GROUP 1 CASE STUDY
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Group 1
International Business Management
1. Why did Unilever’s decentralized organizational structure make sense from the 1950s through the 1970s? Why did this structure start to create problems for the company in the 1980s?
a. This decentralization was viewed as a source of strength from the 1950s through the 1970s because:
Used the localization strategy:
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Subsidiary companies in each major national market were responsible for the production, marketing, sales, and distribution of products in that market.
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The structure allowed local managers to match product offerings and marketing strategy to local tastes and preferences
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The structure also allowed local managers to alter sales and distribution strategies to fit the prevailing retail systems.
Example: Unilever recruited local managers to run local org anizations; the U.S.
subsidiary (Lever Brothers) was run by Americans, the Indian subsidiary by Indians, and so on. b. This structure started to create problems for the company in the 1980s because:
Structure had lots of duplication, particularly in manufacturing; a lack of scale economies; and a high-cost structure. Example: Unilever’s global competitors, which include the Swiss firm Nestlé
and Procter & Gamble from the United States, had been more successful than Unilever on several fronts — building global brands, reducing cost structure by consolidating manufacturing operations at a few choice locations, and executing simultaneous product launches in several national markets.
Unilever was falling behind rivals in the race to bring new products to mar ket.
Its structure also prevented the creation of global brands, consolidation of manufacturing and quick product development and launches. Example: In Europe, for example, while Nestlé and Procter & Gamble moved
toward pan-European product launches, it could take Unilever four to five years to “persuade” its 17 European operations to adopt a new product.
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Group 1
International Business Management
2. What was Unilever trying to do when it introduced a new structure based on business groups in the mid-1990s? Why do you think that this structure failed to cure Unilever’s ills?
a. When Unilever introduced a new structure based on business groups in the mid-1990s, they were trying to do:
The market share of Unilever was lost to more efficient groups like Nestle and P&G and therefore they responded by regionalizing business groups.
This gave the regional offices a unified control over the products and allowed the company to launch new brands faster in the region.
This also gave them economies of scale through consolidation of different operations. They were able to reduce costs by $400 million per year in European operation alone. Example: Among the European business region a division focused on the
laundry soap products, other parts focus on commodities cream and frozen food, and etc. The group and the department coordinated the activities of their national affiliates together to reduce operating costs and accelerate the development and introduction of new products. b.
Th is str uctur e f ail ed to cur e Un il ever ’ s il ls because:
Till the year 2000, they had far too many brands (1600) and therefore large number of divisions to produce, market and manage these brands.
The products were still being manufactured in over 380 plants. Cost effectiveness could not be achieved.
There was a lot of duplication, particularly in manufacturing. Unilever did not have market leadership in any product segment because of lack of global brand identity (v/s competitors).
Unilever’s global competitors, which include P & G and Nestle had been
more successful than Unilever – building global brands, reducing cost structure by consolidating manufacturing operations at a few choice locations, and executing simultaneous product launches in several nationalmarkets.
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Group 1
International Business Management
3. In the 2000s Unilever has switched to a structure based on global product divisions. What do you think is the underlying logic for this shift? Does the structure make sense given the nature of competition in the detergents and food business?
a. The underlying logic for this shift are:
By 2000, Unilever found that it’s still lagging behind its competitors, so it’s decided to reorganize.
The goal was to cut the number of brands that Unilever sold from 1600 to just 400 that could be marketed on a regional or global scale.
Each business groups in local market could access customers demand and tastes at that local too they have strategic flexibility and suit.
Previously Unilever has many different products on the same type of product to customers more choice, but with this new strategy Unilever will focus on a few products but do not have many choices for customers but it will make customers remember longer product with Unilever brand.
In addition, the company eliminated a significant number of brands allowing it to focus on just a few. b. The structure make sense given the nature of competition in the
detergents and food business because:
Moving from a localization strategy to a more centralized transnational strategy made sense because of the reduction of operation costs as well as better communication and efficiency.
Since both the food and detergent industry are very competitive, it requires great local responsiveness.
Consumers have demand to consume (use) the products well -know and reputable brands
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