UNILEVER

A TROUBLED GIANT

SOURCE : UNILEVER.COM, 2009

MANAGEMENT

SOURCE : UNILEVER.COM, 2009

SOURCE : UNILEVER.COM, 2009

SOURCE : UNILEVER.COM

SOURCE : UNILEVER.COM

BACKGROUND NOTE

UNIE
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
STRATEGY : GROWTH TOOL : MERGER

LEVER
William Hesketh Lever founded Lever Brothers in 1885 By 1887, introduced SUNLIGHT, the worlds 1st packaged laundry soap Lever & Co. was making 450 tons of Sunlight soap a week He expanded his business from UK to Australia, North America and other parts of Europe In 1890, Lever & Co became a limited company LEVER BROTHERS LTD, by 1894, they went PUBLIC Diversified into other businesses, acquired Pears soap and Walls Launched its innovative product , VIM
STRATEGY : GROWTH TOOL : ACQUISITION

UNIE

LEVER

Unilever GROUP

UNILEVER PLC

UNILEVER N.V.

B.O.D.

B.O.D.

PROBLEMS WITH THE STRUCTURE

Unable to sustain the great depression

Incapable of striking a balance between British and Dutch interests

Lack of co-ordination between the board of directors of the two holding companies Two Masters - Confused Followers (Coalition Governance)

1930 to 1979
In 1937 , acquired Thomas J. Lipton In 1944, acquired Pepsodent In 1957, acquired Birds Eye In 1961, acquired Good Humor In 1978, acquired National Starch and Chemical Corporation
STRATEGY : rigorous GROWTH TOOLS : integration ( fwd & back) acquisition Diversification ( related & unrelated)

ORGANIZATIONAL STRUCTURE
(1930 to 1979)
Concept of strategically independent units- local initiative and decentralized control A special, 3-member committee was formed in September 1930, above the two boards of directors of the company Matrix organizational structure was opted

SPECIAL COMMITTEE (3)

UNILEVER PLC UNILEVER N.V.

B.O.D.

B.O.D.

PROBLEM WITH THE STRUCTURE

Concept of strategically independent units led to high cost structure from duplication of manufacturing facilities at various locations

1980 to 1995
the sleeping giant
Rationalized manufacturing approach Product divisions established to co-ordinate regional operations Focus on the following four industries, as a part of core strategy Foods, Personal Care, Home Care and Specialty Chemicals, divesting from all other businesses Between 1992-1996 , Unilever made around 100 acquisitions, during 1995 alone the company acquired 38 companies The company decided to target D&E markets
STRATEGY : FOCUSED GROWTH TOOLS : DIVESTMENT ACQUISITION

List of acquisitions
1984 - BROOKE BOND 1986 - NAARDEN INTERNATIONAL 1987 - CHESEBROUGHPONDS 1989 - FABERGE 1989 - ELIZABETH ARDEN 1989 - CALVIN KLEINS FRAGRANCE BUSINESS 1990 - NORDSEE FAST-FOOD 1993 - EMPIRE OF CAROLINA INC. 1993 - PHILIP MORRIS KRAFT GENERAL FOODS UNIT

List of Divestments
1980 - SERVICE ( TRANSPORT) & ANCILLARY BUSINESS 1985 - PALM LINE, SHIPPING COMPANY 1990 - PLANT BREEDING & OTHER AGRICULTURAL PRODUCTS 1990 - PACKAGING & PROFESSIONAL CLEANING PRODUCTS

BEFORE

after

BUSINESSES

BUSINESSES

FOOD
PC SC

HC

PROBLEMS WITH THE STRUCTURE

The unending acquisitions made the operations cumbersome and the company became inflexible to adapt to the market dynamism Performance drift Organizational fatigue Excess of bureaucracy Confusion of accountability and responsibility Conflicting priorities in the special committee Decision making became constipated Structural detritus , accumulated over decades Absolute chaotic condition Extra levels of complexity were imposed on an already convoluted structure

1996 TO 1999
breakthrough restructuring
3- Member special committee which existed since the birth of Unilever got dissolved , to give way to a 7- Member Executive committee The company appointed its 1st Chairman (Niall FitzGerald, an Irishman) not carrying a British or a Dutch passport Two layers of the organizational structure consisting of the worldwide business coordinators and the network of Regional Directors were swept away to form a single team of 14 business Presidents Companys operations were grouped by product , instead of geographical regions From Centrally Driven expansion to branched expansion


Unilever

wanted to grow as much by local pull as by global push Focus on Companys Core Competences Introduction to the new management incentive system (Variable Pay)
STRATEGY : SUSTAINABILITY
TOOL : restructuring

ACQUISITIONS
1996- HELENE CURTIS INDUSTRIES, INC., PERSONAL CARE

PRODUCTS 1996- NORTHBRROOK DIVERSEY CORP., CHEMICAL CLEANSER & SANITIZER 1999- KIBON S.A. INDUSTRIES ALIMENTICA, ICE-CREAM COMPANY

DIVESTMENTS
1996- CATERPILLAR INC., HEAVY EQUIPMNET, U.K.

