Strategic Management of Unilever - Term Paper Example

Strategic Management Table of Contents Introduction 3 Unilever 4 SWOT Analysis 5 Strength 5 Weaknesses 6 Opportunities 6 Threats 7 PEST Analysis 7 Political 7 Economic 8 Social 9 Technological 10 Ansoff Matrix 10 Value Chain Analysis 12 Conclusion 13 References 14 Introduction The term ‘strategic management’ is originated from the idea of practicing strategy in the overall management process of business. Over the past decade it is one of the most popular topics of investigation in both business as well as academic world. The main objective of practicing the concepts of strategic management is positioning the organization in such a way that will make sure the survival of it in the long run in a highly competitive business environment. Strategic management enables an organization in coping with ambiguity and complexity (Blackwell Publishing, n.d.). A structured definition of the term is provided by Ansoff and McDonnell. According to them strategic management is referred to “a systematic approach for managing strategic change which consists of positioning of the firm through strategy and capability planning and real time strategic response through issue management” (Cole, 2003). Different strategic tools like PESTEL, SWOT and Ansoff Matrix are usually used by the experts while strategically managing the operations of an organization. These tools enable the organizations to analyze their micro as well as macro environment where they are operating. Findings of such analyses have been found to be extremely helpful for the management in its decision making process. This report is comprised of a well-structured strategic analysis of Unilever which is one of the largest consumer goods manufacturing companies in the world. All the three above mentioned strategic tools are used in this report for the purpose of analyzing the operational as well as industry environment of the company. In addition to that a value chain analysis in the context of Unilever is also performed and included in this report. Before analyzing an organization and its environment it is crucial to have enough knowledge about the organization first. Considering this aspect, this report includes a brief overview of the organization i.e. Unilever and this overview can be found in the next section which is followed by all the strategic analyses. Unilever Unilever, one of the oldest and largest consumer goods manufacturing companies, has its operation in all the major markets in the world. Since 1930 the company has been taking care of people’s needs and demands regarding better foods and personal care products. According to the company, today, “160 million times a day, someone somewhere chooses a Unilever product” (Unilever-a, n.d.). The company’s 400 brands have made it an important member of millions of families throughout the world. Some of the most popular brands of the company include Lipton, Knorr, Dove and Omo. Knorr is found to be the biggest food brand of the company as it has significant presence in more than 80 countries. In health and personal care category, Axe is the most popular brand of the company. Overall, the products of Unilever are sold in more than 170 countries all across the world. Near about 163,000 individuals are working in the organization throughout the world (Unilever-b, n.d.). The company has strong presence in food as well as personal care categories. Products are produced in 264 manufacturing sites that are situated in different locations in the world. According to the company’s website 12% of total black tea and 6% of all the tomatoes that are produced throughout the world are purchased by it (Unilever-b, n.d.). Research and development has been one of the key success factors for Unilever. In 2009, the company invested almost 891 million Euros in R&D (Unilever-b, n.d.). Unilever’s financial strength is reflected from its annual revenue figure. The annual report of the company says that in 2009, its revenue was 39,823 million Euros. However, this is almost 1000 million euro down from the previous year’s revenue (Unilever, n.d.). Such massive decline in revenue is actually the result of recent global financial meltdown. The next section of the report includes analysis of the company’s both internal as well as external environment. SWOT Analysis The following SWOT analysis will provide a clear picture regarding the external as well as internal environment of Unilever. Strength Unilever’s major strength is its vast experience that it has gained during the past 80 years. Unilever is incomparable in terms of understanding consumers’ demands and tastes irrespective of regions. The company has been successfully utilizing its experience in the process of identifying the changes in consumers’ behavior and modifying the product portfolio accordingly. With revenue of almost 40 billion Euros, Unilever is a financially strong organization and this is one of the major strength of it. In 2000, the company acquired Bestfoods Ltd. which was one of its largest competitors. Unilever had to pay almost 20.3 billion dollars for buying its major