Case Study: A Vision for Unilever

Paul Polman: A Vision for Unilever

Source: Paul Polman and Robert Low, https://archive.org/details/Breakthrough2180910/page/n77/mode/2up
This work is in the Public Domain.

Introduction

When Paul Polman was appointed Chief Executive Officer of the multinational corporation Unilever in 2009, he was the first person from outside the company to hold the job. The Anglo-Dutch giant, which has joint headquarters in London and Rotterdam and owns many of the world's most famous consumer brands, had been underperforming. The board needed to do something. Polman had the right credentials: he had worked for Unilever's great rival Procter & Gamble for 27 years, rising to be Managing Director of its United Kingdom business from 1995 to 1998, and President of Global Fabric Care from 1998 to 2001, when he became group president Europe. In 2006 he moved to Nestlé as Chief Financial Officer and Head of the Americas.

When he took up his new post on 1 January 2009, Polman was determined to change the way Unilever went about its business in the most fundamental way. During his first two years, nearly half of the company's top 100 executives either changed roles or left the company. A key emphasis was also placed on taking Unilever back to its roots. Unilever was the result of a merger in 1929 between the British soap-making firm Lever Brothers and the Dutch margarine manufacturing company Margarine Unie. Lever Brothers was founded in 1884 by William and James Lever, but the rapid development of the firm was largely the work of William Lever, who was later elevated to the peerage as Lord Leverhulme. 

From the outset, Lever Brothers based its business on strong moral principles, like many set up in the Victorian era. It took good care of its employees, setting up a model village, Port Sunlight, next to its soap factory on the Wirral, near Liverpool. Here, employees lived in decent housing with many other facilities (both factory and village are still going strong, and the village is now a tourist attraction). The village was named after the product that was Lever Brothers' first breakthrough: Sunlight Soap, which was made from glycerin and vegetable oils, rather than tallow. It was a huge commercial success.

In an interview with The Owls team, Paul Polman took up the story: "It was a revolution then because for the first time you had individually wrapped and branded soap bars. The quality was guaranteed. Lever guaranteed your money back if you found a defect. But more importantly, it was driven by a firm belief from Lever that it could help to attack the issues of poor hygiene and sanitation. At that time, many babies wouldn't make it past year one. Lever saw toilet soap as a very cheap and good solution. 

The man was driven. So that spirit of innovation, helping consumers and doing well by doing good, was in the company from its origins. Lever was absolutely ahead of his time and ahead of his contemporaries by the way in which he approached business and the philosophy of business".

Lever's socially enlightened approach was a key factor in Lever Brothers becoming one of Britain's most successful companies. It also expanded abroad, to the United States and throughout Europe, devising new products that rapidly became household names, such as Lifebuoy soap and the Vim and Lux detergents. By the time it amalgamated with Margarine Unie it employed 250,000 people. The corporation that Polman took charge of in 2009 had morphed into a worldwide conglomerate active in over 190 countries and focusing on soap and detergents, food, refreshments, and personal hygiene and bodycare, owning iconic brands like Domestos, Hellman's, Knorr, Lipton, Dove, Lux, Marmite and many more. 

Vision and Concept

Polman's vision for Unilever was rooted in the company's history. William Lever had always seen Lever Brothers as much more than a vehicle for making money for himself: he saw no trade-off between seeking to make a profit and seeking to improve society. Its products helped to improve public health and hygiene, and the company treated its employees with dignity and respect. After it became Unilever and grew into a multinational corporation, it continued to make everyday products and to treat its employees well. But when Polman took over, he decided to refashion Unilever so that social responsibility moved from an important facet of the company to become its driving force. He had always seen business as needing to play an important role in the development of a more just and equal society. 

At the beginning of the twenty-first century, other factors had to be taken into account: climate change, globalization, population growth, scarcer natural resources, greater individual wealth, an expanding middle class in both the developed and developing worlds, more informed and demanding customers, and more active shareholders.

