Reference no: EM131284189
Unilever: The Assignment After Cescau was elevated to the top job, Unilever's board streamlined the company's management structure. Now there is a single chief executive; previously, there had been one in Rotterdam and one in London. Cescau asserted that, with a single chief executive, the need for consensus was replaced by speed at making decisions. As noted, many of those decisions concerned "doing good." However, some observers were skeptical of Cescau's determination to operationalize a responsible business philosophy. Cescau recalled, "The company was not doing well. There was an article saying that I was draping myself in a flag of corporate social responsibility to excuse poor performance.
I was so angry with that." Cescau's commitment was put to the test in 2008, his final year as CEO. Greenpeace launched an advertising campaign alleging that Unilever's purchases of Indonesian palm oil were contributing to rainforest destruction. Palm oil, a key ingredient in Dove's beauty bar, comes from oil palm trees that grow in Indonesia and Malaysia. Rising world prices for the commodity prompted Indonesian farmers to cut down large swaths of old-growth rain forest and plant fast-growing oil palms.
Specifically, Greenpeace identified the operations of Sinar Mas, an Indonesian company that is a major palm oil supplier, as contributing to deforestation. The media strategy for the Greenpeace campaign included newspaper ads in London and a video on YouTube. Fliers parodied Unilever's Campaign for Real Beauty; for example, they showed pictures of orangutans juxtaposed with the headline "Gorgeous or gone?" John Sauven, executive director of Greenpeace, explained why his organization had targeted Unilever. "Everyone has heard of those brands. They are the public face of the company." Cescau responded by calling for a moratorium on rain forest destruction by Indonesian oil producers. The Unilever chief also pledged that his company would only buy palm oil from producers who could prove that the rain forest had not been sacrificed in the production process. The move allied Unilever with the Roundtable on Sustainable Palm Oil (RSPO), an organization that certifies palm oil producers.
A Unilever spokesperson also indicated that the proposed change in Unilever's palm-oil sourcing strategy had been in the works for months. Nevertheless, Greenpeace and other nongovernmental organizations claimed victory. Unilever brought its message to the public with a print ad campaign featuring the headline "What you buy in the supermarket can change the world." The body copy outlined Unilever's pledge that "by 2015 all our palm oil will come from sustainable sources." The ads ended with the tagline "Small actions, big difference." "Doing well" is also part of the leadership equation at Unilever. Cescau understood the importance of improving Unilever's profitability.
To this end, he continued a restructuring drive that was initiated by his predecessor, co-chairman Niall FitzGerald. Specific actions included reducing Unilever's bureaucracy by removing several management layers. Cescau also reduced the top management head count from 25 people to 7 and narrowed the vertical distance between management and marketing. The company also shed hundreds of brands and closed dozens of factories in France, Germany, and elsewhere. In Cescau's view, the new, leaner structure would translate into more rapid response to changing market trends and consumer preferences and ensure quicker rollouts of new products. Cescau also bet heavily on emerging markets to jump-start sales growth. Rising incomes mean that many people are purchasing consumer packaged goods for the first time.
One scenario: As increasing numbers of people in developing countries buy their first washing machines, they will need to buy laundry detergent. To capitalize on such trends, Cescau shifted budgetary resources out of mature markets such as Europe; those funds were used to support research in India and other emerging markets. Brand managers were instructed to innovate by taking a "clean slate" approach to developing new products for emerging markets. As Steph Carter, packaging director for deodorant brands, noted, "Traditionally, we would have taken existing products and then tried to fathom how to adapt them for the developing world. Our thinking has changed." The Polman Era Begins Paul Polman took over as CEO in January 2009; a former Nestlé executive, he is the first outsider to lead Unilever in its 80-year history. In his first months on the job, Polman initiated a shift in Unilever's core strategy.
In the past, the company generated sales growth by increasing prices. Noting that this was the wrong strategy for recessionary times, Polman said the new priority would be to increase sales volumes. The change entailed some risk: holding the line on prices could put pressure on margins, given the trend of rising costs for the agricultural commodities that are key ingredients in Unilever's products. Polman was also keenly aware that many budget-conscious shoppers were choosing less-expensive private-label supermarket products instead of well-known name brands. Polman vowed to improve product quality across the board and to boost marketing and advertising spending. To support the increased investment, he accelerated some of the cost-cutting measures that his predecessor had initiated. For example, the timetable for planned factory closures and job cuts was moved up; Polman also froze executive salaries and changed the bonus policy. He established 30-day action plans for managers of brands with flagging sales.
He also replaced about one-third of Unilever's top 100 executives, including the chief marketing officer. When it comes to demonstrating Unilever's commitment to its customers, Polman sends clear signals to his employees. He spends about 50 percent of his time on the road, with regular stops in Asia, Latin America, and, of course, Europe. In a recent interview, he noted, "There's not one visit in a country when I don't meet a consumer. If we want to make this company passionate about consumers and customers, the example starts at the top." That passion is evident in a flurry of marketing activities orchestrated by Polman. One is the quick pace of new-product rollouts, especially in emerging markets. For example, Unilever's home care unit was first-to-market with liquid laundry detergent in China; it also introduced a dishwashing liquid in Turkey in less than 30 days.
Innovation has also become a key element for shoring up the value proposition of Unilever's brands, with existing brands such as Surf laundry detergent getting an upgrade in the African market. Driving growth in the personal care category is another priority for Polman. By itself, the global deodorant segment represents an estimated $17 billion in annual sales. To tap into that market, the Dove brand has been extended to men's products. Dove for Men has been rolled out in dozens of countries. Meanwhile, Dove's product managers devised a new strategy for persuading women to switch deodorant brands. Dove Ultimate Go Sleeveless resulted from company research designed to discover insights about consumer attitudes towards underarms.
What the researchers learned is that 93 percent of women think their armpits are not attractive. Dove Ultimate Go Sleeveless is formulated with moisturizers that, the company claims, will result in nicer-looking underarms after just a few days' use. The ice cream and beverage unit is also on the move. Unilever's Magnum brand premium ice cream bars are the world's top-selling ice cream novelty. Although Magnum enjoys great popularity in Europe, it was not introduced in the United States until 2011. Häagen-Dazs and Mars are already entrenched in the market; undaunted, the Magnum marketing team is confident its brand will stand out.
One manager explained that an important part of the brand's equity is the loud cracking sound heard when someone bites through Magnum's thick chocolate shell. Even as he oversees these and other marketing activities, Polman is also making sure that former CEO Cescau's commitment to corporate social responsibility is maintained. Summarizing his views on sustainability and environmental impact, Polman said:. the road to well-being doesn't go via reduced consumption. It has to be done via more responsible consumption. . . . So that's why we're taking such a stand on moving the world to sustainable palm oil. That's why we go to natural refrigerants for our ice-cream cabinets. That's why we work with small-hold farmers, to be sure that people who don't have sufficient nutrition right now have a chance to have a better life. Because at the end of the day, I think companies that take that approach have a right to exist.
Discussion Questions
1. If a company such as Unilever has to make trade-offs between being a good corporate citizen and making a profit, which should be the higher priority?
2. Assess Cescau's response to the Greenpeace palm-oil protest. Was it appropriate? What type of relationships should Unilever cultivate with Greenpeace and other NGOs in the future?
3. Do you think that a streamlined management structure and emphasis on emerging markets will enable new CEO Paul Polman to lead Unilever to improved performance?