renaissance 2

Unilever, a company with a €40 billion turnover spread across 400 brands is blazing the trail in social innovation, along with a few others, many of which are World Business Council for Sustainable Development members.

In a speech last week to MBA students at INSEAD business school in Fontainebleau, France, Unilever’s boss outlined how his firm sees this leap paying off for business in the future.

According to Cescau, the “agenda of sustainability and corporate responsibility is not only central to business strategy but will increasingly become a critical driver of business growth… I believe that how well and how quickly businesses respond to this agenda will determine which companies succeed and which will fail in the next few decades.”

This is an interesting prediction common among CEOs these days. When Arie de Geus, a former senior Shell executive, studied corporate longevity he found that big multi-national companies on average lasted some four decades. Globalisation since will no doubt have an effect on this in the future, both positively and negatively, but what will be more interesting will be how researchers view corporate strategy and social innovation in this light.

Counting collaboration

In Cescau’s recent speech he revealed how collaboration between government, NGOs and industry is key to social innovation:

“Slowly but surely both governments and NGOs are accepting that business has a role to play in the development agenda and that we can be trusted.”

Cescau summed up how the old “CSR as risk” adage should now be seen as simple sustainability strategy: “The companies that succeed will be those that reduce their environmental impacts and increase the sustainability of their supply chains now, rather than wait until either legislation or public outcry forces them to do so.”

But on to social innovation. Here is where opportunity lies, and Cescau sees the potential here in emerging economies. It of course helps that over 40% of Unilever’s business is now in these markets. Not every company is so lucky that the incentives are so clear.

“Sales there are growing much faster”, said Cescau, claiming that “by 2012 more of our business will come from Asia, Africa and Latin America than from the developed markets of Europe and the USA”.

Social innovation provides material for companies to generate greater trust, believes Cescau. Attempts to turn negative media coverage into positive stories, a key aim of CSR originally, does not help business make its case to the public. He said in his speech at INSEAD:

“…companies do not normally measure their social, economic and environmental footprint in the markets in which they operate and, as we all know, communication without facts is tough.”

Cescau cited Unilever’s 2003 partnership with Oxfam as key to its social innovation strategy. The two organisations together considered Unilever’s impact on Indonesian society in a jointly published and much discussed study.

Essentially the two groups discovered three things:

1) most of the cash value Unilever creates in Indonesia stays in the local economy.

2) 84% of our raw and packaging materials were sourced from local suppliers thereby creating not just jobs but technology transfer from other Unilever factories around the world.

3) While Unilever Indonesia itself employs only 5,000 employees, the business supports the full time equivalent of 300,000 jobs, more than half of them in the distribution and retail chain.

Be frank about the challenges

All well and good. But Unilever is also honest about the limits of its impact. It has not been good at helping farmers and shopkeepers at “the furthest ends of the value chain” to lift themselves out of poverty. Traditionally this has not been their job of course. But this provides an opportunity for social innovation, which the company recognises.

To take this kind of research further, Unilever is now working with Ethan Kapstein, a Professor of Sustainable Development at INSEAD, to consider the impacts of Unilever’s operations in South Africa.

The report, out later this year, will help the company think harder about social innovation and opportunity by looking at the “soft” impacts of the company.

According to Unilever, these are intangibles such as training and skills transfer, support for government capacity building, black empowerment initiatives and “environmental standard setting”.

Don’t get confused

Key to social innovation in emerging economies is capacity building. A term much used in the CSR world often referring to philanthropy.

To the top companies like Unilever, it’s more about new business models to attract customers and product innovation linked with social needs.

The company sees social innovation at two levels.

Macro level corporate social innovation:
Contributing to cross border trade, via membership of Business Action for Africa and the Investment Climate Facility. This a public-private partnership that “aims to address some of the structural bottlenecks holding back investment in Africa.” The company is working with British American Tobacco and Diageo to pioneer customs reform in Kenya.

Micro level corporate social innovation:
Business Action against Chronic Hunger – an initiative the company helped to launch last year. The aim is to help communities lift themselves out of poverty through sustainable income generation. Unilever plans to scale it up from 30 farmers to 4000 – benefiting some 20,000 people.

This is not philanthropy. Unilever will benefit massively from increased cross border trade in Africa, and by buying crops at market prices is not subsidising farmers and creating dependency in the way that aid does.

Unilever’s Shakti initiative in India is another major area of social innovation in a massive emerging market.

Shakti taps into existing networks of women’s self-help groups, which had grown up on the back of micro-credit schemes in the country’s 650,000 rural villages.

Shakti entrepreneurs from these groups became local sales representatives, going door-to-door selling Unilever’s products.

Some 30,000 Shakti entrepreneurs are now operating in 100,000 villages serving nearly 100 million consumers.

The revenues generated are now close to $100 million a year. Unilever says the margins are “very similar to those we achieve through our mainstream distribution channels.”

The Western conscience consumer

In mature markets Unilever believes social innovation is about reassuring consumers that the brands they buy reflect their values:

“[Consumers] want brands that not only make them feel good and look good but that also do good”.

“This trend has all the hallmarks of ushering in a new age of marketing and branding”, Cescau told his INSEAD audience, defining social innovation in Europe and the US as “brands with social benefits”.

Ben & Jerry’s “climate neutral brand” and Dove’s “Campaign for Real Beauty” are excellent examples of Western social innovation. Meeting the desires of consumers by linking products with values.

Unilever’s recent announcement that the Rainforest Alliance will soon be certifying all its tea as sustainable perhaps makes the link between Western social innovation expectations and its sustainability commitments in emerging markets, where the tea is grown.

Cescau admits that finding this balance, this “sweet spot” as he calls it, between the needs of society, the planet, and consumers is tough.

But clearly Unilever believes it is the key to doing business in the modern, connected world.

“Companies that grasp the opportunity this agenda presents in a genuine and sustainable way will be the ones that succeed in the 21st century”, Cescau told his INSEAD audience.

Advising the MBA students to build social innovation awareness “into your professional skill set”, he concluded that “the business world will very soon be divided into those that recognised its potential early on and those who woke up to it too late. Make sure you are an early adopter.”

Cescau and Unilever make a convincing case for the death of CSR and the adoption of social innovation and global opportunity strategies by companies.

Unilever’s history, geographic spread and corporate culture has helped them immensely to get to this point. But other companies can clearly go further faster in killing off CSR and replacing it with innovation by studying their example. How fast they do this may decide the winners and losers in the coming decades.

My thanks to Tony Webb, founder of Ethical Corporation magazine, for this report from the frontlines. If you are interested in the corporate implications of social innovation, Ethical Corporation magazine is an excellent read!

This entry was posted on Thursday, May 28th, 2009 at 10:29 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.