Strategic Challenges Facing Unilever Plc - Case Study Example

Strategic Challenges Facing Unilever Plc Student’s name Institution’s Affiliation Course +Code Professor’s name Date Introduction Global organisations face strategic challenges due to diverse factors affecting the international business environment. However, the management approach of the MNCs is changing because of the accelerated shift of the economic activities from the dominant markets of North America and Europe to emerging markets in Asia, Africa, Latin America and the Middle East. According to a report by the McKinsey Global Institute, about four hundred midsize emerging market cities will generate about forty percent of global growth in the next fifteen years. Again, the International Monetary Fund affirms that the ten fastest-growing economies in the coming years will come from the emerging markets (Dewhurst, Heywood & Harris 2012). Additionally, the advances in information communication technology have created new forms of international cooperation and coordination among these global organisations and new potential ways for them to succeed in the emerging markets (Bryson, Ackermann & Eden 2014). Multinational corporations have however recorded successes amidst the ever increasing strategic challenges. For instance, the computer technology firm IBM expects to generate over a third of its revenues from emerging markets. For Unilever, the emerging markets, particularly in Africa and Asia, generate over fifty-four percent of its revenues. However, global organisations continue to struggle in their efforts to adapt to new markets as they have to navigate their operational environments because of the strategic challenges that they face (Dewhurst, Heywood & Harris 2012). Consequently, different models and approaches have been advanced to help these entities thrive amidst challenging realities in their business environment. While no single organisational model best fits all companies that are faced with these realities, new opportunities and challenges offers them a chance to thrive based on their business models. However, each company faces different challenges and opportunities based on their business models. For instance, consumer-focused firms like Unilever face conflicting imperatives so as to tailor their business strategies to local needs while sustaining their global processes (Higginbottom 2015). It suffices to note that firms in international business environment have responded to the new opportunities as studies show that most of them face a common set of challenges in managing strategy, costs, people, and risks. Global organisations have strategic benefits that include the ability to access new consumer markets because of their resources capabilities, new suppliers and partners (Porter 2008). Again, these primary benefits may lead to secondary ones that include the building of new customer base, additional investment and creation of research centers in such markets. However, the strategic challenges that come with the global presence are immense and fundamental to the productivity of these organisations. For example, most of these firms find it difficult to adapt and be flexible to the local needs in their efforts to broaden their global footprint. Of particular concern are the processes for the development of a strategy and resource allocation. Again, these organisations struggle to cope with heightened diversity of these markets, distribution channels and consumer needs (Bryson, Ackermann & Eden 2014). The essence of this paper is to examine strategic challenges that global firms like Unilever Plc face. In its structure, the article gives an overview of Unilever Plc UK, its strategic goals and challenges using two theoretical models, and a reflection on how to address the challenges. In its final part, the report makes conclusion of essential points and possible recommendations to the organisation on how to deal with its strategic challenges. Overview of Unilever Plc UK Unilever, formed by the Lever brothers and a friend, was established in 1930 and has its headquarters in the United Kingdom. The multinational corporation has businesses in developed and developing economies that include China, USA, South Africa, Brazil, and Canada among other nations. The organisation has production facilities in over one hundred and sixty countries and employees close to two hundred thousand people in its global operations. In 2013, the consumer product manufacturer recorded a turnover of over forty-nine billion Sterling Pounds. Again, over two billion people around the globe use its products in a day (Unilever 2015). Unilever generates over fifty-seven percent of its business in emerging markets with its products finding markets in over one hundred and ninety countries in the world. The organisation’s main business strategy is to have sustainable growth through its sustainability strategy that it unveiled in 2010 (Unilever 2016). Through the strategy, the firm has reduced its waste impact by over eleven percent. Unilever considers challenges in the environmental sustainability like water scarcity, carbon dioxide emissions, and limited energy as opportunities and attempts to address them. The sustainability strategy called Unilever Sustainable Living Plan (USLP) that has been aligned with its vision statement is the foundation of its business strategy in its global operations (Unilever 2016). The organisation states that strategies aimed at sustainability and profitability in its growth are essential to its long-term development and growth. Furthermore, Unilever, like other businesses, has to be innovative and generate ideas that focus on reducing operational costs, earning additional margins and reducing business risks. Strategic challenges facing Unilever The essential duty of any entity in the business world is to attain its goals and objectives in all areas irrespective of the challenges. As stated earlier, organisations, especially MNCs, face numerous strategic challenges in the marketplace at the global level. Global consumer product corporations like Unilever, face different strategic challenges that range from the execution of their strategies in emerging markets, brand and marketing effectiveness, competition intensity, environmental sustainability, disruptive new technologies, and