Business Strategy and Pestle Analysis of Nestle - Essay Example

? Along with operational changes, Nestle broadened its vision and positioned itself as nutrition, health and Wellness Company from a food and beverage company. However, the company has other alternatives on expansion and growth. 1. Pestle analysis Political – this factor has high impact because any changes and amendments concerning food and health are subject to regulatory approval by the European Commission as competition issues are involved (McNally, 2007). Economical – the wellness industry is poised for growth at the global level. Organizations are adopting wellness strategies such as educating people on education and health. Social – while science continuously warns consumers of the ill-effects of obesity and demonstrates the role that diet plays in maintaining good health, the people do realize the benefits. Disposable income is on the rise and the living standards have improved. In mature economies, between 30-50% of the people spend on food outside the home. Technology –Keeping the interest of the consumers in mind, Nestle’s investment in R&D has more than doubled since 1988. Besides, each of the Product Technology Centres (PTCs) is responsible for category specific innovations which are aligned with their core business. They also have scientifically proven products for special needs. Legal – the company has to be within the legal framework of the geographical region in which it operates. Environmental – Nestle ensures lower resources are used which means reduced generation of waste. An analysis of the PESTEL factors suggests that the political factor has a high impact on its chosen strategy as competition issues are involved. However, since the wellness industry is poised for growth, Nestle can look forward growth. The society is well educated and has become health conscious which is in favor of Nestle. To continuously meet the consumer demands and the lifestyle changes, Nestle keeps itself updated on technology through constant Research & Development. It invests in technology and has a low impact on the environment. 2. Porter’s Five Forces Analysis Suppliers – they buy most often directly from buyers in the markets they operate and since they are bulk buyers, the supplier power is low. They even offer technical advice to the suppliers. Buyers – the buyer power is high as there are several competitors that have entered the segment. Threat of new entrants – is low because of the high capital involvement in research and development. Substitutes – as people have become health conscious, and have increased knowledge of nutrition, they would not opt for something that is low cost. Competitive rivalry - They are better positioned than the competitors to understand the trends in the world; the only company with big nutrition business and a big food business. This suggests that Nestle enjoys a comfortable position in the industry because of its high bargaining power with the suppliers, and low threats from competitors due to its investment in technology and innovation. The consumers too are less likely to migrate because of lack of availability of substitutes. The industry is attractive as most forces are weak. 3. Value chain Any person, process, product or brand that adds value to a product or service constitutes a value chain (Mascarenhas, Kesavan & Bemacchi, 2004). Adding value is the strategic means to adding value and achieving competitive advantage. The value chain model helps to analyze each individual activity and assess its contribution. In-bound logistics - they produce locally, use less packaging and produce the unit size to local needs. Operations –They use state-of-the-art machines and innovative design for their products and packaging. Roasting and grinding is also based on expert technology; overall sustainable practices. Out-bound logistics – they can reach the products to the consumers quickly in multiple forms. Where necessary they replace the tradition models of delivery through local carts or even use local kiosks for display. They also have distribution channels in department stores or standalone exclusive boutiques. Marketing and sales – they do not go for volumes in sales but value or quality. Service - They offer service 24x7 and delivery takes place within 48 hours The value chain demonstrates that Nestle attempts to maximize value in each element of the chain – be it in people, product or process. They keep the costs to the minimum by sourcing locally, which also ensures that local needs are met. Technology helps them keep ahead of competition in their operations while their outbound logistics is as efficient. 4. SWOT Strengths – Product and brand portfolio Products are used by people every day of their lives. Investments in R&D are phenomenal Global presence, time-tested expertise Weakness – chances of complacency, power structures, cultural web, managers in the organization for decades can stifle creativity. Opportunities – developing economies, consumer changes in lifestyle thereby affecting demand positively. Threats – duplication of products and processes by competitors. 5. Cultural Web The cultural web represents the taken-for-granted assumptions of an organization and includes the stories, rituals, power systems, control structures and the organizational structure (Seel, 2000). The paradigm influences how we feel and behave and these have a major effect on perception. It is easier to understand an organization through the paradigm of culture. Nestle boasts of a strong personal culture and rely more on their culture than on management systems. The managers are deeply aligned with the objectives and principles of the company. They develop local management as soon as possible as it ensures meeting local needs and understanding local nuances. They provide extensive training in the beginning and most of their managers have been around for 25 years. The control however lies with the headquarters in Switzerland. They provide the direction to their subsidiaries. Thus, the power structures at Nestle are very strong and the rituals are unwritten but expected to be followed. Control system is high although local units are provided autonomy to operate within the framework. 6. Strategy evaluation – suitability/acceptability/feasibility Strategy Suitability Acceptability Feasibility Accept/Reject 1. Health, nutrition and wellness High margin high growth Can bring the product to consumers in multiple forms Technically difficult as nutritional requirements differ across regions. Reject 2. Emerging markets High prospects; Focus on technology and innovation New business models required; alteration in marketing mix Built on deep agricultural supply chains, strong local market teams Accept 3. Out-of-home consumption Lifestyle changes and high potential make it suitable Control processes, organizational structures and power systems – the paradigm of culture. Strong vision and swift execution but limited products Complicated market with many actors having diverse relationship with consumers. Reject 4. Premiummization Demand even in the developing world. Focus on value not volume. Chances of complacency are high Excellent distribution network Limited market. Reject Nestle should focus on emerging markets as the demand is high and the growth potential is immense. This is the low-risk alternative built on local market teams which is compatible with the cultural web, the power structures and the control system prevalent in Nestle. 7. Bases of competitive advantage – “the strategy clock” This helps to analyze the company’s competitive position in comparison to competitors. Source: Strategic Choice n.d. Nestle does not believe in volume and hence does not make cheap offerings. Therefore, they cannot pursue a strategy of low price and low added value. At the same time, if they cater to only the luxury and the premium segment, the market will be limited. This segment values quality but wants differentiated products and would be willing to pay the premium. However, the market will be limited. Nestle should hence pursue a strategy of medium-priced but with differentiation which would yield market share benefits. All products need not be sold in all markets. This strategy would enable them to attract premium price on certain products. References Mascarenhas, OA Kesavan, R & Bemacchi, M 2004, 'Customer value-chain involvement for co-creating customer delight', Journal of Consumer Marketing. vol. 21, no. 7, pp. 486-496 McNally, A 2007, 'Nestle buys Novartis Medical Nutrition in long-awaited deal', Retrieved online 17 January 2011 from: http://www.nutraingredients.com/Industry/Nestle-buys-Novartis-Medical-Nutrition-in-long-awaited-deal Seel, R 2000, 'Culture and Complexity: New Insights on Organisational Change', Organisations & People, vol. 7, no. 2, pp. 2-9 Strategic Choice, n.d., Strategic Choice, Chapter 11, Retrieved online 17 January 2011 from: http://www.oup.com/uk/orc/bin/9780198782292/ch11.pd Read More