MANAGEMENT REPORT ON UNILEVER AND PROCTER & GAMBLE CASE STUDY

Dhanushka Ariyawansa (CB002548)

Submitted to the Business School In partial fulfilment of the requirements for the degree of

Bachelors of Arts in Business Administration (Hons)

Supervised by: Mr. Marlon Gunasekara

Batch number: GF0931BA (Level 03) Subject code: BLB10089-3 STRM

Asia Pacific Institute of Information Technology

October 2009, Colombo

Executive Summary
This report was formulated based on a case study about Unilever and its downturn in 2004. In order to identify the critical factors that affect the company performance, a internal analysis to identify the strengths and weaknesses and also a external analysis was carried to identify the opportunities and threats. In the third section reasons for Unilevers downturn in 2004 was evaluated. This was evaluated usi ng information about financial and other performance characteristics and also by using strategic management theories and strategies. The strategic moves of Unilever and Proctor and Gamble were identified in order to identify the best company which has the most effective strategic approach. Motives behind Proctor and Gambles acquisition of Gillette were discussed to identify the short-term and long-term benefits. And also the future of Unilever was evaluated to give several recommendations about the effectiveness of the courses of action of the company.

Key words: Unilever, P&G

Acknowledgement
I take this opportunity to thank my Lecturer Mr. Marlon Gunasekara for the guidance given to complete this assignment in time. Lab Assistants, Librarians and others who have supported me in many ways are also given gratitude for providing me necessary support. I also wish to thank my parents and friends for all the support and kind assistance extended by them.

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Table of content
EXECUTIVE SUMMARY .................................................................................... I ACKNOWLEDGEMENT ................................................................................... II TABLE OF CONTENT ...................................................................................... III LIST OF TABLES .............................................................................................. VI LIST OF FIGURES .......................................................................................... VII LIST OF ABBREVIATIONS ............................................................................. IX CHAPTER ONE.................................................................................................... 1 INTRODUCTION ................................................................................................. 1 INTRODUCTION..................................................................................................... 2 CHAPTER TWO .................................................................................................. 3 ANALYSIS OF UNILEVER ................................................................................. 3 2.0 ANALYSIS OF UNILEVER ................................................................................. 4 2.1 CLIMATE ANALYSIS ........................................................................................ 4 2.1.1 PESTN Analysis ..................................................................................... 6 2.2 COMPETITOR ANALYSIS .................................................................................. 9 2.3 CUSTOMER ANALYSIS ................................................................................... 12 2.4 COMPANY ANALYSIS .................................................................................... 13 2.4.1 Product Portfolio Analysis ................................................................... 15 2.5 SWOT ANALYSIS ......................................................................................... 17 2.5.1 SWOT analysis ..................................................................................... 17 2.7 CRITICAL FACTOR ANALYSIS ........................................................................ 21

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CHAPTER THREE ............................................................................................ 23 REASONS BEHIND UNILEVERS DOWNTURN IN 2004 ............................ 23 3.1 FINANCIAL ................................................................................................... 24 3.1.1 Cross Trend Analysis ........................................................................... 26 3.1.2 Analysis on Shares ............................................................................... 29 3.2 NON-FINANCIAL ........................................................................................... 31 CHAPTER FOUR ............................................................................................... 34 STRATEGIC MOVES IN CAPTURING CONSUMER MARKETS............... 34 4.1UNILEVER ..................................................................................................... 35 4.2 PROCTOR AND GAMBLE ................................................................................ 37 CHAPTER FIVE ................................................................................................. 39 MOTIVES BEHIND ACQUISITION OF GILLETTE ..................................... 39 5.1 MOTIVES OF ACQUISITION OF GILLETTE ........................................................ 40 CHAPTER 06 ...................................................................................................... 42 EVALUATE FUTURE OF UNILEVER ............................................................ 42 6.0 EVALUATE FUTURE OF UNILEVER ...................................................... 43 8.0 REFERENCING AND BIBLIOGRAPHY ................................................... 45 9.0 APPENDICES ............................................................................................. 46 APPENDICES A PORTERS FIVE FORCES IN DIFFERENT ANGEL .... 46 APPENDICES B OTHER SWOT FACTORS OF UNILEVER ...................................... 47 APPENDICES C RATIO ANALYSIS ...................................................................... 48 APPENDICES D PROCESS OF TAKING STRATEGIES ............................................. 50

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APPENDICES E - SWOT FOR P&G....................................................................... 51

List of Tables
Table 1: PESTN analysis ......................................................................................... 6 Table 2: Climatic Analysis (Weighted Average Factor Rating Method) ................... 8 Table 3: Competitor Analysis ................................................................................ 10 Table 4: Customer Analysis................................................................................... 12 Table 5: Company Analysis................................................................................... 14 Table 6: SWOT ..................................................................................................... 17 Table 7: Critical Unfavorable Factors .................................................................... 21 Table 8: Critical Factor Analysis - Unfavorable factors ......................................... 21 Table 9: Critical Favorable Factors ........................................................................ 22 Table 10: Critical Factor Analysis Favorable ...................................................... 22 Table 11: Strategies used by Unilever .................................................................... 35 Table 12: Strategies used by P&G ......................................................................... 37 Table 13: Benefits of Acquisition of Gillette ......................................................... 41

