Inside Unilever: The Evolving Transnational Connpany

Inside Unilever: The Evolving Transnational Connpany

by Floris A. Maljers

 

 

The story behind one worldwide company's flexible organization-and the managers who make it so successful.

 

These days, Unilever is often described as one of the foremost transnational companies. Yet our organization of diverse operations around the world is not the outcome of a conscious effort to become what is now known among academics as a transnational. When Unilever was founded in 1930 as a Dutch-British company, it produced soap, processed foods, and a wide array of other consumer goods in many countries. Ever since then, the company has evolved mainly through a Darwinian system of retaining what was useful and rejecting what no longer worked-in other words, through actual practice as a business responding to be marketplace.

But regardless of the process, Unilever has become a transnational company in tbe most basic sense: we think globally as well as act locally. The very nature of our products requires proximity to local markets; economies of scale in certain functions justify a number of head-office departments; and the need to benefit from everybody's creativity and experience makes a sophisticated means of transferring information across our organization highly desirable. All of these factors led to our present structure: a matrix of individual managers around the world who nonetheless share a common vision and understanding of corporate strategy.

At Unilever, major product groups are responsible for profits in Europe and North America, and regional groups arc responsible elsewhere. Some of our brands, like Lipton Tea and LUX Soap, are known even in Albania and Cambodia - that is, even in countries where Unilever does not have its own industrial operations. In each of some 75 countries, we do business through one or more operating companies, with a total of about 500 companies in the Unilever group. In our case, "thinking transnationally" means an informal type of worldwide cooperation among self-sufficient units.

Of course, there bas to be a formal structure of some sort that encourages managers to think and act in the way corporate policy dictates. But everyone must also share the values that lead to flexibility on every level. In a worldwide company incorporating both unity and diversity, business strategy and structure are inextricably linked-and always evolving.

While Unilever's organizational structure bas developed, at least to some extent, through trial and error, we still have a consistent and longstanding policy when it comes to one thing: the importance of managing people rather than simply analyzing problems. The two companies that formed Unilever, Margarine Unie of the Netherlands and Lever Brothers of the United Kingdom, had a long tradition of expanding their businesses through both export and local production. Initially, local operations were almost exclusively managed hy Dutch and British expatriates; however, even in the early days of Unilever, the new company started developing local managers and decentralizing the organization. Yet the head office also recognized the need for a common culture among its many scattered units and set up formal training programs aimed at the "Unileverization" of all its managers.

In essence, Unilever's story, idiosyncratic though it may be, is one example of how a single company has come to manage far-flung units that share a common culture. Over the course of its particular lifetime, the company has successfully weathered numerous changes. Within just the last 30 years, for example, Unilever's most important product group, the foods business, has gone through two major reorganizations. The details of how the foods business has reshaped itself in response to new market trends illustrate Unilever's overall combination of structural formality and managerial flexibility.

From Margarine to Global Fast Food

Until the mid-1960s, the national management in every country where Unilever operated was fully responsible for the profits of all units in its territory. Product groups worked only in an advisory capacity, and their ability to affect how certain products were marketed or distributed basically depended on the attitude of the local manager.

Up to that time, especially during World War II, the foods industry was driven by raw materials. At Unilever, the two most important raw materials were tea and edible oils, the latter being necessary for the company's large business in margarines and table oils. But when raw material sourcing became less important, our focus of attention shifted to preservation technology and distribution systems. Because of the competitive advantages we developed in the logistics of handling frozen products, Unilever became the world's largest ice cream company and achieved strong market positions in many other frozen foods.

In 1966, the company drastically reorganized responsibilities for all products, including those handled by the foods business, in its main European countries. Product groups became responsible for profits, while national managements worked in an advisory role-although in areas like industrial negotiations, local finance, and government relations, their advice usually determined decisions. While this switch of responsibilities may sound simple, it took many years of patience, persuasion, and even some early retirements before the last remnants of the old structure disappeared.

In setting up the new profit-responsible groups, the head office created three separate foods units. They were based partially on raw-materials considerations and partially on the new distribution requirements. The company established an edible fats group, a frozen food and ice cream group, and a food and drinks group that took care of everything else-mainly soup, tea, and salad dressings.

This setup worked well enough for some time; indeed, it enabled Unilever's foods business to grow overall, especially in Europe and North America. With the benefit of hindsight, we could have grown even more rapidly, for example, in eastern Asia. But on the whole, Unilever kept its strong market position in the key foods products.

