It would be hard to find a more symbolic refit than that currently being carried out at Unilever's imposing Art Deco headquarters in London's Blackfriars. When MT first wrote about the giant Anglo-Dutch food and consumer products group 40 years ago, Unilever was struggling to come to terms with its imperial past. It still is. 'The Colossal Cares of Unilever', as they were then entitled, are just as big today. Only now the stakes are much higher.
Unilever is less gentlemanly than it was in 1966, and there's an unmistakable sense of urgency among the tieless, shirt-sleeved young managers bustling about their temporary quarters. They sense better than anyone that - like the building refurbishment - the structural reorganisation of the past couple of years is the endgame for Unilever in its current form.
As in 1966, Unilever's presenting problem can be summed up in one word: growth. Its moment of truth came exactly two years ago when the $48 billion group - maker of everything from Persil soap powder and Domestos bleach to Walls and Ben & Jerry's ice-cream and Hellman's mayonnaise - was forced to issue the first profits warning in its 77-year history. The embarrassment was deepened by the fact that the announcement capped a programme entitled 'Path to Growth'. Still a pillar of the commercial establishment of its host countries - the Netherlands and the UK - and a business that takes its responsibilities seriously, Unilever was deeply scarred by the experience.
'There was a lot of dissatisfaction within the company as well as outside,' acknowledges Patrick Cescau, Unilever's CEO. A big, affable Frenchman, Cescau, 57, is a classic Unilever product. Cultured, fluent in several languages, he has spent his career working his way through Unilever's far-flung dependencies and negotiating its labyrinthine politics. 'Path to Growth', he notes, was a major restructuring exercise, removing $7 billion in costs and 50,000 people - but there was little energy left for its ostensible purpose. 'People had done a huge amount of work and then it didn't deliver - all those targets prevented us from adapting to changing circumstances and a difficult environment.' Internally at least, Cescau claims that the profits warning served as a 'liberation' from the previous frustrations, turning a negative into a positive by drawing a line and challenging managers to start again.
Cescau himself is an important departure from the past in two respects.
He is the group's first solo CEO - until last year Unilever had separate and different Dutch and UK boards, two chairmen and no group CEO; and he is neither British nor Dutch, which in Unilever terms speaks volumes.
Although he insists 'it's not the aim to run Unilever from Blackfriars', he is clear that the newly streamlined structure is intended to make it easier to take tough corporate decisions faster. 'One Unilever' is the message coming out of Blackfriars - a call to arms around a newly stated mission of 'vitality', defined as helping people to feel better, look better and get more out of life.
It hardly needs saying that a shot of vitality is top of Unilever's prescription list, too. And woe betide complainers or the unfit. Notes Cescau, who makes a point of regular workouts at the company's Blackfriars gym: 'We need people who are excited about the present rather than mourning what they have lost.'
He doesn't mince words: Unilever has not been competitive enough, nor has it leveraged its global reach and scale. Although it has started growing again after years of retreat, last year's 3.1% was no more than the market as a whole - and, as Cescau says, 'you don't go into a football match looking for a draw'.
To start winning, managers have to deliver to three immediate priorities.
The first is to make the portfolio work harder - clearly a job for the reinvigorated centre. The second is better execution, which has meant a rebalancing of brand and category authority to the centre while devolving implementation locally. 'We have to be culturally relevant, but delivering to a global strategy,' says Cescau, who as a national manager in Portugal, Indonesia and the US learned the tricks of the trade at the country end.
The third priority is the toughest - breaking the habits of underachievement by changing the culture intellectually and emotionally. As Cescau tells it, it's a matter of confidence and reciprocal trust at all levels. It's not that the company lacks talented individuals, application or ambition.
On paper, it is the equal of any combination in the world. What it hasn't had is a system that demands that the whole exceed the sum of its attractive and talented parts.
So does this mark the turning point, the moment when one of the world's most attractive and infuriating companies finally catches up with the need to match its performance to its capabilities? Shareholders will hope so. Last year the group slipped from 59 to 79 in the FT's Global 500, measured by market capitalisation, and ranked 14 in its chosen reference group of 21 international consumer goods companies for total shareholder return - at least seven places lower than its aim.
