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If you ask every single employee who was there what day they remember best, they will all say that Friday in 1995 at the warehouse. -Plant operator
In the spring of 1995, the fourteen hundred employees of Unilever Vlees Groupe Nederland (UVGN) assembled in the early morning at their factories and boarded motor buses for a field trip. Their destination? Unknown. The purpose of the trip? Top secret.
"I thought we were going on a trip to the Efteling amusement park or even to Disneyland," said one of UVGN's machine operators. Instead they arrived at a warehouse, where they were greeted by recently appointed UVGN manufacturing director Hans Synhaeve and the company's brand new chairman, Tex Gunning.
Inside, 3,700 pallets of rejected goods towered in stacks from floor to ceiling. The warehouse reeked with the nauseating smell of rotten food. As far as the eye could see-left, right, front, back-were piles of products unfit for sale: spoiled sausages in defective tins and vacuum packs, leaking cans of soups and sauces, poorly sealed packages of dry soup and sauce mixes. Products worth 9 million guilders, the equivalent of 4.3 million euros. Ready for destruction.
When the sight and stench of thewarehouse of waste had begun to sink in, Gunning started to talk. As a production line worker recalls, "He spoke very quietly in the beginning, but in the end gave us hell." Then managers and accountants, quality experts and production workers walked aisle after aisle counting cans, calculating the money lost, and contemplating the waste of their time and talent. Later, a parade of forklifts trucked the pallets outside to a large, lined pit, where the worthless goods were unceremoniously dumped in and covered with earth.
The idea that UVGN had such massive product quality problems came as a complete surprise to most employees. "We had no idea what we were doing," said one factory worker. "We thought that everything that we made was good. We had no idea that the rejects were so much. We didn't know. We made the numbers."
And most in management just kept their eyes on the books, where they could point to profits year after year. But profitability told only part of the tale, and this day in UVGN's warehouse of waste was the beginning of Unilever's trip to the desert and back.
A Sinking Ship
UVGN had been formed in 1970 with the merger of meat butchering and exporting businesses dating back more than 150 years. Located in Oss, in southern Holland, the company operated both as a sourcing unit and trading unit in 1995. The sourcing unit included four factories: meat, soups, sauces, and dry mixes. The trading unit sold branded products through Dutch retailers. UVGN's primary brand-Unox-was the oldest and largest food brand in Holland, an emblem of traditional Dutch food values.
When Unilever veteran Hans Synhaeve entered the scene as the new manufacturing director in spring 1995 and was joined by Gunning two months later, they found a company in deep trouble: lower and lower volumes since 1991, no increases in market share, shrinking margins, and higher costs year after year. Profits maintained through repeated price increases. Accounting cleverness concealing true financial performance. A product portfolio overloaded with offerings in low-growth, low-profit market segments. Major money lost making junk. That wasn't all. Competition from CPC and Honig, as well as from private labels such as grocer Albert Heijn, was getting stiffer. And competitors like Campbell's and Heinz were showing their shareholders double-digit growth.
Minding Their Own Business
To make matters worse, UVGN had issued four product recalls since 1993-traced to key missing ingredients, improper storage, faulty packaging, and the like. Canned beef that had been adulterated with pork. The fresh meat theeworst was missing a key preservative. The most visible recall was the result of microscopic leakage in the family-size cans of Unox pea soup, the brand's flagship product. It had almost prompted the closure of the Oss factory.
As product quality rejection rates climbed, a team of factory managers began turning some rejected products into seconds-and a phalanx of workers was employed just to cut the brand labels off the cans of still-edible soups and sausages so they could be sold at a discount through the company store. Demand couldn't keep up with the supply of rejects and write-offs mounted. No one in UVGN had calculated the profits lost from manufacturing and selling second-versus first-quality goods. And no one asked for the figures. The norm was for factory workers to mind their own business while managers kept their distance from subordinates and superiors alike. When a plant supervisor went to his boss one year to say that he could not accept a bonus because there had been a major loss due to leakage in smoked pork sausage packaging (equal to 2 percent of total volume), the boss replied: "Your responsibility is to run your line, ours is to take care of the quality." In other words, Don't question the system, just do your job.
On the Verge of Death
It was a company "in need of radical change," said Synhaeve, "a company that no longer reacted. I saw there was sufficient critical mass of good people, but they needed to be wakened up, as they were partly dead."
