Subject: A decade of organizational change at Unilever

General description of the company

Unilever is an international company, which includes Dutch Unilever NV in Rotterdam, and the UK-based Unilever PLC in London. The company was formed from the combination of Dutch company specializing in manufacture and export of margarine- Margarine Unie and Lever Brothers- English company producing coconut oil, and since 1900 soap from olive oil. Both companies used in their production process vegetable fats. In order to avoid a competitive battle for markets and resources they merged in 1929. Unilever mainly produces food, cleaning products and personal hygiene products (FMCG). Unilever has around 200,000 employees in more than 300 facilities across 6 continents. Unilever now has a total of more than 400 different brands around the world, but the company focuses on thirteen of its most profitable brands- so called “one billion-dollar-brands” with an average annual sales exceeding one billion dollars each. Top 25 Unilever brands provide more than 70% of the total annual income.

Central issue of the case

Unilever is one of the oldest multinational companies in the world. Has in its offer food, cleaning products and body care products. It generates $50 billion in annual revenue in different countries. In the past, Unilever was organized in a decentralized manner. Unilever had other companies that were responsible for the production, marketing, sales and distribution of products in different markets. They had full autonomy and were able to independently make a decisions. In the early 1990s Unilever had 17 such companies in Europe, which focused exclusively on the markets in their countries. Back then decentralization was good for the company because it allowed local managers to adapt their products and marketing strategies to local tastes and preferences of customers. In the mid-nineties, this decentralized structure has become too old for the rapidly changing competitive environment. Unilever's main competitors, Nestle and Procter & Gamble have been more successful on several fronts, such as building a global brand and reducing the cost of the product. They were able to effectively combine manufacturing operations while introducing products to the global market. After a while, it was clear that decentralized Unilever strategy worked against efforts to build global brands, also causing high costs of introducing new products to the market. Therefore, in mid-1990s, Unilever has presented a fresh strategy based on regional business groups. Each group consisted of a number of divisions and each division has been focusing on a particular category of products. Through these various groups, it was possible to reduce the cost and accelerate introduction of new products. This new approach was more effective and helped to reduce the number of factories producing the same products. So that costs were significantly reduced. Despite these changes in 2000, the company is still behind its competition. Unilever started reorganizing its structure and product portfolio. Expected savings from reducing the number of brands (from 1600 to 400), will until 2004 reach $1.6 billion. Unilever also announced: the closure of about 100 factories, investing in e-commerce and restructuring several brands.

The company’s goal

Since the establishment in 1929, Unilever has undergone many organizational changes, but the last two decades seem to be more turbulent. Due to the evolution in communication, free trade and development of such markets as Latin America, Asia and Eastern Europe, Unilever become a global company, so it had to adapt its actions to the new environment.

According to Unilever’s CEO- Paul Polman success in the future depends on its ability to separate the company's growth from its environmental impact, while increasing the positive impact of business on society. These are the main objectives of company’s plan to build sustainable business, which was introduced 2 years ago and is the main long-term goal of the company.

Unilever focuses on providing eco-friendly, consistent with ethics and good quality products. This is why the company works with many global organizations on many different levels. Essential and very important group for success of Unilever are employees. In the interest of company is to ensure that they are committed, healthy and motivated. To achieve this, Unilever creates ethically and culturally diverse job programs that develop talents and leaders.

In 2011, the company launched only four product categories: Foods, Refreshment, Home Care and Personal Care. Previously, it was 11 categories. The global market is now divided into 8 units (previously 22) and functions of IT, R&D, HR, finance and supply chain are supported globally. Unilever's new strategy was based on increased promotion of leading brands- such as cosmetics and perfume by Calvin Klein, Lux and Dove soap, Magnum ice cream and Lipton tea- and few leading brands in some local markets. This resulted in limited employment of Unilever mainly in Europe and both Americas. The company had to incur huge costs of restructuring without which it would not be possible to achieve sales growth of 5 percent in 2004 and profit’s growth by 15 percent. The announced restructuring has increased the share price by 4.7 percent in London and by 6.2 percent in Amsterdam. Thanks to this investment bank Warburg Dillion Read changed share recommendation from "hold" to "definitely buy". Although this restructuring process was difficult it resulted in increasing the profitability of the company.

