segments, even when we spin out companies, actually still gives that umbrella
of the brand and what we stand for a clear meaning. And we make sure users of our brand of course take at heart what the brand needs to stand for. So if they continue to carry a brand, it has to stay for innovation, right? It has to kind of represent the innovation. It has to be with quality. So there are clear rules upon which you can use it. And I will give you an example in healthcare, how that actually really differentiates us. So healthcare predominantly still is also
being provided for within hospital walls. But there's a big road area which is ambulatory care, where actually people want to consume healthcare outside of hospital. Now there's a player in US, Prenuvo, who is going into the space of ambulatory imaging in particular, this is an imaging example. They have selected Phillips as their sole provider because they know that the segment they
serve, the people they serve actually trust the brand. So when they have an ambulatory imaging center in the US, they actually by putting our brand here get a recognition of a trusted place where people go into to get diagnosed. And they also get an experience which is in line with what they expect, what a Phillips brand experience is about. So they know that actually it's not only great technology, the best diagnosis, but also the ambience that we provide for is really taking care of that is
the best possible experience. So there is indeed lighting when you come in that actually gives you the different feeling, right? You have the you were experienced. You kind of we think about the use case of minimizing the time to go through a scan because we know it's not a pleasant experience. So we actually develop AI that increases the speed of a scan by three times. So they use the MR, but they use the MR with our small speed, AI functionality. So actually so they can reduce
the time that the patient has to go through the scanning. And those are elements actually that we carry from the different experience that we hold. So actually the brand is really a differentiator, but also what are then delivers because that is what people remember. A very dumb question. When you approve the purchase order for light bulbs across all of your facilities, do you only buy Phillips light bulbs from signify? Of course we have the preferential
purchase. I was wondering for signify because that's of course where we originate from not always they will have all light bulbs. So I don't believe in the world of sole provisioning. That's also a building a building a hook. Why in the healthcare delivery we build products that are catered to an open ecosystem. We are unique again going back to informatics. Many of the challenges in informatics and especially for the users in dealing with informatics and informatics systems come
from the fact that there are closed systems or proprietary systems. And that means that if a hospital uses five different informatics systems, they need to jump from monitor to monitor. And actually that's not seamless. And actually in environment that we want to provide and we are truly leading in that is we provide a multi vendor experience, which means that we are open to orders to kind of hook up to our system. So that the user, the nurse or the doctor can look at one screen instead of
looking at seven screens that are on their desk. I go very regularly hospitals and I must say it's really sometimes astonishing what the nurses, the doctors technician still have to deal with. And Germany they still use faxes, right, as a common communication method. In the US in some hospitals you will see that in an imaging room they have five different screens or in a monitoring ICU center. They look at a whole area of different kind of functionality they need to monitor.
We need to help them actually to do their job in a simpler way because they want to spend their time not on five different systems. They want to spend their time on caring for the patient, on doing the best intervention and actually making the best diagnosis. And therefore when we think about what they experience and how we can help thinking in an open manner, connecting the different systems, making it easy to work with is something that actually we really put a lot of focus on.
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It's time to sharpen your civic vision and ignite the spark for a brighter future. I'm Mela Atmos and on my weekly podcast, Future Heinside, I bring you conversations to translate today's most urgent issues into clear actionable ways to make impact. With so much at stake in our democracy, join us at FutureHeinside.com or wherever you listen to podcasts. Welcome back. I'm talking
to Royal Philipsia, Roy Yackeps. We love to joke that Dakota is a show about org charts. So what does it actually look like to take a big conglomerate structure and try to stream it all for the modern age? You're halfway into a pretty ambitious three or restructuring project that you announced. As part of that, you have done or you have planned 10,000 layoffs. There's a lot of restructuring. What is the end goal? What structure do you want Royal Philips to be in?
