Harvard Case - Gotong Royong: Toward Sustainable Palm Oil
"Gotong Royong: Toward Sustainable Palm Oil" Harvard business case study is written by Rebecca M. Henderson, Hann-Shuin Yew, Monica Baraldi. It deals with the challenges in the field of General Management. The case study is 25 page(s) long and it was first published on : Mar 17, 2016
At Fern Fort University, we recommend that PT. Sawit Lestari (PSL) implement a comprehensive strategy to achieve sustainable palm oil production while addressing stakeholder concerns and fostering long-term growth. This strategy will incorporate elements of corporate social responsibility, innovation, digital transformation, and strategic partnerships to ensure the company's success in the evolving global palm oil market.
2. Background
This case study focuses on PT. Sawit Lestari (PSL), a leading Indonesian palm oil producer facing growing pressure to adopt sustainable practices. The company's reliance on traditional methods, limited transparency, and lack of stakeholder engagement have led to criticism from environmental groups and consumers. PSL's CEO, Mr. Surya, recognizes the need for change and seeks to navigate the complex landscape of sustainability, balancing economic growth with social and environmental responsibility.
3. Analysis of the Case Study
Strategic Framework:
To analyze PSL's situation, we apply a combination of frameworks:
- Porter's Five Forces: The palm oil industry is characterized by intense competition, with numerous players and increasing demand. However, the industry is also subject to significant regulatory pressure, increasing consumer awareness, and the emergence of alternative oils, creating a complex competitive landscape.
- SWOT Analysis: PSL possesses strengths in its established production infrastructure and strong market position. However, weaknesses include its reliance on traditional practices, lack of transparency, and limited engagement with stakeholders. Opportunities lie in adopting sustainable practices, leveraging technology, and building strategic partnerships. Threats include increasing regulations, consumer boycotts, and competition from sustainable palm oil producers.
- Balanced Scorecard: PSL needs to balance its financial performance with environmental, social, and governance (ESG) considerations. Key performance indicators (KPIs) should be established to measure progress in areas such as deforestation rates, greenhouse gas emissions, community engagement, and employee well-being.
Key Challenges:
- Sustainability Practices: PSL needs to adopt best practices in sustainable palm oil production, including reducing deforestation, promoting biodiversity conservation, and minimizing environmental impact.
- Stakeholder Engagement: Building trust and transparency with stakeholders, including local communities, NGOs, and consumers, is crucial for PSL's long-term success.
- Innovation & Technology: Adopting innovative technologies for efficient resource management, traceability, and data analytics is essential to improve operational efficiency and transparency.
- Organizational Change: Transforming PSL's organizational culture to embrace sustainability, innovation, and stakeholder engagement requires effective leadership, communication, and employee training.
4. Recommendations
1. Implement a Comprehensive Sustainability Strategy:
- Develop a clear sustainability policy: Align with international standards like the Roundtable on Sustainable Palm Oil (RSPO) and define specific goals and timelines for achieving sustainability targets.
- Invest in sustainable practices: Adopt technologies for precision agriculture, zero-deforestation practices, and responsible land management.
- Establish a dedicated sustainability team: This team will oversee the implementation of the sustainability strategy, monitor progress, and engage with stakeholders.
2. Enhance Stakeholder Engagement:
- Establish transparent communication channels: Provide regular updates on sustainability efforts and engage in open dialogue with stakeholders.
- Develop community partnerships: Invest in local communities through education, healthcare, and infrastructure projects.
- Collaborate with NGOs: Work with reputable NGOs to monitor environmental impact and ensure compliance with sustainability standards.
3. Embrace Innovation and Technology:
- Invest in data analytics and traceability systems: Track palm oil production from farm to market, ensuring transparency and accountability.
- Explore blockchain technology: Use blockchain for supply chain management, enabling real-time tracking and verification of sustainable practices.
- Develop partnerships with technology companies: Collaborate with tech providers to develop innovative solutions for sustainable palm oil production.
4. Foster Organizational Change:
- Promote a culture of sustainability: Integrate sustainability principles into all aspects of the business, from procurement to marketing.
- Provide employee training: Educate employees on sustainability best practices and the importance of stakeholder engagement.