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List of Figures
Figure 1: Logo of Unilever ...................................................................................... 2 Figure 2: 4C Analysis (Kenichi Ohemae) ................................................................ 4 Figure 3: Business Environment .............................................................................. 5 Figure 4: Analysing the Global Environment ........................................................... 6 Figure 5: Porter's Five Forces .................................................................................. 9 Figure 6: AIDA Model .......................................................................................... 12 Figure 7: Stage of Brands in PLC - Unilever ......................................................... 13 Figure 8: GE Matrix for Unilever .......................................................................... 15 Figure 9: GE Matrix for P&G ................................................................................ 16 Figure 10: SWOT Analysis ................................................................................... 17 Figure 11: Advertising and Promotion Expenditure ............................................... 24 Figure 12: Group Turnover of Unilever ................................................................. 24 Figure 13: Net Profit Growth ................................................................................. 25 Figure 14: Sales Growth & Operating Profit in Unilever - According to Unilever .. 25 Figure 15: Total Assets.......................................................................................... 26 Figure 16: Quick Ratio .......................................................................................... 26 Figure 17: Current Ratio ........................................................................................ 27 Figure 18: Asset to Sales Ratio .............................................................................. 27 Figure 19: ROI and Net Profit Ratios..................................................................... 28 Figure 20: Profit Margins in Unilever .................................................................... 28 Figure 21: Trend Analysis ..................................................................................... 29 Figure 22: Market Capitalization ........................................................................... 29 Figure 23: Total Shareholder Return ...................................................................... 30 Figure 24: Reduction of Shares in the Market ........................................................ 30

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Figure 25: BCG Matrix for Unilever...................................................................... 31 Figure 26: Balance Scorecard Approach ................................................................ 32 Figure 27: Value Chain Analysis ........................................................................... 33

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List of abbreviations
FMCG SWOT MNC PESTN AIDA PLC GE CFA P&G ASR ROI BCG Fast Moving Consumer Goods Strengths, weaknesses, opportunities, and threats Multi National Company Political, economical, social, technological and natural Attention, Interest, Desire and action Product Life Cycle General Electric Critical Factor Analysis Proctor and Gamble Asset to sales ratio Return on Investment Boston Consulting Group

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Chapter One INTRODUCTION

Introduction
Unilever was incorporated in late 1930s as a simple merger of soap and margarine. However as a result of business success today Unilever operates in over hundred countries with more than 174000 employees under its management. Also the success has helped the company to have a strong brand portfolio of over 400 brands with two global divisions namely Foods and Home & Personal which comes under FMCG industry. The main success factor of the company is that, Unilevers constant focus on innovative product developments.

Figure 1: Logo of Unilever Mission of the company Our mission is to add Vitality to life. We meet everyday needs for nutrition; hygiene and personal care with brands that help people looks good, feel and get more out of life.

Corporate purpose of the company The corporate purpose of Unilever states that the only way to achieve sustainable growth and long-term value creation is to adopt the highest standards of corporate behaviour towards all their stakeholders. It further states that to succeed it requires the highest standards of corporate behaviour towards everyone they work with, the communities they touch, and the environment on which they have an impact. (Source: www.unilever.com)

Chapter Two ANALYSIS OF UNILEVER

2.0 Analysis of Unilever

Company
Climat e

(Products)
Climat e Strategic Analysis of the Business Environment

Customer
(Markets)

Competitor
(Industry)

Climat e

Figure 2: 4C Analysis (Kenichi Ohemae) 4C model is one of the most effective methods that can be utilized for analysing the internal and external environments out of which opportunities; threats, weaknesses and strengths can be identified. Along with the SWOT analysis of Unilever, critical factors of each phenomenon have to be identified.

2.1 Climate Analysis

In the given period of time the world was under a recession which caused many unfavourable influences on world economies. This was affected by almost every country of the world where MNCs found it difficult to operate. According to Schuelke (2004) North America, South America, Europe and Asia grew faster in 2004 than 2003 because it was recovering. Similarly the environment of Unilever has to be investigated for a better understanding of the company situation of that era. Thus a PESTN analysis would be carried out. 4

GLOBAL ENVIRONMENT

SOCIAL ENV.

TASK ENV. INTERNAL ENV.

Figure 3: Business Environment In Unilever, the external environmental analysis would be carried out first where the global, social and task environments are looked in to.

CONTROLLABLE

EXTERNAL ENV.

