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Strategy Management Theories In Unilever

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Question:

Discuss about the Strategy Management Theories in Unilever.
 
 

Answer:

Introduction:

Strategies related to business level helps an organization in attaining the hub competencies, focusing on satisfying the customer’s needs and other partiality in achieving profit above the average and economies of scale. It also takes into account the actions required to be performed in providing customers value and gaining a competitive arrangement within the industry by outperforming its competitors by fully employing the nucleus competencies. The foundation of any approach interrelated to business level is the customers of an organization. The things they need, the services they require, these matters are usually alarmed with the top-level management, thereby augmenting the business level strategy as one of the crucial factors (Grant, 2016).

Forming fresh ideas related to important goals and positioning them into practices by the top executives may be observed as the process of strategic management.  The tactics of business ponders around the possessions it acquires and the environs on which it is working. On the basis if the evaluation, a great scrutiny has taken place with the perspective of producing along with enduring proportional benefits (Baker, 2014).

Strategic Process of Unilever:

Unilever is a giant, a company that is widely spread validating its ascendancy over its competitors, satisfying every possible forecasting along with the functional goals proposed by the management. Unilever’s dream has always been to generate a maintainable standard of living for all. They strive hard in following the method of building a bigger future on a constant basis. The company has been concentrating on the factor of natural issue, tackling the dreadful effects on the atmosphere over their calisthenics. The organizational management understands that certain common factors are supreme in escalating the manageability of the movements in business. The company has been trying over the years in conducting a practicable business by providing necessity to the social factors. This is their general norm of their functional approach of merchantable.

Unilever has been experiencing extensive diversifications of propensity. These master individuals have been working tirelessly in furnishing individuals with the premium sorts of items in bringing about important enhancement. Unilever has taken up a process to mantle the similar number of segments they can. The organization would do well to make their attitude actualized through the connection with the industry.

The organization is mindful of the fact that there exists many difficulties in the world and they are obliged in creating a commitment towards the public and rolling out a wide-ranging expansion to the problem. Unilever has been manufacturing such multiplicity of brands that has the ability to affect the overall community life. The focus has always been on the fact of enlighten for concentration on the augmentation of their strategic method in their business. 

 

Porter’s Generic Strategies:

The generic strategy of Unilever has been building on the competitive advantage by gratifying the specific needs of the consumers along with their preferences. In the model of Porter, generic strategies have been put to use in ensuring organizational competitiveness required for growth in business and resilience. In Unilever’s case, the advantage of its competitiveness depends on the development methods of products that incorporate the research work in addressing needs of the market. Furthermore, the organization sustains growth through the amalgamation of intensive strategies.

Cost Leadership:

Unilever has been competing for a varied assortment of customers based on the price factor. The prices of the products are mainly based on the internal efficiency in obtaining a margin allowing it to prolong its business process above the level of average profit and customers cost. The organization establishes the price based on the cost and return evaluation factor, making customers in purchasing of a product. This strategy is best suited for organizations producing standardized products along with comprising of generic qualities, fulfilling the needs of the consumers at lowest possible price with superior quality. For becoming a cost leader, it is essential for organizations like Unilever to keep an eye on the pricing strategy of the competitors and tag its price lower to that of its rivals. This takes into account factors like forming of effective production conveniences, minimizing the sales cost, service, and maintains a tight control over the production matters and overhead cost.

Unilever is an organization that deals with wide range of products for which it also needs to focus on its value chain. It classifies and assesses the ways in which it can make the best use of its resources in indentifying and scrutinizing the ways through which workers and resources can add value to the company. Unilever has been focusing on the primary along with the supporting activities for attaining this objective. As per the annual report of Unilever, it states the significance of customers as believing that the organization is well positioned in helping people understanding their choices of brands and small actions when getting added to others makes huge difference on a global basis.

Differentiation:

Unilever has been providing value to its customers through exclusive features and attributes if its products. This is generally possible through better quality, attributes, high customer service, and innovation in products along with the sophisticated technological features. Unilever is in the process of creating value by high quality products, presenting a wider range of product line, effective service for customers and focusing on the needs of the consumers. Unilever’s generic competitive strategy is expanding the organization through the intensive efforts in the development of products. This particular object focuses on the development of products standing out from that of their rivals having the ability to attract customers. Brand loyalty has been considered the main strength for Unilever in having the competitive advantage. It signifies the fact that customers would be less responsive to the increase in price as long as customers are able to gratify the customers’ needs (Unilever- strategy report, 2017).

