Question

Analyse the managerial challenges that Unilever CEO Paul Polman has encountered in the development and implementation of the Unilever Sustainable Living Plan (USLP) Strategy:

PART A - Identify the Planning and Controlling issue

There are essentially three topics (and consequently three problems) that will be covered in this assignment:

• planning and controlling (together)
• leading
• organising

  Article Below:

Unilever’s New Global Strategy: Competing through Sustainability

In January 2015, CEO Paul Polman announced Unilever’s financial results for 2014. (See Exhibit 1.) It was hardly a celebration. Despite outperforming competitors, the company’s 2.9% sales growth was its lowest in a decade, and had actually slowed to just 2.1% in the final quarter. The gloomy results were due to depressed growth in the developed world reinforced by shrinking demand in emerging markets, long the engine of Unilever’s growth. But more disturbing than the 2014 results was the news that Polman was not predicting significant improvement in market conditions in 2015.

This already challenging situation was complicated by the fact that the company was in the midst of implementing a transformational strategy driven by the Unilever Sustainable Living Plan (USLP). Despite its impressive results to date, this bold initiative had not been fully embraced by some parts of the organization. One problem was that in order to achieve the expected long-term positive impact, USLP’s shift to a sustainability-focused strategy typically required Unilever’s businesses to make significant upfront investments that could be recouped only in the longer term. In an operating environment that Polman characterized as having “more headwinds than tailwinds,” some wondered how far he could push this transformational strategic agenda at such a difficult time.

Complicating the issue was the fact that despite making good progress, USLP was well off-target on two key metrics. While reporting a 40% reduction in its own internal greenhouse gases (GHG) emissions and a 31% drop in its water use, Unilever was far short of objectives that encompassed its whole value chain, from sourcing to consumer use and disposal. In fact, against its target to halve the entire environmental footprint of making and using Unilever products by 2020, GHG impact per consumer had actually increased 4% since 2010, and water use per consumer had fallen by only 2%. Even some USLP supporters wondered if it was time to reassess some of its goals and priorities.

It was a complex set of challenges that Polman and his top team faced. Until now, the company had been able to deliver on both its financial expectations and its environmental and social commitments. The question was, could it continue that delicate balancing act into the future.

Emeritus Professor Christopher A. Bartlett prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2015, 2016 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545- 7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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REV: AUGUST 24, 2016

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Behind the Change: Unilever’s Rich History

When he became Unilever’s CEO, Polman realized that, as the first outsider ever brought in to lead this venerable consumer goods giant, he needed to understand the company’s rich cultural values as well as its long history of adaptive struggle. Both factors, he knew, would shape his options.

Birth and Evolution: From Global Growth to Static Stall

Unilever traced its origins to three family businesses of the late 19th century. In the Netherlands in the 1870s, two butter merchants, Jurgens and Van den Berg, both decided to expand into margarine, a new butter alternative. A decade later in the north of England, William Lever started making an inexpensive household soap that he hoped could reduce sickness and disease in the crowded cities of the Industrial Revolution. These young companies first encountered each other on global commodity markets as they sought out sources of their common ingredient, palm oil.

Their initially benign relationships deteriorated when the Dutch diversified into soap making and built factories in England. Lever countered by launching a brand of margarine. But after Jurgens and Van den Berg merged to create Margarine Unie, Lever initiated negotiations that eventually evolved into a merger agreement in 1927. On January 1, 1930, Unilever was established, pursuing William Lever’s founding belief that a business would prosper only if it operated ethically and responsibly—a philosophy he described as “doing well by doing good.”

After surviving the 1930s depression, Unilever saw its overseas operating companies (OpCos in company terminology) become increasingly independent during World War II. In the postwar consumer boom, OpCos used that independence to respond to fast-growing local markets, driving Unilever’s growth through the 1950s and 1960s. But the company over-diversified, and declining profitability led to many restructurings, with much of that effort focused on offsetting the OpCos’ power with business-oriented teams called Category Coordinations. In the 1990s, three decades after making these changes, management still struggled to balance the Categories’ quest for global and regional efficiencies with the OpCos’ responsiveness to national markets. The resulting slow and adversarial decision-making process led to stagnant growth.

In 2004, as market share and financial performance continued to deteriorate, the company issued its first-ever profit warning. Four years later, ongoing profitability declines led a major trade magazine to report, “P&G has powered ahead of Unilever over the past five years.”1 Finally, for the first time in Unilever’s history, the board decided to bring in an outsider to lead the company.

