It gives me great pleasure to be here with you today. At Philips we firmly believe we can achieve growth and create value through sustainable solutions. This evening I’d like to tell you about our approach to sustainable business and the opportunities we see to serve the world’s markets.
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But first, while I’m sure you are familiar with our company, let me briefly describe the Philips of today. Our company started in 1891, when we began making incandescent lamps in the Netherlands. Over the years, we’ve broadened our scope to include radios and electric shavers, medical equipment and televisions, kitchen appliances, semiconductors and consumer electronics. Today we are one of the largest global electronics companies with 160,000 employees, sales of over 30 billion Euros and a healthy financial basis for further growth. Achieving that growth in a steady, profitable manner lies at the heart of our strategy.
To achieve our growth ambitions, we have clearly redefined the areas where we can achieve a competitive edge. We now focus on Healthcare, Lifestyle and Technology, and we have adapted our portfolio accordingly. Healthcare is the area where we want to achieve most of our future growth.
We have been sharpening our focus on meeting the needs of our customers. We know they want technology to be simple and more straightforward. That’s what our brand promise of “sense and simplicity” is all about – making technology easier to experience and designed around people, while still remaining advanced. We need new technologies to improve people’s lives, both in advanced as well as in new and emerging markets. But innovation and technology must make our lives easier and simpler, not more complex.
“Sense and simplicity” is more than just a branding campaign; it defines the underlying principles of everything we do and make. It also expresses how we want to be perceived by all our stakeholders – as open and transparent, approachable and easy to do business with. We also want to be a company that simplifies the solutions for complex issues like sustainable development. And that brings me to the topic of tonight.
Sustainability is part of our heritage
Sustainability has always been in our DNA. In the early decades of the 20th century, our company’s founders never lost sight of their employees or the community they came from. From the early days they provided pensions, sick pay and free medical care. They built complete neighborhoods of houses for their employees and provided elementary and secondary schools, and a foundation to finance the older children of Philips employees through college – a system still in place today. In fact, as the son of a Philips employee, I was supported myself with a Philips scholarship during my studies. That’s one of the reasons I applied to Philips. I found they had the first right to buy.
The “Business case” for sustainability
As a company, we are committed to sound economic, environmental social performance. This is in keeping with our commitment to improving the quality of people’s lives with sustainability as a cornerstone of our strategy.
Of course, part of sustainability is about risk and reputation management. This involves the basic things that we do every day in terms of compliance and ethical business practices. It goes without saying that you have to pay attention to these areas. It’s critical that you have the right policies and systems in place manage risk. But at Philips we look beyond this to the business opportunities of sustainability.
We see sustainable business as an opportunity to contribute to sustained profitable growth and value creation. We define sustainable business as a Philips product or service that takes credible and sustainable benefits into account. This involves embedding social and environmental benefits in our products, technologies and processes. Sustainable business includes the entire population pyramid, focusing on the needs of people in advanced, emerging and developing markets.
It also involves looking at the bigger picture, taking into consideration the challenges facing the world. Tonight I’d like to pick two of those global challenges: healthcare and energy, and use these as guidelines to illustrate the way we look upon sustainable business.
Challenges and opportunities in healthcare
I’ll start with healthcare, which, macro-economists forecast to be one of the main drivers of the next phase of economic development. But, related to this expectation, healthcare also faces major challenges worldwide. An ageing and more demanding population in the developed world poses increasing challenges on keeping the cost of our healthcare system under control. On the other hand, in developing and emerging economies the issue of improving the sheer access to healthcare becomes more urgent almost by the day. So the challenges we face are multi-facetted, to say the least. Which means that solutions need to be diverse as well, tailored to the specific situation at hand.
Let me go into some more detail.
Healthcare in the developed world: meeting care and cost demands
In the developed world, the demand for healthcare is set to rise spectacularly in the coming decades, driven by a combination of factors, including an aging and more demanding population, lifestyle trends and medical advances. Whereas at present in the developed western world we spend on average about 10% of Gross National Product on health, in the coming decades this will rise to 20% of the total economy. Affordability of healthcare is therefore a major issue that has a major impact on society. We are taking up the challenge to address the cost issue with solutions that also improve patient care and meet the needs of caregivers, thereby generating significant economic and social benefits.
