KEY FORCES, KEY PLAYERS
========================
There are actors and forces on both sides, Unilever and at Procter & Gamble.
The ones cited in the case history are:
Niall Fitzgerland, global coordinator of detergents
Ead Artzt, P&G chairman
Nabil Sakkab, P&G head of laundry development
However, both sides were making an important strategic gamble, so
managers in ALL of the departments of both companies were involved:
? senior management. According to Chemistry in Action in its
synopsis of this product launch, 3 new plants were built by Unilever,
adding capital costs to the ?100 million spent on launching and
marketing the product. Those decisions get made at the top of a
company ? involving even the Unilever board of directors.
Chemistry in Action
"Soap Makers Fight Dirty"
http://www.ul.ie/~childsp/CinA/Issue45/detergent_giants.htm
? financial management
? product development
? marketing & public relations
And it?s important to recognize that there?s an external world of
stakeholders that are particularly important in this case. They
include the consumer associations in each country that would be
important in evaluating the Power detergent; suppliers such as
Monsanto and Ciba-Geigy that could have provided key technical
insights for Unilever management; business and consumer media;
retailers; washing machine manufacturers and even competitors such as
Henkel or Dial.
The single key force in this case is the highly competitive nature of
the laundry soap business, with Procter & Gamble, Unilever, Henkel,
Reckett Benckisier PLC and Dial all competing in European markets for
a market estimated to be ?6 billion. Even in the early 1990s,
security analysts expected consolidation in this business, with only 2
or three vendors remaining profitable. And the expected entry of Kao
Corporation, the dominant detergent maker in Japan, would only make it
more competitive, putting more pressure on each company.
The financial forces of this capital-intensive business, which also
requires significant marketing spending to stay visible, caused
Unilever to make several mistakes, which we?ll treat later.
But the key forces in impeding Unilever?s ability to serve customers were:
? financial pressure to get a product to market and improve market share
? unwillingness of Fitzgerald and other managers to test adequately.
Unbiased tests would later reveal exactly what Unilever?s internal
organization should have red-flagged, at the very least.
? ignoring consumer test organizations as important factors in the market
? ignoring gracious signals from a competitor
? failing to consult properly with raw materials suppliers who might
have provided independent assessments
CRITICAL FACTORS
===================
On one hand, Unilever?s "damn the torpedoes, full speed ahead"
attitude directly set up this disaster, costing the company ?57
million, according to their admission in February, 1995. Niall
Fitzgerald, at the center of the product development efforts, is
clearly the one person most-responsible for the debacle ? even if he
later was promoted to chairman of the company.
But to blame the failed product introduction on pigheadedness misses
the underlying cause: the financial and market pressure to succeed.
As the case notes, ?300 million had been invested -- one-third in
development and two-thirds in the launch and marketing. According to
Chemistry in Action, Unilever sat at 32.6% market share in the U.K.,
ahead of Henkel at 25% but substantially behind Procter & Gamble's
50.6% share. Knowing that market share leads to increased
profitability and with hundreds of millions of Euros invested, the
pressure would be tremendous on every department within Unilever to
get the product to market. The scope of a factory and development
budget topping 1100 million Euros would have depressed company
earnings, simply because of the financing costs of an investment that
size. And all that pressure would cause management to ignore caution
signals -- or suppress the ones that they were receiving.
But, as the case notes, it took a tough competitor in Procter & Gamble
to force Unilever's hand by aggressively attacking a defective
product. Absent P&G?s aggressive attack, Unilever might never have
faced up to the public scrutiny that resulted in British headlines
reading: "It?s Official! Persil Can Rot Your Knickers."
