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World wide business activity runs in a loose confederation (excessive de-centralization) unlike its major competitors P&G & Nestle in Foods
Problems encountered:
Increase in cost structure by duplication of manufacturing facility from country to country
Excess time taken to transfer technologies from parent organization to subsidiaries across the world ( R&D )
High advertising costs - since the same products are known by different brand names in different markets
Aim:
Synchronize the launch of new products throughout Europe in order to beat competition
Focusing on key brands so that the brand portfolio is streamlined and more emphases could be given in terms of different resources
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1930s - Soap and edible fat accounted for 90% of the business 1930s/40s Acquisition of Thomas J Lipton (1937) and Pepsodent (1944) 1940s/50s - Extensive investment in new technology and research facilities 1970s - Expansions through acquisition in chemicals and packaging 1980 - Frozen foods,ice cream, packed soups, tea and personal products accounts for 60% of business, soaps and edible fats accounted 40%.
1999 - Acquisition Kibon (Brazil) to become leading ice cream in the world
2000 - Company is restructured to reflect the split between the Best foods (foods) and home and personal care divisions.
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(PGS)
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Delivery of EPS growth in quality way with increased gross operating margins, partially reinvested to support leading brands
Focus on leading brands and supporting these brands with strong innovation and focused marketing strategies
Simplification of business processes and weeding out under performing businesses and brands
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Organizational restructuring
Unilevers 300 operating companies were placed under 10 regional groups via two divisionsDivision Foods Regional groups Foods north Africa,Middle east and Turkey Unilever Bestfoods Asia Unilever Bestfoods Latin America Unilever Bestfoods North America and Slimfast worldwide Unilever Bestfoods, Europe
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Regional groups Home and Personal care Asia Home and Personal care Europe Home and personal care North America HPC North Africa,Middle East and Turkey HPC, Latin America
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Divisional executive directors (for different regions) Regional president(different for different divisions) Recruiting new crop of young executives willing to take risks rather than being conservative and rational executives,who averted risks Over 40 of the companys top 100 executives were new to companys rank between 2000-2002 (Cerebral company to action company)
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Comments
This separation into two different divisions can lead to duplication of all major activities and would lead to cost inefficiencies.
Global markets are broken into different regions headed by regional presidents reporting to global directors,The key to this lies in the level of autonomy given to these presidents
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Brand Restructuring
Unilever decided to slash its product port folio from 1600 to 400 leading brands WHY? About 1000 brand of the companys total brand portfolio accounted for 8% of turnover where as leading brands accounted for 95% Could reduce fragmentation of resources and re-route to support the leading brands Effective innovations and faster rollout of new products
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Axe
Ponds Dove
Surf
Expanding brands into new markets-fast growing and developing markets Acquisition spree in food business: The company mainly focused on acquiring American food companies and brands since their valuations were low owing to the prevailing recession.
Some of the major acquisitions were Bestfoods(US, foods) Slimfast (US, slimming products)
Amora Maille (France, Culinary products) Ben & jerrys (US ice cream)
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Decided to improve the performance of under performing businesses such as Elizabeth Arden range of fragrances and skin care products.Brands/businesses failed to improve were disposed
Due to significant food consumption done outside homes, food business (comprising over 1000 brands) started declining
Company decided to invest Pound 1bn in additional marketing support to its leading brands over five years
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Lipton soup bar, a soup station for fast service In turkey company appointed sales team that used fleet of boats with ice cream freezers for consumers on yacht in the bays Reinforcement in advertisement strategies to strengthen focused brands
4-year advertisement deal worth $500mn with Carlon communications-major broadcasting company in UK Online advertising contracts with Microsoft for promotion in France,UK and Germany
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Placed banners and advertisement on MSN.com (Europe) and had dedicated websites and displays in France, UK and Germany
The decision to de-emphasize about 1200 brands enabled company to focus on innovations(through increased resources) and strengthening the leading brands.
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Comments
The decision to build,maintain,harvest and divest is a crucial one for a companys profitability. A detailed industry analysis is required for product related decisions A detailed competitive analysis required apart from focusing only on sales and profitability Company has to spend heavily on advertising and promotional expenses,which may affect revenues initially
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Simplification of Processes
Under the simplification of processes,company decided to use latest IT tools and internet After 2000, company tried to Centralize its IT infrastructure by implementing global information network which provide fast access to actionable information
Under knowledge management, they started Unilever information program to harness data from various information sources regarding brands,supply chain and customers
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Planned to invest in $208mn in e-commerce with Microsoft, Ariba, Compaq to improve brand communication
Marketing Online selling activities Business to business transactions across its supply chain
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Developing efficient and committed supplier base (rewards for process improvements and innovational initiatives)
E-procurement to reduce supply chain redundancies and global economies of scale to reduce procurement cost and streamlining worldwide purchases
Combined all its warehouses and chose one warehouse in every region In 2002, Unilever announced five regional mega distribution centers(1mn sq ft each) carrying both the product lines Benefits Expected to reduce freight and warehousing costs by 10%-20% Restructuring of supply chain was expected to save pounds 1.75 billion in total
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Fostering long term relationship with suppliers Closure of inefficient manufacturing plants Consolidation of warehouses In the absence of a detailed competitor analysis, positioning and a re-positioning strategy of product line any supply chain activity may be useless.
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Continued
Earnings per share ( BEIA growth %) 25 20 15 10 5 0 2000 10.5 2001 12.2 2002 20.9
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47.6
41.3
88%
75%
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41.88
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By 2002,company exited from 100 businesses and closed over 122 manufacturing plants
By mid 2003, Unilever reduced its brand portfolio to 635 and was fast closing in on to its target of 400 brands
Top 400 brands accounted for 90% of companys turnover by this time.
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Core Strategy
As a part of this, company decided to focus on following four industries-Foods, Personal care, Home care, Specialty Chemicals Strategy followed-Acquisition and divesture of brands and companies. 1984 - Unilever acquired Brooke bond to strengthen presence in European market 1987 -Acquired Chesebrough-Ponds Inc to establish itself in US personal products market and world skin care market Acquisition of Faberge/Elizabeth Arden and Calvin Klein fragrance businesses
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Unilever built an extensive range of product categories under each business segment
Did not take appropriate steps to steamline its business processes as it increased in size
Became inflexible to the change due to cumber operations and other inefficiencies
E.g. ice creams and margarine in south east Asia, Latin America and china.Ice-cream sales doubled as reach increased to 45 countries from 20 countries earlier
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Slimfast foods co. acquired for $ 2.3 bn in-a diet supplement manufacturer
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Expected to strengthen Unilevers presence in US and provide it with products and brands that could be expanded internationally
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