Friday , June 21 2024

Lessons in business strategy

This article was first published here.

In today’s world, it is tempting for business owners and entrepreneurs to pursue growth at all costs. While growth is important, it is also crucial that those who want to run successful businesses are able to tell when they should invest more in their company and when they should cut back. Sometimes, the best thing you can do is shrink or close down a part of your business for the sake of long-term strategy and to ensure it does not end up harming the rest of your venture and growth potential.

In an era of inflation, high interest rates, and geopolitical instability around the world, there is a case to be made for caution in business growth. That applies to all business leaders, big and small. Recently, Unilever, a giant of the food industry, demonstrated this by announcing it was hiving off its ice cream business, including controversial brand Ben & Jerry’s, which has become well-known for its political campaigning alongside selling ice cream.

Ben & Jerry’s has attracted more than its fair share of headlines in recent years thanks to its unabashed campaigning on a wide range of topics, including immigration and the environment. Despite selling ice cream under the Ben & Jerry’s brand all over the world, Unilever has decided to call it quits and focus on growing other areas of its business. That call comes after a series of high-profile controversies involving Ben & Jerry’s, including their decision to boycott palm oil, an ingredient commonly used in making ice cream, which was widely seen as a misfire.

For a brand like Ben & Jerry’s, whose future profitability is staked on environmentally sustainable ice cream, ditching palm oil is not just a minor slip-up. It is a substantial calamity which has undermined the brand’s reputation, even among its supporters, for environmental activism. That is because the relationship between palm oil and the environment is very different from the picture painted by activists at Ben & Jerry’s.

A new book from Hannah Ritchie succinctly outlines the scale of the mistake. Ritchie, who has built a substantial public profile as a result of her viral statistical analysis for Our World in Data, based at the University of Oxford, has published Not the End of the World. In the book, Ritchie points out that abandoning palm oil, as Ben & Jerry’s did, has second-order effects which can be a disaster for the planet.

When palm oil is removed from an ice cream recipe, it has to be replaced with something else, usually another oil. The problem is that those other oils (which include sunflower oil, soybean oil, olive oil, and rapeseed oil) are much less efficient to produce than palm oil. Their plantations take up more space, which means a larger area of land has to be cleared in order to grow them. For that reason, switching away from palm oil to other products risks causing more deforestation, not less.

Ritchie’s assessment of the scale of this problem is brutal. If more companies boycotted palm oil as Ben & Jerry’s did, they would need five to ten times more land devoted to oil crops overnight. According to Ritchie’s analysis, we currently use around 322 million hectares of land around the world to produce oil crops – an area approximately the size of India.

If we ditched those other oils and switched to palm oil, we would need four times less land—just 77 million hectares. That would free up a very large area of land to be rewilded or used for other purposes. On the flip side, if we switched to another oil, such as olive oil, we would need yet more land—around 660 million hectares, an area of land double the size of India.

Ben & Jerry’s therefore made a mistake, both commercially and politically, by campaigning against palm oil. For that reason, it is looking increasingly like Unilever made the right decision to streamline their business by hiving off the ice cream wing of their company. Difficult decisions like this pay off in the long run.

There are multiple lessons here for business owners and entrepreneurs around the world. First, stay true and tight to your mission. Ben & Jerry’s is an ice cream maker and seller. By branching out into political activism, it put its future sales at risk. Second, and perhaps most importantly, do not pursue business growth at all costs. Unilever has taken the short-term pain of severing its ice cream business as part of a long-term business strategy. That took strength and wisdom. Entrepreneurs should take note.

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