Expert answer:analyze the challenges of the transnational strate
Answer & Explanation:Please read the attached article and analyze the challenges of the transnational strategy. Can this strategy be applied to any organization? Why? 4.pdf 2 Pages. Thank you
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Four Corners
Bustness insights that cross borders
The story behind one worldwide
company’s flexible organization-and the
managers who make it so successful.
Inside Unilever:
The Evolving
Transnational Connpany
by Floris A. Maljers
These days^ Unilever is often described as one of the foremost transnational companies. Yet our organization of diverse operations around
the world is not the outcome of
a conscious effort to become what is
now known among academics as a
transnational. When Unilever was
founded in 1930 as a Dutch-British
company, it produced soap, processed foods, and a wide array of other consumer goods in many countries. Ever since then, the company
has evolved mainly through a Darwinian system of retaining what was
useful and rejecting what no longer
worked-in other words, through actual practice as a business responding to the marketplace.
But regardless of the process,
Unilever has become a transnational
company in the most basic sense: we
think globally as well as act locally.
The very nature of our products requires proximity to local markets;
economies of scale in certain func46
tions justify a numher of head-office
departments; and the need to benefit
from everybody’s creativity and experience makes a sophisticated
means of transferring information
Some of our
brands
are known
even vs^here
Unilever isn’t.
across our organization highly desirable. All of these factors led to our
present structure: a matrix of individual managers around the world
who nonetheless share a common
vision and understanding of corporate strategy.
At Unilever, major product groups
are responsible for profits in Europe
and North America, and regional
groups are responsible elsewhere.
Some of our brands, like Lipton Tea
and Lux Soap, are known even in Albania and Cambodia – that is, even
in countries where Unilever does
not have its own industrial operations. In each of some 75 countries,
we do business through one or more
operating companies, with a total
of about 500 companies in the
Unilever group. In our case, “thinking transnationally” means an informal type of worldwide cooperation
among self-sufficient units.
Of course, there has to be a formal
structure of some sort that encourages managers to think and act in
tbe way corporate policy dictates.
But everyone must also share the
values that lead to flexibility on every level. In a worldwide company
incorporating both unity and diversity, business strategy and structure
are inextricably linked-and always
evolving.
While Unilever’s organizational
structure has developed, at least to
some extent, through trial and error,
we still have a consistent and longstanding policy when it comes
to one thing: the importance of
managing people rather than simply
analyzing problems. The two companies that formed Unilever, Margarine Unie of the Netherlands and
Lever Brothers of the United Kingdom, had a long tradition of expanding their businesses through both
export and local production. Initially, local operations were almost exclusively managed by Dutch and
British expatriates; however, even in
the early days of Unilever, the new
company started developing local
managers and decentralizing the organization. Yet the head office also
Floris A. Maliers is the co-chairman
and CEO of Unilever, the DutchBritish consumer goods group.
recognized the need for a common
culture among its many scattered
units and set up formal training programs aimed at the “Unileverization” of all its managers.
In essence, Unilever’s story, idiosyncratic though it may be, is one
example of how a single company
has come to manage far-flung units
that share a common culture. Over
the course of its particular lifetime,
the company has successfully
weathered numerous changes. Within just the last 30 years, for example,
Unilever’s most important product
group, the foods business, has gone
through two major reorganizations.
The details of how the foods business has reshaped itself in response
to new market trends illustrate
Unilever’s overall combination of
structural formality and managerial
flexibility.
From Margarine to Global
Fast Food
Until the mid-1960s, the national
management in every country
where Unilever operated was fully
responsible for the profits of all units
in its territory. Product groups
worked only in an advisory capacity,
and their ahility to affect how certain products were marketed or distributed basically depended on the
attitude of the local manager.
Up to that time, especially during
World War II, the foods industry was
driven by raw materials. At Unilever, the two most important raw
materials were tea and edible oils,
the latter heing necessary for the
company’s large business in margarines and table oils. But when rawmaterial sourcing beeame less important, our focus of attention
shifted to preservation technology
and distribution systems. Because of
the competitive advantages we developed in the logistics of handling
frozen products, Unilever became
the world’s largest ice cream company and achieved strong market positions in many other frozen foods.
