A Decade of Organisational Change Uniliver A Decade of Organisational Change

Introduction 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 profit centre accountable for own performance

Introduction By the mid-1990s, the decentralized structure was increasingly out of step with competitors in a rapidly changing environment. Lots of duplication, particularly in manufacturing Lack of scale economies High cost structure Slow to introduce new product lines.

Introduction 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. 17 companies relinquished autonomy Cut European plants manufacturing soap from 10 to 2 Product sizing and packaging was harmonized As a result of that: It saved as much as $400 million Speeded up new product introduction

Introduction Year 2000– another reorganization 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? 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. 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? 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? 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.