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Transcript of 3101 present.
Richard Hoskins OVERVIEW Question 1 – Why did Unilever’s decentralisation make sense in the 1950s-70s? Why did this structure start to create problems for the company in the 1980s? Question 3 – Unilever switched to a structure based on global product division. What do you think is the underlying logic for this shift? Does the structure make sense given the nature of competition in the detergent and food business? Question 2 – What was Unilever trying to do when it introduced a new structure based on business grounds in mid 1990s? Why do you think this structure failed to cure Unilever’s illness? QUESTION 1 Wh did Unilever’s decentralisation make sense in the 1950s-70s? Why did this structure start to create problems for the company in the 1980s? HISTORICAL OVERVIEW 1910s 1920s MARGARINE UNIE LEVER BROTHERS 1930s 1940s 1910s 1950s 1960s 1970s 1980s 1990s 21st Century 1990s 21st Century Decentralisation " the spread of power away from the center to local branches or governments" Reasoning behind Unilever's Decentralisation Unique corporate History 1930s - exchange controls & frozen currencies; inability to move profits out of the country Unique Corporate History Consequence: invest in enterprises unconnected with their core businesses - oil and fat products MNE Growth Strategies Multinational Growth Strategies Multinational/Multi-Domestic Strategy Characteristics: Focus on national differences
High pressure for local responsiveness
Low pressure for cost reduction
Value created by extensive customisation Multinational/Multidomestic Strategy Problems: High cost structures
'Decentralised federations' Decentralised Subsidiaries Local Entreprenuers Subsidaries face Low pressure of integration
High pressure of localisation Role: Differentiate products to serve local needs
Make independent decisions HQ-Subsidiary
Relationships Business Line Diversification Related diversification
Unrelated diversification Unrelated Diversification Characteristics: Unrelated business line
Use excess cash
Managerial opportunism WWII & Aftermath During WWII, Unilever business was broken up;
After WWII, Unilever regained control of its international network Policy Decentralisation process continued as a policy decision Limited central direction post WWII
Barriers to flows of knowledge still existed Corporate Vision Unilever was "determined to see the differences between the markets." Unilever's Decentralisation Promote localisation
Match product and marketing to local preferences
Sales and distribution strategy 1950s-1970s Decentralisation was viewed as a source of strength 1950s-1970s opportunities for expansion
rising global living standards
restructure of Unilever - grow brands internationally Upcoming Issues Leading up to 1980s, hard economic conditions
Growth of large retailers - shift in negotiation power Problems with decentralisation in
1980s Beginning of 1980s Ranked 26th largest company worldwide
Plastics; Packaging; Tropical plants; Shipping line; Food; Home & Personal care products Unilever's Problems Globalisation and competition
High cost structures
Managing unrelated lines of businesses Decentralisation Problems Spreading innovation
Inefficent decision making
Managerial costs Strategic Change Question 2: What was Unilever trying to do when it introduced a new structure based on business grounds in mid 1990s? Why do you think this structure failed to cure Unilever’s illness? Mid-1990s Unresponsive, outdated
Fierce competitive environment
Did not exploit falling trade barriers Global Competition Unilever's decentralisation presented issues of.. Weaker brands internationally
High cost structure with low economies of scale
Failed to catch up to new competitive brands in the market Revisiting Catalyst for structural change vs Multidivisional Structure Per Region Lever EU 17 European companies unified,
resulted in: Production consolidation
Reduction in plants
Homogenised marketing Overall Result Centralised manufacturing
Centralised product development
Execution of pan-regional product launches New Management Acqusitions 1996, Helene Curtis Industries
1996, Northbrook Diversey Corp
1999, Kibon S.A. Industries Alimentica Decentralisation Issues Why did it fail to cure Unilever's "illness"? Failing to compete Lagging behind
Market capitalisation dropped from £51 Billion to £20 Billion Main Issues TOO MANY (1600) BRANDS = lack of focus
High restructuring costs what is the 'illness'? Unilever concentrated on fixing structure and performance issues Real issue: lack of focus core competencies Question 3: Unilever switched to a structure based on global product division. What do you think is the underlying logic for this shift? Does the structure make sense given the nature of competition in the detergent and food business? Consolidation through Restructuring:
"Path to Grow" Plan 2000 Unilever announced 5 year growth plan
Idea: "shrinking to grow" 2 Global Units Restructures 1950s-1970s 300 operating companies into 10 groups
Reduced brand portfolio from 1,600 to 400
Acquired other notable brands over the 5 year period Restructures Other Changes Shut >100 manufacturing facilities (2004)
10% of the employee base/25,000 workers
Top executives replaced by younger people
10% increase in production outsourcing (2003)
Overall decentralization of control Result Results Why This Structure? Statistical Problems Lag in local responsiveness and brand awareness
Loss in market capital
Too many brands Concept vs. Process 4 key questions 1. What is the strategic role of the corporate centre?