Focus:

In the focus strategy, Unilever has been focusing more on the population’s demographic features, targeting all the age groups and providing wide assortment of products to the people. It aims to focus on the emerging markets that bring in enough prospects for the company to grow more, as it did with the Indian market a few years ago. Apart from all this its diversified range of products and its consideration to the value chain makes it confine the bigger share of the market. The focus has always been on the needs of the customers and the required satisfaction that is essential for them. Innovation, R&D and service and product quality has been under the radar of the company for long and it makes sure most of its focus is on these factors that would bring in enough consumers and create a loyal base. For instance, Unilever owns the brand AXE that is being manufactured mainly to focus on the look and improvement of style to attract the female segment. The financial strategy of Unilever is also associated with the generic strategy of the company. It is important that Unilever expand itself in the developing countries that offer opportunities of higher growth.

 

Porter’s Five Forces Model:

Porter’s five forces model is considered to investigate the competitive factor sustaining within a business environment and the occupational process of advancement.

Suppliers bargaining power:

The force of supplier in business displays the way authority and power would grip them. Unilever has its business across the world. The bargaining power of supplier is significant but has limited affect on the company. Unilever focuses on its policy of local buying and manufacturing. It helps the organization in providing itself with an edge in putting a brake on the power of suppliers, making them weaker to parley at the terms of the company. This strategy does not allow the suppliers from swapping to Unilever’s rivals and charge rates higher than that of Unilever.

Competitive Rivalry:

Strong business relevance of the other market giants in the world has been creating a realm of threat for the Unilever (Ehrenberg & Smith, 2016).  Abundance of large number f competitors in the vast market has been proven quite strong. Not only the large companies, but the local business enterprises have been creating a cope of tight competition for Unilever.  The range of competitions starts from the small corner shop to the heavy weight organizations like P& G, Nestle and Kraft. Since these competitors furnish and offer uniformly striking products and services to the customers, they have been creating a tough challenge for the company to stay undefeated in the market. These competitors have the ability and strength t attract the existing customers of Unilever towards them by providing better facilities in terms of product and services (Banks et al., 2016).  Another form of competition is based on the product price. Since the consumer market is highly bargain- oriented, the best product in cheapest price is always given priority by the customers. P&G often offers business discounts to the customers so as to attract greater number of heads towards them. Moreover, the local shops and the stores have greater hold and understanding of the customers, hence providing better opportunities for them in customer attraction (Ehrenberg & Smith, 2016).

Threat of Substitution:

The twenty first century has brought new dimension in the realm of market ad customer demand. Since the age of consumerism has been strictly dependent on the variability of the consumer demands, sudden change in the mode of products and services has created a lacuna between the company and the customers (Mathooko & Ogutu, 2015). Hence, the monotonous range of the product varieties has pointed out to the faults and setback of the company. On the other hand, companies like P&G, Kraft and Nestle have introduced new range of products and services to the customers thus creating an obvious shift of the customers from Unilever. The consumers reportedly do not experience varieties of products from Unilever, apart from the household ones (Morschett,  Schramm-Klein & Zentes, 2015). Therefore, Unilever ought to be adoptive new procedure and strategies in reaching to the demand of the customers. Fair and strategic understanding of the customer psychology leads to long term success of a company (Dobbs, 2014).

 

Buyer Power:

Since Unilever is an international company, the buyers are speckled all around the world. The number also crosses billions. Moreover, the buyers are so diversified in different countries and regions, the mindset to the payment of the product and consumption method differs accordingly. However, the long range of varieties of the customers is not able to affect the pricing process of the company. Yet, they can shift to the consumption of products from other companies.  Therefore, Unilever has a greater chance to lose the customers in a huge extent. In order to satisfy the customers Unilever has to take precautionary action in terms of price determination of the products and service provision to the customers ( Banker,  Mashruwala & Tripathy, 2014).

Threat of New Entry:

Unilever has vast geographical market where the company has been operating for years.  The strongest market segment in terms of geographical arena, are the developed countries where the company has been doing business from the beginning of its franchise establishment.  However, the market in the less developed and the developed countries for Unilever is not at al puny. The brand image of the company has been kept intact with constant product supply and service provision in the developing markets like India, Pakistan and Bangladesh.  They have created a well structured market opportunity in the aforesaid countries. However, new entries in the developed countries require a lot of legal procedures whereas the less developed or the developing countries provide the multinational business organizations with investment facilities in lieu of better employment and trade opportunities. The advantage of Unilever lies in the fact that the company has constructed its business plinth in almost every market in the world in the form of franchises, branches or subsidiaries.  Its brand image is the greatest and strongest barrier for the other new entries. On the other hand, weakening of brand image might allow the new entries to introduce and expand business thus capturing the existing market of Unilever.

