01-09-2021 | Interviewer: Xavier Baeten | Author: Naomi van Esschoten | Image: Rogier Veldman
Throughout the entire production chain, organizations must be stewards of the environment and enforcers of human rights. They must advocate for lasting profits without sacrificing the future in favor of short term profits. The World Economic Forum (WEF) has recently put this set of ethical principles into practice in their new Davos Manifesto. Philips has not set its bar low either with its goal to improve the lives of billions of people. For the health technology company this means a sustainable strategy is now more important than ever. But how does the company deal with the challenges that follow?
Robert Metzke, Philips’ Global Head of Sustainability, addressed this very issue with Xavier Baeten Professor Reward Management & Sustainability at Vlerick Business School. A conversation about the improvement of people’s lives, the Sustainable Development Goals (SDGs) and challenges that Philips faces. Metzke: ‘Keys to success are ethical leadership, meaningful innovations and stakeholder management.’
Philips has a rich history and everybody is familiar with the company. Nevertheless, let’s start with a quick refresher: In what areas is Philips currently operating?
‘We are a healthtech company that is active in over one hundred countries. Our ambition is to annually increase the value of 2.5 billion people’s lives by the year 2030 through meaningful innovations and to ensure that 400 million people gain access to health care.
Our range of products cover the whole spectrum of health care; from healthy living and prevention to diagnosis, treatment and home care. We realize this with consumer products that contribute to public health such as electric toothbrushes, but also medical equipment and solutions for health care. Examples of these are: Diagnostic equipment such as MRIs, CT scans and tools for minimally invasive treatments. Along come the solutions that support recovery at home, one of those being Healthdot, a wearable biosensor that allows the doctor to monitor a patient remotely for vital signs such as heartbeat and respiratory rate.’
How do you shape the objective ‘to improve people’s lives?’
‘First and foremost, an objective must be tangible. You can work this out in your strategy, projects and at a team or individual level. For the latter it is pivotal to involve employees. To realize our new future prospects for the next five years, we have entered into discussions with them explicitly. This leads to a supported view.’
Many organizations struggle with the tension between innovation, strategy and sustainability. How do these relate to one another? Or are they intertwined?
‘Exactly. I frequently point out we do not need a sustainability strategy, but rather a sustainable strategy. A company can only be successful if the top-level managers understand to what direction society wants to go. This starts with communication. Talking to employees as I mentioned before, as well as talking to customers. Only if we know the preconditions and where the priorities lie we can create meaningful innovations that guarantee sustainability.’
On a personal note: What is it that makes you so passionate about sustainability?
‘An interest in how the world works and the question of in which areas I can make a useful contribution led me to study physics when I was 18. Many years ago those exact same questions paved the way for me to sustainability. Sustainability is not a goal in and of itself, but an integral part of our strategy to improve the quality of people’s lives.’
Philips focuses on three of the seventeen Sustainable Development Goals (SDGs) set by the United Nations: good health & well-being (SDG 3), responsible consumption and production (SDG 12) and climate action (SDG 13). In what way do the SDGs help to implement a sustainable strategy?
‘I see SDGs as a global, shared compass for challenges involving poverty, education and the climate crisis. The targets act as a framework by which we will collectively make the world a better place by 2030. Those SDGs inevitably come at the risk of purpose washing soon becoming the new green washing. To steer clear of this we have attached measurable and quantifiable objectives to the SDGs, which are additionally monitored externally. We do annual check-ups with our stakeholders based on a fixed methodology in which we discuss expectations and where we can make a difference.
Many goals are, indeed, connected: SDG 6 – clean drinking water --- has an impact on health, but so does SDG 2 – no hunger.
For us, the SDGs are building blocks to initiate a conversation about how they can be incorporated into our strategy. In doing so, we look at added value for our customers, how our company can grow and what affairs we are able to affect. Durable use of materials throughout the entire chain, reducing energy consumption and realizing better access to health care are good examples of this. Lastly, we share what we have accomplished in our annual report, so that stakeholders and shareholders gain insight into what we have actually achieved.’
Consumers want sustainable products. Employees want meaningful work. Investors look at the environmental and social welfare criteria. Then there are the so-called clicktivists who like to blow up every misstep on social media. Do you think it adds any value to take into account all that feedback from different angles?
‘Definitely. Problems are systemic. You can only solve them collectively. It all depends on how you conduct both feedback and dialogue. It makes little to no sense to call once a year. We have ongoing debates with governments, customers, NGOs and employees. Not only do we collect feedback through surveys, but also through focused and open discussions. This is valuable, because this way others can shine a light on our blind spots.
