The Ongoing Dynamics of Integrating Sustainability into Business Practice: The Case of Novo Nordisk A/S

Abstract

This study raises the question of how managers can adopt appropriate management control systems to communicate to employees and other stakeholders what behavior is desired, and how they can work to ensure that their corporate sustainability claims are implemented at the operational level. That is, how can organizations demonstrate that their sustainability declarations are not just “good looks”. Specifically, the study unfolds Novo Nordisk’s long-term commitment to sustainable practices and the company’s validation of these practices by focusing on how issues of sustainability have been integrated and cascaded throughout the entire organisation via the company’s “Way of Management”.

Appendices

Appendices

Appendix 1: Novo Nordisk A/S Organisational Structure 2005

Appendix 2: Selected Financial Information

Panel A: Financial Statement Information (in DKK million)^a

	2000	2001	2002	2003	2004
Sales	20,485	23,385	24,866	26,158	29,031
Operating profit	4703	5410	5927	6422	6980
Net profit	3154	3620	4116	4833	5013
Total assets	24,597	28,662	31,612	34,564	37,433
Total current liabilities	5860	6138	6152	7032	7280
Total long-term liabilities	2117	2824	2983	2756	3649
Equity	16,620	19,700	22,477	24,776	26,504
R&D/sales	16.6%	16.6%	15.9%	15.5%	15.0%
Net profit margin	15.4%	15.5%	16.6%	18.5%	17.3%
Return on invested capital	22.3%	22.7%	20.5%	19.5%	20.6%

Panel B: Share Return Information^b

Company	Country	Current	5 Year
Astrazeneca	U.K.	−11.47%	−3.99%
Glaxosmithkline	U.K.	16.48%	−22.78%
Novartis ‘R’	Switzerland	2.16%	9.08%
Novo Nordisk ‘B’	Denmark	−1.55%	44.17%
Roche holdings ‘B’	Switzerland	−11.29%	−11.82%
Sanofie-Aventis	France	32.65%	80.82%
Schering	Germany	18.89%	7.08%
Shire pharmaceuticals	U.K.	5.87%	−39.68%
UCB	Belgium	13.74%	9.71%
Danish market (KFX)		23.14%	17.77%

1. ^aSource: Novo Nordisk A/S – Annual Report 2004; Net profit margin equals net profit as a percentage of sales; Return on invested capital equals operating profit after tax (using the effective tax rate) as a percentage of average inventories, receivables, property, plant and equipment and as well as intangible assets less non-interest bearing liabilities including provisions (the sum of above assets and liabilities at the beginning of the year and at year-end divided by two).
2. ^bSource: Thompson Financial Datastream; the current return is calculated over the period May 1, 2004 – April 30, 2005 and the 5 Year return is calculated over the period May 1, 2000 – April 30, 2005.

Appendix 3: Novo Nordisk’s Vision, Values, Commitments and Fundamentals

The Vision

We want to be the world’s leader in diabetes treatment

We offer products and services in other areas where we can make a difference

We deliver competitive business results

A job with us is more than “just a job”

Our values are reflected in our actions

Our history shows that it can be done

The Values are six corporate values to guide decision-making and action: accountable, ambitious, responsible, engaged with stakeholders, open and honest, ready for change.

The Commitments are a reflection of the commitment to sustainability and to integrating the Triple Bottom Line thinking in organisational practices.

The Fundamentals consist of ten behavioural guidelines on how to organize and behave in everyday organisational life in all units at all levels in Novo Nordisk:

• 1. Each unit must share and use better practices.

• 2. Each unit must have a clear definition of where accountabilities and decision powers recide

• 3. Each unit must have an action plan to ensure improvement of its busienss and performance and working climate

• 4. Every team and employee must have updated business and competency targets and receive timely feedback on performance against these targest

• 5. Each unit must have an action plan to ensure the development of teams and individuals based on busienss requirements and employee input.

• 6. Every manager must establish and maintain procedures in the unit for living up to relevant laws, regulations, and Novo Nordisk policies

• 7. Each unit and employee must know how they create value for their customers

• 8. Every manager requring reporting from others must explain the actual use of the report and the added value

• 9. Every manager must continuously make it easier for the employees to liberate energy for customer related issues.

• 10. Every manager and unit must actively support cross-unit projects and working relationships of relevance to the business

Source: http://www.novonordisk.com/about_us/about_novo_nordisk/the_charter.asp

Appendix 4: Example of a Facilitation

Following are excerpts from a recent facilitation at Diabetes Pharmaceutical Site Hillerød:

Facilitation Start Date:	15 November 2004
Facilitation End Date:	22 December 2004

Purpose and Scope of Facilitation

The purpose and scope of the facilitation is to assess the state of compliance, within Pharmaceutical Diabetes Site Hillerød, with the Novo Nordisk Way of Management, excluding Financial Commitments, and to agree and follow up on actions resulting from the facilitation and to report the results.