What was important when I started and looking also at kind of how can we increase our impact? Because I really took the impact lens. I said, we need to adapt to an environment which is very volatile, which actually requires more agility, which also is under pressure because if you look to our customers, they're under pressure from
resources or forability. So we need to be lean and what is clear if you run a big ship like Philips, you need to be clear who's doing what and especially clarify better what the account abilities are. So when I came out with my plan for Philipsia to create a sustainable impact, I said, for my structure perspective, I want to go to a simplified operating model and I made
a few important interventions. The first I said, once we were coming from matrix in which we had businesses making products, region selling products and functions giving specific functional expertise like quality or innovation or finance. They had a divide and conquer about who's doing what and we had a joint PNL. I said, I put businesses in the lead and the businesses take care of serving a specific segment. So again, going back to what we discussed earlier, if we are in the
segment of monitoring, the business has the full PNL accountability. We are bringing the functions into the business. We lean out the total organization so that there are less hand-over points or more agile. At the same time, you make sure that you simplify the process so that people can work in a faster and better way. So there was on one hand, you changed the way how you kind of put the accountability, business in the lead, you kind of go to leaner structure and then as a result,
also you make sure that kind of you do it with less role. So the 10,000 roles that we were used was a very tough measure because of course these are all dear colleagues that have been working with great passion for the cause of Phillips and for betterment of healthcare, but actually to make
the company future fit, this was a necessary intervention. And by now we have reduced 9,000 of those roles already, but at the same time what you see which for me is an as important proof point of okay, we can move on that is that the engagement in the company of the last 12 months has gone up by 8 percentage points and we now have an engagement score of 78 percent versus a global norm of 80. I'm sorry, what's that's an employee engagement score? That's an employee
engagement score. So we have asked them, okay, do you feel Phillips is strategically set up to win? Phillips actually allows you to work in a way that is kind of enabling you to do your job well. Phillips is taking care of patient safety quality. So the typical engagement questions, do you like working in this company? Do you feel engaged, motivated? That's for me the simple
translation of it. And actually what we see is a massive lift because the thing I also did when I got into the chair of the CEO, I first reached out to the whole organization and I asked three simple questions. One was what do you want to double down on as Phillips? What do you think I should do? Secondly, what do you think I should significantly improve for act upon? And thirdly, what do I need
to know what I don't know? Three questions. I got a lot of input. One of the clear inputs was please make clear who's accountable, make sure we simplify the matrix and help us make faster decisions in a more agile way. So I got that input and then I said, okay, my way of getting there is changing this organization, going through a tough re-orc, but at the end you will get the
benefit, which is actually you can work more effectively. Yes, also more efficiently for a company which is of course great benefit as well to support margin improvement and better profitability, but actually it had really dual effect. And therefore the engagement that actually went up was
also resolve it because people see it working better. Of course there's betterment to come, so we have way to plan, we still have more to do, but there's clear evidence and also a voice of our employees that says we are on the right track, we actually see that in increase engagement as well as increase margin, as well as growth that comes back and the execution on the plan that we were ahead of even in the role reduction, which was very tough and we did in a very short amount of time.
You're describing going from what sounds like a very complicated matrix model to a pretty classic divisional model, right? You're going to have panels, you're going to have segments, you're going to let people run, there might be some overlapping functions and sales or marketing or whatever inside those divisions. That's a big change. It's also I just would come back around to, I talked a lot of Silicon Valley CEOs on the show and they're all in functional structures.
Everything rolls up to them and they operate apple famously, the most functionally organized company in the world. What are the benefits to you of being an individual structure? That is the big change, I'm not sure it's the same kind of structure that everyone else is in, but it seems like it's working for you. Yeah, it's working for us. I think for me, you kind of design your operating model or your organization to serve your customers in the best possible way because that will make you
successful. So when thinking about that and being an innovation company, I've thought about how can you make sure that you deliver the most relevant innovations for the different segments that you serve. And monitoring is a very different segment than imaging is a very different segment than
interventional therapy or personal health. So that's why I said, okay, I strongly believe that I actually want to organize for delivering the best service and innovations to those segments by building the end-to-end core structure of a company, the processes and the division structure around that. So businesses and the lead, that has kind of being my p-vailing design principle
to kind of get the company into the shape. And if you look to healthcare, actually you see this is also a model which is practiced more because actually you see that people kind of care to do the
specific needs of those segments that you need to kind of be very close to innovate. And I give you an example, if you want to know how you need to deliver a next bad set monitor or next kind of software product, you need to be very deeply embedded in the work process of a doctor or of a nurse, or of and that's different for the different disease areas, that's different for the different
kind of parts of the organization of hospitals. So actually we reflect in part our customers because when we sell our monitors, we will talk to the chief nurse or the CIO of an healthcare institution. If we sell our imaging equipment, we will talk to the head of radiology and also the informatics department because it of course is kind of digitizing very fast. If we talk about interventional, we will talk to the cardiologist or an neurologist or the kind of interventional
neurologist cardiologist, right? So you cater to a specific audiences and then you say, okay, what do we need to do to serve them best? And they also have different kind of not only innovation needs but also different supply chain needs, different fulfillment models, different business
models. So that's why kind of to really be specific to them, we organize it. But still do it in a lean way and make sure that of course you also learn as a company and that's where kind of we have also enabling functions like HR, finance, quality and patient safety, clinical that are at the lean structure kind of guiding the full company. But the real date today, you want to ensure that as close as possible to the customer segment. Even if it's for a long time, you obviously
worked inside of that complicated matrix structure. Was it just like a huge relief when you got to say, look, we just need to be divisions? It's one of the of course, insights that I had from personal experience. I did believe it could work better in a different way. I've also worked in other companies, right? So I've not only worked in Phillips, so I've also experienced this in different ways. And that also helped me kind of build the belief. But more over, it was also kind of how do
you kind of look at the company and the culture to kind of make that work best? Because I think as much as changing a model, it's all about changing and having the people and culture focus. Because the things that actually make a model work is not the structure, it's not the process, it's the people. As a technology company, you need to be even more people centric, it's my view. So I've been focusing very much on one hand. Yes, we need to have the right operating
model structure, simplify the processes. But actually, I put the people back at the core of Phillips. Whereas that actually is all about the people. We need to understand the people that we serve better, our patients, our consumers. And we need to have the best people actually to serve them. And then also a culture of impact with care as I defined it to actually make sure that how we work together is all focused on delivering that kind of better care and more care.