Forbes Magazine
"A Giant Rewakens" (Orr, Jan. 25, 1999)
Nabil Sakkab, Procter & Gamble's development chief, recognized the
mistake in using the manganese catalyst. It was communicated to an
involved P&G chairman. Even while informing Unilever that it was
making a serious product mistake, P&G Chairman Artzt mobilized his
entire company (and a European public relations firm too) to get the
technical message to the press, washing machine companies and consumer
organizations. It shows a company integrated in its response to a
competitive situation, while Unilever?s management seems to have taken
no clear responsibility in this case. One has to ask: how thorough
was the board of directors review of this investment, which Chemistry
in Action says totaled 500 million Euros?
Fitzgerald?s own attitude is cavalier in the 1999 Forbes Magazine
article, not indicating that Unilever?s decision process had been
altered in any way by the failed product introduction. "We were
trying to become more entrepreneurial, take more risks. If I walked
out after my first failure, everyone else at Unilever would say, 'This
business doesn?t tolerate risk-taking. Remember what happened to
Fitzgerald?'" But in this instance Fitzgerald is confusing gambling
with good process.
Even if Unilever management didn?t trust the warning that it received
from P&G management, it had other resources who might have confirmed
the dangers of the product containing manganese. There?s a strong
chances that there were managers within Unilever who knew precisely
why P&G had withdrawn its own manganese-based product 10 years
earlier, had their opinions been valued. There would have been
consultants and raw materials suppliers like Ceiba-Geigy and Monsanto
who would have known the harm manganese could cause.
Note that Fitzgerald?s lesson is that "marketing" failed. His
response, as Forbes notes, is to require closer contacts with
customers, including having new recruits in India spend 6 weeks living
in small villages so that they "understand who our consumers are."
Yet the failure here had nothing to do with marketing: Power/Persil
was flawed technically. The failure was one of either poor technical
evaluation -- or more likely a failure in decision processes within
Unilever.
A business intelligence company in the U.K., Aware Competitive
Business Intelligence, even says in a case history on its website that
"an ex-Unilever and P&G marketer confirms the lack of secrecy between
the rivals' R&D departments. 'The way they do research is very
similar, so they frequently come to the same conclusions at the same
time,' he says. 'If one gets a new product to market first, the other
usually has the same thing in the pipeline and can rush it out
quickly.'"
Aware: Competitive Business Intelligence
"Behind Enemy Lines," (Curtis, May 24, 2001)
http://www.marketing-intelligence.co.uk/press/marketing-may2001.htm
UNILEVER'S FINAL DECISION
=========================
Unilever's decision-making in this case isn't very transparent, not
even after-the-fact.
Nonetheless, Prof. Don Wagner indicates that Unilever's actions were
taken only after taking a repetitive beating in the market. Wagner
uses the Michael Porter/5 Forces model in this analysis to show an
industry with a degree of rivalry -- and one where each successive
beating in the market taken by Uniliver actually INCREASED the
distrust between the 2 companies:
University of Prince Edward Island
"Business Strategy Lecture" (Wagner, undated)
http://www.upei.ca/~dwagner/b491LN04.pdf
And it took successive beatings to get the message across to Unilever management:
? a court case involving product slander
? multiple press conferences by both sides
? studies by English and Swedish consumer agencies showing the attack
of the detergent on fabric
The critical actor from the Procter & Gamble side was the company's
chairman, Ed Artzt. A less determined manager would have shrunk from
the direct attack on a competitive product, particularly in the
European markets. The Federal Trade Commission in the U.S. encourages
vigorous competitive advertising, believing that it's a consumer
benefit:
FTC
FTC Policy Statement on Deception" (Oct. 10, 1983)
http://www.ftc.gov/bcp/policystmt/ad-decept.htm
But before Artzt began to put all of his company's resources in
motion, he'd surely have known that European laws restrict direct
competitive claims much more than U.S. law, inasmuch almost every
meeting with advertising agencies in Europe cover this topic -- and
that he'd like face a product slander suit.
He made the bold decision to attack the obvious weakness in the
competitive product. And even to persist in getting information from
test institutes into the hands of the media and continuing attack ads
after the June, 1994 out-of-court settlement.
