Technology and StrategyMOT1433 Dimitrios Bougioukos 4184521 4/25/2012

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Table of ContentsI. A. B. C. II. A. B. C. D. E. F. III. A. B. C. IV. A. B. C. D. E. F. V. VI. A. B. C. D. VII. A. B. C. D. Introduction to Unilever............................................................................................ 3 Corporate Mission ................................................................................................. 3 A brief overview of Unilevers history ...................................................................... 3 Company Structure ............................................................................................... 4 Role of R&D in the company .................................................................................. 5 Unilevers strategic R&D goals ............................................................................... 5 Unilevers R&D budget .......................................................................................... 5 Importance of R&D investment vs marketing investment ......................................... 6 R&D efforts spend on basic research, applied research, development, technical service 6 Changes in the role of R&D in the company over the last 5-10 years......................... 7 Innovation capabilities based on the investments .................................................... 7 Innovation organization ........................................................................................ 8 Generation in which Unilever has currently organized its innovation process .............. 8 Changes in the way Unilever has organised its innovation process ............................ 8 Innovation capabilities based on the innovation organisation .................................... 9 Unilevers innovation system ................................................................................ 10 Internal entities of the Unilevers innovation system .............................................. 10 External entities of Unilevers innovation system.................................................... 10 Interaction between the internal and external innovation entities............................ 10 Changes in Unilevers innovation system ............................................................... 11 Unilevers innovation system strategy ................................................................... 12 Innovation capabilities based on Unilevers innovation system ................................ 12 Conclusion about Unilevers innovation capabilities ................................................... 13 Unilevers major innovations ................................................................................ 14 Unilevers major innovations over the past years ................................................... 14 Nature of these innovations ................................................................................. 15 Impact of these innovations in the market and on society ...................................... 15 Impact of these innovations on Unilever itself ....................................................... 16 Value from innovation ......................................................................................... 16 Mechanisms that Unilever uses to appropriate the value from its innovations ........... 16 Unilevers development of knowledge productivity over the last 5-10 years.............. 17 Unilevers sales revenue over the last 5-10 years................................................... 18 Unilevers net profit over the last 5-10 years ......................................................... 18 1

E. VIII. A. B. C. IX. X. XI.

Unilevers Operational profit or EBITA over the last 5-10 years ............................... 19 Strategic direction ........................................................................................... 21 Unilevers operational cash flow development (Volume, Differentiation, Efficiency) ... 21 Stability of Unilevers strategic direction ................................................................ 23 Relationship between Unilevers strategic direction and its innovations .................... 23 Conclusion from confronting the qualitative and the quantitative analyses ............... 23 Conclusion and recommendations ........................................................................... 25 Bibliography ....................................................................................................... 26

Figure 1: Legal Structure................................................................................................. 4 Figure 2: R&D expenditures vs Marketing expenditures ..................................................... 6 Figure 3: Unilevers Genesis Programme ........................................................................... 8 Figure 4: Unilevers six major R&D labs ............................................................................ 9 Figure 5: Unilevers roadmap of critical capabilities for sustaining a robust innovation process .................................................................................................................................... 9 Figure 6: Unilevers innovation system ........................................................................... 12 Figure 7: Reduction of innovation projects from to 5000 to 700 with an 10x increase in the size of the average project ............................................................................................ 12 Figure 8: Unilevers business model ............................................................................... 16 Figure 9: Unilevers knowledge productivity 2004-2011 .................................................... 17 Figure 10: Unilevers Turnover fluctuation for 2004-2011 ................................................ 18 Figure 11: Unilevers Net Profit fluctuation for 2004-2011 ................................................ 19 Figure 12: Unilevers EBIT fluctuation for 2004-2011 ....................................................... 20 Figure 13: Performance-Volume graph ........................................................................... 21 Figure 14: Differentiation-Efficiency graph ...................................................................... 21 Figure 15: Cash flow development for 2004-2011 ........................................................... 22 Figure 16: Indexed cash flow development for 2004-2011 ............................................... 22

Table Table Table Table Table Table

1: 2: 3: 4: 5: 6:

R&D expenditures vs Marketing expenditures....................................................... 6 Overview of Unilevers innovation organization ................................................... 13 Sales Revenue of Unilever 2004-2011 ............................................................... 18 Net Profit of Unilever 2004-2011 ....................................................................... 18 EBIT of Unilever 2004-2011.............................................................................. 19 Qualitative analysis vs Quantitative analysis ....................................................... 23

