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Case Study -A decade of organisational change at Unilever
Case Study -A decade of organisational change at Unilever
Unilever is one of the world’s oldest multinational corporations with extensive product offerings in the food, detergent, and personal care businesses. It generates annual revenue in excess of $50 billion and a wide range of branded products in virtually every country. Detergents, which account for about 25 percent of corporate revenues, include well-known names such as Omo, which is sold in more than 50 countries.
Personal care products which account for about 15 percent of sales include Calvin Klein cosmetics, Pepsodent toothpaste brands, Faberge hair care products and Vaseline skin lotions. Food products account for the remaining 60 percent of sales and include strong offerings in margarine (where Unilever’s market share in most countries exceeds 70 percent), tea, ice cream, frozen foods and bakery products.
Historically, Unilever was organised on a decentralised basis. Subsidiary companies in each major national market were responsible for the production, marketing, sales and distribution of the products in that market.
In Western Europe, for example, the company had 17 subsidiaries in the early 1990s, each focused on a different national market. Each was a profit centre and each was held accountable for its own performance. This decentralisation was viewed as a source of strength. The structure allowed local managers to match product offerings and marketing strategy to local tastes and preferences and to alter sales and distribution strategies to fit the prevailing retail systems.
To drive the localisation, Unilever recruited local managers to run local organisations; the U.S. subsidiary (Lever Brothers) was run by Americans, the Indian subsidiary by Indians, and so on.
By the mid-1990s, this decentralised structure was increasingly out of step with a rapidly changing competitive environment. Unilever’s global competitors, which include the Swiss firm Nestlé and Procter and Gamble from the United States, had been more successful than Unilever on several fronts- building global brands, reducing cost structure by consolidating manufacturing operations at a few choice locations, and executing simultaneous product launches in several national markets.
Unilever’s decentralised structure worked against efforts to build global or regional brands. It also meant lots of duplication, particularly in manufacturing; a lack of scale economies- and a high-cost structure. Unilever also found that it was falling behind rivals in the race to bring new products to the market.
In Europe, for example, while Nestlé and Procter and Gamble moved towards pan-European product launches, it could take Unilever four to five years to “persuade” its 17 European operations to adopt a new product.
Unilever began to change all this in the mid-1990s. In 1996, it introduced a new structure based on regional business groups. Each business group included a number of divisions, each focusing on a specific category of products. Thus, the European Business Group had a division focused on detergents, another on ice cream and frozen foods, and so on.
These groups and divisions co-ordinated the activities of national subsidiaries within their region to drive down operating costs and speed up the process of developing and introducing new products. For example, Lever Europe was established to consolidate the company’s detergent operations. The17 European companies reported directly to Lever Europe. Using its newfound organisational clout, Lever Europe consolidated the production of detergents in Europe in a few key locations to reduce costs and speed up new product introduction.
Implicit in this new approach was a bargain: the 17 companies relinquished autonomy in the traditional markets in exchange for opportunities to help develop and execute a unified pan-European strategy. The number of European plants manufacturing soap was cut from 10 to 2, and some new products were manufactured at only one site.
Product sizing and packaging were harmonised to cut purchasing costs and accommodate unified pan-European advertising. By taking these steps, Unilever estimated it saved as much as $400 million a year in its European detergent operations.
By 2000, however, Unilever found that it was still lagging behind its competitors, so the company embarked upon another reorganisation. This time the goal was to cut the number of brands that Unilever sold from 1,600 to just 400 that could be marketed on a regional or global scale. To support this new focus, the company planned to reduce the number of manufacturing plants from 380 to about 280 by 2004. The company also established a new organisation based on just two global product divisions-a food division, and a home personal care division.
Within each division are a number of regional business groups that focus on developing, manufacturing, and marketing either food or personal care products within a given region. For example, Unilever Bestfoods Europe, which is headquartered in Rotterdam, focuses on selling food brands across Western and Eastern Europe, while Unilever Home and Personal Care Europe does the same for home and personal care products. A similar structure can be found in North America, Latin America and Asia.
Thus, Bestfoods North America, headquartered in New Jersey, has a similar charter to Bestfoods Europe, but in keeping with differences in local history, many of the food brands marketed by Unilever in North America are different from those marketed in Europe. (Hill, 2011)
Answer all three questions:
Introduction: An examination of the strategies adopted by Unilever to develop a position in the global marketplace.
Literature Review and Critical Analysis:
analytical techniques including the PESTEL, Porter’s Diamond model and risk analysis. This techniques should analyse the organisational culture and organisational culture used for market development by a business
discuss the impact this strategy has on the following issues: strategic choices of the company, integration of the functional strategies of the business, corporate culture of the business, human resource management strategies used in the company and risk analysis.
Conclusion and Recommendation: Discussion of the business challenges and opportunities that may prevent or help the company from sustaining a successful business development strategy. Suggest the most suitable strategies based on the analysis.
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