We are following several, complementary routes on this journey. One is by developing new and better methods for early detection of diseases. Early detection and diagnosis of medical conditions means that treatment can be easier and less invasive. That is not only more comfortable for the patient, it also leads to lower costs. Together with various universities, Philips is currently conducting research into molecular imaging, an exciting new field of medicine that focuses on the molecular processes underlying disease. Molecular medicine offers tremendous potential for early detection and diagnosis, and eventually is expected to also improve treatment by allowing more targeted, more effective therapy.
Telemonitoring is another part of our approach. Chronic medical conditions such as asthma, diabetes, heart failure and hypertension are lifelong and often progressive. Many patients need help in managing complex, conditions over longer periods. Treating these patients is already a time- and resource-consuming task for healthcare professionals and usually requires patients to regularly visit healthcare facilities.
Philips has developed a groundbreaking approach to change this situation – a remote patient management solution designed to deliver personalized healthcare content through home television. Home measurement devices are installed for patients to measure their vital signs, such as weight and blood pressure. Data from these devices is fed to the patients’ nurses or doctors, and personalized information or advice on their health status is sent back in return. Called Motiva, the system has just been launched in the US and is also being piloted in Germany and the Netherlands.
This new personal healthcare solution can empower patients to take better care of their health, facilitate more effective care delivery models, and reduce the overall costs of treating patients with chronic conditions.
To maximize the effect of innovation it is essential that we bring down the barriers that still exist between the various parties in the cycle of healthcare. This means developing integrated solutions for the entire care cycle – from prevention, detection and diagnosis, to treatment and after-care for patients. While that may sound logical, current practice is often different. With the development of electronic patient records and picture archiving and communication systems we not only aim to contribute to lower costs but also to better care by reducing the number of medical errors as a result of wrong information.
Increasing access to healthcare in developing and emerging economies
Ladies and Gentlemen, as I indicated before, emerging economies and developing countries are facing challenges of a completely different order. There, increasing the access to healthcare is a formidable task that needs urgent solutions. We need to make care available to a growing and increasingly demanding population.
As you can imagine, success is not guaranteed when a successful high-fashion store from the Bahnhofstrasse here in Zürich would copy its formula in Mumbai. In the same way, trying to solve the healthcare challenges of emerging and developing economies by simply duplicating our established systems is not the solution. Because what good is a high-quality healthcare system if it is not available to the majority of the population? What progress are we making if in many regions basic healthcare solutions simply don’t exist or are so far away that the travel ticket to get there costs a monthly salary?
Instead, if we are able to develop smart products and solutions tailored to the specific needs of these economies, we could make a tremendous contribution to improving the lives of a great number of people.
Philips tries to do that in various ways. In China, we have established a joint venture with a local partner, Neusoft, to develop and produce solid but inexpensive medical equipment for developing and emerging economies.
In India, we are involved in an original initiative called DISHA, which stands for Distance Healthcare Advancement. DISHA is an example of our New Sustainable Business Initiatives in new and emerging markets, including the base of the economic pyramid. We explore areas that are in line with our strategic focus on healthcare, lifestyle and technology, and our mission to improve quality of life. We also take into account the UN Millennium Development Goals that relate to our company’s know-how and capabilities.
New Sustainable Business Initiatives
Our New Sustainable Business Initiatives are entrepreneurial activities aiming to create both social and economic returns on investment, illustrating that improving quality of life and building business can go hand in hand.
Let me tell you more about DISHA. This project is based on a mobile ’teleclinic’ with multi-diagnostic capabilities, as well as a satellite link to a far-away specialist hospital. The philosophy is to simplify access to healthcare for underserved rural communities in India, with this mobile teleclinic that brings high quality diagnostics and the resulting healthcare.