With management's attention fixated on profitability, there naturally was no forward-looking vision or strong strategic direction. People development was virtually ignored. The new product pipeline was dry. Major restructurings and downsizings had followed one after another since the 1970s, dramatically changing the character of the company-the slaughterhouses and crews of manual labor were gone, and total employment had declined from seven thousand workers to roughly fourteen hundred by 1995. Still, employment was seen as a lifelong proposition for the company's employees, many of whom joined as early as age fourteen and expected to stay until retirement.
Coping with dramatic changes in consumer trends and the constant pressure to maintain profitability had left the company depleted. "Most of the management board were frustrated," said one account manager, "and they showed it. They were not a team. There were some older guys, near the end of their career at Unilever. There was one hands-on manager, always eating a sausage. He died of a heart attack. A typical head office guy, sitting in his office all day, replaced him."
Unilever HQ took notice. UVGN was targeted for immediate turnaround or, failing that, would be put up for sale. The immediate challenge, as one insider put it, was "to prevent the ship from sinking." An alarm needed to sound-and loudly. And the new leaders knew just how to get people's attention.
Enter the New Chairman
Right from the start, it was clear that the new chairman would be different from his predecessor. Though an economist by training and a Unilever veteran, Gunning was no bean-counter or classic corporate man. "When I saw the new chairman at the farewell speech for the old chairman," recalled one manager, "I thought, hey, things are going to change. It was very clear."
Louis Willem "Tex" Gunning was born in 1950 in the Netherlands. His youthful biography includes what historians have identified as archetypal characteristics of future leaders: death of a father at an early age, love for one caregiver/hate for the other, early defiance of authority, and bouts of rebelliousness (see spotlight).
Gunning's business career started in the late 1970s when he joined Peat, Marwick Auditing and then moved into their strategic consulting services operation. In 1983, he joined Unilever in the Controller's Department and moved to the controller's office of its Dutch food subsidiary Van den Bergh/Jurgens in 1984. His horizons broadened in 1987 through 1989, when he served in the secretariat of Unilever's special committee of managing directors. "Working for Floris Maljers, the Dutch chairman at the time, changed my life," he recalled. "I met somebody who was so much smarter than me and so worldly. I realized that I had to work harder on myself and read much more about philosophy and history." His time at the secretariat exposed him to the full scope of the company's operations and enabled him to meet its top executives.
A marathon runner and avid reader of management books and classics in psychology and philosophy, Gunning is described, by one observer, as "lean, boyish, but otherwise unremarkable" in physical appearance. What is distinctive about him is that he is "always trying to learn and deal with current issues." He faced plenty of them when taking charge of UVGN.
As Unilever's trip to the desert and back begins, Gunning is back in his homeland from his tours as commercial director of Unilever Thailand and then managing director of the company's foods businesses in Australia. Fresh from six years abroad, he is full of new ideas about the business and a restless ambition to get things done. He is in the factories at all hours, inviting everyday workers to important meetings and events, and often dressing in blue jeans rather than the corporate suit.
While extremely demanding and intellectually challenging, Gunning is soon sized up as someone very unlike the typical Unilever Executive-"a man for everybody," as one manager put it. "He understands the problems and he is connected to work levels. He knows people by name. He knows the issues and you can talk with him. Most chairmen just sit in their corner office and you see them twice, when they come in and when they say good-bye."
It helps a lot that Hans Synhaeve is already on board when Tex arrives-if Gunning is to captain a sinking ship, he will need the advantage of having an experienced first mate on board. A little older and already known at UVGN as a "factory guy" through and through, Hans is the perfect foil for the youngish-looking new chairman, who has no hands-on factory experience to match his reputation-and plans-for turning things around.
With Hans as his partner-once the initial shock wore off-Tex quickly established his credibility with managers and workers alike. They felt they knew what he was saying and his intentions behind what he did. They believed he cared about the company, about growing it, about people's jobs, people's feelings. The effect was palpable. Still, there were doubts and reservations. Said one laboratory manager:
I work here twenty-six years and have seen five or six chairman. So, I thought, here comes another one. We have had so many before him.... But Tex grasped my attention. He would talk for three hours and I would be listening breathlessly and think about it. He knew how to motivate us. But, on the other hand, we distrusted him a little: nice talk, but can you live up to what you say?
Keeping the Ship Afloat
The surreal scene in the warehouse of waste was a theatrical way to sound a powerful wake-up call-a creatively crafted mix of hard facts and figures with expressive sights and sounds to dramatize the daunting performance gap concealed behind the numbers. As one department manager put it, "The scene was clearly set by making it very clear that every one of us was responsible for the mess we're in. We needed to come up with a plan to generate five million in savings in three months."
