Philips’ CEO Frans van Houten recognizes untapped potential, invests in Africa

In February, AAT launched its multi-part series on innovation & antitrust as a thematic collection focusing on the concept of innovation markets and how competition and IP laws are able to address the, by definition, novel issues that arise.  Recently, and timely so, Philips has joined this debate.

Philips & the future of African innovation: From “things” to “ideas”

For one, Frans van Houten, its President and CEO, has been quoted as saying: “Innovation is our lifeblood and will be the main driver of profitable growth going forward. … I intend to drive innovation with more intensity to help us win new customers.”

Notably, Philips changed its official company slogan from “We make things better” to “We create better ideas.”

Even more pertinent, Mr. van Houten not only recognizes the crucial forward-looking importance of innovation.  Unlike many Western corporate leaders, he positively links it with the economic growth prospects of Africa.  In an insightful piece entitled “How Africa’s innovation will change the world” (published on the Davos World Economic Forum blog), Mr. van Houten discusses the promises, challenges, and realities of African innovation and resulting economic growth.

The article highlights the intuitive, yet elusive, insight that challenges become opportunities when looked at with an inventive spirit.  It also addresses the importance of multi-disciplinary approaches (such as the one at the foundation of our #AntitrustInnovation series, combining law, economics, and business innovation) and that of partnerships:

Seven years ago, millions of Kenyans were struggling to access basic financial services such as a bank account; they were unable to transfer money or receive microcredit. Then, a locally developed mobile payment system called M-Pesa [see AAT coverage here; — Ed.] radically changed everything. Today, more than two-thirds of Kenya’s population uses M-Pesa to make and receive payments and an estimated 43% of the country’s GDP flows through the system. This is transforming life in the country, increasing income in rural households and spawning a range of start-ups.

This speedy adoption of mobile payments captures the enterprising spirit of African innovation. It reflects the resourcefulness with which people in Africa find local solutions to local issues. It also shows how Africa’s challenges are opportunities in disguise and how the continent can bypass development stages without paying for their replacement. Mobile phones, for example, were rapidly adopted in Africa because of the lack of fixed telecom infrastructure. And solar panels are being adopted faster than in other parts of the world, because kerosene is so expensive that the payback time for investments in solar power is months rather than years.

Healthcare is another exciting area. According to a report from the World Economic Forum, Africa faces 28% of the global disease burden with only 3% of the world’s healthcare workforce. In response, Africa is adopting new operating models and technologies. By training health extension workers to focus on education, family planning and sanitation, Ethiopia achieved a 32% drop in child mortality and 38% drop in maternal mortality. In Kenya, e-learning has taught 12,000 nurses how to treat major diseases such as HIV and malaria, compared to the 100 nurses a year that can be taught in a classroom.

Africa is also embracing new business models that tap into the vitality of the country’s communities. Philips, for example, teamed up with Inyenyeri, a Rwandan NGO, to give families access to an innovative cookstove. Crucially, the cookstove is given away for free and families pay for the stove by harvesting twigs, leaves and grass. This biomass is compressed into fuel pellets, half of which are returned to the family for personal use and half of which are sold by the NGO. The cookstove is produced in Africa, highly energy efficient and, because it is smoke free, significantly healthier.

This example also shows the power of partnerships, without which many African innovations would not come to fruition. Solar-powered light centres, for example, increase the social activity and productivity of communities by generating light after sundown. These communities, however, are often unable to invest in a light centre, so this technology is rolled out through NGOs and governments. Sometimes these light centres are used to power medical equipment such as an ultrasound, or refrigerators that store vaccines. This type of cooperation ensures that innovation generates both financial and social value.

The complexity of Africa’s challenges also requires a multidisciplinary approach to innovation. Kenya, for example, is investing in systems that encourage open innovation. This sees local universities and small and medium enterprises join forces with NGOs, governmental organizations and foreign multinationals such as IBM and Philips, which have set up regional research and innovation centres in Nairobi. Nairobi is also home to iHub, a booming community of local entrepreneurs, investors and some of the world’s leading technology firms.

For innovation to really succeed in Africa, other factors need to be addressed, too. There is a lack of prototyping equipment and workshops, so local innovators depend on Europe or China, making the process costly and cumbersome. And while there are good patent laws in place, there are still too many counterfeit versions of successful products. Also, international firms should source locally and work with local distributors, whenever possible. And governments should focus their development money on stimulating entrepreneurship and innovation.

While in Africa millions of people still live on less than $2.50 a day, the continent looks set to have a brighter future thanks to local solutions for finance, healthcare and energy that could become globally relevant. M-Pesa, for example, has already been rolled out in other African countries, India, Afghanistan and Eastern Europe. Perhaps sooner than we think, African innovations will help the rest of the world create lasting social and economic value.

[Frans van Houten, President and CEO, Royal Philips, emphasis and links added, “How Africa’s innovation will change the world” published on Davos World Economic Forum blog.]

