Revitalizing the Economy by Invigorating the Technology Sector Remarks delivered by Gerard Kleisterlee CEO, Royal Philips Electronics Churchill Club, Palo Alto August 27, 2002 Introduction Good Evening. Thank you Mark for that introduction and for welcoming me here tonight. It s a pretty big topic we re going to address, and I m looking forward to the dialogue that this forum provides. A lot is being said, naturally, about what it s going to take to revitalize our industry and the economy. If you listened to conventional wisdom a few months ago, you would have heard that we should be starting to see a recovery now in the second half of this year and leading into 2003. I think this most recent economic downturn is in part a natural reflection of the world needing to catch up with the rapid pace of technology development and the surplus it s caused. We need to do some things differently in the tech sector if we re going to return to growth any time soon. When I think about the conditions that need to be met in order to get our sector back on track, I tend to think about five key areas that we need to focus on 1
1. Dealing effectively with the current crisis in confidence facing the business world 2. Finding new ways to work together in our industry as cooperative competitors 3. Reassess the role governments should play 4. Finding growth in emerging markets - And probably most importantly; 5. Keeping the cycle of innovation in technology moving forward I d like to throw out a few thoughts on each of these areas and am eager to hear your perspectives on this as well. 1. Crisis in Confidence The first area we need to address, and one that is front and center here in this country, is dealing with the current crisis in confidence in the business world. There s little doubt that rebuilding confidence in business, and in big business in particular, will be one of the gating factors when it comes to any kind of economic recovery. A Gallup Poll taken here in the U.S. at the end of June found that 77% of respondents called the recent business scandals either a crisis or a major problem. Although a lot of companies have worked diligently on transparency, still the pendulum has swung and now the regulators have stepped in to better police the business world. My concern is will that hinder innovation? First, business needs to become more transparent and accountable I don t think it makes a difference whether you expense options or simply show how they re treated on the balance sheet. But stronger financial discipline and 2
transparency is a must. I also think companies need to look at their Boards of Directors, clean them up, and ask them to step up more in their role of watching out for shareholder interests. Second, we need to start looking again at business growth from a long-term perspective built on solid fundamentals vs. only the short-term, quarterly earnings and stock pricedriven approach that has caught up too many companies over the last few years. 2. Cooperative Competition The second question to look at is what do we need to do differently in our industry to ignite growth? I feel strongly that we need to accelerate the pace of cooperative competition where companies work side by side in unconventional ways to bring products and services to the market. We ve seen in the last few years how companies never thought of before as competitors are now slugging it out in the marketplace. Any company that is looking at digital technologies as a strategy for growth can benefit from better partnering with their traditional competitors as well as those in different businesses who likely may be a competitor one day. To be successful, we need to break down the typical barriers of 'not invented here,' trust, and traditional market share and profit thinking and work sometimes with even our fiercest competitors to develop the standards and applications needed to create new markets for our technology innovations that will benefit all. 3
Nearly $1 trillion have been spent on technology investments over the last 15 years. I would also guess that in this room alone, we collectively spend $10 20 billion each year on research. Most of that spending is done to beat our competition to the market with many of the same basic technologies. Only a fraction of that spending is done collaboratively. Consider this concept through a look at one example Wireless technologies: Consider all the investments that have been made in wireless. With the networks becoming more widespread and the diminishing of interoperability issues, growth in wireless services is not far off. Greater cooperation between the major wireless service providers, and among application and device manufacturers can only ensure we start using up this bottled up capacity. So, how will we get there? More cooperative competition. As an industry, let s put our creative and technology resources together and find the applications and services that will spark demand. Collaboration on, and adherence to, standards are key parts of this equation. We d see more innovation if we had better standardization processes guided by the creation of greater consumer choice, compatibility and the protection of intellectual property rights. Innovation is stifled when we work in divergent paths. 4
3. Role of Government EMBARGOED UNTIL 9:00 PM (PDT), AUGUST 27, 2002 The third area we need to address is the role governments should play as we emerge from the tech slump. The tech industry is hampered by fuzzy thinking in too many critical areas: protectionism, digital rights, competition policy, privacy, and broadband deployment, to name a few. Growth cannot occur, and consumer benefits of technological advances will not be realized, without sound public policy. We will only succeed, and society will only benefit, if governments and policy makers adhere to three simple principles. First, the consumer should come first. Yes, we must to protect the rights of intellectual property holders. But not at the cost of eliminating the rights of the consumer. Second, the role of government is to enable, not select. Let the marketplace decide which technologies succeed and those that fail. The goal of public policy, therefore, should be to enable, not select, the technological advances of the future. At the same time, governments need to deliver on their promises to help develop free, competitive markets. Third, few advances will be made and little growth will occur without a government policy that supports the 5
infrastructure that makes technology work. In a word: broadband. 4. Finding Growth in Emerging Markets In order for the industry to return to respectable growth rates again, we need to go where the growth will be and invest in those parts of the developing world that represent strong business opportunities, as well as a chance to close the digital divide. We should consider the concentration of access to technology in the developed world a factor in the current downturn and as evidence that we may be best served to better distribute the wealth. If there was more balanced access to and use of technology across the world, it might open up some of those bottlenecks. 5. Continuing the Cycle of Innovation Moving on to my last point. If we are to grow again, we need to continue to spark technology innovation. But we need to think about doing things differently by focusing more than ever from a consumer benefit point of view. We need to do a much better job of anticipating the wants and needs of the end user if we re going to work our way out of this slump and towards the next wave of innovation before us. 6
Next waves, such as digital TV, broadband, solid state lighting, nanotechnology and ambient intelligence all bring great promise, but if not rooted in what the real consumer benefits will be, we re destined for another glut. One area that has become a focus in Europe is developing new innovations using the technologies of Ambient Intelligence. Ambient Intelligence refers to a world where electronic devices are embedded in the fabric of our homes, providing us with information, entertainment, security and a peaceful home environment. I think this concept has gained momentum in Europe in part because Europeans view technology somewhat differently than consumers in the US. We don t like technology that is too obtrusive, and therefore the idea of ambient technology is very appealing. Major opportunities to create an integrated Ambient Intelligence landscape can be built upon existing technological strengths in areas such as mobile communications, portable devices, systems integration, embedded computing and intelligent systems design. Overall most of these developments will come through in the form of partnerships and complex combinations of different business models to deliver a packaged set of services. In addition, the development of many of the Ambient Intelligent applications is going to require crossdisciplinary and cross-sectoral capabilities. 7
Which brings me back to my earlier point we need to work together more in order to keep the cycle of innovation going. Conclusion To sum up, I think there is great promise in the next few years for the technology sector. If the late 90s was the era of irrational exuberance, then I think the early 00s can be the era of rational value creation where we as an industry find ourselves continuing to spark innovation while bringing practical and meaningful applications of technology to the market. To achieve this promise, however, we need to focus on five strategic areas: 1. Rebuild trust and confidence in ourselves as business leaders 2. Usher in an age of increased cooperative competition 3. Balance government regulation and liberalization 4. Meet the challenge for opening bold new markets and bridging the digital divide; and 5. Keep the cycle of technology innovation going by continuing to push the envelope, as this industry is well known to do, but with the consumer benefit in mind With that, I think we have a bright future. Thank you. 8