The Natural Step Business Model - Case Study Example

Topic:Sustainable Development in Business TABLE OF CONTENTS THEORY ON SUSTAINABILITY: 3 HENKEL: CORPORATE SUSTAINABILITY 6 COMPARATIVE STUDY BETWEEN HENKEL AND UNILEVER 12 CONCLUSION 16 LIST OF REFERENCES: 16 INTRODUCTION: Sustainability is a method of harvesting or using resources so that the resources do not exhaust and or permanently get damaged. It also involves a lifestyle involving the use of sustainable methods. It has taken many forms in variant aspects. Sustainability also means living within the limits and understanding the interconnections amongst society, economy and environment. It also deals with equitable distribution of opportunities and resources. (What is Sustainability, n.d.) Organisational sustainability can be defined as managing a particular business that can meet present expectations, without compromising on the ability of future generation of management, in order to meet future expectations. (Organisational Sustainability, n.d.) THEORY ON SUSTAINABILITY: Andrew Mangan, an environmental entrepreneur promoted BPS or by-product synergy programs as a means to achieve the goals of sustainable development. It is a process that helps the companies to discover new ways in order to convert the waste products into saleable commodities. The goal of Mangan is actually twofold - to promote the wider adoption of BPS programs and also to create business out of helping the companies adopt such by-product synergy programs. (Anderson T., and Mackenzie S., n.d.) There has been a lot of research in the field of sustainable technology and design along with the adaptation of business tools, but in most of the instances, the well designed technologies fail to become broadly adopted, not due to the fact that there are flaws in the technology but due to the reason that there is inadequate sustainable method of servicing, distributing, and improving the technology. Any business needs start up capital in order to fund the design of technology and its development along with a self sustaining revenue stream, which would support the growth as well as be meaningful in terms of reducing pollution. The reason behind the development of EnviroFit International business model was to allow for the design, development along with the dissemination of environment friendly technologies all over the world. This model leverages the participation of the local in country stakeholders in order to ease acceptance and the implementation of RetroFit technology. The key components of this model are using donations for the development of technology as well as operating profits from the product sales to growth, support operations, emissions trading, microfinance and also local partnerships. This business model is till in progress and is executing the business plan along with reducing the perceived risks, by making progress against the value setting milestones like raising investment capital, field tests and developing important partners in supply chain; these would increase the credibility of the business model and also its management. This business model would be highly beneficial for those environmental technologies that lack necessary profit margins in order to make them attractive to the traditional for-profit model. This would provide sufficient margins in order to sustain a particular enterprise without continued infusions of donations or capital. This business model would also in effective in reducing the environmental pollution. (Hudnut P., Bauer T. and Lorenz N., n.d.) Triple Bottom Line was originated among the investors seeking a way of putting their money in those enterprises that are economically profitable, socially just and environmentally sound. It is the need of the time to model the systems properties or the ecological characteristic of various domains of productivity and also to design the institutions of monetary and financial services, which can optimize the productivity in these domains. The theory and the institutions should base on the concepts of triple bottom line. The concept of Triple bottom line theory is based on sustainable ecological systems, sufficient material goods and optimal quality of life that are based on abundance of personal as well as community oriented services. Productivity needs to be modeled and accounted for economic terms, which include definition of bottom line assets. Every bottom line asset is economic, which should be accounted for financial terms. (Warmoth A., 2006) The Natural Step business model has been the most widely accepted and implemented of all sustainable practices globally. It uses a science based framework in order to help the organizations and the communities to understand and progress towards sustainability. It has defined a technical framework that the organizations can follow. The basic premise of this framework is to recognise the human impact on environment while identifying the practices in order to reduce this impact and also establish systems, which would result in continuous cycles that are renewable. A number of businesses, colleges, government agencies and industries are embracing this business model and thus, they are working to implement the sustainable systems in all areas