The press has reported shareholder calls for the company to dissolve its dual nationality or to split its constituent food and home and personal-care businesses. Big as it is, these days even a Unilever - worth $69 billion in mid-June - could be within the sights of the activist hedge funds and private equity consortia that are busily rearranging large companies all over the world. Unilever is not in play for now: but whether it might be, says someone who knows the company well, 'is the $64 billion question'.
Analysts agree that Cescau is a moderniser who talks a good game. But they have been hearing optimistic noises about growth for a long time - ever since Geoffrey Foster's MT article in 1966, in fact. It's extraordinary that since then Unilever's sales have edged up by less than half in real terms, while those of rivals Nestle and Procter & Gamble have more than tripled. Profit growth too has lagged.
The consequences are seen in those FT league tables: whereas in 1967 Unilever ranked 'seventh in the world league table of industrial corporations and second outside the US', it is now 67 places behind P&G in market capitalisation - and on roughly equal sales, the latter is worth nearly three times as much. Forty years ago, Unilever employed more people (at nearly 300,000) than Nestle, P&G, Colgate, Henkel and Kraft combined. Now it is not even the largest employer in the group.
Beneath the skin, too, today's Unilever looks very different from that of the 1960s. As a result of its history, 'to an amazing degree', marvelled Foster in 1967, 'Unilever was economically self-contained'. A 1929 marriage of convenience between Lever Brothers and the Dutch Margarine Unie (the two shared a dependence on rapeseed oil as their raw material), Unilever burgeoned as an entrepreneurial company riding on the back of empire.
It attracted adventurers with liberal trading views and a high sense of obligation, who set out from Rotterdam and Liverpool and established mini-Unilevers in every corner of the globe. By the 1950s and '60s, the group was vertically and profitably integrated 'from plantation to plate'.
Unilever companies grew or bought the seeds, shipped them home, crushed and refined them, packaged the resulting products and transported them to the shops. In food, Unilever owned trawlers, fish shops, processing plants, restaurants and a frozen-food distribution arm. Customers were quizzed by Unilever market research outfits and products were promoted by Unilever advertising agencies. It is no exaggeration to say that Unilever wrote the book on FMCG.
Diversification and the rugged independence of overseas managers gave the group huge resilience, enabling it to ride out the second world war more or less intact, for example. The loose rein gave full liberty to local initiative and innovation. And the achievements should not be overlooked in other ways. Unilever, claims one executive, has done as much to develop Africa through its competence and honesty as 100 years of international agencies.
Yet the world too was changing, and in these altered conditions what had been the group's greatest strength began to look like a handicap.
The price of Unilever's pragmatic expansionism was extreme decentralisation.
Says one former executive: 'It was a collection of country businesses, each doing its own thing.'
The rise of focused, low-cost competitors, the growth of the supermarkets - it's a measure of change that these threats are not even mentioned in the 1967 article - and the redrawn political and economic map of the world all put a premium on fleetness and strategic alignment rather than local initiative. And whereas arch-rival P&G, focused and heavily centralised, rolled out global formulas from Cin- cinnati, co-ordinating Unilever was so complicated that for a long time it wasn't even tried.
'Firms are often compared to ships,' George (later Lord) Cole, chairman of Unilever Ltd, explained in 1963. 'Well, Unilever is not a ship, it is a fleet - several fleets, several hundred subsidiary companies - and the ships many different sizes, doing all kinds of different things, all over the place.'
Getting hundreds of such firms to face in the same direction is Unilever's story in a nutshell. Already in 1947 Fortune described managing the giant as 'the world's most difficult corporate management job'. Gulliver-like, Unilever was a giant in chains, unable to bring its strength to bear where it knew it should.
