Three Major Megatrends That Are Affecting Phillips

Phillips is a multinational electronics and healthcare company. The three main megatrends that are affecting and will continue to effect Phillips are energy efficiency, the increasing demand for healthcare and the Internet of Things (IoT). These megatrends are driven by converging global crises, stakeholder wants and needs and new markets. The macro environment affects these megatrends which can have an effect on the way Phillips operates and their reputation. For example, the natural environment and climate change is a driver of the need for increased energy efficiency which is being enforced through political regulations.

Likewise, political drivers such as ‘Brexit’ have the potential to affect Phillips’ supply chain management with their electronics and healthcare products because of the current uncertainty of future regulations and trade agreements between the United Kingdom and European Union.

Furthermore, the development of IoT is predicted to reach 7 billion connected objects in service in 2018 and 21.5 billion in 2025 which represents a market opportunity of 1567 billion in 2025. This research shows how the three megatrends are constantly developing and influencing the environment.

Phillips have eight departments: Sound and vision, personal care, mother and childcare, lighting, automotive, health, health and home accessories and household products. Instead of specialising in one specific industry, Phillips has a strong market hold in several industries. This is shown as in 2013, they developed an LED lamp which was claimed to have double the efficiency compared to normal LEDs used in commercial buildings.

However, despite their leadership and market dominance in the lighting industry, over half of Phillips’ sales are derived from their medical technology products such as MRI and ultrasound machinery.

Top Writers

Allan Brooks

Verified writer

5 (893)

RhizMan

Verified writer

4.9 (247)

Prof Evander

Verified writer

4.8 (654)

hire verified writer

This implies that although Phillips has a strong hold in a range of industries, the healthcare industry is quickly becoming the most important for Phillips. Furthermore, Phillips is looking to pause their expansion into new industries/markets so that they can focus on consumer electronics and medical equipment after their successes in the lighting industry. Similarly, Phillips has identified that the healthcare and home appliance industries are more profitable and are looking to focus on appliances such as coffee machines and shavers.

Global warming is an example of a converging global crisis which is driving energy efficiency as a key megatrend in the electronics industry. This is supported through a study by Ernst and Young, where 46% of CEO respondents admitted that one of the main drivers for their responsible management activities is the increasing costs of carbon and its contribution to global warming. Similarly, energy efficiency is important for Phillips because around 40% of the world’s energy is derived from oil and 21% from coal which are both non-renewable energy sources (Hordeski, 2011). Therefore, if Phillips’ products use high amounts of non-renewable energy, then they may be branded by consumers as energy inefficient thus building a negative reputation for Phillips through an association of them contributing to global warming. Especially in comparison to one of their competitors, ‘Panasonic’ has developed a cogeneration system which generates up to 39% lower heating value efficiency.

This implies that in order to maintain Phillips’ responsible management reputation, they must keep up with their competitors investing into energy efficiency R&D which is also highlighted in Figure (a1). Likewise, Oberseder et al., (2013) states that consumers are becoming more interested in companies who are investing more into R&D in environmentally friendly products and production methods (Khojastehpour and Johns, 2014). This research illustrates that consumer interest is also a driver for energy efficiency and further implies that as this megatrend becomes an increasingly important topic for consumers, if Phillips does not adapt to the megatrend, it has the potential to affect their responsible image. This megatrend offers many opportunities for Phillips such as reducing costs through developing an effective energy efficiency strategy. For example, Harvard Business Review (2011) stated that some of Phillips’ competitors such as Cisco and HP, follow a gold standard globally by using a single norm to regulate all of their manufacturers worldwide which has benefitted them through having optimized supply chains and economies of scale.