P&G MOTIVES
============
Procter & Gamble's responsibilities are to provide a financial return
to its shareholders, while acting within the laws of the countries
where it operates.
We know from Profit in Market Share (PIMS) studies that companies with
the highest market share are the most profitable. The impact is so
strong that often only the leading two companies in a market are
consistently.
University of Nevada at Reno
"A Short Introduction to PIMS" (Prof. Ted Mitchell, undated)
http://bold.coba.unr.edu/769/Week5/316PIMS.pdf
P&G management acted decisively to keep their competitive advantage
and market share. They were rewarded by an increase of over 2% in
market share in the U.K., according to Chemistry in Action.
Artzt allowed a full-scale attack on the competition to take place,
even after enduring a court challenge. Many managers wouldn't have
taken the first bold step, instead allowing a competitor to fail on
their own managers. Even fewer would have continued to attack program
AFTER getting the court settlement.
It might be argued that in the process, P&G came close to breaking
European laws. However, restrictions on competitive advertising might
be attractive in some cultures but they would NOT have served the
consumers in this case.
What's unusual in this case is the warning about the product defect
that P&G management felt that it owed to Unilever. This isn't the
type of activity that one would expect in such a cutthroat market.
And inasmuch as it was unappreciated by Unilever, it's another example
of "no good deed going unpunished."
KEY LESSONS FOR MANAGEMENT
==============================
Starting at the top of the organization, when a company is making a
?300 million bet on a business, it's the responsibility of the board
of directors to have performed their due diligence on the investment.
That would mean reviewing the research, understanding the chemistry,
consulting with suppliers and even hiring technical consultants.
With the failure of such an investment, as happened in early 1995 with
the ?57 million write-off, the board of directors should have done a
detailed post-mortem to determine what failed. There's no indication
in subsequent coverage or in this case that it ever happened, though
Unilever might have done so and considered the information
proprietary.
---
From the standpoint of Unilever line management, the prime lesson is
that the business decision process must be kept open. A skilled "risk
manager" would have seen red flags everywhere in this process:
? withdrawal of a similarly formulated product 10 years early by P&G
? wear data from Unilever's labs
? a verbal warning from a competitor
We don't see other warning signs -- but you can bet that experienced
Unilever personnel knew about P&G's earlier failure but were silenced
under the pressure to get a breakthrough product to market. The lack
of secrecy noted by Aware: Competitive Business Intelligence makes it
a virtual certainty.
---
There's one more lesson for management in this failed product
introduction: use the other "stakeholders" effectively. Unilever
failed to do so by apparently failing to include key materials
suppliers in the pre-launch evaluation. Though each of the suppliers
would have a bias in the formulation of the new detergent, one or
more of them would have known precisely why P&G pulled a similar
formula from the market.
On the Procter & Gamble side, they were astute enough to use consumer
organizations across Europe to conduct tests. They backed them up
with key technical data to point out the weaknesses of the
Persil/Power product.
And P&G didn't stop there: they talked with anyone who would listen,
from retailers to washing machine manufacturers. An excellent example
of pro-active marketing.
PROBLEM AVOIDANCE
====================
New product development is inherently risky. Some estimates run as
high as a 90% failure rate, though there's great debate over what's
"new" and what's a "modification," as well as debates over definition
of success in terms of profitability.
Agile Alliance
"An Exploratory Study of the New Product Development Process"
(Lazarevic, Oct. 2003)
http://www.agilealliance.org/articles/articles/agileOct.pdf
R.G. Cooper and E.J. Kleinschmidt, in their 1987 article in R&D
Management titled "What Makes a New Product Winner: Success Factors at
the Project" level argue that there are 13 key phases the must be
conducted well to increase the probability of success. They are:
1. initial screening
2. preliminary market assessment
3. preliminary technical assessment
4. detailed market research
5. business and financial analysis
6. product development
7. in-house testing
8. customer tests
9. test market
10 trial production
11. pre-commercialization business analysis
12. production start
13. market launch
Unilever's known for having good marketing and commercialization
practices, which is why its hundreds of brands have good market shares
in countries around the world. But in this case, the pressure to get
an innovative cleaning product to market broke down the technical
and/or the consumer evaluation of the product.
