Professional Documents
Culture Documents
Submitted to the
Business School
In partial fulfilment of the requirements for the degree of
Bachelors of Arts in
Business Administration (Hons)
Supervised by:
Mr. Marlon Gunasekara
Executive Summary
This report was formulated based on a case study about Unilever and its downturn in
2004. In order to identify the critical factors that affect the company performance, a
internal analysis to identify the strengths and weaknesses and also a external
analysis was carried to identify the opportunities and threats. In the third section
reasons for Unilevers downturn in 2004 was evaluated. This was evaluated using
information about financial and other performance characteristics and also by using
strategic management theories and strategies. The strategic moves of Unilever and
Proctor and Gamble were identified in order to identify the best company which has
the most effective strategic approach. Motives behind Proctor and Gambles
acquisition of Gillette were discussed to identify the short-term and long-term
benefits. And also the future of Unilever was evaluated to give several
recommendations about the effectiveness of the courses of action of the company.
Acknowledgement
I take this opportunity to thank my Lecturer Mr. Marlon Gunasekara for the
guidance given to complete this assignment in time.
Lab Assistants, Librarians and others who have supported me in many ways are also
given gratitude for providing me necessary support.
I also wish to thank my parents and friends for all the support and kind assistance
extended by them.
ii
Table of content
EXECUTIVE SUMMARY .................................................................................... I
ACKNOWLEDGEMENT ................................................................................... II
TABLE OF CONTENT ...................................................................................... III
LIST OF TABLES .............................................................................................. VI
LIST OF FIGURES .......................................................................................... VII
LIST OF ABBREVIATIONS ............................................................................. IX
CHAPTER ONE.................................................................................................... 1
INTRODUCTION ................................................................................................. 1
INTRODUCTION..................................................................................................... 2
CHAPTER TWO .................................................................................................. 3
ANALYSIS OF UNILEVER ................................................................................. 3
2.0 ANALYSIS OF UNILEVER ................................................................................. 4
2.1 CLIMATE ANALYSIS ........................................................................................ 4
2.1.1 PESTN Analysis ..................................................................................... 6
2.2 COMPETITOR ANALYSIS .................................................................................. 9
2.3 CUSTOMER ANALYSIS ................................................................................... 12
2.4 COMPANY ANALYSIS .................................................................................... 13
2.4.1 Product Portfolio Analysis ................................................................... 15
2.5 SWOT ANALYSIS ......................................................................................... 17
2.5.1 SWOT analysis ..................................................................................... 17
2.7 CRITICAL FACTOR ANALYSIS ........................................................................ 21
iii
iv
List of Tables
Table 1: PESTN analysis ......................................................................................... 6
Table 2: Climatic Analysis (Weighted Average Factor Rating Method) ................... 8
Table 3: Competitor Analysis ................................................................................ 10
Table 4: Customer Analysis................................................................................... 12
Table 5: Company Analysis................................................................................... 14
Table 6: SWOT ..................................................................................................... 17
Table 7: Critical Unfavorable Factors .................................................................... 21
Table 8: Critical Factor Analysis - Unfavorable factors ......................................... 21
Table 9: Critical Favorable Factors ........................................................................ 22
Table 10: Critical Factor Analysis Favorable ...................................................... 22
Table 11: Strategies used by Unilever .................................................................... 35
Table 12: Strategies used by P&G ......................................................................... 37
Table 13: Benefits of Acquisition of Gillette ......................................................... 41
vi
List of Figures