The following diagram is the synopsis of Porter’s Five Forces of Competition with special reference to Unilever:

                            Fig 1: Porter’s Five Force of Competition in Context to Unilever

Source: Created by the Author

Theoretical Interpretation of Strategic Management in Unilever:

In order to analyze the strategic management process of the company, three different theories can be taken into account and related on the business process strategies. These three theories are the theory of profit maximization, the theory of contingency and the survival- based theory (Barney & Hesterly, 2015) .

Theory of Profit Maximization:

The theory of profit maximization is related to the concept of economic advantage of the firms. Generally the theory constitutes the difference between the marginal cost and the marginal revenue o the firms. More the difference extends, more the profit margin increases. This theory is associated with the neoclassical theory of the firms. According to the neoclassical theory, the main objective of the business firm is to maximize the profit. The process occurs when the firms satisfy two general economic rules:

  1. i) The marginal cost of the firm equates the marginal revenue
  2. ii) The curve of Marginal Cost cuts the curve of Marginal Revenue from below.

Maximum profits also refer to pure profits.  That is the surplus above the production cost.  The remaining amount is enjoyed by the entrepreneur after having paid all the required production factors. In one word this is the residual income of the entrepreneurs over the normal profits.  In order to gain profit maximization, the business firms create different strategies.  Profit maximization is nothing but a driving force to the business organizations that are involved in specific consumer product disbursement. There are different assumptions regarding the theory of profit maximization. The first and the foremost effective assumption is the strategy of advertisements and cost reduction. So far the cost reduction strategy is concerned, Unilever has been one of the most well turned-out organizations that have been using the effectiveness of advertisements to interact with the customers. However, the company does not go beyond the limit of ad- expenditure while promoting the products. Moreover, strong brand image of the company reduces the possibility of regular advertisement. Thus the company checks the cost of promotion. More over strict check on the suppliers while procuring the required materials in the store house, Unilever makes sure that the conveyance is does not reach to unexpected hike.  Thus the cost margin is lessened than the profit margin. At times the company checks whether the entire production and operations cost is balanced with the total revenue. In recent years Unilever has implemented different advertisement strategic policies in different branches.  Small scale but regular promotion of the helps the products reach to the greater number of people as well as reduce the cost of heavy promotion thus ensuring the extension of profit margin.

 

Theory of Contingency:

The theory of contingency is associated with the foundation of the leadership and strategy making process in a business firm. One of the most effective theories to gain profits through different expected ways is contingency theory (Eden & Ackermann, 2013). According to the contingency theory, the leadership psychology impacts upon the growth of the firm in its business. While making a strategic fframe work, the future insight of the business leaders needs to be advanced through the understasnding of current business situation. There are three basic factors in making the contingency theory be implemented in strategic management. These are:

i) Leader Member Relation

ii) Task structure          

iii) Position Power (Laursen & Andersen, 2015)

All these factors need to be amalgamated through expertise of strategy designers. The factor, leader-member relation decides the ongoing strength and bondage within the organization. It ensures the creation of a common link between the manager and the employees. In order to convey the manager’s perception of company’s new adoption of strategies, there must be a solid platform that is to be concretized in due course of strategic interventions. In case of Unilever, the linkage between the managers and the subordinates is well defined and constructed so that messages can be rightly conveyed within the organization. The policy set by the headquarter is also followed by the branches and franchises as well as the subsidiaries. In order ensure the future of the market, Unilever and its managing heads fix a time for regular employee meeting and convention that helps to create a strong bondage among all of the internal stakeholders of the firm. The next factor, task structure is extremely important in creating a working standard and to gain customer attention.  The desired work culture of a company is always the prevalence of the employee competency that entails better production level resulting in the increase in market supply and sales. Structuring the particular task is one of the core strategies of the company that is performed within the head branches and their franchises. Unilever also involves in structuring and assessing certain tasks that are subject to strict implementation in different operations- supply, production, marketing and sales.  