Investment: done

More than just writing op-ed pieces, Philips’ leadership has put its money where it matters: On March 20, 2014, the company (with 23-plus billion Euros in annual revenue) announced that it was establishing a “Research & Innovation Hub” in Nairobi, Kenya.  The full Philips statement says:

• The Philips Africa Innovation Hub in Kenya will be the center for developing innovations “in Africa-for Africa” in the areas of healthcare, lighting and healthy living

• Hub underlines Philips’ commitment to invest in Africa and provide Africa-relevant innovations to address key challenges facing the continent

 Nairobi, Kenya – Royal Philips (NYSE: PHG, AEX: PHIA) today announced the establishment of its Africa Innovation Hub in Nairobi, Kenya, which underlines the company’s commitment to invest in Africa. The Philips Africa Innovation Hub will work both on the creation of new inventions, as well as bringing these inventions to the market.

The Philips Africa Innovation Hub will do application-focused scientific and user studies to address key challenges like improving access to lighting and affordable healthcare as well as developing innovations to meet the aspirational needs of the rising middle class in Africa.

The Philips Africa Innovation Hub will be located at the Philips East African Headquarters in Nairobi, where African talents and international researchers will operate on the concept of “open innovation” and will work in close collaboration with the R&D ecosystem of Kenya and Africa. Philips is in discussions with local organizations and Universities on R&D collaborations to co-create meaningful solutions for Africa.

“We welcome the establishment of Philips’ Innovation Hub in Kenya; Philips is a globally recognized innovation powerhouse and their selection of Nairobi as the site to establish their African Innovation hub is a testament to the Kenyan government’s commitment to nurture the drive for research and innovation in the region”, says, Hon’ble Adan Mohammed, Cabinet Secretary for Industrialization. “We lend our full support to the investment being made by Philips and look forward to the outcomes of their Africa-specific research and projects that can contribute to transforming society, business and government across the continent”.

JJ van Dongen, Senior Vice President & CEO Philips Africa states: “Philips is passionate to invent, apply technology and partner to help people succeed. Our ambition is to create impactful innovations that matter to people and address the key challenges that confront society. With Kenya as a leader in the continent in science and entrepreneurship as well as a hub of collaboration on technology and innovation, Nairobi, is the ideal location to establish Philips’ African research presence. We want to tap into the city’s vibrant R&D eco-system and contribute to the process of co-creating new solutions, new business models and meaningful partnerships to provide innovations that make an impact.”
Enhancing people’s lives in Africa though meaningful innovations
Some innovations that Philips was already working on have now become part of the Innovation Hub, hence, the Philips Africa Innovation Hub will kick-off with ventures that are under development as well as in the pilot phase; these include:

Respiratory rate Monitor to support pneumonia diagnosis: Pneumonia is the leading cause of death among children under the age of five, resulting in 1.1 million deaths worldwide annually¹. Of these, 99% of deaths occur in developing countries in low-resource settings, which typically entail rural areas with very limited or poor healthcare facilities or with low-skilled health workers. The current diagnostic tools in such settings are not easy to use, can easily distract the workers from an accurate conclusion, and thus lead to a poor diagnosis.

The Innovation hub is working on the development and clinical testing of a robust and affordable Automated Respiratory Rate Monitor that aims to support the diagnosis of pneumonia among infants and children, using smart sensing technology on the body which is intended to be more accurate and reliable compared to manual processes being currently observed. This device will be specially designed for use by community health workers and nurses in rural areas. In Kenya, discussions are on with the Kenya Medical Research Institute (KEMRI) to further develop this project and co-create an effective solution tailored to circumstances in rural Africa.

Community care services: The development and testing of a work-flow innovation designed to reduce the number of avoidable maternal and child deaths. The purpose of the workflow is to enable remote area health centers to diagnose, triage, treat, stabilize and (prepare for) transport expectant mothers that come in for a check-up and treatment.

Smokeless cook stove: Philips has designed and is manufacturing this innovative stove to improve the lives of those who rely on wood or biomass for their daily cooking. These specially designed stoves are extremely efficient and significantly reduce the use of wood as fuel. The cook stove can reduce smoke and carbon monoxide emissions by more than 90% compared to an open fire² thus reducing the health risks of indoor cooking. The contribution of the innovation hub is to create new go-to-market models for these stoves.

Consumer solar solutions: Today an estimated 560 million Africans live without electricity; Philips is committed to improving access to lighting in Africa, for the majority of the population that lives in off-grid communities. The Innovation hub is designing and developing new consumer products using the combination of solar power and energy efficient LED technology. New go-to-market models are also being established to ensure these solutions become accessible to people that would not be able to afford them otherwise.

The Philips Africa Innovation Hub while headquartered in Kenya, will be responsible for pan-African research and projects and will have operations across Africa, linked to the Philips regional offices across the continent; the hub will be headed by Dr. Maarten van Herpen and will work in close collaboration with the Philips research labs in Bangalore, Shanghai and Eindhoven.

¹ Source : Unicef  www.unicef.org/media/media_70890.html
² Reference source:  Water boiling test version 4.2.2 done at accredited stove laboratory, Aprovecho Research Center, Oregon, USA.