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IntroductionI. Introduction to UnileverUnilever is considered as one of the largest companies worldwide within the consumer goods industry and produces many brand name cleaning products, foods and personal care items. Unilever is employing around 171000 people, its Board of Directors is comprised by 8 different nationalities, 55% of its business comes from emerging markets, its products are sold in over 190 countries, in 2011 it invested 1 billion euros in R&D and for 13 consecutive years is the leader in the Dow Jones sustainability index in food producers sector (1). Unilevers diverse product portfolio includes brands such as Lipton, Dove, Knorr, Axe, Hellmans and Omo. About 39% of the operating profit is generated by the personal care sector, 42% by foods sector, 12% refreshment sector and 7% by home care sector (2). This operating profit concerns the global operations of the firm, 35% of it comes from The Americas, 34% from Asia&Africa and 31% from Western Europe (2). It could be said that Unilevers main competitors are Procter&Gamble as well as Nestle. A. Corporate Mission Unilevers corporate mission is focusing in two main areas. Firstly, it aims in the improvement of its customers well-being by the usage of the products and services it delivers. Secondly, it targets in establishing new ways of doing business with a sustainable perspective in order to achieve growth of its size and operations but at the same time to reduce its environmental impact (2). B. A brief overview of Unilevers history Unilever was founded in January 1930 by Antonius Johannes Jurgens, Samuel van den Bergh and William Hulme Lever. During the decade of 20s the trading of oil and fats was continuously growing and it resulted in the formation of Unilever which was consisted of two holding companies Unilever Limited, formerly Margarine Union and Unilever N.V., previously Margarine Unie. This dual formation exists up to the present time with Unilever N.V. located in Rotterdam and Unilever PLC in London (3). The firm had the misfortune to face the great economic depression of 1930s not long after its foundation. However, due to some reformation in the management board and in the governance of the twofold (Dutch and British) firm, it moved smoothly until the end of the 2nd World War having performed several acquisitions of companies around the world. In the post-war era and during the 1950s the company followed the general fast economic growth and the expanding consumer demand. During the 1960s the company faced heavy competition which was boosted by technological breakthroughs in the specific sectors that Unilever was involved. This, in turn, made Unilever to start investing more in Research and Development alongside with building more R&D facilities so as to gain the required knowledge and establish a stronger position in the global market. In the decade of 80s Unilever went through a serious restructuring by selling its service and auxiliary businesses because they were easily available in the market. In addition, the firm embarked on a buying spree which resulted in the acquisition of almost 80 companies. All of the companies 3

acquired where within Unilevers core businesses with the aim to strengthen its competitive future. In the 1990s the firm continued its acquisition strategy with some big takeovers both in monetary and competition enhancing terms. The European business sector of the firm was adjusted to the new economic environment of the single market and later on the whole management structure was reformed. The emphasis of this reformation was oriented towards local markets and in the transfusion of authority in the lower hierarchical levels in order to enhance creativity and effectiveness of decision making. In the closure of the 20th century Unilever was strategically on track by focusing in top brands within its core market sectors and a deliberate will to grow within developing countries. In the recent years after 2000 Unilever is following the same principal strategy, giving priority to its sustainable development with respect to the corporate responsibility that many of the modern organisations are requested to adapt and conform (4). C. Company Structure Unilever N.V. and Unilever PLC along with their group companies operate as one single economic entity. NV and PLC share the same directors, accounting principles, and their shareholders get dividends on an equalized scheme (1).

Figure 1: Legal Structure (1)

The operating model of Unilever is aiming at delivering faster decisions and it is comprised by four main entities: 1. Executive directors: they are also directors of Unilever 2. Non-executive directors: they are acting independently in Unilevers governance 3. Unilever Leadership Executive: his responsibilities evolve around managing profit and loss 4. Senior Corporate Officers: they act as intermediates assuring that all the crucial and relevant information for the organization reaches the Board of Directors.

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Module Innovation OrganizationII. Role of R&D in the companyA. Unilevers strategic R&D goals Accessing Unilevers official website one can identify the strategic goals, statements of what one wants to achieve over a period of time, related to the research and development operations of the company. The key strategic aim of Unilever, as it stated by its Chief R&D officer, is to achieve a double size of business operations while at the same time the overall environmental impact is reduced. Under this main driver R&D functions are targeting towards the direction of stateof-the-art scientific discoveries which have a consumer oriented character and can lead into quick and feasible commercial applications (1). Of course, reaching this desired end-state R&D functions are being driven by several priorities, namely: Develop high quality brands Acquire scientific proof that all products deliver what they claim Guaranteed safety for consumers and alignment with regulation is

Ultimately, R&D functions with respect to Unilevers strategic position serve for: 1. Empowering its capability to exploit bigger market opportunities 2. Identifying the next breakthrough technology which is commercially viable 3. Support Unilevers Sustainable Living Plan launched in 2010 4. Responding rapidly to competitors activities 5. Bigger efficiency: optimizing its manufacturing and distribution networks, driving its costs down B. Unilevers R&D budget The following table contains the R&D budget along with the Advertising and Promotions budget both in absolute terms (million ) and as % of the annual turnover. (Numbers comply with the IFRS standards)(million ) R&D As % of total turnover Advertising and Promotions 2004 972 2.6% 2005 932 2.4% 2006 906 2.3% 2007 868 2.2% 2008 927 2.4% 2009 891 2.2% 2010 928 2.1% 2011 1009 2.2%

4365

4918

5203

5289

5055

5302

6064

6069

5

As % of total turnover

11.7%

12.8%

13.1%

13.2%

12.5%

13.3%

13.7%

13.1%

Table 1: R&D expenditures vs Marketing expenditures (5)