The constraints of global operations

Why Unilever's decentralized organizational structure had earlier sense? Because then there was almost no competition in the markets in which company's products were offered. Unilever remained the largest market share and there wasn’t so much international influence of other companies. However, this structure has started to create problems for the company. Other companies, competitors (Nestlé and Procter & Gamble) started to offer global branded products at a lower price, and by consolidating factories reduced the manufacturing cost, while using the opportunity to placing the same products in several markets. The decentralized structure of Unilever worked against efforts to build a global brand because it drove the company to duplication of production and others processes such as marketing, the company also did not exploit economies of scale and thus generated high costs.

The process of structural change requires a number of steps and it takes a lot of time. By avoiding these steps the company creates only the illusion of rapid change, which does not give acceptable results. (Kotter, 2007). Over the years Unilever adapt its business to the changing structure of the market and competition. The current vision of building a sustainable business comes from inside the company and constantly faces threats both internal and external during implementation.

The main risks are related to the people. Consumer preferences are constantly changing, so the R&D function must be sensitive to new trends in the market in order to develop a strategy for each brand. It is very important for a global company operating in many different markets and introducing their new products to remember about the culture, behavior and habits of consumers. Also employees may be crucial to success of the company so the company should have the ability to attract, develop and retain qualified people from different countries and cultures. The company should have emergency plans in addition to various negative situation associated with suppliers, their bankruptcies and changes in prices or the quality of incoming raw materials. Such situations affect reputation and profits of the company. Such plans can be fixed much easier in a global company that has access to a wide range of suppliers from around the world.

Other important factors that threaten the activities of organization are related to the business environment (politics and society). Unilever as a company which operates globally is more vulnerable to external economic and political risks arising from the volatility of the local law or public sentiment. And these local factors may adversely affect the business operations.

The opportunieties

The main advantage of global operations is access to new markets, new customers and suppliers. Global companies are also increasing their economic efficiency by centralizing some functions of the company (IT, R&D, HR). Thanks to that they better perform specialized tasks such as manufacturing, sales and marketing.

Global companies also benefit from the diversity of cultural, economic and geographic. Acting in different markets and in different cultures have some kind of protection as a global company is not dependent on functioning of single market. Global company has also access to a skilled workforce and a lot of other resources, which may increase the competitive advantage of the organization. Vast resources of skills, knowledge and experience of its stuff are invaluable asset and development factor (Dewhurst, Harris, Heywood, 2012).

Unilever has still limited product categories and clusters which helps in faster decisions making and gives more focus on customer. The company also contributes to the creation of regional economies of scale.

Go further

A major challenge for global players is the scale and diversity of markets in which they occur. Resource allocation and policy making processes are due to diversity of clients and customs in different markets. Firms that decide to go global lose the customization options to local actions. However, Unilever has ability to adjust the organizational structure and culture to an enlarged scale of operations and to changes in the environment. To reduce costs and achieve economies of scale the structure should be based on the regional working groups which allows better understanding of customers and their needs.

Managing a global company is a challenge for years. According to Dewhurst, Harris and Heywood (2012), a global company based in rising markets are developing quicker than their equivalents based in developed countries. McKinsey Global Institute implies that 400 medium-sized cities in emerging markets will cause nearly 40 percent of global growth over the next 15 years. International Monetary Fund affirms that over the next 10 years, the fastest-growing economies will come from emerging markets (Dewhurst, Harris, Heywood, 2012). Unilever's strong presence in these markets suggests that the development of the company under the current structure, seems to be not threatened in the coming years.