These are all big decisions. This is the other big, decoder question. How do you make decisions? What's your framework? So first, I don't believe that I have the ultimate wisdom. And that's a very important starting position. So when I make a decision, I make sure A, I am well informed. And that information I get both from outside of Phillips, so making sure
that you understand the context that you operate very well. So I make sure that I get the latest information on technology trends where I talk myself a lot to customers, to governments, to peers in the industry. So to ensure that actually I understand the context and how it's moving and where it's moving. Secondly, I surround myself with a team that is diverse, that actually make sure that I have a personal health leader, Singaporean living in Asia, giving different
perspectives to me. I have an experienced, based safety quality leader in the US, coming out of that domain, giving me the insight. So I make sure that I get insights from a strong team, because I know I can be only as strong as my team is. And then I make sure also that I get pushed back and make sure that from a board perspective, from even external people, you make sure that you stress test your own assumptions. So that when you go, you are kind of
clear that it's the right track. I also don't believe that there's always the right decision, but it's more important to move than to kind of wait to get to the perfect decision. So that's another part of my frame of mind that, hey, I don't know it all, be it's important to move at a certain point if you have enough of the information. And then actually it's important that you
are very clear what the decision entails and how you are going to implement it. Because clarity is so important in organization, especially if in an organization of size, that half of the importance of decision making is how you communicate the decision that you have been taking. Let's put this into practice. Philips is currently in litigation over 15 million defective sleep app name machines, inventulators. The FDA says that led to over 500 deaths. You're under a consent decree
in the United States. You have to stop selling those products. You have to give up some of your revenue on the products you are allowed to keep selling. There's compliance for five years with inspectors and regulators. There's evidence presented in court in this part of litigation that says, even as questions arose about these products, you said Phillips could keep selling them. How do you make that decision? So ultimately we are kind of a company that serves the betterment of health
care. So the ultimate perspective that you always need to have is kind of what's the impact on the customers that you serve. What is patient, what is nurseers, doctors. And that means when you're in health care space, you always kind of need to be careful in putting patient safety and quality as first priority in your decision making. That's also what I've put forward and that's very clear across the company as our guiding principle. But it's also known that of course there's not always
a black and white. And in health care in particular, a doctor has to deal every day with his decisions where he needs to make trade-offs between the risk and the benefit because you don't have a complete session. So for me, it's always you make sure you have the best possible information, fact-based, validated by external internal, and then actually you move. So and that holds true for decision to change operating model, that holds true for decision to kind of doing the right thing
in quality. Then of course you make sure that you are really guided by the experts. So on patient safety and quality, the first thing that I did when I came into my role, A, I put a new patient safety and quality leader in my executive team at the executive table, experience with dealing with these kind of challenges, helping us to kind of get better at it, also dealing with some of those dilemmas, including working effectively through these kind of cases and through the week call.
