When Unilever Europe wanted to cut costs and improve operations quickly, it turned to IBM for a solution—and cultural fit—that suited its needs perfectly. The result was a relationship for the record books.

by Peggy Cope

Three years ago, Unilever was suffering on two fronts: a soft top line and an elevated cost structure. The company made a radical choice to embark on a total transformation program, emphasizing an approach it dubbed “One Unilever.” Throughout Europe, the organization strove to achieve a single ERP platform, a common European supply chain, and a number of outsourcing initiatives in IT, HR, and finance that would unify the firm’s many iterations across international borders and myriad cultures.

According to Jean Stephane Payraudeau, director and F&A outsourcing senior project executive for IBM ’s Unilever EMEA account, “It was a radical transformation from the Unilever Europe point of view. Unilever needed external help to execute the changes. By enabling people to focus on core business, they were releasing their energies there, exercising their real expertise, and leveraging the scale of outsourcing vendors.” And because the company wanted to achieve a turnaround on the grand scale in a very short timeframe, outsourcing seemed the obvious solution.

Gijsbert De-Zoeten, Unilever’s managing director for Unilever finance business services – Europe, said the real story had three programs for the three different business units of Unilever Europe in every country—food, home, and personal care—all moving toward a single, cohesive operating unit.
“In the European region, Unilever Europe operated as a loose federation of countries,” De-Zoeten said. “We wanted to integrate them into one European organization, whether it was for the supply chain or sales and marketing, but we needed to implement the systems to enable that. At the heart of the program is an SAP standardized platform we rolled out, as well as common systems in finance and HR.”

At the beginning of 2005, One Unilever provided an enormous momentum driving change from the top of Unilever into all of its global regions. The region that needed the most work was Europe, which had historically grown by country and division and was therefore the most complex of Unilever’s regions. With that in mind, Unilever Europe developed an integrated road map for each activity to be phased in over a two-year timeline.

“We wanted to do all the components in that time line, not sequentially, because we needed speed,” said De-Zoeten. Over that two-year time frame, the organization implemented its SAP platform and completed each component of the program, using its integrated European roadmap from a country angle to make sure the plan was do-able on the ground.

Because the company had decided to do all the work on such a tight time budget, it made the choice to go directly to outsourcing rather than take a stepping-stone approach with shared services centers, the more common model for many European organizations.

Said De-Zoeten, “We felt it would be less risky to do outsourcing rather than insourcing, even though we started with everything in-house. Normally, companies first go to shared services. We felt an outsourcing partner could do it faster, and we couldn’t see doing it in two years, across 20-plus countries and all those systems without help.”

What Unilever Europe sought was the know-how and skill of a partner like IBM. The provider offered proven technology with a serious track record of success, which also helped when it came to change management. And beyond leveraging the experience of IBM, Unilever Europe felt comfortable transferring some of its risk to a partner with that level of expertise and ability.

“More rigor from an external party helps to overcome barriers in your own organization, which can be difficult if you do it internally,” said De-Zoeten. “The contracts in the outsourcing industry are more advanced than they were five years ago, so the mechanisms balancing risks and each party’s role have been developed. Five years ago, contracts were rather crude and unsophisticated. Now, there is less financial risk, less operational risk, and more focus on leveraging the experience of the partner.”

He added, “I believe you have more flexibility if you go for outsourcing.” If, for example, a certain location in the future proved to be less competitive operating as an in-house situation, an organization would be unlikely to move those operations itself. If, however, those operations were already outsourced, it would be easier to move them to another location under the same outsourcing partner, or to change partners.

Partnering for Success
The most important element is a partnership that works. “That’s risk number one, and key success factor number one,” said De-Zoeten. If you do not work in partnership, it will not work. You have to overcome the challenges together, and you have to be able to hold each other accountable.”

Among the unique elements of the Unilever Europe/IBM contract was the early commitment to building teams on both the buyer and vendor side that would work well together. “It was all about co-invention, even at the contracting stage,” said De-Zoeten. Unilever Europe had followed similar paths with its other outsourcing partners, but took it to a deeper stage of detail once IBM was chosen. The team members included the process lead, change management people, transition managers, and financial management, and the team approach was in place from the very start. “All the projects I have seen had smaller teams, but not the co-invention we had,” said De-Zoeten.

“It’s unusual in this market for an outsourcing team to invest so much up front in finding the right, talented people, and mobilize all the resources you need from day one to make the deal a success,” agreed Payraudeau. “That’s what happened here, which is why we’ve been successful. We had all key members and the overall program leadership that would be there throughout the process. To develop roadmaps jointly before contracting for what would exist for the next two years is unusual. The quality of the work we were putting together into the solution was better as a result.”