For decades it wanted to prune its brand portfolio and throw its weight behind a smaller number of international names - but only in the last five years has it culled the number from 1,600 to 400. It took Unilever until the 1980s to bring the wayward US companies under control and begin to focus its businesses. It took the 1990s to build a presence in the personal-care industry, and if Unilever now believes it has found the right balance between 'the mindlessly global and hopelessly local', it still has to prove it.
The frustrating thing is that, as even its rivals recognise, Unilever's advantages are potentially formidable. Diversity, for instance. Unilever has always been the most diverse of companies. Its HQ buzzes with the sound of different accents. 'Unilever has never been just an Anglo- Dutch company,' declares Harish Manwani, the ebullient Indian president of the fast-growing Asia-Africa region and a member of Cescau's new eight-person executive team, UEx. 'It still has the soul of a decent, humane middle-class company - that's why I love to come to work each day.'
UEx is cheerfully Anglo-Franco-Indian-American-Dutch (although all-male) and 25 nationalities are represented in the top 100 jobs. All career Unilever managers work abroad. Diversity is more difficult to manage, shrugs Cescau, but he is adamant that it's one of the things that can't and shouldn't change. Just as Unilever has to live 'vitality', 'global scale and local roots' must be reflected in people. There is still a job to do on the board, but if diversity ever yields its promised benefits, Unilever by rights will reap them.
Diversity reflects and feeds into another Unilever advantage: unparalleled reach. There is said to be a Unilever product in one household in two and in every country in the world. This is testimony not just to a distribution capability that delivers products to the remotest villages in India and Africa, but also to a mentality that 'can reverse-engineer items such as shampoo and soap into 1 or 2-cent shots and still make money', notes Manwani. Only Unilever, he claims, can simultaneously attack both the top and bottom of the wealth pyramid - and that's critical for the conquest of the developing and emerging markets (D&EM), the jewel in the Unilever crown.
'The economic centre of gravity is shifting towards D&EM (these markets will soon contain 90% of the world's consumers) and we have a fantastic footprint,' boasts Manwani. Unilever's D&EM sales grew 10% last year, compared with 5% for North America and -0.9% in Europe. They now comprise 38% of the Unilever total, more than western Europe.
Research ought to be another Unilever plus point. Ahead of its time in identifying its knowledge base as the ultimate source of competitive advantage, it sometimes lags in execu- tion, with introversion and lack of urgency rather than research quality at times stopping it from exploiting its $1.2 billion R&D spend. Unilever has also been unlucky: some of its starriest work - 'front covers of Nature', sighs R&D VP Frans van der Ouderaa - was nullified when GM agriculture bit the dust.
Much will depend on the power of 'vitality' to overcome the R&D performance block. The brainchild of a younger generation of managers, 'vitality' is a rediscovery of founding principles that Unilever had forgotten in recent years. It's hard to overstate its importance. Few people would quarrel with the aim 'to make cleanliness commonplace; to lessen work for women; to foster health and contribute to personal attractiveness, that life may be more enjoyable and rewarding for the people who use our products', as William Hesketh Lever put it in the 19th century. The implications feed through into science, where collaboration in genomics with a US biotech firm could lead to personalised skincare and nutrition products, for example, while the mission is reshaping food products as it already has personal care.
Vitality also unifies the company's work with its social conscience.
Hygiene campaigns in India and Africa, where diarrhoea is the largest cause of infant mortality, and sponsoring marathons or foods with anti-cholesterol properties or blood-pressure benefits all become obvious things to do. And, says van der Ouderaa, by offering products such as toothpaste or soap that help change people's behaviour, Unilever can claim to be a force for good in public health.
Yet there are still grey areas. Although the firm claims to have reformulated almost all its food lines to reduce salt and sugar levels, not every product has yet found its social twist - and hard questions need to be answered about some cherished elements of the portfolio. Ice cream, for example, in which Unilever is a world leader. 'Vitality can be a real unifying element, but only if it's followed through, particularly at portfolio level,' warns a former employee.
