Unilever Matches Strategy and Structure (p.461)

P3-9 Identify the basic control issues at Unilever from all three levels.

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Unilever is one of the world's largest packaged consumer goods companies, trailing only Proctor & Gamble. In 2012 the firm has over 170,000 employees and annual revenues of around $60 billion. Among its best-known brand names are Lipton, Dove, Helene Curtis, Vaseline, and Q-tips. As the firm has grown, Unilever occasionally has set up other businesses to support its consumer products operations. For example, the firm once established a chemical unit to process the oils it uses to make margarine. At the time managers believed this route provided them with a predictable and controllable source of materials. Fragrances and food flavorings operations were created for the same reason. In similar fashion Unilever often has grown by acquiring other consumer products businesses, many of which had supporting operations as well. Several years ago Unilever was structured around five basic business groups: food products, personal-care products, soap/laundry products, cosmetics/perfume/hair products, and specialty chemicals. As the company continuedto expand, however, this arrangement grew increasingly unwieldy. The methods and operations used to package, distribute, and promote the products and brands in the four consumer products groups were all very similar. Managers could be transferred across businesses easily, and knowledge about local market conditions in different countries was freely exchanged. The specialty chemicals group, however, was an altogether different story. Because it had no consumer products, only indirect linkages existed between its operations and those in the consumer products groups. For example, in some markets the chemical companies made chemicals that were then "sold" to Unilever's consumer products businesses. These businesses in turn used the chemicals to create their consumer products for resale around the world. In the mid-1990s Unilever's board of directors grew concerned about the firm's seeming inability to gain market share from Procter & Gamble. A new CEO was hired to remedy this situation and to improve Unilever's financial performance. After studying Unilever's operations, the new CEO concluded that the firm's specialty chemical businesses were part of the problem. For one thing, they did not meet the firm's profitability targets. For another, some of the chemicals they were making could be bought on the open market for the sameand sometimes lowerprices. Finally, the firm had higher administrative costs due to the lack of synergy between its dissimilar units (chemical and consumer products). As a result of these conclusions, Unilever executives decided to sell the specialty chemical units. The sale would eliminate inefficiencies created by the firm's structure and generate cash that could be used to reduce debt and to finance new acquisitions in Unilever's core business areas. The CEO argued that the new international organization design would allow Unilever to focus all its attention on competing with Procter & Gamble and other firms in the consumer products markets. Accordingly, Unilever negotiated the sale of its specialty chemical group to Britain's Imperial Chemical Industries PLC for approximately $8 billion. Part of the proceeds from this sale were then used to acquire Ben & Jerry's Homemade Inc., the quirky ice cream maker, and SlimFast Foods Company, a leading diet products firm. However, managers soon realized that selling the chemicals business and buying new food products businesses were not really addressing Unilever's other problems, which were its slow decision making and weak control of worldwide marketing strategies. As a result, the company announced another major restructuring of Unilever, reorganizing it into two units rather than four. One unit would be responsible for all food products and the other for all home and personal-care products. Each unit was then assigned its own chief executive responsible for all its global operations. This new arrangement proved to be reasonably successful, but Unilever executives still felt there was room for improvement. In 2005 the CEO retired and was replaced by Patrick Cescau. Cescau agreed that the firms' structure was satisfactory but might benefit from some fine tuning. So, he introduced a hybrid design for the home and personal-care products division. Basically, the division operates as a single entity with regard to procurement, operations, and manufacturing. But once products are manufactured, the division has two different units responsible for distribution, marketing, and sales. One handles all home care products and the other concentrates on personal-care products. In 2008, this design was further refined by the creation of regional support centers. Clusters of neighboring countries now function as one entity, leveraging regional scale through shared services for functions such as human resource management, information technology, and finance. Unilever managers now believe they have achieved the right structure and have turnedtheirfull attention to competing with their archrival, Procter & Gamble. But, there is an old saying that "what goes around comes around." In 2010 newly installed CEO Paul Polman (the first outsider to ever run Unilever) once again took Unilever back to the four-divisional model it had discarded ten years before. The newly formed product groups are (1) savory, dressings, and spreads, (2) personal care, (3) ice cream and beverages, and (4) home care and miscellaneous. Polman's logic was based on literally dozens of acquisitions and divestitures Unilever had made during the first decade of this century. Essentially, the firm had exited the fragrance business altogether and bought numerous new businesses in the ice cream and dressings and spreads markets. So, will the new structure stick? Well, if history is any indication it'll be around for awhile but Unilever will still look different in a few years.