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ORGANIZATIONAL STRUCTURE 2021 – 2022

Assignment: Final Exam Case - Unilever

Group number: 32

Team number: 2

Teacher: Dr. B.J.W. Pennink

Student: Maharani Divaningtyas

Student number: S4881516

Student: Akzal Zukluf Junaedi

Student number: S4900138

Student: Rizky Fakhira Wibowo

Student number: S4839935

Student: Levana T Pattipeilohy

Student number: S4828259

Student: Muhammad Mahdy Mandhawaly

Student number: S4828356

Student: Raditya Ananta Nugroho

Student number: S3708349

Date: 12 November 2021

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2 TABLE OF CONTENT TABLE OF CONTENT

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INTRODUCTION

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EVALUATION OF THE ORGANIZATION 2.1 Effectiveness and efficiency of Unilever 2.1.1 External resource approach 2.1.2 Internal systems approach 2.2 Design of Unilever

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ANALYSIS OF THE ORGANIZATION 3.1 Organizational Structure 3.1.1 Unilever’s Organizational structure 3.1.2 Features of Unilever’s Organizational structure 3.2 Organizational External Environment 3.2.1 Stakeholders analysis 3.2.2 Environmental uncertainty 3.2.3 Strategy to manage resources 3.3 Organizational Internal Environment 3.3.1 Organizational Culture 3.3.2 Knowledge Management Through Innovation 3.3.3 Knowledge Management Through Learning Behavior 3.4 Organizational Strategy 3.4.1 Core Competencies 3.4.2 Strategy of Unilever at Four Levels 3.5 Organizational Change and Transformation 3.5.1 Growth phases 3.5.2 Crisis phases

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RECOMMENDATIONS

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REFERENCES

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3 INTRODUCTION

Unilever is a British multinational consumer goods company headquartered in London, England. Founded on 2 September 1929 and was started by the merger of the Dutch margarine producer Margarine Unie and the British soapmaker Lever Brothers. One of the main reasons for the merger was a competition for raw materials used in both companies that motivated both of them to do a merger and obtain as many as resources they need while still maintaining the profit in running the business. The merger resulted in equalization agreement between both companies which forms an integral part of Unilever PLC’s Memorandum and Articles of Association and Unilever NV’s Articles of Association. In the 20th century, the company expanded its operation to the international market by making some acquisitions. Unilever’s products are now available in around 190 countries and own over 400 brands with a turnover of 51 billion euros in 2020. Unilever has a thoughtful purpose, “to make sustainable living commonplace”. While realizing the goal, Unilever has been named as the industry leader in personal products by S&P’s Dow Jones Sustainability Index (DJSI) 2020 as they achieved a score of 90 out of 100 of the environmental, social, and governance (ESG) criteria. It has benefited them as ESG responsibility is now one of the main points that managers and investors are asking, based on CEO Alan Jope in the World Economic Forum. Being acknowledged as an industry leader reflects the sustainability effort across the organization and exhibits its commitment to long-term responsible business to all of its stakeholders. Linked with sustainability, Unilever set their new strategy named Unilever Compass which will prove that their future goal-driven business model drives excellent performance and is better for both people and the planet while still gaining profit. There are five

4 strategic choices that will help Unilever to deliver sustainable yet responsible growth. To conclude all of it, Unilever has identified five categories that they will invest in and intend to deliver important functional benefits that improve people’s health and wellbeing and contribute to a more comprehensive environment. Accelerating their business in countries that are probable to be the future growth markets, which will make up a huge portion of global economic growth in the upcoming decade, will push Unilever to invest and use their scale to make a difference. Last but not least, the future culture that they currently build will be inclusive and diverse and they will also focus on reskilling and upskilling. On 15 March 2018, Unilever announced their next steps in the evolution of the company into a more attentive business. They are developing their structure based on three divisions: Beauty & Personal Care, Home Care, and Foods & Refreshment; those divisions will be delegated with larger responsibility for maintaining long-term strategic choices. Secondly, Unilever aspires to simplify their corporate structure from two legal entities, N.V. and PLC, into a single legal entity incorporated in the Netherlands.

