Koninklijke Philips: Innovative and Green Products

Corporate SOCIAL RESPONSIBILITY |L3 MANAGEMENT

Presentation written by:

Anaïs MOUNIER, anais.mounier26@gmail.com

Emilien GAI, emil.gai07@gmail.com

https://tse3.mm.bing.net/th?id=OIP.qOKfC775UaqAJ9H56zoQwwHaHa&pid=15.1&P=0&w=300&h=300

Presentation supervised by: Assoc. Prof. Dr. Elena M. BARBU, elena.barbu@univ-grenoble-alpes.fr

General information about Philips

Koninklijke Philips, more famous with the name Philips, is a Dutch company created in 1891 by two Dutch brothers, Frederik and Gerard Philips. The CEO, Frans Van Houten, runs the company from the head office based in Amsterdam in the Netherlands.

Philips is specialized in three specific area of activity: lighting, consumer lifestyle and healthcare. In the first activity, it develops lighting systems for professionals and individuals. In the second, there are several categories of products: care, beauty, coffee machine, well-being and health, small appliance, audio accessories and other everyday products. In the last activity, Philips develops health equipment like scanners, defibrillators or imaging systems.

Innovative products

The group is today famous because it’s at the origin of many innovative products that have facilitated our daily life:

https://tse3.mm.bing.net/th?id=OIP.xPrWVIXBvkLnEzwAGdoUzwHaFz&pid=15.1&P=0&w=223&h=175

  • https://tse4.mm.bing.net/th?id=OIP.RTqH3Txb5AkpVqJkAIjJaAHaHa&pid=15.1&P=0&w=300&h=300 1963: the compact cassette
  • 1982: the compact disc

https://tse1.mm.bing.net/th?id=OIP.5pcnsFGFzQ4n5niZz4OSKwHaHa&pid=15.1&P=0&w=300&h=300

  • 2000: the MP3

https://tse3.mm.bing.net/th?id=OIP.9_O3hb-JyDOIrz2YNAltdAHaLJ&pid=15.1&P=0&w=300&h=300

  • https://tse4.mm.bing.net/th?id=OIP.whLibe95WRTkbVmHOSj-swHaHa&pid=15.1&P=0&w=300&h=300 2001: the Senseo machine
  • 2006: the Blu-Ray disc in partnership with Sony

https://tse4.mm.bing.net/th?id=OIP.DxSIIn3EdXAFByYo-Hot3AHaHa&pid=15.1&P=0&w=300&h=300

  • 2009: the first LCD TV

International presence

Philips products are sold all over the world through a strong worldwide presence. Indeed, the group counts many companies based in more than 60 countries. Thereby, it has about 116.000 employees around the world.

Financial situation

The financial situation of the company is pretty good. The company is profitable and, as shown on the following graph, the company is making more and more profit exceeding the threshold of a billion dollars since 2016. Their average debt is around 3 billion dollars.

(Million dollars) 2015 2016 2017
Turnover 24 244 24 516 17 780
Net profit 645 1 448 1 657

Corporate social responsibility

The corporate social responsibility is a societal movement that many companies are following. It consists in the fact that companies are taking into account social, environmental and ethical issues in their activities. It means that they take care about the environment, the well-being of employees and the improvement of people’s life.

Philips is part of this movement and wants to reach a “healthier and more sustainable world”. The group has put in place many strategies since its creation.

Environmental involvement

The sustainable development is today a real ecological and economic issue. It’s a fact, the planet is threatened by an important use of its resources and it’s time to react and rethink about the future. Philips is one of the companies which wants to rethink its way to do business in order to respect the environment.

Examples of actions

The group has begun to do some small actions to commit in the preservation of the environment.

In 1970, Philips supports the Club of Rome which is a group of scientists and economists who tries to find solutions about different subjects, especially about the environment.

In 1994, they began to be involved in the improvement of energy and water consumption and the waste recycling.

In 2008, the group became member of the association “Leader for Nature” which takes care about biodiversity and ecosystems.