That view is reflected in the opinion of a supplier to the soap
industry. Mike Cheeck, marketing manager for home and fabric care at
Ciba Specialty Chemicals, noted in this industry overview that
consumers are cautious, and "this attitude is partly their reaction to
unhappy experiences with new products that don't live up to the
expectations of consumers. The products 'do what the manufacturer says
they will do, but perhaps not to the extent that the consumer expects
of them,' he says."
Chemical & Engineering News
"Soaps & Detergents" (McCoy, Jan. 21, 2002)
http://pubs.acs.org/cen/coverstory/8003/8003soaps.html
---
Other resources for this analysis include the following:
The Economist
"Sud's Law" (Aug. 6, 1994)
Happi.com
"Is Dial A Good Call for Henkel?" (Branna, January, 2004)
http://www.happi.com/current/Jan041.htm
Chemical Market Reporter
"Tech Watch: Ciba's Tinocat Bleaching Catalyst" (Boswell, Jan. 26, 2004)
www.cibasc.com/image.asp?id=9867
Cincinnati Post
May 7, 1998
http://www.cincypost.com/business/1998/pg050798.html
Thomson-Gale Business & Company Resource Center (a fee-based service
available at many public librarie) has a report, "Soap and Other
Detergents" with a particularly good bibliography.
Note that the U.S. government codes for this sector of the industry are:
NAICS 325611
SIC Code 2841
Department of Commerce
"Industrial Outlook, 2000"
http://www.census.gov/prod/2001pubs/statab/sec31.pdf
Google search strategy:
Unilever + P&G + Power + detergent
FTC + "competitive advertising"
PIMS + "market share"
"new product development" + "Booz, Allen"
"new product development" + percentage + success
"industry and trade outlook" + detergents
Best regards,
Omnivorous-GA |
Clarification of Answer by
omnivorous-ga
on
14 May 2004 07:36 PDT
1. KEY FORCES, KEY PLAYERS
============================
There are actors and forces on both sides, Unilever and at Procter & Gamble.
The ones cited in the case history are:
Niall Fitzgerland, global coordinator of detergents
Ead Artzt, P&G chairman
Nabil Sakkab, P&G head of laundry development
However, both sides were making an important strategic gamble, so
managers in ALL of the departments of both companies were involved:
? senior management.
? financial management
? product development
? marketing & public relations
And it?s important to recognize that there?s an external world of
stakeholders that are particularly important in this case. They
include the consumer associations in each country that would be
important in evaluating the Power detergent; suppliers such as
Monsanto and Ciba-Geigy that could have provided key technical
insights for Unilever management; business and consumer media;
retailers; washing machine manufacturers and even competitors such as
Henkel or Dial.
The single key force in this case is the highly competitive nature of
the laundry soap business, with Procter & Gamble, Unilever, Henkel,
Reckett Benckisier PLC and Dial all competing in European markets for
a market estimated to be ?6 billion. Even in the early 1990s,
security analysts expected consolidation in this business, with only 2
or three vendors remaining profitable. And the expected entry of Kao
Corporation, the dominant detergent maker in Japan, would only make it
more competitive, putting more pressure on each company.
The financial forces of this capital-intensive business, which also
requires significant marketing spending to stay visible, caused
Unilever to make several mistakes, which we?ll treat later.
But the key forces in impeding Unilever?s ability to serve customers were:
? financial pressure to get a product to market and improve market share
? unwillingness of Fitzgerald and other managers to test adequately.
Unbiased tests would later reveal exactly what Unilever?s internal
organization should have red-flagged, at the very least.
