Case Study of Royal Philips Lighting Essay

Company Background Royal Phillips was founded in 1891 when Gerard and Frederick Phillips purchased a factory in Eindhoven, Netherlands. They began their operations in 1892 producing carbon-filament lamps and other electro-technical products. In 1895 Gerard’s younger brother Anton began working at the factory. With the help of Anton, the light wire bulbs he designed began to be produced in mass quantities, helping the company begin to expand. By 1920 they were mass producing cathodes and high output vacuum tubes for use in radios.

Phillips did not just produce tubes and light bulbs; Philips was one of the first to build a radio transmitter and transceivers. On March 11, 1927 Phillips introduced the first nationally broadcast radio station ever, named PCJ. It could even reach as far Indonesia. PCJ is still on air in some countries, though it was primarily dissolved for more current media. With the introduction of PCJ radio, thousands of people around Europe began to use radios. Phillips radio division was ready to expand outside Indonesia and the Netherlands, but World War 2 had stopped all production with Germany’s occupation of the Netherlands in 1940.

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Nevertheless, Gerard and Frederick saiL. E. D. to the U. S. and made their business international. Both men fL. E. D. to the United States to keep their business in operation. The business flourished in the United States, but with the end of the war in 1945, they both returned to their home to see what damage had been done during the feud. Many of their facilities had been locked and successfully hidden from the Nazi forces. They came to realize that little damage was done to the original factory and within a month the factories had been restored to full operational capacity.

Furthermore, that lack of harm allowed Philips to quickly gain back market share with the company’s swift resumption of production. This time, however they spent more money on Research and Development, in order to consistently develop more cutting-edge products. 2. Product, Production, and how does Royal Philips market it? Over the next 50 years the company actively developed a solid range of products. In 1960, the first television was developed, introducing an entirely new form of media. Furthermore, they invented the VHS tape, alongside their line of cassette audio tapes in 1979.

Despite being obsolete pieces of technology today, at one time they were the cutting-edge of technology. However, the product that enabled. Philips to grow the most was the introduction of the rotating electronic razor. Alexander Horowitz developed the rotating electronic razor prior to being brought on staff at Royal Philips. Once the rotating-assembly design had been exhibited to the Philips brothers, the Horowitz and Philips reached an agreement to manufacture his final product. In 1939, Philipshave introduced the first rotating-razor electronic shaver.

Although production was halted during World War 2, a far more advanced version was introduced after the war’s end in 1945. This same rotating-razor assembly is still used today in electric shavers, currently considered the superior design in the industry. However, many have attempted to imitate the design, to little success. The extremely popular contemporary brand Sony introduced a design of its own, but was far from popular with its target audience. In recent years, Lumileds is most certainly Philips’ largest acquisition, allowing them to penetrate the light bulb market more fervently.

Prior to acquisition in August 2005, Lumileds produced various types of semiconductor diodes, each model differing depending on the application. After acquiring Lumileds, Philips-Lumileds started producing a wide range of high-power and high-efficiency L. E. D. ’s (Light Emitting Diodes). Current models of the Lumileds line include Luxeon I, Luxeon III, Luxeon V, Luxeon K2, Luxeon Star, Luxeon Rebel, Luxeon Flash, and Altilon ranging from 1 to 5 watts. The product has a wide range of uses from automotive lighting, to industrial signal lights.

One of the key features of the company is its Custom Marketing Division. This division caters to smaller orders that tend to pertain to very specific applications. The majority of the custom orders come from auto manufacturers, for headlights and taillights; both Audi and GM are some of the company’s largest clients. Philips-Lumileds is the world’s largest supplier of L. E. D. ’s, with a 20% market share, innovation remains one of Philips largest costs. With demand for L. E. D. ’s rising 20-30% per year, a solid form of production is required.

Philips has designated a production facility in Malaysia strictly for L. E. D. production, focusing on organic light emitting diodes, also known as O. L. E. D. ‘s. The main market Philips is focusing on is industrial and commercial applications for L. E. D. ’s. Although Philips does produce energy-saving light bulbs, the main market they are attempting to focus on requires more high-volume applications. Lumileds Lighting was the world’s leading manufacturer of high-power L. E. D. ’s and a pioneer in the use f solid-state lighting solutions for everyday purposes including: general lighting, automotive lighting, traffic signaling, signage, as well as L. C. D. television backlighting. The company’s patented Luxeon Power Light Sources are the first to combine the brightness of conventional lighting with the small electrical footprint, long life, and other various advantages of conventional L. E. D. ’s. Philips-Lumileds also supplies core L. E. D material and L. E. D packaging, in addition to their production of billions of L. E. D. ’s annually.