The group's final trump card seems slightly ironic, given the overall track record: management. Unilever's marketing prowess has al- ready been mentioned and it has a notably innovative finance department. It remains a magnet for graduates, and in this year's MT 'most admired' list, Unilever topped the poll for recruiting and retaining management talent. Yet even here the gap between potential and achievement restates the Unilever paradox. 'They're gorgeous!' is how one prominent academic sums up Unilever's managers. 'Nice, clever, humane, they all speak six languages - but Unilever is like a huge squashy jelly: you poke it with a finger and it just pops out again.'
Can Unilever keep its niceness but develop a hard centre as well? Has it found a model that will force it to deploy its assets outward, generating energy rather than consuming it by keeping the wheels and pistons turning?
'Yes,' answers Cescau unequivocally. No company that takes out $7 billion of costs with relative lack of drama (although plenty of heartache) can be said to lack determination or implementation skills. 'Cost-cutting will be a never-ending story,' he warns. 'Growth needs to be funded. This is why we have taken the painful decision to outsource and close some non-competitive units. We must accept economic value and manage the social consequences. Both are about long-term sustainable value, in Unilever's traditions.'
While the City grumbles at slow progress, Cescau says it has missed the hard work that has gone on behind the scenes. Proof of the pudding, he argues, is that phase one of recovery - getting the group growing with the mar- ket - has been achieved. Phase two is dealing with the group's major headache, Europe. Although still profitable, for a variety of reasons Unilever in Europe has found the going tough.
One major factor is the supermarkets (largely a European phenomenon), which as well as being demanding buyers are also direct competitors through their own brands. Although price pressures are intense, Unilever managers deny rumours of a gorefest and insist that relations are robust but good - Tesco spends more time and energy on supplier relations than Unilever on its customers, according to Gavin Neath, head of Unilever UK operations.
Besides, the retailers have more interest in Unilever getting differentiation and added value right than squeezing it to death, he adds.
That's down to more focused R&D and swifter execution. Europe's demanding consumers and slow growth rates are further factors, affecting firms other than Unilever. However, Europe has also been a prime casualty of Unilever's ponderous decision-making structures. Only now, says Cescau, is it moving from many companies to one to better leverage scale, and 'that's not something that can be done rapidly'. Not all observers have appreciated the depth of change in Europe, he says.
The 'last shoe to drop', European restructuring, should set the seal on the most pro- found change in the way Unilever is run for 40 years - perhaps ever. This European reorganisation was one of the last recommendations of Niall Fitzgerald, himself Unilever's first non-Anglo-Dutch chairman, before he left in 2005. The unified European management structure at last means that the centre can make tough strategic decisions (like selling the perfumes business and putting the European frozen foods division on the block) and even tactical ones (putting more resource into a region or category according to short-term need) and push them through. In combination with a second set of changes that clarifies operating relationships, for the first time in Unilever's history the centre has the means to make things happen at both portfolio and product level.
'One Unilever' is not just a slogan. Replacing an indescribable network of matrices and dotted-line responsibilities, country management has been unified, so that Tesco, say, deals with one Unilever team rather than one from each category or even major brand. Eighty per cent of turnover now goes through 'One Unilever' organisations. At the same time, reporting has been channelled unambiguously to regions, responsible for supply chain, profits and growth, and to categories, for all aspects of brand development - both represented on UEx.
Managers are quick to say that the aim is globalisation rather than centralisation - the ability to leverage global scale and reach in support of local market knowledge - 'keeping what's good and adding global capability', in Manwani's terms. Yet the practical effect is to curb local quirks and give regions and categories the means to channel country effort where they want it. Notes Silvia Lagnado, the young Brazilian who has just been promoted to global VP of savoury foods: 'Brand decisions can now be made at global level - for the first time every brand can be traced back to a single person.'
The inspiration for the new structure is star performer Dove. The venerable soap and beauty brand, where Lagnado was previously senior VP, was bumping along as a stationary American name until 1990. A microcosm of the company as a whole, 'Dove was more decentralised than we wanted it to be', admits Lagnado with masterly understatement.
Steering it more firmly, by 2001 the group had made it into a worldwide brand. Since then, with central brand development complementing local marketing, a co-ordinated push has taken Dove to a new level, turning it into a multi-category beauty brand with a presence in 85 countries and revenues of $2.5 billion.