Since the mid-1970s, however, the foods industry has become increasingly consumer-driven. Effective marketing is now a company's prime competitive advantage, and marketing efforts have led to concepts like low-calorie products, health foods, convenience foods, and the use of natural ingredients. In addition, manufacturers now face a new challenge in the ongoing concentration of power in food retailing, particularly in northwestern Europe and North America.

Therefore, as time passed, the allocation of products to the three foods units started to hinder rather than help Unilever's progress. The market for low-calorie products, for example, has grown steadily since the 1970s. Yet, until 1988, our low calorie spreads were the responsibility

of the edible fats group, low calorie soups belonged to food and drinks, and low-calorie frozen meals were part of the frozen food and ice cream group.

Clearly, shared use of well-known brand names, new food-processing technologies, and consumer research can benefit a company with worldwide operations. But it takes time and energy to forge a coordinated policy, assuming that's even possible. By the late 1980s, despite the good will of all who participated in the old foods-unit system, it was clear we had to reconsider our organization of the business again. In this, as in all of Unilever's reorganizations historically, top management has tried to combine a decentralized structure (which has the advantage of providing deep understanding of local markets) with a degree of centralized control. In other words, we strive for unity in diversity. The first step in our new reorganization was to create the necessary unity by forming a committee of three board directors, which we called the "Foods Executive." (All 16 members of our board have executive responsibilities.) Located at our head office in Rotterdam, these three directors are now responsible collectively for all of Unilever's foods interests. They no longer have specific responsibilities for a group of products, as they did in the past; instead, working together as an executive triad, the three directors are in charge of our full range of present and future foods. In addition, control of the foods companies is now based on geography rather than the products they sell, with each of the directors responsible for profits in a group of countries.

In theory, we could have appointed one director with worldwide responsibility for foods. But at Unilever, the span of control would have been too broad for one person. It would have led to a second and perhaps a third layer of management, which we considered undesirable. By creating a group of three directors, we maintained the flat organizational structure and diversity we value so highly; and by letting these directors work as one group on product strategy, we achieved the unity that had been missing in our previous organization.

Foods products at Unilever are now concentrated in five strategic groups; edible fats, ice cream, beverages, meals and meal components, and professional markets. (The last group includes catering, bakery items, and other nondomestic food industries.) These groups arc not responsible for profits but remain important centers of product expertise. They advise the profit-responsible directors of the Foods Executive and the relevant operating companies. And their advice carries much more weight than that of Unilever's product groups in the early 1960s.

In product terms, the company has improved its position because the new strategic groups are more in line with identified consumer needs. In geographic terms, we continue to rely on the knowledge of our operating companies to judge what product expertise to use in their local markets. In short, we now have more unity and can also make better use of the many and various opportunities offered by diversity.

However, the foods industry is still in considerable flux. The balance shifts continuously between centralized requirements (like research, finance, and packaging) and the need to stay close to local markets. The latest market trends are moving in three directions, and each will require a different approach of some sort in the future.

First, there is what one might call "global fast food"-the hamburger, fried chicken, and certain soft drinks, for example. How far or how fast globalization of such popular Western products will go is not yet clear. The much-publicized launch of the hamburger in Moscow and the record-breaking popularity of fried chicken in Tokyo may or may not be the beginning of a trend. In this particular instance, perhaps Andy Warhol was right when he said that progress is not always good for food.

Second, there is international food. Such food is common in one country but also transferrable to others. In the United Kingdom, Indian, Chinese, French, and Italian foods are good current examples. In addition, the popularity of Lebanese, Mexican, and other types of meals seems to be on the rise.

Third, there is national food. Again, in the United Kingdom, steak and kidney pie, Yorkshire pudding, and the banger for breakfast all represent typically British food.

The picture becomes even more complicated when one considers that the same word can cover a range of foods products. Take a seemingly simple product like tea. The British drink it hot and highly diluted with milk, people of the Middle East take it hot and strongly sugared, and Americans usually like it iced. While a global idea may exist for the type of compact disc player customers want, there is no uniform concept for tea or frozen pizza, even in Europe.

Given that the market for foods and all of Unilever's products, for that matter-may change in unpredictable ways, it's likely we will reorganize again, adapting to a whole new set of trends or consumer needs in the future. Up to now, we've been fortunate enough not to face major discontinuities in our technology or markets during crucial reorganizations. Still, a transnational structure and strategy must constantly adapt, regardless of the difficulties, in order to keep pace with the changing marketplace.