- Reward sustainable behavior: Implement incentive programs for employees who contribute to achieving sustainability goals.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: PSL's commitment to sustainability aligns with its mission to provide high-quality palm oil while contributing to the well-being of its stakeholders.
- External customers and internal clients: Meeting the growing demand for sustainable palm oil from consumers and retailers is crucial for PSL's long-term success.
- Competitors: Adopting sustainable practices and embracing innovation will allow PSL to differentiate itself from competitors and gain a competitive advantage in the evolving palm oil market.
- Attractiveness: Investing in sustainability will enhance PSL's brand reputation, attract investors, and improve access to new markets.
6. Conclusion
By implementing these recommendations, PSL can transform itself into a leading sustainable palm oil producer, achieving long-term growth while contributing to a more sustainable future. This strategy will require a commitment to continuous improvement, stakeholder engagement, and innovation.
7. Discussion
Alternatives:
- Status Quo: Continuing with current practices would lead to increasing pressure from stakeholders and potentially damage PSL's reputation.
- Limited Sustainability Efforts: Implementing only a few sustainability initiatives without a comprehensive strategy would be insufficient to address the challenges and meet stakeholder expectations.
Risks and Key Assumptions:
- Implementation Challenges: Change management and resistance to new practices could hinder the implementation of the strategy.
- Financial Costs: Investing in sustainable practices and technology requires significant financial resources.
- Market Volatility: Fluctuations in palm oil prices and consumer demand could impact PSL's profitability.
Options Grid:
| Option | Advantages | Disadvantages | Risks |
|---|---|---|---|
| Comprehensive Sustainability Strategy | Improved brand reputation, increased market access, long-term growth | High initial investment, potential implementation challenges | Market volatility, consumer preferences |
| Limited Sustainability Efforts | Lower investment, less disruptive to existing practices | Insufficient to address stakeholder concerns, limited competitive advantage | Negative brand perception, regulatory pressure |
| Status Quo | No immediate change, cost-effective | Increasing stakeholder pressure, reputational damage, loss of market share | Regulatory sanctions, consumer boycotts |
8. Next Steps
Timeline:
- Year 1: Develop sustainability policy, establish a dedicated team, implement pilot projects for sustainable practices, and enhance stakeholder communication.
- Year 2: Expand sustainable practices across all operations, invest in data analytics and traceability systems, and build strategic partnerships.
- Year 3: Achieve full compliance with sustainability standards, establish a robust monitoring and evaluation system, and promote PSL's sustainability achievements to stakeholders.
Key Milestones:
- Develop a comprehensive sustainability strategy: Within 6 months.
- Implement pilot projects for sustainable practices: Within 12 months.
- Establish a dedicated sustainability team: Within 6 months.
- Launch a stakeholder engagement program: Within 3 months.
- Invest in data analytics and traceability systems: Within 18 months.
By taking these steps, PSL can navigate the complex landscape of sustainability, achieve sustainable growth, and become a leader in the global palm oil industry.
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Case Description
In late 2015, Jeff Seabright, Chief Sustainability Officer at Unilever, had to report to Unilever CEO Paul Polman on the effort to transform the cultivation of oil palm. Historically, palm oil was produced using unsustainable methods that included burning large tracts of forest land which destroyed wildlife habitats, displaced native populations, and emitted greenhouse gases into the atmosphere. Global demand for palm oil was increasing which made the situation worse. Unilever was the largest single buyer of palm oil, purchasing about 3% of global production, and had been an active promoter of sustainable palm oil production. In 2015, 60% of globally traded palm oil was covered by sustainability commitments, up from 5% in 2008, but there was more to be done. Palm oil-driven deforestation and different kinds of social issues continued across the world, especially in Indonesia and Malaysia, which produced 80% of palm oil. The case discusses the sustainability strategy implemented by Unilever across time with regards to palm oil, together with the efforts implemented by other organizations such as the Consumer Goods Forum, the Roundtable On Sustainable Palm Oil, social and environmental NGOs, Unilever's competitors and the local governments in Southeast Asia. What more could Unilever do to advance the diffusion of sustainable palm oil?
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