Where Attention Goes… Energy Flows

While on holidays, I overheard my wife's online Yoga instructor say "Where attention goes, energy flows". Her quote spilling out of the yoga studio gave me pause and I thought how this maxim equally applies to business and how important it is for business leaders to ensure the attention of the business is focused in the right places. To illustrate this, is a story about the giant Dutch electronics company Philips, which, about a decade ago, had to make some tough resource allocation decisions about their sprawling portfolio of disconnected products. Here’s what they did and what happened…

After nearly two decades of declining profits Philips appointed Frans van Houten as their new CEO. At the time the giant electronics maker had a portfolio of products that ranged from radios, TV's, video tapes and video recorders to lighting and even medical imaging equipment. The product portfolio was massive however few of their products were category leaders. Other than the Philips logo, it seemed the only common connection amongst all the products was they needed to be plugged in.

Knowing he had been brought in to fix the situation Van Houten in an interview stated, "I recognized that the chances that we would transform lighting and healthcare simultaneously were not so high. And so, we made a choice". And did they ever! In what was a controversial move Van Houten completely re-organized Philip's portfolio, transforming the enterprise from an appliance and consumer electronics play into a health technology company. The strategy was to combine Philip's expertise and insights in the design of consumer electronics with their in-depth healthcare and medical device knowledge to create a world leading health technology company.

In the "old Philips" the Health Technology division would have remained as yet another Philips division part of the ever expanding portfolio of businesses. Van Houten knew he needed to ensure the energy flow and focus of Philips would be on Health Tech. He sold off the domestic appliances, lighting and the consumer electronics divisions. In doing so he ensured the focus of the enterprise would be on Health Technology. Profits soared and the Philip’s stock price skyrocketed 82% in five years.

What lessons can Philips teach us…

● Focus: As the portfolio at Philips expanded (appliances, TV, audio, medical etc.) they found few of their products were category leaders and profits suffered for it. Van Houten brought a focus to medical technology and a renewed energy.

● Energy flows to where attention goes: Van Houten pinpointed Philips core competencies – insights in design of consumer electronics and in-depth healthcare and medical device knowledge. By combining these competitive advantages, he created a medical technology powerhouse.

● Strategy is resource allocation and sometimes reallocation: Aligning resources with market opportunities is "strategy". Sometimes this can be controversial especially when it breaks away from the legacy business.

Making tough resource allocation decisions is the most difficult part about being a leader. Use the Portfolio and Segmentation tools to guide the process and to keep decision making objective and transparent. Remember…where attention goes energy flows!