Philips is also a member of the Dutch Sustainable Growth Coalition (DSGC) with other famous groups as Heineken and Shell. The purpose of this organization is to drive sustainable growth business models which allow to combine environmental and social issues with economic activities.

Since then, Philips has adopted the WWF Living Planet Report which conducts companies to take care about their ecological footprint. They became more involved and their current strategy is to develop innovative products that deal with customer’s needs and the ecological capacity of our planet.

The EcoVision program

Launched in 1998, this program consists in limiting the ecological impact of industrial activities and improve the quality of marketed products

It is composed of 3 parts:

  • Green products sales
  • Green innovation
  • Green Operations

Green products sales

The company makes significant environmental improvement in green focal areas like energy efficiency, recycling possibilities and lifetime reliability.

The sales of this kind of products has reached in 2015 the threshold of 50% of the total sales of the company which corresponds to the objective they were targeted in 2012.

For the healthcare products, Philips is basing its strategy on reducing the energy cost and the weight of its products. It has been successful for them because according to the COCIR (European coordination committee of the radiological electromedical and healthcare IT industry), the energy consumption of the Philips MRI models (Magnetic Resonance Imaging) is lower than the market average. They are basing their innovation on these goals and are keeping it. The energy consumption between 2 generations of products is lowered by almost 25%.

For the consumer lifestyle, the company wants to delete substances of concern of the composition of their products. Grouped with the use of recycled materials and the decrease of energy consumption, the lifestyle products of Philips are recognized as quality and sustainable products. In China, the Philips Air purifier is scoring A in terms of energy efficiency on the Chinese energy label.

Finally, for their lighting products, Philips are developing their LED solutions in order to save energy while increasing the lifetime of their products.

They have developed for example a parking solution that combines LED luminaires, presence detection and wireless controls. According to them, the customer can save 80% of their running costs with this solution leading to a fast return on investment (3 years).

The lifetime improvement combined with the recycling focus leads to a significant decrease of the lighting waste.

Green innovation

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(source: Philips website, “performance”)

The Green innovation program takes into account all R&D activities that are directly contributing to the development of green products and green technologies. The company announced in 2010 their intention to invest 2 billion euros in Green innovation in the following 5 years.

As you can see on the graph below, Philips is mainly investing in the lighting market, which constitutes the most important sector for the company. Philips wants to focus its innovation process on the LED revolution, which is for them an ecological and environmental challenge in order to reduce the carbon dioxide emissions in the future. An example of this program is the partnership with Mercedes to create the first car only equipped with LED.

You can also see on the graph that the company invested 27 million euros for the “group innovation”, we will now detail this part as matching every part of the Sustainable development objectives.

Philips started from an observation: 600 million people in Africa are relying on kerosene and candles to see in the dark every night. These solutions have a lot of negative points like being expensive, not providing a good illumination and also this is not very sustainable for the environment. The company was willing to innovate for the population that they are calling the “Base of the Pyramid” (BoP). The company is numbering 4 billion people all over the world that are living in extreme poverty. They concluded that they were potential consumers for a low-cost energy provider solution.

They went to Africa to estimate and understand their needs for lighting. These studies resulted in a product that combines the latest innovation in LED, solar panels and battery technologies to allow people to have access to the light lately in the night. The product is made to be resistant and lasts for a long time.

They ended with a product at a middle high cost that was matching the buying power of the consumers allowing a payback time of 3 to 6 months.

Green operations

In terms of carbon footprint, the company is planning on reducing its global footprint using by two ways. The first one is to reduce its industrial emissions by changing their processes and purchase electricity from renewable sources. The second one is concerning its office consumption. Their Workplace Innovation plan reducing the office space while consolidate the warehouses resulted in a 20% decrease of the CO2 emissions coming from non-industrial sites.

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As you can see on the graph, the company have also tried to act on its logistic to reduce its footprint. The increase of 2013 is coming from the investment of new market which has not developed any low footprint solution yet.

Philips tries to act on its water intake and waste production but its development in China compensates for the decrease in other areas in the world.