And then actually together with of course the executive team making sure that we take a holistic view on what we need to do when we address this. So I think make sure you have the expertise, it's validated and tested by facts, it's made robust by an external perspective. And then you take decisions that you believe are the best in that point in time. And then you move. I think that for me is important in order to keep in a company going, but also to keep delivering the
services and the products that you need to deliver. So here the decision was to keep selling the machines. Was that the right decision? Yes, and let me be specific. So this case, it was not about selling the machines, it was kind of providing the service. And when we understood that there was potential harm that actually we took an immediate decision to actually went in and that we wanted to evolve to a recall. And that was a big decision because indeed, indeed, you look at the patients,
first, secondly, you then look at how do you kind of go into that recall. So we had to replace five million devices, which we did and we completed. But that decision you can only take if you have the full information that actually allows you to take that step. So before when we went to the market, we had the evidence. And actually, I can also say now that when we did two more years of testing, what we have shown and actually what is demonstrated that no appreciable harm was done
by using those kind of products that we continue to deliver to the market. So actually, the decision proved right from perspective that actually there was no patient risk or safety involved. But we did have a product that actually did have degrading foam. And therefore, actually, we replace it, which I think that was the ultimate decision to say, kind of we go into had recall and replace it. So it was a tough decision, a very challenging matter. But we did the
right thing. And that actually something that we now also take as a learning into what is it that you do in these kind of cases. And you make that a learning organization from a patient safety quality perspective. Right. As I said, I put patient safety and quality at the executive table in the culture of impact with care. I've been very clear. And for my day, one, I've been very
clear patient safety quality is my number one priority. And not only by words, but actually then also putting the right people and capabilities because I believe it really starts with that. Building in process and system that actually really takes us always at heart. And as you have seen as well, we made a lot of progress in the journey. We go also concluded certain steps. But we still have more to do and more to learn. And I think it's also as important to be open to
that. And then you keep on this improvement journey across many fronts, including patient safety and quality. I just want to stick on this for one second. I hear what you're saying. But you don't sell safe machines and then end up with one of the most intense FDA consent decrease in recent years that has overlapping audit periods and five year design reviews. There's a lot there that suggests the FDA doesn't agree with you. And you've agreed to this.
Right. You've agreed to compliance and monitoring. You've agreed to taking the profits from machines you are selling and training them over to the United States government for the period of until you're in compliance. What is that disconnect? I think I'm missing something. Yes. Because there's a distinct difference between we have delivered safe products to the market. But what the FDA acted on is the processes to deliver these products were not followed as per
the standards that FDA would like us to follow them. So that there were deviations found in the process that was kind of coming out of the engagement with the FDA. We acknowledge we said we can do things better. And that is delivering with quality all the time. That is adhering to these processes. And that's what also consent degree is governing. So a consent degree is governing. Okay, how have you designed? Please look at your designs again. Make sure that you deliver the
best products and continue to do so. But the FDA has also not said that kind of we have not delivered safe products to the market. They have also questions on testing which we have fulfilled. And as I said, the testing has demonstrated that actually we have been delivering safe and effective products. So for me, there's a difference between patient safety in this case and the learning and the need to improve how we actually run a process, how we adhere to that and how we fully
fulfill the needs that was required and that are required by the regulator. And there we agree to go into this trajectory where we are fully committed. I am fully committed. The whole company is fully committed to take patient safety and quality to a different level, including doing it specifically for the case of the sleep and rest of your care business where this consent degree then was coming into place. Have you changed your decision making framework at all?
Having gone through this experience? I think you learned through this experience for sure. The learning in terms of progressive insight along the journey is something that is really important how to deal with that in the best possible way. Because as I said, when we started, for example, the recall verse where we are now is a completely different perspective from also insights. And that means even that actually if you look at it now, yeah, would you have done
things different? Yes, we might even have done the recall differently. We might have come established the process different in terms of making sure that we could replace them in the best possible way and the fastest possible way. We went all out to ramp up and I was in a very challenging period, but they are still learning in terms of how can you do that better with more supply? Take an example. Can you have a flexible supply chain where you have multiple suppliers
instead of single source. Single source makes you dependent on fewer suppliers than it's harder to scale up and therefore it was harder for us to kind of go with the fastest vector was kind of there. Although we already kind of quadrupled our production. And so those are things. The order of learning and decision making is also kind of even being more rigorous in terms of any assessment that's out there that's on the verge of patient safety and quality,
get all the voices on the table included. And one other decision that I took going to innovation is that the way how we innovate needs to change and I said we move from a sequential innovation approach to an integral innovation approach. And what I mean with that very practically is that when we were innovating we had a technology group that was coming with the greatest technology and they would give it to a business and a product group in a business that said okay you turn
this technology into a product. And then actually that group gave it to the manufacturing team and said now you need to make sure we can produce this unit. And then my factory team was giving it to the supply team and supply team would say okay now you make sure we can distribute it and then they were giving it to the sales team and said and now you sell it. So this was a sequential
approach and then you had this matrix where it was divided up. That's where for me at the heart of decision was no we need to get these teams talking from the first moment you go through the process and do it together. So then you put manufacturing, supply chain, sales, engineering and R&D in one team. That's the business team. So this change in accountability was very much at the heart of taking the learnings from getting into this and saying how can we change this? It's changing at heart how
we drive innovation because that's the core of what we do. And then if you do that within a culture where it's very clear that patient safety quality is the first priority that you then have to write people with the right competences to also ensure that that's being delivered,
then you get to a holistic approach. We have changed the way how you do innovation. You put the right frame, culturally around it and then you kind of put the right people on it and then you can go on this improvement journey because as you also know you don't change a company from one to the other day in full right there are steps you need to take. And that's kind of the journey that we have been kind of going on. We have seen and you have seen that we are very serious about it.