Philips Lighting Division is headquartered in San Jose, California, with operations in the Netherlands, Japan and Malaysia and sales offices throughout the world. 3. People – Royal Philips’ Global Strategy Royal Philips makes a strong effort to reach consumers in emerging markets. For instance, their programs in Africa focus on Bottom of the Pyramid, trying to give them products that will help to improve their quality of life. The idea behind this approach being that, while most of Royal Philips’ products are too high-end for the majority of these B. O.

P. consumers, giving them better opportunities now will aid to build Philips’ customer base in the long run. In Zambia, for example, Royal Philips equipped hospitals with some of their healthcare technology, which would have been prohibitively expensive otherwise. By making the hospital more advanced, it allows them to do more business and make more money, thereby giving the hospital the resources to continue to buy from Royal Philips for its technological needs in the future. These strategies are also being put into practice in Taiwan and mainland China.

Another strategy Royal Philips utilizes in Bottom of the Pyramid markets is their ability to adapt products to each community’s needs. When they discovered that many people in Africa spend hours a day gathering cooking fuel that was both inefficient and highly dangerous due to the fuel’s toxic fumes, they designed their famous low-fuel, low-emission stoves. Through this innovation of a new, B. O. P. -adapted product they were able to open up colossal new markets that were entirely off the electrical grid, their logical market of choice being an electronically based company.

However, Royal Philips is not only working in developing nations, many of their most exciting ideas are cutting-edge and eco-friendly products for the first-world. Royal Philips’ 120-plus yearlong company history ensures that a great many developed nations are familiar, comfortable, and even loyal to the brand. In these developed nations, Royal Philips employs a variety of modes of which to enter those formerly untapped markets. For instance, they created a joint venture with AT;amp;T to produce more efficient office switches for the international telecommunications industry.

Royal Philips is considered as a leader in ethical business by the Electronic Industry Citizenship Coalition, because of its adherence to the E. I. C. C. ’s industry- wide Code of Conduct. This Code of Conduct details how each member-company should handle the matters of fair employment, health and safety, ethics, environmental accountability and sustainability, as well as their individual systems of management. Furthermore, Royal Philips is also working with various countries on becoming more Waste Electrical and Electronic Equipment (W. E. E. E. Directive compliant, as the appropriate disposal of electronic equipment is a growing global issue; the vast majority of Royal Philips business is done through consumer electronic equipment. Their other efforts include a child labor policy that prohibits suppliers from hiring underage workers, and also sets working hour limits. They also require that larger suppliers adhere to a sustainability standard outlined by the company, in order to proactively combat emergent environmental issues. Additionally, the company conducts regular audits with E. I. C. C. certified auditors to ensure the continued adherence to company and E.

I. C. C. policies concerning those aforementioned standards. Philips has created an action plan to deal with any violations present, which includes tracking the supplier’s corrective efforts after the violation is found. 4. Planet – Social and Environmental Aspect to Royal Philips’ Mission Royal Philips has taken a strong stand in making their company and their products energy efficient and adapted to their customers’ needs. They work closely with communities in developing countries to help improve their quality of life while still providing low environmental impact products.

Their philosophy is that if they make innovative products that can improve the quality of life for their customers, then everybody wins. And it seems to be paying off; in their 2009 report they stated that 30% of their revenues come from “green” products. One example of their efforts are the “edore” line of halogen bulbs which use 50% less energy and have a working life more than three times as long as conventional halogen bulbs. This technology is becoming increasingly popular as a quick and easy way to save electricity in developed areas.

For example, in Edinburgh these advanced lighting innovations are being implemented in Victoria Park, allowing the parks department to use fewer fixtures, in addition to the individual energy savings. However, the impact from these technologies is even greater in developing countries. In South Africa, Royal Philips supplied over 200 communities with their solar powered lights. Once installed, it became evident to the beneficiaries that the units were more efficient than kerosene (the main light source in those rural communities) and provides a much better light quality.