Figure 1: Logo of Unilever ...................................................................................... 2
Figure 2: 4C Analysis (Kenichi Ohemae) ................................................................ 4
Figure 3: Business Environment .............................................................................. 5
Figure 4: Analysing the Global Environment ........................................................... 6
Figure 5: Porter's Five Forces .................................................................................. 9
Figure 6: AIDA Model .......................................................................................... 12
Figure 7: Stage of Brands in PLC - Unilever ......................................................... 13
Figure 8: GE Matrix for Unilever .......................................................................... 15
Figure 9: GE Matrix for P&G ................................................................................ 16
Figure 10: SWOT Analysis ................................................................................... 17
Figure 11: Advertising and Promotion Expenditure ............................................... 24
Figure 12: Group Turnover of Unilever ................................................................. 24
Figure 13: Net Profit Growth ................................................................................. 25
Figure 14: Sales Growth & Operating Profit in Unilever - According to Unilever .. 25
Figure 15: Total Assets.......................................................................................... 26
Figure 16: Quick Ratio .......................................................................................... 26
Figure 17: Current Ratio ........................................................................................ 27
Figure 18: Asset to Sales Ratio .............................................................................. 27
Figure 19: ROI and Net Profit Ratios..................................................................... 28
Figure 20: Profit Margins in Unilever .................................................................... 28
Figure 21: Trend Analysis ..................................................................................... 29
Figure 22: Market Capitalization ........................................................................... 29
Figure 23: Total Shareholder Return ...................................................................... 30
Figure 24: Reduction of Shares in the Market ........................................................ 30
vii
viii
List of abbreviations
FMCG
SWOT
MNC
PESTN
AIDA
PLC
GE
General Electric
CFA
P&G
ASR
ROI
Return on Investment
BCG
ix
Chapter One
INTRODUCTION
Introduction
Unilever was incorporated in late 1930s as a simple merger of soap and margarine.
However as a result of business success today Unilever operates in over hundred
countries with more than 174000 employees under its management. Also the success
has helped the company to have a strong brand portfolio of over 400 brands with
two global divisions namely Foods and Home & Personal which comes under
FMCG industry. The main success factor of the company is that, Unilevers constant
focus on innovative product developments.
Chapter Two
ANALYSIS OF UNILEVER
Company
(Products)
Climat
e
Climat
e
Strategic
Analysis of
the Business
Environment
Customer
Competitor
(Markets)
(Industry)
Climat
e
EXTERNAL ENV.
GLOBAL ENVIRONMENT
SOCIAL ENV.
TASK ENV.
CONTROLLABLE
INTERNAL ENV.
ECONOMICAL there was still the effects of world recession even though it was
at the recovery stage
Accelerating Inflation of the world economy ( Prices will
increase)
reduced purchasing power parity ( directly affect to sales)
many countries faced low GDP and less economic growth
since economies trying to recover, its a good sign
exchange rate issues
improved globalization and urbanization ( course for high
demand)
SOCIAL
TECHNICAL
NATURAL
Based on the understanding of the above PESTN factors, the following Climatic
Analysis is carried out.
Weight
1. Political
20%
2. Legal
5%
3. Economic
25%
4. Financial
5%
5. Social
10%
6. Cultural
5%
7. Demographic
5%
8. Technological
10%
9. Technical
10%
10. Natural
5%
Overall score
100%
Likert scale
Score
Unfavorable Favorable
1
2
3 4
5
5
5
2
0.1
0.75
0.2
0.4
0.15
0.2
0.5
0.4
0.15
37
3.85
3
4
5
4
3
Weighted
score
brand reputation
geographical coverage
product/service level quality
relationships with customers
bidding processes/capabilities
entry ease/barriers
geographical factors
incumbents resistance
new entrant strategy
routes to market
buyer choice
buyers size/number
change cost/frequency
product/service importance
volumes, JIT scheduling
alternatives price/quality
market distribution changes
fashion and trends
legislative effects
Weight
40%
5%
10%
8%
Threat of Substitutes
Number of substitutes
Closeness of the substitute
Strength of the substitute
Buyers favorable attitude
PLC of the industry
product
Sub total
15%
2%
5%
4%
2%
2%
Bargaining Power of
Buyer
Number of buyers / users
25%
5%
Fragmentation of buyers
5%
5%
5%
Sub total
Likert scale
Unfavorable
Favorable
1
2
3
4
5
Score
Weighted
score
4
5
0.2
0.5
0.32
5
3
0.25
0.36
21
1.63
1
2
2
3
5
0.02
0.1
0.08
0.06
0.1
13
0.36
0.25
0.05
0.2
0.2
0.25
19
0.95
5%
12%
5
3
.