rival and it is needless to say that its strong financial health made the process easy (Hays, 2000). Moreover, strong financial condition has enabled the company to successfully survive in the recent global economic meltdown. Unilever has 400 brands. Thanks to such huge brand portfolio, Unilever has secured a significant volume of market share in almost every developed and developing market in the world in the category of food and personal care products. Because of its successful brands the company can enjoy strong bargaining power while dealing with the retailers. Strong distribution channel throughout the world is another crucial strong point of Unilever. The company is operative in most of the developed and developing countries in the world. ‘Goodwill’ of Unilever is worth 12,464 million Euros and hence it can be considered as a major strength of the company. Weaknesses Unilever’s main weakness lies on its size. It is too big to move fast. Because of its huge size decision making process is a very lengthy as well as complicated process. Furthermore, there are number of unproductive brands of the company. However, number of brands has been reduced by the company from almost 1600 to 400; although managing a brand portfolio that includes 400 brands is subjected to huge investment of valuable resources. Unilever, at present is operating mainly in food and personal care category. However, there are several other areas that are almost untouched by the company. This can also be considered as a major weakness of Unilever. Opportunities As far as opportunities are considered, they can be mainly found in the developing countries that are growing fast. Unilever with its financial capability has the opportunity of strengthening its current position in the emerging markets. The company can pay more attention to the South American countries, Asian countries and some of the African countries. In addition to that, Unilever can focus more on advanced technology. Today’s business scenario is heavily technology dependent, though technological environment is constantly changing. More advanced technologies are expected to come in the coming years. Unilever, being one of the biggest companies in the world has the chance of capitalizing on these high end technologies. More effective use of technologies like RFID (Radio Frequency Identification) will help the company in making more effective marketing and supply chain related decisions. Threats Like any other global organization, Unilever is also exposed to the biggest threat to the global economy – ‘recession’. The recent global recession has reduced the demand of almost all kinds of products and services. The simple reason behind such outcome is massive decline in consumers’ purchasing power. Apart from recession, Unilever and its brands are also threatened by both international and domestic rivals and their brands. Since the company has its brands in different categories of food and personal care products, it has to contend with global FMCG giants like P&G, Nestle and Kraft foods as well as with the local consumer goods manufacturers. Moreover, there are retailers’ own brands that also give tough challenges to the Unilever’s brands. PEST Analysis The macro-environment of Unilever can be analyzed by using PEST model. Political Unilever, being a global organization is significantly impacted by the political situations of various nations. However, as the company is headquartered in London, it is mainly influenced by the political scenario of UK. Recently UK has gone through some significant changes in its political scenario as the country has seen one of its most important general elections. Conservative party under the leadership of David Cameron won the election by beating Gordon Brown and his Labor party. However conservative party has not been able to form government on its own. It has taken the help of the country’s third largest party, Liberal Democrat and its leader Nick Clegg. The present UK government is actually a coalition government. Unilever is likely to be impacted by such political scenario of the country as the decision making process of the coalition government is expected to be longer and complicated. In addition to this, Unilever was recently linked with an important political party of UK – British National Party (BNP). In fact, it was Marmite which is owned by Unilever is found to be engaged in an advertisement that also involves BNP (Green Arrow, 2010). However, according to the code of ethics of the company none of the Unilever companies are allowed to support any political companies (Green Arrow, 2010). Economic The recent global economic meltdown has heavily affected the UK economy. Unilever, being a British-Dutch company is significantly impacted by this meltdown. It has seen significant decline in its annual revenue as the sales of most of its brand have gone down. Reduction in consumers’ purchasing power is the main the reason behind the decline in demand which in turn reduced the sales. In addition to this, organizations are greatly affected by high corporate tax rate in UK. There are number of organizations that