A7Bhushan Patil Sandesh

Wadekar Rajesh Mudaliyar

Organization Change at Unilever

The Case discusses a long organization restructuring exercise undertaken by Unilever, a Old multinational global fast moving consumer goods (FMCG) company. It examines in details the important elements of the restructuring programme

The Case focuses on the changes made with respect to the organizational structure, various Unilever businesses, branding strategies and supply chain management practices. It discusses the results of the restructuring exercise and examine the company’s future prospects in the light of its falling Market share and the faster growth of many of P&G brands (detergents)

In 1872, two Dutchmen, Jurgens and Van Der Bergh had ventured into the margarine business

In 1927, they decided to merge to form two companies, Margarine Unie NV, based in the Netherlands and Margarine Union Ltd, based in the UK

Unie

Strategy: GrowthTool: Merger

Lever

William Hesketh Lever founded “Lever Brothers in 1885By 1887, introduced “SUNLIGHT, thee worlds 1st packaged

Laundry soapLever & CO. was making 450 tons of Sunlight soap a weekHe expanded his business from UK to Australia, North

America and other parts of EuropeIn 1890, Lever & CO became a limited company – LEVER

BROTHERS LTD, by 1894, they went PUBLICDiversified into other businesses, acquired pears soap and

wall’sLaunched its innovative product, VIM Strategy:

GrowthTool: Acquisition

A New Beginning

Unilever was formed in 1930 from two companies It was a full business merger, operating as a single

business entity Two separate legal parent companies were maintained:

Unilever NV(Netherlands) & Unilever PLC (UK)

This works through an equalization agreement and other contracts between the two companies

About UnileverAround 173000 Employee at the end of 2012On a given day, 2 billion consumer worldwide use Unilever

productProduct Offerings: Personal Care, Detergent, food etcAnnual revenue: in excess of $ 51 billionSells more than 400 products in virtually 190 countryDetergents accounts for 25% of the revenueOmo is one such detergent which is sold in over 50 countriesPersonal Care products account for 15% salesIt includes Cosmetics, Oral care & skin care lotionFood products account for 60% salesIt includes tea, ice cream, frozen foods & bakery productsIn this Unilever market share in most of the countries exceeds

70%

HUL IN INDIAIn 1931, Unilever set up its first Indian subsidiary, Hindustan Vanaspati Manufacturing Company, followed by Lever Brothers India Limited (1933) and United Traders Limited (1935). These 3 companies merged to form HUL in November 1956

HUL’s Brands like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Sunsilk, Clinic, Pepsodent, Close-up, Lakme, Brooke Bond, Kissan, Kwality Wall’s – are household names across the country. They are manufactured over 40 factories across India

The operation involve over 2,000 suppliers and associates. HUL’s distribution network, comprising about 4,000 redistribution stockiest, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers

Decentralized Structure of Unilever before 1990’s

Unilever was organized on a decentralized basis In Europe the company had 17 subsidiaries in the early 1990s, each

focused on a different national market Subsidiary companies in each major national market were

responsible for the production, marketing, sales and distribution of products in that market

Each was a profit center and each was held accountable for its own performance

The structure allowed local managers to match product offerings Marketing strategy to local tastes and preferences To alter sales and distribution strategies to fit the prevailing retail

systems To drive to localization, Unilever recruited local managers to run

local organization To build a common organizational culture among its managers

Reason for, the need or frequent restructuring at Unilever???

Strategy Period Features Advantages Disadvantages

Independent units at various location 1930 - 1979 Matrix Organizational

Structure LocalizationHigh Cost structure,

duplication of manufacturing facilities at

various locations

Focused Growth 1980 - 1995

Concentration on 4 industries, 100 acquisition, 38

companies acquired in 1995

concentration on both developed & Emerging

markets

Too many acquisitions, accountability &

responsibility, complexity, difficulty in decision making

Breakthrough Sustainability Strategy 1996 - 1999

Variable Pay, 3 member committee

was dissolved, 7 member committee was appointed, 1st Non Dutch & British Chairman appointed

Focus on core competencies,

Operations were grouped by product

combination of "Global Push & Local Pull"

