ECO/ SUSTAINABILTY SPECIAL .... HUL's War Within

HUL's War Within  How Hindustan Unilever CEO Nitin Paranjpe is taking the sustainability battle to each product, process and plant      In the course of an impassioned monologue in his new offices in the Mumbai suburb of Andheri, Nitin Paranjpe brings forth the ideas of William Hesketh Lever, the founder of Levers Bros, to convey the commitment levels of his company’s new obsession—sustainability. Starting with how the company was founded on the premise of relieving the drudgery of Victorian women, the CEO of Hindustan Unilever (HUL) draws on how the principle of doing well by doing good continues to be Unilever’s guiding star still. “We recognise that business has a larger purpose and our purpose cannot be just making money,” he declares. It takes real conviction to pull off such a spiel and Paranjpe manages it with aplomb. Over the last two years, most of the 1,500 HUL managers and 16,700 employees have had occasion to hear Paranjpe’s pep talk — some, many times over — as he has gone about translating the Unilever global sustainability decalogue into deeds.     HUL’s sustainability crusade started in November 2010 when global CEO Paul Polman launched ‘The Compass’ strategy that was encapsulated in Unilever Sustainable Living Plan (USLP), an internal Magna Carta that laid out the company’s future POA: double the size of the business while halving the environment footprint of its products, increase the company’s positive social impact, and source 100% of agricultural raw materials sustainably.     Polman’s was a call to arms for Leverites in 190 countries to bring about deep changes in the way the company’s businesses are run. A clear move away from the quarter-on-quarter focus, it was a decisive shift to, as Paranjpe puts it, “delink growth from the environmental impact and recouple growth with societal good.” Unilever’s global chief holds an inherent belief that as global resources deplete, consumers will ‘vote with their wallets’ by choosing socially responsible companies.     As the Anglo Dutch major launched a global war on “unsustainability”, Paranjpe fronted the battle in India. For a company known for its marketing prowess and leadership pipeline, the next big goal was attaining leadership in a third arena: sustainability. And it wasn’t putting lipstick to the annual report. MOVING THE MOUNTAIN     But it’s easier said that done. Along with Unilever global, India was the first country to launch USLP. While size works for HUL in the market, it takes a whole new meaning during an internal change exercise. The Rs 25,206 crore (annual turnover 2012-13) giant offers more than 2,000 stock keeping units across categories, runs 38 factories, manages over 2,000 suppliers and associates, and in all, covers 6.4 million outlets. Now the company has taken it upon itself the responsibility of cutting back the carbon footprint for its entire value chain (vendor to customer), since much of the impact of the goods they produce lies in the hands of consumers.     For a company that faces fierce competitors like P&G and ITC in the marketplace everyday, it was akin to entering a boxing match against an evenly matched competitor with one hand tied to the back. Ask Paranjpe why the Unilever leadership would create such constraints for businesses in hypercompetitive categories and he says: “As leaders, it’s a point of view we have about future. We cannot continue to grow using the same model that we have used in the past.”     There are lessons to be learnt from how HUL has been unrolling the program. Sustainability isn’t being run as a separate division. The responsibility of injecting sustainability into brands lies squarely with brand managers and the category heads. A cross-functional governing council, which was initially chaired by Paranjpe, monitors progress. From 2010 on every business unit has had targets tied to sustainability. “We now look at the impact that a business is truly supposed to make for the end user,” says Badri Narayanan, general manager-water, one of HUL’s young USLP evangelists. And the skeptics didn’t even get a chance to debate or delay the shift because once communicated publicly, there was a sense of inevitability about the transition and Team Paranjpe moved swiftly to execution stage. At any point of time, at least 25-30% of the HUL portfolio gets innovated on. The brand teams have since come up with innovations like a new packaging for Pond’s talcum that uses less plastic. The idea that started with the brand and category team went through a rigorous Innovation Process Management (IPM) process in which questions related to environmental impact are put up. The savings in plastic can be used  to add attributes or offer a better  price to the consumer. “We are moving to a stage wherein brands are being crafted in the spirit of sustainability,” says Pradeep Banerjee, executive director-supply chain. “Sustainability has to be a part of the brand promise itself. Brands which are investing in this will be the ones that are ‘future ready’,” adds Devendra Chawla of Future Group. HUL is using flexible packing, in some cases, pouches that have caps