Why Unilever is right to consolidate its headquarters in Rotterdam

Unilever’s decision is not as surprising as some sections of the media have portrayed it. Indeed, one could argue that it is not surprising at all if considered in the wider context of the company’s history. For much of its past, Unilever was a “federation” of highly localised businesses that benefited from high levels of autonomy. This structure was partly due to the merger between Dutch margarine company Uni and the British Lever Brothers. But it was also due to the geo-political uncertainties for cross-border trade created by the Second World War, which required the firm to decentralise.

Unilever’s headquarters in London. EPA-EFE/Andy Rain

While this allowed Unilever to tap into local markets and be attuned to local taste, it also came at a cost – control. Speedy decision making on the overall portfolio of brands and management across businesses and borders became increasingly challenging. These challenges were not unique to Unilever, they were shared by many businesses – most notably Philips. It took Philips enormous restructuring efforts to strengthen its product divisions, now a famous case study taught at many business schools.

Unilever’s strategic moves for the last two decades, such as the focus on high growth markets and the consolidation of its brand portfolio, can be interpreted as an attempt to increase control. So the consolidation of its global headquarters in a single location is yet another step in an ongoing chain of strategic decisions.

Why Rotterdam makes sense

Decision making power on the portfolio of brands is centralised in a single entity. The new head office will have larger decision-making powers which will enhance Unilever’s ability to act more quickly. In the past, corporate functions were split between the UK and the Netherlands, which required close coordination. The new structure will allow Unilever to act and react in a more agile way, for instance in order to seize acquisition opportunities.

Consolidating its HQ will allow Unilever to sharpen its central functions. A challenge for diversified firms, such as Unilever, is to create a corporate centre that adds value to the business over and above its cost. One of the dangers of a split headquarters is the duplication of functions, increased costs and a lack of focus on how central functions serve the product divisions.

The move towards a single, listed entity improves Unilever’s ability to navigate today’s complex global political landscape. Up to now, Unilever has been run by two legal entities in two different jurisdictions, with two different stock listings.

Unilever denined that the move to Rotterdam is due to Brexit. But being headquartered in the Eurozone still acts as a shelter against the political uncertainties of the UK’s departure from the European Union.

Finally, the consolidation of headquarters also puts stronger managerial attention and focus on the product divisions and its world-famous brands rather than manoeuvring a complex and costly corporate structure. This is where the focus should be.

The Unilever building in Rotterdam, the Netherlands. EPA-EFE/Marco De Swart

Agility

Unilever’s move is symptomatic of how large, well-established corporations try to deal with the increasing need for speed – the adoption of leaner corporate structures and more focused product portfolios. For instance, soon after becoming CEO at German technology giant Siemens, Joe Kaeser decided to scrap the company’s sector structure (a layer of management between product divisions and head office) which was put in place by his predecessor.

Instead he wanted a stronger focus on a smaller number of product divisions. The reasons were inflated cost and increased complexity, which affected Siemens’ ability to move fast. General Electric’s recent restructuring followed a similar pattern and logic.

Unilever might have created a speedy engine, but can they start it? The challenge for Unilever will be to fill the new structure with life. It’s easy to create new legal entities, move organisational units and redraw reporting lines – on paper. It is quite another matter to rewire the firm’s power base, which has been established for decades. So while Unilever’s decision is the right one, it still needs to make sure it actually gets it right.