competition for the best manpower and talent (Porter 2008). According to Bryson, strategic planning process can help an organisation to identify strategic challenges that it faces. Based on the fundamental issue or issues identified through strategic planning process, an entity can use several approaches to help it deal with these challenges (Bryson, 2003). In this section, the paper examines strategic challenges that Unilever faces based on its strategic goals. It suffices to note that using a system-based approach, the strategic challenges facing Unilever on how to actualize its sustainability plan can be identified. Unilever Plc UK launched its sustainable business strategy in 2010 (Polman 2014). The strategy called “Making Sustainable Living Common Place” seeks to double the production level of the organisation while at the same time reduce its environmental impact of its products by half (Unilever 2015). Furthermore, it seeks to give farmers and distributors, especially in its emerging markets, access to its supply chain. Under the strategy, the organisation highlights three essential goals that it must achieve that include consumer insight where it seeks to expand its knowledge on the dynamics that its markets present. The organisation acknowledges that societies are dynamic and an insight into their trends and the ability to predict them is essential to sustain its competitive advantage (Shankleman 2014). The second goal under the sustainability strategy is collaboration where the firm seeks to work in cooperation with governments, NGOs and other industry stakeholders to drive change for society and business. The firm postulates that through partnerships in their supply chain, it can create innovative products and package to achieve its sustainability goal. The third goal of Unilever’s strategy is achieving innovation through its R&D mission. The organisation states that its R&D mission is to build brands through benefit-focused innovation using science and technology. It suffices to note that driven by its strategic business model; Unilever believes that profitable growth should create responsible growth (Unilever 2015). The consumer products manufacturer states that the model guides their approach on how they do business and how they meet the ever-increasing consumer demands for their brands and act responsibly in a world of finite resources. Amidst these strategic goals based on their sustainability strategy, USLP, Unilever faces strategic challenges that require strategic planning approaches as postulated by Bryson (2003). One of the strategic challenges that Unilever faces is the sustainability challenge. When it formulated its long-term growth strategy in 2010, the UK firm believed that it could navigate the terrain in the business world through its focus on carrying out sustainable business in its processes and supply chain. However, six years down the line, the organisation acknowledges the challenges it endures in its bid to achieve the goals of its strategy. Arguably, sustainability is considered one of the greatest challenges to the present and future management practices in the business sector, and Unilever is no exception. For example, the economic, social and environmental dimensions raise concern on how businesses can meet the current needs without compromising the future generations’ ability in meeting their demands. Imperatively, the global business environment requires all stakeholders to commit to ensuring that future generations are guaranteed of their potential needs and demands. The organisation’s sustainability plan is a challenge considering the goals that it has set. Using the plan, the organisation seeks to double its production or but halve its impact on the environment, especially its carbon footprints. However, achieving such a fit requires more sustainable ways of doing business. Imperatively, the challenge that arises is how through the sustainability plan Unilever will grow its business when it underpins ambitious targets in creating sustainable business. For example, Unilever states that it targets sustainable sourcing of its raw materials, water availability and usage, and reduction in greenhouse gases. The organisation asserts that these targets will be monitored under the Unilever Sustainable Development Group that comprises of five external experts in its corporate social responsibility and sustainability department (Unilever 2015). However, the challenge is how it shall grow both its business and profit yet pursue the ambitious sustainability programme. Imperatively, beyond its acknowledgement that progress on its USLP plan is monitored by its leadership, the organisation does not say much on how the two opposing ends shall be met (Shankleman 2014). Effectively, it creates strategic challenges to the firm in its global growth because sustainable business is being viewed as fundamental to the future of the planet, especially reduction in greenhouse gases emissions. However, the organisational processes and objectives conflict with its long-term sustainable goals and objectives. The company has struggled to sell its sustainable business model to its consumers through its product line, for instance, using less energy for hot showers. Again, such a strategy may not have a profound impact in its emerging economies where analysts project that energy consumption is set to increase due to improved standards of living as more people move into the middle class category (Shankleman 2014). One of such markets is the Chinese market where energy consumption has been at an all-time high due to the development of its industry. The second strategic challenge that the organisation faces is in its supply chain based on its Sustainable business model. Unilever is a global business with an international supply chain process. Therefore, disruptions in the supply chain can cause serious impacts to the organisations, especially on its profits and revenues (Unilever, 2016). The organisation notes that its operations rely on securing high quality raw materials, efficient and effective production, and timely distribution of its products to its customers. However, the supply chain is exposed to potential risks and adverse situations that include physical disruptions, industrial and environmental accidents and bankruptcy of a crucial