and can be reused, across products like Lifebuoy Hand Wash Liquid, Shower Gels, Domex, Kisan, even tea. LESS IS MORE     But will using less plastic in the packaging be reason enough for a customer to opt for the Ponds brand? Is the belief that consumers will buy products from socially responsible companies correct? The jury is still out on these assumptions. Research shows that consumers may say that they care about environment-friendly products, but when the moment of truth arrives, they go back to their regular brands. It’s a phenomenon that’s called the 3:30 paradox: 30% of consumers call themselves ethical shoppers but only 3% are. But marketing guru David Aaker says the way a company does business will matter in future: “There is a certain proportion of most customer bases that will have respect and even admire companies that have sustainable objectives and this will translate into positive attitudes and loyalty and a basis for a relationship. This number may be only 5% or it might be considerably larger but even 5% top line can make a real difference, especially if there is little differentiation.”     In this journey towards sustainability, a big part of HUL’s changeover burden has fallen on the Pradeep Banerjee-led supply chain team. According to the USLP, 100% sourcing of agri-materials has to be sustainable. And the company is creating such ecosystems. The ketchup business, for example, needs a lot of tomato paste. HUL joined hands with the government of Maharashtra involving around 1,500 farmers in Nasik to grow tomatoes using less water and fertilisers. And the results are encouraging with nearly 70% of paste requirements now being fulfilled by sustainably sourced tomatoes.     Though the percentage varies in different products, the company is getting its sourcing game in place. In tea, 15% is being sourced from sustainable sources, and in palm oil, 100% sourcing is covered by ‘Green Palm’ certificates. Within HUL’s sourcing department, there is a team of agriculture experts who help farmers with sustainable agricultural practices. THE WASTE WORRY     When it comes to manufacturing and logistics, the company’s focus is on waste, water and energy, with the 2008 carbon footprint as baseline for comparison. And just how serious HUL is, can be gauged by the fact that factories were shut down completely for a day to measure water and energy consumption and check for leakages. Waste that was shipped to landfills from factories was eliminated, and of the 38 factories, today 33 are zero landfill. “We are not paying for those materials to come to the factory, we are not spending any money in moving it within the factory or out of the factory. I don’t want the consumer to pay for my inefficiency,” says Banerjee. Reduction in total waste from HUL’s manufacturing sites stands at 77% against the 2008 baseline.     Sustainability brings compelling benefits when the constraints force innovation. In HUL’s coffee factory in Mysore, the waste that’s left after processing coffee was used in a biomass boiler as fuel. HUL is systematically changing over to fuels that use factory waste or waste from other industries like coconuts shells and cashew nuts. Two years back, only 8% of energy consumed was from renewable sources but today, it is touching 20%. “Supply chain in the end will always be known for its quality, service and cost, in that order. And the sustainable living plan is a unique way of addressing all three needs,” says Banerjee.     An important peg in the HUL wheel is the logistics team that works on four-pronged principles: travel less, load more, use alliances and buy smart. And one permanent word in their vocabulary these days is ‘carbon’. Through shrewd use of planning, IT and some native intelligence, the warehouse and logistics operation is designed in a way to minimize travel and cut carbon footprint. For a company that moves 30 lakh tons of product every year, even minor savings accumulate into substantial gains. But it’s possible that in this almost maniacal search for best possible sustainable solution, service levels are being affected at distributor level. Are they? “No, they aren’t,” explains Banerjee. “If you plan well, the service improves. Travel times shrink, the stock you hold reduces. Just to give a ballpark figure, our service levels have gone from 88% 3 years ago to somewhere in the region of 95% in terms of casefills.”     That HUL is approaching businesses differently can be seen in way company is running the water business that’s been a long haul for the company. Though piloted in 2005-06, it took off only in 2008-09, scaling up subsequently but still it’s been a slow burn. HUL executives claim they have tried to redefine the category with innovative products that include an industry first table top purifier and the first electric purifier that allows storage. “Regardless of the price of the purifier, the effectiveness in terms of germ kill is the same across all our products. That’s the most effectiveness foundation for our water business,” says Narayanan. In its electric purifier, if the battery drains out, the product shuts off completely because the company chose to go the safe water or no water route in line with its safety promise. More than 9 million people gained access to safe drinking water from Pureit in India by the end of 2012.     