Dutch medical device maker Royal Philips has faced a monumental challenge following a massive recall of its breathing machines, including CPAPs and hospital ventilators, that has rocked the company to its core. In 2021, the company recalled millions of these devices due to safety concerns, leading to a staggering $1.1 billion settlement this year to address thousands of claims from affected users.
A Culture of Safety: New Leadership Moves
In response to this crisis, CEO Roy Jakobs has initiated a turnaround plan focused on prioritizing safety and rebuilding trust. To underline this commitment, he created a new executive position: Chief Patient Safety and Quality Officer, a role filled by Steve De Baca, who will report directly to Jakobs. This decision reflects Jakobs’s belief that safety must be at the forefront of Philips’s operations, especially as the company increasingly incorporates AI into its medical technologies.
“It had to be crystal clear from the moment I took charge that safety was the No. 1 priority,” Jakobs stated during an interview at Philips’s Amsterdam headquarters.
Changing Company Culture
Jakobs is not just focusing on policies; he’s working to transform the company culture. Philips has implemented regular forums where employees can discuss product performance and safety openly. He aims to make safety a topic everyone feels comfortable addressing, fostering a sense of accountability among the 70,000 employees. Instead of striving for an unrealistic 100% failure-free environment, Jakobs encourages teams to think critically about how their roles impact patient safety.
A Legacy of Innovation
Philips has a rich history of innovation, dating back to its founding in 1891 as a light bulb manufacturer. Over the years, the company has adapted to market changes, becoming a leader in health technology. Its expertise in lighting paved the way for breakthroughs in healthcare, such as X-ray tubes, and it has produced a range of products from radios to electric razors.
However, the company’s pivot towards health care has not been without challenges. After struggling financially in the consumer electronics market, Philips began shedding underperforming segments to concentrate on more profitable healthcare-related businesses.
The Fallout of the 2021 Recall
The 2021 recall of Philips Respironics products arose from consumer complaints regarding toxic foam degradation in CPAP machines, leading to serious health risks. The FDA linked about 500 deaths to these devices, prompting Philips to act swiftly. The fallout resulted in the departure of former CEO Franz van Houten, paving the way for Jakobs, who had been leading the recall efforts.
Since Jakobs took over in October 2022, Philips’s stock has shown signs of recovery, nearly doubling in value, though it remains below pre-recall levels.
Embracing AI for Future Success
Jakobs envisions a future where Philips not only recovers from its past mistakes but thrives through innovation. He plans to enhance the company’s offerings by integrating AI into diagnostic machines like MRIs and ultrasounds. This technology aims to streamline processes, alleviate burdens on healthcare workers, and ultimately improve patient outcomes.
Philips now generates nearly half of its revenue from diagnostic and treatment products, with 28% coming from connected care devices involved in the recall and 20% from personal health products.
A Bright Future Ahead
Jakobs believes that addressing healthcare challenges, such as an aging population and rising chronic diseases, positions Philips uniquely in the market. “We want to be much more focused because there is a big societal issue in health care, with an aging population, chronic diseases, and massive demand,” he explains.
By refocusing on safety and innovation, Philips aims to regain the trust of both healthcare professionals and the public, ensuring that its products not only meet but exceed safety standards.
I am Aparna Sahu
Investment Specialist and Financial Writer
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