An important response popular at the time to address this combination of factors was the philosophy of "frugal innovation", defined as the ability to do more with less, creating increased business and social value while minimizing the use of ever-diminishing resources. One way of doing so is to strip non-essential and unnecessary items out of everyday products, such as cars and mobile telephones, to make them cheaper and more available to the less affluent and to the ecologically aware. 

Paul Polman showed his commitment to this philosophy by writing the Foreword to the book Frugal Innovation: How To Do Better With Less, written by two pioneers of the concept, Navi Radjou, and Jaideep Prabhu, and published in 2015 by The Economist and Profile Books, London. He wrote: "The insatiable demand for ever higher quality products will continue to rise while at the same time the availability of the resources needed to satisfy that demand will remain constrained. Reconciling this apparent conflict is rapidly emerging as one of the biggest business challenges of our age". 

He concluded: "By combining the frugal ingenuity of developing nations with the advanced R&D [research and development] capabilities of advanced economies, companies can create high-quality products and services that are affordable, sustainable and benefit humanity".

In 2010, Unilever unveiled the new concept through which it would apply Polman's vision: its Sustainable Living Plan, which would be applied to every aspect of the company's operations, from top to bottom. Launching the plan, Polman summarized its ambitions: "We have to develop new ways of doing business which will increase the positive social benefits arising from Unilever's activities while at the same time reducing our environmental impacts. We want to be a sustainable business in every sense of the word". But, he added, "We do not believe there is a conflict between sustainability and profitable growth".

He outlined vision, strategy, and targets: "Our vision is to create a better future in which people can improve their quality of life without increasing their environmental footprint. Our strategy is to increase our social impact by ensuring that our products meet the needs of people everywhere for balanced nutrition, good hygiene, and the confidence which comes from having clean clothes and good skin.

"We recognise that, to live within the natural limits of the planet, we have to decouple growth from environmental impact. This starts with our own operations. We now send zero waste to landfill across our entire global factory network, cut CO2 from energy by 47% per tonne of production in our operations, many of our factories run on renewable energy and we'll be carbon positive by 2030. 

"However, our impact goes beyond our factory gates. The sustainable sourcing of raw materials and the use of our products by the consumer at home have a far larger footprint. That's why our plan is designed to reduce our impacts across the whole lifecycle of our products. Innovation and technology will be the key to achieving these reductions".

Polman announced three hugely ambitious targets as a part of the USLP: to help more than a billion people take action to improve their health and wellbeing by 2020; to decouple Unilever's growth from its environmental impact by 2030, achieving absolute reductions across the product lifecycle and halving its environmental footprint; and enhancing the livelihoods of "hundreds of thousands" of people involved in its supply chain by 2020.

Polman himself has always had a strong personal moral compass, stemming from his upbringing as one of the six children of a Catholic family in Enschede, Netherlands. As a teenager he considered becoming a priest and then a doctor before deciding on a business career. Just as importantly, he recognised that in the first decades of the twenty-first century a growing number of customers, both actual and potential, were becoming more concerned about the quality of life than mere consumerism and the pursuit of material things, and buying into the notion of sustainability. 

Polman told us: "Consumers are asking for it and citizens are asking for it. The circular economy and issues like climate change are becoming more and more relevant. People want to have food that is more natural or organic. People are moving from a concept of 'my world' to 'our world'. Millennials are more purpose-driven". That also applies to Unilever's own staff. "We have no problem attracting millennials: about 50 percent of the people who work for Unilever are millennials. And they want to make a difference in life. There is absolutely no question about it: they are an engine for change".

The other key element making sustainability possible is technology. "Technology has developed very rapidly and is opening up new possibilities. Electric vehicles are one example: very soon electric vehicles will be more popular than internal combustion engines. 

At Unilever we find that moving to zero waste in our factories and shifting to renewable energy makes economic sense. Increasingly data shows that companies operating more responsibly tend to perform better because they reflect the needs of society better. They probably set more realistic targets, they make more data public, which lowers the cost of capital, and so on.

