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Sustainability as Innovation Strategy: How Sustainability and Innovation Drive Each Other and Company Competitiveness at Danone

As we mentioned before, Danone started to re-structure the organization as early as 2000. However, it was since 2007 that Danone radically repositioned to align core business with the renewed mission of bringing health through food to as many people as possible around the world.  This strategy needed to be backed up by the entire organization and a series of changes needed to happen. With new companies joining the Group, Baby and Medial nutrition, the new areas of focus as well as the company’s culture needed attention.    

So, at that time, the challenge of change became a great opportunity for the development and implementation of innovations that could foster sustainability inside the organization.  Innovations were implemented throughout the organization for maximum impact. Here we describe some of them:

Organizational Structure Innovations

Danone traditionally has a culture that allows decentralized initiatives to take place, local issues and needs inspire promoting innovation that.   The headquarters in Paris also work intensively in promoting ways for different business units to communicate and exchange systematically.  

Therefore, innovations in the organizational structures were introduced to leverage on this culture of decentralization and innovation. One of the main actions was the creation of committees formed by people from different departments and units designed to generate innovation throughout the organization inspired in two central pillars: (1) sustainability; and (2) competitiveness. Different committees were created to work on nature, social innovation and technological innovation, coordinated by the newly appointed corporate position of Nature Vice President, and with working groups in different countries and units. These committees incorporated the most senior managers to show the organization the seriousness of its commitment, including country presidents, executive committee members and other C-level executives. 

In Danone, unlike many other large companies, the focus on People (what we like to call “Danoners”, but also local communities somehow impacted by the company) is very pronounced.  Human Relations plays a major role at Danone in terms of both performance as well as strategy.  Historically, in the 70’s, the first CEO Antoine Ribaud defended the idea that the company’s responsibility didn’t end at the gates of the factories, extending to the community around it, the Double Project explained before.  In this regard for Danone “people” is the center, both from a business as well as from a sustainability approach. In fact Danone considers environmental issues as a critical trigger of social innovation activities, because the main concern of Danone is how the environment affects people. The social orientation is so engraved and accepted at Danone, that there is the belief embedded in corporate culture that any manager aiming to become a senior executive, for example, will need to have a social experience, that is, to have worked with a social organization or a specific social program, to make sure he or she has that social vision in mind.

Still, the new corporate division and Vice President position was called Nature, and this was not a small decision. The goal was to reflect a holistic approach on the relationship between the environment and people.  The Nature VP position was occupied by a country manager, who originally had a marketing background , but a personal interest for sustainability issues, being in the company for many years.  The sponsor of Nature was a very senior executive at DANONE, Group, occupying a global position. This manager has been a major drive for innovative thinking in Danone and his support allowed Nature to be established as a key aspect for the company’s innovative drive to deal with challenges ahead.

So, although until that moment the majority of initiatives related to sustainability were still under human resources management, the creation of the Nature position and Committee initiated an internal shift.

Carbon footprint Commitment

When Danone began to measure its carbon footprint, it was still uncertain which tool to use. A lot of research and a great deal of daring were needed to decide which direction to go.  According to a senior manager “We spent more than a year testing and developing the measuring tool”.  However, the question was never whether Danone should do it but rather what changes needed to be made to make it happen. In fact here we see a clear example of Danone’s culture of setting crazy goals that produce innovation, as in 2010 the Danone CEO made a public commitment to the community to reduce 30% of carbon footprint by January first 2012, when at that time the company had no idea of how this bold objective could be achieved. “However, everyone at Danone knows that when a clear public commitment is made, the team has to make it happen.  So we worked really hard collaborating with different units to come up with an innovation that was a reliable tool that would deliver the promise our CEO had made” underlined the same manager.

According to the Global Director of Environment and Milk Quality “Setting a crazy goal forced the company to move from its comfort zone, we knew we could reduce 15 or 20% but we didn’t know how to reduce 30%.  We had to invent, re-design, create and dare in order to achieve it. I am convinced today that this big ambition has pushed innovations and big investments in many areas: logistics, packaging, and agriculture.  It generated lots of new ideas and labs.”

