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Unilever Outsourcing

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Business Studies

If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.”

– Lee Kuan Yew, Former Prime Minister of Singapore

In 1930, Unilever was established from the merger of two organisations, Lever Brothers, which was a British manufacturing company, and Dutch Margarine, a Dutch company. From that time onwards, Unilever has expanded into 100 countries globally. It produces a wide range of consumer goods. Unilever has become one of the most adaptable consumer products industries, with P&G as its sole rival. Among many other organisations, Unilever has also outsourced to different regions globally. Let's look at Unilver's outsourcing strategy!

Unilever outsourcing success story

Unilever’s products are sold all over the world. 2.5 billion people buy its products every day. An organisation that launched a single soap brand has emerged as one of the biggest global consumer brands, offering products in beauty & personal care, home care, and food. Here are some statistics that show Unilever's global dominance:

  • A turnover of €51 billion in 2020

  • It has around 400 brands under its umbrella

  • Networking with 25 million retailers

  • There are 90,000 factories globally

  • Global reach in 190 countries

  • 150,000 employees in its workforce worldwide

There are multiple reasons for its success, including innovative strategies and excellent management, to efficient marketing and sustainability. Let's take a look.

Unilever's outsourcing strategy

Outsourcing is the practice of hiring another party outside of the organisation to perform services or produce products that were originally performed within the organisation.

The different types of outsourcing include:

  • Professional outsourcing: contracts are offered to individual specialists to manage multiple small tasks without having to outsource the whole function.

  • IT outsourcing means employing outside service providers to efficiently provide IT-related business processes and infrastructure solutions for organisation outcomes.

  • Manufacturing outsourcing is when the production process is undertaken by another organisation that specialises in manufacturing that product.

  • Process-specific outsourcing is when an organisation contracts a provider for a specialist service that may be niche.

  • Operational outsourcing is when an organisation hires other contractors to handle specialised work operations. This can be for their HR, accounting, data analysis, and administrative functions.

Unilever applies operational outsourcing with Accenture to manage its HR function. Organisations employ outsourcing to lower labour costs which include salaries, equipment and machinery, overheads, and technology. Organisations also use it so that they can concentrate on the core aspects of the organisation and outsource less crucial operations to external parties.

One of the major reasons for outsourcing is cost reduction. Money can be saved by outsourcing because producers who supply the same service to several customers can take advantage of 'economies of scale'. In addition, outsourcing can boost an organisation’s access to a range of experts. Many organisations have insufficient resources when it comes to rapidly changing technologies and systems.

Unilever implements a four-step method to outsourcing:

Prioritise: this is to determine which functions need outsourcing, nonetheless making sure that the areas of strength and major competencies stay within the organisation.

Select: define criteria for selecting a provider and take into account the correspondence between the values and philosophies of the two parties.

Trust: building trust via clear communication between parties.

Monitor: make sure that assessment measures are in place for monitoring the success of the function that is outsourced.

Here is an example of Unilever’s human resource development outsourcing.

Prioritise: Unilever determined that its human resource (HR) function can be partially outsourced, as this would benefit the company.

Select: Unilever outsourced its human resource function to an external provider, Accenture. It may be reasoned that an organisation of the magnitude of Unilever should develop its own economies of scale with an in-house human resource development function. However, the strategy behind this could be to outsource a non-value-adding activity (ie. administration) to an external provider so that the organisation can focus on the core competencies to market and sell its brand.

Trust: Unilever acknowledges that close interaction between the in-house and external HR functions is needed in order to make the collaboration work. Joint employee meetings take place regularly. The measures taken are to develop trust, which is the foundation of a successful outsourcing arrangement.

Monitor: Regarding the assessment measures, there is a detailed structure to oversee the services provided by Accenture at the domestic as well as international levels.

Unilever and Accenture

Organisations today deal with globalisation, quick changes in technology and increasing complications of products/services. Because of this, it is hard for organisations to have in-house expertise. Unilever faced a similar issue as it is tough to enhance competitiveness, deliver distinctive functional excellence, and develop an efficient cost structure. Therefore, it did not have adequate expertise and time to concentrate on administrative activities, which makes it hard to stay competitive.

Organisations usually want to emphasise their core competencies. For this reason, Unilever has outsourced its global HR operations to Accenture.

There are benefits to be gained from outsourcing. It permits the organisation to share not only the fixed cost but also the risks linked to the development of a product or technology, the organisation can concentrate on its main competencies while getting access to corresponding competencies from the company they are outsourcing to. Consequently, the organisation can lower costs and boost revenues from outsourced operations.

Accenture is a worldwide management, consulting, technology services, and outsourcing organisation.

Unilever believed it was best to put all of its efforts into its core competencies, such as product development and acquiring new companies.

Without outsourced HR, it would have to solve the issues internally, which would split its focus. In addition, they would have to use more time to train staff and keep up with technological change.

Besides the advantages, there are also threats associated with an outsourcing relationship like this one. One drawback is that influential customers may exploit suppliers, and at times influence them to reveal classified information. Moreover, the success of the outsourced operation is only possible when cooperation with the supplier is efficient. Other drawbacks include security risks, reduced quality control, loss of control, and communication issues.

Unilever has expanded from developed markets to developing markets. It is using an outsourcing approach to lower the cost of production. It produces brands that fulfil the expectation of its customers through design, taste, nutrition value and hygiene, providing exactly what the customer needs.

