Few places understand this better than the unique Circular Economy 100 Forum (CE100), organized by the Ellen MacArthur Foundation of which Philips is a partner, and where I recently had the opportunity to speak. Here, the talk is not of possibilities but of concrete benefits to business of a circular economy (CE) philosophy; where strategies for rapidly scaling CE projects for strengthening output and profitability are discussed by leaders who have successfully adapted their business models.
For more than 25 years, Philips has operated pioneering refurbishment and recycling programs. But now we are more focused on end-to-end thinking, to ensure the sustainable design of our products is not an afterthought but at the heart of innovation and a result of new business models.
Traditionally, society uses resources in a linear fashion – we take raw materials, make something, use it and throw it away. But in a CE there is a seamless flow of material where components are repeatedly fed back into the system. Such a cradle-to-cradle strategy means innovation is focused on the entire use of finite resources.
Our business used to just be about products and selling them but, in a CE, the emphasis shifts to outcomes. Such an approach adds greater value to the product and cuts costs, develops customer loyalty and brand recognition, and allows us to increase our market share in both developed and developing economies.
Events like the CE100 allow me to learn from others outside our own industry which is especially important now, as Philips moves from selling boxed products and into the realm of service provider in both health and lighting. Combining service and circular mindsets means greater control over our assets and maximizing their use. Yet that is only truly possible with ecosystems of like-minded partners who understand this CE transformation requires collaboration.
The business case is convincing – now the challenge is to quickly scale by co-creating solutions and strategies together with suppliers, stakeholders and customers. This is what business chiefs, academics, thought leaders and innovators consider at CE100: how a profitable company can contribute to a prosperous society and provide more meaningful products and reach new customers by applying the principles of a CE throughout the total value chain.
What I heard as a speaker at CE100 and what Philips as a company learned from the event was a unanimous expression of how great the business opportunities are. The more investments companies make in CE initiatives – such as giving customers access rather than ownership, and utilizing new digital innovations that are revolutionizing manufacturing – the more they can satisfy their increasingly demanding customers and provide returns for shareholders and employees.
A key circular economy principle of shifting from products to services means we can run our business faster, better and more profitably – crucially, we can also fulfil societal needs and governmental requirements. In addition, ensuring that the design of products is focused on upgradability and repairability, that we are able to use recycled materials and parts, and that we can sell refurbished systems more effectively, allows us to drive growth whilst showing greater sensitivity to resources.
For instance, providing medical authorities with access to technology through a business model focusing on the total service rather than selling just equipment helps authorities to avoid high upfront investment costs while getting access to the latest high-tech devices that help improve patient outcomes.
One of our partnerships, with Sweden’s Karolinska University Hospital, sees us providing over a 14-year period access to high-tech, sustainable equipment that has been shown to halve MRI waiting times and cut spending on technology by a third.
In lighting, one of our key partnerships is with Schiphol Group and Cofely. The former pays for use, rather than ownership, of energy-efficient LED lighting equipment, whilst the latter is responsible for the maintenance of the system.
Partnerships are forged for the long term, too, thus becoming more meaningful and responsible – and making greater business sense because that collaboration helps to strengthen communities and create jobs by focusing on the economic benefits through the entire continuum.
The CE100 was an opportunity to listen to such insights from pioneers like Robin Chase, founder of car-sharing firm Zipcar who has created highly productive partnerships with suppliers and consumers. And also from Sir Ian Cheshire, the former chief executive of DIY giant Kingfisher, who ensured that products made from closed-loop products (recyclable or renewable materials) are key to the company’s future.
It’s clear the economic benefits of CE principles are more convincing and compelling than ever. These are not theoretical values but proven ones. However, more collaboration and co-creation is essential – within organisations, and between customers and potential partners.
The markets now understand the extraordinary power of a circular economy, as do customers who want systemic change to improve their lives and those of future generations. Now we must work together with even greater urgency to ensure we meet their expectations.