1
2
2
3
5
5%
5
1
10
Bargaining Power of
Supplier
10%
Concentration of suppliers
1%
0.04
Significance of switching
costs
Importance of raw
materials
Number of competitive
suppliers
Extent of supplier
Fragmentation
Sub total
3%
0.12
0.09
0.04
0.01
14
0.3
10%
Attractiveness of the
market
Extent of Brand Loyalty
2%
0.1
0.08
2%
0.1
Patent protection
2%
0.08
2%
0.04
20
0.4
87
3.64
3%
2%
1%
2
1
2%
Sub total
Grand Total
100%
4
5
4
2
11
20%
10%
8%
market profitability
6%
15%
15%
Weighted
score
Market size
Likert scale
Unfavorab Favor
le
able
1 2
3 4 5
5
Score
Factor
Weight
0.2
0.16
0.18
0.6
0.6
0.25
0.32
0.25
34
3.56
discontinuities
customer expectations
level of familiarity
5%
Level of Favorability
8%
Level of Satisfaction
8%
Loyalty status
5%
Overall score
100%
12
Introductory
Stage
Growth
Stage
Maturity
Stage
Decline Stage
Total
Market
Sales
Time
13
Overall Score
20%
10%
9%
7%
15%
15%
6%
9%
4%
5%
100%
Likert scale
Unfavorab Favor
le
able
1 2
3 4 5
4
4
3
2
4
4
5
5
4
3
Score
Weighted
score
4
4
3
2
4
4
5
5
4
3
38
0.8
0.4
0.27
0.14
0.6
0.6
0.3
0.45
0.16
0.15
3.87
14
Market Attractiveness
High
Medium
Low
Business Strength
H
i
g
h
M
e
d
I
u
m
L
o
w
15
High
Market Attractiveness
Medium
Low
Business Strength
H
i
g
h
M
e
d
I
u
m
L
o
w
16
External
Internal
Helpful
Harmful
S
O
Strengths
W
T
Weaknesses
Opportunities
Threats
Strengths
Description
Strengths
Market size
Level of familiarity
17
brand loyalty
Diversified
management structure
Highly complex
organizational
structure
Poor Performance
18
Competition among
company brands
High cost
Globalization and
urbanization
Liberalizations of
agreements
Increase in women
work force
Competition
19
New entrance
Social awareness of
products
Economic situation
20
weight
Economic
Social
strengths of the leading firms
Closeness of the substitute
Strength of the buyer
Significance of switching
costs
25%
10%
10%
5%
5%
3%
Score
3
5
5
4
4
4
These factors are the most dangerous factors that are faced by Unilever. Unless these
factors are considered critical and strategise on those to overcome threats, Unilever
will be unsuccessful in future. Thus a critical factor analysis (CFA) is carried out.
Table 8: Critical Factor Analysis - Unfavorable factors
Factor
Economic
Social
strengths of the leading firms
Closeness of the substitute
Strength of the buyer
Significance of switching
costs
weight
20%
15%
25%
20%
10%
10%
100%
Score
3
5
5
4
4
4
Weight
score
0.6
0.75
1.25
0.8
0.4
0.4
4.2
Out of those Economic situations, Social status and Closeness of the substitutes
are the most critical factors that Unilever faces.
21
However there are factors upon which Unilever must capitalize and to gain more
success.
Table 9: Critical Favorable Factors
weight Score
Factor
Leadership
market trends and discontinuities
Physical Resources
customer expectations
Financial Resources
creativity and innovative drive
Technical
Culture
People
Entry and operating cost
Attractiveness of the market
20%
15%
15%
15%
15%
12%
10%
10%
9%
2%
2%
4
5
5
4
3
2
5
4
4
5
4
Leadership
market trends and
discontinuities
Physical Resources
customer expectations
Financial Resources
creativity and innovative
drive
Technical
Culture
People
Entry and operating cost
Attractiveness of the market
weight
Score
Weight
score
10%
7%
4
5
0.4
0.35
5%
12%
9%
8%
5
4
3
2
0.25
0.48
0.27
0.16
7%
8%
12%
10%
12%
5
4
4
5
4
0.35
0.32
0.48
0.5
0.48
100%
4.04
Chapter Three
Reasons Behind Unilevers Downturn in 2004
23
3.1 Financial
Unilever was enduring severe competition by its main competitor P&G through
price war in laundry and personal care sector in India and Europe. However the
threat of loosing market share was conquered in 2004 at the cost of promotion. Thus
profitability reduced drastically.
