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All agency action can be classified in three categories: quasi-adjudication: order making, judicial quasi-legislation: rulemaking executive
Posted On: Nov. 1, 2017
Author: Shipra

CASE STUDY Unilever’s path to growth strategy: Is it working? INTRODUCTION This case study deals with Unilever, an Anglo – Dutch company which is involved in many diversified business areas of operation. The businesses of the company are down and need improvement. The case describes the working of strategy, which was planned to bring out enhanced growth to various diversified businesses of the company. Niall FitzGerald and Antony Bergman’s, the two co – vice chairmen of Unilever were responsible for putting the “Path to Growth “strategy into action in the company in the year 2000. The performance of the company was quite slothful in the past and it was the need of the hour to invigorate the business of the company and at the same time carry out restructuring of its business portfolios ranging from food, home and personal care business. These businesses put together had 1600 brands and the marketing of the same were spread to 88 countries around the world. As per critics, Unilever had no consistent corporate strategy. They also had an range of brands which were not known to customers and at the same time were fetching very low volumes. It was a well known fact that very few Unilever brands had a global presence especially in the year 1999. A tremendous potential existed in the emerging markets for the products of Unilever especially good and household products. Unfortunately the performance of Unilever in these markets was uninspiring, to say the least. Task 1 Unilever was formed in the year 1930 by merger of Margarine Urine, a Dutch margarine company, and British-based Lever Brothers, engaged in the business of soap and detergents. The growth of Margarine Unie took place over the years by way of mergers with other margarine companies in the 1920s. Lever Brothers, was founded in 1885 by William Hcsketh Lever, who initially built the business by establishing soap factories all around the world. The diversification by Lever brothers was started in the year 1517, into foods, and they acquired ice cream, canned foods businesses. The most interesting part is that prior to the merger of the two companies, the raw materials for their final products were being purchased by them from the same suppliers. The companies were also using same techniques of marketing for house- hold products. In fact the distribution channels for the two companies were also the same. Obviously it made sense to carry out merger of the two companies. When carrying out the SWOT analysis, of the company, following facts emerge STRENGTHS The biggest strength of the company is its ability to acquire new companies and brands, and gradual movement to more food and household products categories in more number of countries. As per latest estimates and figures, more than half of Unilever's profits came from its West African plantations, which were sourced to produce bulk vegetable oils for margarine and washing powders, the main products of the company. Later on, it diversified beyond food and household products into specialty products such as chemicals, advertising, packaging, market research and a franchisee for the heavy equipment manufactured by Caterpillar. The advantage of having specialty chemicals business, was it transformed products from some of the company's plantations into ingredients for food and household products;, which in turn proved to be a strategic advantage to the company , in the longer run. Unilever also had acquired shipping lines, which helped in transporting of its products to various distributors. A decision was taken in the late 1990s, to divest the specialty chemicals, advertising, packaging, shipping, and market research businesses. This was done to portray an image of the company not as a conglomerate but focus resources on the company's core businesses. The advantage of Unilever's broad-based product and geographic diversification in foods, personal care products, and household products resulted into formation of a special complex management structure. This helped managers at the grass root level, sufficient powers of decision making in their own areas of operations as per their own priorities. It also gave them authority to modify the products to suit the local tastes and preferences as per customer’s requirements and tastes. The executives at the headquarters of Unilever introduced a new initiative and reorganized a plan, which was aimed at giving the company a more focused approach as a multinational marketer dealing in food, personal care, and household products. The popularity of products manufactured by Unilever reached such highs that Niall FitzGerald made a statement that,, "We're not a manufacturing company any more. We're a brand marketing group that happens to make some of its products. “ The result of paring of brand portfolios was such that in the year 2003, Unilever reported 2002 sales of about 64S.8 billion. A number of Unilever brands had the highest or second highest share in their respective markets; Unilever was one of the worlds five largest food and household products companies and had been ranked among the top 60 of Fortune's FitzGerald had been chairman of the London-based portion of Unilever since long, and was said to have been influential in reorganizing Unilever's 1,600-brand portfolio around 14 groups as opposed to the former 57 groups. He was regarded as one of the most able and innovative Unilever chairmen in decades. WEAKNESS The company tried to preserve the legacy of Dutch and British origin, and for this purpose, Unilever maintained two headquarters one at Rotterdam and one in London—and operated by two co-chairmen. The company's headquarter, in Rotterdam, was headed by Antony Burgaw, who was in charge of food products, while the London headquarters