At the time of the facilitation the organisation is influenced by a number of changes. The unit VP and the QA (quality assurance) VP were appointed in the Q4 2004 and several department managers have been appointed to their current position within 2004.

Executive Summary

The facilitation of DPSH in Site Hillerød has shown a unit dedicated to live up to the targets and challenges set by Diabetes Finished Products (DFP). All interviewees were aware of Novo Nordisk Way of management and feel that the unit and management are living up to the values of Novo Nordisk. Facilitations show that there are different levels of compliance amongst the departments with respect to the implementation of Fundamentals.

The unit is highly focused on achieving its business targets, sometimes at the expense of overlooking the quality of some of the management processes such as APIS and development planning.

DPSH is currently developing its own strategy in alignment with DFP strategy and business plans. There is a clear understanding by all in the unit that focus must be on supporting the needs defined in the production agreements. Roll out of cLEAN™ is at variable stages within the different functions within DPSH.

Target setting based on the DPSH Balanced Scorecard and follow up needs to be improved for both teams and individuals. The lack of specific targets in some teams also influences the frequency and quality of feedback given in the organisation and needs to be enhanced.

DPSH is as an organisation in close daily contact with its key stakeholders within Novo Nordisk and interviewees are aware of their customers needs.

Source: internal document provided by Eric Drapé, SVP Diabetes Finished Products.

Appendix 5: Indicators of Triple Bottom Line Performance

Strategic area	Indicators	Impact
Living our values
Two indicators show how we live up to the company’s values, as perceived by employees. This is measured as part of the climate survey, eVoice, conducted annualy. One indicator showws follow-up on the facilitation process.	Average of respondents’ answers as to whether social and environmental issues are important for the future of the company.	Organisational support for and understanding of responsible business practices.
	Average of respondents’ answers as to whether management demonstrates in words and action that they live up to our values.	Integration of corporate values in all decisions.
	Percent of fulfilment of action points planned arising from facilitations of the Novo Nordisk way of management and values	Corrective actions on values following facilitations.
Access to health
Two indicators measure progress on one of the programmes for global access to health, the best possible pricing scheme in least developed countries (LDCs). In 2004 there were 50 LDCs.	Number of LDCs where Novo Nordisk operates.	Access to essential medicines.
	Number of LDCs which have chosen to buy insulin under the best possible pricing scheme.	Affordability of essential medicines.
Our employees
Four indicators measure standards of health and safety in the workplace, employee development and equal opportunities.	Frequency of occupational injuries.	Increased quality of life for employees, improved work flow and productivity, and less absence due to illness.
	Employee turnover rate.	Influx and outflux of knowledge.
	Average of respondents’ answers as to whether their work gives them an opportunity to use and develop their competences/skills.	Increased competence level for employees and increase competence capital in the company.
	Average of respondents’ answers as to whether people from diverse backgrounds have equal opportunities (for example in terms of hiring, promotion and training) at Novo Nordisk, regardless of gender, race, ways of thinking etc.	Increased diversity in the workplace.
Our use of animals
Two indicators track efforts to reduce the number of experimental animals and improve their welfare.	Percent of animal test types removed from external and internal specification.	Reduction and replacement of experimental animals.
	Housing conditions for experimental animals, considering the needs of the animals.	Improved welfare of experimental animals.
Eco-efficiency and compliance
Two environmental indicators, eco-productivity indices (EPIs), are based on eco-effeciciency thinking and reflect internationally adopted views. Full compliance with local laws and regulations is a company policy. Certification of production facilities is instrumental to that end.	Annual improvement in water efficiency.	Water use efficiency.
	Annual improvement in energy efficiency.	Energy use efficiency.
	Compliance.	Compliance with regulatory requirements.
	ISO 14001 implementation.	Accidental releases.
		Pollution prevention through decreased use of raw materials, water and energy and decreased environmental impact per produced unit.
Economic contribution
Five financial measures for reporting to shareholders and the financial markets serve as indicators for economic contribution.	Operating profit margin.	Contribution to company efficiency, growth and investors’ economic capacity.
	Growth in operating profit.	Contribution to company growth and investors’ economic capacity.
	Total corporate taxe as share of sales.	Contribution to national economic capacity.
	Return on invested capital.	Efficiency of invested capital, contribution to asset base, and investors’ economic capacity.
	Cash to earnings (3-year average).	Contribution to the company’s degree of freedom in terms of available cash funds (resources).

