A Report on Nestle Organisation at the Corporate Level
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Published: Mon, 5 Dec 2016
This is an evaluation of Nestlé in 2008 case study from DeWit and Meyer (2010) “Strategy: Process, Content and Context” 4th Edition. This report evaluates the strategic process of the company and how it strikes a balance between multiple products, structure and corporate goals. The cross-business synergies within the organization were identified, and the corporate mechanisms to leverage the synergies are discussed. It highlights the importance of cross-business synergy initiatives among the business-units within the Nestlé corporate structure. Based on the integrated organisation and portfolio organization perspective, the future scenarios of Nestle corporate level strategies were outlined. The corporate growth direction of the company was identified in this process.
A short Introduction of Nestlé Organisation
With the establishment of Nestlé by Henri Nestlé in the mid-1860s in Switzerland, the company has expanded from being a Swiss company to a global brand. Nestlé is quite everywhere. It has become a household brand name in many countries and has established offices in more than 80 countries. The Nestlé brand portfolio covers practically all foods and beverage categories: milk and dairy products, nutrition, ice cream, breakfast cereals, coffee and beverages, culinary products, chocolate and confectionery, petcare, bottled water. Many of these brands have category leadership, both globally and in local markets. The best-known global brands include Nescafé, Nestea, Maggi, Buitoni, Purina and of course Nestlé itself. Other brands also sell in many countries – for example, Milo, Nesquik, Nespresso, Kit Kat, Smarties, Polo, Friskies, Perrier and Vittel. The total number of brands – including local brands – reaches into several thousands. 
Nestlé had gone through several name changes from 1866-1929. Farine Lactee Henri Nestlé merged with the Anglo-Swiss Condensed Milk Co. in 1905, and the company’s name became Nestlé & Anglo-Swiss Condensed Milk Co. In 1929, Peter-Cailler-Kohler Chocolats Suisses S.A. merged with the company. The name was then changed to Nestlé & Anglo-Swiss Holding Co. Ltd, on November 27, 1936. By late 1947, the company name had been changed to Nestlé Alimentana S.A. through the acquisition of shares of Alimentana S.A. The current name which is Nestle S.A was adopted in 1977.
Cross-Business Synergies within Nestle
The primary logic behind implementing strategy in a multi business organisation like Nestleé is to increase the business performance. A business strategy of an organisation is the way it chooses to go about succeeding in its industry. It is simply a process of looking at the range of options a firm can undertake to achieve its stated objectives with high priority to increase corporate performance. For many multi-business firms, cross-business growth is the major lever of growth in their saturated market (Knoll 2008, p. 1). Cross-business synergies is defined as “the value that is created and captured, over time, by the sum of the business together relative to what it would be separately” (Martin and Eisenhardt 2001, p. 3). The pursuit of synergy is at the heart of the rationale for the existence of a multibusiness corporation (Porter, 1985).
The first identified cross-business synergies of Nestlé is the strong organisation implementation. The strong business performance by Nestlé in 2008 is as a result of strong organisational effectiveness which dates back in its history. This is very critical to getting organisation strategy right. As stated by Paul Bulke, CEO of Nestlé, the Nestlé 2008 performance reflects its ability to achieve a high level of organic growth. This in a sense is that the systemic arrangements of the company different sections and brands enable its growth which was reflected in the company EBIT margin in 2008. The company operational efficiency was a result of it strong organisation implementation. The EBIT value is useful when comparing various sections (departments) in a multi business company like Nestlé. The company policy of rationalising underperforming product lines also serve as one of the major drivers of improved performance. Nestlé strong organisation implementation has therefore ensured the optimisation of management rules and orderly operation of the company. Another cross-business synergy of Nestlé is that it engaged in multi-business team decision process. The multi-business teams, certainly in collaboration with the corporate office, are the locus of value creation and identify potential synergy initiatives. It is a form of leveraging in terms of relational resources and strategic alignment. In relation to this, Nestlé has a dedicated initiative teams overseeing each of the company four growth platforms. The company Popularly Positioned Product (PPP) strategy is one of these platforms with a specific business model which focuses on lower income consumers by offering them high-quality nutritious products at daily affordable prices.