group, under Niall FitzGerald, was in charge of personal care and household products. They both kept their individual offices at both the places, and kept shuttling between the two cities every couple of weeks. They however, kept in touch with each other through phone .This probably conveyed a confusing image in the minds of company’s stakeholders about the company. Since the headquarters of the company was at two places, namely, Rotterdam and London, the company had to maintain its accounts in British pounds, U.S. dollar and Dutch currency and at the same time trading of its share was carried out both on London Stock Exchange, and Dutch Stock Exchange, in their respective currencies THREATS As per analysts, of the household products businesses, and also those who were familiar with Unilever’s business operations, the fits between strategies and resources were not matching at all. The reorganization of the company was seen as a curtain raiser to the break up of the Unilever. This, of course, was hotly contested by the top executives of Unilever. The businesses of Unilever; s food portfolio was traditionally organized around the countries or areas of its operation. Each country had its own manufacturing units, which would cater to the local population and modify products as per the regional geographic markets, Some countries had multiple brands of the same product , which besides giving a good choice to the consumers, also posed questions about what type of product to choose from. In Unilever, most of the research and new product development was integrated into the divisional structure but the company made sure that the concept of global invention centers was maintained. For this purpose, the company interlinked R & D at the division level and also at the corporate level. The local companies of Unilever were made to remain as key interface between customers / consumers and the development units to make sure that the right type of products are produced and supplied to the market. In other ways, there was a strategic fit between the company’s operations and resources. The formation of global divisions had several benefits such as: • Improving the focus of the company on its core product viz foods as well as concentrate on activities at global and regional level • The decision making process and the execution of strategies was quickened due to stricter control and monitoring of brand strategy and the operations • Carrying out strengthening of innovation capabilities by way of integration of its R & D into the divisional structure and also by creation of global innovation centers. THREATS The biggest threat was from the competitors who are in the same line of business, to name a few they were Campbell's , whose products were sold in 120 countries and included famous brands such as Campbell's soups, tomato juice, and Super Bakes; Bachelors, Erasco, Leibig, McDonnell’s, and Oxo soups (Europe); Home pride sauces (Europe); Franco American and Prego in culinary foods and sauces, Pepperidge Farm, Swanson canned meats and soups; Pace salsas, and Godiva chocolates. In fact Campbell's was the number one wet soup brand in the world; Arnott's was the market leader in biscuits and crackers in Australia and was the number two brand in New Zealand. Another competitor was General Mills/ Pillsbury (U.S.) whose products include well known brand such as :- Haagen-Dazs ice creams, Old El Paso Mexican foods, Green Giant vegetables, Pillsbury dough products and mixes, Betty Crocker mixes, and Bugles snacks The products manufactured by General Mills/ Pillsbury, were manufactured in 17 countries and distributed in over 100 countries. Even though, about 95% of sales were in the United States, which is a plus point for the competitors. The biggest competitors of Unilever were Nestle, Procter & Gamble, Kraft, and Group Danonc. Campbell Soup, and General Mills, each of them have their own share in the market by way of their established brand and products. TASK 2 The strategy “path to growth “initiated in the year 2000 had following key features. • cutting the size of the company's portfolio from 1,600 brands down to 400 "core" brands, • concentrating R&D and advertising on the company's leading brands, • divesting under performing brands and businesses, • Relying more on product innovation to boost internal growth, and making new acquisitions. • to achieve sales growth of 5-6 percent annually and • to increase operating profit margins from 11 percent to 16 percent—both to be accomplished by year, 2004 In the global food and household products industry, Unilever had to compete against giants like Nestle, Procter & Gamble, Kraft, and Group Danonc. Campbell, Soup and General Mills. Each of these companies has their brand names and products established in the respective markets, be it Domestic or International. The objective of Unilever of focusing on the key brands was to a key and specific strategy. This would help them to concentrate on the advertising and marketing efforts on businesses which were giving them higher margin / revenue/ profits. Simultaneously, the could make an attempt to build their brand value. As is well known, by building brand value of your products, the company can have an increased pricing power with the channel partners (in this case the supermarket retailers, who were stocking the products of Unilever) The initiative taken by Unilever was scheduled to have a five year gestation period which would cost the company equivalent of Euros 5 billion. It would also involve closing of or selling of more than 100 manufacturing units and laying off close to 25, 000 employees world wide. This was approximately 10 % of the employee strength of the company. The ultimate aim was to consolidate the production activities at a fewer plants , which could be controlled easily and their operations monitored also .This would ultimately result into substantial savings for the company in terms of close to Pound Sterling 