FRANCHISEE 1997- NATIONAL STARCH & CHEMICAL CORPORATION 1998- PLANT BREEDING INTERNATIONAL CAMBRIDGE LTD.

EXECUTIVE COMMITTEE (7)

UNILEVER PLC

UNILEVER N.V.

BPs

BPs

PROBLEMS WITH THE STRUCTURE

Unilevers Market Capitalization of about 51 Billion (~ $ 82 Billion) in

June 1999 shrank to 20 Billion by January 2000 (Stock prices Plunged) Companys Existing brand structure had lost its Focus (Too many Brands) Unilever was criticized for spending large amounts of funds due to frequent restructuring over the years Unilevers market share was taking a big time hit (Dip) There was no Fit between the companys organizational structure and its strategies (Persil Power shook the giant to its foundations) It was believed that, every big organization that is running into trouble needs a crisis to convince it of the necessity for fundamental change, and that for Unilever this situation had already arrived long ago

2000 TO 2004
PATH TO GROWTH STRATEGY
In February 2000, the company announced a 5 Billion Five Year Growth Strategy Unilever was Shrinking to Grow Laying off over 25, 000 employees ( ~ 10% of the employee base) Unilever was split into two, separate global units : Foods and Home & Personal Care (HPC), headed by two executive Directors separately Unilever reorganized its 300 operating companies into 10 Regional Groups Unilever Further Decentralized its Control over its subsidiaries Unilever Shut down more than 100 manufacturing units for cost reduction


More than half of its Top Executives were replaced with young blood Brand Portfolio of 1, 600 was pruned to 400 (For better focus on leading brands) Company came up with a Brand Focus Strategy Nourishing the Core Unilever started to exploit brands within the existing product categories but outside their scope

STRATEGY : CONSOLIDATION
TOOL : restructuring

UNILEVER- REGIONAL GROUPS

Division Foods Regional Groups
Foods north America, Middle east and Turkey Unilever Bestfoods Asia Unilever Bestfoods Latin America Unilever Bestfoods North America & slimfast Worldwide Unilever Bestfoods , Europe

Home & Personal Care Home & Personal care, Asia

Home & Personal care, Europe Home & Personal care, North America HPC North Africa, Middle East & Turkey HPC Division, Latin America

SOURCE: WWW.UNILEVER.COM, 2009

ACQUISITIONS
In 2000 - BESTFOODS , U.S.A. In 2000 - GROUPO CRESSIDA CENTRAL AMERICA FOODS CORPORATION, CENTRAL AMERICA In 2000 - AMORA MAILLE, CULINARY PRODUCTS, FRANCE In 2000 - JABONERIA NA, FOODS & HPC In 2000 - BEN & JERRYS HOMEMADE INC., ICE CREAM In 2000 - CRESSIDA, FOODS, SOAPS & DETERGENTS In 2000 - CODEPAR/SPCD , HPC In 2000 - SLIM FAST, SLIMMING PRODUCTS , U.S.A In 2000 - ENGLEWOOD CLIFFS, FOODS, NEW JERSEY

BEFORE

after

BUSINESSES
(FOOD & HPC)

BUSINESSES
FOOD HPC

ED

ED

BENEFITS OF THIS STRATEGY

Focused and Effective streamline decision making

Sales shot up by 16 % Unilevers Share price had recovered by 30 % Companys Turnover rose from 40, 977 Million in 1999 to 47, 582 Million in 2000 Supply Chain Restructuring saved 1.75 Billion Annual Top line Growth of about 4 % to 5 % was achieved Average Earnings Per Share increased by 9 %

UNILEVER FINANCIALS (IN MILLION) BY GROUP

1998 Group Turnover Group Operating Profit: Group operating Profit BEIA Exceptional items Amortization Of Goodwill and Intangibles Total Gross Operating Profit 4,293 125 (8) 4,410 4,595 (269) (23) 4,303 5,729 (2,113) (435) 3,181 7,149 (588) (1,387) 5,174 7,165 (879) (1,245) 5,041 40,437 1999 40,977 2000 47,582 2001 51,514 2002 48,270

Income from Fixed Investments

Interest Profit On Ordinary Activities Before Taxation Profit On Ordinary Activities After Taxation Net Profit

37
156 4,603 3,088 2,944

52
(14) 4,341 2,972 2,771

53
(632) 2,602 1,320 1,105

96
(1,646) 3,624 2,077 1,838

111
(1,173) 3,979 2,441 2,129

Source : Unilever Annual reports 1998 - 2002

BY GEOGRAPHIC REGIONS
GEOGRAPHIC REGION Group Turn Over: Europe 18,165 18,040 18,967 20,119 19,573 1998 1999 2000 2001 2002

North America
Africa, Middle East and Turkey Asia and Pacific Latin America

8,417
3,034 5,803 5,018

8,838
3,048 6,723 4,328

11,631
3,296 8,038 5,650

13,767
3,191 7,846 6,591

12,446
3,139 7,679 5,433

Total
Group Operating Profit: Europe North America Africa, Middle East and Turkey Asia and Pacific Latin America Total