The last and one of the most powerful factors for theory is the power position. This factor enquires whether the employee engagement is ensured through strict actions or motivational behaviours. Though this factor is not much relevant in terms of strategic management of an organization, it has passive effect on the firm, as overall strategic planning and framework is highly dependent on the engagement and work performance of the employees (Hill,  Jones  & Schilling, 2014).

Survival Based Theory:

Like the theory of profit maximization, survival- based theory is also related to economics. Survival -based theory is also known as Neo- Darwinism. This theory is associated with the fact that the best and the fittest company remain undefeated in the market.  The theory was motivated by social-Darwinism. However, rapid growth of industrialization in the 19th century Europe created the concept of market competition. Thus the concept of social Darwinism changed into Neo- Darwinism (Khalil & Economics, 2016).  According to this theory, the evolution of the firms takes them to utter success. After profound analysis of the product variation of Unilever, it can be stated that the company has not changed its mode of product design. However, the change in the market strategy has resulted in constant growth of market- especially in the developing countries.  In order to recreate the essence of market in the developed countries, Unilever needs to bring some certain changes thus ensuring strategic evolution (Theories of strategic management, 2017).

Conclusion:

Having succinct discussion about different strategic management of Unilever, it can be concluded that the company has been following and adopting different models and theories related to strategic management. The target has to be the customers and the strategies are strictly customer oriented however, the main motive of the company ought to encompass the maintenance of the product quality and bring variation in the mode of marketing and product content. After having analyzed Porter’s five forces of competition, it can thus be concluded that Unilever needs to focus on the business strategies of the rival companies so that discrepancies and setbacks are compared and fulfilled accordingly.   The company needs to build a strategic frame work in every business aspect starting from the core operational work, supply chain and human resource. Managing competency inside the organization and the fellow franchises would help Unilever have an overall analytical comprehension on the market and its own position.   

 

References:

Baker, M. J. (2014). Marketing strategy and management. Palgrave Macmillan.

Banks, M. A., Vera, D., Pathak, S., & Ballard, K. (2016). Stakeholder management as a source of competitive advantage. Organizational Dynamics, 1(45), 18-27.

Barney, J. B., & Hesterly, W. (2015). Strategic management and competitive advantage concepts and cases. Pearson.

Banker, R., Mashruwala, R., & Tripathy, A. (2014). Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy?. Management Decision, 52(5), 872-896.

Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Eden, C., & Ackermann, F. (2013). Making strategy: The journey of strategic management. Sage.

Ehrenberg, R. G., & Smith, R. S. (2016). Modern labor economics: Theory and public policy. Routledge.

Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.

Khalil, E. L., & Economics, N. (2016). Neo-Darwinism: Clearing the Way for Historical Thinking.'. Economics as Worldly Philosophy: Essays on Political and Historical Economics in Honor of Robert Heilbroner, 22-72.

Laursen, L. N., & Andersen, P. H. (2015). How Early? Quasi-experiments on Early Supplier Involvement in New Product Development at Unilever. In Conference Proceedings of the 32nd IMP Conference, Kolding, Denmark.

Laursen, L. N., & Andersen, P. H. (2016). Supplier involvement in NPD: A quasi-experiment at Unilever. Industrial Marketing Management, 58, 162-171.

Mathooko, F. M., & Ogutu, M. (2015). Porter’s five competitive forces framework and other factors that influence the choice of response strategies adopted by public universities in Kenya. International Journal of Educational Management, 29(3), 334-354.

Morschett, D., Schramm-Klein, H., & Zentes, J. (2015). Strategic international management. Springer.

Park, S. H., Ungson, G. R., & Cosgrove, A. (2015). Co-aligning Strategies with Management Structures and Systems. In Scaling the Tail: Managing Profitable Growth in Emerging Markets (pp. 91-107). Palgrave Macmillan US.

Rosenbaum-Elliott, R., Elliott, R. H., Percy, L., & Pervan, S. (2015). Strategic brand management. Oxford University Press, USA.

Rothaermel, F. T. (2015). Strategic management. New York, NY: McGraw-Hill.

Theories of strategic management. (2017). Repository.usu.ac.id. Retrieved 18 April 2017, from https://repository.usu.ac.id/bitstream/handle/123456789/43481/muhammad%20chairal.pdf;jsessionid=0C201419CC55BFA532AE47708C328423?sequence=1

Thomas, R. (2015). Towards (and Away From) an Evolutionary Theory of Organization.

 Unilever- strategy report. (2017). unilever.com. Retrieved 18 April 2017, from https://www.unilever.com/Images/strategic_report_ar15_tcm244-477387_en.pdf
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