Reference no: EM131382123
Unilever is one of the world's oldest multinational companies. Its origin goes back to the 19th century when a group of companies operating independently, produced soaps and margarine. In 1930, the companies merged to form Unilever that diversified into food products in 1940s. Through the next five decades, it emerged as a major fast-moving consumer goods (FMCG) multinational operating in several businesses. In 2004, the Unilever 2010 strategic plan was put into action with the mission to 'bring vitality to life' and 'to meet everyday needs for nutrition, hygiene and personal care with brands that help people feel good, look good, and get more out of life'. The corporate strategy is of focusing on bore businesses of food, home care and personal care. Unilever operates in more than 100 countries, has a turnover of € 39.6 billion and net profit of € 3.685 billion in 2006 and derives 41 per cent of its income from the developing and emerging economies around the world. It has 179,000 employees and is a culturally-diverse organisation with its top management coming from 24 nations. Internationalisation is based on the principle of local roots with global scale aimed at becoming a 'multi-local multinational'.
The genesis of Hindustan Unilever (HUL) in India, goes back to 1888 when Unilever exported Sunlight soap to India. Three Indian, subsidiaries came into existence in the period 1931-1935 that merged to form Hindustan Lever in 1956. Mergers and acquisitions of Lipton (1972), Brooke Bond (1984), Ponds (1986), TOMCO (1993), Lakme (1998) and Modern Foods (2002) have resulted in an organisation that is a conglomerate of several businesses that have been continually restructured over the years.
HUL is one of the largest FMCG company in India with total sales of Rs. 12,295 crore and net profit of 1855crore in 2006. There are over 15000 employees, including more than 1300 managers. The present corporate strategy of HUL is to focus on core businesses. These core businesses are in home and personal care and food. There are 20 different consumer categories in these two businesses. For instance, home and personal care is made up of personal wash, laundry, skin care, hair care, oral care, deodorants, colour cosmetics and ayurvedic personal and health care, while food businesses have tea, coffee, ice creams and processed food brands. Apart from the two product divisions, there are separate departments for specialty exports and new ventures.
Strategic management at HUL is the responsibility of the board of directors headed by a chairman. There are five independent and five whole-time directors. The operational management is looked after by a management committee comprising of Vice Chairman, CEO and managing director and executive directors of the two business divisions and functional areas. The divisions have a lot of autonomy with dedicated assets and resources. A divisional committee having the executive director and heads of functions of sales, commercial and manufacturing looks after the business level decision-making. The functional-level management is the responsibility of the functional head. For instance, a marketing manager has a team of brand managers looking after the individual brands. Besides the decentralised divisional structure, HUL has centralised some functions such as finance, human resource management, research, technology, information technology and corporate and legal affairs.
Unilever globally and HUL nationally, operate in the highly competitive FMCG markets. The consumer markets for FMCG products are finicky: it's difficult to create customers and much more difficult to retain them. Price is often the central concern in a consumer purchase decision requiring producers to be on continual guard against cost increases. Sales and distribution are critical functions organisationally. HUL operates in such a milieu. It has strong competitors such as the multinationals Procter & Gamble, Nivea or L'Oreal and formidable local companies such as, Amul, Nirma or the Tata
FMCG companies to contend with. Rivals have copied HUL's strategies and tactics, especially in the area of marketing and distribution. Its innovations such as new style packaging or distribution through women entrepreneurs are much valued but also copied relentlessly, hurting its competitive advantage.
HUL is identified closely with India. There is a ring of truth to its vision statement: 'to earn the love and respect of India by making a real difference to every Indian'. It has an impeccable record in corporate social responsibility. There is an element of nostalgia associated with brands like Lifebuoy (introduced in 1895) and Dalda (1937) for senior citizens in India. Consequently Indians have always perceived HUL as an Indian company rather than a multinational. HUL has attempted to align its strategies in the past to the special needs of Indian business environment. Be it marketing or human resource management, HUL has experimented with new ideas suited to the local context. For instance, HUL is known for its capabilities in rural marketing, effective distribution systems and human resource development. But this focus on India seems to be changing. This might indicate a change in the strategic posture as well as recognition that Indian markets have matured to the extent that they can be dealt with by the global strategies of Unilever. At the corporate level, it could also be an attempt to leverage global scale while retaining local responsiveness to some extent.
In line with the shift in corporate strategy, the focus of strategic decision-making seems to have moved from the subsidiary to the headquarters. Unilever has formulated a new global realignment under which it will develop brands and streamline product offerings across the world and the subsidiaries will sell the products. Other subtle indications of the shift of decision-making authority could be the appointment of a British CEO after nearly forty years during which there were Indian CEOs, the changed focus on a limited number of international brands rather than a large range of local brands developed over the years and the name-change from Hindustan Lever to Hindustan Unilever.
The shift in the strategic decision-making power from the subsidiary to headquarters could however, prove to be double-edged sword. An example could be of HUL adopting Unilever's global strategy of focussing on a limited number of products, called the 30 power brands in 2002. That seemed a perfectly sensible strategic decision aimed at focusing managerial attention to a limited set of high-potential products. But one consequence of that was the HUL's strong position in the niche soap and detergent markets suffering owing to neglect and the competitors were quick to take advantage of the opportunity. Then there are the statistics to deal with: HUL has nearly 80 per cent of sales and 85 per cent of net profits from the home and personal care businesses. Globally, Unilever derives half its revenues from food business. HUL does not have a strong position in the food business in India though the food processing industry remains quite attractive both in terms of local consumption as well as export markets. HUL's own strategy of offering low-price, competitive products may also suffer at the cost of Unilever's emphasis on premium priced, high end products sold through modern outlets.
There are some dark clouds on the horizon. HUL's latest financials are not satisfactory. Net profit is down, sales are sluggish, input costs have been rising and new food products introduced in the market have yet to pick up. All this while, in one market segment after another, a competitor pushes ahead. In a company of such a big size and over-powering presence, these might still be minor events developments in a long history that needs to be taken in stride. But, pessimistically, they could also be pointers to what may come.
Questions:
1) State the strategy of Hindustan Unilever in your own words.
2) At what different levels is strategy formulated in HUL?
3) Comment on the strategic decision-making at HUL.
4) Give your opinion on whether the shift in strategic decision-making from India to Unilever's headquarters could prove to be advantageous to HUL or not.