The scope of the contract was broad, from general ledger to fixed assets, purchase-to-pay, expense claim processing, and bill-to-cash. “Bill-to-cash,” ordinarily referred to as order-to-cash, in this instance also includes dispute resolution, beyond accounts receivable, a sophisticated approach for the industry at this stage of maturation.

To achieve lower costs and simplify its finance organization, Unilever Europe would take out around 750 people from an organization of 1,800—a truly dramatic transformation of finance. In addition, its goals included cost savings, quality improvements, and process harmonization, as well as better controls, from T&E to improved reporting.

Narrowing the Choices
In making its vendor choice, Unilever Europe started with a short list of four providers. Through a two-step process, it whittled the list from four to two, then to one. In terms of capacity, three of the four could deliver the desired services. IBM had the bench strength, technology, and experience in these complex transactions that Unilever Europe set as conditions that had to be met by any provider it considered. The company wanted an investment in technology over time, plus flexibility and significant experience in complex transactions.

Then, said De-Zoeten, “You find out who you can work with best together. There is a bit of softness in that choice. You have to ask, ‘Can these two cultures work together?’ The biggest risk is the transition. That is the process you have to manage together.” It was extremely important to seek quality people and a culture that dovetailed with Unilever Europe’s own. “It was a good fit between the IBM team and Unilever team,” he said.

However, according to Nigel Batty, European change management director at Unilever, “It wasn’t because IBM was like Unilever Europe. Their strengths were complementary to our culture. Some of the structure and rigor IBM brings in the way of approaching project management and transition make a big difference.”

Although it’s trendy these days to talk about “consultative approaches” to doing business, Unilever Europe was impressed by IBM’s decisiveness. “IBM was less about consulting, more about action,” said De-Zoeten. “They were a bit more driving in how they felt we should approach solutions. That appealed to us. They came with a clear vision of how they proposed we do things, rather than taking a more consultative approach.”

Describing IBM and Unilever Europe as “two giants that needed to dance together,” De-Zoeten praised the level of commitment at the very top of IBM, which was matched at the very top of Unilever Europe. “It was visible from the beginning,” he said. “It is not taken for granted that it is always going to go smoothly. It’s easy to say we want to work in partnership, which is no more than a supplier/customer relationship. But in this case, the commitment of IBM at the global, regional, and functional levels was very clear. It came through in the quality of team they put forward.”

Payraudeau concurred: “We were impressed by the quality of the Unilever Europe team. They made the investment in talent to lead and execute something that was critically important for the company’s success. It’s not just a question of choosing good people who happened to be available. They have to set up the organization and drive the change that’s needed. It was very exciting, that the approach was reciprocal.”

The Metrics
Unilever had spelled out a transition plan, and according to De-Zoeten, “We ‘ticked’ the boxes on almost all of it.” The plan included rigorous project management and predefined targets, and Unilever Europe was clear on transition and running costs on IBM’s side—goals which the company met.

The business cases were made on the country level, with finance directors of 20 or so countries committed to the retained organizations they had to achieve. This called for rigorous management of the business case, controlling costs, and the future state costs of Unilever Europe. In addition, the companies needed to look at the quality of service that was performed. Meeting service level agreement goals from the start, the companies achieved stabilization generally within the time frame that had been defined. “We had clear stabilization criteria,” said De-Zoeten. “They are not very sexy stories to tell, but you do not always see rigorous management in place.”

The metrics used to measure success comprised such basic elements as payment on time, the quality of results reporting, and how quickly claims were paid. “Reporting was removed from the stone age of paper to the Internet,” said De-Zoeten, “which was a massive improvement from day one.”

Managing Change
During the two-year timeline, the companies completed what both sides now view as a military program, with military execution. A customer advisory board made sure Unilever Europe was in contact with its customer base from the start, to measure their happiness and get feedback from them. And a massive change management program kept a finger to the pulse of the retained organization.

“In 2005, outsourcing was not popular, to say the least,” said De-Zoeten. “If you Google outsourcing failures, you find more than outsourcing successes. We had to win the hearts and minds of our people. We set out for the minds in the first year, with facts, figures, etc. We tried to win their hearts later, with a carefully managed sequence of countries where we could build success.”

The companies conducted impact workshops, where they talked about the worries and fears of Unilever Europe’s employees and tried to address them. They kept everyone informed on the program so they could see it was becoming a reality. This involved informing everyone of the timing of the transition. “It’s complicated if you announce in December 2005 that you may be displacing 800 people. Some people were expected to continue to operate for a year before you get to them,” said De-Zoeten.