We have been delivering our commitments. We are half-aided plan so we are also for sure not there yet. There's much more to do and to come. But we made the responsible progress. The company is growing again. We have closed certain chapters of recall which were very important including first of all giving the patients the new devices, getting to the consent decree, getting the litigation in the US behind us, focusing on innovation again of all the other parts of Phillips.
Because we came also out of COVID with a lot of supply challenges and then you have these poor healthcare systems that already are challenged and then also are still waiting for products from the suppliers because they were just not enough of them. Now that's something we also focused a lot on. So next to patient safety we made a lot of progress on supply chain
improvements. So actually we now currently fully in line with the lead times to the market and we can fulfill them when they need it and then actually doing it in agile ways so we are better and responsive to what they need. We are taking another short break. We'll be right back. They're not writers but they help their clients shape their businesses' financial stories. They're not an airline but their network connects global businesses in nearly 180 local markets.
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apply. Welcome back. I'm talking through Roy Yacob's CEO of Royo Phillips. About the direction he's trying to take the company following a massive recall and settlement related to breathing machines. Let me bring this all the way down to the ground. You are describing and we've talked about a restructure of the company into division so you can be closer to your customers. You can better
understand who we are selling to you what they need what their processes are. In this case very specifically what you had was thousands of complaints over a decade from consumers saying there's sticky stuff in their breathing machines. And that wasn't acted on until quite some time later. Will your new structure make you more responsive to consumers who are filing complaints?
Yes. So if you go to some specific areas and again complaints management is an import one, I've been very clear in the culture it's all about speaking up, acting fast when we see things happening which means that if there are complaints coming in, catch them early, address them quickly and deal with them rigorously. Now that is the journey that we're in and that's actually the improvement that we also seeing so we had significant amount of complaints coming in there that
was learning how do you deal with that in a systemic way in a different way. So that's for example one of the concrete examples where you will see complaints going down. We also see already in business units and we have been working on that to kind of how can we bring
these parts down. But also I always say kind of there's part of you have the structure out there of products that are serving the market that you need to act fast on and then there is what is that you bring out new as innovation and you make sure that actually that has the high standards.
So you work on two parts, what is it that you need to address and deal with from the past and actually make sure that you act on that very fast in the right way and then actually make sure that the first time right you actually design the products for the future in the way that they are safe, adequate, effective and really deliver more and better care. This is a hard and challenging problem with something as mechanical as a respirator or a sleep app name machine where you can see
the problem you might even be able to hear the problem right. We've talked a lot about what you're doing next and a lot of it is software. It's connected services in the home. It's synthesizing a bunch of data to help make diagnoses faster. It's the use of AI. It is vastly harder for anyone to see the problems in software. How are you thinking about that risk and measuring that risk? Yeah, I think software has, I think first of all a lot of of course benefits to give and to offer
to healthcare. So I'm very excited about what software can do and what AI can do. But like with any technology you need to make sure that it's being used in an appropriate manner. So testing, validating, making sure that you have the feedback loops is critically important. So one of the reasons why actually I stepped into the National Academy of Medicine initiative where it's about
developing a code of conduct for responsible use of AI and healthcare. Because we want to be ahead of it and we want to think through what are the different parts that you need to kind of address to make sure that AI is applied in the right way. And thinking about a few areas, right? First of all, you need to be very clear on what problem is it solving so that you can be specific around what you measure in terms of how effectively does it. So the testing validation methods around that
need to be adequate for software testing and evolution. Second, you need to kind of, what software is very important? What are the data that you use that they are representative? That actually they make sure that they deliver the right outcome. For example, at-cual healthcare, you need to make sure that actually you make it right for the right patient
for the right patient group. So that's another angle that you that you can look at. And then also you look at how you go from, I would say, kind of you can start with the lower risk areas. There's a lot of routine tasks in healthcare that you can address. Let me give an example. A nurse spends on average 20 minutes an hour doing admin tasks. Meaning they need to kind of write down certain measurements. They need to kind of transfer data from one system to another.