"Implementing our Unilever Sustainable Living Plan is not that difficult, as long as we are all aligned on the direction we need to take and why it needs to be done. But what you need to focus on is the speed and skill of implementation.

"What we find is that our brands with a social purpose are an enormous engine for innovation. Our Sustainable Living Brands, as we call them, grow 70 percent faster than the rest of our portfolio. An example is in water-scarce regions, such as parts of Africa, where rinsing out the soap suds from laundry accounts for around 70 percent of domestic water use.

With our Sunlight soap brand we developed a new anti-foam molecule called SmartFoam which breaks down suds more quickly. This reduces the amount of water needed, as well as speeding up the process of rinsing. People prefer that product, they see the multiple benefits, and the brand grows by addressing a societal problem.

"Take Domestos, or Domex as it is called in India, our toilet-cleaning product. If you just sell toilet-cleaning products, that is not a very exciting thing. But if you address open defecation, suddenly you start to innovate quite differently. For example, we have just launched the first small powder sachet, Domex Toilet Powder. The brand provides an affordable toilet-cleaning solution to consumers. And not surprisingly the brand is growing. 

"Or take Lifebuoy soap, with its mission to help a child reach the age of five. So far, we have reached 426 million people with handwashing behavior-change programmes in developing countries. We do that because we want to help enhance people's wellbeing, and at the same time the brand is growing very well. 

"But it also works in developed markets. Our compressed deodorant technology is a good example. Scientists at our R&D facility in Leeds, northern England, reengineered the spray system of our aerosols to reduce the flow rate. Using 50 percent less propellant gas and 25 percent less aluminum in the packaging, we have reduced the carbon footprint per can by about 25 percent. This also means that more cans can be transported at a time, resulting in a 35 percent reduction in the number of lorries on the road. We felt so strongly about it that we did not patent the technology to encourage wider industry use". 

How does the need for innovation fit into the broad framework of the Sustainable Living Plan?

"It starts as a broad purpose that aligns everybody in whichever direction you want to take," Polman replied. "We have translated the Unilever Sustainable Living Plan into what we call a Compass, so everybody has the same true North. And in that Compass we look at winning with innovation, we look at winning in the marketplace, winning with people, and winning with continuous improvement, which we call efficiencies. But we want innovation running through all of these areas. 

We provide the tools and we explain to people what sort of objectives there are. Anything we do now in our innovation programme has to go through what we call the sustainability phenomenon. It has to be in line with the Unilever Sustainable Living Plan.

"It is really the energy that comes from people in terms of having a meaning, having a purpose, having a contribution to life, that drives innovation. We spend one billion euros on R&D, we have 7,500 R&D professionals and 20,000 patents. But the global population is 7.6 billion. So, you need to have an open innovation system where you work together with everyone else to expand your consumer base and achieve wider success. For example, our top 15 suppliers are involved in about 50 percent of our innovations. 

"We have Unilever Ventures, our venture capital and private equity arm which invests in young and innovative companies to help accelerate their growth. Then there is our Unilever Foundry, where we help start-ups and social entrepreneurs scale up their ideas for greater positive impact. Unilever Foundry also enables our brands to collaborate and experiment with evolving technologies. And then our Mergers and Acquisitions strategy is geared to finding innovative brands like air purification company Blueair, or Seventh Generation, a cleaning products company in the US that thinks seven generations ahead. 

"Our M&A activity is for us an incubator for innovations as well. We are trying to find smaller companies and then make them bigger by leveraging our size and scale. But the main driver is the passion of our people. It cannot come from anywhere else. It is our people who go out there and want to make this a better world. They stay connected, they see what is needed. They see the challenges that consumers struggle with. It boils down to the people and their purpose.

Strategy

"We form a vision about the future. We look at trends. Planetary boundaries might be a trend. Urbanization might be a trend. Single households might be a trend. It's crucial to know where this world is going. That includes the geopolitical environment, the rise of technology, e-commerce, and so on. We form a picture of the future as it might be five or ten years on. 