In addition, it is important to work in cooperation and to listen carefully: Developing a product that is relevant means knowing your customer’s needs and expectations. An example of this is circular product design. Meaning, the material itself and how you deal with it at the end of its lifespan. You will not be able to refurbish or recycle the product on your own: You need the government to regulate legislation in order to prevent the dumping of electronic waste. Furthermore, companies and consumers must be willing to cooperate. First by entering into dialogue with all parties and second by looking for system partners, you will eventually arrive at the best solution.’
Can you give specific examples of that?
‘The WEF established the Platform for Accelerating the Circular Economy (PACE) in 2017. Today more than a hundred organizations, governments and NGOs are taking part. Together we pay attention to which actions are necessary in the next five to ten years to achieve fully circular designs and which obstacles we need to remove to reach breakthroughs. Now 3.5 billion people do not have access to health care. Philips can contribute to improving that, but we can obviously not do it all by ourselves. Next to doctors and caregivers who are trained to work with medical equipment and techniques, we need the help of hospitals and infrastructures. The first step is to find out who you need in order to create better access to health care and then specifically invite relevant parties to discuss ideas. In this case a meeting with local authorities, patient organizations and health care providers will turn a coalition of the willing into a coalition of the needed. And then everything has come together.’
In what way would it be possible to include the entire organization in these developments?
‘I strongly believe in the relationship between strategy and sustainability. Simultaneously, we act in a rapidly changing world. For this reason I see it at as my duty to interpret and translate where tensions arise and where we are going. Together with the employees we have arrived at our vision for the future. This we turned into goals and roadmaps for product development. In addition, our sustainability board consults with the executive board and supervisory board every quarter. The executive committee is also involved in the SDGs that we want to implement and the realization of goals is secured in performance management.’
At Philips, individual criteria (including sustainability) are assigned a weight of twenty percent in determining the bonus for top management. Should this percentage not be higher to increase the impact? Or should the tasks of improving the lives of others and producing sustainably not be part of the bonus, but rather ingrained in the DNA of the organization?
‘Studies show that a Remuneration Policy is effective starting from three percent. That is why I believe you should not only put sustainability on the agenda, but also attach a reward to it. A successful transformation has four pillars. The first pillar is a good story everybody understands. Second pillar is leadership to get people on board to spread the story and personalize it to their own industry. Third pillar is to develop skills to be able to keep up – for example, train your designers in circular product design. Finally, you must ensure transformation in every step of the process, the reward included. It is similar to a bicycle lock with four digits: even if you get three right, you are not able to cycle away just yet.’
To get your own affairs in order is one thing, but what about the rest of the chain?
‘We work with an integrated chain for both the production and the suppliers. We have exchanged the role of a police officer for that of a doctor. By that I mean audits do not work. You solely receive socially desirable responses and smoke screens. Now we do not look at where a supplier stands, but how they want to develop themselves.
Of course zero tolerance policies apply, for example for environmental pollution and unsafe working conditions. For this the supplier has two weeks to solve it. However, we work together on other matters, for example to use energy more efficiently. This way we want to make a measurable contribution to reducing our ecological footprint.’
What does that look like? Has there been any progress yet?
‘Certainly. Since last year we have been the first health technology company in the world to be CO2 neutral. We obtain our green energy, among other ways, from wind farms in the Netherlands and the United States. We also look at energy efficiency: In the production process, but also in the product itself – for example with an economical energy setting. Moreover, we have set up a large refurbishment center for medical equipment in the Eindhoven area.’
Wonderful developments, but ultimately the shareholder wants a return on investment. That is where tensions boil. Do you sometimes have to make difficult and painful choices?
‘This is inherent in the process of running a business. To quote economist Michael Porter: “The essence of strategy is choosing what not to do.” However, we can also see a turnabout among investors and asset managers. They are increasingly aware of the impact of their investments on the climate. They become mindful of the earth’s value, which they want to preserve for future generations. Many investors now share our vision.’
What challenges do you foresee for the coming years?
‘In accordance with the Hippocratic oath, health care is based on “I will not hurt the patient.” At the same time, health care is one of the most polluting industries. This is due to the large CO2 emissions through, among other things, the consumption of energy by appliances, food and disposable materials. Phillips wants to play a catalytic role in this: How can we use our products and services to ensure that people are not in hospital for ten, but only five days, or no longer have to go back to the hospital for check-ups. The reuse of medical equipment is also less harmful to the environment. Taking steps in that direction makes a huge difference.
What generally worries me is the gap between sustainability leaders and parties that still pass on their costs to society.
I feel optimistic about what we can achieve, but the window of opportunity is small. We need bridge builders who share knowledge. Warren Buffett once said he looks for three leadership qualities: Intelligence, energy and integrity. I would like to add: Impact to get things done.’
This interview was published in Management Scope 07 2021.
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