Is It Time To Back Warren Buffet To Steer Through Current Uncertainty? [Video]

When severe storms hit in tropical climates, buildings may fall, but most palm trees survive. They bend but don’t break. They have resilience. Can your organization say the same?

In today’s volatile and uncertain world, companies will face many crises. Natural disasters destroy property and disrupt operations. A discovery of human rights abuses in a supply chain breaks consumer trust earned over years. A hostile takeover bid shakes a business to the core. New competitors and technologies upend the industry. A global pandemic changes everything.

One of us (Paul) ran the consumer products giant Unilever for a decade. With operations in 180 countries and brands that reach a couple billion people each day, Paul and his executives had front-row seats for every kind of crisis. They saw how our two big existential challenges, climate change and inequality, along with multipliers like rising transparency and pressure from stakeholders, create emergencies. These megatrends are accelerating, so the way companies respond can protect or destroy value quickly.

By tracing decisions Unilever made to create both traditional forms of resilience (financial flexibility, portfolio diversity, and organizational agility) and less-obvious forms (driven by purpose, trust, and stakeholders) that changed the company more deeply, we aim to show how leaders can best prepare for the world ahead.

The Building Blocks of Resilience

A company can’t thrive amid uncertainty without financial, portfolio, and organizational resilience. These are table stakes today — and essential preparation for sudden shocks and long-term crises.

Financial flexibility.

When Paul arrived at Unilever in 2009, the company was stagnant. Revenues were down, the stock had been flat for over a decade, and investment in the future of the company was limited. The business had very little financial resilience.

His team worked fast to begin the challenging work of getting the business moving again. This involved setting solid but achievable growth goals and ramping up investment in people, brands, R&D, and manufacturing to improve quality and stay competitive. Seven years later, revenue was up 33%, to $60 billion, and Unilever’s stock was performing better than that of its peers and the European FTSE index.

That foundation is important, since today’s biggest challenges are creating real financial pressure. At one point, the effects of climate change were costing Unilever more than $300 million per year. For example, droughts in Brazil reduced reservoir capacity, triggering water restrictions and preventing people from showering as frequently, which caused shampoo sales to shrink by 15%. Only companies with already healthy balance sheets can weather such storms.

Portfolio diversity.

At its most basic, having a diverse mix of products smooths out the ups and downs in any one business. If a cold spring reduces ice cream sales, for example, it’s good for soup to be in the portfolio. During Paul’s tenure, Unilever boosted its acquisition rate, buying into new, future-fit categories and bringing many purpose-driven brands into the mix.

As the world moves toward a net-zero economy, entire products and value chains in transportation, energy, buildings, and much more will vanish or change dramatically. Companies with a single set of products in a category — for example, those that make only parts for internal combustion engines — will not survive the coming transition. They will need a more diverse product line to stay competitive.

Organizational agility.

Paul’s early work at Unilever also included structural changes to build organizational resilience, since the global colossus was too decentralized into country and product fiefdoms. A reorganization around major product categories and a big reduction in management layers created a leaner, more agile, and more outward-looking company. Leaders could get faster feedback from markets about what was working and what needed more investment, and were able to identify possible problems before they became crises.

All companies, but especially those with long supply chains, will face continued pressure to justify how they and their partners operate and to understand the social, political, and economic dynamics their businesses are involved in. Human rights abuses or corruption will not stay hidden for long. Local disruptions can quickly have outsize consequences if left unaddressed. An organization set up for better information flow, one that empowers on-the-ground employees to notice and talk about looming problems, will be better prepared for (or able to avoid) surprises.

New Strategies for Resilience

Financial, portfolio, and organizational strength are important, but the larger opportunity is in making a company more broadly crisis-resistant for the long term, because doing so serves multiple stakeholders — not just shareholders.

We argue that the strongest organizations today and in the future will thrive by giving more than they take from the world. We call this kind of company “net positive” because it seeks to improve the well-being of everyone it touches through its operations, value chain, products, services, and influence. (Our new book, Net Positive, lays out how to build a business with that goal.)

Organizations that have a clear purpose, build strong relationships that reinforce each other, and amass a reservoir of trust will have deeper sources of strength when they need them most.

Purpose.

A company that knows its reason for being, and consistently backs it up, is both tougher and more flexible during a crisis. At Unilever, a renewed focus on its history — going back to a commitment to health and hygiene in the 1870s — aligned the company around a clear mission: to make sustainable living commonplace. This was reinforced by the Unilever Sustainable Living Plan (USLP), one of the earliest corporate sustainability plans in the world, which was integrated into the organization’s strategic plan. It wasn’t a mere add-on; it was (and still is) the strategy.

When the USLP launched, having a committed CEO wasn’t enough for it to succeed — Paul needed everyone on board. Unilever started with a new, robust leadership-development program, a yearlong journey for the top executives to discover their own purpose. There was a fair amount of pushback and turnover, but even so, it was critical that a company with a mission be full of the right people. Over time, Unilever rolled out purpose-finding programs to all employees; as of today, more than 60,000 have gone through them.