1. Source: Novo Nordisk A/S Annual Report 2004

Appendix 6: Diabetes Finished Products – Organisational Chart

Source: internal document provided by Eric Drapé, SVP Diabetes Finished Products

Appendix 7: Cascading of Balanced Scorecard 2005 – Ensure Environmental, Social and Ethical Performance

	Operations	Product supply	Diabetes finished products
KPI	1. EPI performance	1. EPI performance	1. EPI performance
	2. CO2 emission reduction target	2. CO2 emissions reduction strategy and action plan.
		3. CO2 emission reduction target.
KPI definition	1. EPI is calculated as the relation between the total yield of product to the respective consumption of water and energy. Performance is tracked annually against previous year.	1. EPI is calculated as the relation between the total yield of product to the respective consumption of water and energy.	1. EPI is calculated as the relation between the total yield of product to the respective consumption of water and energy. Performance is tracked quarterly against previous year. Simple average of the two index is the target.
	2. CO2 emission reduction target to be approved by Environment & Bioethics Committee and communicated to relevant stakeholders	2. A CO2-compliance plan for Bagsvaerd and Hillerod to be drafted and implemented.
		3. Establish an implementation plan for the CO2 strategy with base year 2004.
Target 2005	1. Increase the eco-productivity index for water in the period 2001–2005 by an annual average of 5% corresponding to a total increase in EPI of 30% end of 2005. Increase the eco-productivity index for energy in the period 2001–2005 by an annual average of 4% corresponding to a total increase in EPI of 25% end 2005.	1. Increase the eco-productivity index for water in the period 2001–2005 by an annual average of 5% corresponding to a total increase in EPI of 30% end of 2005. Increase the eco-productivity index for energy in the period 2001–2005 by an annual average of 4% corresponding to a total increase in EPI of 25% end 2005.	1. 2005: Water: 101 energy: 99
	2. S&R to set target.	2. CO2-complaince plan approved by PS management. Information seminar for key internal stake-holders to ensure effective implementation of the CO2 strategy.
		3. Include the CO reduction target in PS BSC06.

1. Source: internal documents provided by Eric Drapé, SVP Diabetes Finished Products

Appendix 8: Cascading of Balanced Scorecard 2005 – Support Diversity

	Operations	Product supply	Diabetes finished products
KPI	1. Equal opportunity implementation.	1. Equal opportunity implementation.	1. Equal opportunity implementation.
	2. Number of EVPs/SVPs that have evaluated progress achieved according to plan as part of the OA process.	2. Number of employees that have evaluated progress achieved according to plan as part of the OA process.	2. Number of employees that have evaluated progress achieved according to plan as part of the OA process.
		3. JTC (job transfer Centre) process is running smoothly.	3. JTC process is running smoothly.
KPI definition	1. Action plans for 2005 achieved.	1. % of targets in the action plans for 2005 achieved.	1. % of targets in the action plans for 2005 achieved.
	2. EVPs/SVPs have evaluated progress.	2. % of EVPs/SVPs that have evaluated progress.	2. Progress evaluated.
		3. The KPI measures: A) JTC’s ability to send the right people to the right job; B) the interviewers acceptance of these candidates.	3. The KPI measures: A) JTC’s ability to send the right people to the right job; B) the interviewers acceptance of these candidates.
Target 2005	1. % of targets in the action plans for 2005 achieved; red <80%, yellow 80%, green >80%.	1. 80%	1. Target > = 80%
	2. % of EVPs/SVPs have evaluated progress according to plan from OA (combined SVPs); red <95%, yellow 95% – 99%; green 100%	2. 100%	2. Target = 100%; evaluation done according to templates from corporate responsibility management.
		3. When JTC has relevant candidates for vacant positions, 90% of those vacant positions must be filled by a JTC candidate.	3. When JTC has relevant candidates for vacant positions, 90% of those vacant positions must be filled by a JTC candidate.