2.1.1 PESTN Analysis The global environment explained in the above figure will be discussed here. P P N E

T T

S S

Figure 4: Analysing the Global Environment Table 1: PESTN analysis POLITICAL global peace situation was not that stable corporate taxes were high around the glob Labor related restrictions and tough laws. consumer protection laws were really strong there were many trade agreements further liberalization of economies

ECONOMICAL there was still the effects of world recession even though it was at the recovery stage Accelerating Inflation of the world economy ( Prices will increase) reduced purchasing power parity ( directly affect to sales) many countries faced low GDP and less economic growth since economies trying to recover, its a good sign exchange rate issues improved globalization and urbanization ( course for high demand)

increase in woman work force ( course for high demand) Openness and Liberalization. country risk trends have been going down

SOCIAL

acceptance of fast foods concern on diet foods & low fat products concern on environmental friendly products social awareness of products ( slim products - customers has decided to not to use them and to exercise instead) many ethnic groups who have separate wants and Unilever could targets them separately

TECHNICAL

UNILEVER always grasp new technology and improves the efficiency safety and design through technology trustworthy researches done trusted products could be delivered technologies always costs

NATURAL

environmental friendly products will show natural concern of Unilever

Based on the understanding of the above PESTN factors, the following Climatic Analysis is carried out.

Table 2: Climatic Analysis (Weighted Average Factor Rating Method) Factor Weight Likert scale Score Unfavorable Favorable 1 2 3 4 5 5 5 2 3 4 4 3 4 5 4 3 2 3 4 4 3 4 5 4 3 37 Weighted score 1 0.1 0.75 0.2 0.4 0.15 0.2 0.5 0.4 0.15 3.85

1. Political 2. Legal 3. Economic 4. Financial 5. Social 6. Cultural 7. Demographic 8. Technological 9. Technical 10. Natural Overall score

20% 5% 25% 5% 10% 5% 5% 10% 10% 5% 100%

2.2 Competitor Analysis

New Market Entrants, eg:

entry ease/barriers geographical factors incumbents resistance new entrant strategy routes to market

Supplier Power, eg:

brand reputation geographical coverage product/service level quality relationships with customers bidding processes/capabilities

Competitive Rivalry, eg:

number and size of firms industry size and trends fixed v variable cost bases product/service ranges differentiation, strategy

Buyer Power, eg:

buyer choice buyers size/number change cost/frequency product/service importance volumes, JIT scheduling

Figure 5: Porter's Five Forces (Source: http://www.businessballs.com/portersfiveforcesdiagram.pdf)

Product and Technology Development, eg:

alternatives price/quality market distribution changes fashion and trends legislative effects

Table 3: Competitor Analysis Factor Weight Likert scale Unfavorable Favorable 1 2 3 4 5 4 5 4 5 3 Score Weighted score

competition with industry number of firms in industry strengths of the leading firms Market size and growth rate Exit Barriers creativity and innovative drive Sub total Threat of Substitutes Number of substitutes Closeness of the substitute Strength of the substitute Buyers favorable attitude PLC of the industry product Sub total Bargaining Power of Buyer Number of buyers / users Switching cost to the buyer Fragmentation of buyers Significance of the product Strength of the buyer Sub total

40% 5% 10% 8% 5% 12% . 15% 2% 5% 4% 2% 2% 1 2 2 3

4 5 4 5 3 21 1 2 2 3 5 13

0.2 0.5 0.32 0.25 0.36 1.63 0.02 0.1 0.08 0.06 0.1 0.36

25% 5% 5% 5% 5% 5% 1 4 4 5 5 5 1 4 4 5 19 0.25 0.05 0.2 0.2 0.25 0.95

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Bargaining Power of Supplier Concentration of suppliers Significance of switching costs Importance of raw materials Number of competitive suppliers Extent of supplier Fragmentation Sub total Threat of New Entrance Attractiveness of the market Extent of Brand Loyalty Entry and operating cost Patent protection Strength of the new entrant Sub total

10%

1% 3% 3% 2% 1% 1 2 3

4 4

4 4 3 2 1 14

0.04 0.12 0.09 0.04 0.01 0.3

10% 2% 2% 2% 2% 2% 2 4 4 5 5 5 4 5 4 2 20 0.1 0.08 0.1 0.08 0.04 0.4

Grand Total

100%

87

3.64

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2.3 Customer Analysis

Table 4: Customer Analysis Score 5 2 2 3 4 3 4 4 5 5 0 4 5 4 5 34 Factor Likert scale Unfavorab Favor le able 1 2 3 4 5 5 2 2 Weighted score 1 0.2 0.16 0.18 0.6 0.6 0.25 0 0.32 0.25 3.56 Weight 20% 10% 8% 6% 15% 15% 5% 8% 8% 5% 100%

Market size Level of market saturation market growth rate market profitability market trends and discontinuities customer expectations level of familiarity Level of Favorability Level of Satisfaction Loyalty status Overall score

When regarding Customers as a main factor, considering AIDA model is of vital advantage. According to above facts level of familiarity is 0.25. However getting attention of customers, make customers interest on products and make desire within them is also important in keeping and grabbing customers. The ultimate motive is to have loyal customers which were recognized as high (0.25) in Unilever.

Figure 6: AIDA Model (Source: http://www.gaumina.lt/tuuletin/index.php?id=7)

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2.4 Company Analysis

Company analysis is also an important analysis for understanding of the position of the company and to decide on its strengths and weaknesses.