3.9 billion. The savings would be possible by following principles:- • better strategic fits • streamlined supply chain and • greater operating efficiencies It was a herculean task, but nevertheless had to be achieved, keeping in mind the conditions of the company and the growth plans as envisaged by its chairmen. The “path to growth “, was also expected to increase the company’s downward sale per employee and improve or bring it at par with other food companies. The scene (as of year 2000) of sales per employee is:- S/N Company Sales per employee ( $) 1 Unilever 160,000 2 Nestle 205,000 3 Procter & Gamble 360,000 4 Kellogg’s 458,000 5 General Mills 605,000 A close comparative analysis of the figures given in the above mentioned table indicates the state Unilever was in the year 2000. All its competitors were much ahead in the race as far as the metrics of measurement of employee contribution was concerned. The employee contribution of General Mills was the highest, which is a sad state of affairs as far as Unilever is concerned. The reason is Unilever had a fantastic brand name and excellent work force, but in spite of that, it could not achieve a higher contribution per employee. This was a matter of serious concern to the top executive of the company (Unilever) .From this point of view, the decision of the chairmen of the company was quite right. There was an urgent need to look into the situation and take corrective action. The action plan put into place in the “path to growth“ strategy by Unilever yielded results in the first year itself. In the next 12 months after its introduction of changes, the company went ahead full steam in the acquisition of like minded firm’s world wide. But at the same time, it made sure that the businesses it acquired were in the same line as that of its food and related areas. In short the company executives made sure that there was a strategic fit in its operations. For example it made around 20 acquisitions such as :- • SlimFasl diet foods; • Ben & Jerry's ice cream; • Bestfoods ( their major brand were Hell-mann's mayonnaise, Skippy peanut butter, Mazola corn oil and margarines, and Knorr packaged soup mixes. ( Incidentally Best Foods had a sales turnover of $ 8.6 billon across more than 110 countries. ) • Cor-poracion Jaboneria Naeional (an Ecuadorian company that had strong market positions in de¬tergents, toilet soaps, skin creams, dental care, margarine, and edible oils and sales of approxi¬mately €114 million); • Group Cressida (a leading consumer products company in Central Amer¬ica); and • Amora-Maille (a French maker of mus¬tards, mayonnaises, ketchups, pickles, vinegars, spices, and cooking sauces with 1999 sales of about S365 million) A quick observation and analysis of the actions taken by Unilever mentioned above would throw an interesting aspect of the action plan by the company. The acquisition were done of the companies spread across the world The companies which were acquired were in the same line of businesses as Unilever, which means there was strategic fit between the resources and the strategy. The companies taken over by Unilever were established companies, in the sense they were not running into losses or were not “sick “companies. On the contrary, they all were doing flourishing business in their respective field of operations, not in only in terms of revenue generation but also established brand name. One can conclude that it is because of the brand name that the companies were doing well, but the fact remains that the companies acquired were good and well established, and they could immediately add to the revenue or profit margin of Unilever instantly. The action would lead to help the sales people and they could immediately increase their contribution to the company’s bottom line Another action plan of Unilever in their “path to growth “was cutting down of their brand portfolio from 1600 to close to 970. As of date, the number of brands was very large and this was creating havoc and eating into each other’s brand share. The corporate goal of company was to reach about 400 core brands. The brand reduction strategy required Unilever to let certain wither and die its own natural death. This was a conscious decision and could take place without active sales promotion and advertising support to these respective brands. Another strategy adopted to cut down the brands was to hive off the brands which are no longer a fit with the future strategic plan of Unilever. This would not only generate some revenue for the company but also would make sure that they do not hinder the strategic fit of the company . The consumer is very particular about brand association and if there is any confusion in hi s mind, he will not patronize the product., Without active patronization of the customer, the brand would die its natural death, No company can afford to loose its established brand, especially if it is in line with its strategic vision and growth. The action plan included discontinuing the brands in bits and parts, with 250 – 300 brands targeted to be discontinued in the year 2002 itself. Another 200 odd more were identified as fit of “merger and migration “in to the existing product families. The idea was to keep the target of approximately 400 brands, as envisaged in the “path to growth “strategy. The view of Niall FitzGerald was "This [migration] is a complex process. No one else has [done it on this scale. It is easy to change a name—the marketing challenge is to bring the consumer with you." Another action taken by the company (Unilever) was to launch approximately 20 internal initiatives so that an additional sale of Euro 1.5 billion could be achieved (on annualized basis) Around 27 businesses, which were not in line with the core business activities of the company, were divested. The divestiture was of several businesses for example:- • Elizabeth Arden cosmetics business • Eliza¬beth Taylor and White Shoulders fragrances brands • company's European