of commercial, business, industry, government along with school and home environments. The framework of natural step is a proven and scientifically robust model that helps organisations makes practical decisions in order to move towards sustainability. (The Natural Step, n.d.) Electrolux Group is committed to the principle of Natural Step as according to them, environmental protection is the key to long term survival of the corporations, individual and the society. The policies of this company encompass holistic view of the entire life cycle of the product, right from its raw material handling, manufacture and distribution to recycling. Electrolux believes that investments in the environment friendly services and products would become an asset rather than the cost in the long run. (The Natural Step at Electrolux, n.d.) Industrial Ecosystem or IE provides the framework to restore ecosystems through design, redesign and manage the eco-efficient industrial systems, which take advantage of cyclic patterns of energy and material flow found in natural ecosystems. In comparison to the traditional model of industrial activity model, in Industrial Ecology model, the flow, energy and the stock of the materials is optimized that emphasise efficiency, waste recovery and exchange, along with the minimisation of adverse environmental impact. The concept of Industrial Ecology is well reflected in Kalundborg. The industrial electric plant supplies surplus steam to refinery and the pharmaceutical plant uses this surplus heat to grow turbot and trout. In addition to this, a wallboard producer buys this surplus gas and uses it as a replacement for coal and also removes the sulphur from the gas and sells it to plants producing sulphuric acid. Industrial Ecology model benefits the industry and the environment along with benefitting society. (Industrial Ecology, n.d.) HENKEL: CORPORATE SUSTAINABILITY Henkel, headquartered in Germany, has around fifty five thousand employees worldwide. It is counted amongst the most internally aligned companies in the global market. It is a trustworthy brand in about 125 countries all over the world. It is organised in three globally operating business sectors, namely, cosmetics and toiletries, laundry and home care, and adhesive technologies. Corporate culture of Henkel helps unite the diverse workforce and provide standards for conducting business globally. (About Henkel, n.d.) Products of Henkel: In Laundry and Home Care, Henkel manufactures products in Laundry, Dishwashing and Cleaning. The popular products in this segment are Pril, Soft Scrub, Persil, Mir, Spee, Sil, etc. Henkel offers am array of products in Beauty and Personal Care. Henkel manufactures products that help keep skin, body, hair and teeth in good health. In addition to this, fragrances manufactured under the name of Scorpio are quite popular in global market. Diadermine and Aok are popular names to maintain skin and BC Bonacare, Indola Innova Care, etc hair care products are used globally in professional salons. Adhesives, sealants and surface treatments cater to the needs of industries, school, home, office, and also craftsmen. (Brands and Solutions, n.d.) In their values, Henkel has declared their dedication to sustainability along with corporate responsibility. According to them, sustainable development gives equal priority to ecological, economic and social goals. Henkel believes that economically successful companies are able to contribute effectively to social progress and environmental protection. The core element of Henkel's sustainability principles are innovative products that are more beautiful and better. In their everyday activities, Henkel gives stress to environmental capability along with comprehensive product safety. Right from its developmental stage, Henkel has given due importance to environmental and community issues and have treated social expectations with required seriousness. Along with environmental protection, Henkel has always given due importance to the safety and health of the customers, their cleaning products and detergents are regularly ecologically reviewed. In the year 1991, it was one of the first companies to sign the 'Business Charter for Sustainable Development' which was drafted by the ICC or International Chamber of Commerce. Thus, it has formally undertaken to align the business activities as per 16 principles of environmental management that was prescribed therein. From the year 1992, Henkel has been publishing Annual Environmental Report, which got replaced by Annual Sustainability Report in the year 2001. Henkel's experience helps in implementing environmental protection measures that can lead to savings and they are well aware of the measures that can yield competitive advantage in the global market of FMCG industry. (Sustainability, n.d.) Sustainability Performance of Henkel from the year 1996 - 2007 is depicted clearly in the graph below: Fig. 2: Sustainability Performance of Henkel (1996 - 2007) Source: Henkel Releases Sustainability Report, (March 2008) In its annual sustainability report of 2008, Henkel has mentioned that over the past five years, its energy consumption id reduced by 21%, water consumption by 15%, waste has also dropped to 