This enables people to utilize more productive hours in the day, especially for tasks such as reading or homework for school age kids, a focus of the effort. Royal Philips designed solar powered reading lamps for this purpose, believing that their goal as a company should include creating opportunities for people at the Bottom of the Pyramid. The other advantage over kerosene is the lower rates of emissions and pollution from the lights. Kerosene lamps create smoke and harmful fumes, and have an added danger of fire within the home.

These technologies have also been used in Ghana under the S. E. S. A. program, a program to help solar powered technology reach B. O. P. areas that have no connection to electricity at all, in order to increase productive hours during the day. Along with this effort in lighting solutions came Philips development of a low-fuel-stove unit, available to these communities. These units are portable, smokeless, adaptable and incredibly efficient versus traditional biomass burning stoves; Kat Vaughan exhibited examples of these stoves currently in use in Guatemala during her in-class presentation.

Capable of running on any traditional fuel such as wood or dung, these stoves produce no harmful fumes or smoke, making them perfect for inside the home. They are also 90% more energy efficient, using far less fuel to run a hotter and more productive unit. This not only reduces the resources required from a family, but frees the time that would have been needed to gather all the extra fuel material, which for a rural area is a tremendous burden. Royal Philips is uoted as reducing foraging times from once per day to once per week, also mentioning that people freed from these hours of foraging are also kept safer because they don’t need to range as far or into potentially dangerous areas for fuel. In their Healthcare Division, Royal Philips has again taken a bold stance on socially responsible business. They created a four year educational campaign in rural Taiwan called “We care about your health” and a three year program in mainland China training doctors (CHELSEA CHECK OUT THE NOTE ON THE SCANNED CORRECTION DRAFT).

The China program’s goal is to train over 300 doctors in underdeveloped areas that otherwise have little access to healthcare. They partnered with the Chinese Red Cross for this effort and made major quality of life improvements for the entire community. These programs also focus on trainees being able to teach and train new healthcare professionals themselves, thereby creating a self-sufficient cycle that will continue to help these communities for decades to come. Royal Philips has implemented many programs like this across the world, most notably in Zambia under the O. R. E. T. plan.

This was a seven year plan that not only trained, but supplied technology to hospitals. It would be hypocritical of a company on the forefront of green products to not also have companywide efficiency goals. In conjunction with their energy efficient products for consumers, Royal Philips operates all of its production facilities using green technology. They use sustainable energy when possible, utilizing some of their own solar technologies to run their plants. Their sustainability report states that their operations are 25% percent based on sustainable technology, with a target goal of 50% in the coming years.

They have also reduced their carbon emissions by 25%, making the planet just a little bit cleaner. Part of their strategy is creating products that have longer life cycles than competitors, meaning less waste in the long run. And once a product has reached the end of its life, Royal Philips has made every effort to make each of the parts recyclable, and also implemented collection programs in the European Union to make sure their products don’t end up in landfills. They call this program “Cradle-to-Cradle”, a play off of the phrase “cradle to the grave” implying that their products will never be trash.

This also means that many of their products are made from primarily recycled material. They have also worked with many foreign governments (India and Thailand in particular) to help pass legislation pertaining to the recycling of electronic equipment. These proposed measures would stimulate collection and recycling in some of the poorest communities. Royal Philips has also implemented a standard of checking the chemicals used in electronic components to ensure that they are not potentially hazardous.

This is done in conjunction to routinely phasing out certain chemical materials as cleaner options become available, all done under the philosophy that even in the poorest of communities, a person’s health and safety should never be compromised. 5. Success of the Company Royal Philips’ aggressive strategy for acquiring appropriate businesses domestically and internationally is a huge contributor to the company’s overall success. This is exhibited by the large number of acquisitions over the years, each one marking growth in a desired market area.

Between 2010 and 2011, Philips acquired 18 companies, characterizing the company’s aggressive approach to expansion. For instance, the purchase of Lumileds in 2005 enabled Royal Philips to corner 20% of the extremely fast growing market for L. E. D. ’s. Furthermore, fierce attention to consumer demand and market tendencies assists in the continued realization of prosperity for the company. Innovation is a gigantic expense for the company; R;amp;D in the first quarter of 2012 was 8% of total sales, even larger when compared to net profit.

However, this is needed in order to keep up with the changes in the desires of the customer base, along with the adaptions in cutting-edge technologies. Through its continued use of Research and Development, Royal Philips has been able to consistently and successfully market to its target customer base, translating to large successes for the company’s prosperity. For instance, Philips has targeted to raise profit from green products from 30% in 2009, to over 50% by 2015, thus taking advantage of its green-centric targeted consumers.

