Nestle SA

And their Strategic Management

I.

Company Background

Nestl S.A. is a Swiss multinational nutritional and health-related consumer goods company headquartered in Vevey, Switzerland. It is the largest food company in the world measured by revenues. Nestls products include baby food, bottled water, breakfast cereals, coffee, confectionary, dairy products, ice cream, pet foods and snacks. Nestl employ around 330,000 people in over 150 countries and have 461 factories or operations in 86 countries. Nestl sales for 2011 were almost CHF 83.7 billion. It is one of the main shareholders of LOreal, the worlds largest cosmetics company. Nestl history begins back in 1866, when the first European condensed milk factory was opened in Cham, Switzerland, by the Anglo-Swiss Condensed Milk Company. In Vevey, Switzerland, Nestl founder by Henri Nestl, a German pharmacist, launched his Farine lactee, a combination of cows milk, wheat flour and sugar, saving the l ife of a neighbours child. Nutrition has been the cornerstone of the company ever since. In 1905, The Anglo-Swiss Condensed Milk Company, founded by Americans Charles and George Page, merged with Nestl after a couple of decades as fierce competitors to form the Nestl and AngloSwiss Milk Company. The company grew significantly during the First World War and again following the Second World War, expanding its offerings beyond its early condensed milk and infant formula products. In 2011, Nestl was listed No.1 in the Fortune Global 500 as the worlds most profitable corporation. The Nestl Corporate Business Principles are at the basis of the companys culture, developed over 140 years, which reflects the ideas of fairness, honesty and long-term thinking. Nestl believes that not only possible to create long-term value for their shareholders if their behaviour strategies and operations also create value for the communities where they operate, for their business partners and of course, for their consumers. Nestl vision is to meet the various needs of the consumer everyday by marketing and selling foods of a consistently high quality. Their objectives are to deliver the very best quality in everything they do, from primary produce, choices of suppliers and transport, to recipes and packaging materials. Their mission is they strive to bring consumers foods that are safe, of high quality and provide optimal nutrient to meet physiological needs. Nestl helps provide selections for all individual taste and lifestyle preferences.

Nestl purpose is to offer safe, tasty, convenient and nutritious foods to improve health and wellbeing of consumers of all ages all over the world. To meet the needs and desires of todays and tomorrows consumers, Nestl is strongly committed to Research and Development (R&D) to improve products and develop new foods with specific health benefits.

II.

Case proper

Nestl Company encounters higher levels of competition than it currently experiences. Any increase in the competitive environment may have an adverse effect on Nestls business, earnings and growth. Through effective competitive intelligence, the firm gains the insights needed to create a competitive advantage and to increase the quality of the strategic decisions it makes when deciding how to compete against its. The brand image of Nestl is one of the most important sources of competitive advantage. Through the research and development (R&D) capabilities allow Nestl Company to lead the way in innovation and provides for maximum portfolio flexibility. The extraordinarily large scope of Nestls business provides for significant economic of scale in manufacturing, marketing, and administration. For example, Nestl established a number of ventures for growth into new areas related to wellness and nutrition. Nestl moved into the area of nutricosmetics, under the brand name Inneov a joint venture by Nestl and LOreal. This strong brand reputation is built due to high quality of the products and customer satisfaction. Competitors rivalry in this market is really intense; it is because in Nestls market there are a lot of branded rival such as Kraft, Unilever, Masterfoods, Johnson & Johnson, and Wal-Mart.

Innovation is one of Nestls key competitive advantages. They have more t han 140 years of research, development and scientific know-how. While there is a great deal of pure and applied science research that takes place in their global R&D centres, Nestl ensures that the consumer, and the consumer benefit, remains at the core of all their activities. To be successful in todays food and beverage sector the cost component is critical and economic of scale are a main cost driver for Nestls Company. Between the shelf share of multi billionaire brands and recent push of retailer driven private label products a new entrant would be challenged into executing a successful distribution strategy. The main threat of this company is their competitors, which is come out with foods and beverages as well, if they go higher than price ceiling, the other competitors will win by setting up lower price, but if they go lower than that, competitors will easily eliminate them in market place. That is why the rate of competition is really high and Nestl was also facing a strong competition at the national and regional level. Nestl Company have strategic advantage over their competitors because their will increase Nestl value by ensuring long term availability of raw materials and water, more secure supply of better quality raw materials, producing products with improved environmental performance, profitable growth, consumer preference for their products and sustainable, and also to continuously improving environmental performance.

