Decoder with Nilay Patel
How Philips CEO Roy Jakobs is turning the company around after major recall
Mon, 16 Sep 2024
Today, I’m talking with Roy Jakobs. He’s the CEO of Royal Philips, which makes medical devices ranging from MRI machines to ventilators. Philips has a long history —- the company began in the late 19th century as a lightbulb manufacturer, and over the past century it’s grown and shrunk in various ways. Basically, while every other company has been trying to get bigger, Philips has been paring itself down to a tight focus on healthcare, and Roy and I talked about why that market is worth the focus. Roy and I also talked about an ongoing controversy at Philips that he had a part in: In 2021, after years of consumer complaints, Philips was made to recall millions of its breathing machines. Those devices were eventually tied to more than 500 deaths. That’s a pretty big decision, with massive life-or-death consequences, and you’ll hear us talk about it in detail. Links: Problems reported with recalled Philips ventilators, BiPAP & CPAP machines | FDA FDA says 561 deaths tied to recalled Philips sleep apnea machines | CBS News Philips kept complaints about dangerous breathing machines secret | ProPublica Top Philips executive approved sale of defective breathing machines | ProPublica Philips reaches final pact with DOJ, FDA on ventilator recall | WSJ Philips suspends U.S. sales of breathing machines after recall | NYT CPAP maker reaches $479 million settlement on breathing device defects | NYT Philips exits shrinking home entertainment business | Reuters Original TSMC investor Philips sells off final shares | PC World Philips unveils new AI-powered cardiovascular ultrasound | Mass Device Transcript: https://www.theverge.com/e/24006874 Credits: Decoder is a production of The Verge and part of the Vox Media Podcast Network. Our producers are Kate Cox and Nick Statt. Our editor is Callie Wright. Our supervising producer is Liam James. The Decoder music is by Breakmaster Cylinder. Learn more about your ad choices. Visit podcastchoices.com/adchoices
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Hello and welcome to Decoder. I'm Neil I. Patel, editor-in-chief of The Verge, and Decoder is my show about big ideas and other problems. Today I'm talking with Roy Jacobs, the CEO of Royal Philips, which makes medical devices ranging from MRI machines to ventilators. Philips 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 Philips-branded light bulbs like the popular Hue line.
There's an incredible history of this sort of thing at Philips, 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 Philips has been paring itself down to a tight focus on healthcare.
Roy and 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. Philips 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. Roy and I also talked about a serious, ongoing controversy at Philips that he had a part in.
In 2021, after years of consumer complaints, Philips was made to recall millions of its breathing machines, including home-use CPAP 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.
Roy's 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 filings showing that Roy himself was involved in the decision to keep selling the defective 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 Roy and I 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 in depth.
All right, Royal Phillips CEO Roy Jacobs, here we go. Roy Jacobs, you are the CEO of Royal Philips. 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 Philips over the past few years. I want to ask about a lot of them.
Let's start at the very start, though. Philips 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 Philips is today?
So Philips 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 upon 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 catered for to support.
As we know, healthcare 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 a big demand for healthcare, whilst at the same time we see a big tension as there 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 Philips to work to, in essence, provide more and better care 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 Philips in particular is that it used to be a giant conglomerate, like a 1980s-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 Philips with the Hue light bulbs. That was the lighting division that 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 it into lots of little pieces. Because here in the United States, mostly what we see is conglomerates getting bigger.
Walk me through going through that process in reverse.
It goes back to very much at the heart of who Philips is, right? We are a 133-year-old or young company, depending on how you look at it. And 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 resources in the best possible way to create value.
And whilst we originate indeed 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's 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 kind of 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 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 it 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 at companies that are going through M&A or trying to buy something is that in the market today, what you need is scale. Scale to go buy computing capacity from a cloud provider. Scale to go buy 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 does 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're going after 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 100 billion market segment. So it's really sizeable, 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, but it's 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 100 million. Philips 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 the 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 a pretty significant set of changes in how you think about Focus, how you operate the company. As you've mentioned, Philips is a very old company. The logo for Philips is still on other parts of the company. They've been spun off. The light bulbs still have the logo on them.
How do you convince other people, consumers, healthcare professionals, patients, that the Philips you're describing today is actually Philips 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 in lighting, 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 Philips stands for at the highest level is technology and innovation. So what people remember what innovation they use, that's actually what Philips means to them. So if you kind of grew up and you got your first CD player or your first kind of radio or you got your first MR scan under a Philips 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 our brand, it has to stay for innovation, right?
It has to kind of represent 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 health care predominantly still is also being provided for within hospital walls.
But there's a big growth area, which is ambulatory care, where actually people want to consume health care outside of hospital. Now, there's a player in the US, Prenuvo, who is going into the space of ambulatory imaging in particular. This is an imaging example.
They have selected Philips 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 there, 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 Philips 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... It's a different feeling, right?
