Unilever makes all the right moves, again

Unilever makes all the right moves, again

Unilever leverages lessons learned in last decade to reclaim title as innovation leader

Background

It is well known that many new companies are reliant on innovation to compete with larger competitors. However, it is also true that in this day in age, with quicker technological and product cycles, some of the world’s largest companies find their portfolio of older products aren’t enough to stay competitive, and are just as reliant on new product development – as is the case for Unilever.

Unilever has a long tradition of innovation. Originally founded in 1929 as a margarine company, it grew rapidly with the market for consumer products after WWI, adding detergents, ice cream and toothpaste to its product mix. By the 1950’s Unilever was one of the world’s largest consumer businesses and also among the largest corporate spenders on research. It had built an international reputation for excellence. ⁽¹⁾

However, new product development at Unilever began to stagnate. Critics argued Unilever encouraged ‘defensive’ research that focused on protecting existing brands.⁽¹⁾ One analyst stated “A culture of caution meant that innovation tended to be incremental… radical innovations remained unlikely.” ⁽¹⁾ A McKinsey report called Achieving Significant Innovation” came out in 1972 and stated that “despite a level of spending which matched its competitors,” Unilever “was not a consistent leader in significant innovation.” ⁽¹⁾ In fact, Unilever’s new product development faced a major disaster in the 1970’s when it invested heavily in longer life yogurt – which failed in the marketplace and was quickly abandoned. ⁽¹⁾

Unilever management recognized this growing problem and began the process of revamping its new product development efforts in 1990, a process it calls the “modern innovation journey.” ⁽²⁾ The objectives were to allow the company to make big, bold innovations fast and to make sure these innovations were consumer focused (to make sure a mistake like longer life yogurt didn’t happen again.) Unilever announced a key new executive – the Global Head of Innovation Process Development. The man chosen for the job was Mehmood Khan, a 17-year veteran of Unilever based in London who had worked in Unilever’s businesses in Singapore and Holland. (Author’s note - Mehmood Khan also happens to be a family friend and a contributor to this profile).

Successful New Product Development Model

Unilever found success in its new model across the product development process stages, most notably in improvements in opportunity identification and launching. Perhaps the best example of the improvements in the process was the development of a new laundry detergent formula that allowed for more concentration and less packaging fitting the needs of today’s eco-friendly and mobile customers (it is marketed as the “all” brand in the States). Here is an outline of key characteristics of the improved process:

Opportunity Identification and Idea Generation – Unilever highly leveraged its partnerships with retailers for customer feedback. Most noticeably it engaged Walmart as a partner in understanding consumers – it found that customers had shifted their behavior to moving their detergent around or outside the house a lot more and were beginning to become sensitive to the negative environmental effects of packaging. Just as important as receiving the feedback for Unilever was the fact that Walmart became an engaged partner in the new product development process and that relationship would be leveraged later on in testing and launching.

Design – Unilever developed 21 centers of excellence with specialized capabilities for each of its products. By spreading out these centers globally, Unilever is able to capture the best expertise available in the world and have a pulse on research around the globe. These centers were able to produce a product with “smaller packaging mean[ing] each bottle uses 55% less plastic, enabling retailers to stock three times the number of bottles in the same space, saving on labor and out-of-stock costs. And the smaller bottle means Unilever can transport three times as much product in every truck, saving 26 million gallons of diesel each year.” ⁽³⁾

In this case, Unilever created a new formula for more concentrated detergent to allow for less packaging, providing real environmental benefit rather than the flawed strategy of re-positioning existing products (essentially duping the customer).

Testing and Launch – With the help of Walmart, Unilever was able to avoid a pitfall through its testing that was critical. In the 1990’s many companies came out with eco-friendly products only to see that consumers were not ready to make purchases based on environmental factors. Unilever held off on launching its product for years – this timing was essential. When it looked like the opportunity was ripe (in a way only a retailer with tons of data like Walmart would know), key executives at Walmart reached out to Unilever, and the launch of the concentrated detergent product was a “phenomenal success.” ⁽⁴⁾

Lessons for the Future

Once an all mighty innovator, Unilever has clearly had many challenges through the years in successfully bringing products to market. Its new model, however, shows promise in providing meaningful benefit and being able to bring about innovative commercial successes that require little consumer behavior change but provide drastically improved results.

However, continued organizational restructuring may allow for even more beneficial product development. Many NPD experts suggest that real innovation requires small and nimble groups with autonomy from large organization. Unilever has attempted to provide its product development groups with added autonomy but has been unsuccessful – many shut down or are spun off, most notably its clear blue pregnancy test unit, one of its fastest growing and most innovative groups. ⁽¹⁾ If Unilever were able to organizationally create a less constrained culture and allocate resources for smaller fast growing brands, it is likely to have more success in building new businesses.

Summary

Companies, new and old, need to innovate to stay alive. Unilever, as a consumer products powerhouse, looked to its strengths in retail partnerships and strong technical expertise to help it recapture its position as a top global innovator. When these strengths are leveraged with strong new product development practices, they have proven to be successful at launching new products embraced by the consumers.

References

1. Jones, Geoffrey and Kraft, Allison. Corporate Venturing: The Origins of Unilever’s Pregnancy Test.” Havard Business School Review. Business History, Vol.46, No.1 (January 2004), pp.100–122.

2. Khan, Mehmood. “A Holistic Approach to Innovation.” Unilever Powerpoint.

3. Capell, Kerry. “Walmart, P&G, Unilever learn from their mistakes.” Business Week. 12/29/2008.

4. Khan, Mehmood. Interview. 11/18/2009.

Author's Note: Happy Early Thanksgiving!

Raj Bhandari

Section 2