Harsh Chitale, the CEO of Philips Lighting Solutions, South Asia, recently joined the company from HCL Infosystems, where he was the Managing Director & CEO. In an interview with Goutam Das of Business Today, he talks about his new role and the changing landscape in lighting.
Q- Between HCL and Philips, what are the synergies in your role?
A- If you remove products out of the equation, HCL had a distribution business model - we distributed consumer electronics, phones etc. Equally big is the distribution reach of Philips Lighting for consumers. In every remote part of the country, you will find a Philips bulb. That is one common synergy. Second, all of HCL products were digital. In Philips, one-third of the products have already become digital and the rate at which digitalisation is happening in lighting, everything will be digital probably two years down the road. In electronics, life cycles are short. An incandescent bulb, even after 10 years, remains the same. So it is two different worlds - rapidly evolving product lifecycles, compressing technology cycles, faster obsolescence - all of that is identical between the world of HCL and the new world of Philips Lighting. Third is the world of systems and services, of doing end-to-end projects, managing them, Philips is beginning to do that. So there are synergies in the business models, distribution, managing digital products, systems and services.
Q- Who gave you the best piece of advice when you decided to join Philips?
A- You look around, you talk to friends. But I didn't seek advice. I was tracking what was happening in the lighting world. What was happening was fascinating. This industry has attracted a lot of private equity. Some of the Indian players have tried to ramp up very quickly with private equity money.
Q- What is that fascinating change in the world of lighting?
A- Lighting used to be an FMCG kind of a product- use and throw. Now, three-four things are happening simultaneously that is creating excitement and expectations of high growth. First, it has become a digital product with LED coming in. Now you can control it remotely, you can programme it, configure it, it can give you different colours, It can be used for many things beyond lighting. I like the example of a phone. 10 years back, a phone did nothing other than voice communication. Today, is it a camera, an MP3 player, a computer, GPS? All-in-one. The moment it is digital and the power of computing and storage is increased, you could do many more things. Exactly the same is happening in lighting. A Rs 10 bulb first became a Rs 150 CFL; as soon as it became LED it became electronic. Now the same light can act as a communication device, entertainment device, a healthcare tool because a human body is highly sensitive to light. There is a biological, hormonal effect that light has on you. It has a value in terms of pre-operative and post-operative care. So light beyond illumination became a big thing as soon as light became digital. From being a lighting industry, it has become much more. So the market is expanding.
Second, at a household level, it was a utility: you replaced it when something failed. Now it is becoming lifestyle. Now people spend Rs 10,000, Rs 20,000, Rs 50,000 on chandeliers. This part of our business is growing 25 per cent year-on-year because the average price has gone up, the decorative part has gone up. Third is light as product to light as service. We have done this work for leading corporates, including IT companies.
Q- What are the revenue models that have evolved in light as a service?
A- They pay upfront for some capex and then they pay us a lifecycle service fee. This is the most prevalent and people have moved to it fast. The second is lighting upgrade as an energy service. Typically, in an office, 20 per cent of energy cost is lighting. If I can bring down that 20 per cent to 10 per cent, the companies can pay us based on that energy saving. It is P&L positive, cash-flow positive and balance sheet neutral. Two companies have signed up with us and it is just about starting. Then there is light as a service where I put everything and payments are based on lux - it is an offering which is getting piloted. Globally, there are some cities that have gone in for this model.
Q- Why didn't lighting companies explore managed services before?
A- For anything to become managed services, you require three things. First, the ability to manage and monitor remotely. Managed services in IT started growing when networking and bandwidth costs came down. In lighting, it will happen because light can be remotely monitored now. Second, it should be worth management. If it is small value, it is use and throw. Light is becoming expensive. Third, the life of a lamp used to be a year. Now if you have a product that lives for 6-10 years, you want management. These three things are making lights worth managing.
Q- So going ahead, will you only sell services and not products?
A- The business model will be services but underneath that there will be products. The customer may not buy but I need to have the ability to make good products. Homebuyers are unlikely to go to managed service. India is a large consumption economy. The consumer part of the business will grow rapidly as a product, which is today almost two-thirds of our business. One-third of the business, which is B2B, more and more share will go to systems and services.
Q- What do you see as your biggest challenge in Philips?
A- Each of the opportunities are challenges. Suddenly, a big market is opening up, a big value creation is possible. Challenge is, it is a different thing that what had ensured our success in the market in the past. Being able to build all of these new capabilities for you as well as for the entire ecosystem - that is the challenge.