Likewise, Hay, Stavins and Vietor (2010) state that creating products which have less environmental impact during their lifecycle whether it be through the manufacture of that product or through product disposal, it means that consumers are willing to pay a premium for that product. Adding to this, environmental product differentiation and charging increased prices for these products means that competitors will struggle to compete as Phillips will be able to promote the environmental attributes which would reinforce the barriers to entry and mobility within the industry thus increasing environmentally responsible brand reputation with stakeholders. Likewise, Husted and Allen (2007) stated that because product differentiation is difficult in the electronics industry, reputation can be used as a key competitive advantage which can be used to manage stakeholders.

Furthermore, by finding uses for returned products normally identified as scrap, this can help demonstrate to stakeholders that the company is taking action on reducing environmental damage through waste reduction. Another opportunity is that energy efficiency could help to improve Phillips’ risk management. For example, by over complying with environmental regulations, they are then insuring themselves against risks such as consumer boycotts, business interruptions and regulations caused by the behaviour of consumer activists. Similarly, Harvard Business Review (2011) supports this as they stated it’s better to over comply with energy efficiency rules before they are enforced because this can create a first-mover advantage. Likewise, this can make the company more resilient to shocks, more adaptable and more likely to build stakeholder relationships through attracting better employees, holding customers, reassuring banks, insurers and regulators.

Reinhardt and Stavins (2010) also support this as they state that if energy efficiency is used as a risk management strategy, even if it reduces the company’s future cash flow, it could potentially save them from even bigger losses and help them to survive market imperfections. One constraint that energy efficiency can have on Phillip’s reputation, is the threat of greenwashing. If stakeholders think that a company is giving a misleading impression of their energy efficiency, it may give the company a bad reputation through stakeholders accusing them of greenwashing. This could lead to Phillips experiencing bad publicity in the media and potentially lose environmentally conscious customers. Moreover, energy efficiency and regulations can constrain Phillips financially through giving them a disadvantage in comparison to competitors in developing countries where regulations are not as strict or enforced.

This implies that some of Phillips’ competitors cut costs through not spending as much on energy efficiency regulations. Likewise, studies have found that when companies increase their costs to reduce carbon emissions or charge above-market prices to subsidise, the companies would see margins and customer growth fall. In addition, Phillips would gain a bad reputation with shareholders if investments into energy efficiency fail to gain shareholder financial benefits. Similarly, there’s an argument that energy efficiency can constrain a company as social responsibility isn’t always tangible or measurable therefore it’s difficult for shareholders to measure the effects of their responsibility implementation. However, some studies contradict the effectiveness of ‘shareholder theory’ as they’ve found that corporate environmental responsibility initiatives are often associated with lower levels of company risk which could be a better long-term futuristic business approach. This implies that energy efficiency isn’t always detrimental for shareholders when managed correctly.

An increasing demand for healthcare driven by an ageing population is another key megatrend influencing Phillips. This is supported by a report published by the World Health Organisation (WHO) which suggests that the number of people aged 65 or older is expected to increase from 524 million in 2010, to 1.5 billion in 2050. Moreover, this is reinforced in a study by Burner, who predicted that in America, total national spending will increase from $666.2 billion in 1990 to $16 trillion in 2030. Successful minimisation of these costs will be correlated to the ability to prevent or cure age-related diseases and to create products and technologies that will help maintain long term care. Therefore, these statistics and future predictions present an opportunity for Phillips to innovate and develop new healthcare products and systems in order to help support and sustain the demand for healthcare products and the ageing population.

One way in which Phillips could exploit this opportunity is through utilising and developing robotic technologies to support elderly people in terms of long-term care. For example, assistive robots can increase the quality of life of elderly patients in regard to their health and psychological wellbeing. However, there are many ethical implications associated with the use of robots such as a development in feelings of objectification and loss of control, the possible decrease in amount of human contact and a reduction in privacy. Consequently, it’s vital that Phillips execute the development of robotic technologies in a way that guarantees that the care benefits will outweigh the ethical issues to ensure that the brands reputation is not damaged.

