Question

Refer to the scenario to answer the following question(s):

Unilever, the world’s second largest consumer goods company, received a jolt in 2004 when its stock price fell sharply after management had warned investors that profits would be lower than anticipated. Even though the company had been the first consumer goods company to enter the world’s emerging economies in Africa, China, India, and Latin America with a formidable range of products and local knowledge, its sales faltered when rivals began to attack its entrenched position in these markets. Procter & Gamble’s (P&G) acquisition of Gillette had greatly bolstered P&G’s growing portfolio of global brands and allowed it to undermine Unilever’s global market share. For example, when P&G targeted India for a sales initiative in 2003–04, profit margins fell at Unilever’s Indian subsidiary from 20% to 13%.

An in-depth review of Unilever’s brands revealed that its brands were doing as well as were those of its rivals. Something else was wrong. According to Richard Rivers, Unilever’s head of corporate strategy, “We were just not executing as well as we should have.”

Unilever’s management realized that it had no choice but to make-over the company from top to bottom. Over decades of operating in almost every country in the world, the company had become fat with unnecessary bureaucracy and complexity. Unilever’s traditional emphasis on the autonomy of its country managers had led to a lack of synergy and a duplication of corporate structures. Country managers had been making strategic decisions without regard for their effect on other regions or on the corporation as a whole.

Starting at the top, two joint chairmen were replaced by one sole chief executive. In China, three companies with three chief executives were replaced by one company with one person in charge. Overall staff was cut from 223,000 in 2004 to 179,000 in 2008. By 2010, management planned close to 50 of its 300 factories and to eliminate 75 of 100 regional centers. Twenty thousand more jobs were selected to be eliminated over a four-year period. Ralph Kugler, manager of Unilever’s home and personal care division, exhibited confidence that after these changes, the company was better prepared to face competition. “We are much better organized now to defend ourselves,” he stated.

Questions:

1. What was the triggering event(s) in the case of Unilever? Elaborate.

2. Conduct the environmental scanning of Unilever through SWOT analysis,

emphasizing on the factors that were changed based on the management decisions.

3. Which Mintzberg’s mode of strategic decision making is adopted in the case of Unilever? Elaborate.

4. Discuss any 2 strategies used or might be used in the case. Elaborate.

Answer 1

Answers:

1. Triggering event(s) in the case:

Sharp fall of stock prices in reaction of lower profit anticipation. The anticipation was a result of following events:

• The rival started attacking its advantageous position in world’s economies in Africa, China, India, and Latin America
• The rivals (like P&G) were in new business development/expansion mode (like acquisition of Gillette) and started to challenge Unilever’s long lived strong local knowledge
• Unilever was unable to tackle the challenge effectively and its profit margin started to fall (like in India, the margin reduced from 20% to 13%

These adversities were in place in spite of its brands were performing at per with its rivals.

2. Environmental scanning of Unilever through SWOT analysis:

Strength		Weakness
1. Global presence 2.Long lived strong brands 3.. Formidable range of product mix 4.First mover’s advantage in emerging economies 5. Strong local knowledge	1.Organisation structure became excessively large 2. Unnecessary bureaucracy and complexity 3. Duplication of corporate structures 4. Shift of local management towards more localization the globalization/centralization component reduced
Opportunities		Threats
1. Growing market specially in developing economies 2. Reviving profit margin 3.Increasing organizational efficiency	1. Rivals in expansion mode with strong acquisition and growth appetite 2. High degree of competition 3.Emerging markets are more price sensitive, specially for easily substitutable products

3. Mintzberg’s mode of strategic decision making:

There are broadly three modes

• Entrepreneurial Mode: With innovation and risk assimilation, focus is on new opportunities.
• Adaptive Mode: Identifies reactive solutions to existing problems rather than exploring for new opportunities
• Planning Mode: Uses systematic analysis and strategy selection to address both existing problem and new opportunities

A fourth component was later on added

Logical Incrementalism: Dynamic process of strategy development for rapidly changing environment

Here in this case, the strategic decision making is obviously adopted from the Adaptive Mode, as it was taken in response to the existing problem, i.e. the management were took action to improve the Internal Environment to address the negative impact of the External Environment.

4. The strategies relevant here are all corporate level and/or Business level strategies. These are based on:

Focused on competitive dynamics

competitors’ capabilities, intentions, actions, responses

HUL adopted two important strategies:

Corporate restructuring to make synergy

Business operation restructuring t increase competitiveness

Both the decisions were important to address the problem