BUS604: Innovation and Sustainability

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.