5 EVALUATION OF THE ORGANIZATION

2.1 Effectiveness and efficiency of Unilever According to Jones, an organization is considered effective if it can either secure its resources from outside the organization, coordinate resources at hand to innovate and adapt to the customers’ needs or convert the resources into finished goods and services. These topics are then grouped as an external resource, internal systems, and technical approach (Jones, 2013). We will analyze the effectiveness of Unilever based on internal systems and external resource approaches.

2.1.1 External resource approach This approach demonstrates how a company can efficiently manage and control its external environment, which can be seen through its profitability. Due to the pandemic caused by the Coronavirus, there are a few declines in Unilever’s financial report. Unilever’s turnover declined by 2.4% which is also caused by the weakening currencies of Brazil, Argentina, and India. Unilever’s operating profit also declined by 5.8% (Unilever, 2021). Though the performance of Unilever in 2020 is not as effective as the previous years, it is mainly affected by the global conditions.

2.1.2 Internal systems approach The Internal systems approach could be used to measure Unilever’s effectiveness. This approach measures an organization’s capacity of being innovative. This approach could be measured objectively. As one of the biggest multinational consumer goods companies, it is

6 crucial for Unilever for being innovative and adapting to the needs of the environment and its stakeholders. One of the ways of Unilever for being innovative is by improving its methods of processing its resources. In 2010, Unilever launched the Sustainable Agriculture Code (SAC) as the basis of a sustainable renewable program for renewable raw materials. This guideline ensures proper agricultural practices in order to deliver the highest quality of goods, minimize non-renewable farms, and bring positive impacts to the environment. Unilever updated the SAC2010 in 2017 to include their commitment to zero deforestation and to introduce Climate-Smart Agriculture. Unilever strives to keep protecting the environment and keep innovating its ways. In April 2021, Unilever updated its code to ‘Unilever Regenerative Agriculture Principles’ (Unilever, 2021.). With these principles, Unilever could process its resources such as soil, water, and air quality, carbon capture, and biodiversity in a more effective way. Unilever could also optimize the use of renewable resources, improve local community knowledge for environmental protection, and produce resources that could fulfill nutritional needs in the future. By remaining inventive, Unilever can continue to operate efficiently and provide the best possible service to all of its stakeholders.

2.2 Design of Unilever Unilever has its subsidiaries all over the world and in order to satisfy every demand of its consumers, Unilever has to decentralize the responsibility to its senior managers of the geographies, divisions, functions, and operating companies to make the decision (Unilever Code of Business Principles and Code Policies, 2021). With the decentralization of authority, Unilever

7 could be more efficient in adapting to the environment and the locals’ needs. This could be seen in the variety of products of Unilever in every country. In addition to this, Unilever implements mutual adjustment in their company. Every branch of its subsidiaries could develop the products and run the subsidiary based on the needs of the environment and the related stakeholder. With this, it would be quicker for Unilever and its subsidiaries to make a decision making and to sort out the problems they might face. However, in order for each subsidiary to run smoothly, Unilever has a code of business principle that needs to be implemented in every subsidiary which is supervised by its senior managers. With this, Unilever could balance the environment within the company. By means of this, the structure of Unilever leads more to the organic structure which means it promotes flexibility within the company. With an organic structure, it would be easier for the company to adapt quickly to the changing needs and environments. According to Lawrence and Lorsch, the environment of Unilever is perceived as unstable and uncertain, that is why it is better to have an organic structure.