2. What is the logic of the portfolio?
3. What is the nature and extent of diversification?
4. Is the corporate control style appropriate? 4 rationales 1. Portfolio managers
3. Synergy managers
4. Parental developers Multiple
Rationales Dual structure allows focus
Transparent and accountability
Electronic integration effect Strategic role of
corporate centre Does Change in Brand Portfolio
match overall Strategy? BCG Model Directional Policy
Matrix Parenting Matrix Overall structure Restructuring and consolidation were logical and rational
Focus on core competentcies achieved Does structure make sense given nature of competition in detergent and food business? Consumer Goods Industry Traditionally tailored to local consumers
Decentralised and autonomous Business unit structure
Constant R&D to meet consumer demands
Falling trade barriers
New products gain regional and global acceptance Porter's Industry Model End of 2000 • Sales increased by 16%
• Share price had recovered by 30%
• Average earning per share increased by 9%
• Turnover increased to 47,582 million in 2000 (euros) Also.. 1.75 million euro saving in logistics
•Annual top line growth of about 4-5%
•And by 2003,profit had increase by 166% Unilever 2003
Onwards 2003 Sales dropped by 15% and Profit fell by 13% 2004-2010 Growth to vitality strategy
Focus on developing markets 2008 & 2010 Further restructuring (2008)
Sustainable Living Plan (2010) Overall results of strategic implementation + Building global brands
+ Reducing cost structures
+ Executing simultaneous product launches Old Management Major progress in cutting costs
Lacked dynamic and constructive risk-taking
Structure not main problem - bogged down by number of brands Results of Restructuring Thank You. Ding, H., Wang, Y. & Zhu, Y., 2009, ‘Research for Evaluation of Regional Strategy Industry and Selection of Development Strategy Based on Rough Theory and BCG Matrix’, 2009 International Conference on Electronic Commerce and Business Intelligence, pp. 345-352.
Faulkner, D. & Bowman, C., 1995, ‘The Essence of Competitive Strategy’, Prentice Hall, Hemel, Hempstead.
Hambrick, D., 1982, ‘Strategic Attributes and Performance in the BCG Matrix – A PIMS-Based Analysis of Industrial Product Businesses’, Academy of Management journal, vol. 25, p. 510.
Jones, G., 2005, ‘Renewing Unilever: Transformation and Tradition’, Oxford University Press, New York, pp. 54-88.
Jones, G., Miskell, P., 2005, ‘European integration and corporate restructuring: the strategy of Unilever, c. 1957 – c. 1990’, The Economic History Review, vol.58, pp. 113-139
Maljers, F., 1992, ‘Inside Unilever: the evolving transnational company. (Company Profile)’, Harvard business review, vol. 70, no. 5, p. 46.
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Unilever, 2012, accessed 1st October, 2012, <http://www.unilever.com/aboutus/ourhistory/> Bibliography: Global Head of HR,