bakery busi¬ness • the Best foods Baking Company (a U.S. bakery business inherited from the acquisition of Best foods • most of its European dry soups and sauces businesses, and • an assortment of small businesses that produced and marketed lesser-known European grocery brands An important point to be noted here is that the European dry soups and sauces businesses that Unilever di¬vested (via a sale to Campbell Soup Company) had combined sales of €435 million in 2000 and had grown at 1 percent annually over the last three years. Obviously it makes sense to dispose off such businesses which are not doing well and a rate of growth of 1 percent does not justify its existence in the portfolio of Unilever. The cost of maintaining such kind of businesses is very high ( in terms of investment in infrastructure, employees, sales and marketing as well as manufacturing activities to name a few ) Another reason why the divestiture was done was to alleviate the market power concern in packaged soups expressed by the European Commission and also gain their approval of acquisition of Best foods ----the Knorr packaged soup business. This was a part of the Best foods acquisition and had a global sales turnover of $ 3 billion The next step was to carry out reorganization of the structure of the company. This was done by way of organizing the company in to two equal – sized global divisions. One of them including all of the company‘s food products and the other included all of its household and personal products. The strategy was to bring streamlining of the activities. It makes sense to bring the business of the same areas under one umbrella and hence their operations should also be controlled by one group of people. This idea was not to create conflicts amongst the executives and other staff of the companies. When the responsibilities are well defined, the actions can be streamlined and monitored closely. There is no confusion about the tasks and responsibilities and the people would also own up It is an important principle of management, ( as per Henry Fayol ) that while organizing , one has to make sure that similar tasks or activities are clubbed together and reporting of the job is also done accordingly. From this angle also, the action of the company , of splitting the work structure in two areas was justified. The results of this structure could be seen in the areas of growth and earnings of the company. Unilever did not confine its activities in acquiring or merging with it new companies of or hiving off its businesses in line with its business strategy. It also studied the market and acquired new businesses, which were in line with its long term vision for example:- It started two new lines of businesses -- Cha, which is a chain of tea houses and My home, which is a laundry and home cleaning services. Critics may argue that strictly speaking , these businesses were not in the core areas of activities of Unilever, viz food and house hold products However these were test marketed in Britain in 2000 and in the United States and India in the year 2001. The results were an eye opener for the company and it went ahead with these businesses operations and added them into their existing areas of operations The result of the actions stipulated under the “ path to growth “ were significant and FilzGerald and Burgmans claimed that Unilever's operating results showed "significant progress" toward deliv¬ering top-line growth of 5-6 percent and operat¬ing margins of 16 percent or more. This was an acceptable figure and proved that the strategy adopted by the company was in line with the current business operation and area of operation. While presenting their third quarter 2003 results, the two co – chairmen claimed that Unilever was on the “ right track and also ahead on all key elements envisaged in the strategy “ This claim was substantiated by giving references of several achievements by the company in terms of sales figures, employee contribution and other metrics of measurement. TASK 3 Unilever’s “path to growth “strategy was to end in the year 2005 and the results of the same are evident Most of Unilever’s leading brands such as:- • Dove soaps and shampoos; • Knorr soups; • Lipton leas; • Hellman's mayonnaise; • Bertolli's olive oil; • Ragii sauces: • Country Crock margarine; • Breyers, and • Ben & Jerry's ice creams They all contributed approximately 92 percent of the total revenues (up from 75 per cent of total revenue in 1999) The sales of leading brands had also grown to 5.4 % over the last one year With the help of acquisition and divestiture, the company was able to prune its brand line up and also enhance it further. This was done by divesting approx 110 businesses. By this action, the company was able to generate liquid revenue of more than Euro 6 billion. Obviously this turned out to be a good strategic move by the company as it could not only divest its business, which were not in line with its core area of operations but also generate some cash for its other activities The restructuring of the businesses and brands helped the company in savings of Euro 3.4 billion. This was very close to the target of Euro 3.9 billion for the year 2004 Simultaneously net debt of the company also got reduced by almost half ( from Euro 26.5 billion to Euro 16 billion ) The same was further expected to reduce to a level of Euro 12 billon by the end of year 2004 . This would ultimately result into an annual cash flow of around Euro 4 billon Any company, which is able to reduce its debt and generate cash for its operations, can expect good return on investment and also generate good will and future sales, these facts and figures indicate that the company is on the right path to recovery. The views of analysts can not be ignored. Many of them were of the view that the “path to growth strategy “adopted by the company lacked punch. It would not be able to produce the intended 5-6 percent revenue growth rate. In the words of