Analysis of Unilever’s Risks and Risk Management Strategies
With the speedy improvement of recent economic system, firms are at all times exposed to risks which are penetrating to all walks of life and never only exist in the products market, but in addition exist in monetary market (Ballou, 2005). It is undoubtedly that dangers jeopardize the company’s growth in that they could improve the value of a company’s operation and make it tougher for an organization to make an important decision. Accordingly, it is important to know risks and find out threat management strategies.
This essay will firstly map out Unilever’s enterprise mannequin and have a brief evaluation on it. Following this, it will illustrate particularly risks Unilever is exposed to in light of the enterprise model. Meanwhile, it’s going to level out some dangers Unilever has not managing sufficient. Next, the essay will assess some danger management strategies Unilever has taken to mitigate or keep away from the risks. Finally, it will suggest the company some more danger management strategies to be able to assist it mitigate or prevent dangers.
Analysis of Unilever’s Business Model
A business model, strictly speaking, is the organization’s core logic for creating worth (Jane & Susan, 2000). After over 80 years’ development, Unilever has turn into one of the largest suppliers of client products on the earth. Its robust portfolio of foods, home and personal care manufacturers is trusted by consumers the world over. Unilever’s prime thirteen brands account for complete gross sales of over EUR23 billion and top 25 brands represent nearly 75% of the gross sales (Unilever Annual Report, 2009). Unilever is a well-operated company, and its business model is mapped out as follows: Key Partners
Produce progressive and good-quality personal and household care goods for consumers and attempt to make people feel good and comfy every single day; Produce and promote nutritious foods, such as tea, ice cream, dressing to individuals and to make them get pleasure from a better life.
Deliver items to customers via varied channels
Huge phase of customers
Customers all round the world
Production Sites & Lines
Intellectual Property, Embracing Diversity
Research cost, design price, manufacturing price, provide and sale cost, advertising and promotional spend, management value Revenue Structure Sales of the buyer goods the corporate researches, designs and produces.
Analysis of the Business Model
The business model mapped out above signifies that a multi-national enterprise like Unilever has an built-in and inseparable enterprise chain which is global on the one hand, and multi-level on the other hand, that is, its economic actions involve employees, suppliers, producers, storage, terminal markets, retailers, clients and other beneficiaries (Ian, 2009). Such business model permits Unilever to turn into a world high supplier of shopper merchandise. However, each coin has two sides. Since the Unilever’s business chain connects each other so carefully and pertains to quite a few parties and factors, thus the company’s entire operation is somewhat weak and is easily topic to numerous risks.
Risks Exposed to Unilever in light of the Business Model
As a prime provider of shopper products, Unilever’s business activities are operated within a global, vigorous and aggressive market. Its enterprise growth is topic to the situation and change of the whole market. Firstly, financial situation plays an important role on the development of Unilever’s business as consumption demand and purchase ability of consumers immediately influence the sale of the products. 2008 and 2009 had been comparatively tough years for Unilever due to the world economic crisis (Unilever Annual Report, 2009).
The financial downturn reduces consumers’ wealth and makes them unable to buy as many merchandise as before. Meanwhile, prospects purchasing capability was greatly undermined and turned to buy these cheap but substantial products quite than these top-grade merchandise. Customers’ reactions have an result on Unilever’s turnover, profit and money move. Next, more and more firms are targeting the market of client items due to the attraction of billions of customers. Thus, the market of consumer items is instead like a piece of pie and is shared by more and more competitors. Therefore, the whole market is uncertain and Unilever needs to be nicely prepared for the struggle in opposition to the financial uncertainties and the commercial fierce competition.
The interest rate risk is a danger delivered to the value or the money move or profitability of a company when the change of the rate of interest happens. To make clear it more particularly, the floating rate of interest exposes the corporate to the risk of the elevated interest value and the elevated borrowing afterwards; while the mounted interest rate makes the corporate subject to the risk of the lack of the truthful value.
Meanwhile, as a multinational firm whose enterprise activities are operated in additional than a hundred and eighty nations, Unilever is uncovered to the danger of the fluctuation of the trade price through the process of the change of currencies and the precise worth of the forex may be decreased because of such fluctuation (Unilever Annual Report, 2009). Provided that Unilever doesn’t handle the difficulty of rate of interest and change rate properly, the corporate may be topic to the publicity of the reduction of cash flow, turnover, earnings which may subsequently adversely influence the company’s credit rating, capability to boost funds and confidence of traders.
As a top producer of consumer items, some waste water is generated for disposal and the company also discharges some CO2 from vitality that the company uses in the strategy of the production (Unilever Annual Report, 2009). In case the stated issues are not dealt with appropriately, the setting will probably be polluted.