are currently thinking of moving away from UK due to high tax. In fact Unilever is also included in the list of such organizations. The company’s chief executive officer Paul Polman has recently said that if “we would get an additional regulatory or tax environment that would make us non-competitive that would be unfortunate for the UK” (Steiner, 2010). According to a report of Daily Mail, corporate tax in UK is perhaps the highest in the entire European region (Steiner, 2010). Social Society in UK is dominated by the people who are living in urban areas. Most of them are Christians. However there are people from other religions (Muslim, Hindu etc.) as well. According to Central Intelligence Agency (CIA) 99% of UK’s total population are officially literate. The most important aspect of the society in UK is the age of the population. UK population is becoming one of most aged populations in the world. According to the recent report of ‘Office for National Statistics’, over the period of 1984-2009 “the percentage of the population aged under 16 decreased from 21 per cent to 19 per cent” (Office for National Statistics, n.d.). Significant increase in number of older people in the society is likely to greatly influence the overall demand of major consumer products. This is very important in the context of Unilever. The company needs to cope up with the changes in the structure of UK society more effectively so that it can remain competitive. [Source: Office for National Statistics] Technological Being one of the most developed countries in the world, UK has always been significantly impacted by advanced technologies. Both consumers and organizations are familiar with high end technologies. As per CIA’s report almost 48.755 million people in the country have access to internet. Furthermore, UK is the 11th largest country in terms of number of internet hosts (9.322 million) (Central Intelligence Agency, n.d.). Quite expectedly an important section of the consumers use internet for their daily shopping. Almost all the major retailers have their online storefronts that allow consumers to purchase products seating at home. However, companies like Unilever are hardly impacted by such developments as they are the manufacturers; although, they can have their own online platform for interacting with their customers i.e. the retailers and also with their suppliers. Ansoff Matrix Ansoff matrix would be useful in identifying the strategic growth options that are available for Unilever. As per Ansoff matrix, Unilever may have four strategic growth options – market expansion or penetration, market development, product development and diversification. If the first option is to be followed, the volume of sales of the products has to be increased. Unilever has to increase the usage rate of the products by promoting them more aggressively to the target consumers. In this strategy the company’s existing products and brands will be sold to the target consumers that are present in the existing market. The second strategic option that Unilever can adopt is ‘market development’. The company has the opportunity of selling its existing brands and products in some new markets. At the present global economic scenario, new markets can only be developed in the emerging economies like China, India, Brazil, South Africa etc. There are several brands of Unilever that are not marketed in these markets so far. The company can analyze the tastes of consumers of the above mentioned emerging markets more deeply and introduce the brands that are not introduced. Little modification in the product features and pricing policies can be according to the needs of the consumers. [Source: Stone, P. 2001, Make marketing work for you: boost your profits with proven marketing techniques] The third strategic option is all about new product development. Unilever can add more products and brands in its product portfolio. However, considering the present portfolio (includes 400 brands) of the company this option will not be the most effective one. The existing market of Unilever may not accept any more new brands of the company. For the company also it will be very difficult to manage additional brands. Furthermore, introduction of new product always involve significant quantity of resources and substantial degree of risk. Unilever, considering the current economic condition, cannot afford failure of any of its brands. As a result this strategic option is certainly not the best one to adopt. The final option i.e. the option regarding diversification is usually chosen at the extreme business condition. However, in this highly competitive business scenario, organizations do not hesitate to diversify with the purpose of retaining their competitiveness. In fact, organizations that are confined to a particular category of products are more susceptible to risk. Unilever is found to be among these as it has its presence only in food and personal care product category. As a result, diversification is likely to be an effective strategy for the company. By adopting this strategy Unilever may form an entirely new product line for a