1. Source: internal documents provided by Eric Drapé, SVP Diabetes Finished Products.

Appendix 9: Cascading of Balanced Scorecard 2005 – Ensure Talent Development

	Operations	Product supply	Diabetes finished products
KPI	1. Utilisation of talent pools – % of VP positions filled from talent pools.	1. Utilisation of talent pools – % of VP positions filled from talent pools.	1. Utilisation of talent pools – % of VP positions filled from talent pools.
	2. Employee perception of development based on eVoice survey (development theme).	2. Employee perception of development based on eVoice	2. Employee perception of development based on eVoice
KPI definition	1. VP positions (new or vacant) filled from talent pools.	1. VP positions (new or vacant) filled from talent pools.	1. VP positions (new or vacant) filled from talent pools.
	2. Percentage of units score.	2. Units to score an average of > = 3.0 on the mandatory eVoice theme “development of people”.	2. Percentage of units score 3.0 or above 0 on the mandatory eVoice theme “development of people”.
Target 2005	1. % VPs filled from talent pools. Red <55%, yellow 55%–60%, green >60%.	1. 60%	1. Target > = 60%
		2. 85%	2. Target = 85%

1. Source: internal documents provided by Eric Drapé, SVP Diabetes Finished Products

Appendix 10: Diabetes Finished Products – 2005 Balanced Scorecard

CSF	CSF – Rationale	KPI
Finance
Realise growth in operating profit	Secure industry competitive growth	Operating profit
Ensure competitive ROIC – Working capital and investments	Ensure industry competitive return on invested capital	Inventory
Investments	Ensure investment management	Investments
Business processes
Improve productivity in DFP	Secure cost efficiency in production	Output vs. cost (unit costs)
		Approval of batch records
		Reduction in number of NCs
		Quality cost
		COGS
Timely and efficient execution of investment portfolio	Critical to increase production capacity in future demand and to improve productivity	Progress on major investments projects
Ensure successful implementation of IT projects	Successful implementation and use of IT	IT project milestones
Improve quality management focus in all business processes	Quality issues and documentation will be subject to increasing attention from both customers and authorities	% of non-conformity reports approved
		Audit NC timeliness
		Inspection readiness
		QAP
		Recalls
People & organisation
Increase internationalisation	Support the globalisation of Novo Nordisk	Internationalisation initiatives carried out
Support diversity/social responsibility	Enhance and promote innovation, attraction and reputation	Equal opportunity implementation
		Evaluated progress achieved
		JTC process is running smoothly
Ensure talent development	To ensure specialist and leadership capabilities that will support and drive growth	Utilisation of talent pools
		Employee perception of development
Ensure performance management	Improve individual performance and alignment with overall business goals	Implement uniform global performance management system
	All units with absence due to illness >5% have to decrease this absence	Absence due to illness
Customers & society
Ensure superior customer satisfaction – Improve production quality	Product quality is a critical parameter for achieving customer satisfaction	Customer complaint
Ensure environmental, social and ethical performance	Help the organisation to ensure social, environmental, social and bioethical performance	EPI performance
Ensure timely and efficiently delivery to market	In order to be the world’s leading diabetes care company we have to have products ready to meet customer demands	Affiliate inventory level
		Levemir® finished product production
	Launch of Levemir®

1. Source: internal document provided by Eric Drapé, SVP Diabetes Finished Products

Appendix 11: Performance Index 2005 – for Eric Drapé

	Diabetes finished products
	Weights		YTD Dec 2005 results		Weighted
			Target	Expected	Index	Perf.	Perf. +/−
Finance	40.0					40.0	0.0
Investments		15.0	1762	1762	100	15.0	–
Operating costs*		25.0	2539	2539	100	25.0	–
Customers	30.0					30.0	0.0
Stock outs		5.0	10	10	100	5.0	–
EPI performance		5.0	100	100	100	5.0	–
Production output**
3ml Penfill, fill		10.0	345	345	100	10.0	–
disposables pack (NL,FP,IL)		5.0	164	164	100	5.0	–
vials pack		5.0	102	102	100	5.0	–
Processes	20.0					20.0	0.0
NN248 timeliness***		2.5	100	100	100	2.5
Unit cost		2.5	100	100	100	2.5	–
Number of actual recalls		5.0	4	4	100	5.0	–
FDA Inspection readiness		2.5	100	100	100	2.5
QAP		2.5	80%	80%	100	2.5	–
COGS20, volume/fte		5.0	100	100	100	5.0	–
People & Organisation	10.0					10.0	0.0
Decrease in absence		5.0	10	10	100	5.0	–
JTC		5.0	90	90	100	5.0	–
Total		100.0				100.0	0.0

1. Source: internal document provided by Eric Drapé, SVP Diabetes Finished Products
2. ^*Operating profit target is AB05 plus logbooks and approved target corrections
3. ^**Target to be corrected downwards if reduced demand in local markets create excess capacity
4. ^***Final product specification. Target is August. If target is reached in September = index 66,6, October = index 33,3, November or later = index 0. If target is reached in July = index 133,3, June = index 166,6, and May or sonner index 200