If Dove's transformation can be achieved by persuasion, executives reason, how much more could be done if the means are replicated and formalised?
Working the new channels, Lagn- ado reckons there's scope to ratchet up Dove's growth rate from 10% to 15% a year, growing market share as well as the business. 'Now we've got to do the same for food,' she says.
The big question is whether Unilever can come through on its good intentions.
More of its products need to fly like a Dove. And having re-established its authority, the centre must walk the talk: divest slow-growing categories and those that fail the vitality test and make the promised big investment in personal care, for example - and soon. Can it deliver?
Unilever-watchers include plenty of doubters. They note that the stakes are higher and fallibility less tolerated. Today, there's no such thing as comfortable survival, while prospering will require a degree of ruthlessness that the group has rarely shown before and which is hard to embed. As one executive sighs: 'We're still not very good at giving and taking orders.'
Warns one person close to the company: 'This is the final attempt to squeeze efficiencies out of the system and use them for growth.' If the changes don't work, he says, the only option will be to split the company into separate food and personal-care components.
But Cescau's diverse team won't hear of such pessimism. As an aside, the fact that there's little dead wood left to prune makes the tighter group a less attractive bait to private-equity predators. (Although Cescau denies it is a poison pill, Unilever's continuing dual nationality would also be an obstacle to a break-up.)
There may be rough phases before Unilever becomes what it wants to be - a '5% to 6% company' growing consistently faster than the overall market - 'but we believe we're getting there', says Cescau. 'All we need is confidence and time to make the changes pay. We take the long-term view. We intend staying around for the next 40 years.'
1929: Unilever is created on 2 September by the merger of Lever Bros, a British soap producer, and Dutch margarine company Margarine Unie (the firms shared a dependency on rapeseed oil). The new entity continues, though, with co-chairmen operating with separate boards from dual HQs in London and Rotterdam.
1939: Outbreak of war in Europe signals hard times for Unilever. Assets cannot be moved from Germany and must be invested in public services. But its decentralised structure allows the firm to survive better than most rivals.
1941-43: Unilever, whose brands include Lifebuoy soap, offers free products and mobile shower facilities to Londoners in the Blitz. Unilever also acquires from Frosted Foods (owner of Birdseye) the UK rights to deep freezing of food, and soup and canned goods company Bachelor.
1955: The company's Gibbs SR toothpaste brand is the first product to be advertised on the new British commercial television service. It launches Dove soap in the US, while an ad campaign featuring a chimpanzees' tea party makes PG Tips the biggest brand of tea in the UK.
1963: The '60s start well with the release of Cornetto and the cholesterol-lowering margarine Becel (known as Flora in the UK), now available through grocers as well as pharmacies.
1968-69: Unilever's merger with huge beverages operation Allied Breweries fails when the deal is referred to the Monopolies Commission.
1970: The acquisition of Lipton makes Unilever the world's leading tea company.
1973: One of Unilever's subsidiaries, The United Africa Company, becomes the UAC and expands trade in 43 countries.
1977: By now Unilever employs 177,000 people across the EEC and invests in fixed assets at a rate of about £30m a year.
1978: Unilever seeks to consolidate its US presence by buying National Starch for $484m - at the time, the largest acquisition in the US by a European company.
1984: Unilever secures Brooke Bond in its first hostile takeover. It prepares the launch of Clearblue, a home pregnancy kit sold over the counter.
1986: Unilever buys food chemicals company Naarden, doubling its business in food flavourings and fragrances, as well as Cheesebrough-Ponds, which produces Vaseline among other skincare products.
1989: Calvin Klein Cosmetics is acquired at a net price of $306m and Magnum ice creams are brought to the German nation for the first time.
1994: Unilever completes the disposal of its vast subsidiary company UAC. The disastrous Persil Power washing powder is removed from shelves after arch-rival Procter & Gamble shows that the phosphate accelerator it contains damages clothing.