Innovation Committees

Formally, Innovation at Danone is part of R&D structures, having specific dedication to the subject. Therefore, in the new business model, R&D was responsible for the Innovation Committees, which exist at country business unit level and at a global level.  At a global level projects are coordinated and prioritized.  At a country level, each country unit proposes specific innovations designed for its specific context, or decides to bring to its domains what is internally referred to as “good practice”.  These good practices are tested and implemented at a local or national level, and if successful these are then presented to the global committee, which decides whether to extend the innovation or “good practice” to a larger region, other countries, or even globally.

The global committee prioritize different projects using the bottle neck approach, and the Committee follows the project’s steps (generation, selection, execution and implementation) giving it a “go or no-go” at each stage.  Part of the committee’s work is to embed sustainable thinking and link its impact to projects as well as to evaluate the sustainability of the innovation process.  As the Global Environmental and Milk Quality Director says, “pragmatism is always a main criteria for the committees”. This way of designing innovations or best practices, testing them and then turning success stories into corporate learning is called at Danone “from Lab to Land”.

From Lab to Land

The idea is simply to experiment at a small scale, and than replicating and escalating successful projects or programs at country, regional or global levels. This process is a part of Danone’s DNA rooted in its culture of making innovation a central part of the business model.  When a project in any area (social impact, technology, agriculture, quality, product, etc) has a successful story, with key learnings, and is developed or mature enough to be “rolled out” to other business units or countries, internal committees such as the innovation committees share the results amongst its members and assist each other on the implementation. Different committees communicate amongst its communities via intranet or the R&D network, so the R&D professional responsible in the country or region matches local opportunities with what is happening in another country or unit, and he or she can bring the successful project to his or her area.

A few examples of Lab to Land:

Between 2003 and 2008 in France, a “lab” project was developed to reduce methane emissions, which was called LINUS.  Initially it was based on feeding the cows with flaxseed and that proved to reduce significantly the cows’ methane emission, and therefore the company’s CO2 emission.  But the initial idea not only had environmental impact, but also an improvement on the milk’s nutritional quality.  The feed was later improved with different types of nutritious elements and the quality of the milk generated a product that fulfilled many potential consumer wants and expectations in terms of nutrition and sustainability. The project was very successful and in 2010 other countries such as the US (Stonyfield Farm), and further Belgium and Germany, decided to implement it as well, thus turning the original small French “Lab” into an international “Land”.

An interesting innovation on the packaging area was created by another initial “Lab” project called “Pick up Out”.  Pushed by the need to reduce environmental impact and CO2 emissions, Danone decided to remove the wrapping paper around its yogurts.  The gain in CO2 reduction was very important, as well as the reduction in cost.  But the impact on sales, according to market research and several tests, was terrible, as consumers saw that not as a reduction in environmental impact, but rather as a reduction in quality.  Furthermore, without the paper, Danone lost visibility in the lining at the stores, which combined generated a significant reduction in sales. Initially conducted on small scale, the “pick up out” project forced the company to re-think it’s packaging and completely redesign it. This generated innovations that turned this project into a very successful “Lab”, with actual gain in market share and significant cost and environmental impact reduction.  The project was then extended worldwide “Land”.

On the logistic area, another “Lab” called “Co-distribution” ended up generating a great impact company wide. The idea was simple, pushed by the need to reduce CO2 emissions and costs, and consisted on distributing Danone products together with various other products to the same clients.  It started in the UK with a partnership with ARLA, a large retailer.  Once the project was implemented and all the key learnings ready to share, it was extended to many other countries and companies, such as Romania and Southern Europe, including companies like Ferrero Rocher, for example, thus becoming another successful “Land”.

Such innovations, following very similar processes, can be found in any areas or units of Danone, such as products, technologies, social issues, environmental issues, marketing plans, management processes and even business models.  When there is an interesting initiative or project, it quickly receives attention form one of the transversal committees, then it is tested, and once it is seen that there is potential, with the Group’s support the company explores the possibility to extend it to other units. 