Introductory Stage

Growth Stage

Maturity Stage

Decline Stage

Total Market Sales

Time

Figure 7: Stage of Brands in PLC - Unilever Above PLC exhibit the Unilever position in relation to brand and its maturity in its lifecycle. It presents an idea of Unilever. However in order to maintain the company, brands and market; following analysis has to be carried-out.

The analysis is based on individual factor analysis which is vital in preparation of this analysis.

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Table 5: Company Analysis Weight Factor Leadership Culture Structure System Physical Resources Financial Resources Location People Policies
Procedures

20% 10% 9% 7% 15% 15% 6% 9% 4% 5% 100%

Likert scale Unfavorab Favor le able 1 2 3 4 5 4 4 3 2 4 4 5 5 4 3

Score

Weighted score

Overall Score

4 4 3 2 4 4 5 5 4 3 38

0.8 0.4 0.27 0.14 0.6 0.6 0.3 0.45 0.16 0.15 3.87

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2.4.1 Product Portfolio Analysis

Market Attractiveness High Medium Low

H i g h

Business Strength

M e d I u m

L o w

Figure 8: GE Matrix for Unilever

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High

Market Attractiveness Medium

Low

H i g h

Business Strength

M e d I u m

L o w

Figure 9: GE Matrix for P&G

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2.5 SWOT analysis

Helpful Harmful

Internal

Strengths

Opportunities

S O

Weaknesses

W T
Threats
Strengths

Figure 10: SWOT Analysis SWOT analysis of Unilever could be carried out from the results gained by the previous analysis conducted. 2.5.1 SWOT analysis Table 6: SWOT Type Strengths Market size Unilever posses 40-45% of market share over its operating countries by 2004 (compared to P&G). This makes it is one of the leaders in the industry. Only P&G is the possible competitor to the Unilever. Thus the market share of Unilever considered being one of its main strengths. Its being identified in above analysis as well. Level of familiarity Familiarity of Unilever products is really high. Sometimes consumers dont know it is Unilever, yet it is known as its sub brand or the brand category. This way the product familiarity is high and many people in the world uses at least one product of them daily. Description

External

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Loyalty status, high brand loyalty

Brand loyalty and loyalty status of Unilever consumers are also high. Many users of those products do not change their brand. Especially products like personal care are not subjected to be switching behaviour. Thus this turns to be strength.

High Brand Portfolio

The Company has more than 400 brands which operate under two main divisions, Food and Home & personal care. As mentioned in the case study each division has separate strengths. According to the case, Bestfoods is capable of offering different tailor made products to different markets where as Knorr is the widespread brand in Unilever.

Diversified management structure across the globe

Case study reveals that in top 100 managers, there are 33 nationalities. Even there are five nationalities in executive board. The composition of the top management also represents 50% out of developing nations and 40% of women. This is a strength as this diversify staff may have better understanding on their regions and areas. Weaknesses

Highly complex organizational structure

According to the case, the causes bashing downfall of sales in 2002 was the structure of the company. The team of top management and officers count to be 40 with two heads from parent companies which ultimately resulted in added cost of maintaining them and non focused goals for the company.

Poor Performance

Although company performance was good, there were some brands which was not doing that well in the market which were supposed to perform fine. According to case study, even though the set target was 10%, some of leading brands only could attain 4-5%.

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Competition among company brands

Unilever comprises of several brands which consist of contradictory brands resulting duplication of effort and money. Becel and Flora are such competing margarine products that Unilever has.

High cost

Even though Unilever has 1600 brands, only core (400) brands gain 90% of sales. Thus the advertising and other expenditure is wasted on other 1200 products where as the return was only 10% of total income. Opportunities

Globalization and urbanization

The globalization and urbanization lead to separate lifestyles which open market to the companies like Unilever to target on. Therefore the common and high needs such as instant foods can be introduced to the market.

Liberalizations of economises and trade agreements

Linearization of economies has been an advantage to MNCs. Therefore Unilever can enter in to such countries with economic liberalisation. Trade agreements also assist companies to enter in to other new markets that direct access is prohibited. Thus this would count as an opportunity to Unilever.

Increase in women work force

The world is experiencing increase in women workforce. Though it leads to some social issues, it is an opportunity for Unilever as they can fill some gaps created by this new trend. Fast food is such product successfully implemented to fulfil this gap. Threats

Competition

Competition is one of the main threats that many companies would have to face. Unilever has to face huge competition as its competitor is very strong. Further more Unilever has many other sub competitors who provide substitutes to their products and the closeness of such products are also high.

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New entrance

The only direct competitor for Unilever is P&G. since both are giant companies. Entrance to the industry is much harder. Yet there is a possibility that new entrance may come as just a product. For instance, Knorr is well established soup cube. There may be a new entrance with the same product to the market.

Social awareness of products

Social awareness of products is being increasing. Customers are also information seeking. Therefore the market is well informed about products. Hence customers know what is really happening. That is the reason that case explains about customers going away from meal replacements and embracing exercising and healthy diets.

