Unilever and Profitability - Case Study Example

sе Study: Unilеvеr and Рrоfiтаbiliтy Student’s Name Course Professor Date 1. Unilever’s business model  Unilever is a second-biggest producer of various consumer goods globally. Recently, it launched and emphasized to adopt sustainable consumption by putting sustainability at the heart of its operations. Unilever has taken this as a new model that followed by distinct actions focusing to achieve the highest sustainability outcomes by 2020 (Anderson, 2010, p.1). Its environment impact will help it realize its goal to double its sales over the next ten years. However, many companies and shareholders, though the model will promote long-term benefits, it might affect business growth and short-term profits. However, the company is committed to its goals wand will give annual reports to communicate how it has achieved its goals. Unilever's sustainable objectives will have a major impact to billion of consumers and in most parts of the world where Unilever operates. The first objective focuses on cutting the environmental impact by 50% particularly on water, greenhouse gasses and waste in its products (Ibid, p.1). What the company simply means is that its operations will aim to double the use of renewable energy, reduce water consumption and reduce waste disposal to higher levels. If achieved, the move will give the company a recognizable image to the public as these commitments are very promising and unmatched by any other company. Secondly, Unilever focuses to source 100% of agricultural supplies from various sustainable sources (Ibid, p. 1). In turn, it will help farmers ensure sustainable practices while assuring continuity of its operation. Thirdly, the company focuses to improve the health and well-being of a billion people around the world. Of course, that will be possible if its production takes into consideration sustainable ideas and operations. Unilever operates in China, and its sustainable objectives will have major impacts on the Chinese population. First, China is known for its biggest and growing population and as an emerging market, most companies will concentrate on its market. In turn, Unilever operations will fit in the future regulatory environment that China government might enforce to allow companies to reduce their impact on the environment. China has vast tracts of land and the mainland where Unilever will tap into a growing green market. Sourcing agricultural products from sustainable sources will promote farmers to access markets for their products and also buy finished products from a company that is environmental friendly (Barton 2011). As we move on, resource scarcity will soon be a reality, and that will be the case in China and so, Unilever will ensure sustainable production and supply to its consumers’ base in China. 2. Desirability for stockholders Unilever’s model is not desirable for stockholders mainly because sustainable approach will only benefit the environment and the society at the expense of stockholders profits. Stockholders rarely look too far and emphasizes on short-term investment cycles, gains, and results. Accepting sustainability principles will be hard since most of these stockholders confidence comes from perceiving it as one of the most competitive corporation around the globe. In the face of increasing population where demand for goods is rapidly growing, sustainability culture will mean that stockholders will incur a loss. The reason as to why it appears stockholders will lose is because they will have to forego their personal plans and objectives based on the number of stocks on holds in the company. In the end, there is no assurance that these stockholders will enjoy full benefits that might arise from long-term sustainability outcomes. Failure to make short-term profits will also affect the way they will increase their stocks once the company sales increases and after its stocks expansion. Unilever must understand that these are distinct players who might not ogre well with its long-term solution. Worst still, Unilever cannot be certain that the customers and the clients will pay for its improved sustainability performance. Stockholders fear that it is hard for a company to prove that its sustainability practices will immediately translate into an improved market value. Though there are causal links that stockholders can make, most of them are often ambiguous. Other business may run similar or favorable sustainability ideas in various markets making it difficult not only to get short-term profits but also affect the widely claimed long-term benefits. 3. Problem that Unilever faces Of course, there are some barriers and disadvantages that Unilever will face attempting to go green. The main hindrance will arise if the shareholders fail to offer the necessary support. Shareholders offer the necessary leadership to allow for environmental design and energy certification and rolling out an operation that align with sustainability agenda (Boerma 2012). Mostly, conversion to the sustainable operation is an expensive affair as. For instance, Unilever will require costly facilities to install solar power and the cost reduced by energy saving may not always offset the initial conversion costs. Secondly, as Joseph (2015) observes, switching to use of green materials can increase the prices of its products as some raw materials will require higher shipping costs as they might not be accessible locally. Investors are concerned about short-term profits and will less likely support a model that looks too far promising eventual benefits due to adopting a sustainable approach. The culture of the industry, today is highly regulated by the small group of investors which mostly arise in short-term relationships. The model is not good for developing stronger relationships and connections between Unilever and financiers as there are no immediate incentives to split. Unilever move will meet with high levels of competition, and that will create a disadvantage for it while others are just operating on “business as usual”. However, shareholders moved by business growth objectives that are to double sales in the next ten years might offer a full support. It will be a matter of patience and confidence in the leadership that can promote the company to forego short-term profits but enjoyed unprecedented benefits in near future (Avery & Bergsteiner 2011). I addition, shareholders as consumers can perceive the benefits they can attain by developing better public relations. Also, it is a fact that there is a growing green market that they can focus on to tap it sooner and in the long-run. Of course, there will be opposition but there is a higher possibility of buy-in and show