"We have defined the categories that we operate in: Food & Refreshments, Home Care, and Beauty & Personal Care. These categories define their strategies: where do they want to play, what do they want to be in? They look globally, they look at consumer trends. Based on these findings we have discussions with each of the categories, internalize that, the categories define their strategies, and then we deliver it.

"We have divided our global business into eight clusters. Within them we have what we call country category business teams (CCBTs). For example, they might be Personal Care in France, or Home Care in the United States. These units are fully responsible for making these innovations come alive in the regions that they are responsible for. We see the input from the categories as a starting point, and they test and implement them. This is important to strike the right balance between global efficiency and local development".

How can Unilever develop local innovations into products that will sell on a global scale? 

"Most of the innovations that take place are usually invented close to the market through trial and error. In the UK we recently launched Persil Powergems, a significant innovation. Powergems are a completely new laundry format that use 100 percent active ingredients and are twice as concentrated as powder. The packaging is up to 30 percent lighter and allows us to get 40 percent more product on a pallet, which means we could reduce the number of trucks on the road by 800 per year, cutting greenhouse gas emissions by 75 tonnes plus a million miles less traveled. 

"The formulation is also an industry first, in that it removes the requirement for mined materials, therefore reducing non-renewable ingredients. That is typically an innovation that has come from a technology breakthrough which we developed centrally and will scale up as much as we can. However, most of our innovations are developed in the market. In India, for example, 63 million people lack access to clean drinking water, so we invented a water purification brand called Pureit, now with about 100 million customers. 

"We also bought an air purification company called Blueair, founded by Bengt Rittri 20 years ago to start a clean air revolution by bringing people the world's best air purifiers. Bengt spent 10 or 15 years refining the model. We were fortunate enough to associate ourselves with that company. The brand is now going into more than 60 countries. Many innovations start in a local market and then move outwards.

Culture

"We are trying to create a culture where everybody can rise to their full potential, where there is open discussion, where our job in the leadership team is really to make everybody else successful. I always say, even publicly, that as CEO: my finance manager knows more about finance, my category presidents know more about their categories, and people that run the country category business teams know more about their business in their countries. My job is to make other people successful. 

That is what we very much like to do at the senior level, and then create a culture around our values, values of respect, integrity, pioneering, responsibility, which are very important to us, that we try to make come alive. 

"Many companies restructure because they don't want to attack the harder rights versus the easier wrongs. They postpone the top issues for their successors. When time is short, the fundamental decisions on how we should run businesses and how we should contribute to society, are not being made.

External Factors

"The unfortunate thing is that since the financial crisis of 2007-2008 so much money has been put into the global economy that in many places interest rates are zero or negative. So, we have six or seven times the money supply that the global economy needs and that causes chasing returns. Companies like ours have a longer-term value creation model and if you think longer-term, you also automatically run the business more sustainably. 

"Now the longer-term model does not mean that you optimize your short-term returns all the time. Since 2009, Unilever's shareholder return has been close to 300 per cent. But it's about finding the right balance and being able to deliver short and long-term value for a multitude of stakeholders. 

Unilever works very hard to get shareholders that are aligned with our strategy - 70 per cent of our shareholders have been with us seven years or more. "Kraft Heinz [which launched a bid for Unilever in 2017] went away after two days. So I don't know what the outcome would have been, it is all speculation. 

Our Board has made very clear that we continue to be committed to our long-term sustainable value creation model. Realistically we have to be sure that we keep the balance right between the short-term and the long-term. What we are proving in Unilever is that we can have a long-term model that ultimately is good for society but also good for the shareholders. Increasingly we are demonstrating that the Unilever Sustainable Living Plan is actually an engine for growth and success. 

Human Factors

"You cannot be sustainable as a company if you do not have a sustainable workforce. Physical wellbeing is the starting point. Then you have emotional wellbeing, mental wellbeing, and spiritual wellbeing (what we call purpose). These dimensions are important, and we spend a lot of time and resources on supporting our employees. 