Although Unilever's most recent reorganization was based on our strategic intention to concentrate on the foods business in the broadest sense, one of our marketing directors in Switzerland or a factory manager in Italy might not have shared that perspective at first. While change is one of the few inevitabilities in transnational companies, any major reorganization requires flexible, responsive employees – and time. To get the support of company boards, we don't rush to implement necessary changes. At Unilever, we see organizational change as a long march forward rather than one big jump. And we are too cautious to risk breaking a leg.

A Matrix of Managers

In the early 1940s, Unilever began actively recruiting local managers to replace the Dutch and British executives from the head office who had been running most of its local units. Starting with the Indian subsidiary in 1942, Unilever put into place a management process that company insiders referred to as "ization." In other words, filling local executive and technical positions with Indian managers led to the "Indianization" of that subsidiary - along with "Australianization," "Brazilianization," and other examples of localization of management in various countries with Unilever operations.

The company's "ization" policy, as well as an increasing number of local competitors and the isolation of many of Unilever's operating companies during World War II, created a decentralized organization of self-sufficient subsidiaries. Yet the head office also recognized the danger of becoming too decentralized. Without the Unileverization of those Indian, Australian, Brazilian, and other local managers, the company's many scattered units would not have shared any common corporate culture or vision.

By 1955, Unilever had opened Four Acres, its international management training college near London. Now every year, the head office sends 300 to 400 managers from all over the world to this international training ground. In addition, training courses are organized on a local basis in many countries, sometimes in our own centers (for example, in the city of Mcgamendung on Java), sometimes in hired facilities.

Once the proper formal organization is in place-such as, in Unilever's case, a matrix that combines local initiative with some centralized control-its managers must still be encouraged to think transnationally. While we continue to develop local talent in our subsidiaries, we also expect managers to gain experience in more than one country or product line. A matrix, however well designed, cannot work if the people across the organization aren't prepared to accept its flexibility. At Unilever, the recruitment and training policies that reinforce the matrix are not only held in high esteem, they are also a matter of long-standing practice.

Since the 1950s, we have pioneered new managerial selection systems in western Europe. And in many developing countries, we use advanced methods to recruit the best university graduates. For instance, teams of Unilever managers are charged with spotting talent in local universities at an early stage; or prizes are given for work done by young scientists to make contact with them. The company also sponsors an extensive program of business courses for university students in many countries, from Turkey to the United Kingdom. Through these courses, Unilever instructors and students get to know each other, determining what they have in common. Every candidate who survives this initial screening is then reviewed by a panel of senior managers, which often includes board members from the parent company.

The greatest challenge of recruiting, of course, is to find the best and brightest who will fit into the company. We certainly do not want a homo unileverensis; but for international careers in our current operating companies, we look for people who can work in teams and understand the value of cooperation and consensus.

For managerial trainees, preparation includes both on-the-job experience and courses at Four Acres. In fact, many have joked that Unilever is really a management education institute financed by soap and margarine. Our courses go beyond teaching specific subjects like "Edible Oil Refining" or "Developments in the Retail Trade." We also offer the "International Management Seminar" and the "Senior Management Course." These general courses are often taught by visiting professors from well-known business schools, with Unilever instructors participating occasionally.

Every trainee becomes part of a group of 25 to 30 people recruited for similar managerial positions. This shared experience creates an informal network of equals who know one another well and usually continue to meet and exchange experiences. Such an exchange is particularly important in an organization that has an extremely diverse group of international managers. Unilever's board includes members from six different countries, and virtually every operating company contains expatriates. We have an Italian managing our large company in B r a z i l , a Dutchman in Taiwan, an Englishman in Malaysia, and an American in Mexico.

Another element that lends coherence to Unilever's management is our extensive system of attachments. A manager can be placed for a short or long period in a head-office department or a subsidiary. In the early 1980s, when I was responsible for profits for a large group of companies, we had a staff of about 20 people. Of these, there were usually two bright young managers on temporary assignment from several of our far-flung operating companies. After a period of 6 to 12 months, they would move on to new positions - as marketing director in Brazil, for instance, or development manager in Turkey.

When these managers return home, they are still part of the Unilever network. They know whom to call in case of need and what to expect. They also realize that their own ideas can make an important contribution to Unilever's overall progress. Exposure to another environment not only gives them more know-bow but also improves their "know-who."

In addition, cross-postings between companies are very important for establishing unity, a common sense of purpose, and an understanding of different national cultures and attitudes. Such postings may be to other countries or across product lines. My own career took me to Colombia and Turkey, where I learned that using logic to solve problems, based on my studies at Amsterdam University, often didn't match the approach of local citizens. For example, while setting up preventive maintenance systems in factories seemed obvious to me, the local attitude was to wait until a machine broke down before deciding what to do.