one analyst “"Clearly their program has failed. The worst-case scenario is happening." Another said, "Management needs to give up on the top-line [sales revenue] tar¬gets and do some more restructuring." However, the results obtained by the company proved all of them wrong and the company was poised to its growth and path of recovery in terms of increased market share and employee contribution and generation of revenue as well percentage of growth TASK 4 The strategic alternatives can be determined by understanding the strategic planning process. The steps involved in the same are 1. Mission 2. Objective 3. Situation analysis 4. Strategy formulation 5. Implementation 6. Control A top down strategic planning process is ideal for large companies like Unilever. This is done by top executives and then conveyed to people down the line. Strategy formed at corporate level is more concerned with managing corporate portfolios of businesses. The alternatives available for a diversified company like Unilever are • Expansion • Merger and acquisition • Divestiture • Diversification As things stand today, the company is exploring some of the alternatives for its growth Expansion The company is not laying much of a stress on this as of now and the expansion is put on hold. The reason is due to the fact that already there is a clutter of brands and portfolios which are not exactly in line with the company strategy. Some of the factories are being closed due to conflicting interests and at the same time , some of the businesses are also being hived off. So strictly speaking, this alternative can be scored off from the strategic alternatives Merger and acquisition This is definitely one area where the company (Unilever) is focusing. The case talks about various businesses which are being acquired. These businesses are basically in line with the strategic fit of the company and hence complement the same. There are several examples and illustrations of the same given in the preceding paragraphs , which indicate that in order to achieve its “ path to growth “ strategy , the company is making all efforts to make sure that the path to growth strategy is achieve by mergers of different kinds. A company can gain competitive advantage if its strategy gives an edge in the following over its competitors • Defending against its competitive forces and • Securing customers From the mergers and acquisition strategy followed by Unilever, it is clear that all the actions are aimed at securing customers which this company wants to target namely, those who have a requirement of Food products and Home products The key to gaining competitive advantage is Convince the customers about the superior value that the firms product and services offer Use differentiation to provide a better product buyers think is a better price or gets them value for money A competitive strategy basically aims at companies’ market approaches and business initiatives for Attracting and pleasing its customers Withstanding its competitors Strengthening its market position and increasing its market share To achieve this, company has to adopt both defensive and offensive approaches These moves are aimed to reduce the counter actions of the rivals or competitors Shift precious and limited resources to areas of long= term benefits in terms of market position and market share Keep an eye on the changing market conditions and be ready to respond to changes happening there in The scope of a competitive strategy is much narrower than its business strategy A competitive strategy is primarily aimed at Building a competitive advantage for the company in the market Build up loyal customers based on the brand value and brand recognition Knock off the competitors in an ethical way (without using any unethical means) The competitive strategies take five generic shapes namely • Overall low cost provider strategy • Broad differentiation strategy • Focused low cost strategy • Focused differentiation strategy • Best cost provider strategy From the explanation given above, it is clear that by M&A, Unilever is aiming to provide all the above solutions • By taking over companies which are showing profit, • by offering products which cater to the needs and preferences of the client, and • by making sure that the unnecessary brands and manufacturing units are disposed off a low cost strategy means low over all cost and not low manufacturing or distribution or marketing costs this strategy can be implemented by creating a sustainable competitive advantage over rivals . The objective is to either under price the product and beat the completion or by lower price earn more profit that the competitors The ideal way to achieve lower cost is to improve your supply chain Unilever, by way of having its manufacturing units located at various geographical locations around the world makes sure that it get lower costs of production and distribution and thus gains competitive advantage The products get a price advantage over its competitors and also for premium range of products such as Dove, it earns more and better profit margin than its rivals By following a differentiation strategy, the company (Unilever) incorporates differentiating features in its products which attracts the customers to buy its products. They prefer them over their competitors the products like Dove, Ketchup, Sauces, Ice creams, etc have a distinctive feature which help the company in attracting the buyers for its products. The differentiation can be created by creating a value of the product which buyers find irresistible and at the same time The rivals are not able to copy easily When a product is offered as a differentiated one, it has following advantages for the company • command a premium or higher price • increase in unit sales • build brand loyalty all these , in short will help in building competitive advantage for the company. This is what is happening in the case of Unilever. The customers find its products unique