Tex and Hans worked with a handpicked group to accomplish the needed savings. For months, they acted as teachers and coaches, introducing them to basic business and financial concepts. Through it all, they often spent twenty-four hours a day in the factories, walking the floors and getting fresh ideas from line workers and supervisors on how to gin up production.
But keeping the ship afloat required more than an emotional shock and bottom-up improvement in factory performance. Staffing levels-in management, office, and operating areas-had swollen to the point that UVGN could not be competitive. Restructuring was clearly necessary to get costs down further, and the fresh meat operation that over nearly two decades had become increasingly peripheral to Unilever's core food business was the obvious target. The immediate cost savings could come from closing the fresh meat factory, eliminating temporary jobs, and laying off another 350 people.
The script from the warehouse scene forward was clear: the traditional approach of raising prices rather than improving productivity was no longer viable. Productivity improvements would mean greater efficiencies, and greater efficiencies would provide higher profits. But, to grow in new areas, the company would have to shrink in others. The message that people heard was that there would be winners and losers.
The situation at UVGN was part of a much larger awakening occurring throughout Holland and much of industrialized Europe. The "creative destruction" of capitalism, having swept through the United States in the quality movement and shareholder-driven downsizing of the 1980s and into Britain in the early '90s, arrived full force on the Continent mid-decade. Global giants headquartered in Holland, like Royal Dutch Shell and Philips Electronics, commenced layoffs and launched profit improvement efforts. Unilever was not immune.
While asset sales and layoffs had become rather matter-of-fact propositions in U.S. business, they were anything but that in Europe in 1995. Unilever was wary of eliminating jobs, particularly Dutch jobs, in light of its overall corporate profitability. Workers Councils-state-sanctioned bodies that represented workers' interests in the factories-expected to review and rule on each personnel decision. Downsizing and restructuring under these conditions could take months, even years. And though they had been fully apprised of performance problems, the workforce was suspicious of new management's motives and vowed to keep a close eye on the process as it played out.
No one was more mindful of these dynamics and their potential consequences than Hans Cornuit, head of human resources at UVGN, who ensured that the staff reductions were properly handled. He worked with Unilever leadership to gain support for letting a group of young managers rebalance staffing plans and eliminate temporary labor. There was full disclosure of the dire financial situation of the company and honest answers to questions about which jobs were being cut and why. An attractive early retirement package was developed for older workers, and area employers were enlisted to help in the placement of laid-off employees.
Today these approaches are best practices in firms accustomed to downsizing. At the time in Holland, they were pathbreaking. And employees sensed that the days of business as usual were over.
The Organization Reborn
By January 1996, four months into the turnaround, UVGN had achieved savings of 4 million euros. Improved performance of key production lines resulted in an 18 percent increase in operating efficiencies. One line improved its efficiency from 60 percent to 80 percent in just twelve weeks. By March 1996 headcount had been reduced by five hundred.
The big changes were more than a reduced workforce and short-term performance gains. New attitudes and ambitions were emerging (Exhibit 1.1). "This marked the beginning of a new company," said one marketing manager. "It was illustrated by the way we talked about it. We told people, 'You have a job in the new organization.'"
"When the restructuring program was introduced our chairman went to the press," recalled an account manager.
He invited the local paper to look at what they were doing. The headlines read, "Unox investing 150 million in its brands." Not that Unilever is going to slash jobs! It was turned around. In February we told our people that the assumption was nobody has a job unless they were placed in the new organization.
Excerpted from To the Desert and Back by Philip H. Mirvis Karen Ayas George Roth Copyright © 2003 by Philip H. Mirvis. Excerpted by permission.
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|Preview: The View from the Desert|
|2||Rebuilding the Business||15|
|3||Merger or Takeover?||31|
|4||Going into Therapy||41|
|5||Revolution and Chaos||55|
|Pt. III||Transforming the Organization|
|6||180 Leaders in Charge||67|
|7||Community or Cult?||79|
|8||The McVan den Bergh Clan||89|
|Pt. IV||Transforming the Business|
|9||Growing a Market: Foods||103|
|10||Growing a Brand: Fats||117|
|11||Cascading Change: Uniquisine, Calve, Royco, and Nassaukade||129|
|12||To the Desert||145|
|13||The Legacy of Growth||155|
|Pt. VI||Takeaways for Leading Change|
|14||Change Models and Methods||169|
|15||Change as Theater||183|
|App. 1||Cast of Characters - Then and Now||207|
|App. 2||Learning History||211|
|Notes and Sources||221|
|About the Authors||247|