You have the UI experience. You kind of rethink 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 developed AI that increases the speed of a scan by three times. So they use the MR, but they use the MR with our smart speed AI functionality, so actually they can reduce the time that a 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 it 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 Philips light bulbs from Signify? Of course, we have the preferential purchase order 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 a world of sole provisioning. That's also 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 they 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, an 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 to hospitals and I must say it's really sometimes astonishing what the nurses, the doctors, technicians still have to deal with. In Germany, they still use faxes 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.
We have to take a quick break. We'll be right back.
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Welcome back. I'm talking to Royal Philips CEO Roy Jacobs. We love to joke that Decoder 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 year 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, affordability. So we need to be lean.
And what is clear, if you run a big ship like Philips, you need to be clear who is doing what and especially clarify better what the accountabilities are. So when I came out with my plan for Philips to create a sustainable impact, I said from an structure perspective, I want to go to a simplified operating model. And I made a few important interventions.
The first I said, whilst we were coming from a matrix in which we had businesses making products, regions selling products, and functions giving specific functional expertise like quality or innovation or finance, They had a divide and conquer about who is doing what and we had a joint P&L. 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 P&L accountability. We are bringing the functions into the business. We lean out the total organization so that there are less handover points or you're 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 roles.
So the 10,000 roles that we reused was a very tough measure because of course these are all dear colleagues that have been working with great passion for the cause of Philips 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 over the last 12 months has gone up by 8 percentage points. And we now have an engagement score of 78% versus a global norm of 80. I'm sorry, that's an employee engagement score? That's an employee engagement score.
So we have asked them, okay, do you feel... Philips is strategically set up to win. Philips actually allows you to work in a way that is kind of enabling you to do your job well. Philips is taking care of patient safety and 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 Philips? What do you think I should do? Secondly, what do you think I should significantly improve or 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 reorg, but at the end you will get the benefit, which is actually you can work more effectively. Yes, also more efficiently for the company, which is of course a 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 a result of it because people see it working better. And of course, there's betterment to come. So we're halfway 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 increased engagement, as well as increased margin, as well as growth that comes back and the execution on the plan that we are 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. You're going to have P&Ls, 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 to 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 in that divisional 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 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 business is in the lead. That has kind of been my prevailing design principle. to kind of get the company into this 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 get 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 bedside monitor or a next kind of software product, you need to be very deeply embedded in the work process of a doctor. or of a nurse, 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 the neurologist or the kind of interventional neurologist or cardiologist, right? So you cater to the 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, 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 day-to-day, you want to ensure that is as close as possible to the customer segment.
Even at Philips 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 Philips, I've also experienced this in different ways. And that also helped me kind of build the belief. But moreover, 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, is my view.
So I've been focusing very much on, 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 Philips, where I said, actually, it's 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 Philips, 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 makes sure that I have a personal health leader, Singaporean, living in Asia, giving different perspectives to me. I have an experienced patient 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 pushback 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 kind of my frame of mind that A, I don't know it all. B, 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 an organization, especially if you're 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 apnea machines and ventilators. 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 as part of this litigation that says even as questions arose about these products, you said Philips could keep selling them. How did you make that decision?
So ultimately we are kind of a company that serves the betterment of healthcare. So the ultimate perspective that you always need to have is kind of what is the impact on the customers that you serve, whether it's patients, whether it's nurses, doctors.
And that means when you are in healthcare 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, right?
And in healthcare in particular, a doctor has to deal every day with his decisions where he needs to make tradeoffs 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 recall, 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 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 into a voluntary recall. And that was a big decision because 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 5 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 replaced it, which I think that was the ultimate decision to say, if we go into head recall and replace it. So it was a tough decision, a very challenging matter, but we did the right thing.
And that's 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 and quality perspective. 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 that patient safety and 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 a 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 also concluded certain steps, but we still have more to do and more to learn. And I think it's 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 decrees 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 the machines you are selling and turning them over to the United States government for the period 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 the 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 acknowledged, 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 a 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've asked us 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
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 agreed to go into this trajectory where we are fully committed, I'm 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 respiratory care business, where this consent decree then was coming into place.
Have you changed your decision-making framework at all, having gone through this experience?
I think you learn 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 versus 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 differently? Yes. We might even have done the recall differently. We might have established the process differently in terms of making sure that we could replace them in the best possible way, in the fastest possible way.
We went all out to kind of ramp up and I was in a very challenging period, but they're 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, then it's harder to scale up and therefore it was harder for us to kind of go with the fastest track that was kind of there, although we already kind of quadrupled our production. And so those are things. The other learning in 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 the 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 the manufacturing team was giving it to the supply team and the 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, the heart of the 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 and quality is the first priority that you then have the right people with the right competences to also ensure that that's being delivered then you get to a holistic approach where you 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 halfway to plan.
So we are also for sure not there yet. There's much more to do and to come. But we made demonstrable progress. The company is growing again.
We have closed certain chapters of the 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 Philips. 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 there were just not enough of them. Now, that's something we also focus a lot on. So next to patient safety, we've made a lot of progress on supply chain improvements.
