Innovation

The innovation that Philips developed is a business model based on the concept of circular economy. In this business model, Philips sells the usage of their products instead of selling the ownership of the products to its consumers. At the same time, through the whole product life cycle, Philips preserves the value in every value creation chain by providing different kinds of recycling services instead of destroying values by incinerating products at the end. Mr. Markus Laubcher, Director of Sustainability at Philips, said that Philips believes that selling the use as a service allows them to optimize the use of resources and drive them to design the product for longevity, multiple re-use and eventual recycling.

The circular economy business model in Philips aims to decouple economic growth from the use of natural resources and ecosystems by increasing the effectiveness of using those resources. Philips leverages its own business resources as well as cooperates with partners to build the circular economy. For consumers, if their products from Philips become defective or out-of-date, they could send the products back to Philips to repair them or to get recycled. For those products that are impossible to fix, Philips is able to refurbish them and send them to its distributors to target other specific markets in need of low cost products. For completely damaged or outdated products, Philips either harvests effective parts and reuses them in manufacturing, or recycles raw material to parts suppliers for future production.

Inspiration

The inspiration of developing a circular economy business model comes from global trends indicating that the middle-class consumers are increasing and the availability of natural resources is decreasing. Mr. Laubcher said that since 1800 the middle class has grown significantly, especially in Asia. With the increasing need of good quality of life, the resources on one planet are no longer enough for the whole population. By recognizing this trend, Philips believes that the current linear economic model which focuses on producing, consuming and then discarding is in need of a new direction which aims to protect, improve and sustain. For a sustainable world, Philips sees the transition from a linear to a circular economy as necessary.

Overall impact

"Healthy people, sustainable planet" is the ambition of Philips for 2020. Ultimately, the circular economy business model helps increase the effectiveness of material use. It enables Philips to maximize the value of natural resources that eventually create more value to both shareholders and stakeholders. To build a circular economy, Philips develops new green technologies, business models and solutions, and those new innovations eventually become Philips’ core competencies as well as help Philips to achieve its ambition for 2020.

Business benefit

Implementing a circular economy business model challenges Philips to drive innovation in the areas of material, components and product reuse. It also requires Philips to develop new business models or solutions to address the increasing need of consumer services. In a circular economy, the increasing efficiency of materials' use enables Philips to further reduce the cost and create more value to its consumers. In developing areas, Philips is able to reduce the cost of the product by 30%-40% by reusing recycled material and distributing refurbished products to reach the consumers in those markets. In developed areas, Philips has contracted with over 60 hospitals to co-design and co-create state-of-the-art products under the circular economy business model.

Social and environmental benefit

As a healthcare company, Philips aims to make the world healthier and sustainable to fulfill the UN Global Goal #3 for good health and well-being. With the circular economy business model, Philips is able to reduce the cost of medical products and thus to increase the accessibility of those medical products in developing areas to build a healthier society. By increasing the effectiveness of material use, Philips reduces the consumption of natural resources and energy to help build a sustainable planet and reduce pollution to the environment. With the new green technology developed to recycle products, the circular economy model also helps reduce the chemical footprint to prevent people from harmful chemicals in the landfills and so reduce the risk of environmental diseases.

In the circular economy business model, Philips cooperates with local communities and NGOs in developing a recycling system, which is called WEEE, to minimize the cost of recycling activities and increase consumer awareness of reducing waste and recycling products. With the emphasis on providing service, Philips provides more jobs in local communities and equips the employees with new skills and knowledge related to sustainability. The innovation in new material and eco-design along with the circular economy model maximizes the value of natural resources and creates values to consumers, which eventually contributes to the growth of a sustainable global economy. Those impacts match the UN Global Goal #9 for industry, innovation and infrastructure, as well as the Goal #12 of Responsible Production and Consumption.

Interview

Markus Laubscher, Director of Sustainability