Actually, AI can really help in doing that faster, but also even more accurately. Because, of course, if you have manual labor, there's also a risk error that goes to that. So actually, there you can really improve and lower the risk profile. If you go closer to especially interventions, you want to make sure that actually the decision support you provide is at the highest tested level of security and patient safety. Next to that, the doctors will make the ultimate
decision. So it's a decision making and support tool. But you need to make sure it's tested very well. So also, therefore, qualify what are different use cases and therefore what kind of risk today kind of have and therefore what robustness do they need to have in the process of delivering a solution for it is very important. And then last but not least, of course, you develop it together with the practice. So you never do it in isolation. That's very important. So you're very close to
the clinical practice. So all AI that we develop is developed together with providers. Right? We use patient data sets that are kind of jointly worked at. So that actually don't only look at it from your perspective, but also for others so that you have the multiple's highest principle that when you bring something out to the best of your abilities, you have kind of made sure that you deliver effective products. Now, you still need to be alert because there's no perfect world things can
happen. Problems will arise. And then again, you come back to what mechanisms do you put in place to actually capture that faster and better. And they're actually AI. We are also adopting and using in dealing with complaint management because generative AI, of course, all of complaints come in also in text. They are descriptive. And actually, you can also use technology to make sure that
actually you interpret it better faster. So you compliment again, the kind of human element of it, by also using the late technology to actually process some of these in a better and more accurate manner. One of the pieces that puzzle there is the actual core AI technology you're using. So maybe for complaint management, do you have an LLM AI that's doing whatever it's doing there
to manage text? Maybe that's what you're using for informatics for nurses. In imaging, which is where a lot of the promise of AI and healthcare it lies, you might be using a different model. Are you partnering with outside companies to build those models? Are you training your own foundation models? How does that work for you? We're doing both. So we use models from partners, concrete example, we have a strong development partnership with AWS. We're actually, we are looking
into imaging, as you mentioned. For example, the image acquisition system, the packs, needs to be taken to the cloud. That's an effort that actually we both are looking into from our own perspective and from their perspective, how we can best support that. What are the models that actually can help do so? So that's one of the example cases that is out there. We also use some of the models and then train on our own kind of data, the model to kind of make a specific for a clinical
application area. So give the example when we wanted to develop the smart speed, making an MR to scan faster, and as in three times faster, that's something that you do with your own data. So you use a base model, then you're going to train it based on your own data. And actually, we did it with a provider, a specific provider in the Netherlands, a lady medical university,
where they had 200 research around it. We had a team of 200 on it to gather you a developer model that actually makes sure and turns into an algorithm that is very specific for the use case. So it depends also on what is the application area, what model you use. So we have a mix. We are not, I believe, the party that develops the foundation model. They're the big technology
players that do that and we partner with them. But we are the ones that actually develops that into the clinical application layer that actually has the workflow solutions, that has this specific software solutions to improve the performance of products, to make sure that actually lands in healthcare practice in a meaningful manner. And there I gave the another example, the practical example of the increased scan time. We use AI to actually help take noise out of
the images when people go through a scan so that they don't have to retake a scan. We make sure when a scan is taken that actually we can take the most urgent and critical cases and put them in front of the queue for radiologists to look at. So there are real tangible examples happening today. And that's indeed using LLAM models for relevant use cases, but also still using traditional AI numerical kind of to come to certain predictions when we are in ICU.
And when we look at patient deterioration in the ICU, our monitors can actually predict in 24 or 36 or 48 hours if there's an event going to happen, based on deterioration signals that are being interpreted. And specific algorithms that are developed for that use case. So I think there is this combination between using the technology partners for the technology at scale, which is either taking to the cloud, the foundational models. And we have the clinical translation to actually make
it really relevant for the use cases. There's a handful of radiologists in my family. Their view is over time AI will just take their jobs away. Right? That in particularly the imaging use case is so powerful. Obviously it doesn't get sleepy. It doesn't make as many mistakes. That over time that that will become automated. I don't know if they're right or wrong. That's what they tell me at parties. What's your view? Is the technology good enough to achieve a complete reinvention at feel
over some period of time? My view is I don't think it will take the human fully out of the loop because there are certain complexity in cases that I think you always want to have ultimately a human oversight for. Actually, I think what it does and actually there AI is necessary for and actually software is necessary for. We will not be able to catch up between the growing need for imaging versus the amount of radiologists that are being trained actually to do the examinations.
