KONINKLIJKE PHILIPS NV

The Philips integrated operating model

Our operating model is designed to enable us to deliver on our

purpose, driving impact and creating value for our stakeholders. And to

do so responsibly and sustainably, ensuring patient safety, quality,

compliance and integrity. The model is intended to promote

accountability and agility, based on the following fundamentals:

•We serve our customers and consumers with patient safety and

quality at the core of everything we do.

•Our Business Units are in the lead and accountable for value creation

through their value streams.

•Our Regions and Functions enable value stream execution.

•Our leaders and teams are empowered to prioritize and allocate

their resources for impact.

Our operating model integrates five organizational elements. We

ensure alignment of the elements to deliver on our strategic objectives,

with clear accountability to drive flawless execution.

•Strategy

•Structure & Governance

•People & Culture

•Performance Management

•Policies, Processes, Systems & Data

More information on our strategic focus can be found in Strategic

focus.

Structure and governance

In order to meet the needs of patients, customers and consumers, our

empowered Business Units are supported by the Regions and Functions.

Business Units, Businesses and segments

Our Business Units are in the lead, accountable for value creation

through their value streams. Our Business Unit leaders have full

accountability for meeting customer needs and their end-to-end P&L,

including patient safety and quality and supply chain performance.

Business Units are broken down into business categories, where

relevant.

The Businesses are lean, and their leaders ensure consistent alignment

among the Business Units’ strategies and goals. They also execute

performance management toward the Business Units, including target

setting.

Our segment leaders ensure strategic execution and focus cross-

Business, and they are held accountable by the Board of Management

for the results of their underlying Businesses/Business Units. The three

segments are Diagnosis & Treatment, Connected Care, and Personal

Health, as also disclosed in our external reporting.

Regions

We are organized in three Regions: North America, Greater China and

International Region (the latter consisting of Europe and Growth

areas). The Regions’ primary accountability is to manage customer

intimacy, build and maintain relationships, and cultivate understanding

of their needs, as well as carry out (strategic) account management,

service delivery, and indirect partner management. They are also

accountable for government relations and for providing the local

infrastructure needed to support Philips’ presence in a country (license

to operate).

Functions

Our Functions’ core objective is to drive excellence (for reasons of skill,

scope and scale) across the organization. Functions deliver cost-

effective services, ensure legal and regulatory requirements are met,

and propose enterprise policies, standards, guidance and infrastructure,

as well as build and share capabilities and expertise.

Performance management

We set ambitious targets and closely manage performance through a

disciplined and focused operating cadence. Our performance

management system is based on an annual planning cycle, in which we

translate our vision and strategy into objectives and plans. The cycle

starts with strategic planning, where we define our long-term

ambitions, both financial and non-financial, and set our long-term

priorities. Each year, Philips’ strategic plan is translated into an annual

operating plan, underpinned with Business Unit, Regional and

Functional plans. Detailed plans to achieve the company’s targets are

cascaded into the organization and, ultimately, people’s personal

objectives, making clear what performance and behaviors are expected

from them.

Policies, processes, systems and data

Our framework of policies, processes, systems and data principles

applies throughout the organization. It allows our Business Units

flexibility to adapt to specific requirements in order to meet specific

Business Unit needs.

Enterprise-wide policies provide high-level mandatory rules that apply

to all Philips employees. All enterprise-wide policies are maintained

through a standard process and approved by the Board of

Management. Function leaders can set more specific policies and

standards within their mandate.

Philips’ processes are captured in our process framework, where we

manage end-to-end connections and define the critical process

elements (including the ‘what’ and ‘how’, roles and responsibilities,

systems and data, and compliance requirements). The process

framework provides the foundation for our management systems,

including quality, environmental, and health and safety, to ensure a

compliant approach for processes, systems, data and competencies for a

specific management area.