? ignoring consumer test organizations as important factors in the market
? ignoring gracious signals from a competitor
? failing to consult properly with raw materials suppliers who might
have provided independent assessments
2. CRITICAL FACTORS
=====================
On one hand, Unilever?s "damn the torpedoes, full speed ahead"
attitude directly set up this disaster. Niall
Fitzgerald, at the center of the product development efforts, is
clearly the one person most-responsible for the debacle ? even if he
later was promoted to chairman of the company.
But to blame the failed product introduction on pigheadedness misses
the underlying cause: the financial and market pressure to succeed.
As the case notes, ?300 million had been invested -- one-third in
development and two-thirds in the launch and marketing. Knowing that
market share leads to increased profitability and with hundreds of
millions of Euros invested, the pressure would be tremendous on every
department within Unilever to get the product to market. The scope of
a factory and development budget topping 100 million Euros would have
depressed company earnings, simply because of the financing costs of
an investment that size. And all that pressure would cause management
to ignore caution signals -- or suppress the ones that they were
receiving.
But, as the case notes, it took a tough competitor in Procter & Gamble
to force Unilever's hand by aggressively attacking a defective
product. Absent P&G?s aggressive attack, Unilever might never have
faced up to the public scrutiny that resulted in British headlines
reading: "It?s Official! Persil Can Rot Your Knickers."
Nabil Sakkab, Procter & Gamble's development chief, recognized the
mistake in using the manganese catalyst. It was communicated to an
involved P&G chairman. Even while informing Unilever that it was
making a serious product mistake, P&G Chairman Artzt mobilized his
entire company (and a European public relations firm too) to get the
technical message to the press, washing machine companies and consumer
organizations. It shows a company integrated in its response to a
competitive situation, while Unilever?s management seems to have taken
no clear responsibility in this case. One has to ask: how thorough
was the board of directors review of this investment totalling Euros?
Even if Unilever management didn?t trust the warning that it received
from P&G management, it had other resources who might have confirmed
the dangers of the product containing manganese. There?s a strong
chances that there were managers within Unilever who knew precisely
why P&G had withdrawn its own manganese-based product 10 years
earlier, had their opinions been valued. There would have been
consultants and raw materials suppliers like Ceiba-Geigy and Monsanto
who would have known the harm manganese could cause.
Note that Fitzgerald?s lesson is that "marketing" failed.
Yet the failure here had nothing to do with marketing: Power/Persil
was flawed technically. The failure was one of either poor technical
evaluation -- or more likely a failure in decision processes within
Unilever.
3. UNILEVER'S FINAL DECISION
=============================
Unilever's decision-making in this case isn't very transparent, not
even after-the-fact.
Unilever's actions to withdraw the defective product were
taken only after taking a repetitive beating in the market. This is an
industry with a degree of rivalry -- and one where each successive
beating in the market taken by Unilever actually INCREASED the
distrust between the 2 companies.
And it took successive beatings to get the message across to Unilever management:
? a court case involving product slander
? multiple press conferences by both sides
? studies by English and Swedish consumer agencies showing the attack
of the detergent on fabric
The critical actor from the Procter & Gamble side was the company's
chairman, Ed Artzt. A less determined manager would have shrunk from
the direct attack on a competitive product, particularly in the
European markets. The Federal Trade Commission in the U.S. encourages
vigorous competitive advertising, believing that it's a consumer
benefit, unlike in Europe.
But before Artzt began to put all of his company's resources in
motion, he'd surely have known that European laws restrict direct
competitive claims much more than U.S. law, inasmuch almost every
meeting with advertising agencies in Europe cover this topic -- and
that he'd like face a product slander suit.
He made the bold decision to attack the obvious weakness in the
competitive product. And even to persist in getting information from
test institutes into the hands of the media and continuing attack ads
after the June, 1994 out-of-court settlement.
4. P&G MOTIVES
================
Procter & Gamble's responsibilities are to provide a financial return
to its shareholders, while acting within the laws of the countries
where it operates.
