Philips’ longstanding ambition is to bring meaningful innovation to people’s lives. In today’s resource-constrained world, fulfilling this 122 year old commitment against a backdrop of explosive population growth, rapid urbanisation and climate change means creating greener products, closing material loops and preventing harm to the environment. What’s more, says the €24.8bn lighting, healthcare, and consumer lifestyle giant, this must be done in a way that’s economically sound and profitable.
Having grown by 4% in 2012, invested €570m in sustainable innovation and generated 47% of sales from green products, Philips is already proving the business case for circular innovation. Now, by partnering with the Ellen MacArthur Foundation, the company is joining Foundation partners Cisco, Renault and Kingfisher to build momentum on the circular economy transition. It is also taking another step towards achieving its ambitious 2015 sustainability goals of increasing the energy efficiency of its products by 50% and doubling the volume of products recycled and recycled materials sourced – ultimately contributing to the company’s goal of improving three billion lives a year by 2025.
By collaborating, exchanging knowledge and inviting critical feedback via the new partnership, Philips plans to accelerate its progress towards closing loops while creating value, according to Robert Metzke, senior director of group strategy.
“With nine billion people on the planet by 2050, it’s clear that improving wellbeing and driving economic growth requires a radically different tack,” says Metzke. “Ecological degradation can no longer figure in this equation. Beyond this, the circular economy simply makes good business sense. It’s a major driver of innovation. Importantly, embracing circular thinking will also help businesses to become more resilient, minimise raw material price volatility and remain relevant and profitable in the future.”
“Our CEO Frans van Houten knew that adopting a circular economy business model was the next logistical step for Philips,” continues Metzke. “He was inspired by his conversation with Ellen MacArthur at the 2013 World Economic Forum annual meeting and keen to understand how we could apply the Foundation’s research and insights to develop a multi-faceted transformation programme that would benefit our company, people and the environment.”
Shining a light on circular innovation
Circular innovation starts with smart raw materials choices and designing for maintenance or disassembly. From there, companies must move from minimising material cost to maximising value over the life cycle of a product, Metzke believes. This new model will see performance and durability come to the fore as Philips’ customers invest in lighting and healthcare ‘services’ or ‘functionality’ rather than buying new products.
Through a ground-breaking co-creation project with Dutch architect Thomas Rau, Philips has already begun exploring selling light as a service. Philips helped RAU Architects achieve a total energy reduction of 55% by maximising natural sunlight, adapting LED light fittings to the building and installing a motion/daylight sensor and controller system. Philips owns the materials while RAU pays for maintenance and servicing.
Similarly, in the healthcare market, Philips refurbishes complex medical equipment through its Diamond Select programme. It sees the future in robust maintenance contracts, whereby replacement electronic components can be easily fitted to customers’ machines, avoiding the need for complete disassembly or new machines.
“With 70% of Philips’ revenue derived from business-to-business sales, there’s a real opportunity here for us to help buyers understand the business benefits of moving to a service-based model,” says Metzke.
Developing a fruitful partnership
“Shared ambition is central to our partnership,” explains Metzke. “We both have a passion for the subject. Our knowledge, experience and networks complement each other, and of course, we welcome the Foundation’s challenges and constructive criticism of our thinking. They will be an excellent sparring partner.”
Philips has three stated aims as a Foundation partner: to raise awareness about the circular economy internally and among the wider business community, develop training modules for the Philips University and create new initiatives that highlight the potential of performance-based business models.
“Communicating the importance of our circular activities is a strong motivator for our employees,” continues Metzke. “Additionally, by working with the Foundation, we want to develop a common language to help people throughout our value chain understand the benefits of a circular economy and inspire them to contribute.”
On inspiring business leaders to take part in the transition, Metzke says: “A real and lasting board-level commitment is fundamental before companies can begin to discuss circular innovation.”
Philips’ partnership with the Foundation will help to shape the Philips university curriculum and define the skills needed to ensure the company’s future profitability, such as designing for maintenance and communicating the new performance-based business proposition to customers. Meanwhile, ongoing conversations will take place around how to take such models to scale. Collaborations with existing Ellen MacArthur Foundation partners could be in the pipeline too, Metzke explains.
“The current partners share a joint vision and have made a public commitment to tackle similar challenges,” he says. “There will undoubtedly be practical areas for collaboration. There’s a richness of topics that could benefit all parties, including developing standards to benchmark progress.”
This article was originally published on the Guardian Sustainable Business site.