One of the reasons why women represent 47 per cent of our managerial workforce - with 45 per cent women on our non-executive Board - is because we provide the environment for everybody to apply their potential, such as flexible working programmes and strong employee benefits. 

"Most important is what I would call spiritual wellbeing, or purpose, which is really what gives people the energy to get out of bed and come to work. More and more people want to be a part of that. Mental wellbeing is also critical, especially at a time when one in four people will experience a mental health problem each year. Every hour in the UK a man commits suicide - that's why, through Lynx (known in some countries as Axe), our personal care brand for men, we are supporters of the Heads Together programme that Their Royal Highnesses The Duke and Duchess of Cambridge and The Duke of Sussex are championing.

Leadership Do's And Don'ts

"If the tone is not set from the top, you will not be able to achieve anything. The shadow a leader casts is critical. For example, through the systems and enabling framework you put in place. 

"Let's take the World Business Council for Sustainable Development [a CEO-led organization advocating for sustainable business], where we are looking at enrolling other progressive companies to move the global agenda forward. If the CEO does not buy into it, then it does not make any sense to keep going. Or in the UK, for example, through the Blueprint for Better Business, which aims to help companies to bring a purpose to life - if the CEO isn't engaged, it won't work. It starts with the CEO. 

"Then you have to set up a focused programme that is relevant to your business, with clear targets and dates so that people know what you're measuring and what is successful. First and foremost, you need to implement that into your company. We took one year internally setting up the Unilever Sustainable Living Plan before we launched it, because if your own employees do not buy into it, then you will never get external stakeholders to buy into it. That is why Unilever said we are going to reach zero waste across our global factory network. We are moving to green energy. We have committed to 100 percent recyclable packaging by 2025. We are working with smallholder farmers to improve their livelihoods. We are ensuring that women are represented and championed right across the value chain. We were the first company to issue a detailed human rights report built on the UN Guiding Principles on Business and Human Rights framework. Your own employees need to see that you walk the talk and that you get things in order internally. 

"The next step is to leverage your value chain and involve your suppliers across your value chain for more impact. The final step is to drive transformative change - or systemic change - to transform the entire industry. For example, tackling deforestation, ensuring labor rights, and fighting inequality. These are the efforts that will deliver impactful and lasting change to help build a better world.

Implementing Change

"We try to bring the outside in by really putting consumers at the heart of everything we do. Broadly speaking we are trying to bring everything back to our purpose. The stronger your sense of purpose, the easier all this can be achieved.

"At Unilever we want to provide for everyone, including the under-served. As I said, you bring the outside in. I do a lot of talks outside the company, and when newspapers report on it employees actually read it. It's important to visit the markets and spend time with employees, partners, and consumers. This doesn't come naturally to everyone but that's a normal part of managing an organization. It is part of our job".

Results

Unilever publishes an annual progress report on its Sustainable Living Plan (USLP). Its most recent report shows that the USLP has helped 601 million people to improve their health and wellbeing. It had cut CO2 from its energy by 47% per tonne of production in their operations and reduced waste disposal by 98 per cent per tonne of production since 2008. As for consumers, Unilever calculated waste disposal associated with its products was down by about 29 per cent since 2010. By the end of 2017 Unilever had enabled 1,259,000 women to "access initiatives designed to promote their safety, develop their skills or expand their opportunities". 

In 2016, Unilever announced that it will be carbon positive by 2030. In 2017 Unilever announced a new target: to ensure that all its plastic packaging is fully reusable, recyclable, or compostable by 2025. And interestingly, Unilever's 22 Sustainable Living Brands (such as Lifebuoy, Dove, Hellmann's, and Lipton) are growing 70 per cent faster than other brands and account for 46 per cent of the company's total growth. Unilever reported a net profit of €5.4 billion for 2017. In the eight years to 2017 Unilever's total shareholder return had risen by 300 per cent, vindicating Paul Polman's strategy and appearing to support his belief that companies - big or small - can do well by doing good.