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The development of Unilever's structure has been, as they call it themselves, a messy
evolution of trial and error. Throughout the development of their structure they have focused
on two consistent practices to support all changes in the structure: linking decentralised
units through a common corporate culture and the recruitment and training of high-quality
managers. On the 1st of January 1930, Unilever had been
officially established. It was a full merger operating as a single business entity. The
Great Depression, which began not long after the new company was formed, affected every
aspect of Unilever’s operations: its raw material companies faced price decreases of
30 to 40 percent in the first year alone. As prices and profits around the world threatened
to collapse, Unilever had to act quickly to build up an efficient system of control.
The “special committee” was established in September 1930 to do that. Operating as
a board of directors over the two boards the company had, the special committee was designed
to balance Dutch and British interests and provide solid leadership for the organization.
Furthermore With the advent of World War II, exchange controls and frozen currencies make
international trading increasingly complex. In Germany, Unilever is unable to move profits
out of the country and has to invest lots of money instead.
In the early 1940’s, Unilever started to replace the Dutch and British executives from
the head office, who ran the local units, by local managers. This helped Unilever in
their process of fitting their products to the preference of the local consumers.
In 1942, Unilever started with a management process, which employees referred to as ‘’ization’’
– short for nationalization. They first started with their Indian subsidiary and as
the local executive and technical positions were filled with Indian managers, the Indianization
of that subsidiary started, along with ‘’Australianization’’, ‘’Brazilianization’’, and other examples
of localization of management in various countries in which Unilever operates.
Because of the isolation of Unilever companies during the Second World War, an increasing
number of competitors and their ‘’ization’’ policy, the Unilever subsidiaries eventually
became self-sufficient. Unilever recognized the danger of becoming too decentralised and
that this would lead to having a bunch of scattered units without a common culture.
This why they set up a formal training program aimed at the Unileverization of all its managers.
Throughout the 1950’s Unilever started to develop new managerial selection systems in
Western Europe and in developing countries they used advanced ways to recruit the best
university graduates.
Unilever, despite all their efforts, entered the 1960’s with a very decentralised organisation.
The British and Dutch components coexisted only loosely with one another. There was also
limited central direction, resulting in an excessive number of brands and factories and
a virtually autonomous business in the United States.
Although Unilever had a strong senior management, the ongoing decentralization had created in
some respects one of the world’s least cohesive large businesses. Everything revolved around
the tension between maintaining the benefits of local market knowledge and decision making,
and containing the disadvantages of excessive decentralization and fragmentation.
Strong networks and shared values kept Unilever together but in 1966 Unilever drastically
had to reorganise the responsibilities for all products in its main European countries.
Until this reorganisation, the national managements were responsible for profits of all units
in its territory. The managers of the product groups only gave
advice and their ability to affect the way in which products were marketed or distributed
mainly depended on the local manager’s attitude. Unilever reversed this and the managers of
the product groups now became responsible for the profits and the national managements
now had an advisory role. This switch may sound simple, but it took years before the
last remnants of the old structure had disappeared.
By the 1970’s, times had changed. Unilever found itself burdened, especially in Europe,
with a high cost structure, and the task of managing businesses far removed from the manufacturing
and branding of their packaged consumer goods. In 1973 the consequences of too much decentralization
in the past once again became evident, when an oil crisis transformed Unilever’s home
market from a fast growing economy into one afflicted by inflation and recession. The
local markets had also caused duplication of manufacturing, meaning that different local
manufacturers were producing the same goods which in turn drove up the costs as well.
By the late 1980’s, after continuous problems, it was clear that Unilever’s organisational
structure once again had to be reconsidered. This time, Unilever’s top management tried
to combine a decentralised structure – as this provided a deep understanding of local
markets – with a degree of centralised control. The first step in this reorganisation was
to create unity by forming a committee of 3 board directors. These 3 directors were
responsible for all of Unilever’s foods interests and they no longer had specific
responsibilities for a group of products. They worked together as an executive trial,
each one being responsible for the profits in a group of countries.
The reason for picking 3 directors, is that 1 director wouldn’t have been able to have
a worldwide responsibility, as the span of control would have simply been too broad.
Having 1 director would have also led to a second or maybe a third layer of management.
By creating a group of 3 directors Unilever kept a flat organisational structure, something
they highly value. By letting these 3 work together as one group on their product strategy,
they achieved the unity they had been previously missing.
This reorganisation lead to a strengthened position in both product and geographic terms.
In product terms because the new strategic groups corresponded more with the consumer
needs, and in geographic terms because they continued to rely on knowledge of their operating
companies to decide what product expertise to use in their local markets.
At the beginning of the 21st century Unilever announced a new 5 billion – 5 year growth
strategy. By letting 25.000 employees go, which was 10% of their total employee base,
they initiated a ‘shrinking to grow’ strategy. Unilever was split into two separate global
units: Foods and Home & Personal Care, headed by two separate executive directors.
They reorganized its 300 operating companies into 10 regional groups. In order to make
this strategy successful, Unilever chose restructuring as a tool. They decentralized their control
over its subsidiaries once more. More than half of its top executives were replaced with
young blood, their portfolio of brands got cut down from 600 to 400 to focus more on
leading brands. In 2004 Unilever discarded 90% of their brands
which meant going from 400 to just 40 mega brands. The 40 brands left all exceed sales
over 1 billion dollars. Unilever also appointed their very first non-executive director.
Unilever’s story is one example of how a single company has come to manage far-flung
units that share a common culture. Unilever’s structure has constantly been changed and
has been developed through trial error and not by the application of theory.
In order to maintain a flexible organization with dedicated managers, Unilever constantly
reassesses the balance between their centralized and decentralized activities. The relations
between Unilever’s head offices, regional groups and national operating companies are
monitored on an ongoing basis.