7000 6000 5000 4000 3000 2000 1000 0 2004 2005 2006 2007 2008 2009 2010 2011 Figure 2: R&D expenditures vs Marketing expenditures R&D expenditures (mil ) Marketing expenditures (mil )

C. Importance of R&D investment vs marketing investment Looking at figure 2 one can quickly realize that the marketing investments of Unilever are substantially higher than the R&D expenditures. In 2010, Unilever was listed fourth worldwide by Fast Company magazine for its innovative advertising and marketing programme. Unilevers president of global food, home and personal products, Michael Polk, stated that in 2010 roughly 33% of the turnover was touched by R&D investment and concluded that its a good result considering the industry standards (6). Moreover, he stated that Unilevers goal is to keep delivering new offerings that come from its R&D efforts and help to boost the sales expansion. In that sense, the relative importance of marketing functions for the company is big. The role that advertising and marketing play is integral and aims to sustain the pipeline of innovation. The last statement can be seen to hold true observing the rise in the budget from 2010 to 2011 for marketing expenditures. Again, the essence of the relationship between marketing and R&D investments can be captured by Polks statement that Unilevers primary formula can be seen as great brands and innovation ... the work we are doing in the marketing area on the brands themselves, product quality, product performance and innovation. (6) D. R&D efforts spend on basic research, applied research, development, technical service Since there is no explicit reference in any Unilevers official document about the allocation of the R&D budget for basic, applied research or development and technical service, the 6

assessment will be based on qualitative criteria. The method that can provide more valid results is to search in the annual reports and official website facts about findings and improvements resulting from the R&D functions of the company. Indeed, going through these sources it is observed that R&Ds immediate contribution is divided in two main categories research discoveries and product innovation (1). The first category it can be argued that it falls in the applied research paradigm since all of the discoveries presented are about the improvement of human condition by solving practical problems of the modern world. The second category follows more the development area of R&D efforts in general. Most of the facts presented here are about how scientists in Unilever have succeeded in transforming R&D gained knowledge into products for the final consumer as well as how they improved products already in the market. In the technical service field it doesnt appear to exist any related facts listed except the statement that some of the R&D functions are also targeting to optimize the production process in Unilevers factories around the world. Finally, it can be said that 80% of the R&D budget goes to applied research and development leaving the rest to be allocated to other R&D efforts. E. Changes in the role of R&D in the company over the last 5-10 years From 2004 to 2008 the following statements are found exact the same in the annual reports related to the role of R&D in the company: In (year) Unilever spent million on research and development, representing of our

turnover. Our R&D groups respond to emerging consumer needs revealed in our carefully researched consumer insights and supply a stream of innovation. Our continued sales and profit growth depends in large part on our ability to generate and implement a stream of consumer-relevant improvements to our products. The contribution of innovation is affected by the level of funding that can be made available, the technical capability of the research and development functions, and the success of operating management in rolling out quickly the resulting improvements. Our focus will continue to be on developing our brands in ways that are distinctive and are relevant for our customers.In November 2008 Unilever started reshaping its global R&D activities with the aim to return more competitive in November 2009 and start winning in the key areas of its business activities. The following statement is quoted from the annual report of 2008:

With an integrated global research, product development and implementation programme, the new R&D structure aims to give us competitive advantage in the market through greater efficiency and focus

In this process the role of R&D it can be argued that it was broadened strategically aiming to deliver efficiency except the technical capability to implement enhancements in the products which address effectively consumer needs. F. Innovation capabilities based on the investments Given the figures of the investments both in R&D and Marketing combined with the strategic goals of R&D functions it can be said that Unilevers innovation capabilities are mostly in the area of building public awareness of its innovations and enhance the brand reputation of its products. In addition, Unilever is investing with the ulterior goal to gain the capacity to shape opportunities in the market. In other words, Unilever is pursuing growth through market development by reaching new users, new needs and delivering more value to its customers.

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III. Innovation organizationA. Generation in which Unilever has currently organized its innovation process Currently, Unilever has organised its innovation process according to the open innovation paradigm. There are six major R&D labs in Unilever which drive the R&D functions and the innovation pipeline enhancing this way the absorptive capacity of the organization (1). This, in turn, allows Unilever to embrace an open culture in its innovation process, leverage new ideas and capture benefits by its external network of collaborators such as universities, suppliers, NGOs. Jonathan Hague, Vice President of Open Innovation, in an interview about Unilevers positioning in relation to open innovation stated that the company had always been open in its R&D processes. However, he says that their approach was fragmented and thus shifted to treat open innovation as a critical functional capability or even more a strategic priority (8). B. Changes in the way Unilever has organised its innovation process In 2008 Unilever embarked on the initiative to combine its three separate global R&D operations under one single R&D organisation delivering an integrated R&D programme which finally reduces any overlaps in activities between different labs and enhances the speed of new innovations (9). The new innovation organisation installed was based on four pillars: 1. Prioritisation of programme Here Unilever created the Genesis programme, launced in 2009, which firstly aims to discover a breakthrough technology and then tries to systematically apply it across its business categories. The prioritization process takes into account risk management considerations, decision tree techniques as well as roadmaps and milestones. The following figure gives a rough visualisation of what Genesis aims to achieve in terms of organisation of the various innovation projects:

Figure 3: Unilevers Genesis Programme (7)

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2. Network of major labs The core areas of innovation process and R&D functions take place in the form of an integrated and interdependent network of six major labs across the world:

Figure 4: Unilevers six major R&D labs (7)

3. Prioritisation of critical functional capabilities The innovation process is organised around several critical to Unilever capabilities and also draws strength from them.

