Speech by Frans van Houten at Euronext Beurstrommeldag "Investing in the Future" (English)


The spoken word prevails

November 1, 2012

 

Ladies and Gentlemen,

 

I am delighted to be speaking to you at this 'Beurstrommeldag' (‘stock exchange drum day’). It provides an excellent opportunity for me to share with you my thoughts on innovation, entrepreneurship and competitive strength.

 

And the timing couldn't be better, with a new cabinet that has just been formed and an agreement on the table for the forthcoming period of government. This agreement focuses very much on reducing the budget deficit in the short term.

 

And rightly so. But let's not lose sight of the key issues. Despite the current economic crisis, it is important that we continue to demonstrate entrepreneurship and to invest in order to boost our competitive strength and our economic activity. That is, ultimately, the best way for us to get ourselves out of the current crisis.

 

To do that, we need a vision, a vision that focuses on increased entrepreneurship, faster decision-making, investment in innovation and, in due course, a higher level of productivity. If we all decide to work towards that, we will not only come out of the crisis relatively unscathed, we will also be in a better position than we were in before it. This is not just true for Philips but for all of us − in the Netherlands and in Europe.

 

Over the next twenty minutes I will explain what I mean by increased entrepreneurship and innovation, and how this can benefit the economy and therefore the future of the Netherlands.

 

Innovation is timeless. Our forefathers in the Golden Age also achieved some significant innovations. The Amsterdam stock exchange is one of them. It provided the capital for trade and industry to flourish. New technology did the rest.... think of windmills, pumping stations, ships, Delft blue pottery and healthcare. Did they have a top sectors policy back in the 16th and 17th centuries…?!

 

Now, in 2012, innovation is more important than ever for the Netherlands. It is a long time since our country was the world's only center of trade. We are no longer able to compete on cost, and there will come a time when our supplies of natural gas run out. Before long, knowledge and entrepreneurship will be the only resources we have left.

 

In order to keep pace with the competition from Asia, for example, we are going to have to innovate at a faster rate, and that means we need to be swifter to develop new advanced products and to come up with smart answers to trends in society, such as the graying of the population and sustainability. That will enable us to maintain our standard of living and to guarantee a good quality of life for future generations.

So how can the Netherlands and Europe find their way out of the crisis? How can we in the Netherlands and Europe distinguish ourselves from our competitors? The answer to both questions is to boost economic activity and to deliver greater added value.

 

This applies not only to companies but also to countries and regions. In order to beat the competition we, as a company, a country and Europe, need to focus on increasing economic activity and creating greater added value so that we can make sure the society we have created remains affordable. How do you solve a pension problem, for example? By boosting economic activity and delivering value.  To do that we need long-term plans, a focus on innovation and knowledge, and a culture centered around 'entrepreneurship and action'.

 

Ladies and Gentlemen,
What we need in the Netherlands more than anything is a "can-do" spirit, stability, a good business establishment policy, and talent. I sincerely hope that this new cabinet will provide a stable government with a powerful vision for our country.

 

And, just as we are doing, the Netherlands needs to further embrace innovation. We need to take every opportunity we can to invest in innovation and entrepreneurship, because this will benefit us all. Other countries are not standing still, and they are working hard to drive innovation.

 

Innovation requires the establishment of a favorable environment for entrepreneurs in both small and large companies. It is important to create a financial and fiscal climate in which there is some incentive for individuals and companies to invest and take risks. So let's continue with the ‘Innovatiebox’ and the R&D tax relief, and let's not increase the charges on companies.
 
The Dutch top sectors policy is helping here. This is an instrument that enables us to spend money on innovation effectively and to increase the involvement of small and medium-sized enterprises in innovation. Philips is in favor of this policy. We are, however, concerned that each year more than half a billion euros less is being made available for fundamental research. If we are not careful, the pipeline of new inventions will dry up and talented researchers will leave the Netherlands to go to other countries.

 

To drive innovation it is also essential that we are not afraid to make choices. The government has done this, for example, in the top sectors policy. At Philips we also make choices, and we have chosen in favor of those businesses in which we can win. We are investing in capabilities that will enable us to stand out and distinguish ourselves from others.

 

There are also choices to be made when it comes to creating a more efficient healthcare system, and the specialization of hospitals and universities. These are not easy choices, but they have to be made. When making choices we need to think outside the box more because that is the way to progress. As Albert Einstein once said: “If you always do what you have always done, you will get what you always got.”  In other words, if you want to progress you need to tackle things in a different way.

 

Innovation also involves making financial choices. International comparisons show that the Netherlands is currently spending far too little on innovation. Our expenditure on research and development accounts for approximately 1.8% of gross domestic product. That is lower than the EU average and far below the Lisbon target of 3%. Nine companies account for half of the national R&D and, on the whole, SMEs do not spend enough on R&D. We must therefore give serious consideration to structurally increasing our R&D expenditure.