No fit between structure & strategies, Dip in market share prices, too many brands resulted in "Last

Focus". Big dip in market share

Path to Grow Strategy 1999 - 2004

Brand portfolio of 1600 became 400 for

better focus. 150 units closed down

for cost control, 55000 employees

laying off

Focus on core competencies. 400 brands contributed 93% Sales increased

by 30%, focus on brands & decision

making. Profit increased by 4-5%

Sales dropped by 15%, Profits fell by

13%, Top Line Growth reduced to

3%, Share price felled down by 7%, EPS effected, High cost & advertising

budget for maintaining non performing 1200

brands

Growth to vitality Strategy 2005 - 2010

High concentration on Emerging

markets. Company simplified its management

structure, 20000 job cuts in Europe. Target: 3 - 5 %

Organic growth

41% revenues were generated in developing

countries. Focus on advertising and

promotion

Why there was a need for New Organizational Structure???

Early 1990s the competitive environment was changing

Creation of a single market in 1992 in European Union

This made it possible to manufacture certain items such as detergents and margarine at favorable central Unilever introduced a new organizational architecture

based on regional business groups, each of which contained product division

Unfortunately for Unilever, some of its global competitors moved more rapidly to exploit this changes in the

competitive environment To reestablish a fit between competitive environment, Unilever had to embrace the difficult process of strategic &

Organizational Change

Centralized Unilever

• Facilitate Coordination

• Decision Making

• Authority & Power

• Avoid Duplication of Subunits

• Cut from 10 to 2

• Manufacturing at Only One Site

• Pan-European Advertising

By taking these Steps, Unilever estimated it may save as much as $400 million a year in its European Operations

Problems at UnileverUnilever’s Market Capitalization of about £ 82 Billion

in June 1999 Shrank to £ 20 billion by January 2000 (Stock Prices Plunged)

Company’s existing brand structure had lost its focus

Unilever was criticized for spending large amounts of funds due to frequent restructuring over the year

Unilever market share was taking a big time hit

There was no fit between the company’s organizational structure and its strategies

Current Structure

The Day to day operation are supervised by the National Management comprising the Vice Chairman, Managing Director (HPC), Managing Director (Foods) and the Finance Director

Each division is self-sufficient with dedicated resources and assets in sales, marketing, commercial, and manufacturing

In Marketing each category has a Marketing Manager who heads a team of Brand Managers dedicated to each or a group of brands

Unilever grouped its worldwide operations into 2 global division. Foods and Home and Personal Care. It uses the worldwide geographic area structure

ASIA

Latin America

UnitedStates

Australia

Europe

AfricaMultinational

Head Quarters

In 2012, we continued to make good progress in the transformation of Unilever to a sustainable growth company. We exceeded €50 billion turnover,

with all regions and categories contributing to growth.Key Financial Indicators

Underlying SALES Growth

6.9%2011: 6.5%

Underlying Volume Growth

3.4%

Core Operating

Margin

13.8%

Free Cash Flow

€ 4.3billion

2011: 1.6%2011: 13.5%

2011: €3.1%

Turnover by Geographical Area

Asia/AMET/RUBThe AmericasEurope

40%33%27%

Operating Profit Geograph-ical Area

Asia/AMET/RUBThe AmericasEurope

38%

35%

27%

Challenges of Unilever & Our Learning

Challenges in 21st Century

Our Key Learning's

• Divestment/Reduce Number of Target

• Cost Cutting & improving margins

• Streamline the management & Leadership to fight risk & competition

• Concentration of 400 Brands • Acquisitions• Concentration on Asian

Giants

• Importance of Organization structure in Global competitive market

• Importance on “Acquisition” as an Strategy

• Adaptability of Unilever in Global Market

• Dynamics of changing international market

• Importance of Employee Training

Unilever Initiatives Save the Children

What was the need for unilever to have separate legal identity but operate as a single entity ?? Can

unilever plc and unilever nv fuse, in future ???

What was the reason for, the need of frequent restructuring at unilever ??

Pan European Advertising Worked????

Had unilever grown more than its cradle ??

Should unilever opt for umbrella branding ever in future ? If yes, why?? If no, why???