supplier. Imperatively, such events could affect its ability to deliver orders to its customers, both at retail and wholesale levels. These challenges pose potential drawbacks to the achievement of the organisation’s goals and objectives (Bryson 2003). The third challenge as highlighted in Unilever’s SWOT analysis is customer relationships. The firm operates in one of the toughest marketplaces in the world, the United Kingdom, selling its premium branded products to competing retail outlets like Tesco, Sainsbury’s and Morrison among others (Kissinger 2016). These retailers are tough negotiators who compete and can delist brands and shrink their shelf space at any time to remain sustainable. Again, Unilever brands have been facing competition from the retailers’ “own brand labels.” Addressing the challenges Unilever is a global brand that is capable of using relevant strategic tools to address the challenges that it faces in its strategies. In this section, the paper examines and proposes some of the actions that Unilever can take to tackle these challenges. Customer relationships are vital to the growth and sustainability of a brand, not only in its domestic but also international market. One of Unilever’s strengths is its recognition of the customer relationships, especially when considering its long term business model; the suitability strategy. According to the firm, successful customer relationships are essential to its business and continued growth (Unilever 2016). The organisation notes that maintenance of these relationships is necessary for its brands to have better presentation and accessibility to its customers. Based on its SWOT analysis (Appendix 1), the firm has a strong presence in the emerging markets, particularly in Asia, Latin America, Middle East and Africa (Kissinger 2016). The organisation generates over fifty percent of its sales from these markets. As the company points out, it focuses on building and maintaining trading relationships across a broad spectrum of channels that range from centrally managed multinational consumers to small traders that can be reached through distributors in many of the developing economies. Therefore, the firm needs to focus on growing its market share in these emerging markets because they constitute over fifty percent of its sales and perhaps operations (Unilever 2015). Again, both the brand and customer relationships are focused on areas that the firm thinks it can realize value addition and build sustainable and competitive advantage by positioning it firmly away from price-based markets and consumers to ones where its strengths in innovation, sustainability and other non-price dynamics are valued. Secondly, the company can address the challenges in its sustainability plan by focusing on innovations. As stated, businesses face the challenge of sustainability in their processes, right from production to distribution (Trefis Team 2015). Most firms are being challenged to promote and ensure that their supply chains carry out their businesses in a sustainable way because of the negative impacts on the environment. The argument that suppliers need to be treated differently based on whether they come from developed or developing nations arises. While Unilever has established the Sustainable Living Plan, innovations can help it achieve most of the goals that it has outlined in the ambitious document. According to Karen Higginbottom, global firms continue to face challenges that include innovation and increasing productivity because of the rapidly changing business environment. Most of the organisations are failing to capitalise on the ideas that their employees may generate (Higginbottom 2015). Through its research and development, Unilever needs to utilize its strengths in the emerging markets and create sustainable growth and profitability and ensure that its brands meet consumer needs. R&D strategies in energy, processes, and supply chain will ensure that the organisation achieves its strategy. For instance, Unilever announced that its overall emissions per consumer rose by five percent in 2012, albeit its strategies to reduce emission of greenhouse gases (Shankleman 2014). Therefore, suitability strategy can achieve most of these targets if it shall focus on creating innovative products for the consumer markets based on the local dynamics existing in these areas. It suffices to note that Unilever has attempted to reduce emissions from its transport fleet and refrigeration technologies and slashed its energy utilisations in its offices (Shankleman 2014). While such actions have worked or seem to work in developed countries, the developing and emerging markets where the organisation gets most of its revenues have not benefited from these initiatives. Unilever may be concerned on ensuring that it complies and satisfies consumer needs in its developed markets but ignore best practices in developing countries because of poor governance and regulatory frameworks that exist in these markets. Achieving its sustainability goals implies that it has to craft a realistic approach where it seeks to double production but reduce its greenhouse emissions. As stated by the company’s CEO, the company has achieved environmental targets within its control. However, it has to develop more innovative solutions to reduce energy use among its consumers, suppliers and even partners, especially in developing and emerging economies (Polman, 2014). Addressing the supply chain challenge is essential to the achievement of the organisation’s goals. The firm outsources most of its raw materials and disruption in its supply chain cannot be entertained because it will impact it in a negative way. The supply chain is a challenge that affects sustainability since it contributes to the accessibility of Unilever’s brands in the market. Therefore, contingency plans are necessary and should be developed through organisational policies aimed at addressing any potential risks. These plans must also focus on how to handle the aftermath of the disruptions so that the organisation does not lose its credibility in the marketplace, particularly its relationships with customers. Again, these plans must seek to intervene directly in supporting a critical supplier who may be facing challenges in meeting the organisation’s expectations in the delivery of the