One of the Unilever factories in Brazil discharged a great deal of stink smell to the air due to the false operation in 2008 which impacted upon greater than a hundred thousand people’s normal life and Unilever was imposed a fantastic of 10 million Brazilian Real by the Brazilian authorities as a result of such pollution (Unilever Annual Report, 2009). Similar accidents will significantly damage the popularity of the corporate as not solely the government but additionally frequent people’s awareness of environmental safety has been greatly improved nowadays. Accordingly, Unilever is exposed to the environmental danger which may end result within the heavy fine and adverse popularity.
Loss of Customers
Unilever’s extraordinary achievement obtained these days is on the one hand due to the superior merchandise it provides and on the other hand is inseparable to the customers’ sufficient trust of the corporate and its manufacturers. However, the following three factors might undermine customers’ trust to the corporate and its brands： a. Products fail to meet high product safety standards. Quality inspectors in every state have set many requirements and are doing lots of inspection work to make sure the security of merchandise offered available in the market.
In case the product is found insecure or with any shortcomings, clients will feel disappointed; b. Lack of latest products and technical functionality. Customers have quite high necessities on merchandise. Lack of latest merchandise and technical capability will push customers to different supplier of similar client items; c. The service and product provided by the aggressive company is better than Unilever. Loss of customers’ belief may be attributable to a quantity of causes, whereas the result’s merely the loss of the company’s money flow and the harm of the company’s development and profitability.
Each step of Unilever’s business activity is separable to one another (Unilever Annual Report, 2009). For example, the company’s manufacturing of products is conditioned by the well timed and safe provide of the raw-material, while the successful sale of goods needs effective storage and distribution functionality. However, the availability of the company’s raw materials, largely agriculture products, is based on the secure and sufficient agricultural manufacturing which can be influenced by weather, water scarcity, and farming practices. Similarly, the storage and distribution of products is normally influenced by the storage and distribution functionality, the worth of it and the native social stability. Any problem of the foregoing may badly influence Unilever’s normal production and sale and subsequent cash move, turnover, and profit and other enterprise indexes.
Risk of Employees and Talents
Unilever is a company with more than 300 operation businesses in 88 international locations, more than one thousand well-known manufacturers and sells its products in more than a hundred and fifty nations. Thus the successful operation of the corporate not only is dependent upon the superior products, but additionally needs appropriately qualified employees. In the event that the corporate suffers high employment turnover rate, it might be uncovered to the danger of excessive value of coaching, suspended market share and loss of some investment opportunities which can influence the graceful improvement of the company and undermine the company’s functionality of competitiveness out there.
Unilever is doing business in more than a hundred and fifty international locations. Different country has very completely different legal system and laws in regards to the employment, the product security, the pricing, the intellectual property rights, the disclosure, the surroundings and other elements (Ian, 2009). Legal danger might in all probability convey a swimsuit to the corporate and can do harm to the company’s popularity in local market.
Other Risks exposed to however not identified or Elaborated by Unilever Unilever has discovered and elaborated some dangers uncovered to the corporate; however, there are some dangers which have not aroused Unilever’s nice attention:
Risk of New products Exploitation
In order to confront the industrial competition, Unilever wants to exploit frequently new products to draw customers and consolidate the connection with prospects. The exploitation of a model new product basically involves following steps: design, analysis, choice of the scheme, the involvement and allocation of the resources, the production and promotion of the merchandise. However, there are some uncertain factors present within the course of of new products exploitation, similar to know-how, market, fund and surroundings and each uncertain issue may lead to the unsuccessful exploitation, loss of price or unfavorable popularity to the company (Michel, 2001).
A company is unavoidably exposed to some pure disasters or accidents (Jane, 2000), corresponding to hearth, windstorm or earthquake which will trigger the property damage or employees’ physique injury. Such injury or injury will cause the company’s regular operation affected and subsequently, turnover, cash circulate and profitability might be impacted.
The company can additionally be uncovered to different dangers corresponding to fiscal, tax and so on.
Interaction of Risk Factors
Economic Downturn ← → Market Uncertainties ↙↗ ↓↑
Risk of New Product Exploitation← → Financial Instability ↓↑ ↖↘ ↓↑
Legal Risk ← → Loss of Customers
↓↑ ↙↗ ↓↑
Risk of Employees and Talents ← → Operation Risk All dangers illustrated above don’t exist independently however quite affect interactively (Geert, 2008). The economic downturn will result in the monetary instability which may cause the corporate to function adversely and the next poor operation may cause the company to face extra fierce industrial competitors and environmental threat. The said issues are straightforward to lead to the loss of workers and talents which can also subsequently lead to poor operation and vice versa. To sum up, the factors perform with one another and the company has to take some effective and holistic measures to defend these dangers.
Assessment of Unilever’s Risk Management Strategies Unilever has recognized that most of the risks exposed to it could become material obstacles to the company’s additional growth. Accordingly, it has tried to taken some efficient and structured measures to establish after which exploit the key danger management strategies for the enterprise (Michael, 2007). The specific risk administration methods it has exploited are as follows:
1. Unilever has been rigorously monitoring financial indicators and shopper habits in several areas by way of intensive and skilled research in order to reply shortly and take new and flexible measures to satisfy the changing demand of customers.