Figure 5: Unilevers roadmap of critical capabilities for sustaining a robust innovation process (7)

4. Balancing and securing the long-term The organisation of the process innovation was placed in the continuum between long-term and short-term projects trying to balance and secure Unilevers big portfolio. C. Innovation capabilities based on the innovation organisation Based on the above analysis it can be argued that Unilever has reshaped its innovation organisation building capabilities to direct the internal R&D processes more effectively and

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select the new technologies that will enhance its innovation pipeline and finally help her in the direction of market development.

IV. Unilevers innovation systemA. Internal entities of the Unilevers innovation system Unilevers most important internal R&D entities are (1): 1. Six strategic R&D laboratories which are located in: Bangalore, India Colworth, United Kingdom Port Sunlight, United Kingdom Shanghai, China Trumbull, USA Vlaardingen, the Netherlands 2. 31 major development centres around the world 3. R&D teams throughout 92 locations worldwide 4. 6000 R&D personnel comprised by engineers, scientists, technicians and chefs located in 20 countries B. External entities of Unilevers innovation system Aligned with Unilevers open innovation portfolio, the most important external entities contributing to its R&D efforts are (10): 1. Existing Suppliers 2. Academic institutions: for example partnership with the University of Liverpool which came out of a shared fund by European Union and North West (of England) Development Agency. 3. Start-up or major international organizations: for example the Pepsi Lipton Tea Partnership (PLTP) North American venture established in the beginning of 90s which allowed Unilever to achieve significant volume growth 4. Non-Governmental Organisations: for example in India Unilever came together with NGOs to build a rural network (called Shakti) to sell customised products to more than 100000 villages 5. Individuals C. Interaction between the internal and external innovation entities Trying to understand and delineate how these above entities interact and relate to each other it is deemed appropriate to start from the internal entities of the company. The six major R&D laboratories can be positioned at the base of the pyramid of interrelations and interactions. They are responsible for delivering break-through technologies which then later on pass to the development centres which are focusing in product innovations. Subsequently, both major R&D labs and development centres are guiding the local R&D teams, spread in 92 locations worldwide to deliver product innovations adjusted to the 10

specific features of the local market and also innovations related to the operation of Unilevers local factories. Of course, the 6000 R&D personnel come at the top of the pyramid as they are actually performing these critical tasks with respect to the companys R&D strategic goals. In addition, during the process of innovation R&D teams have a close collaboration with their colleagues from marketing and supply chain departments so the new product fits the brand and can be also smoothly manufactured and distributed (10). Crossing its internal resources and entities concerned with the R&D functions, Unilever has established a number of ways how it interacts with the entities contributing in these very functions and which are coming from the external environment. First, the existing suppliers are valued as one of the key contributors to new ideas and solutions. In that sense Unilever invest much in the formation of strategic alliances with them in order to harness their innovation capabilities. A crucial point which Unilever considers that defines more or less the success of this relationship is differences in corporate culture. Consequently, it devotes extra effort to normalize these discrepancies. Second, Unilever forms partnerships with Universities and specially departments within those institutes that contribute in scientific areas which Unilevers main business and product portfolio is oriented. The key characteristic of these partnerships lies in the fact that research from both sides is driven by the modern urge for sustainable and environmental growth in businesses and operations. Third, Unilever has started the collaboration venturing scheme since the early 90s. In 2001 the relationship between the company and external start-up or established ventures with respect to innovation received a more strategic aspect as Unilever Corporate Ventures initiative was launched. The main direction of this initiative is to incubate promising new ventures and seize their unique contribution for the improvement of their key business areas. Last, Unilever has extended its hand to individuals also by creating a portal where everyone is encouraged to submit his own idea suggesting creative ideas and solutions that might interest the company (10). D. Changes in Unilevers innovation system As it was mentioned before Unilevers innovation system have always been characterized by an open culture. The first official turn to an innovation system relied more on external partners was in 2001 with the Unilever Corporate Ventures initiative. However, the external network of partners concerning innovation processes was put on the strategic map of Unilever later in 2008 as it was presented in section (II) of the paper. From that year and further Unilevers innovation system is becoming increasingly external trying to catch up Procter and Gambles innovation system which is heavily external oriented.

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Figure 6: Unilevers innovation system (7)

E. Unilevers innovation system strategy After the reformation of R&D functions beginning in 2008 and the initiation of Genesis programme in 2009 Unilevers innovation system strategy can be summarized in the following key points: Fewer and Bigger innovations

Figure 7: Reduction of innovation projects from to 5000 to 700 with an 10x increase in the size of the averageproject(7)

Faster roll-out to more markets Leverage open innovation model for more breakthrough innovations Discover and bring to the market science platforms

F. Innovation capabilities based on Unilevers innovation system The analysis of section (IV) clearly indicates that Unilever has developed the required competencies needed to embrace the potential offered by the open innovation model. In other words, the company can tap developments in exogenous improvements of science and technology embedding them in its own innovation pipeline.