Economic situation

The economy was under recession in the given time period. The inflation was rising and Purchasing Power of customers has been decreasing. Thus the sales of the products will be affected. Household items will not be affected as those are daily consumed produces. However personal care products would be affected by this recession. Thus the company has to prepare for facing this challenge and to overcome it.

Refer appendices C for more factors.

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2.7 Critical Factor Analysis

In identifying critical factors through above performed analysis, following factors were high ranked. How ever, those factors can be divided in to two based on the favourability. Table 7: Critical Unfavorable Factors
Factor weight Score

Economic Social strengths of the leading firms Closeness of the substitute Strength of the buyer Significance of switching costs

25% 10% 10% 5% 5% 3%

3 5 5 4 4 4

These factors are the most dangerous factors that are faced by Unilever. Unless these factors are considered critical and strategise on those to overcome threats, Unilever will be unsuccessful in future. Thus a critical factor analysis (CFA) is carried out. Table 8: Critical Factor Analysis - Unfavorable factors
Factor weight Score Weight score

Economic Social strengths of the leading firms Closeness of the substitute Strength of the buyer Significance of switching costs

20% 15% 25% 20% 10% 10%

100%

3 5 5 4 4 4

0.6 0.75 1.25 0.8 0.4 0.4

4.2

Out of those Economic situations, Social status and Closeness of the substitutes are the most critical factors that Unilever faces.

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However there are factors upon which Unilever must capitalize and to gain more success. Table 9: Critical Favorable Factors
Factor weight Score

Leadership market trends and discontinuities Physical Resources customer expectations Financial Resources creativity and innovative drive Technical Culture People Entry and operating cost Attractiveness of the market

20% 15% 15% 15% 15% 12% 10% 10% 9% 2% 2%

4 5 5 4 3 2 5 4 4 5 4

As it is mentioned these must be capitalize in gaining the market, thus a CFA is carried out. Table 10: Critical Factor Analysis Favorable
Factor weight Score Weight score

Leadership market trends and discontinuities Physical Resources customer expectations Financial Resources creativity and innovative drive Technical Culture People Entry and operating cost Attractiveness of the market

10% 7% 5% 12% 9% 8% 7% 8% 12% 10% 12%

100%

4 5 5 4 3 2 5 4 4 5 4

0.4 0.35 0.25 0.48 0.27 0.16 0.35 0.32 0.48 0.5 0.48
4.04

As a result Leadership, Customer expectations, People and Attractiveness of the market has been identified as Critical factors. Thus strategies must be laid on enhancing those strengths and minimizing the threats identified in Table 8. 22

Chapter Three Reasons Behind Unilevers Downturn in 2004

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3.1 Financial
Unilever was enduring severe competition by its main competitor P&G through price war in laundry and personal care sector in India and Europe. However the threat of loosing market share was conquered in 2004 at the cost of promotion. Thus profitability reduced drastically.

(Source: 165821.pdf)

http://www.unilever.com/images/ir_Charts%201998%202008_tcm13-

Figure 11: Advertising and Promotion Expenditure

As a result profitability fell up to 16%. According to information provided in the case study; profitability of Unilever can be illustrated as follows.

Group Trunover
60000 50000 40000 30000 20000 10000 0 2000 2001 unilever 2002 P&G 2003

Figure 12: Group Turnover of Unilever

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Net Profit Growth

unilever P&G

6000 4000 2000 0 2000 2001 2002 2003 P&G unilever

Figure 13: Net Profit Growth Above graphs explains that the Unilever has been performing well, yet the trend exhibit a reduction of sales. Thus it can be predicted that the sales of 2004 will be reduced (figures are not given in case study). Following is the real sales drop in 2004. Sales Growth Operating Profit

(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13165821.pdf) Figure 14: Sales Growth & Operating Profit in Unilever - According to Unilever

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3.1.1 Cross Trend Analysis When compared to Unilever with P&G, Unilever is lagging in many areas during 2004. For instance Unilever has experience reduction of total assets, quick ratio, Current ratio and Asset to sales ratios. Those will be demonstrated in following graphs.

Total Assests
unilever 57472 52766 44598 40776 34366 34387 43706 37968 P&G

2000

2001

2002

2003

Figure 15: Total Assets

Quick Ratio
80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2000 2001 Unilever 2002 P&G 2003

Figure 16: Quick Ratio

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Reduction of quick ration affects companys liquidity. Thus Unilever has faced liquidity issues in this time and this also counted in reduction of profit.

Current Ratio
1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2000 2001 Unilever 2002 P&G 2003

Figure 17: Current Ratio The current ratio is also getting reduced with the time which leads Unilever from preventing meeting its short term obligations. Hence this also can be recognized as a factor for a low profit. Asset to sales ratio (ASR) stands for efficiency of

Asset to Sales Ratio

1.4 1.2 1 0.8 0.6 0.4 0.2 0 2000 2001 2002 2003

managing assets in relation to revenue generated.

Unilever is experiencing a reduction of ASR. This also caused in downturn in 2004.

