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Philips Sustainability

In: Business and Management

Submitted By falchek
Words 3620
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Assessment of Philips Electronics:
Is Sense & Simplicity Sustainable
Andrew M. Froning
Rensselaer Polytechnic Institute
Submitted: May 4th, 2013
Abstract
Koninklijke Philips Electronics N.V has been recognized as an industry leader for sustainability. In the past decade is has undergone a whole culture shift in the way it does business. But is what Philips doing really sustainable or are they just green washing their products. The report looks at how a sustainable business operates and how Philips’ programs and initiatives line up with those constructs of sustainable business development.

Table of Contents

Abstract 2 Assessment of Philips Electronics: Is Sense & Simplicity Sustainable 4 Enterprise Thinking 5 Inclusiveness & Value Networks 8 Suppliers 8 Stakeholders 9 Connectedness 10 Social Responsibility 10 Philanthropy 11 Reuse & Recycling 11 Life Cycle Thinking 12 Innovativeness & Leadership 13 Conclusion 14 References 15 Footnotes 16 Figures 19

Assessment of Philips Electronics:
Is Sense & Simplicity Sustainable
Koninklijke Philips Electronics N.V., also known as Royal Philips Electronics but commonly known as “Philips”, is an electronics company based in the Netherlands with facilities located across the world. It is one of the largest electronics companies in the world and the largest manufacturer of lighting.1 In 2004 Philips released their brand promise, “Sense and Simplicity” encapsulates our commitment to intimately understand the needs and aspirations of consumers and customers in order to deliver innovative solutions that are advanced and easy to experience.2 With in that promise hides sustainability; a new frontier that smart companies, such as Philips, have started to recognized as a mother lode of organizational and technological innovations that yield positive returns.3 Yet, is Philips really able to face the daunting challenges of achieving superior business performance as well as meeting the expectations of the social, economic, and environmental dimensions of a sustainable enterprise?4
Philips must focus on innovation and R&D to maintain their competitiveness in the rapidly changing electronics markets where new products tend to become commoditized after a certain amount of time on the market.5 This focus must integrate key industry drivers that influence the business environment; societal drivers including an aging population, rising healthcare costs, healthy living, rising attention for human rights, conflict minerals, employee health and safety, and transparency; environmental drivers including climate change, energy management, collection and recycling, limited natural resources, nano materials, clean technology, and water scarcity; governance drivers including product regulation, metrics beyond financials, business ethics, privacy, and partnerships.1 Philips responds to these factors by its desire to compete and succeed but also by its sense of corporate social responsibility,6 economic stability, and environmental stewardship.4
How Philips engages in addressing these factors is through sustainable business development (SBD).7 Incorporating the constructs of SBD; Enterprise thinking, Inclusiveness, Value networks, Social responsibility, Value creation, Innovativeness, Openness, Risk mitigation, and Leadership into its culture and management systems;4 Philips designs and implements new processes, programs, products, and technologies. This paper will look at how well Philips is meeting the needs of markets, customers, stakeholders, partners, and governments based on the constructs of SBD by examining Philips’ strategies, programs, initiatives, and practices.
Enterprise Thinking
Having a mindset of examining the whole business environment and its context, including examining the implications and impacts on both the social and the natural world is what enterprise thinking is about.4 Philips pursues this through a comprehensive approach to sustainability and governs it with their Sustainability Board comprised of four Executive Committee members along with sector and functional executives.1 Their approach aligns with Rodrigo Lozano’s recommendation of company leaders planning and orchestrating sustainability change; making sustainability the repeated element in institutional framework, connecting all systems; identifying barriers and applying a set of strategies to remove the barrers.9 This became apparent in 1999 when Philips published their first environmental annual report. In 2003, they expanded the reporting with the launch of the first sustainability annual report, which provided details of social and economic performance in addition to environmental results.1 With sustainability being a set priority they began to create a strategy to move forward. That strategy is named EcoVision.10