Nestlé Corporate Goal Direction
The importance of goals to any organisation cannot be underestimated. Every organisation small or large aims for success and in order for an organisation to become successful it needs clearly defined goals. Nestlé not only have clearly defined goals, the operational plans of the company meets its strategic plan. The company corporate goal direction is to be the world’s largest and best branded food manufacturer and to ensure products of the highest quality. It is a holistic strategic thinking which the organisation as a system that integrates each part in relationship to the whole. The point is that this approach allows the managers of Nestlé to employ an advance form of analytical reasoning that ensure creativity. DeWit and Meyer (1998) submits this as generative thinking perspective. In Nestlé, however, the creative and logical thinking perspectives are combined. Logical thinking emphasized the ability of managers to critically reflect on the assumptions they hold and to make their tacit beliefs more explicit (Ibid). This in a way ensures creativity which is critical for innovations.
The company is a market leader in many product lines such as coffee, milk, chocolate, food seasoning, bottle water and pet food. Its corporate slogan, “good food, good life” is understandably a slogan that pushes consumers to buy Nestlé products as it signifies a better and healthier products for consumers. The growth of the company is also been driven by Nestlé commitment to making better healthier products for its consumers around the world. Nestlé corporate goal is founded on corporate innovation and knowledge management which involve collecting and utilizing information, innovation and knowledge resources for the realization of corporate objectives of the organisation. This is to achieve the corporate goal of being the world largest and best branded food and confectionaries producer. With the resources at the company disposal, the goal of Nestlé is ‘specific’, ‘measurable’, ‘attainable’, ‘relevant’ and ‘timed’.
Nestlé Corporate Management Mechanisms
The management responsibility is based on a system of specific individual responsibility for each post. This is reflected in the company corporate business principles, and with specific policies related to each principle. These principles are respected by all employees and their application is monitored and regularly audited. The company strengthen management of rules and regulations through standardization and simplification. There are different levels of management and the company step-by-step according to levels ensure that the management of different sections and brands of the company can be conducted separately. To optimize the management of rules and ensure orderly operation of the company, Nestlé reach aggregation among the internal control through management system for risk control, management system for product development and innovation, corporate information mechanism (that allows the company to make full use of knowledge resource and improve managing efficiency) and management system for cost control. All of these make corporate performance better.
Accordingly, knowledge based corporate management is the key corporate management mechanism adopted by Nestlé. It is basically driven by information system and includes learning process, corporate culture, trust and power relations (Epstein and Manzoni 2006, p. 176). The Nestlé programme “Global Business Excellence” (GLOBE) which aims to harmonize and simplify business process architecture through and integrated information system is an example of information system in governing knowledge. The main goal of this programme is to ensure: a best practice that is creating common business processes, establishing best practices for activities such as purchasing, sales forecasting, production planning and customer service; data standardization which is to manage data as a corporate asset. The company has an established common coding system for various items such as raw material and packaging, finished goods, vendors and customer. In order to support best practices and standardization, Nestlé has a common information system. The programme also seeks to standardize internal and external databases and to implement a common business process architecture. This provides Nestlé companies with common guidelines, structures and best practices to integrate operations across the whole organisation and to align organisational strategies with corporate goals (Ibid, p. 177).