So there will be a growing divide between supply and demand and to just make that manageable, we will need AI and use it to the ultimate kind of case to make sure that we can scan that we can take the images because we just see there are more images taken per patient. The corona disease is required more, new medicine requires more and then also for us it's about what is the technology use case that we can offer so that actually we can do it better, that we can
do it at lower dose. So it's less intrusive that the experience get better as I said if you can have the scan time so an MR scan doesn't take an hour but 30 minutes or 50 minutes of course is a much better experience for a patient. So I think there's a lot that technology can do that goes beyond just the reading also to help improve the workflow process from the moment that actually people schedule up to that they need the kind of the outcome of the examination and I still believe
that we will have radiologists in future but the one thing I know for sure is we will not have enough and we will need to support them with the best of our abilities to make sure they can do their job because what I also know and probably when you have the menu family I know many of them are very
overworked kind of many of them are burned out and they have challenges dealing with the load that is on top of them and then it's also for us as technology company to make sure that technology doesn't make their job harder but actually really helps them doing it better and faster and that's what is upon us in this journey and that's an exciting collaboration that we have on that.
The radiologists I know would not would blame that entirely on the presence of private equity in their industry but that is a different podcast we'll come to that at a different time. Let me ask you this question right now if you use a standard MRI machine and you have some images taken and somebody reads them, gives you a diagnosis, something happens and they were wrong. You would sue the doctor right that's very clear you're not going to sue the tool that they used.
Once the tool starts making decisions or assisting in making decisions even there's a chance that the liability lies with Phillips because Phillips has started to make medical decisions because of the data it has. Have you assessed that risk because it seems like a growing piece of the puzzle more and more of these systems are automated we need to reallocate the liability.
I think it's a very clear question. We clearly indeed distinguish that we don't practice at medicine as Phillips so that's that there's a clear kind of threshold where we say we don't go to that level so there is an ultimate responsibility accountability of the decision maker,
the practitioner that actually applies. But we feel very accountable to make sure that our technology that supports is safe and of course what you will also see that if there is a problem with it we will take the accountability but also we'll have to step in to resolve to the best probabilities
and we will also be held to account for it. We are also in a world in a regulatory frame where actually that is also governed and I think we'll also we'll look after that but we ourselves need to take the responsibility that's where it starts and that for me is we got us of that we requirement but we will not take the ultimate decision or we will not practice medicine as such right so that's
kind of where there's still a threshold in what we do and what we kind of innovate for. We've only got a few minutes left and I want to come back to something instead of the very beginning conversation which is part of the journey for Philips is now going home with the customer being with the patient providing more care in all the places. I see the big tech companies trying to do
it. I'm wearing an Apple watch this thing desperately wants to be a healthcare device right I mean they've got some FDA clearances for some other functions or some things they want to do they can't figure out like glucose monitoring. Samsung has fake metrics and it's smart watch that I would know
they won't even tell us what they mean. This is the frontier right wellness in this country in particular feels like a frontier is somewhat unregulated it is mostly full of quackery from what I can tell but there's a lot of data you can collect and synthesize into some advice into some outcome
you can sell subscriptions to mattresses that keep you cool at night there's just a whole universe of stuff that isn't very well proven Philips has the brand right you're in the hospital and now you might go home with the customer there's all kinds of things you might do where's the
line for you so the line is the clinical application so we are and that's also how we kind of go actually from hospital into home of course we have our own self-care propositions but they're different right if you look at what we do with or healthcare we are kind of making sure that
an oral care routine is being adhered to right and we know how to actually do that we train and we kind of ensure that kids do it with specific applications we make sure that people do it multiple times a day and we support them with the best technology so that that's one piece of it
but the other piece and take monitoring as an example we have monitoring solutions that also go outside of the hospital we kind of diagnose in a week's time in a month's time whether there's an arrhythmia that you need to detect but those are clinically validated products that support
doctors and they also trust in and upon I think there will be a phase where more contextual data will be loaded and there will be very kind of relevant we also are open to that so if cardiologists or kind of want to look at the Apple Watch data they can actually insert it into our data set
because as a set do you think that data is good enough because this is the this is the I think the challenge right that there's a lot of consumer level data being collected and it might not be good enough to to leave so for me it depends on what do you want to do with it right if you want to
understand how is a person living is he moving is he experiencing certain stress levels is he which is different than coming to the ultimate diagnosis of he has an arrhythmia failure and this is the treatment that you need to do actually to treat that that's a real clinical
