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Philips, Austria: Business creation and entrepreneurship

About this document:

  • Category: Business creation and entrepreneurship
  • Country: Austria
  • Organisation Size: Large
  • Sector: Information Technology

Philips has lent its support to a start-up initiative established by a small group of its employees. These employees were due to be made redundant as a result of a restructuring decision taken on a global level in 2004. Following intensive negotiations between management and the works council, sustainable support was secured for the successful establishment of the company, called ‘Stream Unlimited’. The high technology start-up is now consolidated and employs about 32 people.

Organisational background

Philips is one of the best-known global players in the electronic sector, with its headquarters in Amsterdam. The Austrian subsidiary – founded in 1926 and located in Vienna –has 1,900 (end of 2005) employees out of a total workforce of 160,000 employees (end of 2005) worldwide. The workforce is male-dominated (73%), with an average age of about 39 years. The skills structure of the workforce is evenly spread over all levels: 22% of the employees are unskilled or semi-skilled workers; 25% are skilled workers; 26% have a secondary school education; while 27% are university graduates. Philips offers permanent contracts to virtually 100% of its workforce; most of these contracts are full-time (83%), and only a small proportion (17%) are part-time contracts. The wage level in the company is between 20% and 25% above that stipulated in the collective agreement.

The company maintains a flat hierarchical structure comprising three levels – the management board, middle management and the employees – which allows for delegation of responsibility. The organisational culture is characterised by a pragmatic, direct and action-oriented management style. Management and the works council have a partnership-oriented relationship, which is described as being honest and ongoing and which consists of fixed regular meetings, held every week or two weeks. Many problems are solved through this partnership approach, such as those pertaining to healthcare programmes. Flexible working time models and yearly wage increases are normally defined in formal written agreements. The company’s redundancy programme was even fixed in a works agreement. The union membership rate among the workforce stands at about 60%.

Description of the initiative

In 2004, Philips took the decision to concentrate its consumer electronics in Asia. This led to the relocation of the research and development (R&D) department for these products from Austria to Singapore, resulting in the downsizing of the R&D department in Austria from 200 to 100 employees – thereby leading to a loss of 100 jobs. Philips decided to relocate its R&D department in close proximity to the production facilities in Asia.

Philips agreed to provide support for a start-up initiative among a group of 25 employees. The company lent its support in a number of ways during the start-up phase. Firstly, it financed the salaries of the employees in charge of the start-up while they were engaged in preparation work for the establishment of the company. Furthermore, expenses such as legal and consultancy fees were all paid for by Philips. Essential technical equipment and office furniture and fixtures were provided under advantageous conditions and no payment of rent was required for the first four months of operations. The most valuable form of support given to the start-up was the express warranty of 100% plant utilisation for Philips orders in the first six months, which allowed the management to focus on building up a new customer base.

The new spin-off company, called ‘Stream Unlimited’, began its operations in January 2005. The company focuses on the development, integration and support of networked products or systems and storage in consumer electronics, automotives, entertainment, healthcare and building control industries. Stream Unlimited provides a complete range of engineering services from ideas to mass production for the so-called ‘connected world’. The company was founded by four former Philips middle managers and senior researchers and began with a workforce of 25 employees. Today, the company employs 32 people, 16 of whom are on permanent contracts and 16 of whom work as freelancers. The workforce encompasses eight different nationalities, which reflects the global orientation of the company. The relatively high proportion of freelance workers is composed mainly of students who are engaged in software testing activities, as was the case at Philips.

As agreed, after the warranted first six months, all Philips orders were stopped; since then, Philips subsidiaries now constitute between 20% and 25% of all customer orders. Due to the fact that two of the company’s founders had extensive experience and competencies in purchasing, it was possible to build up a new client base by using some of their older contacts with high-tech firms, which was a decisive factor for the company’s sustainable survival. According to one of its founding members, the company is now consolidated and is performing well, as reflected by the growing size of its workforce.

The works council at Philips was involved in the entire process, negotiating support from Philips from the beginning. The establishment of Stream Unlimited formed part of a comprehensive redundancy programme (Sozialplan), which aimed to look after the needs of the employees being made redundant. This plan included provisions for a ‘new placement programme’, involving active job search services provided by the personnel department, and support for training in job search techniques. The overall agreement was reached following tough but fair negotiations, and is described by the works council as being the best social redundancy programme ever put into practice in Austria. In addition to Stream Unlimited, three to four one-person companies have since emerged, offering different kinds of services, including purchasing and maintenance services. Bearing in mind that the average age of the redundant workers was over 40 years of age, the redundancy programme has proven to be very successful. Only eight persons out of the 100 workers who were laid off are still without employment (status: 2006), although they still maintain contact with Philips, which tries to offer them support.

The main actors involved in the initiative were the works council, the founders of the spin-off company and management at Philips, all of whom wanted to prevent unemployment among the laid off workers as a result of the relocation decision. Based on cooperative industrial relations, a successful support mechanism has been put into practice both for the start-up company and for the other employees who were made redundant.

Analysis

The aforementioned case is not so much an example of an offensive strategy aimed at supporting and creating spin-offs; rather, it is more an example of how a virtue can be made out of a necessity. Confronted with a decision taken by top management at Philips to relocate part of its operations, the local actors made a combined and concerted effort to avoid the most negative effect of all, namely, unemployment. The success of these endeavours is particularly evident in the development of the spin-off company Stream Unlimited, whose achievements are reflected in its economic development and employment growth. The support provided to the other redundant workers in the form of the new placement programme and training have also been successful, resulting in the redeployment of 92 of the 100 workers made redundant.

The intensive negotiations that took place throughout the entire process represented a key factor for the success of the social plan. Another significant feature was the high level of skills, competencies and knowledge held by most of the laid-off workers. Moreover, the fact that the founding members of the business start-up had extensive experience in their field also made it easier for them to establish their own business. Nevertheless, as one of the founders of Stream Unlimited states, the initiative would not have been possible without the negotiated support provided by Philips. Even though the salary levels in the spin-off company were not as high as they were at Philips, the persons involved gained more room for manoeuvre in terms of the work content and possibilities for new development, which is considered a highly positive outcome of the change.

Based on the statement made by the works council – namely, that this case represents one of the best social redundancy programmes ever put into practice in Austria – the negotiated support for the spin-off can be seen as exemplary compared with other companies in the sector or indeed in Austria as a whole.

Exemplary and contextual factors

The commendable nature of this case lies in the conditions obtained and the extent to which the spin-off – as a direct consequence of restructuring – was supported by Philips as a way of preventing unemployment among the employees affected. Socially acceptable redundancy measures as an integral part of the company’s philosophy, and the involvement of the works council, constitute significant factors for the success of this initiative.

Manfred Krenn, FORBA, Vienna


Page last updated: 29 October, 2009