Why Unilever is not BP
Why Unilever is not BP
Editor's note: The author works for Futerra, a London-based marketing and communications firm; Unilever is one of Futerra's clients.
In 1997 BP had a big idea that could change the world. "Beyond Petroleum" was a radical, disruptive move in the oil industry. By announcing it, CEO Lord John Browne acknowledged climate change and committed the company to managing carbon and exploring alternative energy.
We all know the story of what happened next. "Beyond Petroleum" failed because it was never linked to BP's business strategy. The idea lived more as Browne's personal vision than it ever did as a real direction for the company. More than a decade later, consistent underperformance on basic health and safety and ultimately Deepwater Horizon are the results.
Today's leading corporate sustainability responses are not just different from "Beyond Petroleum" — they mark the start of a new phase in the long, hard journey to sustainable business models.
This phase gives sustainability a new strategic role in business. From Unilever's Sustainable Living Plan to IBM's Smarter Planet, GE's Ecomagination and Kingfisher's Net Positive, leaders are doing more than putting a shiny brand and marketing message around their big ideas.
These companies are raising sustainability to a strategic level for three powerful reasons:
- To solve strategic business challenges.
- To drive growth and innovation.
- To shape a long-term direction.
To solve strategic business challenges
Companies like IBM have found a "big idea" that plays to their strengths while addressing some of their biggest organizational weaknesses — during a critical window for change.
For many, that weakness translates into the threat of commoditization. In 2002 IBM faced a post-PC era where the cost of IT was rapidly dropping and creating new competition in hardware. "Smarter Planet" accelerated the company's shift into higher-value, more profitable software and services.
Others have faced the challenge of making business models relevant in new markets, especially emerging ones. For Unilever that means innovating for consumers who face serious resource challenges. The company has been in India since 1888 and Brazil for more than 50 years, but today the rules of the game are different. Resource scarcity is predicted to reduce revenue of FMCG companies up to 20 percent by 2018. For Unilever to be "bigger, better, faster," resource efficiency is the new baseline for growth.
Related to this challenge are capabilities. Both IBM and GE suffered from a lack of innovation before designing Smarter Planet and Ecomagination, respectively. IBM faced a shift in client focus from productivity to innovation, increasing demand for eco-efficient, integrated solutions. New GE CEO Jeffrey Immelt inherited an industrial giant with a traditional culture, limited by decades of focus on efficiency and acquisitions under Jack Welch.
Across the board, these companies have responded to big global trends in a new strategic way. Their approaches make clear they understand how the impacts of climate change, resources, population growth and other issues present either a clear risk or opportunity for the business.
None of these companies staked out a leadership position to address a single challenge. In fact, most faced all of the above.
But they all brought a new strategic focus to sustainability, responding to serious weaknesses in their business.
To drive growth and innovation
The impact of a strategic response like Ecomagination is about much more than sustainability. These initiatives are integrated into the company's business strategy. That means the objective is to drive growth, enhance capabilities and differentiate.
By prioritizing where the company should focus on sustainability to create business value — clean technologies for GE, timber and energy issues for Kingfisher — the response becomes a sweet spot for sustainable growth.
Digging beneath the surface of these initiatives reveals a complementary story about strategic fit. Each of these companies has structured their response to drive transformation for growth. The results speak for themselves.
Ecomagination was designed to cut across business lines, fostering competition between GE's huge business lines to meet its $10 billion revenue target and helping the company think more like a startup. By 2015 GE wants sales from Ecomagination to rise even further, growing two times as fast as the rest of the business.
Net Positive will function as a platform for Kingfisher to innovate new business models, products and services. The company will save up to €73 million (US$98 million) by 2020 from securing its timber supply, and take a leadership position in the €70 billion (US$94 billion) annual European home energy efficiency market.
The Unilever Sustainable Living Plan has reinforced the "One Unilever" objective to create consistent reputation and image across its 400 brands. Emerging markets made up 55 percent of group sales in 2012 and are projected to make up 85 percent by 2020 — conveniently, the year Unilever needs to have achieved its USLP targets.
In every case sustainability has catalyzed a shift towards becoming a more dynamic, global and customer-focused enterprise fit for rapidly changing markets.
To shape a long-term direction
It's no surprise that most transformations fail; as Scott Anthony notes, "after years of pervasive 'continuous improvement' programs ... [organizations] have been motivated and compensated to focus on incremental improvement, measured quarterly and annually."
Sustainability offers a way out. These issues are inherently long term, helping the company to define an enduring purpose for the business. Integrating sustainability into business strategy makes another key difference to the impact of that direction: Purpose becomes strategic focus, incentivizing the company to align with the pathway.
This is hardly less than a godsend to public companies that have been crippled by the rampant short-termism of the market. Innovation, employee motivation and ultimately the long-term health of the business suffers when decision making is singularly focused on quarterly returns.
Former IBM CEO and Chairman Sam Palmisano has described Smarter Planet as a response to the need "to keep the business going, and at the same time start the transformation of the business model."
The next phase of the sustainable business journey
Today's phase of corporate sustainability marked by Unilever and others is strategic, focused and designed for growth. The collective impact of these successes will be persuasion; that sustainability is not only relevant to the business, but critical to creating business value.
The next phase on the journey will be even harder. The growth ambitions of these companies — especially in emerging markets — will test the true sustainability of their entire businesses. Unilever's No. 1 priority, to "win share and grow volume in every category and country," is just one example. At the same time, the market environment remains short term. Structural changes will be required before companies like Unilever can be rewarded by investors for rethinking growth plans.
John Browne was a decade ahead of his industry when he claimed "no company can be really successful unless it is sustainable — unless it has capacity to keep using its skills and to keep growing its business."
Unlike Lord Browne, Unilever CEO Paul Polman is staking his company's growth on sustainability to make sure the market eventually agrees.