In 1966, the company drastically
reorganized responsibilities for all
products, including those handled
by the foods business, in its main
European countries. Product groups
became responsible for profits, while
By the 1960s,
Unilever had
become the
largest
ice cream
company«
national managements worked in an
advisory role-although in areas like
industrial negotiations, local finance, and government relations,
their advice usually determined decisions. While this switch of responsibilities may sound simple, it took
many years of patience, persuasion,
and even some early retirements hefore the last remnants of the old
structure disappeared.
In setting up the new profit-responsible groups, the head office created three separate foods units. They
were based partially on raw-materials considerations and partially on
the new distribution requirements.
The company established an edible
fats group, a frozen food and ice
cream group, and a food and drinks
group that took care of everything
else-mainly soup, tea, and salad
dressings.
This setup worked well enough
for some time; indeed, it enahled
Unilever’s foods husiness to grow
overall, especially in Europe and
North America. With the benefit of
bindsight, we could have grown
even more rapidly, for example, in
eastern Asia. But on the whole,
Unilever kept its strong market position in the key foods products.
Sinee the mid-1970s, however, the
foods industry has become increasingly consumer-driven. Effective
marketing is now a company’s prime
competitive advantage, and marketing efforts have led to concepts like
HARVARD BUSINESS REVIEW September-October 1992
low-calorie products, health foods,
convenience foods, and the use of
natural ingredients. In addition,
manufacturers now face a new challenge in the ongoing concentration
of power in food retailing, particularly in northwestern Europe and
North America.
Therefore, as time passed, the allocation of products to the three
foods units started to hinder rather
than help Unilever’s progress. The
market for low-ealorie products, for
example, has grown steadily since
the 1970s. Yet, until 1988, our lowcalorie spreads were the responsihility of the edible fats group, lowcalorie soups helonged to food and
drinks, and low-calorie frozen meals
were part of the frozen food and ice
cream group.
Clearly, shared use of well-known
brand names, new food-processing
technologies, and consumer research can benefit a company with
worldwide operations. But it takes
time and energy to forge a coordinated policy, assuming that’s even
possible. By the late 1980s, despite
the good will of all who participated
in the old foods-unit system, it was
clear we had to reconsider our organization of the business again. In
this, as in all of Unilever’s reorganizations historically, top management has tried to combine a decentralized structure (which has the
advantage of providing deep understanding of local markets) with
a degree of centralized control. In
other words, we strive for unity in
diversity.
The first step in our new reorganization was to create the necessary
unity by forming a committee of
three board directors, which we
called the “Foods Executive.” (All 16
members of our board have executive responsibilities.) Located at our
head office in Rotterdam, these
three directors are now responsible
collectively for all of Unilever’s
foods interests. They no longer have
specific responsibilities for a group
of products, as they did in the past;
instead, working together as an executive triad, the three directors are
in charge of our full range of present
and future foods. In addition, control
of the foods companies is now hased
47
FOUR CORNERS
on geography rather than the products they sell, with each of the directors responsible for profits in a group
of countries.
In theory, we could have appointed one director with worldwide
responsibility for foods. But at
Unilever, tbe span of control would
have been too broad for one person.
It would have led to a second and
perbaps a third layer of management, which we considered undesirable. By creating a group of three
directors, we maintained the flat
organizational structure and diversity we value so highly; and by letting
these directors work as one group on
product strategy, we achieved the
unity that had been missing in our
previous organization.
Foods products at Unilever are
now concentrated in five strategic
groups; edible fats, ice cream, heverages, meals and meal components,
and professional markets. [The last
group includes catering, hakery
items, and other nondomestic food
industries.) Tbcse groups are not responsible for profits but remain important centers of produet expertise.
They advise the profit-responsihle
directors of tbe Foods Executive and
the relevant operating companies.
And tbeir advice carries mucb more
weight tban that of Unilever’s product groups in tbe early 1960s.
In product terms, the company
has improved its position because
the new strategic groups are more in
line witb identified consumer needs.
