Raja V, vice chairman and managing director, Philips India, on the company transitioning from products to solutions approach
by Rita Dutta
You took charge in Philips, when the company was undergoing a mega transformation…
Yes, when I joined Philips in December 2015, the company was at an inflexion point- transitioning from a consumer-focused company to a health tech company. Let me draw the blueprint of what Philips Health Tech stands for and is trying to accomplish. Traditionally, Philips always sold products in consumer and healthcare verticals. Today our focus is on serving customer needs in their entire health continuum from the cradle to the grave. Be it with healthy living, wellness, diagnostics, therapy or home care, we straddle the entire value chain and offer solutions to our customers making it a unique health tech company.
In the year 2015, there was a conscious move to transform the company to a pure health tech organisation on a global scale and move away from a consumer electronics company that was its traditional forte. Towards accomplishing that goal, the company has demerged its lighting business from the parent company and consolidated its personal healthcare and health systems business into a formidable health tech company. Globally, Philips intends to touch 3 billion lives by 2025 leveraging its core strengths in innovation and strong presence in large emerging geographies like India and China.
What was the mandate chalked out for you on joining Philips?
There were broadly four areas of focus that I was entrusted with to drive over the next few years. First was to drive the transformation of Philips India to Philips Health Tech and make it visible. Second was to strengthen the core by consolidating our strong market position and build the momentum for profitable growth in India. Third was to shift gears from being a product centric to a solution-oriented company. Fourth was to leverage the existing ecosystems of innovation and manufacturing to bring in solutions that would address the needs of markets like India . Lastly, contribute meaningfully to our vision of touching 3 billion lives by 2025 by touching as many lives as we can in the Indian sub-continent
What are the initiatives taken by you to achieve the mandate?
Traditionally, Philips has been manufacturer and seller of health technology like CT, MR, cath lab and patient monitors as well as personal health products like air purifiers, air fryers, shavers, trimmers and kitchen appliances. We were also helping finance the purchase of high-end equipment. In the last 18 months, the company has widened its portfolio of services with offerings in healthcare transformation services, accelerating public private partnerships through our venture with Manipal, digital pathology and home care services. In addition to this, we have increased our risk sharing and structured financing options to better suit and align customer needs. Let me share some perspective on some of these initiatives.
As providers of healthcare transformation services, we offer to engage with our customers right from design, architecture, space planning and layout of a hospital or a department to medical equipment planning. We do end-to-end planning for optimal layout in the given limited space and best fit equipments for the layout. The objective is to have one team design a complete solution from architect design to complete fitment with equipment. In existing hospitals, we offer similar services to create space and grow with minimal cost. Effectively we work with them as partners and work at solutions that are a win-win for both the customer and Philips.
Another aspect of our solutions-based approach could be to find a match between a hospital looking to expand but has constraints on investments with another group that has capacity and capability to invest and grow using their brand, and we Philips partner in this venture. For instance, an existing hospital wants to foray into cardiology services but does not have the capability to invest in the same.. We bring in a reputed hospital or cardiologist interested in starting the cardiology centre in this hospital and become the match maker as well as structure the entire deal including offering our services on consulting, supply of equipment, financing cum risk sharing to make this a win-win for all. This is our unique strength and has no comparative offerings in the industry.
Our objective is to address customer needs from all ends and achieve the twin objective of taking the point of care closer, while driving the cost lower for the patient. In this endeavour, we bring in our healthcare transformation services and Philips Capital together to drive the best solution for the customer and offer different models like risk sharing, pay per use, rental or operating leases to make this viable for every stakeholder. As on date, we have a few such initiatives running and have met with enthusiastic response from our customers as they see us a true partners providing solutions to them as well as sharing risk.
What is the USP of the home care service of Philips?
We believe home care would play a significant role in driving healthcare costs down without compromising on clinical outcomes.
A patient suffering from severe chronic pulmonary obstructive disease (COPD) invariably gets admitted to the hospital two to three times a year. The reason is simple – . they go to the hospital in a critical condition, get treated and go home, but in the absence of continuum of care at home they end up coming back to hospital in a critical condition. This can be obviated if we provide the care at home under the supervision of their doctors, pulmonologist in this case. This is what we do and bring in our technology for monitoring patient data, physiotherapists and devices like non invasive ventilators and oxygen concentrators to address the care needs at home and avoid hospitalisation.
Our home health products have embedded software that captures data, both past and real time. This medical data, when shared with the treating doctors, gives an insight into the patient’s health response to the treatment and aids the doctor in charting out the best treatment plan.
For patients there is care at home, connect with doctors remain on going and cost of treatment is reduced. The doctors also remain connected with the patients and are available for intervention when needed with us for providing the services at home. The same concept can be extended to patients who go home post surgery and need continuous care or for patients with lifestyle diseases like cancer. Our focus is on continuous care at home with assisted devices, wherever required and exclude pure nursing care. The main objective remains at bringing care to the patient bedside or home and at a cost which is a fraction of the hospitalisation cost.
Going forward, we want to increase our footprint in the home care space by introducing newer products and increasing our geographic reach.
How does Philips have an edge over some traditional players in home health?