In 1998, Philips launched the first EcoVision program focused on operations and products. The also started to focus on sustainability in our supply chain in 2003. In 2010 they included the social dimension of products and solutions, which is now reflected in their renewed company vision stating that they strive to make the world healthier and more sustainable through innovation.10
Philips EcoVision identified three key innovation areas where they can bring their competencies to bear, ‘care’, ‘energy efficiency’ and ‘materials’: * Improving people’s lives: 2015 Target: 2 billion lives a year by 2015. 3 billion lives by 20251 * Improving energy efficiency of Philips products. 2015 Target: 50% improvement for the average total product portfolio compared to 20091 * Closing the materials loop. 2015 Targets: Double global collection, recycling amounts and recycled materials in products compared to 2009.1
Figure 1 is a visual representation of what guides Philips efforts and measures their progress, they take a two-dimensional approach – social and ecological – to improving people’s lives. Products and solutions from their portfolio that directly support the curative (care) or preventive (well-being) side of people’s health determine the contribution to the social dimension. As healthy ecosystems are also needed for people to live a healthy life, the contribution to lowering the impact of the ecological dimension is determined by means of their Green Product portfolio, which is primarily focused on improving energy and resource efficiency.10
EcoVision identified elements within the company to realize Philips’ Vision11; Green Product sales, Improving people’s lives, Green Innovation, Green Operations, Health & Safety, Employee Engagement, Supplier Sustainability.10 Each of which would represent an Operation Management system; the operating systems include the marketing and production of existing products and related services, contributions of supply networks to meet the needs and expectations of customers and stakeholder, and managing End of Life considerations12. They would all focus on near-term results and the operational requirements to meet expectations.4 For example, Green Operations in 2010, decided to group all activities related to improving the environmental performance of our manufacturing facilities under one program. The program focuses on most contributors to climate change, but also addresses water, recycling of waste and chemical substances. In the course of 2012 Philips implemented a new IT solution for their environmental reporting, thereby further improving the data quality and the accuracy of the reporting process.13
By implementing the current programs Philips has created a sustainable enterprise management model. The Sustainability Board constitutes the Corporate Management System that concentrates on the corporate vision and creation of sustainable success. Then EcoVision would be the Strategic Management System that assess, develops, and implements business strategies for leading changes to a richer existence. Finally, the Operation Management systems were mentioned previously. Together Philips has a comprehensive framework for leaders to think innovatively and to contemplate solutions that may not be doable in the short-term but present opportunities for the long term.4 With that freedom Enterprise Thinking can take place to encourage more sustainable solutions and interactions with surrounding stakeholders.
Inclusiveness & Value Networks The interrelationships between the social, economic and environmental underpinnings of a corporation are complex, and it is difficult to understand causes and effects without analyzing the whole system. But by effective use of all the resources of Philips and their linkages, opportunities and challenges of the world can be sustained.4 From Stakeholders, to Suppliers, to Employees, Philips understands that understanding and working with the networks around it, the company will be able to translate challenges to strategic advantages.
Suppliers
Philips products are being created and manufactured in close cooperation with a wide range of business partners. Philips needs suppliers to share the same commitment to sustainability, and not just in the development and manufacturing of products but also in the way they conduct their business. They require suppliers to provide a safe working environment for their workers, to treat workers with respect, and to work in an environmentally sound way. As a leading company in sustainability, Philips will act as a catalyst and support suppliers in their pursuit of continuous improvement of social and environmental performance.14 Philips recognizes that this is a huge challenge requiring an industry-wide effort in collaboration with other societal stakeholders. Therefore, Philips, together with peers in the industry, in the Electronic Industry Citizenship Coalition (EICC) created the Philips Supplier Sustainability Involvement Program is our overarching program to help improve the sustainability performance of our suppliers. They create commitment from the suppliers by requiring them to comply with the Philips Supplier Sustainability Declaration. 1