In DISHA, Philips cooperates with various strategic partners: the hospital, public authorities and some NGOs. The first part of the pilot was successfully concluded in 2005 and we are using the learnings for the continuation of the pilot in this year. We are continuing to strengthen our existing public-private partnerships and are working to develop new ones in microfinance and micro health insurance. The ultimate goal is to develop a business model that provides essential healthcare services to the poor in a commercially viable and sustainable way.
In addition to contributing to the technology innovations, we see it as our role to bring these benefits to people and to communicate about them – to educate and raise awareness. So we see our role as being an ‘educator’ and we take this very seriously. The NGOs are uniquely qualified to be our ‘arms an legs’ in the local communities. Our NGO partners provide field workers who go to the underserved areas we are targeting to raise awareness about health issues and about DISHA. Then when people visit the van, this education process continues during pre-screening.
Safe cooking
Also successful in trials is a woodstove that reduces smoke and toxic emissions. 300 million people have to cook every day on a wood-burning stove. Indoors. This means smoke in the kitchen, blackened ceilings and walls, ash on the floor and a long time to wait until the stove reaches a reliable temperature for cooking. In short, it’s dirty and inefficient. It also pollutes the air with volatile toxic emissions and leads to an estimated 1.6 million deaths a year from respiratory infections, pulmonary disorders and upper airway cancers.
Designed for cooking in developing countries, the Philips woodstove reduces pollution due to smoke up to 90%, and reduces organic volatile emissions up to 99% of the level of traditional cooking fires. Used properly, the woodstove also reduces fuel consumption by up to 80%.
In the developed world we can clearly see the benefits of this smokeless woodstove. The challenge lies in the fact that consumers in the target markets for this product often don’t recognize these health-related issues. So once again, we must provide education and build awareness. Our marketing plan includes intense focus on training in cooperation with our NGO partners who are best suited to carry out this part of the project.
Clean water by UV purification
Ladies and gentlemen, let me give you one more example of the kind of healthcare solutions we develop to meet the needs of developing economies.
As you know, Philips started back in 1891 as a lighting company and has evolved into the number one in the global lighting market. We light 65% of world’s top airports, 30% of hospitals, 35% of all cars on the road, and 30% of offices, landmarks such as the Eiffel Tower, the Sydney Opera House, Big Ben and the Great Pyramids.
But there is more we can do with our lighting solutions. Each year, more than 2.2 million people, mostly children, die due to polluted water. Globally, more than 1.2 billion people have no access to safe drinking water, while water consumption has increased twice as fast as the world population during the last century. These facts alone prove the relevance and importance of another of our New Sustainable Business Initiatives, called UV Purification, which disinfects water using advanced, novel ultraviolet light sources.
The technology can be employed both on large industrial scale and in small household applications. It is energy efficient, environmentally friendly and also much cheaper than other technologies such as ozone treatment or filtration.
The energy challenge
Now let me turn to another global challenge we are facing. We know that in the next 50 years world population will increase from today’s 6 billion to between 9 and 11 billion people. This, along with the growth in emerging economies, will mean energy and material consumption will grow substantially, putting additional strains on our ecosystems. Energy needs continue to rise, as do concerns about climate change. These challenges underscore the need for sustainable development.
It’s safe to say that the question of global energy needs and the associated issue of CO2 emissions are on everyone’s mind these days. No less than 75% of Europe’s offices have environmentally unfriendly, energy-wasting lighting of sub-optimum quality. More than 30% of the streets and roads on our continent are still lit by technology from the 1960s.
The lighting solutions offered by Philips provide substantial savings on electricity consumption. Our CosmoPolis street lighting -which is one of our Green Flagship products – is just one example. If our latest products for street, office, domestic and other lighting were now used throughout Europe, we would be saving about 4 billion euros a year in running costs and emitting about 28 million tons less of CO2 – the equivalent of 12 medium-size power stations!
Unfortunately, the changeover to new technologies is still proceeding too slowly in these sectors, although the changeover could make a fundamental contribution to meeting Europe’s obligations under the Kyoto Treaty. That is why Philips is working hard on innovative partnerships with governments to speed up this transition.
It is also important to realize that in new and emerging economies, economic development and energy consumption goes hand in hand. Therefore, leap-frogging by immediately applying the latest energy-saving technologies in those economies, rather than copying the much longer technological learning curve that we went through here in the western world, can contribute to a large extent to controlling CO2 emissions.