(Source:
http://www.unilever.com/images/ir_Charts%201998%202008_tcm13-
165821.pdf)
Figure 11: Advertising and Promotion Expenditure
Group Trunover
60000
50000
40000
30000
20000
10000
0
2000
2001
unilever
2002
2003
P&G
24
P&G
6000
4000
2000
P&G
0
2000
2001
unilever
2002
2003
Operating Profit
(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13165821.pdf)
Figure 14: Sales Growth & Operating Profit in Unilever - According to Unilever
25
Total Assests
unilever
57472
P&G
52766
44598
40776
34366
2000
34387
2001
2002
43706
37968
2003
Quick Ratio
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2000
2001
Unilever
2002
2003
P&G
26
Reduction of quick ration affects companys liquidity. Thus Unilever has faced
liquidity issues in this time and this also counted in reduction of profit.
Current Ratio
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2000
2001
2002
Unilever
2003
P&G
stands
1.4
for
efficiency
of
1.2
to
revenue
generated.
0.8
Unilever is experiencing a
0.6
0.4
0.2
0
2000
2001
Unilever
2002
2003
P&G
27
ROI
0.14
14.00%
0.12
12.00%
0.1
10.00%
0.08
8.00%
0.06
6.00%
0.04
4.00%
0.02
2.00%
0.00%
2000
2001
Unilever
2002
2003
P&G
2000
2001
Unilever
2002
2003
P&G
(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13165821.pdf)
Figure 20: Profit Margins in Unilever
28
The following Trend analysis exhibit the increment of ratios in 2003. However all
these figures present unfavorable figures in 2004 with the downturn of Unilever.
Trend Analysis
(2002 & 2003)
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Equity Ratio Acid Test
Ratio
2002
2003
(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13165821.pdf)
Figure 22: Market Capitalization
29
(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13165821.pdf)
Figure 23: Total Shareholder Return
The downturn of returns from 2003 to 2003 caused the reduction of shares in the
market
(Source: http://www.unilever.com/investorrelations/share_price/default.aspx)
Figure 24: Reduction of Shares in the Market
Thus the share base of Unilever affected in 2004, this could be considered as one of
the main factors that geared the downturn in Unilever in 2004.
30
3.2 Non-Financial
The portfolio of Unilever comprise with 1600 brands which couldnt be handled
efficiently. This itself adds cost to company. However in identifying this
inefficiency, Unilever reduced its brand portfolio to 400. This conversation cost and
customer attitude on this reduction may affect its sales. This was backed by the case
as it mentions that the Unilever is boxed itself with too many targets which cold
cause 0% growth instead of anticipated 3%. Thus an initial change was needed.
Another factor that caused inefficiency and losses is the structure inherited. Mr.
FitzGerald also accepts that the strategy was not delivered due to unwieldy structure.
Simultaneously, the cost of structure was also a burden. Dual chairmanship and high
number of senior managers also a burden to Unilever.
Another obvious factor about Unilever is their cash cows. In the BCG matrix
analysis, cash cows were identified as follows.
All brands
that were
eliminated
31
Those brands are of importance for the identification of the brand by customers and
it makes money too. However cash-cows consume some additional cost and
reducing profit margins due to not-expanding. This was one of the main causes for
the downturn in 2004. Moreover, by that time Unilever possessed about 1200 dogs.
Those were also a burden to company which counted in 2004 downturn.
In GE matrix (Figure 8) there were some brands which have less attractiveness and
less business strengths. Continuing those brands with less return is completely
burden to Unilever. (e.g.: Cif)
When evaluating the downturn of Unilever, Balance scorecard approach is also vital.
Financial aspects under this method were discussed in earlier chapter and were
identified to be reasons for the downturn. However non-financial factors would be
discussed in this chapter.
