Restructuring Unilever: The 'Path To Growth' Strategy
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Case Code: BSTR095 Case Length: 17 Pages Period: 2000 - 2003 Pub Date: 2004 Teaching Note: Not Available |
Price: Rs.500 Organization: Unilever Industry: FMCG Countries : Europe Themes: Corporate Restructuring |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
What 'PGS' is all About
To achieve the objectives of the PGS, Unilever decided to concentrate on the following areas - modify the existing organizational structure, focus on leading brands, support these leading brands with strong innovation and focused marketing strategies; rationalize the supply chain; simplify business processes; and restructure or weed-out under-performing businesses and brands (See Exhibit III for the key drivers of value creation in the PGS). Unilever expected the PGS to result in annual cost savings of €1.5 billion by 2004. An additional €1.6 billion in savings was to come from global procurement by the end of 2002. Apart from this, the PGS was to involve laying off over 25,000 employees (approximately 10% of the employee base) by 2004, on account of divestments or site closures, and restructuring and simplification of processes. The company announced that though the restructuring would be worldwide, it would mainly focus on the US and Europe...
Results of PGS (Till 2003)
In 2000, the company witnessed a dramatic increase in its turnover with sales increasing by 16% to €47.6 billion. This was mainly attributed to the acquisition of the Bestfoods, Slim-fast, Ben & Jerry's and Amora Maille businesses. Since the announcement of the PGS, Unilever's share price had recovered by 30% to $59 in August 2001, and this seemed to highlight the positive results of its restructuring exercise. By July 2002, Unilever's 400 leading brands accounted for 88% of the sales, up from 75% in 1999. By then, over 30,000 employees had been laid-off. Commenting on the positive results of the PGS in mid-2002, FitzGerald said, "We have now reached the mid-point in the PGS and we continue to be confident about delivering our program. Brand focus continues apace with 88% of our turnover now attributable to leading brands. These brands are showing great resilience in a tough economic environment and will drive accelerating top line growth..."...
Unilever's Future Prospects
In August 2003, Unilever announced its half-yearly results for the year - sales dropped by 15% and profits fell by 13%. During this time, the company reduced its growth forecasts to 4% from the 5%-6%, it had promised its investors in the early 2003, stating that it was struggling with a more challenging business environment - poor sales in the dietary and food service markets, and the sluggish growth in the retail market on account of slower economic growth, worldwide. In October 2003, Unilever's share price fell by 7% (to 487 pence) on the London Stock Exchange, immediately after it announced that it was lowering its growth forecasts for its leading brands to below 3% for 2003.
The company attributed this move to the waning popularity of its famous fragrance and dieting products (including Calvin Klein, Eternity, Prestige and Slim-Fast), and the poor performance of its other health and wellness products. This was the second time in 2003, that the company had reduced its growth forecasts for its leading brands. FitzGerald blamed himself for the fall in the company's share price, after the announcement of reduced growth rates. According to him, the market had misunderstood Unilever's growth forecasts previously as the company had failed to communicate them clearly to its investors...
Exhibits
Exhibit I: Unilever Group Structure
Exhibit II: Timeline of Unilever
Exhibit III: Key Drivers of Value Creation in PBS
Exhibit IV: Unilever - A List of Major Brands (Partial)
Exhibit V: Growth in Unilever's Operating Margin, Sales and Earnings per Share Under PGS
Exhibit VI: Unilever Financials (In € Million)
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