Uniliver
A Decade of Organisational Change
Introduction
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One of the world’s oldest retailers.
Annual revenue in excess of USD 50bn
(2008)
Unilever was organized on a decentralized
basis. In the early 1990s, in Western
Europe, the company had 17 subsidiaries,
each focused on a different national
market.
Each subsidiary
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profit centre
accountable for own performance
Introduction
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By the mid-1990s, the decentralized
structure was increasingly out of
step with competitors in a rapidly
changing environment.
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Lots of duplication, particularly in
manufacturing
Lack of scale economies
High cost structure
Slow to introduce new product lines.
Introduction
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1996 – It introduced a new structure
based on business groups, each focusing
on a specific category of products. For
example, Lever Europe consolidated the
production of detergents.
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17 companies relinquished autonomy
Cut European plants manufacturing soap from
10 to 2
Product sizing and packaging was harmonized
As a result of that:
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It saved as much as $400 million
Speeded up new product introduction
Introduction
Year 2000– another reorganization
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Cut the number of brands from 1600 to 400
Planed to reduce manufacturing plants from
380 to 280 (by 2004).
Established new organization based on just
two global product divisions – a food and
home and personal care division.
Unilever now has similar structure in Europe,
North America, Latin America and Asia to
focus on selling their products in each region.
Q1(a): Why did Unilever decentralization make
sense in the 1950s-1970s?
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National culture was the dominant culture
because of consumer’s low levels of international
exposure. Therefore greater need to cater to
domestic tastes.
Decentralization was viewed as a source of
strength as it allowed matching of product
offering with local requirements.
Inefficient/inadequate logistic and
communication infrastructure for international
distribution.
Local culture was considered best for managing
local markets – hence autonomy.
Due to high trade barriers (tariffs) it made
better sense to produce locally.
Q1b: Why did this structure start to create problems
for the company in 1980s.
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Consumer preferences changed as the
exposure to global products became more due to
better communication and distribution.
The branding was very localised resulting in high
variations in product offerings.
Trade barriers reduced in 1980s, therefore
goods could move more freely; that resulted in
greater competition between local and
international players.
High cost structure- Economies of scale were
poor due to replication of all parts of the value
chains in different countries. Due to national
differences they could not synergise resources
and could not agree on new products.
Q2a: What was Unilever trying to do when it introduced a new
structure based on business groups in the mid 1990s?
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The market share of Unilever was lost to more
efficient groups like Nestle and P&G and therefore
they responded by regionalising business groups.
This gave the regional offices a unified control
over the products and allowed the company to
launch new brands faster in the region.
This also gave them economies of scale through
consolidation of different operations. They were
able to reduce costs by $400 million per year in
European operation alone.
Q2b: Why do you think this structure failed to cure
Unilever’s ills?
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Till the year 2000, they had far too many brands
(1600) and therefore large number of divisions to
produce, market and manage these brands.
The products were still being manufactured in
over 380 plants. Cost effectiveness could not be
achieved.
Unilever did not have market leadership in any
product segment because of lack of global brand
identity (v/s competitors).
A purely multi-national strategy became
inadequate over time due to changes in external
environment- the competitors, whereas, adopted
more hybrid strategies.