We know from Profit in Market Share (PIMS) studies that companies with
the highest market share are the most profitable. The impact is so
strong that often only the leading two companies in a market are
consistently.
P&G management acted decisively to keep their competitive advantage
and market share. They were rewarded by an increase of over 2% in
market share in the U.K.
Artzt allowed a full-scale attack on the competition to take place,
even after enduring a court challenge. Many managers wouldn't have
taken the first bold step, instead allowing a competitor to fail on
their own managers. Even fewer would have continued to attack program
AFTER getting the court settlement.
It might be argued that in the process, P&G came close to breaking
European laws. However, restrictions on competitive advertising might
be attractive in some cultures but they would NOT have served the
consumers in this case.
What's unusual in this case is the warning about the product defect
that P&G management felt that it owed to Unilever. This isn't the
type of activity that one would expect in such a cutthroat market.
And inasmuch as it was unappreciated by Unilever, it's another example
of "no good deed going unpunished."
5. KEY LESSONS FOR MANAGEMENT
==============================
Starting at the top of the organization, when a company is making a
?300 million bet on a business, it's the responsibility of the board
of directors to have performed their due diligence on the investment.
That would mean reviewing the research, understanding the chemistry,
consulting with suppliers and even hiring technical consultants.
With the failure of such an investment, as happened in early 1995 with
the ?57 million write-off, the board of directors should have done a
detailed post-mortem to determine what failed. There's no indication
in subsequent coverage or in this case that it ever happened, though
Unilever might have done so and considered the information
proprietary.
---
From the standpoint of Unilever line management, the prime lesson is
that the business decision process must be kept open. A skilled "risk
manager" would have seen red flags everywhere in this process:
? withdrawal of a similarly formulated product 10 years early by P&G
? wear data from Unilever's labs
? a verbal warning from a competitor
We don't see other warning signs -- but you can bet that experienced
Unilever personnel knew about P&G's earlier failure but were silenced
under the pressure to get a breakthrough product to market.
---
There's one more lesson for management in this failed product
introduction: use the other "stakeholders" effectively. Unilever
failed to do so by apparently failing to include key materials
suppliers in the pre-launch evaluation. Though each of the suppliers
would have a bias in the formulation of the new detergent, one or
more of them would have known precisely why P&G pulled a similar
formula from the market.
On the Procter & Gamble side, they were astute enough to use consumer
organizations across Europe to conduct tests. They backed them up
with key technical data to point out the weaknesses of the
Persil/Power product.
And P&G didn't stop there: they talked with anyone who would listen,
from retailers to washing machine manufacturers. An excellent example
of pro-active marketing.
6. PROBLEM AVOIDANCE
====================
New product development is inherently risky. Some estimates run as
high as a 90% failure rate, though there's great debate over what's
"new" and what's a "modification," as well as debates over definition
of success in terms of profitability.
R.G. Cooper and E.J. Kleinschmidt, in their 1987 article in R&D
Management titled "What Makes a New Product Winner: Success Factors at
the Project" level argue that there are 13 key phases the must be
conducted well to increase the probability of success. They are:
1. initial screening
2. preliminary market assessment
3. preliminary technical assessment
4. detailed market research
5. business and financial analysis
6. product development
7. in-house testing
8. customer tests
9. test market
10 trial production
11. pre-commercialization business analysis
12. production start
13. market launch
Unilever's known for having good marketing and commercialization
practices, which is why its hundreds of brands have good market shares
in countries around the world. But in this case, the pressure to get
an innovative cleaning product to market broke down the technical
and/or the consumer evaluation of the product.
That view is reflected in the opinion of a supplier to the soap
industry. A marketing manager for home and fabric care at
Ciba Specialty Chemicals, noted that consumers are cautious, and "this
attitude is partly their reaction to unhappy experiences with new
products that don't live up to the expectations of consumers. The
products 'do what the manufacturer says they will do, but perhaps not
to the extent that the consumer expects of them.'"
|