Philips monitors supplier compliance with the Declaration through a system of regular audits. During these audits, an independent external party visits the supplier’s site for several man-days to hold interviews with workers and management, do a factory tour, and review documentation. 594 suppliers have been identified as risk suppliers and are included in the audit program. In the event of noncompliance Philips require suppliers to make a corrective action plan, and they monitor its implementation until all major non-compliances are resolved.
By developing relationships and information flows with suppliers Philips will be able to minimize negative impacts across the supply network. It is a challenging task but in the end Philips will gain a competitive advantage.
Stakeholders
While products are attempts to satisfy needs, solutions are specific, customer and stakeholder based outcomes that focus on exactly what is expected. The challenge is to discover the needs and wants before the competition does, and to determine how to meet the requirements ahead of them.4 Philips continuously follows external trends to determine the issues most relevant for the company and those where they can make a positive contribution to society at large. In addition to their own research, we make use of a variety of sources, including the United Nations Environmental Program (UNEP), World Business Council for Sustainable Development (WBCSD), and World Health Organization. Our work also involves tracking topics of concern to governments, regulatory bodies, academia, and nongovernmental organizations, and following the resulting media coverage.1 Across all of Philips activities they seek to engage stakeholders to gain their feedback on specific areas of business. Working in partnerships is crucial in delivering on their vision to make the world healthier and more sustainable through innovation. They constantly participate in meetings and task forces as a member of organizations.15 In 2011, a multi-stakeholder project with the Sustainable Trade Initiative (IDH), a number of NGOs, and electronic companies was started. The program focuses on improving working circumstances in the electronics industry in China.1 By working with customers and stakeholders upfront Philips will be able to avoid problems in the first place, or invent more effective solutions than those that would be mandated. Philips also gains the opportunity to include the ability to shape positive perceptions about themselves through outstanding performance, to differentiate not just the products but the entire company.1
Connectedness
Globalization is a growing phenomenon resulting in the rapid spread of information and knowledge, high expectations from customers and stakeholders, hyper-competition, dramatically increased dependence on supply networks, and fast rate of change. Connectedness in now crucial for staying in the game with a competitive advantage.4 Philips is finding opportunities for sustainable success by working with everyone around the company to solve problems.
Social Responsibility In the business environment, Philips has to identify, understand, and respond to the issues and concerns of their constituents. How they respond to the external factors is decided by not only their desire to compete and succeed but also by its sense of corporate social responsibility.4 Philips strives to make the world healthier and more sustainable through meaningful innovation. Together with their employees and partners, they work to tackle some of the world’s greatest challenges. Focusing on issues at the heart of Philips' business, Philips is able to lend its support and expertise to communities worldwide.16
Philanthropy
Through philanthropy efforts Philips has created numerous programs to help communities. * SimplyHealthy@Schools is Philips’ global community program, helping underprivileged school children live healthier lives. Employees engage children around the Healthy Heroes toolkit, illustrating simple ways that they can improve their health and well-being. We also provide a free upgrade of the lighting in the schools we visit. * One way that Philips North America helps to improve peoples’ lives is by supporting projects that create healthy, sustainable communities that contribute to the success and well-being of future generations. Through the Philips Cares community outreach program in the United States, each year thousands of employees participate in meaningful volunteer opportunities that suite their needs, schedules, and passions.
Reuse & Recycling
Philips aims to double the collection and recycling of its end-of-life products, as well as the amount of recycled materials used in Philips products by 2015.1
