Varying Business Environment: Unilever PLC Responds to External Pressures - Case Study Example

Varying Business Environment Varying Business Environment: Unilever PLC Responds to External Pressures BY YOU ACADEMIC ORGANISATION Word Count: 2,555 Varying Business Environment 2 Abstract The purpose of this project is to highlight the strategic initiatives set forth by the United Kingdom-based business entity Unilever PLC in its bid to improve relationships with its external stakeholder environment. Unilever is the proprietor of numerous consumer brands in food, beverages, personal care products as well as cleaning agents; and has been plagued with criticism due to stakeholder perceptions of both unacceptable sustained growth as well as dubious business practices. In todays fiercely competitive business environment, maintaining positive business momentum in terms of satisfying external demand is a complex and often undervalued strategic goal. This work will examine Unilevers internal adaptation to its methods of conducting business designed to satisfy stakeholder and social expectations. Varying Business Environment 3 Varying Business Environment: Unilever PLC Responds to External Pressures Introduction Parent company to Unilever Brands is Unilever PLC, an Anglo-Dutch company headquartered in London boasting worldwide revenue of 39.67 billion in foods, beverages, personal care products and cleaning products (Wikipedia, 2006), has been forced by external pressures to alter and revitalise its internal operations repeatedly in the last decade. Large global companies, such as Unilever, frequently need to have separate strategic management planning groups to cover the diverse needs of the operating companies, management groups, and the corporation as a whole (Malijers, 1990). For this reason, Unilever remains focused on routine analyses of the external business environment and, through strategic goal-setting, has become a leading entity in global operations. However, Unilever is not without its share of harsh external criticism for its lack of diversity campaigns, its slow progression to establishing sustained financial growth, and in consumer perceptions of its failure to meet its role in corporate social responsibility. Unilever and Gender Diversity In 2002, Unilever was barraged with hostile complaints from diversity advocates that charged the company with gender discrimination for failure to advocate women as part of its senior management ranks. Then CEO Niall FitzGerald, moving to eliminate this external perception, reviewed key leadership positions within the company and noticed a substantial absence of women. FitzGerald further commented Varying Business Environment 4 Rather publicly, "My God, how can we have put so much work into gender diversity and I see no reflection of it in the top leadership?" (Gomez-Mejia et al, 2005). Attempting to avoid legal ramifications for gender discrimination, FitzGerald implemented diversity as one of Unilevers top six corporate issues and, today, has seen an 32 percent increase in the advancement of women to top leadership positions company-wide (Gomez-Mejia et al, 2005). Unilever recognised its role in maintaining a positive public image of a diversity-conscious organisation and set out to implement policy strategies to retain women managers and executed initiatives to ensure that men in leadership roles issued fair performance appraisals for female subordinates. Because of managements rapid response to external hosilities regarding diversity policies at Unilever, the company now boasts more than 260,000 staff employees that represent nearly 200 languages. Said FitzGerald of its increase in diversity policies, "We believe that the success of Unilever is a living testament of the importance of embracing diversity" (Gomez-Mejia et al, 2005). With the establishment of internal policies and procedures regarding gender diversity, Unilever may well have secured its position as a socially-conscious entity and avoided further discriminatory legal actions. Unilevers Attempts to Satisfy Shareholder Relationships Balancing the shareholders expectations of maximum return against other priorities is one of the fundamental problems confronting corporate management (Nickels et al, 2005). Unilever, and its attempts to assess potential internal weaknesses and opportunities amongst its vast business segments, is certainly no exception. An Varying Business Environment 5 external review conducted in September 2005 concluded that existing strategy to grow the business would not deliver satisfactory value for Unilever (Unilever.co.uk, 2006). At a time when the company is under increasing shareholder pressure for increased profit, Unilever announced the sale of its Frozen Foods business in Europe. Stated Group Chief Executive Patrick Cescau, "Although we have made great progress in increasing profitability in recent years, growth has been harder to come by…the best way for us to create value is by selling the majority of the European Frozen Food business." (Unilever.co.uk, 2006). Patrick Cescau is under continuous pressure to make sure Unilevers portfolio performs more robustly (Marketing Week, 2006). The sale of Unilevers Frozen Foods business is easing the mounting pressure exerted by shareholders which imply that existing senior leadership at the company has failed to implement successful business strategies designed to create financial value and significant returns on investment. Cescau further announced in February 2006 that the company is to launch more "value" products to take on retailers low-priced own-labels and discount chains in Europe (Marketing Week, 2006). All of these sweeping business decisions involved radical restructure of the business segments as well as redesign of Unilevers existing management practices; and in some cases, replacing inefficient senior executives. In 2000, the professional auditing team at Whitehead Mann