It is important to underline that “Labs” are not designed to develop solely or even mainly radical innovation. In fact, the Danone “from lab to land” approach is built more on developing incremental innovations, understanding that in order to stay in blue waters the company must be constantly innovating, as radical innovations will by definition be more rare and dramatic, while incremental innovations can be more easily absorbed by the organization and its customers.

One clear example of the Danone “Labs· is the Social Innovation Lab, an event that brings together individuals from all companies belonging to Danone, in order to share stories, discuss success and challenges related to social and environmental projects from each business unit, exchange ideas, promote debate and listen to provocative perspectives.  The event lasts for a few days in Paris and has fostered a large community of peers that although coming from different backgrounds and experiences, share the common belief that social innovation is at the heart of the long term strategy of the company, fostering inspiring conversations that fuel hard work and interesting innovations throughout the organization. For example, the “Lab” held in 2010 in Paris included a real time online discussion with many guest bloggers and activists about issues related to sustainability.  The discussion was transmitted online to all Danoners and the open blog, and brought up attention to several issues such as trust and reputation.  We had to hear some harsh comments and opinions about our business, but we also learned a lot about how to interact with stakeholders that not necessarily agree with what and how we do things.  All this was promoted by the Group and experienced by the professionals that visited the “Lab”.

An extract from the invite brochure at the Social Innovation Lab held in 2010:

Success Measurement and Reward

In order to try and select, filter or aggregate the myriad projects, mainly the social ones, which the company has somehow supported over the years, a new criterion for project evaluation was created.  Danone introduced the idea of “the triple win” to change the way success is measured.  It has instituted policies so that when executives look at new projects they not only study the traditional financial indicators, but also what is called the triple win, which means the project must generate economic value in the short and medium term, it must benefit the environment (or communities), and it must be good for employees. This third part on generating a win for employees is about projects generating learning, development and motivation for workers – about employees opening their minds and learning new competencies that will ultimately benefit the organization.

In other words, the triple win is about generating competitiveness value for the company, generating value for society, and generating value for the people directly involved in the project. Many of the social projects that Danone historically supported lacked one of the three aspects of the triple win. Either the project was simple financial donation, or it was an employee initiative not related to the business strategy, or it was a marketing scheme without a clear or significant social impact.  Therefore, under this new triple win scheme, many of these projects had to be reviewed. Some were deactivated and the ones that were meaningful to the company had to be adjusted.

In Spain, for example, there were two social projects that needed to be readdressed. One related to a major financial donation to the local Children’s hospital that most Danoners were not even aware.  From a business perspective it was important to maintain the support and work together with the medical community on issues related to children’s obesity and malnutrition.  It was needed to address the internal aspect, involving employees and the community.  So, as a result an innovation was developed by the implementation of a program of Storytelling for children, where employees would visit the hospital weekly, interact with the team of volunteers and feel proud and connected to Danone’s initiative. Storytellers and drama teachers trained employees, a library was build at the company, and a group of volunteers was established.  The same issue came across with another important social project to support children from underserved areas in Spain. In this case the innovation consisted of rethinking an existing program involving 17 after-school schemes for children between 6 and 12 years old, where they receive academic and social support through sports, play and health matters.  The employees where not aware and the project, although very successful, had no impact internally and very little impact on the company’s reputation.  Creating awareness and the possibility for interaction was key for the project to contemplate the triple win approach.  The transformation took an entire year but established these projects as successful under this new parameter of generating a triple win for the company, society and Danoners.

From a measurement perspective, if sustainability was to become such a central part of the organizational strategy, it had to be reflected in how the executive bonuses were calculated and paid. With that in mind Danone made the decision that one third of the bonus evaluation of all senior executives (at corporate and country levels, including over 1000 executives), would be based on sustainability performance.  Today, generally speaking, the bonuses of all managers are divided into three parts:

• One third is defined by traditional performance indicators (organizational objectives, which are mainly economic goals shared by the company or unit)
• One third is defined by personal objectives (business drivers, which are the individual objectives that each employee must achieve based on the particularities of his or her responsibilities)
• One third is defined by social performance, which includes environmental performance (sustainability indicators, which are the goals defined for the company or unit in issues such as carbon footprint, social innovation or social programs)

Aside from forcing behavioral change in senior executives, this measure also serves as a symbolic message to all managers and want-to-be-managers that sustainability at Danone is as important as achieving business goals and personal performance. Also it aligns the reward and measurement system with the triple win approach, in that Danone must consider activities based on three equally important indicators: the organization, the individual and society. 