and are wiling to pay a premium or wiling to wait , in case the product is in short supply. This is what constitute brand value or brand loyalty There are several ways of achieving differentiations for example • unique taste – ketchup • multiple features – soap • wide selection – wide range of products • superior service – in case of defect the company replaces, without any fuss • more value for money – more features and weight packed in the product • prestige – dove soap • quality manufacture – the plants of Unilever are following strict quality control tests and procedures • technological leadership – the R & D efforts and initiative of Unilever is famous all over the world • top of the line image – the Unilever brand is famous The best way to have longer lasting and profitable competitive advantage is to follow the under mentioned strategies • new product innovation • technical superiority • product quality and reliability • comprehensive customer service if we observe the capabilities of the company ( Unilever ) it beats its competition on all these fronts by bringing out new products through it R & D efforts, and introducing products of good and superior quality than its customers, it makes sure that its brand loyalty is maintained. The differentiation can be obtained in the various areas of the value chain such as • purchase • product R & D • production process • distribution level • marketing, sales and after sales activities A careful examination of the case would reveal that Unilever is scoring well over its competitors on all these fronts It has good R & D It has a very good distribution channel which makes sure that the product is available at the customer’s doorstep on time Its marketing efforts by way of advertising, sales promotion etc are aimed at gaining competitive advantage The sales promotion campaigns organized by the company are unique in nature and are able to convey the meanings to the customer about its products and the value it delivers. The differentiation strategy adopted by Unilever is by way of incorporating special features in its products, which its competitors are not able to copy easily The best cost provides strategy is ideal when the manufacturer is able to provide low cost with differentiation. This is done by Unilever for some of its products. A focus or niche strategy on the other hand focuses on a narrow piece of market. In the case of this company, it does adopt this strategy, where it is targeting a focused target market, say people who are wiling to pay a higher price for quality and service . Walls ice cream, special soaps are some of the examples At this juncture, we need to understand why Unilever is taking these actions of Merger, Acquisition etc. Or in other words, why are strategic alliances formed • to collaborate on technology development of new product development • to acquire new competencies • to improve supply chain efficiencies • to gain economies of scale in marketing of production • to gain market access via joint marketing agreements The actions being taken by Unilever (as mentioned in the case study) all point to the fact that they are following some, if not all the above theoretical possibilities the aim of acquiring companies, the signing of agreements with other manufacturers, etc clearly indicate that Unilever is aiming at creating differentiation for its products at all levels In merger, there is a combination or pools of resources of two companies, which is given a new name In acquisition, one firm purchase the operations of another in totality Unilever is clearly following the policy of acquisition to gain competitive advantage over its rivals Its combining operations have resulted into • better competitive capabilities • attractive line up of products ( wider range ) • wider geographic coverage ( factories and manufacturing located at various locations around the world ) • greater financial resources to invest in R &D and other activities ( which it is doing as of now ) • greater ability to launch next generation of products ( the company is keeping in pace with the developments in all areas ) So we can conclude that the acquisition strategy of the company has the back up of theoretical aspects and the company is able to achieve its target viz “ path to growth “ strategy. DIVERSIFICATION A company is said to diversify when it is in to two or more lines of business. This definition fits into the business of Unilever as it is involved in several businesses. A company which is diversified needs a multi- industry and multi – business strategy. What it implies is that one strategy will not work for all the businesses and one need to follow different strategies for different businesses, the reason for this is due the fact that each business is operating and competing in a different and diversified environment. Diversification of business makes sense under following business conditions • strong competitive position and slow market growth rate • weak competitive position and slow market growth rate The obvious question is when is it right time to diversify? • when present area of business has a diminishing growth prospects ( which is not the case for Unilever ) • when opportunities exist to add value for customers or when complementary products can be added to the present line of business and you gain competitive advantage ( this is very much practical for Unilever and hence they are diversifying into related areas of operation ) • when existing competencies can be transferred to new areas of businesses ( Unilever has core competencies in its current area of operation, and the same can be utilized in related or other new business ventures ) • when there is abundance in financial and organizational resources ( the company is quite rich in its organizational resources as it has got an excellent team , whose services can be used to enter in to new diversified businesses ) Diversification basically helps in increasing shareholder’s value. This