Added Payraudeau: “We did execute on what we said we would do. It does work, we have feedback from users—it gives you a pulse, and you can measure operational and financial benefits. There are key measurement elements on milestones and service levels. The pulse of a company is taken on how it is perceived, as well as the financial benefits.”

According to Batty, the main point was that outsourcing in the finance area had to be seen in the context of a larger change program at Unilever Europe—that was critical to its success. “We had to become a leaner, more agile business that was genuinely focused on the core activities of winning with our customers and consumers. There were significant benefits from involving a partner with the capabilities that IBM brought to the table, not just in the transition, but also in the delivery of service. It was really telling that story in a coherent way that was the first and most important part” of change management.

Also crucial was a commitment from both Unilever Europe and IBM to respect the impact that this change was going to have on people on the ground. The companies were keenly aware that people with whom they had all worked for a long time would not be there any more in two years as result of the transformation.

“We kept that human dimension in mind,” said Batty. “Our businesses did a great deal to see where those losses could be mitigated. Wherever possible, we found other roles in the business or actively helped those leaving the business to find new roles outside.” 

Because of the diversity of Europe, the change was managed very differently from county to country, culture to culture. While some Unilever Europe companies were already working with the kind of tools IBM was bringing in, some were still very paper-based. In communicating the change, the organizations helped those who would be retained to understand what response was required of them, and trained them in the new skills and competencies that would be needed in the retained organization to handle the new tools and resources.

“We started with some of the smaller countries, where we made some mistakes and had to retool a bit, then went to the bigger countries,” said De-Zoeten.
Payraudeau added: “We went on a joint progressive journey that helped build buy-in.”

The first businesses to go live were turning points for the deal. Key stakeholders from the lead companies visited the IBM Krakow and Bangalore service centers and a DVD was made featuring staff from these centers, which did quite a lot to demystify outsourcing for employees in the countries and companies that had not yet made the transition.

Good Governance
The engagement between Unilever Europe and IBM is underpinned by a governance model that is unique for its collaborative structure and operation.
“Governance was a topic in itself,” said De-Zoeten. “We spelled out all the components of the governance model, with a detailed view of the processes we would need to cover to operate and be successful on a day-to-day basis. It required daily management, going through all the components one by one together, agreeing for each one how we would split the roles and responsibilities. This was key to our success.”

The governance structure features committees on several levels: the joint executive committee (which keeps the priorities and expectations of Unilever Europe and IBM aligned), a service delivery management committee (which meets monthly, with subsets of country service delivery committees that meet on a weekly basis), and a customer advisory board that keeps a finger on the pulse of changing business requirements. These serve to provide guidance, institutionalize the collaborative nature of the relationship, and engage the stakeholders at both regional and country levels.

But, Payraudeau noted, “Effective governance goes beyond setting up committees.” The country dimension was important, and challenging. “You have to make sure all the countries participate, not dump the responsibility on central teams. You need to keep one relationship, not 24 relationships,” he said. To balance individual country relationships within the context of the larger contract was daunting in its sheer complexity.

“You can’t do all your service calls on a Monday,” Payraudeau said. “There are not enough hours. It’s very important you pick issues to deal with on a country level, escalate to a European level, and manage them from there. You would get lost in all the details otherwise.”

Other elements included the individuals who were chosen for the governance structures. They had to help drive the change constructively then foster continuous improvement going forward. Although De-Zoeten acknowledged the structure was not highly imaginative, consisting in what he called a classic three layers, he emphasized that the organizations spent a lot of time finding the right people to work and execute on those committees.

The Journey Continues
The One Unilever program was completed this year with considerable success, but the journey isn’t over yet.

“F&A did its part in the transformation, but this is not a project, this is a journey. I’ve said that for three years,” said De-Zoeten. “Some thought it was complete after contract signing. We were of a different opinion.”

The journey is occurring in waves, beginning with the transition and transformation, followed by stabilization and harmonization. The next wave will extend the benefits, attempting to drive such achievements as working capital improvement, keeping product leakage in compliance, or providing information that translates into buying by extracting data from the purchase-to-pay database.

The change management and teamwork that have been the partnership’s hallmarks will be critical. “If IBM said, ‘You have 30 ways of paying bills, we propose you go back to five ways,’ that will require change management in the Unilever Europe organization that needs to be done with a provider,” said De-Zoeten.

The governance process that integrates Unilever Europe’s programs is a live activity, growing and developing organically. “There
are things we didn’t plan to do in the first place,” said Batty, “but started as soon as we saw new opportunities to improve and extend the benefits.”