Unilever Case Study
Unilever Case Study
Unilever Case Study
A COMPLEX ORGANIZATION
Unilever was an organizational curiosity in that, since 1929, it has been
headed by two separate British and Dutch companiesUnilever Ltd. (PLC
after 1981), and Unilever N.V.with different sets of shareholders but identical
boards of directors. An "Equalization Agreement" provided that the two
companies should at all times pay dividends of equivalent value in sterling and
guilders. There were two head officesin London and Rotterdamand two
chairmen. Until 1996 the "chief executive" role was performed by a threeperson Special Committee consisting of the two chairmen and one other
director.
Beneath the two parent companies a large number of operating companies
were active in individual countries. They had many names, often reflecting
predecessor firms or companies that had been acquired. Among them were
Lever; Van den Bergh & Jurgens; Gibbs; Batchelors; Langnese; and Sunlicht.
The name "Unilever" was not used in operating companies or in brand names.
Lever Brothers and T. J. Lipton were the two postwar U.S. affiliates. These
national operating companies were allocated to either Ltd./PLC or N.V. for
historical or other reasons. Lever Brothers was transferred to N.V. in 1937,
and until 1987 (when PLC was given a 25 percent shareholding) Unilever's
business in the United States was wholly owned by N.V. Unilever's business,
and, as a result, counted as part of Dutch foreign direct investment (FDI) in
the country. Unilever and its Anglo-Dutch twin Royal Dutch Shell formed major
elements in the historically large Dutch FDI in the United States. 2 However,
the fact that all dividends were remitted to N.V. in the Netherlands did not
mean that the head office in Rotterdam exclusively managed the U.S.
affiliates. The Special Committee had both Dutch and British members, and
directors and functional departments were based in both countries and had
managerial responsibilities without regard for the formality of N.V. or Ltd./PLC
ownership. Thus, while ownership lay in the Netherlands, managerial control
was Anglo-Dutch.
The organizational complexity was compounded by Unilever's wide portfolio of
products and by the changes in these products over time. Edible fats, such as
margarine, and soap and detergents were the historical origins of Unilever's
business, but decades of diversification resulted in other activities. By the
1950s, Unilever manufactured convenience foods, such as frozen foods and
soup, ice cream, meat products, and tea and other drinks. It manufactured
personal care products, including toothpaste, shampoo, hairsprays, and
deodorants. The oils and fats business also led Unilever into specialty
chemicals and animal feeds. In Europe, its food business spanned all stages
of the industry, from fishing fleets to retail shops. Among its range of ancillary
services were shipping, paper, packaging, plastics, and advertising and
market research. Unilever also owned a trading company, called the United
Africa Company, which began by importing and exporting into West Africa but,
beginning in the 1950s, turned to investing heavily in local manufacturing,
especially brewing and textiles. The United Africa Company employed around
70,000 people in the 1970s and was the largest modern business enterprise in
West Africa.3 Unilever's total employment was over 350,000 in the mid-1970s,
or around seven times larger than that of Procter & Gamble (hereafter P&G),
its main rival in the U.S. detergent and toothpaste markets.
A WORLD-WIDE INVESTOR
Lever Brothers, Unilever's first and major affiliate, was remarkably successful
in interwar America. After a slow start, especially because of "the obstinate
refusal of the American housewife to appreciate Sunlight Soap," Lever's main
soap brand in the United Kingdom, the Lever Brothers business in the United
States began to grow rapidly under a new president, Francis A. Countway, an
American appointed in 1912. 13 Sales rose from $843,466 in 1913, to $12.5
million in 1920, to $18.9 million in 1925. Lever was the first to alert American
consumers to the menace of "BO," "Undie Odor," and "Dishpan Hands," and
to market the cures in the form of Lifebuoy and Lux Flakes. By the end of the
1930s sales exceeded $90 million, and in 1946 they reached $150 million.
By the interwar years soap had a firmly oligopolistic market structure in the
United States. It formed part of the consumer chemicals industry, which sold
branded and packaged goods supported by heavy advertising expenditure. In
soap, there were also substantial throughput economies, which encouraged
concentration. P&G was, to apply Alfred D. Chandler's terminology, "the first
mover"; among the main followers were Colgate and Palmolive-Peet, which
merged in 1928. Neither P&G nor Colgate Palmolive diversified greatly
beyond soap, though P&G's research took it into cooking oils before 1914 and
into shampoos in the 1930s. Lever made up the third member of the oligopoly.