Firstly, Philips is a trusted brand and a pioneer in medical technology. Secondly, we have been a leader in the home health market for a long time, especially with our sleep apnea products and come with strong insights on this segment. Thirdly, the technology we use to monitor, store and interpret patient data with seamless interface with the treating doctors is home developed and we believe is unique and a key differentiator from other players. Fourthly, we offer devices like non invasive ventilators, oxygen concentrators with physio therapy services at pre agreed, flexible packages that include rental. We also offer leasing and outright purchase options of devices. Lastly, we have a strong connect with the healthcare delivery providers and doctors that helps us serve our customers better than our competitors.
What are the challenges that medical equipment vendors face in India?
Firstly, the cost of the equipment is high as we import most of these from the western world. In addition, the customs duty on these equipments is over 18%. Given the power fluctuations and high cost of power in India, both capital and running costs are high as every equipment has to come with an UPS and consumes a lot of electricity. Each equipment has over 100 plus parts and to service the same, a manufacturer has to keep a large inventory of spare parts which are again imported and suffer similar incidence of customs duty upfront. The cost of financing is high and the tenure available for financing these equipments is also limited. All this makes the price realisation difficult, putting significant strain on the profitability of vendors and manufacturers like us.
Given the large patient volume, the equipment usage is also very intense and puts additional stress on service costs and profitability. For all major equipment vendors, the challenge remains the same and India as a market is extremely challenging from a profitability point of view. Global operating margins of large medical equipment companies varies from 10 to 18% but in India this would be significantly lower for reasons I just mentioned.
Secondly, financing options for medical equipments are largely between 5 to 7 years with interest rates of 10 to 12%. This puts additional stress on the pricing of the equipment, especially when the technology of these equipments changes rapidly. For healthcare to be cost effective and medical equipments costs to be lower, the Government must come out with financing options with lower interest rates and for longer tenure. If agriculture and some other industries can rank for priority sector lending, why cannot medical equipments, which are life saving in most cases, be also included for concessional rate of interest and long-term financing?
Thirdly, the Government needs to reduce the import duty of medical equipment to make treatment available to more people. While healthcare has been exempted from GST, why not medical equipment? In PPP, the Government expects the private player to provide treatment at extremely low prices with no differentiation for quality and technology provided. We cannot have ‘one size fits all’ approach for the healthcare industry.
You have always laid great amount of emphasis on customer satisfaction. Please share a few initiatives taken in this area.
We have an external measurement yardstick for customer satisfaction called the Net Promoter Score (NPS). This is given on a scale of 1 to 10. The difference between the promoter and detractor is the NPS and we continue to drive improvement in this score. We follow up with all the feedback that we get in our survey and our endeavour is to close all issues at the earliest possible time.
The second internal metric we use is to calculate the uptime of our equipments. Typically, it should be a minimum of 95% and we strive hard to maintain this. Most of our equipments are connected online to our central online remote monitoring system, similar to an air traffic control system. This is used to proactively address issues on the equipment at customer site and resolve them as quickly as possible. In many instances, customers won’t even know that we have seen and resolved a potential issue at the customer end. We keep measuring our online remote monitoring and fixes, as it enables us to improve overall customer satisfaction.
How do you see the company a few years from now?
Our goal is to be the best health tech company in India in terms of customer satisfaction and preference and be the best in class solution provider, touching a large part of the billion plus lives in India. In five years time, we would like to double our revenue and profitability .Within Philips, globally, we would like to be one of the top five markets out of the 17 markets in which Philips operates today.
We want to touch more lives by driving innovation in care areas and focus on indigenously manufactured equipment to suit the specific needs of this market. Currently our footprint on locally made products include mobile surgery, X-Ray and cardiology products made in our Pune unit. Intuis, the advanced, entry level cath lab developed and manufactured at Pune catering to the Indian and other emerging markets, has been our first attempt to ‘Make in India’ . Based on this experience and driven by the market needs, we would focus on designing and developing products for the local market that meet the twin objective of world class quality at affordable prices for the Indian masses.
Customer satisfaction is a journey for us and we will continue to drive improvements in our NPS score and hope to maintain this at world class standard of over 70.
Please predict some future trends in medical equipment industry.
Miniaturisation of devices, be it in ultrasound and others, would be one that we need to watch out for. Increase in the use of digitisation would drive improvements in both quality and cost of healthcare. Point of care would shift closer to the patient home and hospitalisation would be limited to surgery, critical care, etc. In cardiac and patient monitoring, I visualise proliferation of hand held devices to diagnose and monitor patient health and transmit digital records real time to care giver for suggested treatment. Faster and real time diagnosis would become real and visible.
We already see the increased penetration of 16 slice CT as against the earlier demand of 64 slice or above. I believe that almost 95% plus cases can be handled with a 16 slice CT. If that is true, then I clearly see future growth in 16 slice CT as healthcare extends to the smaller towns and rural areas. The same holds good for MR with perhaps an increasing move towards 1.5T MR which is more viable compared to a 3T MR.
With Government focussed on reducing cost of healthcare and increasing access, I clearly see the shift happening towards the value segment. A very well known professor of a business school had said that the world would move towards “what is good enough” and I strongly believe that in healthcare and in medical equipment that is the need of the hour for India. This would provide good clinical outcome, lower the cost of care and both the provider of healthcare services and manufacturers of equipment would see sustained profitable growth, essential for any industry.