In geographic terms, we continue to
rely on the knowledge of our operating companies to judge what product
expertise to use in their local markets. In short, we now have more
unity and can also make hetter use
of tbe many and various opportunities offered hy diversity.
However, the foods industry is
still in considerable flux. The halance shifts continuously between
centralized requirements (like researcb, finance, and packaging) and
the need to stay close to local markets. The latest market trends are
moving in three directions, and each
will require a different approach of
some sort in the future.
First, there is what one might call
“glohal fast food”-the hamburger.
48
fried chicken, and certain soft
drinks, for example. How far or bow
fast glohalization of sucb popular
Western products will go is not yet
clear. The mucb-publicized launch
of the hamburger in Moscow and the
record-hreaking popularity of fried
chicken in Tokyo may or may not
he the beginning of a trend. In tbis
particular instance, perhaps Andy
Warhol was right when he said that
progress is not always good for food.
Second, there is international
food. Sucb food is common in one
country hut also transferrable to others. In tbe United Kingdom, Indian,
Chinese, French, and Italian foods
are good current examples. In addition, the popularity of Lebanese,
Mexican, and other types of meals
seems to be on the rise.
Third, there is national food.
Again, in tbe United Kingdom, steak
and kidney pie, Yorkshire pudding,
and tbe banger for breakfast all represent typically British food.
The picture hecomes even more
complicated wben one considers
tbat the same word can cover a range
of foods products. Take a seemingly
simple product like tea. The British
drink it hot and bigbly diluted with
milk, people of the Middle East take
it hot and strongly sugared, and
Americans usually like it iced.
While a global idea may exist for the
type of compact disc player cus-
Andy Warhol
may have been
right Avhen he said
progress is not
av/ays goad
for food«
tomers want, there is no uniform
concept for tea or frozen pizza, even
in Europe.
Given that the market for foods and all of Unilever’s products, for
that matter-may change in unpredictable ways, it’s likely we will reorganize again, adapting to a wbole
new set of trends or consumer needs
in tbe future. Up to now, we’ve heen
fortunate cnougb not to face major
discontinuities in our tecbnology
or markets during crucial reorganizations. Still, a transnational’s structure and strategy must constantly
adapt, regardless of the difficulties,
in order to keep pace with the changing marketplace.
Although Unilever’s most recent
reorganization was hased on our
strategic intention to concentrate on
the foods business in the broadest
sense, one of our marketing directors in Switzerland or a factory manager in Italy might not have shared
that perspective at first. While
change is one of the few inevitabilities in transnational companies, any
major reorganization requires flexible, responsive employees – and
time. To get tbe support of company
boards, we don’t rush to implement
necessary changes. At Unilever, we
see organizational change as a long
march forward ratber than one big
jump. And we are too cautious to
risk breaking a leg.
A Matrix of Managers
In the early 1940s, Unilever hegan
actively recruiting local managers
to replace tbe Dutch and British executives from the head office who
had heen running most of its local
units. Starting with the Indian subsidiary in 1942, Unilever put into
place a management process that
company insiders referred to as “ization.” In other words, filling local
executive and technical positions
with Indian managers led to the
“Indianization” of that subsidiary along with “Australianization,”
“Brazilianization,” and otber examples of localization of management
in various countries with Unilever
operations.
Tbe company’s “ization” policy,
as well as an increasing number of
local competitors and the isolation
of many of Unilever’s operating
companies during World War II, created a decentralized organization of
self-sufficient subsidiaries. Yet the
head office also recognized the danger of becoming too decentralized.
Without the Unileverization of
those Indian, Australian, Brazilian,
and other local managers, the company’s many scattered units would
not have shared any common corporate culture or vision.
By 1955, Unilever had opened
Four Acres, its international management training college near London. Now every year, the head office
sends 300 to 400 managers from all
over the world to this international
training ground. In addition, training
courses are organized on a local basis
in many countries, sometimes in
our own centers (for example, in the
city of Megamendung on Java),
sometimes in bired facilities.