Unilever

P&G

Figure 18: Asset to Sales Ratio

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ROI
0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2000 2001 Unilever 2002 P&G 2003

Net Profit Ratio

14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2000 2001 2002 P&G 2003

Unilever

Figure 19: ROI and Net Profit Ratios According to facts provided in the case ROI and Net profit ratio seems to be mounting, yet when comparing to 2004 figures, the trend is deviating to unfavourable area. With the downturn exhibit in Figure 19 and 13; ROI and Net Profit Ratio gets reduced.

(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13165821.pdf) Figure 20: Profit Margins in Unilever

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The following Trend analysis exhibit the increment of ratios in 2003. However all these figures present unfavorable figures in 2004 with the downturn of Unilever.

Trend Analysis (2002 & 2003)

80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Equity Ratio Acid Test Ratio Debt Ratio Return on Return on Common Equity Equity 2003

2002

Figure 21: Trend Analysis 3.1.2 Analysis on Shares Unilever was experiencing dramatic reduction in market capitalization. This was mainly because of the reduction of the return on shares in the market. All ratios are available in the Appendix C.

(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13165821.pdf) Figure 22: Market Capitalization

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(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13165821.pdf) Figure 23: Total Shareholder Return The downturn of returns from 2003 to 2003 caused the reduction of shares in the market

(Source: http://www.unilever.com/investorrelations/share_price/default.aspx)
Figure 24: Reduction of Shares in the Market Thus the share base of Unilever affected in 2004, this could be considered as one of the main factors that geared the downturn in Unilever in 2004. 30

3.2 Non-Financial
The portfolio of Unilever comprise with 1600 brands which couldnt be handled efficiently. This itself adds cost to company. However in identifying this inefficiency, Unilever reduced its brand portfolio to 400. This conversation cost and customer attitude on this reduction may affect its sales. This was backed by the case as it mentions that t he Unilever is boxed itself with too many targets which cold cause 0% growth instead of anticipated 3%. Thus an initial change was needed. Another factor that caused inefficiency and losses is the structure inherited. Mr. FitzGerald also accepts that the strategy was not delivered due to unwieldy structure. Simultaneously, the cost of structure was also a burden. Dual chairmanship and high number of senior managers also a burden to Unilever. Another obvious factor about Unilever is their cash cows. In the BCG matrix analysis, cash cows were identified as follows.

All brands that were eliminated

Figure 25: BCG Matrix for Unilever

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Those brands are of importance for the identification of the brand by customers and it makes money too. However cash-cows consume some additional cost and reducing profit margins due to not-expanding. This was one of the main causes for the downturn in 2004. Moreover, by that time Unilever possessed about 1200 dogs. Those were also a burden to company which counted in 2004 downturn. In GE matrix (Figure 8) there were some brands which have less attractiveness and less business strengths. Continuing those brands with less return is completely burden to Unilever. (e.g.: Cif) When evaluating the downturn of Unilever, Balance scorecard approach is also vital. Financial aspects under this method were discussed in earlier chapter and were identified to be reasons for the downturn. However non-financial factors would be discussed in this chapter.

(Source: http://www.avisys.co.in/bsc.html) Figure 26: Balance Scorecard Approach With the support of the case study, it can be identified that Unilever is adopting internal business process and learning strategies after it faces the downturn. Nevertheless Unilever could adopt these approaches with proactive approach and gain the 3% growth that is mentioned by Mr. Cescau. 32

Unilever is a worldwide organization that integrates the functions to one value added process. In meeting customer needs, Unilever tends to follow both international and local operations that would lead to better progress. This way Unilever could achieve both local and international values. Creation of value is the path to growth where all Unilever brands were treated in terms of productivity and operations. However the application of this was not present prior to 2004. And also the supply chain can be narrowed down in order to achieve more growth.

(Source: http://www.provenmodels.com/26/value-chain-analysis/michael-e.-porter) Figure 27: Value Chain Analysis

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Chapter Four Strategic Moves in Capturing Consumer Markets

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4.1Unilever
Since Unilever experienced downturn in 2004, company took measures for gaining its position back. After going through evaluation process (appendix D) Unilever has revolutionized many of its strategies. Table 11: Strategies used by Unilever UNILEVER

Strategy
Refocusing on Main 200 Brands

Description
When realized that being too broad is costly, Unilever decides to focus on the core brands which accounted for 90% of its sales. This is wise as the expenditure on other 1000 brands is a waste due to fewer returns. However due to this change more advertising could be done on main brands and could be gain high profits and margins

Dropping 1000 poor performing brands

This is a decision of vast importance that a company would rarely take. The decision leads to save a lot of money that were spent on gaining 10% of total revenue. However this may bring in some black point to Unilever.

Acquisition of BestFood

Unilever's Main focus was to narrow down its brands, at a glance, the acquisition of Bestfoods seems like expanding. However motive behind this actuation is not to expand but to welcome some well-known brands such as Hellmanns and Ragu. The acquisition maintains the narrow focus of Unilever and strengthen brand portfolio. This merger did not open markets to Unilever as these markets were the markets that were Unilever operating in. but many tax advantages could be gained through this.