were called into Unilever to conduct a thorough leadership audit in order to benchmark the capabilities of Unilever leadership against the skills of similar industries. Due, again, to mounting shareholder pressure to increase growth, Unilever announced that it had expectations of growth at six percent Varying Business Environment 6 each year; far higher than the companys previous growth rate under existing leadership. Traditionally, leadership audits can be an effective tool in measuring internal strengths and weaknesses, however, in the case of Unilevers attempt to gauge competency levels in its senior staff met with significant resistance to change. Dissecting the leadership styles of so many senior executives is a process as laborious as it is irritating for those involved; and 30 out of Unilevers 250 senior executives left the company (Overell, 2002). Despite the protest of the audit and the exit of key executives, Unilevers growth increased by 4.6 percent after implementing the audits due to external pressure to analyse its leadership. Troubled Perceptions of Poor Public Relations and Corporate Social Responsibility Fuelled by the forces of globalisation…it was only in the late 1980s and early 1990s that research in international and intercultural public relations began with much sincerity (Bardhan & Patwardhan, 2004). Contemporary business strategies within Unilever, also, have only recently begun to place emphasis on this aspect of creating a positive image outside of its traditional approaches to building brand loyalty as growth strategy. In 2004, Unilever sharpened its focus on the needs of 21st century-consumers with its Vitality mission: To meet everyday needs for nutrition, home hygiene and personal care with brands that help people feel good, look good, and get more out of life (Unilever.co.uk, 2006). As a rapidly globalising business entity, Unilever must address the cultural needs of a diverse consumer audience. For instance, Unilever announced that it is joining forces with the FDI World Dental Federation to improve Varying Business Environment 7 oral health throughout North Africa, Middle East and Turkey. The agreement entails the use of the FDI logo and supportive statements on Unilever product packs and in advertising campaigns (AME Info, 2006). Unilever has set a goal of involving more than 60 percent of its workforce in a campaign to improve self esteem with girls from underprivileged communities known as ME!, in which the company has composed booklets dealing with issues such as eating disorders, peer pressure and recognising personal strengths (Lamb & Brittain, 2005). Stimulated by protest that the company is exploiting its overseas consumers by flooding undeveloped countries with Unilever products, the business has taken dramatic steps to improving its public image with campaigns such as these. The company has asked for staff members, from all areas of the workforce, to serve as mentors and participate in ME! events. Allocating such a large number of Unilevers workforce to the ME! campaign illustrates the importance of establishing a positive public image in order to build loyalty to Unilevers multitude of brands. In 2001, a new occupational health strategy at Unilever was designed to help standardise the "people factor" across the many countries in which it operates (Beishon, 2001). As another attempt at building a socially-conscious image, the initiative was designed to aid management in recognising potential workplace health issues and to report the results of health and safety in its annual stakeholder report. Benchmarking and Improvement Tactics One key indicator as to whether a business is equipped to compete against other similar industries is the process of benchmarking; the process of studying the products, Varying Business Environment 8 services, and practices of other firms and using the insights gained to improve quality internally (Longenecker et al, 2006). Audits conducted by external firms indicated that Unilevers ice cream and frozen foods division needed to improve their writing skills in order to compete with other industries. As an innovative, managerial approach to improving these skills across the staff, Unilever hired poet Jackie Wills and implemented Project Catalyst, with this division spending £125,000 per year on the programme. Said James Hill, chairman of Project Catalyst, about the campaign, "Arts in business has given us a lot of support and shared best practice in other industries and companies." (Bartram, 2004). The programme was implemented to satisfy the results of the negative audit results as well as boost performance within that division. Unilever announced a 67 percent participation level in its divisional management team and has, according to Hill, boosted behavioural changes as well as altered how feedback is distributed across the management team and their subordinates. In a perfect world, strategic decisions would be taken only after an exhaustive analysis of…the external environment. However, in the real world, demands made on scarce resources mean that strategic decisions must be made swiftly (Malijers, 1990). In the case of Unilever, crisis management makes swift decision-making a reality as the business must respond to any potential external threats that pose a risk to growth and profitability. Steve Williams, joint secretary of the Unilever group, acknowledges the threat of fraud and has developed a corporate risk committee to meet this danger (Management Today, 1998). In recent years, people have attemped to hack into Unilevers systems in an attempt to defraud the company through its IT system. Attempting to minimize the risk of these threats and to lower managements necessity to work under crisis management, the committee was designed to continuously audit Varying Business Environment 9 potential security risks to the organisation by external forces; as well as internal staff who seek to