Once the proper formal organization is in place-such as, in Unilever’s case, a matrix that combines
local initiative witb some centralized control-its managers must still
be encouraged to think transnationally. While we continue to develop
local talent in our subsidiaries, we
also expect managers to gain experience in more than one country or
product line. A matrix, bowever
well designed, cannot work if the
people across the organization aren’t
prepared to accept its flexihility. At
Unilever, the recruitment and training policies that reinforce tbe matrix
are not only held in bigh esteem,
tbey are also a matter of long-standing practice.
Since the 1950s, we have pioneered new managerial selection
systems in western Europe. And in
many developing countries, we use
advanced methods to recruit the
best university graduates. For instance, teams of Unilever managers
are charged witb spotting talent in
local universities at an early stage; or
prizes are given for work done by
young scientists to make contact
witb tbem. The company also sponsors an extensive program of husiness courses for university students
in many countries, from Turkey to
the United Kingdom. Through these
HARVARD BUSINESS REVIEW
courses, Unilever instructors and
students get to know each otber, determining wbat tbey have in common. Every candidate who survives
tbis initial screening is then re-
lever’s hoard includes members
from six different countries, and virtually every operating company contains expatriates. We have an Italian
managing our large company in
At Unijever/
organizational
change is seen as
a long march forward,
not one big jump.
hy il piiiiL’l (It senior managers, wbich often includes hoardmembers from tbe parent company.
The greatest challenge of recruiting, of course, is to find the best and
hrigbtest who will fit into tbe company. We certainly do not want a
homo unileverensis; hut for international careers in our current operating companies, we look for people
who can work in teams and understand tbe value of cooperation and
consensus.
For managerial trainees, preparation includes hoth on-the-joh experience and courses at Four Acres. In
fact, many bave joked that Unilever
is really a management education
institute financed by soap and margarine. Our courses go beyond teaehing specific suhjects like “Edible
Oil Refining” or “Developments in
tbe Retail Trade.” We also offer the
“International Management Seminar” and the “Senior Management
Course.” Tbese general courses are
often taugbt hy visiting professors
from well-known husiness schools,
with Unilever instructors participating occasionally.
Every trainee becomes part of
a group of 25 to 30 people recruited
for similar managerial positions.
Tbis sbared experience creates an informal network of equals wbo know
one anotber well and usually continue to meet and exchange experiences. Such an exchange is particularly important in an organization
that has an extremely diverse group
of international managers. Uni-
September-October 1992
Brazil, a DLILLIUII.IÍI
m
Í.ÜW.IIÍ,
.m
Englishman in Malaysia, and an
American in Mexico.
Another element tbat lends coherence to Unilever’s management is
our extensive system of attachments. A manager can he placed for
a sbort or long period in a head-office
department or a subsidiary. In the
early 1980s, when I was responsihle
for profits for a large group of companies, we had a staff of ahout 20 people. Of these, there were usually two
hright young managers on temporary assignment from several of our
far-flung operating companies. After
a period of 6 to 12 months, tbey
would move on to new positions as marketing director in Brazil, for
instance, or development manager
in Turkey.
When these managers return
home, tbey are still part of tbe
Unilever network. Tbey know
wbom to call in case of need and
what to expect. Tbey also realize
tbat their own ideas can make an
important contribution to Unilever’s overall progress. Exposure to
another environment not only gives
them more know-bow hut also improves their “know-wbo.”
In addition, cross-postings between companies are very important
for establishing unity, a common
sense of purpose, and an understanding of different national cultures
and attitudes. Such postings may be
to other countries or across product lines. My own career took me
to Colombia and Turkey, where
49
FOUR CORNERS
I learned that using logic to solve
problems, based on my studies at
Amsterdam University, often didn’t
match the approach of local citizens.
For example, while setting up preventive maintenance systems in factories seemed obvious to me, the
local attitude was to wait until a
machine broke down before deciding
what to do.
In a company with a product portfolio of fast-moving consumer
goods, it’s also useful for young man-
Second, through tbe network, international working parties, committees, and similar groups form either ad hoc to solve a problem or to
follow a subject on a more permanent hasis. This procedure works
effectively because tbe network exists; but it c …
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