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Closing down North American factory

Using the money gained from closing down these factories, plant facilities of Asia and Lathing America could be increased where sales are maximum. This was very effective as it is identified earlier Unilever had less assets and reduced liquidity at this time.

Merger of two parent companies

Even though both parent companies act alike, those were two different companies. Thus issues arise. Strategies were also hampered in delivering as the structure was improper. Thus this merger would reduce structural issues.

Replacement of dual chairmanship

Dual chairmanship is also an issue as decision makings is some wt difficult. Moreover its costly to Unilever. Thus it will be replaced by a chief chairman and a non-executive chairman who would be more convenient for decision making.

While these strategies were adopted by Unilever, P&G is also adhering for some strategies. The strategies of P&G were adopted by carrying out its SWOT analysis (Appendix E). Those strategies are shown below.

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4.2 Proctor and Gamble

Table 12: Strategies used by P&G Proctor & Gamble Strategy Expanding by Acquisition Description Acquisition of Gillette was a major strategic movement as it opened many foreign markets for P&G. additionally this could save millions for P&G and those money could be diverted for more product development. P&G expands to wide its brands and product portfolio. Thus risk will be minimized. Since they have a good management and leadership, handling wide brands will not be a big deal. Even P&G experienced high bargaining power over powerful retailers like Wal-Mart. Heavy Advertiser As it is mentioned in the case, "P&G is already the nation's largest TV advertiser". Thus its product is well-known by the market and Unilever has a comparative disadvantage here. Moving in to Pet care and Pet Insurance This novel idea has a high stake of being success. Pet insurance is a blue ocean where P&G is the first mover. Thus P&G can gain a lot from this market. In comparison of both strategies, one common strategy can be recognized; acquiring. However the morale behind two acquisitions was completely different. Unilever acquired for strengthen its brands and to balance its brands base. Yet the morale behind P&G being in the acquisition is to widen the market and to diversify. Another similar strategy was the restructuring. Both P&G and Unilever restructured with the merger of mother companies and acquisition. However this was resulted in high performance.

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One of the other factors used by Unilever is to reduce brands where as P&G tends to increase its day by day. Although these strategies are contradictory, it works well in both organizations, basically due to strong leadership.

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Chapter Five Motives Behind Acquisition of Gillette

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5.1 Motives of Acquisition of Gillette

The historical acquisition was announced in 2005 which is worth of US$ 57 Billion to P&G. Since both companies operate in similar cultures, the acquisition was called a perfect fit, which will create the worlds greatest consumer product company and the greatest acquisition. According to Mr. Egan-Joans, the main advantage over the acquisition was the better bargaining power with retailers for shelves and gets competitive prices for those. However the rise of the competitiveness is also a primary motive as it adds competitive advantage that can hardly be copied. However merge of worlds largest products would instantly brings in negotiating power with its retailers. Another motive was to be cost effective which could be ultimately directed to the growth of the brands of P&G. Through reduction of jobs, eliminating management overlaps and all other modifications $14-$16 billion saving is expected which would be redirected to advertising and all other necessary expense. The power of P&G would be increased due to the acquisition that results in elimination of competitors in the market. Upon the acquisition, Unilever was heavily attacked by P&G. However P&G out beat Unilever by recording $7 billion profit. This is one of the motives that P&G enclosed in acquisition. Similarly P&G had access to worldwide distribution system with the new acquisition. This can be identified as the major implication of the acquisition. Further gaining supreme corporate image and less broadcasting cost are considered as secondary motives of the acquisition. Moreover the integrated product lines could attain higher number of customers that resulted in higher profits. However many benefits of the acquisition can be identified those affect positively in both short and long term.

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Table 13: Benefits of Acquisition of Gillette Short Term Benefits Long Term Benefits Cost savings Availability of new markets Knowledge acquisition Expanding business contacts New distribution Channels (Gillette's) Product development Easy access to the business sector Shard risk Due to above mentioned motives and benefits, acquisition of Gillette position P&G in a supreme state. However this acquisition turned P&G the market leader.

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Chapter 06 Evaluate Future of Unilever

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6.0 Evaluate Future of Unilever

The future vision of the Unilever is based on corporate purpose that includes desire for sustainable, profitable growth and long term value creation for stake holders. However Unilever expects to achieve its corporate strategy through Path to growth programme which focuses on natural flexibility, allocating resources and increase margins through restructuring. As a result of the new strategy, Unilever make huge changes on its product portfolio by reducing it to 200 from 1000. Meanwhile Unilever goes for an Acquisition with Bestfoods introducing new attractive brands such as Hellmanns and Ragu. Thus the new product portfolio is made of lot of cash cows and stars. Thus shrank product portfolio would provide spare resources to exploit opportunities and further creation of value. However the shrank product portfolio has cut down huge unnecessary advertising cost which could be used for narrowing down the supply chain. However Unilever experienced dramatic reduction of share prices in 2004. Though Unilever couldnt out beat P&G, it could be in its track again with the Path to Growth Programme. The conversion of slim-fast to low-fat meals was a failure at the beginning. However it could be converted in to success with the shifting meal side of slim-fast to slimfast-ice-cream. This strategic decision based on successful identification of the market would ensure the survival and growth of Unilever in future. In developing Unilever, the main attention was given to set clear business principles, simplify organization, to reduce the number of targets and to be competitive in the market. To be inline with this strategy, Unilever has taken actions such as merging the parent companies and reduce the repetition of management and operational level employees which increase the efficiency, reduction of cost and lead to success. Unilever will face several risks and issues which are similar to the risks faced in the past. Therefore the strategic management strategies of Unilever should be strong enough to fight against the risks. However as the conclusion it can be stated that the 43

current strategy of Unilever can be implemented in a way that the company can achieve more profits.