Philips supports the setup of recycling infrastructures together with industry partners, where they share a common strategy: creating sustainable financing schemes which guarantee the effective and environmentally sound collection and recycling of waste electrical and electronic equipment. This approach has proven to be successful in reducing environmental impact, minimizing the costs to society of these activities, raising consumer awareness, and increasing effectiveness of recycling. See Figure 2 for more details.17
The most recent sustainability product highlights was the world’s first ever recycled designer coffee machine in 2011: the SENSEO Viva Café Eco, which uses old electronic appliances to create a coffee system. All outer plastic parts – except those that come into contact with the water or coffee – are made from up to 100% recycled content. The machine also has a five-minute auto shut-off for energy saving, and its packaging is made from 90% recycled cardboard. The cardboard packaging material of our consumer products contains around 90% recycled content.17
Philips Healthcare’s Diamond Select program provides refurbished imaging systems. Systems are refurbished and sold under a full warranty that is equal to new. Refurbished systems enable more patients to have access to up-to-date technology while helping governments mitigate the rising costs of healthcare. A large amount of the system’s parts is reused contributing to a high percentage of recycled materials in Philips products. Depending on the system type up to 98% of the system parts are reused and tested.17
Through these efforts Philips has eliminated waste while also turning revenue on some programs. This value creation is a key component to a sustainable business.
Life Cycle Thinking Life Cycle Thinking is an intellectual methodology for examining, assessing, and improving technologies, products, and process. It takes an integrative perspective on the linkages and relationships within the entire enterprise.4 Philips takes this thinking and names it EcoDesign. The Philips EcoDesign process aims to create products that have significantly less impact on the environment during their whole lifecycle. Overall, the most significant improvements have been realized in energy efficiency area. Through EcoDesign, products can help reduce costs, energy consumption and CO2 emissions. Most notably this can seen in Philips LED lighting technology that has greatly surpassed the halogen bulb.
Innovativeness & Leadership
“We are improving the time-to-market of new innovations and creating value propositions with greater local relevance in key markets around the world. We will continue to relentlessly drive operational excellence and invest in innovation and sales development to deliver profitable growth.” Frans van Houten, CEO of Philips.1 Frans is exactly what a sustainable company needs in its leader; one that is committed to the initiative and is willing to take risks.
Philips Group Innovation invested 38 million euro in Green Innovations, spread over projects focused on global challenges related to water, air, waste, and energy. Group Innovation deployed the EcoVision portfolio mapping tool in which innovation projects are mapped along the environmental and social dimension to further drive sustainable innovation. One example of a Group Innovation project is related to LED light recipes. Population growth and urbanization is putting a lot of pressure on the planet’s ecological system (water, nutrients, fertilizers, herbicides, and pesticides). There is a variety of potential solutions and initiatives ongoing to fundamentally change the way food is produced, transported and monitored. Philips contributed through, for example, innovations on LED light recipes in greenhouses, city farm initiatives, light recipes to enhance plant resistance to disease, and lighting to increase nutritious value and shelf life in supermarkets.18 Looking at Figure 3 you can see Philips dedication to innovation by the nearly 570 million euros it has invested into it.1
While executives can motivate people to improve performance in the prevailing situation, they have to go further and inspire people to embrace change and to become part of the process.4 Philips is trying to accomplish just that. They have developed a management structure that allows for top-down deployment of a sustainable culture, and they are taking the risks and initial steps needed to start a sustainable enterprise.
Conclusion
So is “Sense & Simplicity” Sustainable? The result is plausible. While Philips has accomplished some great things and has been recognized for them; Philips achieved the distinction of ‘Supersector leader’ in the Personal and Household Goods category 2012-2013 for the second consecutive year for the Dow Jones Sustainability Index. This is just the beginning of a new era of business. They have positioned themselves quite well in their industry and have taken the proper steps forward. Now all that is needed is a longitudinal study of how their EcoVision and the management systems they have developed actually pan out in the long run.