32%; in addition to this, carbon dioxide emissions are also down by 15%. During this same five year period, sales have gone up to 39% and profit by 61%. (Henkel Releases Sustainability Report, March 2008) Henkel has proved to be a pioneer in the FMCG industry as it has once again included itself in the FMCG market segment of the renowned Dow Jones Sustainability World Index (DJSI World). It shows that it has an exemplary track record adhering to the sustainable development principles. Only 10% of 2500 largest corporations in whole world are able to make into DJSI World. It has also performed exceptionally well in a variety of sustainability surveys and appraisals. In March 2008, Henkel garnered 2008 ESG Award in DAX category. (Henkel again tops FMCG sustainability league, August 2008) As already been stated, Henkel always aims to make valuable contribution to society. It always focuses on value chain of challenges of sustainable development as it is related to operations, which has been grouped to five focal areas, namely, Energy and Climate, Safety and Health, Water and Wastewater, Materials and Waste, and Social Progress. The core element of Henkel's actions is 'Vision and Values'. Fig. 2: Henkel Focal Areas (The Henkel Focal Areas, n.d.) Energy and Climate - Climatic change is a much complex environmental issue and a major global challenge in modern time. Therefore, Henkel focuses on creating energy efficient technologies and products along with optimising the production processes, thereby contributing to the more efficient utilisation of the available energy resources worldwide, which also ensures climatic protection. Safety and Health - the safety of products, production plants and product ingredients is a popular subject of public debate. The safety and health of customers, employees and the consumers is prime concern of Henkel. The issue is utmost importance in whole world; therefore, the household cleaners and detergents of Henkel are able to contribute to hygiene and health in home, more effectively. Water and Wastewater - It is quite a known fact that water resources of earth are not equally distributed and are threatened by overexploitation and increasing pollution. So, Henkel always tries to reduce water consumption during manufacturing of products, which applies to the industrial products, too. The household cleaners and detergents are designed in such a way that the waste water has no impact in the quality of surface water. Henkel have more than fifty years of experience in waster water management. In this way, Henkel is able to contribute to the worldwide water conservation, in future, too. Materials and Waste - Resource conserving techniques of production are used to cut down the consumption of raw materials and the amount of waste generation. Most of the products of Henkel contribute to the extension of service life of the durable goods, thereby preserving the values. Along with continuously improving the packaging in order to minimise the amount of used material and the resultant waste, Henkel also uses ingredients that are based on renewable raw materials, which are compatible with economic, ecological and social considerations. In this way it contributes to the worldwide conservation of resources. Social Progress - Henkel effectively contributes to social progress by creating jobs with fair employment conditions and training to both employees and customers, in 125 countries, where it operates. Socially balanced economic development is the prime challenge for the society in today's time. It also transfers knowledge and technologies to the suppliers as well. The products are adapted to fulfill the needs and incomes of the local customers. In this way, Henkel contributes to economic development along with social equality and progress. (The Henkel Focal Areas, n.d.) COMPARATIVE STUDY BETWEEN HENKEL AND UNILEVER Unilever is another one of the most popular names in the FMCG industry. Over the years, it has also proven to play vital role in developing environment friendly products and also paying heed to consumer satisfaction. The prime motto of Unilever is the thirst for sustainability. Operating with more than 400 brands in personal care, home and food products, it has touched the lives of millions of people, all over the world, in different ways. Unilever always tries to meet the challenging lifestyles, tastes and expectations of the customers, both locally and globally. Unilever is successful in launching popular brands in home care products, food, and nutrition, personal care along with beauty, health and hygiene. Some of the well known brands of Unilever are Dove, Rin, Lipton, Flora, Bertolli, Hellman's, along with a wide range of beauty products. (Introduction to Unilever, n.d.) The sustainability methods of Henkel and Unilever, both pioneers in the FMCG industry can be compared on the following measures. Affordable Products - Both Henkel and Unilever are into constant search for affordable products, so that they meet the income levels of the local customers. Unilever tries to meet the demands of the people representing the base of economic pyramid by producing affordable products and also using innovative distribution channels, which spread wealth around the