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8.0 Referencing and Bibliography

Anon (2004). World Economic Situation and Prospects 2004.: United Nations. Available from:< http://www.un.org/esa/policy/wess/wesp2004.pdf>[Accessed 10/10/2009]. Avisys solutions [online]. (2006). Available from: <http://www.avisys.co.in/bsc.html>[Accessed 12/10/2009] Businessballs [online]. (2009). Available from: <http://www.businessballs.com/portersfiveforcesdiagram.pdf>. [Accessed 19/10/2009] Gunasekara. M (2009). "Strategic Management", lecture notes distributed in the topic BLB10089-3 STRM. APIIT, Colombo, Srilanka on 11/09/2009. Gunasekara. M (2009). "Strategic Management", lecture notes distributed in the topic BLB10089-3 STRM. APIIT, Colombo, Srilanka on 13/10/2009. Luther K.R (2004). Political Parties in the World in 2004; Australia. KEPRU [online]. 21, , Available from: <http://www.keele.ac.uk/depts/spire/research/KEPRU/Working_Papers/KEPRUPap er21.pdf>[Accessed 12/10/2009 ] provenmodels [online]. (2009). Available from: <http://www.provenmodels.com/26/value-chain-analysis/michael-e.porter>[Accessed 13/10/2009] Schuelke R.W (2004). World Economic News [online Available from: <http://www.sonic.net/~schuelke/The_Global_Economy_2004.html>]. [Accessed 18/10/2009] tuuletin (2005). Marketing opportunities in digital media [online].. Available from: <http://www.gaumina.lt/tuuletin/index.php?id=7>[Accessed 20/10/2009] Unilever (2008). Adding Vitality to Life. Unilever [online], ,Available from: <http://www.unilever.com/images/ir_Charts 1998 2008_tcm13165821.pdf>[Accessed 15/10/2009 ] Unilever [online]. (2009). Available from: <http://www.unilever.com/investorrelations/share_price/default.aspx>[Accessed 25/10/2009] Wheelen. T.L, Hunger J.D, Rangarajan K (eds). (2008). Strategic management and business policy. DeIhi, India: Dorling Kindersly (India) Pvt. Ltd. 45

9.0 Appendices Appendices A Porters Five Forces in Different Angel

(Gunasekara. M (2009).)

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Appendices B Other SWOT factors of Unilever

Strengths Goodwill of the company expanded product lines operating around the world introduction of less control over several threats from external environment reduction in R&D Competitive prices product expunction Weaknesses structural weakness Opportunities need for healthy products new entrance Threats Legal constrains

innovative products market

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Appendices C Ratio Analysis

1 = 1.5$ 2003

Unilever
2002 2001 2000 2003

P&G
2002 2001 2000

ROI Net Profit Ratio

0.132191 6.47%

0.089015 4.43%

0.056845 3.26%

0.03621 2.22%

0.118656 12.61%

0.106729 11.96%

0.084974 10.82%

0.103157 7.45%

Quick Ratio Current Ratio Total Assets to Sales

0.522783 0.784878 0.889326

0.572711 0.791137 0.923928

0.531406 0.774642 1.024498

0.458292 0.649415 1.207852

0.748503 1.231591 1.007585

0.528652 0.957651 1.01337

0.553423 1.106493 0.876236

0.444729 1.000493 0.860204

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Ratio Analysis Continued Unilever

2002 2003 16.75%

Equity Ratio Acid Test Ratio Days Sales Uncollected Debt Ratio Return on Common Equity Return on Equity

14.45%

0.56 62.24 0.72 20.86% 0.36

0.54 50.27 0.69 26.24% 0.466

Days Sales Uncollected

80 60 40 20 0 2002 2003 Days Sales Uncollected

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Appendices D Process of Taking Strategies

Strategic Direction

Strategic Direction

Strategic Analysis

SWOT Strategy Formulation Critical SWOT factor Strategy Evaluation and Selection Strategy Implementation

Corporate Level

Business Strategic Options

SAFE MODEL

(Gunasekara. M (2009).) 50

Appendices E - SWOT for P&G

Strengths Large Scale of operation Strong Branding Weaknesses Less customer focus Lack in performance in Clairol business. Product Innovation Developing market infrastructure Novel Products Opportunities Developing markets Acquisition of Gillette Threats Uncertainty in Pharmaceuticals Increase in the price of Raw material High competition

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