Design Intervention

By: Jennifer ReingoldWed Dec 19, 2007 at 8:14 AM

At Philips, a place long known for big ideas and small numbers, can there be too much of a good thing?

Cash Crop: Philips's Ambilight TVs were introduced in 2004 and have roughly doubled the company's market share of LCD sales.

Last April, a select group of Broadway celebrities, New York--area business types, and employees of Royal Philips Electronics found their way across town to a gritty pier on Manhattan's west side, lured by a cryptic white invitation to "The Simplicity Event." As the partygoers entered the space, they were transported from a windswept industrial dock into a crisp world of white walls, white carpet, and white couches. Women in white floated ethereally by, bearing hors d'oeuvres. It felt, somehow, like falling into an iPod. But that was the last thing Philips--the $37.7 billion Dutch company that makes everything from televisions to MRI machines--wanted its guests to be thinking about that evening.

Andrea Ragnetti, Philips's chief marketing officer, gave a brief introduction, then stepped back theatrically as a white screen rose to reveal five different installations, each featuring working prototypes of products that were mostly three to five years away from the market. Oohs of amazement arose from the various stations (Share, Care, Glow, Trust, and Play), prompted by demonstrations of artifacts such as the Momento, which looked like a cross between a snow globe and a lava lamp (shake it, and it morphs into a home- movie player). The Glow section boasted sculptural lamp shades that changed color to match the fabric underneath them. Care showcased an AirTree that cleans and humidifies the air, much as a real tree would. The technology felt seamless, sleek. The products seemed simple--although they were anything but--and ready for the marketplace, even though they were far from it.

Philips is trying to capture that spark of possibility--of what could be rather than what is--as it looks to transform its reputation from a floundering, commodity- peddling conglomerate into a streamlined innovation machine. After years, even decades, of being defined by what it was losing, rejecting, or surrendering, Philips is eager to move forward again. Since the late 1980s, the company has pared itself down from 30 divisions to 4 and lost market share in industries such as semiconductors and consumer electronics. Since 2001, sell-offs have cut the number of employees by nearly half. "Design helps us to bridge the gap between the present and the future," says Philips CEO Gerard Kleisterlee, "and makes the future tangible today."

In short, Philips hopes to create a design-led organization (for more on how difficult that can be, see "Tough Love"). And mapping out just how it should function has fallen in large part to Ragnetti and Stefano Marzano, the longtime CEO and chief creative director of Philips Design, a freestanding unit with 450 staffers, a satchelful of prestigious awards, and an estimated annual budget of $250 million. Marzano has been tapped to unify the company through what it calls "simplicity-led design." He wants to establish his design principles--the unity of form and function, ease of use, and, in Philips's world, improving the consumer's life--as an organizing framework for the entire company, from its corporate structure to the ways departments and executives communicate, right on up to the user interface on every electronic gizmo.

By chance or not, Philips's broad embrace of design coincides with a period in American business in which design has become the ultimate executive elixir. But even at Philips--which has been thinking about the topic for more than 80 years, far longer than most companies--it's worth asking whether design is really the panacea it's cracked up to be.

Ragnetti isn't fond of questions about whether design actually pays off in the end, at least when discussing experimental projects such as the New York event. "'Why are you doing that?' 'What is the ROI?' These are the questions that kill," he says. "I made a clear point in the boardroom that whenever it comes to design, we have to keep business management out of the process."

That sounds odd coming from a company like Philips, which, despite its legacy, has a reputation for making cool objects that either never made it to market or lost out to the competition. The place that dreamed up such iconic products as the X-ray machine, the compact-disc player, and the audiocassette has routinely failed to capitalize on its own big ideas. "It has often been described as the company that made the most things and made the least money," says Scott Geels, senior equity analyst at Sanford C. Bernstein.