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Bringing Philips back from the brink

By Reena Jana, contributor

FORTUNE — When Sean Carney, the new Chief Design Officer at Royal Philips Electronics, walks into a boardroom with other C-suite executives, he likes to offer what he calls a “sanity check.” He defines this as plunking down an award-winning object such as a set of cushy, blood-red headphones, say, or a sleek-looking necklace hiding a sensor that detects when an elderly patient has fallen and alerts caregivers. “First, you start these meetings with endless PowerPoint presentations and Excel files. So then I’ll drag out a product and say, ‘this is why we’re here; this is what’s driving sales,’” says Carney, who is based in the Netherlands.

Carney, 49, has a soft, even voice and, aside from neatly cropped salt-and-pepper hair and a few crow’s feet around his eyes, a baby face. This is the man with the considerable task of bringing Philips (PHG), Europe’s largest electronics maker, back to life. Philips grew into a global design powerhouse during the 1990s and 2000s, becoming one of the most coveted places for young creatives to work. Over the decades, the firm has made everything from flatscreen televisions to light bulbs to life-saving health equipment. In 2011, Philips celebrated a record-breaking number of international design awards. Thanks to the elegant, streamlined aesthetics of its products, in the most rarified design circles, Philips ranks with the likes of Apple (AAPL) and BMW.

Its business hasn’t fared so well, however. The slow-down in Europe has disproportionately hurt the company. Its lighting and healthcare divisions have struggled as global construction slowed and consumers and governments alike cut back on spending. The firm swung to a fourth-quarter loss, posting a net loss of 160 million euros ($211 million) after a profit of 465 million euros ($615 million) a year earlier. Near-term prospects have been anything but bright, with analysts from Bank of America (BAC), Citi (C) and JPMorgan (JPM) all issuing stark warnings in the past weeks. “We are cautious about 2012, given the uncertainty in the global economy, and Europe in particular,” chief executive Frans van Houten said in a statement when the company issued its last earnings report. Now, Carney finds himself with one of the world’s most coveted design roles — and perhaps one of its most challenging.

His rise has been notably quick. He’s only been at Philips since March of last year, when he came on board as design leader of the Consumer Lifestyle division. He left struggling Hewlett-Packard (HPQ) to join Philips. There, he was head of Global Experience Design within the Imaging & Printing Group, based in San Diego. In July 2011, Philip’s revered design chief Stefano Marzano announced he would retire at the end of the year after two decades at the company. Carney was named to Marzano’s high-profile post.

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Carney is stepping into big shoes. In 2011, Philips Design received 99 major international design awards, including multiple prestigious iF and Red Dot prizes for product design — the most ever for the brand. And then, dramatically, as of January 1, 2012, Carney’s role shifted again, as the firm turned to design to help it out of its current difficulty. During Marzano’s tenure, Philips Design operated as an internal service provider to the various divisions of the electronics giant — essentially a design agency within the larger organization. Now, under Carney, design is integrated as a strategy and a practice throughout Philips.

Sean Carney
The question is, could shifting design into more of a strategic business force within Philips help the company grow profits? Although it is too early to see the influence of Carney’s leadership on current Philips products — it often takes months or years for items to be developed, manufactured, and meet regulatory approvals — executives at Philips believe he’s already had an effect on the organization. “Sean comes to Philips bringing experience that is very relevant for the challenges our businesses face today,” says Caroline Clarke, CEO of Philips’ Personal Care business group. “His experience and style have enabled him to challenge current thinking and build on long-admired [design] capabilities within Philips.”

Clarke adds that Carney “has already made a noticeable impact.” Some new products just coming to market, such as the latest Fidelio docking speakers for mobile phones and the ReAura Laser Skin Rejuvenation system, “have his stamp on them in terms of [their] impact on the shelf and desirability,” she says.

Carney’s C.V. lists the type of international, varied experience that is red meat for a 21st century chief design officer. Besides working at HP during the thriving Mark Hurd years, he’s consulted with brands known for their hip aesthetics, such as Finnish glass maker iitala, and worked as Group Director of Design & Business Strategy at appliance maker Electrolux (where, in an intriguing twist, Marzano was named Chief Design Officer in January).

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But Carney’s latest role, while ripe with opportunity, also bears tremendous pressure, both internally and externally. First, there is Marzano’s legacy. During his two-decade tenure, Marzano grew the number of employees within Philips Design more than 300%. He also developed processes of intensive customer research and prototyping. Marzano was practicing what is now called “design thinking” in business circles about a decade and a half ahead of the concept’s heyday, as practiced by innovation firms such as IDEO, in the mid- to late-2000s. Marzano was credited for some of Philips’ best known hits, such as the Senseo coffee maker, which has sold millions of units.

Carney seems game to carry on Marzano’s design philosophies while also adding his own spin. Similar to his predecessor, Carney practices so-called “design thinking” without the buzzword’s trendiness in mind. Like Marzano, he’s more of a design do-er. At HP, for instance, Carney was asked to re-design the experience of using photo-printing kiosks in retail environments, such as drugstores. Carney and his team not only observed the on-screen graphics that kiosk customers encountered, but also analyzed the jobs of the store employees who would process data from online users. Pleasing the behind-the-scenes photo processing staff, Carney believed, would help make the entire experience of printing photos better.

“They were digital natives at 18-19 years old,” Carney said of the store clerks. “They were alienated by the 1980s-style blue-and-white screens they had to use to process the pictures.” Carney and his team then worked on a variety of new interfaces that would appeal to everyone involved in printing photos in a store, including store staff that weren’t originally a target audience. This example of Carney’s approach — which he describes as helping to guide business executives and engineers toward “alternative paths” to product and service innovation — illustrates how his way of thinking might fit in well with Philips on the C-suite level.

Carney believes in taking the time to empathize with all people who might be associated with the use of a forthcoming Philips lighting, medical, or consumer product, and not just an end user. With MRI scanners and other healthcare related items, Carney is making sure Philips designers also research how to improve the experiences of hospital administrators and radiologists, in addition to the patient. While patients and caregivers, of course, have top priority in terms of design effectiveness, Carney says that the people who buy equipment for hospitals as well as “the guys on the shop floor” — the people who do maintenance work on a medical device — need to be considered, too. And designed for. This, he believes, is how to maintain widespread brand loyalty.

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The MRI scenario is particularly relevant given that the overall design strategy for Philips today is to leverage research in user experience from the healthcare sector into all portfolios. It’s a continuation of a long-term plan that has its roots in Marzano’s work at Philips Design along the lines of creating more “ambient” products, or goods that gently help people ease into their use of Philips machinery in clinical, and eventually consumer, retail, and infrastructure contexts. These include an MRI machine that includes a glowing halo of light that distracts patients during a scan, and a home alarm clock that uses soothing beams instead of a harsh sound to rouse people from sleep. Carney’s lifestyle background might prove extremely valuable as patients and healthcare providers expect more user-friendly, consumer-style interfaces and environments in the future. “When you realize you’re dealing with real, live human beings, you want to ask, how do I make the quality of their life better?”Carney says.

Carney is careful not to use the “d” word — “design” — too much in his executive meetings, although it appears in his new, elevated title and is the reason he’s been invited to the C-suite table. “Designers can be intimidating to those in suits and cuff links. But at the same time, we have to be careful not to dilute our impact by overstating ‘design,’” Carney says. “We also discredit ourselves if we don’t talk about what’s perceived as soft and fluffy aspects of our work, if we don’t wax poetic about materials and surfaces. In the end, it’s all about balance. We’re doing this, after all, to drive business. And to do that, our products need to be desirable.”