Consider customer needs in innovation
In China, as well as in the rest of the world, innovation will help us all to make economic growth sustainable. In the long run, economic growth without social justice and environmental responsibility is not possible.
Therefore, sustainability and corporate social responsibility are very important to Philips. When our managers take decisions, we try to balance economic, social and environmental interests. I am sure many of you will have to perform the same balancing act in government or business; it is not always easy, but it is the right way.
Sustainable business is sound business; sustainability is not only an ethical imperative, but also a business opportunity.
In the 21st century, sustainable growth requires innovative solutions and the need for innovation provides business opportunities. Philips is especially active in two areas where there is a great social need for innovation: healthcare and energy management.
The area of healthcare is, of course, of essential importance. Every human being should have access to affordable healthcare of decent quality. To achieve this goal will require a huge effort.
As for energy management, climate change is one of the most pressing issues of our time. At the same time, we all know that energy resources, so necessary for development, are scarce. Energy efficiency helps to address both challenges.
As the No 1 lighting company in the world, Philips is taking the lead in the promotion of innovative, energy-efficient lighting solutions in houses, streets, offices, shops and cars.
So the need for innovative solutions is clear, not only in healthcare and energy management, but in many other sectors as well.
The question is: how can we foster innovation? How can we ensure that we get the maximum result from our efforts to stimulate innovation? I would like to share my ideas with you on this topic from Philips' perspective.
First of all, we should understand that "innovation" is not the same as 'invention'. Of course, inventions in laboratories are important, but an invention only becomes an innovation if it is transformed into a product or service that is successfully introduced into the market. For a product or service to be successful, it needs to answer a real need felt by its users.
What good is a smart, technically ingenious invention if nobody is really interested in its application? It is extremely important to make the needs and aspirations of consumers the starting point of innovation. The more you understand consumers, the better you can direct your research and development efforts. Technology is important, but insight into user needs is the starting point.
Not every invention becomes innovation. At the same time, you do not always need an invention to be innovative. Sure, a new invention that meets a clear user need is great news for a company such as Philips, especially if it creates not only a new product, but a whole new market. But innovation is not limited to inventions brought about by basic research.
A lot of economic progress and growth is driven by the development of original applications of technologies that already exist. But innovation can also be found in new business models. In recent years, we have introduced several innovative products developed in close cooperation with partners in the consumables industry.
Successful innovation is a collective process. An open and cooperative mindset is nowadays absolutely necessary if you want to be an innovator.
The number of companies and public or semi-public institutions conducting high quality research has increased dramatically. A good example of open innovation is offered by the High Tech Campus in Eindhoven, the town in The Netherlands where Philips started off more than a century ago, and that has always been an important research location for our company.
A few years ago, we decided to open up our High Tech Campus in the city. Nowadays, with more than 6,000 people, the campus has become the center point of a new regional ecosystem of innovation.
To foster innovation, we have also drastically transformed the way we organize our business.
On the one hand, we have eliminated vertical integration. For a company such as Philips, it doesn't make sense anymore to own the whole production chain from components to sales. In the era of globalization and open innovation, we have chosen to concentrate on our competitive advantages in innovative applications, marketing and brand building.
On the other hand, we actively look for synergies between these three focus areas, now even more so than in the past.
The author is president and CEO of Royal Philips Electronics. The article is based on his speech at the Party School of the Central Committee of the Communist Party of China on December 4
(China Daily 12/13/2007 page15)