So actually, we're 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 an agile way so we are better and responsive to what they need.
We have to take another short break. We'll be right back.
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Welcome back. I'm talking with Roy Jacobs, CEO of Royal 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 divisions so you can be closer to your customers.
You can better understand who you're selling to, 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 important 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're also seeing. So we had significant amount of complaints coming in there. That was the 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 it 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 highest standard.
So you work on two parts. One is 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 apnea 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.
It's 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 in 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.
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 it does it. So the testing validation methods around that needs to be adequate for software testing and evolution.
Secondly, you need to kind of, which 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, ethical 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 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 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 do they 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 you don't only look at it from your perspective but also from others so that you have the multiple size 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, a lot of complaints come in also in text. They are descriptive. Actually, you can also use technology to make sure that actually you interpret it better, faster, so you complement again the human element of it by also using the latest technology to actually process some of these in a better and more accurate manner.
One of the pieces of the puzzle there is the actual core AI technology you're using. 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 in healthcare 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, where actually we are looking into imaging, as you mentioned. For example, the image acquisition system, the PACS, 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 it specific for a clinical application area. So give the example when we wanted to develop the smart speed, making an MR to scan faster, in essence, 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. specific provider in the Netherlands, Leiden Medical University, where they had 200 researchers on it. We had a team of 200 on it.
Together, you develop a model that actually makes sure and turns into an algorithm that is very specific for the use case. So it depends also on kind of 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 the specific software solutions to improve the performance of products, to make sure that it actually lands in healthcare practice in a meaningful manner. And there I give the nurse 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 a queue for radiologists to look at.
So there are real tangible examples happening today, and that's indeed using LLM models for relevant use cases, but also still using traditional AI, numerical, kind of to come to certain predictions when we are in the ICU. 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
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 it to the cloud, 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? 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 of that field 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 their 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 chronic diseases require 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 gets better.
As I said, if you can halve the scan time, so an MR scan doesn't take an hour but 30 minutes, or 50 minutes, of course, it's 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. the moment that actually people schedule up to that they need to kind of the outcome of the examination.
And I still believe that we will have radiologists in the 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 them in your 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 a technology company to make sure that technology doesn't make the 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 Philips because Philips 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 fair question. We clearly indeed distinguish that we don't practice medicine as Philips. So that said, 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 it to the best of our abilities. 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 that responsibility. That's where it starts. And that for me is regardless of that 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 you said at the very beginning of the 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 of their functions or some things they want to do they can't figure out, like glucose monitoring. Samsung has fake metrics in its smartwatch that they won't even tell us what they mean. This is the frontier, right? Wellness in this country in particular feels like a frontier. It's 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 a 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 are different, right? If you look at what we do with oral health care,
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's 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, where you 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 it 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 I said, we believe in it.
But do you think that data is good enough? Because this is the, this is the, I think the challenge, right? Yeah. That there's a lot of consumer level data being collected and it might not be good enough to lead to clinical outcomes.
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 holistically. It will not only be you have a problem with your heart. 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 modern child care franchise as part of that we provide to pregnant mothers
information we actually the single biggest used app in the united states pregnancy plus app half of the mothers that are pregnant use our app they use that for daily information to look at how's 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 and 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're also having discussions with government because they're concerned with high-risk pregnancy, where actually you can inform them and 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
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 US 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 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 that they work. That's the 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 the regulatory stream to make sure that this also happens in a regulatory environment that is kind of for the 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 in moving to digital health or digital consults. There was no way to do it in a different manner. So people had to go to digital consults. So certainly there was financial support for doing digital consults.
Doctors were changing their way of applying medicine by actually offering digital consults. And actually the regulator 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 the hospital, you see a doctor physically, and that's how you consume healthcare practice in today's world.
That's the regulated side, right? You have the four streams, and there's one very important piece of that puzzle. On the consumer side, it's just the 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, right? People can get self-educated at a much better and faster rate than ever before. There's also a downside to it, which is actually they become doctors themselves, or they pretend they kind of know themselves well. So again, it's between what is it that you can act upon yourself?
So the self-care component, where we 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 Dr. Google is not an official doctor, so don't start to practice based on what Dr. 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, 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 health care system for the future.
Well, Roy, this has been an incredible conversation. I could keep going 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 Decoder.
Thank you for having me. And that was great to engage on the future of healthcare and providing better and more care for people.
I'd like to thank Roy Jacobs for taking time to join me on Decoder, 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 decoderattheverge.com. We really do read all the emails. You can also hit me up directly on threads. I'm at Reckless1280. We also have a TikTok.
For as long as there's a TikTok, you can check it out. It's at DecoderPod. It's a lot of fun. If you like Decoder, please share it with your friends and subscribe wherever you get your podcasts. Decoder is a production of The Verge and part of the Box Media Podcast Network. Our producers are Kate Cox and Nick Statt. Our editor is Callie Wright. Our supervising producer is Liam James.
The Decoder music is by Breakmaster Cylinder. We'll see you next time.