The company’s international success can be attributed to the acquisition of already established companies and the utilization their own assets, as opposed to various other modes of foreign market entry. This, in turn, enables Royal Philips to focus on gaining more market share through R;amp;D. Creating these wholly owned subsidiaries allow Royal Philips total control over the operations and how they allocate resources in order to corner further market share globally. Continually, Royal Philips’ designing of a solid international brand has enabled the company to achieve a tremendous global presence.

With 120 years of marketing and goodwill under the company’s belt, it is no wonder how the brand has been succeeding in securing new customers, as well as cultivating customer loyalty. This is be evidenced by its continued catering to the Bottom of the Pyramid and consumers seeking more “green” products. EXECUTIVE SUMMARY COMPANY – 4/5 STARS| Royal Philips – Operates under an exemplary business plan, leading to a large gross margin (EUR 2. 114 Billion -1Q2012) with continued growth and innovation.

This consistent innovation leads to the a strong outlook for the future. With roots in High-Tech, the company must make sure to continually assess environmental impact and effect on B. O. P. , annually outlined in their Sustainability Report. | PRODUCTS – 4/5 STARS| L. E. D. Bulbs, Healthcare Products, and Consumer Electronics (our main focus was L. E. D. Bulbs for this project) – Being a High-Tech company, each product will need continued investment to remain innovative and ahead of the competition. Currently the industry leader in L.

E. D. production with a 20% market share in 2010. The longer lasting and much more energy efficient bulbs are a great innovation, helping to improve the company’s movement towards a 100% “green” product line. | BUSINESS MODEL- 5/5 STARS| Maintain key supplier partnerships which allow more buyer power through loyalty, value-added drives an impressive bottom-line (EUR 2. 114 Billion Gross Margin – 1Q2012), and reaching a market of an unprecedentedly large size of 5 billion people, including the B. O. P. (compared to competitors).

Q1-2012 R;amp;D was 8% of sales, so increasing efficiency in that area, without sacrificing innovation, would help to further increase the company’s bottom-line. | LEADERSHIP STYLE – 4/5 STARS| Frans van Houten (President and CEO) – * a forward-thinking and contemporary CEO, allowing local market teams to take charge and do what is best for the company (uses teams spanning down from continents to countries and down to individual regions) * Realizes that investing in innovation is investing in growth. Leads primarily through delegating tasks to his Supervisory Board, but still overlooks information to make final decisions for the company himself. | SUSTAINABILITY STRATEGY- 3/5 STARS| Driven to make a difference. However, profit is still the primary goal of the company, justifying less work on green practices as a means to an end. Evidenced by the continued use of suppliers that are not ISO 14000 certified, or even trying to get there. Philips’ continued adherence to E. I. C. C. standards are a great stepping stone to bolster more dedication to W.

E. E. E. and ISO 1400 standards with suppliers and countries in order to assist in a large turn around. Admirable start, but more effort would raise the grade. | FINANCIAL PERFORMANCE – 4/5 STARS| 2012 Q1 Sales of EUR 5. 6 Billion ;amp; EBITA of EUR 552 Million. Sales growth in developing nations of 9%, Savings on cost are increasing, and Sales are up 4% compared to competitors. The company has been performing ahead of the curve throughout the global recession, with solid growth around 3% above primary competitors.

Earnings Per Share are also growing around 8-10% each year, above the ~5% of competitors, exhibiting sustained performance above the industry financial standard. | Halogen lamp article http://www. newscenter. philips. com/main/standard/about/news/article-15615. wpd Sustainability report 2009 http://www. annualreport2009. philips. com/pages/our_people_planet_partners/environmental_footprint. asp Stoves South Africa http://www. newscenter. philips. com/main/standard/news/press/2011/20111208-healthy-cooking-coves. pd African clean energy http://www. ace. co. ls/index. php Victoria Park Lighting http://lighting. com/philips-shines-the-light-on-edinburgh%E2%80%99s-victoria-park/ ORET Zambia http://www. usa. philips. com/philips5/sites/philipsus/about/sustainability/socialresponsibility/socialcommitiment/ORET. page SESA Ghana http://www. usa. philips. com/philips5/sites/philipsus/about/sustainability/socialresponsibility/socialcommitiment/SESA. page http://www. lighting. philips. com/main/lightcommunity/trends/oL. E. D. /

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