Gerard Kleisterlee was born in Germany in 1946 to a couple who both held German and Dutch citizenship. He was raised in the Netherlands and educated at the Jesuit-run school Canisius College, in Nijmegen, The Netherlands, before pursuing further education at the Eindhoven University of Technology, obtaining a degree in electronic engineering. Following the completion of his studies, as his father had done before him, he joined Philips as an electronic engineer, and – like his father – would go on to dedicate his whole career to the company.
After an initial spell in the Medical Systems division, he joined the Display Components arm of the company, quickly rising through the ranks to become Industrial Director. Having identified his potential early on, Philips suggested he receive some formal management training, and to this end Kleisterlee attended Wharton University’s Advanced Management Programme, returning to Philips in 1991.
A key component
Just three years after his return to the company, he was appointed Managing Director of Philips Display Components Worldwide in 1994, where his work earned him the position of President.
Prior to his arrival, the components division had traditionally focused on the passive-components business. Identifying the need to focus more on new, high-tech products as opposed to existing technologies, Kleisterlee began to drive the production of cutting-edge items such as displays and chips for mobile phones, DVD drives for personal computers and flat-panel displays.
He also embarked on a series of joint ventures, the most notable being with the South Korean firm LG LCD. As a result of this move, the two companies became the world’s leading manufacturer of liquid-crystal display (LCD) monitors. In another joint venture, this time with another arm of LG – LG Electronics – the combined business became top global suppliers of Cathode Ray Tube (CRT) monitors.
During the 13 years that Kleisterlee held various senior positions within Philips’ Components division, his vision was to create a range of products that would take the company into the 21st century by serving a host of forthcoming technological needs such as wireless services, storage, and new types of displays. As testament to this vision, in 2000, the publication Electronic Buyers’ News, concluded that, ‘Philips Components has probably gone the furthest in recasting itself in profitable mass production of new leading-edge technologies’. Early the following year, Kleisterlee was appointed CEO and Chairman of the Board.
The beginning of Kleisterlee’s tenure as CEO was fraught with challenges. On the large scale, the world economy was facing a severe economic downturn. On the home front, Kleisterlee was faced with bringing a traditionally conservative and inward-looking company – one reliant on traditional business models – into a new culture based on collaboration, the outsourcing of mature technologies and aggressive branding. From the start his aim was to bring Philips’ business proposition quickly up to speed with new, emerging technologies and to remarket the company to the world. He had already managed this with the Components division and now he had to do it on a company-wide scale.
Turning the tide
Though Philips’ profits for 2000 had reached record levels, because of the global economic downturn, his first year in charge saw profitability take a severe hit. In particular, Philips’ personal computer components business performed poorly, and the semiconductors division produced less than half of its capacity. The recently-acquired mobile-phone division was also operating at 50 percent of the previous year’s level.
He addressed such issues head on. In January 2002 he announced a restructuring plan that would involve the loss of 12,000 jobs over the course of the year, and a reduction in the number of factories from 269 to 160. Such measures, whereas brutal, turned out to be vital to the survival of the company, as the following month Philips released its financial figures for the year 2001, revealing an annual loss of over $2.3bn, a record for Philips.
Kleisterlee’s philosophy was that Philips needed to change into a high-growth, high-tech company, and be considered by consumers as a rival to the then leading brand, Sony. At the Consumer Electronics Show in January 2002 Kleisterlee gave the keynote speech, highlighting his plans for Philips to focus its technologies on connectivity, storage, and displays. In order to achieve this goal he announced that Philips would either relinquish or outsource the production of maturing technologies such as cassettes and video tapes which were no longer making serious revenue. He also felt that his predecessor, Cor Boonstra, had over-ambitiously separated the various divisions of the company, and now he wanted more cohesion between each of the divisions, to work with each other in order to achieve common goals rather than compete.
To encourage this unified approach, Kleisterlee challenged the three Philips divisions to create and produce together a DVD recorder – at the time a groundbreaking technology with serious implications for massive profit – with shared deadlines and quickly enough to beat its American and Asian competitors. The production of the DVD recorder was completed six months ahead of schedule, giving Philips a well-deserved, dominant market position. Unlike previous Philips products, the DVD recorder’s underlying technology was created in cooperation with five other companies, including Philips’ main rival Sony.
Tough times, tough decisions
In 2002 Kleisterlee focused on trimming the fat off the company and advancing research and production, rather than advancing profits. To this end he replaced nearly all of the top executives at Philips’ Consumer Electronics division in the US, outsourced the production of mobile phone handsets and disposed of a number of low-growth subsidiaries such as its fax machines business. Most notably, it divested an 80.1 percent stake in its semiconductors business, NXP, to a private equity consortium comprising Kohlberg Kravis Roberts & Co. (KKR), Silver Lake Partners, Bain Capital, Apax Partners and AlpInvest Partners NV.
Controversially, in 2003, Kleisterlee forged alliances with two of Philips’ main competitors – Motorola and ST Microelectronics – to jointly pursue the manufacture of semi-conductors. Philips also launched services directly tied to the rapidly-rising internet, most notably with Deutsche Telecom, creating the music service Philips Streamium 250 Internet, which would be bundled with DT’s broadband service. Philips also entered into broadband partnerships with several European telecoms companies, including BT and the Netherlands-based KPN. The objective of these partnerships was to connect electronic devices manufactured by Philips – such as televisions and DVD recorders – to the internet.
Recognising the importance of further penetrating the US market, in 2003, Kleisterlee struck a partnership with Nike to produce MP3 players for use during exercise. By the end of the year the world economy had begun to improve and so too was Philips’ business; in Q1 2004 the company posted profits of $660m. Given the favourable outlook, Kleisterlee then began promoting growth in China and set a goal of doubling sales there, from $6.7bn to $12bn in the next three to five years. With Philips’ forecasts looking strong, in 2004, Kleisterlee abandoned the slogan, ‘Let’s make things better’ in favour of one that reflected the new turn in fortunes: ‘Sense and Simplicity’.
International expansion continued to be a character of Kleisterlee’s reign, and in 1996, the Philips Software Centre was established in Bangalore, India, now called the Philips Innovation Campus. Furthermore, in 2008, Philips India entered a new product category, water purifiers, designed and manufactured in India but exported to other countries. Since 2008, Philips India has about 4,000 employees.
In 2007 Philips acquired the medical informatics Division of Texas-based Ximis Inc. Later in-= the year, Philips purchased a Moore Microprocessor Patent (MPP) Portfolio license from The TPL Group. To complete a hat-trick of acquisitions, in December 2007 Philips bought Respironics Inc, a respiratory healthcare provider, in a deal believed to be worth somewhere in the region of $5bn.
Kleisterlee’s tenure as CEO of Philips has been characterised by an understanding of the needs of the modern world, coupled with a determined resolve to drive the company ahead of the next generation of technological development.
His globalisation policies have seen the company expand to take leading positions in the emerging BRIC markets and partnership agreements have ensured Philips is now uttered in the same breath as the likes of Panasonic, Sharp and Sony.
Given the current global recession, transforming a profit deficit of $2.3bn in 2002 into a profit gain of just under $500m in 2009 is no mean feat. But how far can one man go? At the age of 64 and with retirement looming Philips needs to begin looking for a successor to Gerard Kleisterlee, and – to ensure the company builds on its forward-looking foundations – they need to make sure they find someone who fits his mould.