The company also began to embed purpose in its brands. Finding a reason for being at the product level is advanced work, but it’s been successful and rewarding. From Lifebuoy soap’s global handwashing programs to Dove’s positive-body-image campaigns, dozens of Unilever brands have connected in a genuine way to a larger need. Doing so has been profitable, too: The purpose-driven brands have been growing much faster than the rest of the business for years.

When employees know they’re not just selling soap but also helping to solve a major health issue and saving lives, they are more driven. The data is clear — people working at a company with a clear purpose are far more engaged, and Gallup studies show that organizations with engaged people are more productive and financially successful. Those employees will also help you fight through crises.

Trust.

The USLP has helped Unilever build trust with major stakeholders because its aggressive goals (50-plus targets covering operations, supply chain, products, impact on communities globally, and more) are fully transparent and because the company talks openly about which ones it has struggled to meet.

And prompted by an infamous human and moral crisis that hit a different industry, Unilever began to open up much more.

In 2013, the Rana Plaza garment factory in Dhaka, Bangladesh, collapsed, killing more than 1,100 workers who were making cheap clothing for the West. It was a painful reminder of inequality and the dangerous conditions in which many are forced to work.

To ensure its own supply chain was safer, Unilever invited the international NGO Oxfam to audit its Vietnamese vendors on issues like living wages, working hours, and the right to collective bargaining — and to publish the results publicly. Oxfam found nothing egregious but identified some problems. For example, while Unilever was paying more than minimum wage in some places, the pay was still below what experts considered a living wage. The company is now working its way toward the goal of offering living wages throughout the value chain.

Transparency is a great tool to ensure consistency and engender trust. Rather than rebelling against tough questions and pressure, business leaders should embrace them and use them to build a stronger organization.

Stakeholders.

When Paul arrived, Unilever was facing protests for its use of contingent labor at a Pakistani tea factory. Out of 800 workers, only 22 held full-time positions, leaving the vast majority without security or benefits. The IUF, the federation of agriculture and hospitality worker unions organizing the campaign, called it “Casual-T.”

Paul worked with IUF head Ron Oswald and the workers themselves on a solution. After discussing several options and holding a vote, they settled on a plan to create a few hundred full-time jobs: stable roles with benefits for employees who would get the training and experience they’d need to be productive over the long term.

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Net-positive companies build better connections with stakeholders besides employees as well. They forge bonds with suppliers by helping to grow and improve their businesses, rather than simply demanding the lowest cost. (For example, Unilever’s “Partner to Win” program shifted this relationship from pure transaction to innovation partnership.) They also help consumers lead more sustainable lives, support business customers on their sustainability journey, and find and work with investors who want long-term value creation. And, in turn, communities with stronger ties to an organization support it through good times and bad.

Having a wide array of stakeholders, bound by purpose and all trusting and working in partnership with the company, provides a diverse bank of support. Remember those palm trees surviving big storms? Part of their secret is a large, spread-out root system — not just one anchor but many that can take a lot of pressure.

How the 6 Resilience Strategies Pay Off

When the biggest crises hit, all six forms of resilience help you move quickly and effectively. The global pandemic was one such event. It created a tremendous test for organizations, drawing on both their morals and their agility to deal with vast, sudden shifts in how the world works and what products people need. Some companies made poor choices, but many did the right thing. Medtronic, for example, shared proprietary designs for a portable ventilator to help the world ramp up production. These actions build trust: People remember who is there for them.

Unilever, under current CEO Alan Jope, provided €500 million to support suppliers and extend credit to customers. While the world shut down and employers everywhere furloughed people, Unilever guaranteed jobs for months, which was even extended to indirect suppliers like cleaning companies and security firms. It also shifted people and operations to help produce medical equipment and redirect supply chains that were overwhelmed. After a decade of being committed to a purpose-driven model, Unilever could make big changes quickly because it had the financial leeway, the support of employees, and the trust of suppliers and governments. The company was more agile than its peers due to investing in strong roots.

The benefits of Unilever’s long-term, multistakeholder model were even clearer during Paul’s greatest crisis as CEO. In 2017, Unilever faced a hostile takeover bid from Kraft Heinz and its coinvestors, private equity firm 3G and Warren Buffett. Kraft’s business model at the time, which was widely reported as being based mainly on slashing costs and maximizing immediate profits, was fundamentally incompatible with Unilever’s. But that disconnect wasn’t enough to stop the bid.

What scuttled the deal was the unusual level of support from the company’s stakeholders. Many long-term investors made their displeasure known; they felt an independent Unilever would build longer-term value. Even more surprising was the public backing of traditional antagonists: unions and NGOs like Greenpeace. By working in genuine partnership with these groups for years, Unilever had built a foundation of trust, which it drew on to fend off Kraft Heinz.

. . .

No company can prepare for every outcome, but these six forms of resilience, put together, can provide a serious buffer. They also allow organizations to work in larger coalitions on the biggest issues, such as climate change and income inequality.

Net-positive businesses don’t just endure or bounce back from crises; they also anticipate and prevent them.

Source : https://hbr.org/2021/11/6-types-of-resilience-companies-need-today?ab=seriesnav-bigidea

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