(Source: http://www.avisys.co.in/bsc.html)
Figure 26: Balance Scorecard Approach
With the support of the case study, it can be identified that Unilever is adopting
internal business process and learning strategies after it faces the downturn.
Nevertheless Unilever could adopt these approaches with proactive approach and
gain the 3% growth that is mentioned by Mr. Cescau.
32
Unilever is a worldwide organization that integrates the functions to one value added
process. In meeting customer needs, Unilever tends to follow both international and
local operations that would lead to better progress. This way Unilever could achieve
both local and international values. Creation of value is the path to growth where all
Unilever brands were treated in terms of productivity and operations. However the
application of this was not present prior to 2004. And also the supply chain can be
narrowed down in order to achieve more growth.
(Source: http://www.provenmodels.com/26/value-chain-analysis/michael-e.-porter)
Figure 27: Value Chain Analysis
33
Chapter Four
Strategic Moves in Capturing Consumer Markets
34
4.1Unilever
Since Unilever experienced downturn in 2004, company took measures for gaining
its position back. After going through evaluation process (appendix D) Unilever has
revolutionized many of its strategies.
Table 11: Strategies used by Unilever
UNILEVER
Strategy
Description
Refocusing on Main
200 Brands
performing brands
Acquisition of
BestFood
35
American factory
companies
Replacement of dual
chairmanship
While these strategies were adopted by Unilever, P&G is also adhering for some
strategies.
The strategies of P&G were adopted by carrying out its SWOT analysis (Appendix
E). Those strategies are shown below.
36
Description
Expanding by
Acquisition
Heavy Advertiser
37
One of the other factors used by Unilever is to reduce brands where as P&G tends to
increase its day by day. Although these strategies are contradictory, it works well in
both organizations, basically due to strong leadership.
38
Chapter Five
Motives Behind Acquisition of Gillette
39
40
Product development
Easy access to the business sector
Shard risk
Due to above mentioned motives and benefits, acquisition of Gillette position P&G
in a supreme state. However this acquisition turned P&G the market leader.
41
Chapter 06
Evaluate Future of Unilever
42
current strategy of Unilever can be implemented in a way that the company can
achieve more profits.
44
9.0 Appendices
Appendices A Porters Five Forces in Different Angel
(Gunasekara. M (2009).)
46
Weaknesses
Opportunities
Threats
Goodwill of the
structural weakness
Legal constrains
company
expanded product
products
product expunction
new entrance
reduction in R&D
Competitive prices
several threats
lines
operating around
the world
introduction of
from external
environment
47
1 = 1.5$
P&G
2003
2002
2001
2000
2003
2002
2001
2000
0.132191
0.089015
0.056845
0.03621
0.118656
0.106729
0.084974
0.103157
6.47%
4.43%
3.26%
2.22%
12.61%
11.96%
10.82%
7.45%
Quick Ratio
0.522783
0.572711
0.531406
0.458292
0.748503
0.528652
0.553423
0.444729
Current Ratio
0.784878
0.791137
0.774642
0.649415
1.231591
0.957651
1.106493
1.000493
0.889326
0.923928
1.024498
1.207852
1.007585
1.01337
0.876236
0.860204
ROI
Net Profit Ratio
48
Equity Ratio
Acid Test Ratio
Days Sales Uncollected
Debt Ratio
Return on Common
Equity
Return on Equity
2002
2003
14.45%
16.75%
0.56
0.54
62.24
50.27
0.72
0.69
20.86%
26.24%
0.36
0.466
20
0
2002
2003
49
Strategic Direction
Strategic Direction
Strategic Analysis
SWOT
Strategy
Formulation
Critical SWOT
factor
Corporate Level
Business Strategic
Options
Strategy
Evaluation and
Selection
Strategy
Implementation
SAFE MODEL
(Gunasekara. M (2009).)
50
Weaknesses
Opportunities
Threats
Large Scale of
Less customer
Developing
Uncertainty in
operation
focus
markets
Pharmaceuticals
Strong Branding
Lack in
Acquisition of
Increase in the
performance in
Gillette
price of Raw
Clairol business.
Product Innovation
material
Novel Products
High competition
Developing market
infrastructure
51