8 ANALYSIS OF THE ORGANIZATION

3.1 Organizational Structure 3.1.1 Unilever’s Organizational structure In 190 countries, Unilever has approximately 400 brand names. They must have a structure that allows them to function properly as a worldwide corporation. They choose a structure that is based on a product or product organizational structure. It is defined as a framework in which a company is split into various divisions, each of which focuses on a different product or service and operates as a separate entity within the firm. Unilever’s organizational structure has three main characteristics which are grouped based on its product, geography, and corporate headquarters. In order for Unilever to operate sleekly, Unilever implements the matrix structure, which means Unilever grouped its people into two ways simultaneously, by product and by functions (Jones, 2013).

3.1.2 Features of Unilever’s Organizational structure In the product type division, Unilever is able to manage every aspect of its production and thus is able to match the market demand. For a company with a myriad of products, this strategy is beneficial as it facilitates their attempts for product differentiation, their competitive advantage. Four main product type divisions of Unilever are personal care, food, home care, and refreshment. By dividing the structure into four types of divisions, Unilever could handle their products more efficiently and could meet the satisfaction of the consumers. Unilever’s corporate executive teams are a structural feature based on business functions. This team is responsible to oversee all the activities within the company. They have a team for

9 every aspect of the business, led by 13 people in the executive team. Some of the most important are the Chief Executive Officer, Chief Financial Officer, and teams based on the functions such as Marketing, R&D, and supply chain. To support regional strategies, Unilever also uses geographic divisions. This structure is divided according to the requirements of the different locations. They have three divisions: Asia/AMET (Africa, Middle East, Turkey) / RUB (Russia, Ukraine, Belarus), The Americas, and Europe. These divisions will have different strategies in their market in order to align with the needs of the consumers in a different geographic region and different financial performances.

3.2 Organizational External Environment 3.2.1 Stakeholders analysis Stakeholders are such an important part of each organization, because organizations rely so much on the stakeholders to continue their business activities (Jones, 2013: 50). To simplify the analysis, Jones (2013) separates the stakeholders into two groups, the inside stakeholders and outside stakeholders. Unilever’s inside stakeholders consist of their shareholders, managers, and their workforce. All of which contributes directly to the inner workings of the company. According to the Simply Wall st (2021), 70% of Unilever’s stock is currently owned by institutions. Which means if all of them bond together, they can influence the board decisions. But the shares are not only owned by one huge company, rather it is widely disseminated. Giving Unilever more freedom to do their business without catering to one shareholder. The managers are the next stakeholders for Unilever, especially because of the huge scale of the company itself. Unilever relies so much on the managerial expert of their workforce to

10 continue their business in each of 190 countries Unilever sold their product in. Because without good management, the risk of getting taken over by competitors is very high. And lastly, to produce the vast amount of product Unilever has, they employ approximately 149,000 people around the world. When that number sounds high, it is way lower than the 230,00 workers they employed in 2003. Two of the most important Unilever’s outside stakeholders are their consumers and suppliers. The consumer itself is very important for the company because they buy the products that Unilever produces and give Unilever their revenue. Unilever caters for a lot of consumer base, in fact, around 2,5 billion people from 190 countries use Unilever products regularly. To support that consumption rate, Unilever requires suppliers as a stakeholder to supply them with the materials needed to produce the product. Currently, Unilever has around 60,000 suppliers around the world (Hart, 2021).

3.2.2 Environmental uncertainty Currently operating in 190 countries around the world (Unilever, 2021), Unilever has a lot of uncertainties to take care of. In fact, they have all three types of environmental uncertainties that Jones (2013) describes. Which are environmental complexity, environmental dynamism, and environmental richness. Having a huge variety of products all over the world means that Unilever has a lot of suppliers to support their production line. This increases their environmental complexity, because Unilever has to manage a huge amount of forces with some level of differences for each of them. Unilever also has to deal with environmental dynamism in their global business practices. This has mainly to do with the huge amount of countries they operate in. Unilever must analyze the

11 constantly changing forces in each of their host countries to make sure they can stay relevant to their consumer base. And lastly, because each of the countries that Unilever operates in have different resource bases, Unilever also suffers from the uncertainty of environmental richness. Difference in resource availability means Unilever has to develop their strategies differently for each country to reduce or overcome this uncertainty problem.