Tools and Metrics

Danone developed tools to aid in setting objectives. For example, all subsidiaries use a common tool developed internally by Danone, called Danone Way, to define social and environmental objectives, which are then ratified by the Group. Once the objective has been ratified for the group it becomes an objective for the affected executives of the subsidiary. One example of an objective developed by a subsidiary is “the implementation of a carbon impact calculator for all stages of the value chain” explains a Carbon Master.

The Danone Way, created initially in 2001, has evolved to what today is called Danone Way Fundamentals and establishes specific objectives in five areas:

• Human rights: the goal is to ensure trust wherever Danone operates through controlling basic issues such as forced labor, diversity and safety.
• Human relations: the goal is to build a solid base to achieve business success and social project (the double project) through issues such as social dialogue, working time, benefits and personal development).
• Environment: the goal is to reduce the footprint in operations, including the supply chain, through issues such as environmental risk management, raw materials, or packaging.
• Customers: the goal is to be in tune with consumer’s needs, through issues such as quality control, nutrition or health.
• Governance & relations with external partners: the goal is to provide a clear reference system that established a framework on how Danone conducts business, through issues such as business conduct policies, suppliers and local communities.

The Danone Way Fundamentals are not goals, but rather minimum standards. Thus, for each of the issues there are different levels of fulfillment, from level 1, which is the minimum required, to level 4, which is the most advanced. In the system, points are assigned for each level (0 for level 1, 10 for level 2, 20 for level 3, and 40 for level 40). Each subsidiary of the Group is rated according to a star system (similar to hotels) and then given an overall rating benchmarked against other subsidiaries of the group of similar characteristics. This way Danone intends to generate internal transparency, while at the same time fostering healthy competition among subsidiaries in the area of sustainability. The entire process is audited externally by KPMG.

Regarding the specific area of environmental impacts, in 2008 the Danone group identified the five areas where its environmental impact is most significant as climate risk, packaging, water, agriculture and biodiversity, and developed policies and objectives for each of these priorities. Danone chose CO2 as a synthetic indicator, which aggregates a large amount of environmental indicators. Therefore, each of the strategic priorities has to have a translation in terms of reducing CO2 emissions.

Danone considers sustainability as a central attribute of its entire product offering rather than a characteristic of a specific line. Not all products have the same sustainability criteria, but they all fulfill a minimum set of standards defined by the company. As an indication of its ambition, Danone has committed to the goal of making five of its top brands carbon neutral by 2012.

Danone has eliminated some packaging and distribution systems. Additionally, the company has realized that 70% of the impact of its products comes from raw materials and other suppliers, not from its factories.  This means working up and down the supply chain to implement long-term sustainability in the product area.  Danone evaluates suppliers on sustainability issues and is part of the SEDEX platform, a joint effort to evaluate suppliers shared by many other multinationals.

Big Goals and Empowerment as Innovation Promoters

Danone challenges itself by defining big goals, which inspire people to generate innovation. The idea is to “put ourselves in situations that force people to think about everything upside down” summarized a manager.  The experience with a dairy factory in Bangladesh is illustrative: “We said that we could not get cold milk. That forced us to think what are we going to do? Then we thought we will first pasteurize and then work the milk differently than we usually do. Then we said, we could not have consistent energy. That forced us to think again what we were going to do? Then we thought we will produce biogas with the cows and see how we can use that, etc,” continues the manager.

An example of a big goal at Danone is the project to make all Actimel bottles from sugar cane: if accomplished, this would reduce the company’s CO2 emissions significantly.