communities such as, Shakti Initiative that created around thirty thousand women micro entrepreneurs, thus serving about one lakh Indian villages. Health Related Issues - Unilever addresses health concerns through enhanced labeling and food nutrition along with responsible marketing. It also constantly researches to improve hygiene practices through organising hand washing campaigns. It also promotes better oral health through initiatives in more than thirty countries. The products of Henkel are also safe to use and they ensure hygiene and health, effectively. Environmental Pollution - Unilever constantly analyses its carbon footprint. It has been successful in reducing Carbon Dioxide emissions from its manufacturing operations by more than 30% in the last decade. It is also giving constant effort to reduce greenhouse gas emissions and improve eco efficiency of manufacturing the products along with studying wider footprint. Meeting Local Demands of Customers - Unilever and Henkel both cater to local customers by manufacturing products that meet up to the demands of the customers locally. Both the companies manufacture products catering to the needs of people that differ from one geographical region to the other. (Unilever's Latest Sustainable Development Report Explains How Values-Led Brands Will Increasingly Drive its Business Strategy, May 2007) Economic Development - Unilever is constantly creating a number of job opportunities in the countries, where they operate. It also provides training to the employees to ensure high quality product manufacturing. In South Africa, Unilever has made great impact, as there is extremely high unemployment. It has also provided comprehensive benefits to the employees along with paying more than average for the South African listed companies. Along with meeting the growing and changing needs of customers, Unilever is trying to make a difference to the poorest communities, by creating jobs. As referred earlier, Project Shakti creates micro enterprise opportunities for women in the rural sector of India. They sell Unilever products from door to door. Through this, rural women have been able to sense their pride and self worth along with increasing their income significantly. Project Shakti helps to move Unilever in the higher scale of economic development in comparison to Henkel, though Henkel has also provided a number of job opportunities in the countries where it operates. Energy Consumption - Just like Henkel, Unilever also undertakes new measures in order to reduce environmental pollution by reducing the carbon dioxide emission from the manufacturing units. Their products are effective for reducing water consumption, as it is a growing concern in today's time. Unilever operates to high environmental standards than what is required by local legislation, by reducing the usage of water, the emission of carbon dioxide and also reducing energy per tone of production. These are required for the maintenance and improving productivity in order to remain competitive in the world economy. A detergent of Unilever ensures low usage of water in washing that is quite helpful in saving water consumption. Detergents of Henkel are environment friendly, and the after wash water do not hamper the quality of surface water. (Sustainable Development Report 2007: Economic Development, 2007) It is clear from the discussion and comparison of Unilever and Henkel, based on the annual sustainability report and focal areas of development that both the companies are somewhat similar in maintaining their sustainability in local as well as in the global market. In spite of differing in some of the aspects, both these companies are trying to sustain and develop in the FMCG industry, and thereby reducing environmental pollution and reusing waste products or by using environment friendly raw materials. Henkel is with the mission to reduce energy consumption by another 15%, in the next five years from 2007, also reducing water consumption by 10% and waster generation by 10%, per metric ton of output in each of the cases. It has been announced by Wolfgang Gawrisch, the CTO Research/Technology and chairman of Henkel Sustainability Council. The company had also announced that in the year 2008, they would introduce new logo "Quality and Responsibility", all over the world, on all its packaging of Laundry and Home Care. (Henkel Releases Sustainability Report, March 2008) CONCLUSION It is quite clear from the discussion that Henkel has already taken measures to contribute to the economic development along with ensuring social equality and progress. It has also taken measures in order to conserve water as well as other natural resources. Henkel also tries to reduce environmental pollution to a considerable extent by reusing the waste materials. Along with this, it can take effective measures like introducing products that would be more beneficial in reducing pollution as well as reducing the usage of natural resources, which would ensure its growth, more than previous years. It would also help Henkel reach its targets, effectively and more quickly in near future, thereby sustaining itself in the global market, more effectively. 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