New CEO, New Directions

In January 2009, when Paul Polman became Unilever’s new CEO, observers expected a major shakeup. More than just an outsider, the 52-year-old Dutchman had been a competitive adversary. In 27 years at Procter & Gamble, he had reached P&G’s most senior levels before joining Nestlé in 2006 as CFO. While familiar with Unilever, he was not bound by its established practices or its embedded assumptions. Indeed, he took on his new role ready to challenge much of the conventional wisdom.

Shaking the Tree: Challenging the Culture, Changing the Team

Assuming leadership in the midst of a global financial crisis and with Unilever’s stock price declining 35% in the previous year, Polman’s actions confirmed his belief in the motto “never waste a

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crisis.” In his first meeting with financial analysts, he told them he would no longer provide earnings guidance or publish full quarterly reports. (“I figured I couldn’t be fired on my first day,” he said.2) When the share price fell a further 8%, he attributed the decline to hedge funds that he claimed “would sell their own grandmothers if they thought they could make money.”3

He reinforced his message to the investment community by noting his hierarchy of stakeholders: “We need to know why we are here. The answer is, for consumers not shareholders. If we are in sync with consumer needs and the environment in which we operate, and take responsibility for society as well as our employees, then the shareholder will also be rewarded.”4

To shake up a culture he saw as “internally focused and self-serving,”5 Polman froze salaries and cut overseas travel. He then initiated a management shakeup, replacing the Chief Financial Officer, the Chief Marketing Officer, and the Global Head of Foods, Home, and Personal Care. Within a year, he had changed a third of the top 100 executives.

Redefining the Strategy: Committing to Sustainability

While he was tightening operations and making structural and personnel changes, Polman was also preparing a radically new corporate strategy. One of his first commitments was to double the size of Unilever’s business. He felt that 80% of the growth needed to meet that target of €80 billion in revenues would come from developing countries—markets that already accounted for more than half of the company’s sales, a larger share of those markets than any of its competitors.

But the big surprise was in how the new CEO planned to achieve that growth. “We think that businesses that are responsible and actually make contributing to society a part of their business model will be successful,” he said.6 So he announced a “Compass Vision” that aimed to double the size of Unilever’s business while simultaneously reducing its environmental footprint and increasing its positive social impact. The boldness of the commitment took many by surprise.

In November 2010, the company unveiled the USLP—the key to achieving its new Compass Vision. (See Exhibit 2.) The plan had three goals for 2020: to help a billion people improve their health and well-being, to halve the environmental footprint of making and using Unilever products, and to enhance the livelihoods of those in its value chain. Far from a PR-driven corporate social responsibility program, USLP was introduced as a core strategy that Polman believed would stimulate growth, cut costs, engage consumers, and motivate employees. He saw it as fully aligned with Unilever’s commercial interests and its mission of “doing well by doing good.”

What made USLP unusual was its breadth. The commitment not only applied to every Unilever business, function, and country under its direct control, but also extended across its value chain and over the product life cycle. This ambitious scope was revealed in an analysis at that time showing that Unilever’s own manufacturing activities generated less than 5% of its products’ total greenhouse gas (GHG) footprint. Its suppliers contributed 21%, and consumers of its products accounted for 70%. Accepting responsibility to halve that entire footprint represented a huge undertaking.

Communicating the Vision: Aligning Support, Allaying Skepticism

Because management had been developing USLP parameters for more than a year before the initiative was formally announced, its detail was well defined. The three core goals were expanded into seven commitments (“pillars” in Unilever terminology) and further broken into more than 50 specific, measurable targets (e.g., to source 100% of palm oil from certified sustainable sources, to reduce salt to a recommended 5 grams a day, etc.). The broad goals and specific targets not only gave

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Answer 1

CEO Paul Polman announced “Compass Vision” in order to be ahead of competitors. The major objectives of this vision were to double the size of Unilever’s business, reducing its environmental footprint and increasing its positive social impact. In order to achieve these objectives; USLP was introduced in November 2010 with three major goals that were to be achieved by 2020.

The managerial challenges that Unilever CEO Paul Polman has encountered in the development and implementation of the Unilever Sustainable Living Plan (USLP) Strategy are as follows:

• Unilever Sustainable Living Plan (USLP) Strategy required significant upfront investments that will be beneficial in long run.
• USLP was off-target on two key metrics i.e. greenhouse gases (GHG) impact per consumer increased 4% since 2010 and also water use per consumer had fallen by 2% only.
• CEO Paul Polman and team as not sure that will USLP continue to maintain balance between its financial expectations and its environmental and social commitments.

After analysing these challenges it can be concluded that there was lack of preparedness in management and employees before bringing such a ginormous initiative.