THE STRATEGIC

   

              MANAGEMENT PROCESS

 

PART III: EXAMPLE OF SMP – UNILEVER’S “THE

                   PATH TO GROWTH”

 

1. Unilever's strategic vision and business mission

 

"To meet the everyday needs of people everywhere"

 

2. Objectives of "The Path to Growth"

 

Five-year strategic plan announced in February 2000 designed to accelerate top-

line growth and further increase operating margins. The plan centered on a series

of initiatives to focus on fewer, stronger brands to accelerate growth. It was

subsequently amended, following the acquisition on Best foods, which was

completed in October 2000.

 

In our Path to Growth strategy we committed ourselves to delivering by 2004:

          of more than 16%, compared to 11% at the start of Path to Growth

          2004

 

3. "The Path to Growth"

 

Principal components of the plan:

 

Brands: The cornerstone of the plan is the focus of product innovation and brand

development on a portfolio of around 400 leading brands which will lead to less

fragmentation of resource and bigger hit innovations. By 2004 we expect our

leading brands to represent 95% of the business (compared to 75% in 1999). The

increase in brand power reflects the contribution from our acquisitions, the

planned acceleration in exit from the non-corporate businesses and the disposal

or 'harvesting' of tail brands. Marketing support will have increased by 2004 with

200 basis points of sales.

 

Supply Chain: The re-ordering of manufacturing plans around a base of 150 key

sites and consequent site reduction of 100, costing some €2.3 billion.

 

Simplification

The revision of knowledge and information systems for and the refocusing of

resources behind 400 leading brands with consequent reduction of overheads and

streamlining of the corporate centre, costing some €2.0 billion.

Under-performing Businesses

The re-organization or divestment of businesses that do not meet performance

standards.

Best foods Integration

In addition to the Path to Growth restructuring, savings of €0.8 billion (US$ 750

million) will be generated through the integration with Best foods. The total cost

of the programme will amount to €1.2 billion (US$ 1.1 billion) and involves an

additional reduction in job numbers of 8 000 and the sale, or closure of some 30

sites.

 

The key drivers of value creation in the Path to Growth strategy are:

          gross margins partly re-invested in additional brand support.

 

    winning.

 

4. Evaluating Performance, Reviewing New Developments

 

Having just moved past the half-way point in the 5-year Path to Growth

programme and having thus far delivered what it said it would, Unilever is

comfortable with its progress to date and remains confident of achieving its

targets – 5- 6% top line growth and 16%+ operating margin by the end of 2004

and low double-digit earnings per share (EPS) growth throughout the 5-year

period of the programme. Indeed, given the strong increase in profitability, our

outlook for the year's EPS growth has now been raised to the high-teens.

 

Key Financial Indicators

          over 3% from volume. Foods grew at 4.6% – a significant step up in growth

          from Q2 – and Home & Personal Care (HPC) at 6.5% in the quarter. The

          good momentum in the quarter is expected to be maintained in the rest of

          the year.

          the progress made in Path to Growth and moved ahead by 0.5% to 16.2% in

          the quarter. Within this, advertising and promotions have risen by 1.8%.

          Operating margin for the last 12 months improved to 15.1% (compared to

          11.2% at the outset of Path to Growth).

          to date, due to improvements in profitability and lower interest costs.

 

Key Features

          the year to date at €38.75 billion), due to disposals and the managed rate of

          tail attrition in the non-leading brands.

          10% to €5.94 billion for the year to date), driven by continued benefits

          from our Path to Growth procurement and restructuring programmes and

          portfolio re-shaping.

          at €2.2 billion and, on a moving annual total basis, has gone up from € 5.6

          billion in 1999 to € 8 billion in the last 12 months.

          year ago. EBITDA net interest cover was 8.4 times in the quarter.

 

Key Components

Brands:

          months it is 4.5 %. Within this, HPC is already growing in the target range

          at 5.6%, while Foods has shown a significant step-up from 1.9% in 2000 to

          just under 4%.

          of the year leading brands will represent close to 90% of total sales (up

          from 75% of Unilever turnover in 1999) and plans are in place to increase

          this to 95%+ by the end of 2004.

 

We have a focused portfolio of 400 brand names (1600 at the outset of Path to

Growth) which we manage as 200 brand positions (at the end of Q3 the number

of brands had been reduced by around half since the start of Path to Growth).

 

The innovation plan in 2002 is phased differently from 2001, but examples from

the year to date in 2002 include: The launch of Knorr Vie healthy soups in the

UK, the launch of Axe deodorant and All fabric conditioner in the US, roll-out of

Dove shampoo and conditioner across Europe, the introduction of tetrahedral

teabags in Japan, the roll-out of Crème Bonjour and launch of Sunrise (vitamin

enriched) Margarine in Central & Eastern Europe, the launch of Lipton Asian

side dishes, Ragu Rich & Meaty and Hellmann’s flavored mayonnaise in North

America, the launch of Ramen Noodle soups in Mexico and Poland, the roll-out

of Cornet to Soft in Europe and the re-launch of Omo in Africa.

 

Organizational Restructuring Progress:

          2001 allowing a sharper business focus. This includes a new innovation

          structure with fully integrated R&D in place and Global Brand Directors

          leading key brands on a worldwide basis.

          with 80% being different from 5 years ago. The average age amongst them

          has reduced by 10 years.

          through remuneration systems that are designed to reward outstanding

          performance.

 

Excellent progress has been made on the savings programmes and the integration

of Best foods. 90% of the restructuring has been authorized, 70% has been

implemented and 80% of our €3.9 billion savings target has been delivered.

Within this:

          ahead of plan. Capability will be retained and there is more to be gained in

          this area.

Including Best foods integration, some 83 factories have now been either sold or

closed (a reduction of 8 in the quarter), and 31,500 people (2,900 in the quarter)

have left the business.

 

Portfolio Shape

          margin.

          Path to Growth.

          Ben & Jerry's.

 

Best foods Integration

We set out to integrate 33,000 people, in 63 countries, in 120 factories to

produce a total synergy benefit of €790 million. Some € 700 million has been

achieved to date, ahead of plan.

 

The sale of the remedy brands to Campbell’s was completed in Q2, 2001, the sale

of the Best foods Baking Company to Weston in Q3, 2001 and in Q2, 2002 we

completed the sale of some North American brands (including Mazola) to

Associated British Foods.

 

We chose to integrate Best foods using a fast track approach in order to get

through that process as quickly as possible and then turn the attention to growth.

Our plan for 2002 envisaged lower growth in the first part of the year to ensure

that the organization was bedded down and we have now begun to drive successful

innovations across the world.

          ensured that brands and market shares remained healthy throughout the

          integration.

          minimize disruption from integration.

          Knorr family has grown by 5.5% as we move from integration to

          innovation. Progress is broad based in terms of geography and is driven by

          a strong innovation programme.

 

Hellmann’s has maintained or grown its shares in all key markets, with a good

performance in Europe and Latin America.

 

 

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