References
Araujo, R. (2013) Syllabus for MGMT-7003HEE: Sustainable Business Development. (Available from Rensselaer Polytechnic Institute Lally School of Management & Technology, 275 Windsor St, Hartford, CT 06120-2910)
Koninklijke Philips Electronics N.V. (2013). Annual Report 2012. Retrieved from http://www.annualreport2012.philips.com
Lozano, R. (2012). Orchestrating organizational changes for corporate sustainability: Overcoming barriers to change. Greenleaf Publishing
Nidumolu, R., Prahalad, C.K., & Rangaswami, M.R. (2009). Why sustainability is now the key driver of innovation. Harvard Business Review, September, 3-10
Rainey, D.L. (2006). Sustainable business development: Inventing the future through strategy, innovation, and leadership. Cambridge, UK: Cambridge University Press
SAM Sustainable Asset Management AG. (Sept. 2012). Supersector Leader Report: Koninklijke Philips Electronics NV. Retrieved from http://www.sustainability-indices.com/review/supersector-leaders-2012.jsp

Footnotes
1 Koninklijke Philips Electronics N.V. (2013). Annual Report 2012. Retrieved from http://www.annualreport2012.philips.com
2 Koninklijke Philips Electronics N.V. (2013). Our Brand Promise. Retrieved from http://www.usa.philips.com/about/company/brand/brandpromise
3 Nidumolu, R., Prahalad, C.K., & Rangaswami, M.R. (2009). Why sustainability is now the key driver of innovation. Harvard Business Review, September, 3-10
4 Rainey, D.L. (2006). Sustainable business development: Inventing the future through strategy, innovation, and leadership. Cambridge, UK: Cambridge University Press
5 SAM Sustainable Asset Management AG. (Sept. 2012). Supersector Leader Report: Koninklijke Philips Electronics NV. Retrieved from http://www.sustainability-indices.com/review/supersector-leaders-2012.jsp
6 The fiduciary duty to both meet the needs and wants of customers and stakeholders and protect the health and safety of humankind and the natural environment. (Rainey, 2006, p.219)
7 A holistic management construct that includes the entire business system from the origins of the raw materials to production processes and the customer applications and the End of Life solution. (Rainey, 2006, p.713)
8 Araujo, R. (2013) Syllabus for MGMT-7003HEE: Sustainable Business Development. (Available from Rensselaer Polytechnic Institute Lally School of Management & Technology, 275 Windsor St, Hartford, CT 06120-2910)
9 Lozano, R. (2012). Orchestrating organizational changes for corporate sustainability: Overcoming barriers to change. Greenleaf Publishing
10 Koninklijke Philips Electronics N.V. (2013). EcoVision. Retrieved from http://www.philips.com/about/sustainability/ecovision
11 At Philips, we strive to make the world healthier and more sustainable through innovation. Our goal is to improve the lives of 3 billion people a year by 2025. We will be the best place to work for people who share our passion. Together we will deliver superior value for our customers and shareholders.
12 Involve producers assuming the responsibility for providing solutions for mitigating negative impacts and disposal of their products at the end of their useful life. (Rainey, 2006, p.697)
13 Koninklijke Philips Electronics N.V. (2013). Green Operations Retrieved from http://www.philips.com/about/sustainability/ourenvironmentalapproach/greenoperations
14 Koninklijke Philips Electronics N.V. (2013). Supplier Sustainability Declaration. http://www.philips.com/about/company/businesses/suppliers/suppliersustainabilitydeclaration
15 Koninklijke Philips Electronics N.V. (2013). Stakeholder Engagement. Retrieved from http://www.philips.com/about/sustainability/oursocialapproach/stakeholderengagement
16 Koninklijke Philips Electronics N.V. (2013). Social Investments. Retrieved from http://www.philips.com/about/sustainability/oursocialapproach/socialinvestments
17 Koninklijke Philips Electronics N.V. (2013). Closing the materials loop. Retrieved from http://www.philips.com/about/sustainability/ourenvironmentalapproach/greeninnovation/closingthematerialsloop
18 Koninklijke Philips Electronics N.V. (2013). Green Innovation. Retrieved from http://www.annualreport2012.philips.com/annual_report_2012/en/group_performance/environmental_performance/green_innovation.

Figures

Figure 1. To guide Philips efforts and measure their progress, they take a two-dimensional approach – social and ecological – to improving people’s lives. Products and solutions from their portfolio that directly support the curative (care) or preventive (well-being) side of people’s health determine the contribution to the social dimension. As healthy ecosystems are also needed for people to live a healthy life, the contribution to lowering the impact of the ecological dimension is determined by means of their Green Product portfolio, which is primarily focused on improving energy and resource efficiency.

Figure 2. Waste electrical and electronic equipment

Figure 3. Money invested into Green Innovation

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