willingness to the business model. Of course, Unilever should not sacrifice its sustainable approach due to the apprehension of its investors who only focus on short-term profits. There are plenty of hurdles but in the long run Unilever will have as many other companies to end up adopting sustainability initiatives. If it moves at the same pace with other competitors or other in different industries, it will not attain greater benefits as it would if it stays ahead of the game by deploying those initiatives faster. However, Unilever must figure out how it will deploy sustainable initiatives without undermining the bottom line. Additionally, Unilever must effective communicate the dire need to build new and improved sustainable infrastructure to support its strong economic security as well as societal well-being (Boerma 2012). Failure to focus on its sustainability objectives will mean that it will continue to be grouped together with other companies offering poor services and increased environmental devastation. If it embeds a culture of sustainability now, it will also attract like-minded stockholders and investors who will impact positively on its objectives. 4. Opinion on investing in a company with lower short-term profit due to social and environmental responsibilities Personally, I acknowledge that sustainability destroys the economic value. However, in an increased market where financial measures turn out to be single most important scorecard of investors, I understand that a business can stand out and increase shareholders’ value. I know that companies can still make money, though in the long-run by operations and products that solve everyday problems facing people and the society. For example, General Electric’s business strategy identified a need for energy-efficient and resource-sensitive products realizing billions of profits from the sale of wind farms, LED lighting and locomotives that are fuel-efficient. Similarly, Pepsi products like Tropicana orange and Quaker Oats comprise of number of products famously known due to consideration of sustainability (Herman & Nair 2015). I Justify my opinion to support, for a leading firm, sustainability integration will reduce my immediate profits but can give me a better chance to leverage greater profits. I understand that such objectives end up increasing market share and top-line revenue as current consumers are more health conscious than before. In turn, they will tend to look for products and services made by a company that embarks on solving human needs. However, I should be careful as a shareholder and particularly look at how the company measures and manages its operations with quantifiable metrics (Reiser 2011). If the company assures that it will reduce costs and assure positive returns on the investment in future I would not hesitate. Additionally, I would consider the span of sustainable approach in the company. For instance, if a company integrates sustainability in all its operation dimensions and management practices, I can be assured that there will be ultimate long-term competitive advantages. As Ioannou & Serafeim (2014) argues, when a company has a broad sustainable approach and embeds strategic thinking, as a shareholder I will be convinced that the outcomes will be good. 5. Societal Impacts and Government Interventions Society would be better off if more companies commit to social and environmental issues. Consumers would enjoy good health and benefit from a sizeable share of profit made by companies’ operations. Some of the benefits include, the society would enjoy the cleaner environment and, therefore, reduce illnesses like typhoid, respiratory diseases, malaria and many more. Social-economic inequalities will reduce and securing a better place for humans and their posterity (Willard 2012). The government has a central role to enforce companies to adhere to environmentally friendly operations and products. The approach by the government can promote standardized operations for all companies. A regulatory environment works not only for the company but everybody in the society. Failure to institute policies that promote companies to be cautious can have enduring long-term negatives effects that might undermine all the profits the government makes trough taxes (Demirel & Kesidou 2011). There are long-term implications for the society, stockholders included if companies will continue to focus simply on returns to shareholders. Currently, most business models focus on enriching a small group of people at the expense of the environment and the social-economic well-being of larger part of the population. However, when concerns will grow due to inequalities, environmental degradation and health and wellbeing, a major revolution might turn the table on stockholders and companies. The earth will also fail to sustain itself due to loss of biodiversity leading to possible human extinction. Additionally, it will be costly or impossible to reverse some of the negative impacts brought about by contemporary businesses. References Anderson, R, 2010, “Unilever says sustainability key to new business model”, BBC News, 15 November, Accessed [30 May 2015] from http://www.bbc.com/news/business-11755672. Avery, G C, & Bergsteiner, H 2011, “Sustainable leadership practices for enhancing business resilience and performance”, Strategy & Leadership, 39(3), 5-15. Barton, D, 2011, “Capitalism for the long term”, Harvard Business Review, 89(3), 84-91. Boerma, D, Dec 2012, “Barriers Businesses Face When Adopting Sustainability Initiatives", Accessed [30 May 2015] from http://blog.mainpac.com.au/barriers-businesses-face-adopting-sustainability-initiatives/. Demirel, P, & Kesidou, E, 2011, “Stimulating different types of eco-innovation in the UK: Government policies and firm motivations”, Ecological Economics, 70(8), 1546-1557. Herman, R P, & Nair, V, 2015, “Commit! Debate: The Shareholder Value of Sustainability: A Brief for corporate responsibility”, Corporate Responsibility Magazine, [Accessed 30 May 2015] from http://www.thecro.com/content/commit-debate-shareholder-value-sustainability. Ioannou, I, & Serafeim, G, 2014, “The Consequences of Mandatory Corporate Sustainability Reporting: Evidence from Four Countries”, Harvard Business School Research Working Paper, (11-100). Joseph, C, 2015, “The Disadvantages of Going Green for a Corporation”, Chron, Accessed [30 May 2015] from http://smallbusiness.chron.com/disadvantages-going-green-corporation-3318.html. Reiser, D B, 2011, “Benefit Corporations-A Sustainable Form of Organization”, Wake Forest L. Rev., 46, 591. Willard, B, 2012, “The new sustainability advantage: seven business case benefits of a triple bottom line”, New Society Publishers. Read More