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V.

Conclusion about Unilevers innovation capabilitiesR&D role Breakthrough innovations in the area of real consumer need R&D % Generation Innovation system Innovation strategy Fewer-Bigger Innovations/ Fast time to market/ Science platforms Capabilities Sustaining brand/market development/ leveraging exogenous improvements

Unilever

2,2%

4th

Internal and external network

Table 2: Overview of Unilevers innovation organization

It can be argued that overall Unilever has developed the capabilities which enable her to compete in a multinational environment and a global sector such as food production, cleaning and cosmetic products. From part (II) of the analysis it can be concluded that Unilever has the affinity to pursue continuously market development with its R&D efforts and investments. This entrepreneurial attitude shows that Unilever possess dynamic capabilities to adapt and stay competitive in an ever-changing business environment by increasing the awareness and brand identity of its product portfolio. From part (III) of the analysis it is shown that Unilever has achieved by the restructuring of its innovation organisation to direct internal R&D in such a way that leverages its scientific base optimally, recognises new technologies and finally bring them to the market quickly. These fast-cycle development processes enhance its strategic maneuvering in a market environment on the state of flux. In addition, Unilever is investing and improving its capabilities in areas that support and protect this innovation organisation. For example, patents and copyright claims for its scientific discoveries, IT infrastructure to support R&D, involvement with food regulatory organisations. From part (IV) of the analysis its clear that Unilever has done a lot of work to embrace the open innovation model developing several tools towards this direction. Firstly, Unilever reshaped its internal R&D functions so as to gain and empower its absorptive capacity. Next, it formed strategic alliances with external entities to seize exogenous technological opportunities which can add value and boost its pipeline of innovations. Clearly, Unilever seems to understand the new status quo in the global environment in which is competing and tries to leverage ideas which are increasingly coming from the outside. The strategic compass set in 2009 by Unilever requires most of the above mentioned capabilities. The main strategic aim of sustainable growth and doubling of Unilevers size can only be helped by the sharpening of the companys innovation system and organization. Driving volumes up requires the firm to develop the innovation early and quickly with also a bigger value proposal . Then it is needed for the company to have a well-established network of suppliers so that shelf-availability is ensured. Fast-cycle development processes can facilitate a quicker refinement of Unilevers innovation in response to customer feedback and market opportunities.

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Module Innovation PerformanceVI. Unilevers major innovationsA. Unilevers major innovations over the past years As it was mentioned previously Unilever has launched since 2009 the Genesis programme to boost its long-term innovation pipeline and apply disruptive technologies coming from R&D across its various product categories. Unilevers major innovations over the past few years are listed below: Ice cream innovations The core of this innovation, applied across Unilevers ice cream product portfolio, was based on a new ingredient called ice structuring protein (ISP). Unilevers scientists replicated the use of ISP as it can be found in nature and with a stabilizer technology succeeded in making products not to melt so fast and keep their shape while frozen. In addition, this way the company managed to lower the fat and sugar contained in its ice-creams while increasing the fruit content. Magnum ice cream brand was among of the products in which the new technology was incorporated and had a remarkable performance in the related market in 2010 and 2011. (1) Rexona for women deodorant innovation Rexona for women is a long-established deodorant brand and in 2011 Unilever introduced across these products the Motionsense technology. In simple terms, this technology allows a continuous freshness and fragrance to surf up throughout the day when the body is in motion. Rexona for women was re-released in a new package which received the BAMA (British Aerosol Manufacturers' Association) award for economic sustainability. (1) Knorr stock pot innovation The knorr stock pot was introduced in 2007 combining different taste elements that made it to distinguish from traditional bouillon cubes. The idea was to combine the flavour and taste of boiled meat and fresh vegetables. For the development of the product chefs and developers worked in close collaboration. The actual preparation of the product can be described as a gentle simmering of all the ingredients wrapped in a package which requires no artificial preservatives. (1) Pureit water purification system Pureit product was launched in 2005 to provide safe drinking water without the use of any complementary energy supply. The product was designed by Unilever with the collaboration of a design partner who brought his insight in aesthetics and manufacture. Pureit works in four stages before delivering odourless and visibly clear water. (1)