Internally, Danone is designing innovation teams formed by diverse members from different units and backgrounds to think “outside the box.” It is moving away from having R&D functions that are very closed, to having more kind of floating people who are managing networks across countries and business units. The goal is to generate working teams that almost organically become creative and innovative.

The company has also put in place a “lean organization” program directed at reducing hierarchy and empowering employees, with the objective of increasing productivity, creativity and engagement. There is no implementation manual: an idea will go out and the company allows each business unit, factory, and department, to implement an idea that goes out in its own way, according to its possibilities. Subsidiary initiatives have gone ahead without approval from headquarters, such as a move to an ongoing food products donation and awareness program with a food bank in Spain. 

Sustainability and innovation are not tasks or policies that workers must implement, but rather values that they must believe in and that each worker has to translate into a way of thinking about his or her job. Sustainability policies are defined as a set of “fronts” or general goals on which the company must advance, not a list of actions. These fronts are understood as clear goals that people must integrate into their day to day which forces them to be creative and think globally in order to anticipate market and societal expectations.

In most instances sustainability driven innovations that were developed at Danone did not start from a set investment on R&D and the projects did not have initial budgets. Instead, when people feel they have an idea for which they can justify the need, and show the numbers and why it is valuable and will create longer-term value for the company, the door is open to listen to that, and the resources follow.  In Spain, for example, the Sustainability Committee holds regular meetings where these ideas, projects and initiatives can be presented. The Committee is composed by senior management and some experts on specific issues, and helps new ideas by pointing out to weaknesses and strengths, and possible solutions to improve them. It has created an open environment for new leaders and talents to present their ideas and receive feedback from seniors and experts that otherwise would not come across their ideas.  Still, sustainability committees throughout the company have their own formula and composition, allowing different ways of working that suit each business unit. Some units have committees and other don’t, it is an internal choice.

Open Innovation

Danone has also broadened the scope and the vision of its innovation process to allow for small but often radical innovations to be developed around the world. The company has a formal R&D unit, but also has a lot of projects, many of them with external partners, to develop innovation projects. It is working more and more with an external network to develop sustainability driven innovation, and is engaging in new ways of working through partnerships, joint ventures, collaborations, stakeholder engagement and dialogue.

This has prompted the company to question its notion of whom its stakeholders are.  They are “not the big companies that sell the machinery. Then, whom should we talk to? We must talk to veterinarians, people from the village, local suppliers, and so forth. And once you accept this, it changes everything. Then your stakeholders and the resources you need to mobilize or to start the Project are different,” explains a senior manager. This has also meant that the company looks for other resources, such as public funding or finding synergies with business partners or clients.

Danone uses social platforms and technologies to communicate with its wide network of stakeholders. “We manage a network, blogs and a global Facebook to give people around us the opportunity to grow at the same rhythm as us, because if they don’t grow we are limiting our own growth potential” continues the manager The overall objective of the tools being used to measure and manage innovation motivated by the search of sustainability is to “check that we are being innovative, and also check from a sustainability perspective. We have to make sure we are going the right way.  In France, Danone has created a blog called Down to Earth, now a global tool.  The blog invited activists, sustainability bloggers and personalities alike to interact and even challenge our environmental and social projects.

Another very important social platform was the Danone Ecosystem Fund, created in 2009. Its goal is to strengthen our ecosystem, from an economic and social perspective. “Our ecosystem is constituted of all the little companies and people who work with and for Danone everyday,” says the VP of Human Relations. “From farmers to truck drivers and micro-distributors, there are many people who work outside of Danone, but close to the company. If we have a strong ecosystem, it means that we have strong roots to grow from. We are interdependent with these actors.” Hence the mission of Ecosystem: funding projects that consolidate the economic environment of Danone. As of today, the fund helps 40 projects in 20 countries, and is primarily a donation to financially (although other kind of support such as technical, technological or human resources can be given) help NGOs or local suppliers to take off a project.

An extract from the Ecosystems website:

Perhaps the most valuable contribution of these social platforms and initiatives is the possibility to innovate in areas where the company may not fully understand or have experienced before.  Unique knowledge and experiences open new possibilities for employees to bring different perspectives to the business.