1996: Company lifer Niall Fitzgerald is appointed chairman/CEO. Unilever commits itself to sourcing all fish from sustainable stocks and works with the World Wildlife Fund to establish the Marine Stewardship Council.
2000: Fitzgerald announces a four-year plan to focus on leading products: Unilever's portfolio to be slashed from 1,600 brands to 400, 50,000 jobs to be shed and 100 sites closed. Acquires US rival Bestfoods for £16.8bn and spends $326m on Ben & Jerry's ice cream (above) . Other deals bring Amora Maille and Slimfast to the table.
2002: As part of the 'Path to Growth', Unilever sells off its £1bn Diversey/Lever cleaning business to private US firm Johnson Wax Professional.
2004: Unilever shares fall by 4.67%. It issues a surprise profits warning - the first in its history - admitting that it has missed performance targets for the sixth consecutive quarter. Fitzgerald leaves five months before the completion of his restructuring plan; shareholders claim his performance does not merit his proposed payoff.
2005: Unilever 'does a Shell', relinquishing the twin management structure. UK co-chairman Patrick Cescau - another 'lifer' - becomes CEO and his Dutch oppo Antony Burgmans (above) non-exec chair. A 9% profits hike is hailed as a recovery from the scare of 2004. Cosmetics International is sold to US company Coty for $800m.
2006: Unilever declares its intention to sell off most of its European frozen food business, including Birdseye and Igloo. A huge global outsourcing contract for HR - a Unilever strength - is awarded to Accenture. Second-quarter sales grow slightly, by 3.9%.
UNILEVER AND BRITAIN'S MOST ADMIRED COMPANIES
This is the 12th consecutive year for Britain's Most Admired Companies, MT's flagship annual survey of what the nation's biggest companies think of their rivals. And Unilever has been one of the most consistent high performers, placed second overall twice, in the top five three times and missing out on a top 10 placing only once. What's more, in 2003 Unilever was first in its sector - food manufacturers and processors - and it has been placed second-in-sector a remarkable six times. Add to that a first and two second places for its Ability to Attract, Develop and Retain Top Talent and you're looking at a record that only the highest fliers, such as five-times overall winner Tesco, have bettered. Yet Unilever has never once lifted the coveted Most Admired Company crown. Why not?
Unilever's historic structure as a series of autonomous regional businesses has been both a strength and a weakness. It has made for a tremendously flexible, resilient and multicultural company. Anglo-Dutch Unilever had diversity built into it decades before rivals started worrying about minority representation and positive discrimination. For an FMCG company - which needs to understand the mindsets of its consumers - this is a tremendous cultural advantage. The challenge of running such a complex organisation has also bred a cadre of exceptionally talented managers and gained the company a well-deserved reputation for training and development. But its rivals - Procter & Gamble, Nestle and Reckitt Benckiser - are all centrally controlled multinationals, expert at global brand management and rolling out new products every quarter. Unilever's fragmented organisation just can't compete on speed-to-market and worldwide reach.
But under the reign of current CEO Patrick Cescau, things are changing.
The structure is more centralised and less introspective, and strategy is more clearly defined. The brand portfolio has been slashed and layers of local middle management have been stripped out. Cescau points to the fact that under the vitality regime, Unilever is slimmer and fitter than ever before. Organisation is better aligned with strategy, managers are gaining self-belief from the mission, and under 'One Unilever' their futures depend more on pleasing customers and less on gaming the system.
The aim is to keep what was good about the old Unilever - diversity, local knowledge and cultural respect - and combine it with strong leadership and speedy, effective company-wide processes. It should be a potent combination.
True, getting the whole formation steaming ahead in the same direction won't happen overnight. But the CEO reflects that for the first time ever, Unilever's fleet is at last coming together under central control.
Notes Robert Baker, worldwide partner at Mercer Human Resource Consulting: 'Unilever has historically had an enviable reputation for retaining its talent through a combination of good rewards and excellent career development opportunities. A key element of recent organisational change has been the continued focus on people.'
*In association with Mercer Human Resource Consulting.