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B. Nature of these innovations The first three innovations can be argued that are mostly related to goods and partially to technologies. The ice cream product innovation it can be divided in two areas, first the discovery of the ice structuring protein which is towards the direction of developing a new technology imitating nature and second the improvement of the ice cream in terms of consumer desires: less fat, better taste. Rexona for women is a similar case, Motionsense technology is developed and introduced with the aim to meet the need for a deodorant which keeps giving freshness throughout the day, of course it has be to mentioned that Rexona for women introduced also an innovative design. With Knorr stock pot innovation Unilever focused less on technology and more on delivering a good which revolutionises the concept of traditional similar products existing in the market. Finally, the Pureit system can be argued that is related with multiple of the above aspects starting from goods and market, since it was the first of these kind of products to be released, along with technology in the sense that combines various technological components to deliver a system. C. Impact of these innovations in the market and on society When it comes to the impact of these innovations it can be argued that they resulted in market development. This holds true if one thinks for a moment what market development means practically and what these innovations finally delivered to the market. The enhancements of all three innovations, ice cream, Rexona for women, Knorr stock pot are delivering more benefits for customers and in turn serve for Unilever to reach more of them and increase likewise the usage of these particular products. For example,Motionsense technology was tested and proved to enhance the performance of Rexona over key products of competitors and is currently deployed across all geographical markets of Unilever. The icecream innovation was transfused into the Magnum brand which was introduced in 2010 and succeeded in 2011 to deliver more than 80 million euros in turnover in two extremely competitive markets such as America and Indonesia (2). Pureit on the other hand had also an impact on society as a whole. Unilever introduced an affordable device (approximately 29) for purifying water in India where annually 400k children die from diarrhoea which is a water-borne disease. By 2009 Pureit was sold across 28 states in India providing safe drinking water to more than 15 million people. The device is being merchandised in several other regions in Asia and South America where a shortage of clean water is an issue (1).

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D.

Impact of these innovations on Unilever itself

Figure 8: Unilevers business model (2)

Unilevers business model, as it can also be seen in figure 8, is based on three pillars. The ultimate goal is to deliver growth in a sustainable way. Based on this it can be claimed that the innovations mentioned earlier are towards the direction of strengthening the various brands of products in alignment with what the current business model instructs. Furthermore, Pureit can be placed on the right lower part of the above triangle since it is also oriented to enhance consumers daily lives and render it more sustainable. Overall, brands are in the core of Unilevers business model and innovation is accommodating its function and ultimately its success. So, from this perspective the specific innovations mentioned along with other product innovations, in recent years, found in annual reports, and official website are contributing twofold, boosting the profitability of brands and helping the company to gain a competitive advantage by growing sustainably itself as well as its customers.

VII. Value from innovationA. Mechanisms that Unilever uses to appropriate the value from its innovations The main mechanism that Unilever uses to appropriate the value from its innovation pipeline is patents. Every year the company files between 250 and 300 new patent applications to protect its inventions. The intellectual property of Unilever worldwide is comprised by over 20000 registered patents and patent applications (1). In addition, Unilever has embarked on an initiative to combat counterfeiting to avoid on one hand the health damage of its customers and the reputation of its brands on the other hand. Subsequently, Unilever has established an internal committee and global alliances within and outside its industry 16

boundaries to address the problem. For example, Unilever is a member in organizations such as the International Trademark organisation and the TransAtlantic Business Dialogue (1). B. Unilevers development of knowledge productivity over the last 5-10 years

Figure 9: Unilevers knowledge productivity 2004-2011

Knowledge productivity has an upward direction since 2004 but it is rather stable around the value of 120%. Focusing on the years after 2008 where the big R&D restructuring took place in the company it can be observed that there was an increase in knowledge productivity 17% in total in 2010. This increase can be attributed to the fact that in 2010 Unilever reported 33% of its turnover was due to products which came from its innovation pipeline of the last two years. However, in 2011 the knowledge returned in the same levels of 2008 which can be characterized rather controversial. A possible explanation could be that Unilever was betting in 2011 to roll-out enhanced products by applying technology and knowledge from its long-term innovation programs which failed to be successfully completed. This can be a plausible reason since the short-term innovation pipeline seems to have been overexploited in the previous period of time. Another reason could be spotted in the increase of the number of employees from 165k in 2010 to 169k in 2011.

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C.

Unilevers sales revenue over the last 5-10 years

2004 Turnover (mil ) 37,168

2005 38,401

2006 39,642

2007 40,187

2008 40,523

2009 39,823

2010 44,262

2011 46,467

Table 3: Sales Revenue of Unilever 2004-2011

48,000 46,000 44,000 42,000 40,000 38,000 36,000 34,000 32,000 30,000 2004

2005

2006

2007

2008

2009

2010

2011

Figure 10: Unilevers Turnover fluctuation for 2004-2011

Its clear that the sales revenue of Unilever has been increasing since 2004 and specially the time period between 2009-2011. Of course, this was expected and also confirms the strategic goal set in 2009 that Unilever is pursuing to double the size of its business activities. D. Unilevers net profit over the last 5-10 years 2004 Net profit (mil ) 2,941 2005 3,975 2006 5,015 2007 4,136 2008 5,285 2009 3,659 2010 4,598 2011 4,623

Table 4: Net Profit of Unilever 2004-2011

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5,500 5,000 4,500 4,000 3,500 3,000 2,500 2004