Last October we launched an awareness raising initiative to highlight the untapped environmental and financial potential of new energy efficient lighting systems. We are providing information to European municipalities and companies on this important issue. Municipalities, financial institutions and political leaders have an important role to play in actively encouraging, promoting and engaging Europe to accelerate the adoption of these energy saving and CO2 reducing technologies.
And the development of the latest generation of lighting technology is in full swing: Light-emitting diodes, LEDs for short, are the small lamps that you may know from the front of your computer or your battery-powered rear lights. The technology is rapidly advancing, and LEDs are now becoming powerful enough to be used in lighting applications. LEDs, or Solid State Lighting as we also call it, allows users a completely different lighting experience. It will be possible, for example, to not only make lighting dim at the turn of a switch, but also to change color – from bright early morning light to a warmer romantic atmosphere for the evening for example. So LEDs are exciting from an applications point of view. But the technology also offer environmental benefits, thanks to its comparatively low power use and very long lifetime, and thus low material consumption compared to conventional light sources.
Extending daylight
As we saw in the case of healthcare, in lighting too the needs and concerns of developing economies are often different from what we are facing here. Simple, cost effective lighting is a basic need in parts of the world where the power grid is unreliable. The challenge lies in finding a business model that effectively brings quality and affordable lighting to people in the developing world. A pilot we are running involves cost-effective rechargeable lighting solutions for people in the developing world. These lighting solutions do not need grid electricity, and by reducing the use of conventional polluting sources of light, like kerosene, will improve health and hygiene at home. Providing lighting that does not rely on an electricity grid is important because some villages may not have electricity at all, while others may have one point of electricity, which is often unreliable. So we work with a partner to install small biomass generators that use wood or other combustibles to provide the electricity needed to recharge these new lamps.
We had to throw overboard all of our first world thinking. It’s difficult for those of us in the first world to understand the needs of people in the third world, families that live on less than US$1,500 a year. In fact, our extensive research revealed that what people actually wanted was different than what we thought they needed.
Consider some of the benefits our affordable lighting solutions can bring. Lighting beyond sunset will extend working hours and enable students to study in the evening. Plus, there are the health benefits I mentioned.
Again, we are working with community partners in India to identify the needs of our target market. These partners have helped develop independent entrepreneurs from communities and help people gain access to financial services like micro-credit.
Green Flagships: creating value
Rising energy consumption is one effect of our increasing footprint on the globe. Material consumption and pollution are others. We know that people will be paying increasing attention to the environmental aspects of the products they purchase as oil prices rise and the awareness of climate change and environmental care increase. Industry needs to be ready for that. Our Green Flagship and EcoDesigned products focus on improvements in the following Green Focal Areas: energy consumption; packaging; hazardous substances; weight; recycling and disposal; and lifetime reliability.
We launched 50 Green Flagships on the market in 2005, bringing the total to more than 160. We doubled our Green Flagship products’ turnover in 2005, from 1 billion euros in 2004 to 2 billion in 2005.
Among our latest Green Flagships is the Panorama open magnetic resonance system that weighs less and uses less energy than the competition. Those are the environmental benefits you would expect from a Green Flagship. But there are also social and economic benefits. This system ensures patient comfort, particularly for those who might be claustrophobic, because we replaced the traditional tunnel shaped scanner by a much more open design. And on the economic side, the system improves operator efficiency.
Role of corporations in sustainable development
Ladies and gentlemen, after these practical examples of how we deal with sustainable business at Philips, I’d like to make a couple of more observational remarks about sustainability.
First on the role of corporations in sustainable development. In the examples I have talked about, I have mentioned several times how we cooperate with local organizations to identify the needs of our target market and to educate the market on the ways our solutions can help. These relationships are critical to the success of new business models like the ones I’ve described.
I believe that the role of corporations in sustainable development is evident. Think about the life altering possibilities of the pilot projects I’ve described to you. Our solutions can improve people’s health and wellbeing, make it easier for them to learn and provide them with more productive time.