2. In order to take care of the difficulty of economic instability, the corporate has been making efforts to get access to world debt markets through various methods such as short-term or long-term debt applications. Unilever attaches great importance to the fluctuation of rate of interest, attempting to have various sorts of financial providers and steadiness the risks between floating and fixed price curiosity after an expert prediction and assessment of the rate of interest; Regarding to the international change rate, Unilever sets a coverage which limits the working companies’ monetary international exchange exposures so as to attenuate such danger. three. Unilever has made a series of standards and policies for the procedure of design, manufacture, and distribution of merchandise to ensure the excessive requirements of products’ quality.
Unilever additionally has a “Sustainable Development Group” which is comprised of five exterior specialists, participating in the company’s development of the technique. Unilever also has specific policy concerning products recall in case there’s merchandise quality incident. four.Unilever has set complete and effective contingency measures and system to ensure the material provide or to share the production task between different manufacturing websites or to make use of substitute materials in case of the shortage of the material. The firm also calculates the worth of transportation and distribution from time to time and to adjust the policy and service promptly to optimize the cost. These measures allow the company to function properly. 5. Unilever must discover a method to entice, develop, train and retain certified workers.
The company has an admiring human resource system. It has established Resource Committees to identify employees’ ability and functionality, outline employees’ career paths. It also provides quite a few alternatives for workers to enhance their abilities, management talents by way of training and coaching. Meanwhile, Unilever shall take measures to boost employee’s danger administration capacity. Ballou and Heiger (2005) suggest “shifting the employee’s attitudes about threat management to incorporate monitoring, measuring, and controlling sure risks whereas sharing, avoiding, and accepting that other dangers won’t happen successfully in a short interval of time”.
6. Unilever has set insurance policies to verify employees comply with insurance policies and abide by local legal guidelines and rules in all relevant elements regarding its enterprise and actions. Regarding those crucial points and activities, the prior authorized verify and consent are wanted in the company. In a word, Unilever has been making great efforts to construct effective, cheap and practicable strategies for risk management. The boards have total responsibility for Unilever’s risk management and the corporate has a Code of Business Principles which stipulates the requirements of business operation and requires staff to abide by the code. The above strategies allow Unilever to function its enterprise properly in the global market.
New Risks Exposed to Unilever and Recommended Risk Management Strategies Besides threat administration methods talked about above, the author will advocate some extra methods for Unilever and attempt to give it some ideas on
higher monitor and manage its risks.
Transfer and Divert Risks
In order to avoid the damages and losses brought by such risks to the event of the company, Unilever may choose to transfer risks by making use of for insurance. Modern insurance system is the idealist method to transfer risks (Mike, 2006). For example, Unilever could switch the dangers of property, employers’ legal responsibility and enterprise interruption by applying for the insurance coverage of Property All Risks, Employer’s Liability and Business Interruption so as to switch dangers to the insurance coverage firm.
Establish an Effective Control System
Risk administration isn’t only to ascertain a threat administration for business process, extra importantly, the company shall set up a complete and effective risk administration control system to verify the effective implementation of the chance management technique. The firm can establish a Risk Management Committee in the head workplace and shall be instantly answerable for the board of administrators. “The board needs to be consulted on issues of risk management and it wants to be able to give guidance to the danger administration committee in its deliberations. To do this effectively the board wants to make sure the whole company is engaged in managing threat, thereby making it an intrinsic a half of the corporate culture”.
(Corporate Governance: An International Review, 2009, 546-558). The operate of the Risk Management Committee is to implement the risk management, to be particularly responsible for the risk supervision of the entire company and to make unified threat administration policy and procedure; every department of the company shall set up an unbiased threat supervisor, liable for the danger administration and to report the matter of danger to Risk Management Committee with out consent of the native manager.
Establish a Database of Risk Accidents
Database of danger accidents is a tool to effectively predict and assess the chance. The data in the database shall embrace each inner and external information regarding threat accidents. “ We can try to estimate how unhealthy this problem is by trying at the historical severity of these occasions in relation to any
risk components that we outline after which analyzing the prevalence of these threat factors”(Michel, Dan and Robert, 2001). Through correct analysis of such data, the company will study a lesson and contemplate its threat administration coverage and process in order to evaluate whether or not the company will forestall the occurrence of the risk accident and the method to take precautious measures to avoid the occurrence of similar accidents.
In conclusion, dangers exist in the whole means of business operation, any company shall attach great significance to the chance administration to successfully predict and keep away from the risk. Unilever is an organization which has properly acknowledged its main dangers and brought effective danger management methods. Research on risk and threat management technique is an extended journey and want all workers of the company to make effort and abide by the coverage and standards to watch and manage dangers proactively.
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