Establishing a leaner, meaner Unilever

LONDON - How should the FMCG giant's agencies feel about its radical streamlining drive?

Unilever's axing of three of its top five marketers earlier this month is just the beginning. It forms part of the next phase of a painful stripping out of the FMCG giant's management layers by as much as 50 per cent by the end of next year.

Following the launch of the "One Unilever" programme in 2004, the company has been striving to create a leaner and more competitive business. Now the marketing directors for home and personal care, ice-cream, and chilled foods, Jacqui Hill, Anuj Lal and Lysanne Gray, have lost their jobs in this round of cuts. Unilever's £200 million media budget will now be handled jointly by two marketing directors, Paul Nevett and Matt Close, who will oversee foods, and home and personal care respectively .

The inevitable concern for agencies is the effect this will have on relationships. On the face of it, the implications of these cuts for agencies appear seismic, but a Unilever spokesman reassures the FMCG giant's marketing roster that the changes are internal and that supplier casualties should be minimal.

"We have the same number of brands and we're doing the same kind of activation, so I wouldn't have thought there will be a great deal of change," the spokesman says.

Unilever says the two remaining marketing directors will be "constructing the organisation beneath them over the next few months. Senior management roles will be reduced from about 80 to around 40, and they too will be deciding how the organisation will work underneath them, including with these two marketing directors."

The objective in stripping out three of the five marketing roles (Unilever says the three marketers will be offered new positions) is to speed up the decision-making pro-cess, described by one roster agency as "like walking through treacle".

Rather than being forced to re-pitch for business, roster agencies are more likely to experience a refocus in budgets in coming months as part of a drive to build its global brands without increasing overall adspend. Agencies working on global brands are therefore likely to see growing marketing investment, while those working on "local jewels" accounts, for secondary brands such as SunSilk, Colman's and Marmite, will face pressure to perform against a shrinking budget.

Unilever will be eyeing the success of global brands owned by its major rival, Procter & Gamble, such as Gillette, Braun, Olay, Bounce and Bounty. It knows it needs to compete by building its own global brands, but, to date, these have achieved mixed success.

A source close to the company says the next part of the strategy will be to revitalise brands that have lost appeal.

"The issue now for Unilever is to work the 'vitality strategy', which is about moving away from creating brands that are built on crap that's not good for you, such as Pot Noodle and Peperami, and reinvigorating them, getting closer to the trade," the source explains.

Unilever freely admits its huge marketing operations are in transition. Over the past two years, the company has carried out all brand development work at a global scale. "Big ideas are developed in conjunction with agencies, who then together look at each brand with a 360-degree view and make recommendations," the Unilever spokesman says. These ideas are then handed over to local markets for activation.

Agencies working with Unilever may find handling changes in investment to be straightforward. The issue that concerns some observers, however, is how agencies will handle what is fundamentally a change in the company's culture.

Another source close to the company says: "Unilever used to have a gentlemanly culture. This restructuring is very significant behaviour. If this type of behaviour is possible, what more is it capable of? It marks a more ruthless, results-driven approach, probably brought in by the external executive leadership."

The issue remains, however, that no matter how nervous such changes might make agencies on Unilever's roster, the company badly needs to make them.

For years, its profits have lagged behind competitors including Nestle, Reckitt Benckiser and P&G. Insiders have berated its layers of bureaucracy, often blaming this for Unilever's lack of competitive edge. And until two years ago, the company operated on a structure that was more reflective of its Anglo-Dutch heritage than the need for efficiency, with two chief executives at the helm.

Since then, under pressure from investors to develop a structure more capable of responding to changing consumer tastes, Patrick Cescau has become its first sole chief executive. This has heralded the introduction of greater diversity among senior executives (appointing three new non-executive board members earlier this year from India, France and South Africa) and improved performance.

The endgame for "One Unilever" is a leaner business (300 to 350 fewer roles by the end of 2008) and a simpler business (one UK office, in Leatherhead, Surrey, instead of its three premises in Walton-on-Thames, Crawley and Kingston), with stronger global brands managed by fewer staff capable of making decisions that deliver results in much less time.

So far, the changes have delivered the much-hoped-for improved performance in the City. Unexpectedly strong first-quarter results were announced in May, when a 5.7 per cent underlying rise on sales was reported, exceeding the target of 3 per cent to 5 per cent.

But City analysts downplayed the announcement, as Unilever had invested no extra funds in marketing and faced rising commodity prices.

Credit Suisse remarked that top-line growth and margin expansion made for "a refreshing change from Unilever" in a market report in May, balancing that with "one quarter does not make a turnaround, and history has shown how volatile some of the quarterly numbers can be". The report went on to say: "It would be churlish to simply dismiss Q1 as a one-off, but the growth was still less than all the peers, and good only by Unilever's historic levels. More evidence is needed to convince us of a sustained improvement."

A former Unilever insider believes the changes are not only positive for the company's long-term performance across all of its markets, but also for agencies that have been dogged by Unilever's bureaucratic decision-making process.

He says: "A streamlined Unilever will be more agile. Having fewer decision-makers around each issue has got to be a good thing. The only agencies who need to be worried about this significant step forward are the weak ones - the ones that won't survive in a more results-oriented environment. If there is any cutting down of the roster, the size of the remuneration pie is not likely to get any smaller."

Any agency feathering its nest on its Unilever business had better expect those feathers to turn to holly in the not so distant future and prepare for change on many levels.

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