application that needs to have the full rigor development testing of a clinical use case but if you want to treat a patient more and more it will be illicitly will not only be you have a problem with your heart or no it will be okay how can we deal with it in addressing it
not only in kind of solving what is what is not working but do you need to change your lifestyle do you need to kind of behave in a different way and how can we get you to behave in a different way so that's something that actually we work I give you another example we have our mortar and
childcare franchise as part of that we provide to pregnant motors information we actually the single biggest used app in the United States pregnancy plus app half of the motors that are pregnant use our app they use that for daily information to look at how is my child evolving
what are things that I should be thinking about about my nutrition my movement when do I need to go and see a kind of doctor for checkup so that actually is informing them in a really relevant a meaningful manner but it also gives access to a certain group of people that might need to be
pulled into the hospital so now you can start to overlay it with a government and so we also have a discussion with government because they are concerned with high risk pregnancy where actually you can inform them say hey there's a policy out there that you can get access to three scans
during your pregnancy so please use it because we believe it's important that we know how kind of how the child is evolving because not everybody does that and we see that kind of there's a rise of high risk pregnancies in the U.S. and the consequences of it are very negative so how can
we counter that so I think there will be more and more use cases like that coming up but the last point and then it's also maybe a good one for a total perspective I would say if you want to change healthcare systemically right in a big way you have four streams that have to come together
technology is one of them to change behavior change practices and we are pushing that envelope and there's a lot available the most important actually is the clinical practice that needs to work with that and do they adopt it to change the way they work that's a second stream then
thirdly you need to have the financial regime that supports that different way of working and then the fourth stream you need a regulatory stream to make sure that this also happens in a regulatory environment that is kind of for a medical field because these four have to come together that's
why you see that actually changing healthcare is difficult and it's not always going as fast we had the ultimate example in COVID because of the crisis actually these four had to come together and I always say kind of the example in digital health was the most pressing one right people
move a different clock speed and moving to digital health or digital consoles there was no way to do it in a different manner so people had to go to digital consoles so certainly there was financial support for doing digital consoles doctors were changing the way of applying medicine by actually
offering digital consoles and actually regulators said okay we accept that this is a practice that you can do and that happened within months not years right but that's actually where you see also in particular moving into the home it requires these four streams to come together at scale
and that's where you see that healthcare system but also the governments and the public is still more challenged with that continuing the kind of current routines and practices which is for disease you go to hospital that you see it doctor physically and that's how you consume
healthcare practice in today's world that's the regulated side right here for the four streams and there's one very important piece of that puzzle on a consumer side it's just a wild west how do you see that playing out how do you get people to understand what's important and what's not
there is an educational component that actually is rising very fast why people can get self educated in a much better and foster rate than ever before there's also downside to it which is actually they become doctors themselves or if you tend to kind of know themselves was here
so again there it's between what is it that you can act upon yourself so the self care component where you see growing interest of consumers to take care of their own health is an undeniable trend already for long and actually you see people getting more engaged getting more involved
measuring helps making them aware helps offering tools that they can act helps but that's not yet at scale that it reaches everybody and for some others you need also to be mindful that doctor google is not an official doctor so don't start to practice based on what doctor google says to
you right so if you have a serious problem please still make sure you get a serious support meaning you go to your current support system whether it's a nurse a doctor that actually can give you the professional support that you need there will be a line that will be growing in terms of
what is it that you can do yourself to actually make sure you keep healthy and also you diagnose or not diagnose but you measure the moment you start to go into diagnosis there's very quickly the point that you need to get into the professional system and then also of course for any intervention
that needs to happen that's where you end up but that kind of line where actually we can propel people to actually take more proactive care of their health I think is a very important one to make sure we have a sustainable healthcare system for the future.
Well right this has been an incredible conversation I could keep growing for hours especially about AI and consumer but I think we're going to have to have you back to finish that up thank you so much for being on the coder thank you for having me and that was great to engage on the future of healthcare and providing better and more careful people.
I'd like to thank Raya Cubs for taking time to join me on the coder and thank you for listening I hope you enjoyed it if you'd like to let us know what you thought about this episode or really anything else drop us a line you can email us at decodertheverg.com we really do read all the emails
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