Incubated in India, the business now has a footprint across seven countries, including Brazil, Indonesia, Sri Lanka, China and Bangladesh. Ask Narayanan why is water business getting special treatment in HUL and he says, “Water is a very important business for Unilever corporate. And for us this is a category where we have a chance to define a category. We have a strategy to evolve a need, educate the consumers, develop the category and then ensure we get a lion’s share.” Apart from the business aspect, Unilever has set up a Unilever Foundation that works along NGOs, state governments and governmental agencies to engage communities in conserving water and the company claims that partnerships have resulted in water conservation potential to the extent of 25 billion litres.     As part of its USLP promise of helping more than a billion people by 2020 in protecting lives and providing hygiene, brands like Lifebouy are taking a lead in behavioral change programs that reduce incidence of disease. Sudhir Sitapati, the GM of the Personal Wash Category calls these “enlightened self interest activities”. In 2012, Lifebuoy handwashing programmes reached over 17 million people and since 2010, it has touched more than 50 mn people. “In the last few years, the scale, seriousness and resources we have given to our programmes have changed by an order of magnitude. It’s an investment to the future of the brand,” says Sitapati.     After two years, HUL executives realise that while they still don’t have all the answers, they have managed to build a solid track record in terms of adopting sustainable practices. The innovations teams are working overtime to bring out products that use less water whether it is Magic, a product that uses significantly less amount of water in rinsing laundry and is currently being test marketed in Andhra Pradesh or TRESSemme, a dry shampoo yet to be launched in India. “The concern about planet and the conduct of corporations is being voiced by more and more people in more and more ways. Some forward-looking companies don’t just want to buy goodwill, they recognize it’s the new way of the world and they are taking proactive steps,” says Santosh Desai, CEO, Future Brands.     On any given day, nearly two billion people use Unilever products and more than 35% of those consumers reside in India. Given that one of the stated goals of USLP is to enhance livelihood, HUL is pushing its Project Shakti aggressively. According to the latest numbers, the number of Shakti entrepreneurs - door to door selling sales people – has scaled up to 48,000 across 15 states covering 1.35 lakh villages serving nearly 3.3 million households.     Large internal change programs always end up having some unintended consequences sometimes even positive ones. HUL managers got an unexpected reward while unrolling USLP, the program brought in a sense of meaning into the HUL workforce. “Life has not become difficult but rather our workforce has found a sense of purpose,” explains Banerjee. “Having a higher purpose can help employees feel better about what they are doing, even inspire them. There is a reason why most companies are moving in this direction,” says Aaker. Polman’s gamble to lead in sustainability may just pay off. But till then, the big question will still be does being sustainable make you a prime choice in the mind of your consumer? While initial response has been a bit frustrating for Polman, David Aaker’s words may give him comfort. Aaker says, “The pay-off will be greatest for the perceived leaders because they are the ones that will get credit for it.” And Team Paranjpe aims not just to be perceived leaders but leaders. Period.     Vinod Mahanta CDET130802  HUL'S SUSTAINABILITY REPORT CARD • Lifebuoy soap has reached 50 million people with handwashing programmes since 2010. • 45 million people globally gained access to safe drinking water from Pureit in-home water purifier till 2012. • By the end of 2012, 66% of HUL's food portfolio (by volume) is compliant with the 5 gram salt target. • The company has more than 30,000 freezers with Hydrocarbon (HC) technology deployed in India. • Over 60% of tomatoes used in Kissan Ketchup in India are from sustainable sources. • A total of 77 tea estates in Assam, West Bengal and Tamil Nadu have been certified 'Sustainable Estates' by the Rainforest Alliance™ till the end of 2012. • Number of Shakti entrepreneurs scaled up to 48,000; Number of Shaktimaans scaled up to more than 30,000. • Kwality Wall's mobile vending operations provide entrepreneurship opportunities to over 6,500 migrant labourers across India. • By 2015, HUL expects 70 billion litres of water to be harvested, one million people to benefit and 15% rise in crop production expected in villages across India. • Carbon-dioxide emissions per tonne of production in India reduced by 22%, water use by 29% and waste by 77% compared to 2008. • 30 sites became zero-discharge site out of 38 sites; Rainwater harvesting implemented in 22 sites.