 

The Netherlands government can also encourage innovation in other ways, for example by encouraging young people to study science and technology subjects and by ensuring that the courses they follow are of relevance in the labor market. Another way is to ensure that entrepreneurship is respected and that success can be rewarded.

 

Another area in which the government can win ground is with its purchasing policy. How can the new Minister of Trade convince his colleagues from other countries that our companies produce a host of wonderful innovative products if the Dutch government barely purchases any of them? In America, for example, 80% of innovation originates from government research programs in the fields of defense, energy and healthcare. What is important is that the government makes clear what it aims to achieve over the coming ten or twenty years in areas of society, such as healthcare, energy provision, the environment, transport and infrastructure. Companies will then be able to make solid plans and focus effectively on innovation.

 

In what way do we, at Philips, want to stand out in order to stay ahead of the competition? We have chosen innovation because innovation is in our DNA and has been since the company was founded 120 years ago. More importantly: we are embracing innovation because it enables us to produce products and services with which we can distinguish ourselves from the competition and which enable us to compete with our Asian competitors now, in the 21st century.
 
When I took up the post of CEO more than a year ago, there was one thing of which I was certain: Philips is a fantastic company with enormous potential. We are active in the right markets, our products address important trends in society, such as the rising need for healthcare due to a graying population, the need to reduce energy consumption, and the increasing importance of a healthy lifestyle. However, I also saw that there is scope for Philips as a company to distinguish itself from other companies much more effectively.

 

That is why last year we embarked upon a program to bring about a change in culture. If we work together more effectively within the company, if we are not afraid to take risks, to take responsibility and if we keep a close focus on our customers, our company will operate more efficiently and perform better. That is what our Accelerate! program is all about.

 

The change in culture is not something that will happen overnight but, as we demonstrated last month with the announcement of our quarterly figures, we are making progress: throughout the entire company employees are becoming more entrepreneurial, they are taking the initiative more and are faster to take action. As a result − and despite the turbulent economic climate in Europe − we managed to post a higher level of sales and earnings in the third quarter. This is very encouraging, although there is still a lot more work to be done.

In other words, Philips has great potential, all we have to do is realize it! And that is just a matter of getting on and doing it.

 

I would like now to talk about two examples of how Philips is distinguishing itself by working together with private and public parties – with other companies, universities, start-ups and government bodies. This generates more creative ideas and speeds up the innovation process considerably, and − as we have found in practice − it enables us to distinguish ourselves more effectively from our competitors.

 

In the field of Healthcare, for example, we are working together with the University Medical Center in Utrecht on a new treatment for breast cancer. This ultrasound technology (MR-HIFU) enables doctors to heat up tumors and destroy them without the need for surgical intervention.

 

We are working together with other hospitals on a variety of new technologies for the treatment of a range of chronic conditions – these treatments are less distressing for the patient and lead to a faster recovery.

In this way, innovation is helping to improve the well-being of patients whilst also reducing healthcare costs at the same time. There is, therefore, every reason to promote innovation in healthcare.
 
A second example of innovation is LED lighting. A few weeks ago I read a report which said that the Netherlands' Ministry of Infrastructure and the Environment (Rijkswaterstaat) had decided to switch off the street lights on the freeway between Almere and Lelystad at night in order to save money and prevent light pollution. I immediately thought: ‘There is a better solution − use LED lighting. LED lighting adapts automatically to the volume of traffic on the road, saving between 50 and 80% on energy, so that the initial investment is earned back quickly.’ And another significant advantage of using a LED solution is that you can continue to guarantee safety − after all, who wants to drive on dark roads at night? A decision for the short term is not a solution that delivers value; with our LED solutions we can work together with a government to solve this problem, whilst saving money AND ensuring that roads continue to be lit at night.

 

It is also of considerable importance to both Philips and the Netherlands that we work together on R&D at a European level. Combining the knowledge of researchers from different countries helps to boost our innovative strength.

 

There are 500 million people in Europe, and a successful Europe could become the most significant global power. We need to decide that this is what we want, and then we need to work hard to make it happen.
 
Ladies and Gentlemen,
Innovation is more important for the Netherlands than ever before, because soon knowledge and entrepreneurship will be the only resources we have.

 

To drive innovation we need to decide to invest in those areas in which we can distinguish ourselves from the competition.

 

To drive innovation we also need to create the right conditions to enable people to engage in entrepreneurship. And, if our efforts are successful, we need to celebrate this success and reward it accordingly.

By investing in innovation and entrepreneurship we can safeguard our own well-being and standard of living as well as that of future generations too. Let us, therefore, take our responsibilities, make clear agreements about what it is that we want to achieve, and in so doing determine our own future.

 

Thank you for your attention.