The transition from a linear economy to a circular economy

Since 2013, Philips follows the thinking of the foundation “Ellen MacArthur” whose the purpose is to build a sustainable future by aiming a circular economy. Indeed, according to the CEO, the currently economy is linear with a system defined by three words: “take, make, dispose”. He wants today to follow a new system, the circular economy, which encourages the use of regenerative products. Thanks to the development of this new model, the resources of the planet would be used more efficiently and sustainably. That would allow to increase the value of the company by saving costs and developing new markets. Three new words leads this movement: “make, use, return”.

So, Philips has changed its manufacturing and supplying strategies by working on different elements:

  • Giving more importance to the quality of the service than to the product: it means proposing maintenance and repair services to customers.
  • The refurbishing: repairing components in existing products instead of making new ones.
  • The parts harvesting: recovering components of existing products to create new products.
  • Recycling valuable materials.

To manage this goal, collaborations and optimization of business models are keys. Indeed, the group has to transmit the ideology of a circular economy to its employees and stakeholders, and to reviewing its way to do business to become a company in harmony with the circular thinking.

Moreover, Philips participates to the transmission of this thinking around the world by developing partnerships and becoming member of different organization as the “World Economic Forum”, the “Circle Economy” or as we said the “Ellen MacArthur Foundation”.

So, the transition to a circular economy is a real movement which is strongly growing and as Bart Goetzee (the head of the circular economy program at Philips) said: “One day soon, a circular economy will be business as usual”.

In the future

The CEO, Frans Van Houten, said that the group will continue to find sustainable solutions and that it wants to use more natural resources and less raw materials. This trend will allow to preserve the ecosystems and head to a sustainable world.

Social involvement

As environmental issues, social ones are important. It’s even truer that the social management of a company has a great influence on its image and the quality of its services.

So, that’s why Philips has made some actions to improve the life of people and the well-being of employees.

In 1900, the group created a health assurance for employees in order to improve their health situation.

In 1961, they managed the transition from 6 working days per week to 5 working days. This decision has considerably participated at the improvement of working conditions in the company.

But it’s especially since 2012 that Philips includes a social dimension in its activities.

“Healthy people, sustainable planet”

Philips has launched in 2016 its new five-year sustainability program running from 2016 to 2020. It’s called “Healthy people, sustainable planet”.

The purpose fixed by the company is to improve the lives of 3 billion people a year now until 2020. And the realization of this project is on track because they improved the lives of 2,2 billion people in 2017.

There are three categories where Philips is working to realize its program: the care, the well-being and green products.

In the first category, the care, Philips develops imaging systems, patent monitoring and home healthcare solutions.

For the well-being, they develop products to prepare food (blenders, home cookers, juicers…), others for physical and mental health (breast pumps, baby bottles, electric toothbrushes…) and systems for a healthy home environment (air or water purification).

The last category, green products, corresponds to the improvement of the use of the energy and resources.

“Better me, better world”

Philips engages also humanely and has launched the initiative “Better me, better world” which sensitizes people to help the group to determine priority causes to support. The group has created the “Philips foundation” which contributes to improve people life through different humanitarian projects.

To carry out its projects, the group develops partnerships with different organizations. It supports for example the ICRC (International Committee of the Red Cross). Indeed, they help the association to allow vulnerable people to have access to care. Both work together on the strengthening of health structures and the creation of common innovations.

We can quote some examples of programs that they manage around the world in partnership with different organizations:

  • Helping 4 400 families suffering from malnutrition with donations (ICRC).
  • Accompanying 75 000 pregnant women in Africa with first aid in 95 health institution (ICRC).
  • Reducing the childhood obesity by proposing cooking lessons and events which will help them to become more responsible of their own health (Gorilla).
  • Improving the daily life of children with heart defects by support the association to develop the product TikkieRing which help children to cope with their disease (HeartFriends).
  • Improving the radiology experience of children (CurArte).
  • Engaging children in Monza about healthy living (ICRC).

Sources

Websites

https://fr.wikipedia.org/wiki/Philips#Implantation_mondiale

https://www.philips.com/

http://www.annualreport2013.philips.com/content/en/sustainability_statements/ecovision.html

Bibliography

The circular economy brochure of Philips