The Conversation: Eric Rondolat, Chief Executive Officer, Signify

In 1891, Dutch banker Frederik Philips financed purchase of a factory for his son, Gerard Philips, where they started making light bulbs. The Eindhoven-based enterprise went on to become Koninklijke Philips N.V., a multinational company specialising in lighting, healthcare and lifestyle products. More than a century later, Philips spun off the mother business in a historic IPO which valued the company, renamed Signify, a little over 3 billion euros. In an interview, Eric Rondolat, CEO of Signify, talks Fortune India's Rishi Kant about the future of the lighting industry.

TECH IN LIGHTING

How is technology changing the world of lighting?

We have seen multiple transitions in last 10-15 years. The first was from conventional, incandescent bulbs to LEDs and then from LEDs to connected lighting. The next will be to data-enabled services. We are not selling anything we used to sell 15 years ago; and 70% of what we are selling was not there five years ago.

If consumption of energy in incandescent is 100, in LED, it's six. We now have a technology that takes it down to three. With connected lights, you can go to one-and-a-half, even one. There is no other industry that has reduced energy consumption of its products from 100 to 1. Technological disruption has been massive. Earlier, you had to burn something for light, but today, you have to just excite electronic components. An incandescent bulb needs to be changed every one-two years, while LEDs can last 10-20 years. LEDs also use less power.

Connected technologies generate additional savings. Lights switch off on their own when you leave the room. On streets, when there is no movement, vehicular or pedestrian, lights dim automatically. Connectivity is also important as we take data to go to the next transformation that is supposed to take place: data-enabled services.

There is a lot of talk about energy-efficient lighting where Philips is playing a lead role. However, most action is in premium category. How long will it take to make energy-efficient lighting a mass product?

It has reached masses in India. I met Indian officials in Davos nine-ten years ago. They told me about their plans. We participated in those plans. India has done a fabulous job of moving from conventional bulbs to LEDs. Of course, LEDs are more expensive than incandescent bulbs, but you need to change incandescent bulbs 8-10 times during the lifetime of a single LED. There will never be parity between prices of incandescent bulbs and LEDs as the latter is a long-term investment. Affordable tech-enabled solutions also work in India but quality is the problem. In our next stage, we have two ranges of connected lights that help consumers create own environment, whether in garden or in bedroom. All lighting will be connected in next 15 years.

Signify is now more a technology company than a company making lights. What was the mindset change needed for this transition?

We have always been a technology company. Earlier, our investment was in lighting technologies, burns for instance. So, we went from incandescent to compact fluorescent to halogen. LED was about getting light from electronic components. We also ventured into other technologies such as controls and software. Our consumer offering is app-driven. You plug the bulb, go to the app and take control. So, we had to recruit more people, bring a mindset around software development.

But go-to-market strategy required one of the biggest mindset changes. Earlier, it was a replacement market. Now, you sell products that will last a long time, apart from connected systems. When you sell connected systems, you have to talk to customers about return on investment. That has been the most difficult change for us. We had to change from a product company selling in replacement market to a product and systems firm selling value-added products that will last for a long time.

How has name change impacted business growth?

Not much as we did not change the brand. We moved from Philips Lighting to Signify, but the brand is still Philips. We brought one more brand — EcoLink. In India, we are also venturing into fans to have a stronger footprint on our market, customer base and channels. That is working well.

The only issue is that when we talk to people we want to hire, they do not know Signify. So, we have to educate, but when we tell them about our legacy, they come on board. But we need to do a lot of work to make Signify better known.

BUSINESS MODEL

Past two years have not been easy due to the pandemic, followed by geopolitical uncertainties and then inflation. How have you re-engineered the business model to stay with the times?

We were forced to adapt. In FY20, it was a demand crisis. We can adopt to demand crisis only by readjusting costs and margins.

FY21 crisis was not about demand. It was a supply-chain crisis. Prices of containers and components went through the roof. Earlier, we were delivering in three months. In 2021, we were taking nine months. We put most of our R&D in redesigning components to deliver to our customers. In third quarter of FY21, we were not able to deliver because supply-chain exploded. In FY22, it was war in Ukraine, leading to huge increase in costs. So, in 2022, we needed to increase prices, and that too in a way we remain competitive and recover some, if not all, costs.

Over past three years, we readapted from crisis to crisis. In FY23, you have a bit of everything — you have China under the pandemic, you still have some issues with components, some issues with supply chain, and to top it all, inflation.

We took a few strategic decisions before the pandemic that fundamentally changed the company. Because of friction between China and U.S., we decided to have a less saturated and global supply chain. We want to depend less on China for other markets as things will become more complicated. This is where our strategies see India as a potential hub where we will invest to bring more manufacturing — making in India, for India and the world.

THE HR CHALLENGE

Becoming a tech company means need for talent with new-age skills. The industry is facing a challenge in getting talent. What are you doing to get good talent?

We don't feel any pressure of hiring talent. During the pandemic, people did not switch jobs. When markets reopened, people moved between companies all of a sudden. It's not 'the great resignation'. It's normal movement.

We have always been able to get talent as we offer people a career. We have a four-pronged employee-value proposition. First, we are the leader in our industry, so we attract people who want to work with the leader. We're two times bigger than the next competitor. Next, we are a tech-company. We talk about technology, connectivity, light-emitting data. The third element is sustainability. We are one of the most sustainable capital goods companies. In ten years, we have reduced our carbon footprint by 70-80%. We also offer sustainable offices. We breathe sustainability. We don't want to grow to the detriment of the planet. The next thing is that we are a learning company. People who join us learn. We help them acquire skills. We don't recruit 10,000 people, but the ones we do, we bring them up in competencies. We give them responsibilities at the outset.

Of course, in the current market, there is some scarcity of people skilled in data analytics, people who know how to build artificial intelligence, but they will come. Every time there is a big shift in technology, it is a bit hard in the beginning, but universities bring the knowledge to the market and we benefit from it. So far, it has not been difficult.

In India, yes, people have a habit of changing companies. I talked to a lot of employees and told them that people change companies for a bit more money, but if you want to build a career, stability is very important. It is important to prove that you can stay in the company and climb the ladder. That is what we offer.

In 2023, one of Signify's key target is to improve profitability, but with recession in western economies looming large and uncertainty around end of the Russia-Ukraine conflict, is it achievable?

We are confident we will deliver profitability because a lot of costs that have risen in past few years are going to become normal. We are already seeing diminishing of transport costs. We see costs of some components going down, as a few years ago, it was a market of suppliers and you had to accept price hikes. Now, suppliers have started to see dip in volumes and have to become more cost effective. We are benefitting from that.

There may be a recessionary environment that will somewhat challenge top line, but we also know how to manage a crisis of demand. Managing supply and inflation is much more complicated. We think inflation should not go higher. It should be kept under strict control. From a global angle, we will be able to increase gross and operating margins.