2005

2006

2007

2008

2009

2010

2011

Figure 11: Unilevers Net Profit fluctuation for 2004-2011

Analysing the development of the company in terms of net profit a mixed picture is created. It is observed that 2007 and 2009 were the worst years since 2004 because net profit declined and in the second case significantly. For 2007 the decline in the net profit is attributed as the annual report informs to initiatives for reduction of Unilevers annual cost base by around 1.5 billion euros through the creation of multi-country organisations (MCOs), the closure or streamlining of 50-60 factories, and a further reduction in regional and global overheads. Going through the annual report of 2009 it is stated that in two key markets for Unilever that year the company didnt adequately follow the pace of competition with several brands lagging behind in terms of consumer benefits, customer service and shelf-availability. E. Unilevers Operational profit/EBITA over the last 5-10 years 2004 EBIT (mil ) 3,981 2005 5,074 2006 5,408 2007 5,245 2008 7,167 2009 5,020 2010 6,339 2011 6,433

Table 5: EBIT of Unilever 2004-2011

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7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2004

2005

2006

2007

2008

2009

2010

2011

Figure 12: Unilevers EBIT fluctuation for 2004-2011

The operating profit (EBIT) as it is observed again follows the same trend as net profit with a big fall in 2009 and restoration in years 2010, 2011. Looking at the excel sheet and the relevant part of the income statement in 2009 specifically General and Administrative expenses were significantly higher than the figure of 2008 which can be attributed to the general restructuring of the company initiated in 2008 to unite its R&D functions and be competitive again so as to increase the size of its business activities and expand in emerging&developing markets. Of course, during 2009 the effects of the credit crunch which took place one year earlier were in full swing making the global economy to slow down and thus driving most financial measures of multinational organisations also down.

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VIII.

Strategic directioncash flow development (Volume,

A. Unilevers operational Differentiation, Efficiency)

Figure 13: Performance-Volume graph

Figure 14: Differentiation-Efficiency graph

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7,000,000,000 6,500,000,000 6,000,000,000 5,500,000,000 5,000,000,000 4,500,000,000 4,000,000,000 3,500,000,000 3,000,000,000 2,500,000,000 2,000,000,000 2004 2005 2006 2007 2008 2009 2010 2011

Figure 15: Cash flow development for 2004-2011 2.5

2

1.5

1

0.5

0 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Figure 16: Indexed cash flow development for 2004-2011

The operational cash flow development of Unilever can be seen to perform a cyclical movement from 2006 until 2009. In the period between 2004-2008 the performance of Unilever is constantly growing, meaning that added value for Unilevers shareholders was also growing. From 2009 until now performance is slightly improved but volume (turnover) has increased by 16 bn euros, it seems that their almost moving along the iso-cash average line which is also confirmed by the figures of EBIT for 2009,2010 and 2011. This stability in the increase of the annual volume is undoubtedly justified by the strategy compass articulated in 2009 but the bet here for Unilever is if it can also improve its performance. The differentiation-efficiency chart is positioning Unilever to start in 2004 from a strategy inclining to differentiation and finally reaching a more efficiency-oriented strategy in 2011. Again, the cyclical movement from 2006 to 2009 is present before the line moves further 22

down the efficiency x-axis indicating that the company is on the path of an efficient strategy leveraging scale effects from the increasing volume it has being achieving. B. Stability of Unilevers strategic direction Arguing about the stability of Unilevers strategic direction its essential to take a closer look at the relative change of cash flow development as it is seen in figure 16. It can be argued that Unilever appears to be exploitation driven in the years between 2005-2011 since its cash flow is rising with the only fluctuations in 2009. This rising exploitation level can make sense if one takes into account the change of focus among its geographical regions and the continuous restructuring of its global operations throughout these years to extent its growth especially in the Africa/Asia markets. C. Relationship between Unilevers strategic direction and its innovations The strategic direction related to its innovation can also be considered stable. Starting from figure 2 its obvious that R&D expenditures in the period 2004-2011 are moving at the same level. Moreover, the marketing expenditures are rising each year, except 2008, indicating this way that Unilever is really backing up its innovation pipeline and tries to establish its new products and existing brands in the market. 2008 is a special year for Unilever because of the global restructuring of its R&D functions but in the following years where marketing expenditures return in higher figures with innovation strategy sharpened the company accomplished to have 33% of its annual turnover coming from product innovations developed in the two previous years.

IX. Conclusion from confronting the qualitative and the quantitative analysesUnilever Major Innovations Impact Value: how? Knowledge productivity Profits2010 back on track

P-V-D-E Direction

P-V-D-E stabilityAfter 2008 increasing V and E, shifting in emerging markets driving competitors out

- Ice creams - Rexona for women - Deodorant technology -Pureit device

Stronger brands, Sustainable business and society

Restructuring innovation pipeline, focusing on emerging and developing markets

Increasing >2004 but in 2011 a short decline

Between 2004-2008 increasing P, After 2008 increasing V and E

Table 6: Qualitative analysis vs Quantitative analysis

Beginning from the qualitative analysis, it was understood that Unilever in the recent years performed innovations mainly related to goods. The impact they had was to strengthen its products brand identity so as to sell more and grow. In the meantime, some of these innovations were aligned and delivered results in the area of sustainable growth which 23