is a very important aspect and needs to be considered by Unilever. The growth is sluggish and the share value is also not steady and this is the right time and opportunity for the company to go into diversification. Theoretically there are two types of diversification viz Related diversification, which means diversifying into businesses, whose value chain has a “strategic fit “with the existing business On the other hand, unrelated diversification is the opposite of the related diversification i.e. when there is no “strategic fit “between the two businesses. Obviously for Unilever, related diversification is strongly recommended and in the “path to growth “strategy also, the company is using this strategy itself Both related and unrelated diversifications have its own advantages and disadvantages. The related diversification has benefits such as • transfer skills and capabilities from one business to another • sharing of facilities and resources to reduce the cost of operation • common brand name can be leveraged • resources can be combined to create competitive advantage and capabilities Unilever has all the above ingredients mentioned above and it makes sense to go for related diversification only. And moreover, there is a strategic fit also in related businesses The strategic fit can exist anywhere in the value chain such as • R & D and technology areas • Activities of supply chain • Manufacturing activities • Distribution channels activities • Activities of sales and marketing • Managerial expertise Each of these fits offers its own advantages for example, R & D and technology areas, offer a great potential in sharing a common technology platform as well as transferring of technology know – how. All these in turn lead to benefits such as shorter lead time, cost saving in developing a new product Unilever’s strategy of going for related diversification fits into this scheme of things Supply chain fits, as the name suggests, offers advantages in the area of logistics and dispatch. Unilever would stand at a competitive advantage to a great extent. Similarly manufacturing fits and distribution fits would have their own advantages ranging from quality products, cost – efficient methods of production, latest and new techniques of inventory management (Just – in time), consolidation of production at a fewer number of plants (which is being envisaged by Unilever) Distribution fits would also lead to sharing of distribution channels, thereby reducing the cost of delivery to a large extent, This would definitely lead to competitive advantage for the company. Sales and marketing fits would lead to reduction of cost of selling. This is one of the biggest expenses of any business. While all other expenses can be controlled and monitored, but then sales and marketing expenses require a special handling altogether. Similar sales activities can be beneficial in transferring or sharing the cost of advertising, en cashing the brand name of the company etc. This is exactly what is being done by the company (Unilever) Entrepreneurial know how, administrative capabilities and operating know how are other areas of advantage as the company having these know how can be managed easily as they do not have to depend on outside sources for managing the diversified businesses A related diversification can result into competitive advantage for a company under the following conditions • When there is an opportunity for transfer of expertise, / technology / capabilities • When combined related activities into one activity would lead to reduced costs • When company’s brand name can be leveraged to get competitive advantage However, a simple related diversification would not result into benefits on its own. A specific effort need to be made to make sure that it succeeds. For example, coordination activities need to be performed for the success of such diversification,. In the present case of Unilever, efforts have been made to reorganize the structure of the organization and also take help of the executives who are well versed in the areas of managing the activities of the organization The acquisition strategy being followed by Unilever is based on several business theories. i.e. the attractive acquisition targets are those companies whose • Assets are undervalued • Financial status is not good • Purchase can be made at bargain prices and by the expertise of the acquiring company, they can be turned around New business areas can be entered by an existing company by way of • Acquiring existing business enterprise • Internal start up • Joint ventures or strategic partnerships Acquisition of an existing company is the most common and efficient approach to diversification. It has several advantages such as • Easy and quick entry into the target market • Easier to handle the entry barriers of various varieties e.g. technology, gaining access to reliable channel partners, getting adequate distribution access etc In the case of Unilever, they have decided to follow the acquisition route of diversification; it makes sense and is also easier for them to enter into new areas of business and target markets. The cost of entry is also minimized. Moreover, looking at the present condition of the company, when they want to revive their financial condition (the case mentions that the growth of Unilever is quite sluggish and needs to be revived), it is better that they go for a strategic alliance with a company of same nature or form a joint venture with a like minded company, which is in the same area of business, Of course, it would also make sense to acquire companies in the same areas of operation as then it would have several advantages, as explained earlier. Unilever is already diversified and has several options at their disposal for formulating a strategy namely • Make new acquisitions or enter into strategic partnerships ( the ideal way for Unilever is for making new acquisitions, which it is already doing ) • Divest some of the