totally new market. Value Chain Analysis Value chain of a company includes all those elements or members that have important part to play in creating as well as delivering the value to the end customers. In the context of Unilever, value chain starts with the suppliers who provide the raw materials. Suppliers are considered as important business partners for Unilever. There are separate online portal for the suppliers. Applications like e-invoicing and e4US (e-Partnership for Unilever Suppliers) make the process of interaction with the suppliers simpler and time and cost effective. Once the raw materials are provided, they are processed in the company’s various manufacturing sites. It is already stated there are almost 264 manufacturing sites of the company. Products after their production in these sites reach the retailers. Distributors play crucial role in making the value chain more effective. Products and brands are heavily marketed by the manufacturers. However, big retailers also promote their stores and the products that can be found in the stores. Unilever, due to its vertical integration strategy is capable of producing some of the important raw materials. Unilever has strong distribution channel in almost all the crucial markets where its products are sold. The company’s efficient sales and marketing team make sure that products are sold to the best of the distributors and retailers. They also look after the shelf display of brands in the retail outlets. Conclusion Unilever, in terms of its number of brands and products, is one of biggest companies all throughout the world. The company’s operational and industry environment can be clearly understood by means of proper strategic analysis that involves strategic tools like SWOT, PEST and Ansoff Matrix. A proper SWOT analysis reveals that, Unilever’s major strength lies in its vast experience, huge brand portfolio and financial capability. However, it is also identified that Unilever is too big to manage in the best possible way. Its huge size has made the decision making process very complicated and slow. In spite of having weaknesses, Unilever has the opportunity to further solidify its position in the developing markets. However, it should always remain conscious regarding the threats that are likely to arise from strong competitors and global recession. A proper PEST analysis shows that the company is affected by the political scenario of its home country. Not only political scenario, the company is affected by economic, social as well as the technological environment of UK. Unilever should always remain well-aware about the changes that are taking place in the social and technological environment and make strategies accordingly. Four strategic growth options can be thought about for Unilever. These options are identified by using the Ansoff matrix. Among the four options, new product development is perhaps the least effective considering the present condition of the company as well as of the global economy. Value chain analysis reveals the way in which value is created and then delivered to the customers by Unilever. References Blackwell Publishing, No Date, Introduction: what is strategic management? [Pdf] Available at: http://www.blackwellpublishing.com/content/BPL_Images/Content_store/Sample_chapter/140511181X/Dobson_strategic%20management_sample%20chapter.pdf [Accessed on August 4, 2010]. Central Intelligence Agency, No Date, United Kingdom, World Fact Book, [Online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html [Accessed on August 4, 2010]. Cole, G. A. 2003, Strategic Management, Cengage Learning EMEA Green Arrow, 2010, Marmite, the BNP and something called Butler, [Online] Available at: http://www.thegreenarrow.co.uk/writers/arrow-straight/2221-marmite-the-bnp-and-something-called-butler [Accessed on August 4, 2010]. Hays, C. L. 2000, Unilever Deal For Bestfoods Signals More Acquisitions, The New York Times, [Online] Available at: http://www.nytimes.com/2000/06/07/business/unilever-deal-for-bestfoods-signals-more-acquisitions.html [Accessed on August 4, 2010]. Office for National Statistics, No Date, Ageing Fastest increase in the ‘oldest old’, Population, [Online] Available at: http://www.statistics.gov.uk/cci/nugget.asp?ID=949 [Accessed on August 4, 2010]. Steiner, H. 2010, Unilever threatens to pull out of Britain over rising taxes, Mail Online, [Online] Available at: http://www.dailymail.co.uk/news/article-1250083/Unilever-latest-company-threaten-pull-UK-rising-taxes.html [Accessed on August 4, 2010]. Unilever, No Date, Annual Report and Accounts 2009, Unilever, [Pdf] Available at: http://www.unilever.com/images/ir_Unilever_AR09_tcm13-208066.pdf [Accessed on August 4, 2010]. Unilever-a, No Date, Introduction to Unilever, About Us, [Online] Available at: http://www.unilever.com/aboutus/introductiontounilever/?WT.LHNAV=Introduction_to_Unilever [Accessed on August 4, 2010]. Unilever-b, No Date, Unilever at a glance, About Us, [Online] Available at: http://www.unilever.com/aboutus/introductiontounilever/unileverataglance/?WT.LHNAV=Unilever_at_a_glance [Accessed on August 4, 2010]. Read More