In addition, we believe these new business models should include local production, local talent development and local entrepreneurship. This delivers sustainable business advantage beyond first mover advantages and helps the local community move forward.
The world is turning to industry to drive sustainable economic development. For decades the developed world has tried to eradicate poverty. Doing this through charity simply has not worked. It’s time to take a more business-like approach where there is a clear win-win: value creation for communities and corporations. Certainly governments should play a facilitating role. And as we’ve seen in our pilot projects, new types of partnerships are essential. Industry, government, NGOs need to work together, leveraging the insights each brings to the table.
Embedding sustainability
Another observation is about managing sustainability within a corporation. I am convinced that to be successful, sustainability needs to be fully embedded in our ways of working, not be treated as a separate, add-on task. It needs to be embedded in the organization and company culture, in manufacturing, in products and R&D, in our relationships with partners and stakeholders, and above all in the company strategy.
One example is the embedding in the supply chain. We’ve moved from purchasing to true supply management. We’ve reduced our number of suppliers and have a Supplier Sustainability Involvement Program. This involves asking our suppliers to agree to the Philips Supplier Declaration on Sustainability and to perform sustainability self-assessments. We also conduct supplier audits and training workshops to ensure our suppliers have in-depth understanding of our sustainability requirements, so we can work as partners.
Good citizenship
Good citizenship and social investment is another element of this. We have a targeted approach to social investment, focusing on improving health and education, particularly for the underprivileged, in the communities where we live and work. By linking initiatives with the scope of our business, we can make the most of our core competencies to make a difference in people’s lives. Let me give you just one example of the many initiatives that does just that.
Through a partnership with the Child in Need Institute, Philips has adopted 15 villages covering 300 women and their infant children. Child in Need has worked for more than 30 years to guide and educate women and children near the city of Kolkata, formerly Calcutta. Voluntary health workers trained by the Institute visit door-to-door to identify women in need, particularly pregnant and lactating mothers. One of the goals of this program is to address malnourishment to stem the rate of infant mortality in these villages.
Our investments in China in both manufacturing and research demand a solid intellectual property system to secure inventions, models and brands. At the same time, China needs a solid IPR system to secure its local innovation and be attractive for foreign investors. To make this a reality, we work closely with Chinese government officials to create awareness of IPR among consumers and industry. We have established an IP Academy at two prestigious universities in Beijing, and in Shanghai, providing and exchanging IP experts and sponsoring IP research. We also participate in Chinese efforts on standardization in the field of communication and entertainment systems, through close cooperation with local standardization bodies, like the China Communication Standards Association, as well as local and international technology partners. This is another way we are fostering sustainable development in an emerging economy.
External recognition
And I am proud to say that our efforts have been recognized by the outside world. We have been included in the Dow Jones Sustainability Index for three years, and have also been listed in the FTSE4Good for the same number of years. We were also among the Global 100 Most Sustainable Corporations in the World, announced at the World Economic Forum in Davos.
These indexes and lists illustrate how the financial world is increasingly taking notice of the social and environmental performance of companies. After all, that’s what sustainability is all about. Taking into consideration the economic, social and environmental aspects of your activities.
Conclusion
Ladies and Gentlemen, allow me to conclude.
I hope I have convinced you that at Philips we believe that sustainable solutions will help us achieve our growth ambitions and value creation for individuals, communities and the company. The needs of people in advanced markets, and even more in developing and emerging markets, can provide significant potential for business. We are working to meet this challenge by exploring new business opportunities and new business models with sustainability as a driver.
For us, this is about business growth and value creation beyond financial returns. It’s about business growth and value creation that truly enhances the quality of people’s lives through social, environmental and financial returns.
With our approach to sustainable business, we carefully monitor and analyze societal trends, seeking to provide solutions that meet the needs of people in all economic markets. We identify credible quality of life benefits – environmental, social and economic benefits – from reducing energy and CO2 emissions to improving health and wellbeing to making healthcare more efficient and cost effective. And then we communicate about these benefits.
Thank you very much for your attention. I’m looking forward to the rest of the evening.