Nestlé Corporate Level Strategy
Corporate level strategy is essentially what makes the whole company greater than the sum of its business units. The separation of strategic and tactical decision making as argue by Chandler (1962; 1991) is the most efficient corporate organisation as it allows the corporate centre to focus on the destiny of the corporation and allow business units to focus on within business unit operations. Mintzberg puts forward five formal definitions of strategy: plan; ploy; pattern; position; and perspective. Planning is concern with the development of mission or vision of what the company would aim to achieve. The organisation must have a vision of what they want the company to be at a point in future. The pattern has to do with how the strategy unfolds and becomes concrete. If strategy as plan refers to deliberate, intended strategy that may or may not be realised, then strategy as pattern suggests unplanned, emergent strategic patterns or consistencies that are realised despite, or in the absence, of intentions (Mintzberg and Waters, 1985 in Graez 2002, p. 456).
An integrated organisation strategy is based on overall orientation towards growth and stability. In the case of Nestlé, the overall orientation is to be the world’s largest and best branded food manufacturer with the highest quality standard. A company may also focus portfolio corporate strategy, which is a strategy focus on the market that the firm competes in through product line and business units. In fact this is the basic underpinning strategy that drives Nestlé orientation of producing the world healthiest product. The core principle of Nestlé is helping consumers to have a balanced healthier diet. “For firms to sell successfully to foreign customers requires culturally sensitive adaptations to product services, services, marketing and advertising (Rugman and Collinson 2009, p. 132). In the face of an unpredictable, highly volatile and competitive marketplace, a capacity for innovative, divergent strategic thinking at multiple organisational levels is seen as central to creating and sustaining competitive advantages (Liedtka 1998 in Graez 2002, p. 456). Nestlé uses both planning scenario and strategic business models.
Nestlé Nutrition, an autonomous unit within Nestlé, is responsible for the claim-based business of infant and healthcare Nutrition. This is one of the strategic units of Nestlé created in order to maintain the company competitiveness. This unit aims at delivering superior business performance by developing and offering consumable nutritious products. The unit in particular would strengthen Nestlé leadership in this market hence a key element of the company corporate strategy.Michael Porter (1979) came up with four competitive strategies for business. The first strategy is to be the cost leader which means having the lower cost either across the industry or within the industry segment. An example of across the industry cost leader strategy of Nestlé is its ability to make its entire product available and affordable to consumers regardless of countries. Income disparities exist among countries, so Nestlé produce and repackage products in line with consumers capacities to purchase if different countries. The cost leader within the industry segment would be Nestlé making its product to be the cheapest in the entire industry.
The second strategy is differentiation, which means having your product better or making your service better and unique among the competition. A company can either differentiate its product/service in the industry or across the industry segment just like the cost leader. An example of having differentiation across the market place is the Nestlé makes it products to be major healthy products to consume. In fact, Netslé agreement with L’Oréal in 2008 is a good example of the company continuous product diversification strategy. In Asia and Africa, Nestlé’s strategy has been to acquire local companies in order to form a group of autonomous regional managers who know more about the culture of the local markets. Eisenhardt and Brown (1998) argue that while, traditionally, strategy was about building long-term defensible positions or sustainable competitive advantage”, today strategy must focus on continuous adaptation and improvement and be constantly shifting and evolving in ways that surprise and confound the competition (Eisenhardt and Brown 1998, p. 787 in Graez, F. 2002). The Nestlé Consumer Communication Principles contain mandatory rules on marketing communication to all consumers, including accurate representation and portrayal of foods in a way that does not encourage over-consumption.
Nestlé will continue to remain a competitive global brand for time to come. The structure, organisation and strategy of the company reflect an organisation that is well focus to achieve its stated objectives and goals. As a food, nutrition, health and wellness company, Nestlé has targeted the essential primary motivation for consumer to purchase. More than ever before, consumers are concerned about the nutritional contents of products they consume. Through its global strategic approach, Nestlé has transformed its organisation to a world recognised leader in nutrition, health and wellness. The company Popularly Positioned Product (PPP) strategy is best for Nestlé as big portion of their core competence and resources are directed fast growing product and division. As a markets seeker, Nestlé has the motivation to expand internationally and invest in foreign countries. The organisation knowledge of customers in different contexts has improved its profit margin relative to its competitors.
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