Umicore’s ranking as #1 on the 2013 Global 100 index of most sustainable companies was met with healthy skepticism by social justice advocates and environmental purists. The company’s history as Union Minière du Haut Katanga created devastation that Umicore will need to continue to remedy at a hefty price tag.
For those of us who are conversion advocates, Umicore is the type of company that embodies the belief in sustainability and conscious capitalism as a corporate doctrine (some would say “religion”). Umicore’s radical transformation has taken 46 years to achieve. Its sustainable business model not only rescued the company from substantial losses but also diversified its product offerings, generating significant financial returns.
The change was not easy. Imagine taking the risk of defying shareholders by saying, in essence:
- In order to save this failing company, we are going to sell off most of our mining assets in order to acquire scientific and technological capabilities in primary metals recycling.
- We are also going to start producing things entirely new products such as automotive catalysts, pharmaceuticals and animal feed.
- Best of all, our primary decision-making criteria is now environmental safety.
Not knowing whether these investments would pay off, Umicore asked shareholders for their patience and loyalty, and asked employees to shift from an operational focus to an innovation focus while performing to new standards of operation. At best, investors must have wondered if there were toxic fumes in the executive suite offices that may have been causing delusional planning strategies, and employees were probably deciding whether to jump ship or hang on for dear life.
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Sustainability has only become mainstay business parlance in the last five years. Before this it was perceived as the fantasy domain of environmental extremists. Many global business experts argued sustainability could never make business sense let alone generate profits. Reality has proven naysayers wrong. Today Umicore operates in 34 countries (including South Africa, Malaysia, India, Argentina and Brasil) with 2012 annual revenues of €12,548M (US $16,922M), a total of 14,438 employees, and a five-year average Net Profit Margin of 1.96 (beating the industry’s five-year average Net Profit Margin of -20.55). The company’s 2012 expenditures on R&D were over 6 percent of revenues (€180 million, US $243.6 million). Five-year averages for ROA and ROI are comparable to industry. Umicore’s ROA is 6.28 versus 7.62; its ROI is 10.30 versus 11.26. Umicore’s five-year average ROE exceeds the industry’s at 13.62 versus 12.99.
Porter argues strategy is not about being the best in the business, supplying a niche market or operational excellence. All these are tactics which enable strategy. Strategy is about creating a unique offering that clearly differentiates an organization from others operating in its industry and/or market space. Strategy must be flexible enough to accommodate any of the company’s product/service offerings and responsive enough to deal with any market condition. Most importantly, companies must be crystal clear and firmly committed to the decision of what customers they are not going to serve and which markets they are not going to pursue. Christensen offers Disruptive Innovation (developing quality affordable alternatives for new market segments) as one means of achieving this. Mauborgne posits that Value Innovation (aka Blue Ocean Strategy) enables a unique positioning within existing markets by focusing on meeting the needs of the customer in a way that is so enhanced it is very difficult for others to replicate. Sustainability has enabled Umicore to stay alive and stay competitive. It is ranked #7 on the 2014 Global 100 (placing it ahead of competitor BASF [#12] for two years in a row). Although it still owns and operates a zinc mine, Umicore now practices urban mining — the process of reclaiming compounds and elements from products, buildings and waste. Its operations prove sustainability is not about greenwashing but rather a focus on delivering long-term value and profits in ways that enhance our environment and build a better society.
A more in-depth examination of Umicore’s strategic transformation can be found in this case study.
This post first appeared in Snapshots of Success from Developing Markets on February 2, 2014.