40,437
2,254 942 268 457 489 4,410

40,977
2,131 847 302 642 381 4,303

47,582
1,693 48 321 776 343 3,181

51,514
2,689 1,092 202 862 328 5,174

48,270
1,750 1,435 286 1,077 493 5,041

Source : Unilever Annual reports 1998 - 2002

BY OPERATIONS
OPERATION 1998 1999 2000 2001 2002

Group Turn Over: Food

Home & Personal Care Other Operation Total Group Operating Profit: Food Home & Personal Care Other Operation Total 1,801 2,093 516 4,410 1,788 2,361 154 4,303 1,735 1,415 31 3,181 2,303 2,823 48 5,174 2,185 2,814 42 5,041

20,919
18,783 735 40,437

20,339
19,781 857 40,977

23,898
22,825 859 47,582

28,155
22,739 620 51,514

26,937
20,801 532 48,270

Source : Unilever Annual reports 1998 - 2002

2003
UNWELCOME LOSS OF WEIGHT FOR UNILEVER
Sales dropped by 15 % Profits fell by 13 % Annual Top line Growth of about 4 % to 5 % came down to 3 % Share Price fell by 7 % Company was unable to cope up with the Competitive Market Dynamics

2004 to 2010
growth to vitality strategy
Brand Portfolio of 400 Brands would be reduced to 40 Mega World Brands, the retained ones would have sales in excess of a Billion Dollar High Concentration on Developing and Emerging markets (D & E) 3 to 5 % of Organic Growth was targeted Margin Enhancement through portfolio mix Business on strict Value creation criteria First Non Executive Chairman was appointed Concept of ONE UNILEVER Unilever started soft selling under this VITALITY strategy
STRATEGY : FOCUSED GROWTH TOOLS : DIVESTMENT ACQUISITION

UNILEVER SALES GROWTH

7% 6% 5% 4% 3% 2% 1% 0% Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007

Turnover & Profit Last 12 years

Figure in mln Turnover
1996 1997 1998 1999 2000 2001 2002 2003 39,840 42,926 40,437 40,977 47,582 51,514 48,270 47,421

Operating Profit
3,412 3,432 4,410 4,303 3,302 5,174 5,041 6,066

Net Profit
1,908 4,957 2,944 2,771 1,105 1,838 2,129 2,942

2004 2005 2006 2007

37,168 38,401 39,642 40,187

5,721 5,074 5,408 5,245

2,755 3,305 3,685 4,136

SOURCE : UNILEVER ANNUAL REPORTS 1996 - 2008

2008
restructuring again
Announced 20, 000 Job Cuts Combined its two Global units Food & HPC into a single one

Focus on personal care Products Division

UNILEVER & FEW CLOSE COMPETITORS

A COMPARATIVE STUDY

250000

ALL FIGURES IN MILLION USD, MARCH 2008

200000

150000 MARKET CAPITAL SALES

OPERATING INCOME
100000 NET INCOME

50000

0 UNILEVER P&G NESTLE KRAFT

SHARE LISTINGS, EPS & DIVIDENTS

SOURCE : UNILEVER.COM, 2008

WHATS IN THE NEWS

ACQUISITIONS IN 2009
UNILEVER ACQUIRED SARA LEES PERSONAL CARE & EUROPEAN DETERGENT UNIT FOR $ 1.9 BILLION, GAINING SANEX SHOWER GEL IN ADDITION , UNILEVER IS BUYING SEVERAL OTHER STRONG REGIONAL BRANDS LIKE RADOX BUBBLE BATH ; DUSCHDAS, GERMAN SHOWER GEL & SWITZAL, BABY SHAMPOO

REFERENCES
Renewing Unilever Transformation and Tradition, Geoffrey Jones Munching on Change, Economist, January 06, 1996 Unilever to create Power Brands, http://news.bbc.co.uk, September 21, 1999 Rohan Mike, Refocused Unilever on Global Acquisition Spree, www. Itsfood.com, January 04, 2000 Unilever Changes Track, http://news.bbc.co.uk, February 22, 2000 Unilever to Axe 25,000 Jobs in Cost Overhaul, www.industrysearch.com.ai , February 23, 2000 Shrinking To Grow, Economist, February 26, 2000 Harvilicz Helen, Unilever Undertakes Massive Restructuring, Chemical Market Reporter, February 28, 2000 Stevens Robert, Unilever to Shed 10 Percent of Workforce in Global Restructuring, www.wsws.org, March 01, 2000 Fat & Thin, Economist, April 15, 2000

? ? ? ? ??? ? ??? ? ? ?? ?? ? ?? ?? ?

1. 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 ???

2. What was the reason for, the need of frequent

restructuring at unilever ??

3. Have unilevers top brands paid the debt for

the Structural detritus of unilever ???

4. Did unilevers investment of 5 billion on pgs

payoff ???

5. Had unilever grown more than its cradle ??

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

thanKs