The three firms together controlled about 80 percent of the U.S. soap market
in the 1930s. 14 By the interwar years, this oligopolistic rivalry was extended
overseas. Colgate was an active foreign investor, while in 1930 P&G
previously confined to the United States and Canadaacquired a British soap
business, which it proceeded to expand, seriously eroding Unilever's market
share. 15
The soap and related markets in the United States had a number of
characteristics. Although P&G had established a preponderant market share,
shares were strongly contested. Entry, other than by acquisition, was already
not really an option by the interwar years, so competition took the form of
fierce rivalry between incumbent firms with a long experience of one another.
During the 1920s and the first half of the 1930s, Lever made substantial
progress against P&G. Lever's sales in the United States as a percentage of
P&G's sales rose from 14.8 percent between 1924 and 1926 to reach almost
50 percent in 1933. In 1930 P&G suggested purchasing Lever in the United
States as part of a world division of markets, but the offer was
declined. 16 Lever's success peaked in the early 1930s. Using published
Spry. This also was launched with a massive marketing campaign to attack
P&G's Crisco shortening, which had been on sale since 1912. 20 The attack
began with a nationwide giveaway of one-pound cans, and the result was
"impressive." 21 By 1939 Spry's sales had reached 75 percent of Crisco's, but
the resulting price war meant that Lever made no profit on the product until
1941. Lever's sales in general reached as high as 43 percent of P&G's during
the early 1940s, and the company further diversified with the purchase of the
toothpaste company Pepsodent in 1944. Expansion into margarine followed
with the purchase of a Chicago firm in 1948.
The postwar years proved very disappointing for Lever Brothers, for a number
of partly related reasons. Countway, on his retirement in 1946, was replaced
by the president of Pepsodent, the thirty-four-year-old Charles Luckman, who
was credited with the "discovery" of Bob Hope in 1937 when the comedian
was used for an advertisement. Countway was a classic "one man band,"
whose skills in marketing were not matched by much interest in organization
building. He never gave much thought to succession, but he liked
Luckman. 22 This proved a misjudgment. With his appointment by President
Truman to head a food program in Europe at the same time, Luckman
became preoccupied with matters outside Lever for a significant portion of his
term, though perhaps not to a sufficient degree. Convinced that Lever's
management was too old and inbred, he dismissed about 15 percent of the
work force soon after taking office, and he completed the transformation by
moving the head office from Boston to New York, taking only around one-tenth
of the existing executives with him. 23 The head office, constructed in
Cambridge by Lever in 1938, was subsequently acquired by MIT and became
the Sloan Building.
Luckman's move, which was supported by a firm of management consultants,
the Fry Organization of Business Management Experts, was justified on the
grounds that the building in Cambridge was not large enough, that it would be
easier to find the right personnel in New York, and that Lever would benefit by
being closer to the large advertising agencies in the city. 24 There were also
rumors that Luckman, who was Jewish, was uncomfortable with what he
perceived as widespread anti-Semitism in Boston at that time. The cost of
building the New York Park Avenue headquarters, which became established
as a "classic" of the new postwar skyscraper, rose steadily from $3.5 million to
14. Chandler, Scale and Scope, ch. 5; Thomas K. McCraw, American Business, 1920-1980: How It
Worked (Wheeling, Ill., 2000), ch. 3.
15. Wilson, The History of Unilever, vol. 2, 344; Chandler, Scale and Scope, 385-8; Geoffrey Jones,
"Foreign Multinationals and British Industry before 1945," Economic History Review 41, no. 3 (1988):
429-53.
16. "History of Lever Brothers USA, 1912-1952," Unilever Economics and Statistics Department, 18
Dec. 1953, Unilever Historical Archives London (UAL). The archives contain two unpublished draft
chapters on the history of Unilever in the United States (dated January 1990). The author would like to
thank Unilever PLC and N.V. for permission to read this draft, which draws heavily on confidential
interviews with former executives.
17. Kathy Peiss, "On Beauty and the History of Business," in Beauty and Business, ed. Philip
Scranton (New York, 2001),15.
18. Wilson, History of Unilever, vol. 1, 284-7; "History of Lever Brothers USA, 1912-1952," UAL.
19. Memo on Lever Brothers, c.1964, UAL.
20. The classic case study of the launch and marketing of Crisco is by Susan Strasser, Satisfaction
Guaranteed (New York, 1989).
21. McCraw, American Business, 47-8.
22. Special Committee Minutes, 3 Aug. 1944, UAL.
23. Luckman's autobiography presents his case for this episode. See Charles Luckman, Twice in a
Lifetime: From Soap to Skyscrapers (New York, 1988), 202, 230-40.
24. George Fry and Associates, "Report on Relocation of Headquarters," AHK 2117, Unilever
Historical Archives Rotterdam (UAR).
Excerpted with permission from "Control, Performance, and Knowledge Transfers in Large
Multinationals: Unilever in the United States, 1945-1980," in Business History Review, Vol. 76, No. 3,
Fall 2002.