Unilever's Simplified Structure11 May 2010
Restructuring a multinational and installing a new enterprise resource planning system while outsourcing its transactional finance is a big ask, but one company did just that. Christian Kaufmann, Unilever’s European managing director of finance business services, reveals the steps taken by the company.
The rebuild operation, branded ‘One Unilever’, began in 2005. "It sounds relatively simple as a phrase," says Kaufmann, "But at the time, in every single country we operated in, there were three separate businesses with three separate boards and three head offices. But also underneath all that we had different transaction systems and different customisation across the European region."
When One Unilever was completed in 2009, there was a single company, board and head office for each country and €1bn of costs had been driven out of the business. In addition, the company had moved to a single SAP system, transformed its human resources, established a single supply chain organisation and outsourced its transactional finance to IBM in North American and Europe and to Capgemini in South America, Asia and Africa.
"Each transformation programme on its own would classify as a big change but putting them all together in one set was a big challenge for us. And I am pleased to say that it has really worked well. But in the finance area, there were not only some very long days but some very long weeks as well," reflects Kaufmann.
Unilever reversed the way it had piloted past changes. Instead of starting with a small test operation it chose the UK, one of its biggest European markets, to begin the transformation. This worked, says Kaufmann, because it demonstrated what was trying to be achieved to the rest of the organisation.
There was inevitably some resistance. "In the finance organisation, we changed quite a lot in terms of the ways we worked, which had been embedded in our genes for years. So obviously there was resistance but what helped us through was strong commitment from the top. I know I may sound like a consultancy book but that really was what we had. We started from the top and had endorsements from all the senior levels. This helped us in all individual business units, so there was no talk around the coffee machine that gave the new project a sudden death."
During the One Unilever exercise, Kaufmann says it was decided not to establish in-house shared service centres (SSCs) in Europe. Capgemini had already acquired Unilever’s Indian and South American (SSCs). In deciding to go again for outsourcing, Unilever was determined to get the structure of the deal right from the outset. It wanted a collaborative relationship with its BPO provider, governed by clear structures and processes. "If you don’t build in flexibility with regular strategic as well as operational meetings, then you will only get the services that have been specified," warns Kaufmann. "Our twice yearly strategic meetings with a BPO provider enable us to look beyond the imminent performance to see where we can take the relationship further. Even if things are going well we resist the temptation to cancel the strategy meeting, because it has to be a living, breathing part of the collaborative process."
Early on in the drafting of the RFP, it was appreciated that securing the business could not be based simply on service level agreements. "It is no good thinking that if something goes wrong, the provider will have to pay up so you are protected. The fact is the problem has occurred and you are not happy. So we have moved relatively quickly from having measures that secure the business to measures that focus much more on the operations and the processes involved.
"The big lesson for me" explains Kaufmann, "Was that you cannot secure the business simply through measurements. You have to manage the relationship, not simply the contract. If both sides are not committed to the relationship then it is a lost case."
He adds: "We have a long-term joint vision and this is founded on both cost reduction and service improvement. I know it is difficult to get this win-win balance between a client and a provider – one side wants to improve margin and the other side costs and so on – but at the end of the day it is also about the effectiveness of the processes and that turns into service improvement."
Kaufmann insists, however, that it is crucial that a business that has outsourced its transactional finance needs to retain process knowledge in-house. "You cannot outsource ownership. You do need to have someone who knows how to run a purchase to pay department, how to run general accounting, how to do cash collections."
One of the many impacts of the BPO has been on supplier financing where Unilever works with Banco Santander. "It has given both us and our suppliers much-needed flexibility, which could not have happened if we had not gone through the pain or let’s say, the extraordinary journey that we had in terms of transforming and harmonising the accounts payable process. This enables us to manage our own cash position and offer opportunities to our suppliers as well."
Clearing the recession
The visibility that the combined One Unilever and BPO has given the business also came in time to help steer a clearer course during the recession, says Kaufmann.
"Managing cash and working capital is a priority and reducing internal costs through our outsourcing relationship is clearly important. But it is even more critical that we leverage the benefits of the improved information and visibility that comes with the harmonised processes that we have, so we can manage the cash flow in an active and intelligent manner. This applies to both ends of the equation, to AR and AP. It means that you can see far more clearly what is important and where you should focus.
"You basically shorten the reporting lines, focus the energy and take duplication out of the business, but what they amount to is that you just make a very big organisation much slicker and more agile. And that, of course, has an impact on the culture."
Unilever calls its KPIs operational excellence measures. Kaufmann insists that to turn data into effective information, it is necessary to focus on a few key metrics.
"We try to avoid having people overwhelmed with information and not knowing where to get involved and where to make the correction. My key principle here is that the ability to simplify means eliminating the unnecessary so that the necessary may speak."