Unilever has set as one of its strategic priorities. Again, this sustainable expansion was transcended to Unilevers customers as it was shown with the Pureit device. These two aspects arising from the qualitative analysis seem to be consistent with the strategic direction of Unilever since 2004 to turn its focus in the emerging markets. The challenges to win in these markets can be roughly summed up as drive low-cost competitors out and provide people a better living with its brand products. In this respect, Unilever, based on the data presented here, is striving to address these two challenges and grow bigger. The quantitative analysis partially confirms the findings and conclusions from the qualitative one. The annual turnover steadily grows over the years indicating the growing path of Unilever where the profit and EBIT results have distinct setbacks in the same time interval. P-V diagram presents fluctuations for 2004-2008 where Unilever is lowering its market share in Western Europe and is trying to gain space in developing&emerging markets. However, stability occurs after 2008 with increasing volume at the same levels of performance (5). In addition, the D-E diagram is following the same path given the context of the strategic direction. When it comes to innovation it cant be argued again that a perfect matching between the two analyses exists. The Knowledge productivity figure is in line with the annual patent file rate but presents a drop in 2011 which from the qualitative analysis can be explained as a halt of the companys long-term innovation pipeline. Finally, it can be argued that the focus in product innovations bore fruits as they amounted for the 33% of the annual turnover.

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X.

Conclusion and recommendations

Conclusions of first module: Unilever is leveraging its R&D efforts towards the direction of market development Unilever recognises new technologies and brings them in the market quickly Unilever protects its innovation organisation through patents, regulatory bodies Unilever has moved to the 4th generation of innovation, open innovation, forming strategic alliances with various entities from its external environment Conclusions of second module: Unilevers major innovations the last few years are related to consumer goods enhancing their function and brand identity. Some of them are the result of the collaboration with key external partners (Pureit). Unilever files 250-300 patents a year and is in possession of a 20k patents portfolio worldwide. Its presence in global trademark organisations is also strong. Knowledge productivity has been increasing since 2004 with a significant improvement from 2008 to 2010. Turnover figures are also rising indicating that Unilever is growing as planned Performance of the company has stabilized over the last two years (2010,2011) Clear direction to efficiency in 2010,2011 At face value, the conclusions drawn from the first module seem consistent with the conclusions and finding of the second. Unilever should continue its strategic focus towards efficiency and presence in developing and emerging markets which represent already 41% of its turnover. What I recommend is that Unilever should identify the areas of its activities where cost-effective models can be applied (production processes, distribution network, raw materials). In this way the company could become even more competitive in the emerging markets by also applying a penetration oriented pricing strategy. This practice can drive volume further up and maximize its share in these markets. We should be always aware that the special characteristic of those markets is the relative low purchasing power of consumers. Moreover, I believe that is crucial for Unilever to identify the reasons which caused its long-term innovation pipeline to present frictions in 2011. Then, it should work to mitigate their suspending impact so as the innovation pipeline stays always sharpened. Product enhancements delivered in a fast pace I deem are vital for Unilever if it wants to establish its brands more quickly. Of course, in this direction marketing function has a lot to contribute and particularly in the area of promotions and advertising. Its an area in which Unilever is performing well but it has to be cautious in order to deploy an effective strategy tailored to the specific context of each distinct local market. This will help eventually the company to increase the install base and brand loyalty of its products.

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XI. Bibliography1. Unilever Global Website. [Online] www.unilever.com. 2. Group, Unilever. Annual Reports and Accounts . 2011. 3. Wikipedia article on Unilever. [Online] http://en.wikipedia.org/wiki/Unilever. 4. Article about Unilever on www.referenceofbusiness.com. [Online] 5.Unilever_charts_20022011.[Online]http://www.unilever.com/images/ir_Unilever_chart s_2002-2011_tcm13-283446.pdf. 6. "Unilever plots R&D drive". Warc. [Online] http://www.warc.com/LatestNews/News/Unilever%20plots%20RD%20drive.news?ID=28028 . 7. Vindi Banga, GeneviveBerger. Winning Through Brands and Innovations. [Online] 2009. http://www.unilever.com/images/ir_WinningthroughBrandsandInnovations_tcm13195246.pdf. 8. Unilever - Open innovation is a strategic priority. innovationuk.org. [Online] http://www.innovationuk.org/news/innovation-uk-vol6-1/0338-unilever---open-innovation-isa-strategic-priority.html. 9. PLC, Press office Unilever. "Unilever reshapes its global research & development". [Online] http://www.unilever.com/mediacentre/pressreleases/2008/Unileverreshapesitsglobalresearch developmen2008121161748.aspx. 10. Article on Unilever's "Open Innovation" scheme. innovationeu.org. [Online] Maritime Media Ltd. http://www.innovationeu.org/news/innovation-eu-vol2-1/0275unilever.html. 11. Group, Unilever. Annual Reports and Accounts. 2004. 12. . Annual Reports and Accounts. 2005. 13. . Annual Reports and Accounts. 2006. 14. . Annual Reports and Accounts. 2007. 15. . Annual Reports and Accounts. 2008. 16. . Annual Reports and Accounts. 2009. 17. . Annual Reports and Accounts. 2010.

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