target the business. Boycott of Unilever Brands and Risks to Changing Business Practices In 2000, Unilever purchased the ice cream company Ben & Jerrys as part of its strategic plan for sustained growth. Founders of Ben & Jerrys, Ben Cohen and Jerry Greenfield, gave away 7.5 percent of its pretax profits to charities, and expected Unilever to follow the same socially-responsible policies after acquisition of Ben & Jerrys. Trouble, however, began to arise when Unilever refused to appoint a long-time Ben & Jerrys director to oversee the companys social mission. The result: A consumer group boycotted Unilever products in support of Cohens position on appointment of a Ben & Jerrys director (Gomez-Mejia et al, 2005). Responsible corporate behaviour has been linked to long-term growth and loyalty to the companys brand. Because of the negative press and public awareness of the boycott and protest, today, Unilever devotes the same 7.5 percent of Ben & Jerrys profits to charitable foundations. In a publicised statement, Yves Couette, Ben & Jerrys CEO, said "I firmly believe that the least socially responsible business is one thats out of business." (Gomez-Mejia, 2005). Despite the pressures from shareholders to increase profitability, Unilever could not afford the negative publicity surrounding corporate responsibility by dismissing charitable contributions. In a significantly different strategic issue, Unilever is considering adopting alternative distribution methods that bypass existing distributors in order to lower costs significantly. Supermarkets, Unilevers traditional distribution outlets, have been proposed by senior management to be phased out by Internet distribution. Is it possible Varying Business Environment 10 that grocery stores would threaten to stop selling Unilever products? (Constantinos, 2000). Attempts to formulate alternative distribution strategies within Unilever has sparked this very probable scenerio; and outraged several key distributors of Unilever products. In response, the company has created a partnership goal that extends its strategic planning initiatives to involve external forces (in this case distribution) to take an active role in creating a mutually-beneficial business relationship. Conclusion and Commentary Contributions of existing literature regarding Unilever PLC indicate that the firm must routinely scan the external environment in order to recognise potential setbacks to their strategic policies. In a perfect business environment, an organisation can formulate plans to secure its own best interest, both financially and in terms of overall growth and productivity, while dismissing the protests of disgruntled external influences. However, as a well-publicised global entity, discounting the impact that the external business environment can inflict on sustained growth would be a significant oversight on behalf of Unilever. Restructuring its internal management teams, selling off its less-profitable divisions, creating social initiatives and improving overall internal performance-enhancing campaigns are key indicators that Unilever has come to recognise that the external business environment can fundamentally dictate its strategic path toward growth. All of Unilevers aforementioned policies appear to be focused around creating stability in establishing a positive public image as each new publicised executive commentary or revised mission statement appears on the proverbial "heels" of a Varying Business Environment 11 negative media onslaught or rapid shifts in stakeholder preferences about corporate responsibility and profit expectations. Despite this researchers perceptions of somewhat delayed and crisis-driven damage control techniques used by Unilever in establishing its policies to appease external pressures, the steps that the firm is taking to redesign its business practices are creating sound returns on their extensive investments in restructuring its internal practices. Allowing professional, external auditing teams to examine the management practices of the firm and demanding compliance to the examinations sends the public message rather stridently that Unilever fully intends to innovate its business practices to meet the needs of the external business environment. Further, Unilevers involvement of its management team in socially-conscious activities illustrates a shifting movement toward acceptable corporate social responsibility and that the company values its contribution to the well-being of its consumers and employees alike. As existing literature about Unilever suggests, external auditing procedures also afford the company the opportunity to provide a template for skills development and a framework in which to recruit [competent managers]. (Overell, 2002). Visionary leadership, in any organisation, can recognise trends in the external business environment and adopt proactive policies to maintain a competitive edge. In the case of Unilever, using benchmarking techniques to establish a list of core competencies for its strategic leadership satisfies the goal of staying competitive in a fiercely-changing business environment. Whatever future changes may be imposed on Unilever based on external Varying Business Environment 12 pressures, it is enormously clear that the company is keenly aware that it must routinely monitor its many divisions and establish procedures that allow for flexibility in business operations. Failure to do so would likely mean a significant drop in growth and in public perception and Unilever is well on its way to creating partnerships with virtually all of its stakeholders and meeting its objectives for enhanced overall performance among the external business environment. Varying Business Environment 13 Bibliography AME Info. (Mar 7 2006). Unilever joins fores with FDI World Dental Federation. United Arab Emirates. www.ameinfo/79659.html. 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