intended products or raw materials. If such plans are not designed, Unilever stands to lose credibility of its brands or may lead to increased cost of production that may increase operational costs and prices of the products. As such, price-led markets in Europe and North America may not purchase the brands from Unilever. In addressing these challenges, Unilever needs to focus on its R&D efforts with the aim of creating new products and packaging so that consumers can collaborate with the organisation in achieving the strategic sustainability model. R&D development in better supply chain results in improved margins but does not affect a company’s top line (Trefis Team 2015). However, innovation in product development and packaging has direct impacts to revenue growth. Imperatively, by focusing more on R&D efforts in the two critical areas, Unilever is likely to generate higher revenue growth in the long-term. Again, the organisation can combine its commercial growth with its sustainable practices. Sustainable practices involve giving a high priority to the procuring of raw materials using sustainable sources and minimizing water consumption and wastage in its processes and among its suppliers, especially in emerging markets (Higginbottom 2015). Summary and Recommendations It suffices to note that global organisations, irrespective of their origin, face strategic challenges in their operations, both in their domestic and international markets. These entities must deal with the increasing demand to carry out sustainable business so as to address the environmental impact that their business processes pose to the world. These global challenges range from competition for scarce resources, sustainable business practices, disruptive new technologies, market competition and competition for the best talent and manpower. Consumer products manufacturers like Unilever face strategic challenges that they must overcome to remain competitive in their changing business environment, both in their domestic and international market. Unilever Plc’s strategic business model demonstrates that these organisations can navigate the delicate business terrain and achieve sustaibility in their business processes. However, challenges are real in the attempt to meet these strategic goals, both in short and long-term. Unilever Plc demonstrates that sustainable business practices can be achieved when they are aligned with an organisation’s vision statement. Furthermore, strategic challenges offer opportunities for an organisation to formulate tailor-made solutions to address critical challenges in its strategy. Imperatively, the use of strategic planning process and models is essential in helping these entities achieve their goals and identify challenges in their business environment. Unilever Plc has registered successes in its global operations amidst these challenging realities in the business environment. The emerging markets provide over fifty percent of the firm’s revenues. Again, these markets value its sustainability approaches and innovation in its attempts to create value addition. Furthermore, the organisation states that its R&D efforts are aimed at helping it remain innovative in its product offering to its consumer markets while reducing its greenhouse gases emission by half. However, Unilever faces challenges on how to deliver its sustainability plan where it seeks double its production but reduce its impact on the environment by half. These are two opposing strategic goals that the oragnisation must address to achieve its strategic business model. Therefore, this report recommends that Unilever can use a variety of strategies to improve its ability to meet the goals of the Sustainable Living Plan. For example, the organisation should allocate more resources for research and development in the emerging markets that account for about fifty-seven percent of its revenues. Secondly, it needs to use innovative approaches to customer relations and product development with the aim of expanding its market share in the developed and price-led markets like its domestic UK and European market. Moreover, collaborations with all stakeholders on how to implement the firm’s business model are essential. It needs to get the critical input from environmental stakeholders. References Bryson, J.M., 2003. Strategic planning and management. Handbook of public administration, 1. London: SAGE Publication. Bryson, J.M., Ackermann, F. and Eden, C., 2014. Visual Strategy: Strategy Mapping for Public and Nonprofit Organizations. John Wiley & Sons. Dewhurst, M., Heywood, S., and Harris, J., 2012, June. The global company’s challenge, McKinsey and Company. Accessed on December 6, 2016 from http://www.mckinsey.com/business-functions/organization/our-insights/the-global-companys-challenge Higginbottom, K., 2015. Five Key Challenges Facing Global Firms Over Next Five Years, Forbes. Accessed on December 6, 2016 from http://www.forbes.com/sites/karenhigginbottom/2015/04/22/five-key-challenges-facing-global-firms-over-next-five-years/ Kissinger, D., 2016. Unilever’s SWOT Analysis & Recommendations. Accessed on December 6, 2016 from http://panmore.com/unilever-swot-analysis-recommendations Polman, P., 2014. Unilever CEO Paul Polman: Tackle Sustainability Challenges with a Systems-Based Approach. Accessed on December 6, 2016 from www.ibtimes.co.uk/unilever-ceo-paul-polman-tackle-sustainability-challenges-systems-based-approach-1433024 Porter, M.E., 2008. Competitive strategy: Techniques for analyzing industries and competitors. Simon and Schuster. Shankleman, J., 2014, April. Unilever struggles to sell customers on Sustainable Living, accessed on December 6, 2016 from https://www.greenbiz.com/blog/2014/04/29/unilever-struggles-sell-customers-sustainable-living Trefis Team, 2015, July. Here's How Unilever Plans to Revive Growth. Accessed on December 6, 2016 from http://www.forbes.com/sites/greatspeculations/2015/07/17/heres-how-unilever-plans-to-revive-growth/#1a78635ac862 Unilever, 2015. Unilever Annual Report and Accounts. Accessed on December 6, 2016 from https://www.unilever.com/Images/strategic_report_ar15_tcm244-477387_en.pdf Unilever, 2016. Our Strategy. Accessed on December 6, 2016 from https://www.unilever.com/about/who-we-are/our-strategy/ Appendix: Unilever’s SWOT Analysis Source: Author Read More