Unilever Outsourcing - Key takeaways

  • Unilever was established when two organisations merged, Lever brothers which was a British manufacturing company and Dutch Margarine from Holland.

  • Unilever has grown into 190 countries globally with over 400 brands under its umbrella.

  • Unilever has emerged as one of the biggest global consumer brands, offering products in beauty & personal care, home care, and food.

  • Outsourcing is the practice of hiring an external party to perform services or produce products that were originally performed within the organisation.

  • Organisations employ outsourcing to lower labour costs, which include salaries, equipment and machinery, overhead, and technology.

  • Unilever implements a four-step method to outsourcing: prioritise, select, trust, and monitor.

  • Reasons for outsourcing include globalisation, rapid changes in technologies, and lack of expertise within an organisation.

  • Unilever has outsourced its global HR operations to Accenture.

  • The benefits of outsourcing are that it permits the organisation to share not only the fixed cost and risks linked with the development of the product and technology. The organisation can concentrate more on its main competencies, and get access to corresponding competencies.

  • The drawbacks of outsourcing are that influential customers exploit suppliers and at times influence them to reveal classified information. Lack of coordination can have detrimental effects.


Sources:

Emerald, https://www.emerald.com/insight/content/doi/10.1108/09670730910929369/full/pdf

Cascade, https://www.cascade.app/strategy-factory/studies/unilever-from-soap-manufacturer-to-multinational-giant

Accenture, https://www.accenture.com/_acnmedia/accenture/conversion-assets/dotcom/documents/local/ja-jp/pdf_2/accenture-cgs-unilever-sirius-final.pdf

Unilever Outsourcing

Unilever had many outsourcing contracts over the last decade with distinctive suppliers, for instance, IBM, HP, BT, and Accenture.

Unilever has a distinctive competitive advantage in comparison to its close rival, Proctor and Gamble due to its flexibility in pricing and specialization in distribution channels that helps it to reach every part of the globe.

  • Professional outsourcing
  • IT outsourcing
  • Manufacturing outsourcing
  • Process outsourcing
  • Operational outsourcing

Unilever uses outsourcing as part of its growth strategy. Unilever has expanded from developed markets to developing markets as part of its growth strategy. It is using an outsourcing approach to lower the cost of production, thereby allowing for efficient growth.

Outsourcing permits the organisation to share not only the fixed cost but also the risks linked to the development of a product or technology, meaning the organisation can concentrate on its main competencies while getting access to corresponding competencies from the company they are outsourcing to. Consequently, the organisation can lower costs and boost revenues from outsourced operations.


On the other hand, the success of the outsourced operation is only possible when cooperation with the supplier is efficient. Other drawbacks include security risks, reduced quality control, loss of control, and communication issues.

Final Unilever Outsourcing Quiz

Question

Was Unilever a merger?


Show answer

Answer

Unilever was established due to a merger of two organisations Lever brothers which was a British manufacturing company and Dutch Margarine from Holland.

Show question

Question

Which year did Unilever have a merger?


Show answer

Answer

1930 

Show question

Question

How did Unilever start?


Show answer

Answer

Unilever was launched with one soap brand initially has emerged as one of the biggest global consumer brands, offering products in beauty & personal care, home care, and food.

Show question

Question

Define outsourcing.


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Answer

Outsourcing is the practice to hire another party out of the organisation to perform services or produce products that were originally performed within the organisation.

Show question

Question

Why do organisations outsource?


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Answer

Organisations employ outsourcing to lower labor costs which include salaries, equipment and machinery, overhead, and technology. Organisations can also focus more on their core competencies instead of administrative functions.

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Question

What are the main elements of outsourcing?


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Answer

Usually cost, capacity and competencies are the key components that provide the drive.

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Question

What benefit did Unilever have from outsourcing?


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Answer

One of the benefits was that outsourcing boosted Unilever’s access to a variety of experts. Many organisations are deficient in internal resources to be ahead of rapidly changing technologies and legal systems. Hence, Unilever outsourced its administrative operations.

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Question

Who is Unilever’s outsourcing partner?


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Answer

Its global human resource function is managed by Accenture.

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Question

What does Accenture do?


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Answer

Accenture is a worldwide management, consulting, technology services, and outsourcing organisation.

Show question

Question

Which Unilever’s operations does Accenture deal with?


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Answer

Human resource function

Show question

Question

What is Unilever’s method to outsource?


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Answer

It has a four-step method: prioritize, select, trust, and monitor.

Show question

Question

How many brands does Unilever have?


Show answer

Answer

It has around 400 brands under its umbrella.

Show question

Question

What are the benefits of outsourcing?


Show answer

Answer

The benefits of outsourcing are that it permits the organisation to share not only the fixed cost and risks linked with the development of the product and technology. The organization can concentrate more on its main competencies, and get access to corresponding competencies.

Show question

Question

What are the drawbacks of outsourcing?


Show answer

Answer

The drawbacks of outsourcing are that influential customers exploit suppliers and at times influence them to reveal classified information regarding their costs. Lack of coordination can have detrimental effects. Other drawbacks include security risks, reduced quality control, loss of control, communication issues, etc. 

Show question

Question

 In how many countries does Unilever operate?


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Answer

It has a global reach in 190 countries.

Show question

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