Nestls products and brand portfolio ranges from global icons to local favourites. It is supported by an unmatched research and development capability, with clear priorities, focused on driving innovation and renovation that is relevant and attractive for consumers. Nestl Company has an unmatched geographical presence, due to the number of countries where they are present, but also due to the depth of their roots in those countries. They have operated in most of their locations for generations. This has created strong relationship between their brands and their consumers as well as an unrivalled understanding of consumers. This enables them to anticipate their needs and improve the quality of their lives. Their people, culture, values and attitude are their greatest strength. The Nestl culture binds their people together all over the world with a shared set of doing business. Their culture combines a long-term mind-set with short-term action. It encompasses a passion for quality in products, in relationships, in everything they do. It is focused on competitiveness, calculated risk-taking and an unswerving determination to deliver their goals, while creating value for society as a whole.

Nestl Company wants to be a leader in innovation and renovation, whether of products, systems or processes. They need to have the most efficient supply chain, from farm to fork to ensure that they have the best raw materials, the bet processes and the freshest products on their customers shelves. Nestl Continuous Excellence is their approach to operational efficiency, with its objectives of eliminating waste, increasing efficiency and effectiveness, and improving quality in all operations. To make the most innovative products in the most efficient way, they also need to ensure that their products are available sustainably wherever, whenever and however consumers want to buy them. Of course, they need to communicate with their consumers in a dynamic way, both to keep them abreast of all that is new and exciting, but also to learn from them, so that Nestl can bring their experiences to bear on their upcoming innovation and renovation.

III.

Case Analysis

A. Viewpoint In my viewpoint, Nestles strategic management should be a great example to all companies specially food inclined industries because they have been in this industry for over a century even before World War 1. This is an example that strategic management is a vital role in business world because it makes you thrive and succeed in the business world. B. Significant Case facts Nestls objectives are to be recognised as the world leader in Nutrition, Health and Wellness, trusted by all its stakeholders, and to be the reference for financial performance in its industry. They believe that leadership is not just about size, it is also about their behaviour. They recognise trust is earned only over a long periods of time by consistently delivering on their promises. These objectives and behaviour are encapsulated in the simple phrase, Good Food, Good Life, a phrase that sums up their corporate ambition. The Nestl Roadmap is intended to create alignment for their people behind a cohesive set of strategic priorities that will accelerate the achievement of their objectives. These objectives demand from their people a blend of long-term inspiration needed to build for the future and

short-term entrepreneurial actions, delivering the necessary level of performance. They are seeking to achieve leadership and earn that trust by satisfying the expectations of consumers, whose daily choices drive their performances, of shareholders, of the communities in which they operate and of society as a whole. They believe that it is only possible to create long-term sustainable value for their shareholders of their behaviour, strategies and operations are also creating value for the communities where they operate, for their business partner and also for their consumers, and they call this Creating Shared Value. They are now investing for the future to ensure the financial and environmental sustainability of their actions and operations in capacity, technologies, capabilities, in people, in brands, in R&D. Their aims to meet todays needs without compromising the ability of the future generations to meet their needs, and to do so in a way which will ensure profitable growth year after year and a high level of returns for their shareholders and society at a large over the longterm. They believe strengthening their leadership in this market is the key element of their corporate strategy. This market is characterised as one in which the consumers primary motivation for a purchase is the claims made by the product based on nutritional content. In order to reinforce their competitive advantage, Nestl created Nutrition as an autonomous global business unit within the organisation, and charge it with the operational and profit and loss responsibility for the claim-based business performance by offering consumers trusted, science based nutrition products and services. The Corporate Wellness Unit was designed to integrate nutritional value-added in their food and beverage businesses. This unit will drive the nutrition, health and wellness organisation across all their food and beverage businesses. It encompasses a major communication effort, both internally and externally, and strives to closely align Nestls scientific and R&D expertise with consumer benefits. This unit is responsible for coordinating horizontal, cross-business project that address current customer concerns as well as anticipating future consumer trends. Nestl business-level strategy is integrated cost leadership or differentiation with wide range of products and low cost operators. Nestl strategic leadership is to force the business to become more

efficient, to create a regional manufacturing network, integrate the companys business on a global scale and to reduce marketing expenditures by exploiting the synergies between brands. Their strategy to develop R&D network by improving existing products and creating tomorrows nourihsments, two third of companys R&D activities are dedicated to renovating existing products, the remaining third is reserved for radical product innovations, improve on operational level and a number of organisational changes. C. Problems One of weakness of Nestl can be pointed out that there are too many distribution channels for certain products. The main weakness of the LC-1 division of Nestl is that they were not as successful as they thought they would be in France. The launch in France was in 1994, but since the late 1980s, Danone had already entered the market with a health-based yogurt. The second weakness is that LC-1 was positioned as too scientific, and customers did not understand that LC-1 was a food and not a drug. Nestl do not have direct market outlets and this can be one of the weaknesses as it can cause difference in profit made. They are not having enough raw material production units; they depend on either local raw material producers or through other trade channels. a. Threat of Substitute Products Due to the nature of the industry, Nestl is afflicted with the threat of substitute goods. Ranging from ice cream, frozen foods and confectionaries to pet food, there are arrays of similar products that compete directly with Nestl. b. Intensity of Rivalry Among Competitors Nestle is powerhouse in the food processing industry but so are Kraft, Masterfoods, and Unilever, Nestle was also facing strong competition at the national and regional level. These companies, among others, are in a constant and continuous battle to outperform one another. Nestle was increasingly facing fierce competition as many food producing rivals had achieved significant improvements in their operating efficiency. Rivalry is fierce in the food processing industry, and this is a good thing for consumers. As long as these