One constraint that may have a negative effect on Phillips reputation is the ethical associations of charging elderly people a premium price for healthcare products and services. Low-income elderly people can be particularly vulnerable as it is more probable that they will experience health problems that need medical services than those who have a higher income, however they are less able to afford the required care. Therefore, if Phillips is seen as exploiting the elderly by charging prices for healthcare products and services they simply cannot afford, their brand image and reputation could be tarnished.

Lee and Lee (2015) state that the Internet of Things (IoT) is a new form of computing which has the potential to be disruptive and influence business processes in a variety of industries. Similarly, according to Selby (2012) this market is still in its early stages of growing and developing. Therefore, this research shows that IoT is relevant to Phillips as they are involved in a variety of industries. Adding to this, Yuan (2012) stated that IoT is becoming increasingly popular for healthcare and logistics as well as undoubtedly having an influence directly and indirectly on consumer electronics. As identified in the context analysis, Phillips are focusing on healthcare and electronics therefore IoT is relevant for Phillips as in the future it will have greater influences on their products and be a requirement for consumer needs.

As the IoT moves into different industries such as healthcare, this provides Philips an opportunity to increase their market shares, especially in developing countries where healthcare and IoT is constantly improving. Furthermore, the IoT provides Phillips with opportunities to implement data integration into their consumer products. For example, by collecting data and integrating smart devices with electronics such as Phillips fridges, customers will feel more connected to the brand, Philips will understand the customer’s needs better and ultimately improve their customers experiences. Therefore, by using IoT development in this manner, this could help build Phillips reputation with consumers by having continually improved products.

As Philips is a leader in the lighting industry, there’s an opportunity for Phillips to work with city councils to introduce and improve public space smart lighting which could provide Phillips with insightful data for their R&D. Likewise, the Economist Intelligence Unit (2017) state that IoT would provide Phillips an opportunity to analyse data collected from contact points with the consumers, allowing the company to have better detailed and accurate user profiles. This would be advantageous for Philips because it could help Phillips to understand the buying behaviours of consumers and at what stage of the buying process they are. This would allow the company to offer the right products and services at the right time.

The development of IoT by Phillips could also help sustain their energy efficiency reputation. This is because Angelova, Kiryakova and Yordanova (2017) stated that smart devices help increase efficiency and productivity thus many smart appliances help businesses and consumers to save electricity, resources and time. Therefore, by implementing IoT technologies, it can help Phillips’ buildings and resources to have a more efficient energy usage and for their products to decrease their consumers energy usage. Adding to this, it could be argued that IoT is congruent with the two other megatrends highlighted as important for Phillips. This is because Ghani (2018) highlights that IoT is becoming increasingly relevant in healthcare through the integration of medical devices. However, they also argue that currently despite the reduction in the prices of these sensors used, they are not feasible because they are not yet low power or compact enough.

On the other hand, this could be seen as an opportunity for Phillips, where they could take the lead in the innovation and development of this technology. The main constraint that IoT can have on Philips is the issue of corporate social responsibility and security of customers when handling IoT data. The scepticism from the public opinion of the smart objects in the house can be a disadvantage on Phillips sales, so the anonymization of data is an ongoing issue. To conclude, the most important megatrend for Phillips is energy efficiency because it has a larger number of drivers influencing the megatrend and Phillips reputation in comparison to the other megatrends highlighted. However, it must be said that energy efficiency provides more opportunities for Phillips’ reputation than it does constraints.

One of the most important opportunities for Phillips is environmental product differentiation because this would gain competitive advantage in the electronics market and assist in building their reputation with stakeholders. The second most important opportunity is the opportunity for risk management because by investing in the energy efficiency side of the electronics market, the business is more adaptable to changes which helps the business’ performance and stakeholder relationships through reassurance. The second most important megatrend for Phillips is the IoT because IoT can be utilised to assist their reputation improvement in relation to the other two megatrends identified. This is supported by Ghani (2018) who emphasise the importance of IoT for medical integration. Likewise