existing units ( the company is already on a divesting spree ) • Restructure the company’s portfolio of business, ( this is already being done, the number of portfolios are being curtailed to a manageable portion ) • Become a multi national or multi industry enterprise ( this is something Unilever is at the moment ) A diversified company (like Unilever) can broaden their base by under the following conditions • When the current business is slow ( which is a fact in case of Unilever ) • Unexpected opportunity arises to acquire an attractive company ( this happened when the European Union put conditions which were conducive to Unilever ) • When the core industries are changing rapidly and the boundaries of the businesses are diminishing (the personal health care products and related diversification in the areas of laundry and tea products are examples ) • Desirable conditions are existing , which favor acquisition of companies, but these acquisitions should further strengthen the existing capabilities of the company and give them competitive advantage ( this is a clear case for Unilever, which is facing such a condition , and therefore, diversification is justified ) From the above discussions, it can be concluded that the acquisition strategy followed by Unilever is ideal , especially in view of the current market conditions DIVESTITURE Divestiture strategies are primarily aimed at narrowing down the diversification base of a company. The strategic options available to a company are:- • Retrenchment • Divestiture o Spin off as an independent unit o Sell o Leveraged buy out The basic objective of retrenchment strategies is to reduce the scope of diversification to a smaller number of what is popularly known as “core “businesses The strategic options under this condition would include divesting the businesses which have no or very little strategic fit with the core business of the company or those businesses which are too small to contribute to the revenue of the company Unilever has adopted this strategy in totality; some of its businesses like shipping are not the core businesses and hence should be divested straightaway. They are not contributing in any big way to the revenue or profit of the company. A retrenchment is most attractive under following conditions • When the efforts of diversification are too broad and a big strain on the resources of the company • When certain businesses are facing losses on a continuous basis ( which is actually the case for Unilever ) • When operating and investment needs of the businesses are suffering from lack of resources, both financial and in terms of others like human, infrastructure etc.) This is definitely the case in Unilever as their business is not growing at the rate expected and as that of its rivals Divestiture can be accomplished by adopting options such as • Spin it off as a separate company – in this case, the company has to decide whether it wants to retain partial ownership or dispose it off altogether with out keeping any share or interest for itself • Sell it ----this can be done only if one can find out a company which finds it worthwhile to buy it and considers it a good fit in their area of operation In the present case, Unilever has been able to hive off / sell its businesses to others because other companies find its businesses attractive and also feel that it fits into their area of operation. • Leverage buys out ---------this involves selling the unit to the manager who is running it for a price. This option is not practical or viable in the case of Unilever at all. Another option available is to do corporate restructuring and follow turnaround strategies The strategic options for a diversified firm whose subsidiaries are not performing exist under the following conditions • When the losses in one or more subsidiaries are quite large • When there are large no of business in unattractive industries ( which is the case in terms of Unilever The corporate restructuring strategy being followed by Unilever is done with the following objective To make radical changes in a mix of businesses and portfolio (which is being done actively by this company) by way of Divestitures and New acquisitions The portfolio restricting becomes attractive under following conditions • Long term performance prospects are unattractive ( this is what the co chairmen thought about Unilever ) • Major businesses in portfolio become unattractive ( this is what forced the company to take this drastic action ) • There is a unique opportunity and it is viable to sell off existing business to finance the new business venture ( which is exactly what Unilever has done ) The corporate turnaround strategies have the following objectives • Money – losing businesses should be restored profitably and not divested • The problems of various portfolios should be looked into and a change brought about to cure them These strategies are very important and significant when the poor performance is short term in nature The business which are ailing are otherwise in attractive industries ( as is the case of Unilever , both food products and home products are industries which are quite attractive ) The options available for turn around strategies are • Sell of close down a part of business operations ( the strategy adopted by Unilever ) • Shift to a different and possible a better business level strategy ( adopted by Unilever ) • Launch new ways of boosting revenues ( adopted by Unilever by way of cutting down on portfolios and brands, and closing down operations at unprofitable locations ) Companies in the present situation are carrying out narrower diversification to create strong competitive advantage in a few selected industries or target markets instead of spreading operations in a variety of industries From the above discussions and analysis , we can easily conclude that Unilever’s policy and strategy is totally in line with the theoretical aspect and is also practical Reference list