companies continue striving to one up one another, consumers will continue to enjoy everimproving product lines.

D. Alternative Courses of Action

For the threat of substitute products : It is vital for Nestl to continuously find new ways to improve its products and generate new sources of growth for the companys future expansion because competition is so violent. In recent years, Nestl has focused on the health and wellness aspects of its products to maintain its edge in the market. For the intensity of rivalry among competitors : The Porters Five Forces Model depicts a competitive, but profitable market for the food processing industry. Furthermore, the model places Nestl in a somewhat comfortable position within the food processing industry, while acknowledging the threats to its market share. Specifically, the model notes a moderate threat of new entrants into the market and a substantial threat of substitute goods. In addition, the model shows that Nestl tends to maintain the upper hand over its suppliers as commodities have exact substitute in the market. And also, their customers have a considerable amount of bargaining power, as Nestl must adhere to consumer wants and needs because there are so many close substitutes. For the final force, the model depicts a large amount of rivalry within the food processing industry. E. Analysis of ACAs a. Improvement of products for Nestle wont be too much costly as it seems for other companies because of Nestles investment in Research and Development it invested before, here is achart of their R&D Centers :

b. Again, Research and development will be a great asset in fixing their problem in increasing competitors and rivalry, this was predicted by nestle before that is why they established an R&D Worldwide to avoid these problems.

F. Recommendation

The theory based frameworks and models might be very useful but the application in practice might be achieved very hard. It will also depend on the execution skills of the companies and the organisational culture. Nestl Company is an international company which came to the stage it is today by gaining superior competitive advantage over its rivals. The focus product differentiation strategy has been very successful although it may not work for other firms. The company is able to create and deliver value not only by offering distinguished products but also gaining effectiveness and efficiency by reengineering its business processes. By doing all recommendations and follow all these steps of strategic management processes, I am sure that Nestl Company will do better in the future than their competitors and might be the new trendsetter in some criteria and also gain its above-average returns to their company. G. Implementation Plan a. Targets To apply their strategies in order to stay in their track and still be the no. 1 Food industry. b. Program, project, activities To achieve the target you should know the activities that nestle has and its capabilities. Capabilities are often based on developing, carrying and exchanging information and knowledge through the firms human capital and also often developed in specific functional areas, such as R&D, marketing, manufacturing, management and so on. In this section, I briefly evaluate of Nestls capabilities : Distribution Nestl distribution network ensures that every day more than 100.000 tonnes of products are transported to customers from their factories and distribution centres. Optimises their distribution network such as transport and warehousing in order to minimise greenhouse gas emissions, to ensure the most efficient use of their transport to reduce the distances travelled.

 Management Information System By using their research for Information Technology, control all aspects more efficient. Marketing Famous brand name and efficient strategy to meet the taste of each type of consumers. To increase sales and build an image in the mind of consumer, Nestl Company advertise their product in different ways, as for as Nestl pure life is concerned company use television, radio, newspaper, bill board. Management Nestl Company has a Board of Directors, led by their Chairman Peter Brabeck Letmathe, who was the former Nestl CEO. The day to day management of Nestl business is taken care of by Executive Board members composed of company executives and department heads. Manufacturing Nestl produced a probiotic especially for all infant formulas and created and patented a spray drying process, used in manufacturing milk powders and Nescafe was first used to make powdered paint dispersions. R&D Nestl Company first acquired the milk sterilising site to develop milk products and processes. Nestls is boosting its research and development in Switzerland by extending its Product Technology Centre (PTC) in Konolfingen. The extension will help to enhance Nestls innovative technologies for new product development and apply these to the companys operations worldwide.

c. Timeframe i. 10-20 years. This is a long term target that should be done and be researched on if problem occurs on the way. d. Man power Requirements o The Company employs around 330,000 people, operates in over 150 countries. o Nestl provides training on the Code, with staff from the 14 departments that are part of the Codes compliance system participating in yearly or twice yearly training.

H. Fallback position If the company did not do this strategic management anymore in the future, I think they will be topped off by their rivalry specially they are in a food industry that changes and varies by culture. Strategy is everything.