3.2.3 Strategy to manage resources Unilever, as a company with a huge product line and consumer base to take care of, requires a stable supply of resources to continue their operation. According to the resource dependence theory by Jones (2013: 83), Unilever must work towards the goal that they have a minimal dependence on other organizations to provide them with the resources they need for production. Unilever also needs to develop a way to make sure that they can obtain their supply of scarce resources, either by producing it by themselves, or getting reliable suppliers. To make sure that they will have constant supply of resources Unilever uses various strategies to reduce their resource dependence for different situations. This is done to make sure that they achieve the goal of acquiring resources by using as few internal resources as they can. The two main categories of situations are when they have resource interdependence as a symbiotic relationship and competitive relationship. For example in symbiotic relationship, Unilever uses long term partnership for their supplier to make sure they have a consistent supply. They created a ‘Partner to Win’ program to celebrate their top 250 key suppliers around the world. The senior leaders of the suppliers are sent to an interactive event where they are given an award to celebrate their partnership. And for the competitive resource interdependence, Unilever uses merger and acquisition to acquire the

12 market of Qualas, their Colombian personal and home care brand. They do this not only to acquire the market share, but also to get the knowledge and brand familiarity of Qualas itself.

3.3 Organizational Internal Environment 3.3.1 Organizational Culture Unilever has a desire to expand its business in a way that improves people's health and well-being, reduces environmental impact, and creates new employment. Unilever devised a culture called ‘Five Levers for Change’, a collection of criteria gathered in a novel technique that increases the likelihood of a program having a long-term impact when applied to conduct change intercessions. This "Language" and set of principles are used by Unilever to shape their conduct intercessions. Five Levers for Alter provides the necessary information, whether it's urging consumers to use less hot water while bathing or cleaning their hands after supper and before reaching for the trash can. This will, in theory, increase the likelihood of the program having a long-term impact on the target. As the name suggests, Unilever’s Five Levers for Change consist of five parts. The first part is “Make it Understood,” which talks about the relevancy of the program for the people. This will raise awareness and encourage people to accept the program. The second part is to “Make it Easy,” this will give an easier way for people to fit the target behavior into their daily lives. The third part is “Make it Desirable,” which focuses on the aspirational self-image of the people. People tend to imitate the lifestyle behavior of something that they respect. The fourth one is to “Make it Rewarding,” by giving people proof and some kind of reward for doing the targeted behavior. And lastly, is to “Make it a Habit,” which talks about how Unilever can keep

13 them doing the behavior for a long-term period. This last part is all about reinforcing and reminding people about the behavior. 3.3.2 Knowledge Management Through Innovation According to their website, Unilever’s innovations are all based on key insights into consumers’ needs and wants, and they aim to develop products with purpose that consumers choose repeatedly. They use Artificial Intelligence and Information Technology to research the next consumer trends. They have built eight global research and development centers in six countries, and they use the data they obtain to predict said trends. However, this can be overly generalizing in small countries.

On top of that, they have a system called the Innovation Process Management System, or the IPM, that is built to reduce duplication of products and better innovations. This system is also used to filter ideas and create project & risk management for the development of the product.

3.3.3 Knowledge Management Through Learning Behavior Unilever aims to teach the future generations of the workforce. To do this, they already have a youth employability program called LevelUp where young people will define their purpose and obtain accredited training. Unilever’s experienced workers will explain to them the ins and outs of the industry that they are interested in. Although this program is very beneficial for everyone, it is limited to countries where Unilever has a large market share. Other than the young, Unilever also helps the current workforce to stay healthy and fit for the future. They help them develop an ‘Individual Future Fit Plan’ which includes their purpose of working, identifying the skills they need, and deciding whether upskilling or reskilling is more

14 suitable. After this plan, they will undergo the ‘Flex Expe...