In a company with a product portfolio of fast-moving consumer goods, it's also useful for young managers to work in more than one product group. Clearly, not all of the creative ideas used to market skin cream are applicable to instant soups, but a surprising number of good ideas result from cross-fertilization between product groups.

Of course, we did not design our extensive system of recruitment, training, and attachments with the idea of forming a "transnational network." However, in practice, this network-as represented by both the company's formal structure and the informal exchanges between managers- may well be one of the ingredients in the glue that holds Unilever together.

First, the network is fundamental to the transfer of ideas among companies. Transfer can take place either through one of our head offices, which then acts as a clearing house for ideas, or through direct contact between two operating companies. While our network may seem disorderly, it does work. Formal systems of information transfer certainly exist, but sometimes it's simply much faster for a product manager in Brazil, for example, to fax a rough sketch of a new innovation to her opposite number in Italy.

Second, through the network, international working parties, committees, and similar groups form either ad hoc to solve a problem or to follow a subject on a more permanent basis. This procedure works effectively because the network exists; but it can also play an important part in extending and strengthening the network itself.

For instance, a group has been charged with the strategic planning and monitoring of what we call "ice cream snacks." In this rapidly growing market, which requires equally rapid innovation, Unilever sells a number of extremely successful products, like Magnum, Europe's most popular chocolate ice cream bar. The strategy team is chaired by a marketing director from Birds Eye Wall's in the United Kingdom and has five additional members, most of whom are marketers, from other operating companies in Italy, Germany, and the Netherlands. This team cooperates closely with the relevant strategic group at the head office but also has the authority to implement strategy on its own.

The use of major conferences is one more important element in creating and maintaining Unilever's large network of managers. Once a year, each of the two chairmen addresses a meeting of 350 to 500 senior managers from all over the world. One conference takes place in Rotterdam, and the other is in London. At these conferences, over good food and drink, our most senior people meet, exchange views, and reconfirm old friendships.

The chairmen can also make major announcements to a large group of senior managers on these occasions. When we wanted to change our strategic direction some six years ago, we chose such a meeting as the place to explain why. When we needed to pursue a more active acquisitions program, we disclosed our intentions at a conference. When we wanted to explain the new foods structure and other major changes in the organization, we did so at the chairman's review meeting.

After such meetings, every chairman of an operating unit and every manager of a department gets a copy of the main points and presents a similar review to the middle management in his or her own unit. In this way, we reach most managers in the Unilever matrix effectively. In fact, shifting toward a concentration on the foods industry, our largest core business, would not have been possible if we hadn't been able to convince senior and middle managers that this move was logical and necessary for future growth.

Of course, in order to maintain a flexible organization with well-trained, dedicated managers, we must constantly reassess the balance between our centralized and decentralized activities. The relations among Unilever's head offices in Rotterdam and London, regional groups (such as those that cover the European Community and eastern Asia), and national operating companies must be monitored on an ongoing basis.

We are currently experimenting with involving members from operating company boards in head-office decision making. For example, our strategy for detergents in Europe is determined by a board that includes a few members from Lever Europe in Brussels and the CEOs of the main European operating companies. We call this new organizational arrangement the "Extended Head Office." This structure is certainly not yet cast in stone but, if successful, it will require an additional and perhaps even a different type of training program for our managers.

Learning the Quadrille

Whether we like it or not, those of us who work for transnational companies can no longer rely on only a formal organizational structure to get things done. A number of recent developments require that we adopt and maintain flexible organizations. The European market after 1992, tbe rise of eastern Asia as an economic region, the increasing importance of the developing world, to name just the main examples, will all demand a new mixture of global technology and local know-how. Building a company that continually evolves, in which the emphasis shifts depending on circumstances and the people concerned, is the only way forward.

While Unilever has certainly evolved into what is now called a transnational in academic and business policy circles, our actual progress was not made by the application of theory but through a much messier evolution of trial and error. Yet the company has focused on two consistent and related practices to underpin all structural changes: recruitment and training of high-quality managers; and the importance of linking decentralized units through a common corporate culture.

At Unilever, we have realized over time that the transnational way of working helps to maintain common standards of behavior in our farflung units. Formulating and defining such standards with any precision is almost impossible, except in obvious cases like prohibiting bribery. Nevertheless, there are generally accepted standards in labor relations, communications with governments, care for the environment, and other social issues. Maintaining these standards depends as much on everybody in the organization understanding and accepting them as on formal instruction manuals.