Strategic Management and Business Performance at Nestle - Case Study Example

Question Relationship between Accounting for Decision making and strategic management: Strategic planning is a strong planning tool. Its users daily assess and reassess environmental facts and utilize evaluative knowledge about the prior years exercises to modify the plans strategic objectives and goals. The planning team has their members from different staffing levels and, if at all possible, involve the top management or next in command. While the scenario presented that strategic planning can be achieved without the top management presence on the planning committee, it is observed that such an arrangement is more problematic and dependent on frequent and direct communication. Continuous communication and consultation with the leads of major sectors can compensate for their absence on the planning team. A difference is made between the focus and level of detail in strategic plan elements and what is granted in each department/programs annual goals and action steps. However, a glossary was part of the strategic plan, "goals," "objectives," and "action steps" were not discussed. On the other hand, there were some misunderstandings about how these strategic plan factors fit together. Use the planning committee members to draft everything up to the point of assignment of responsibility and the specific action steps/strategies for achieing the objectives. Such an exercise allows the proper department heads to draft these more detailed statements. If this is not workable, at least include department leads by having them co-ordinate to the committees work. Reading about the theory and mechanics of strategic planning and reviewing other libraries strategic plans, however, are only the first steps toward achieving a workable plan for ones own library and garnering sufficient support to make the plan a reality. According to Edward R (1996) Nestle puts continuously its efforts to understand the better changing lifestyle of people and predict the needs of consumer in order to provide Health and Wellness, Nutrition and Taste through its offerings of the product. The culture of renovation and innovation within the company can access to the group of Nestles brands/technology expertise. They also affect the centralized facilities of the Research and Development which gives a distinct advantage of efforts. It helps the company to create a value that can be supported over the long term by offering the customers a wide variety of high quality safe products of food at affordable price. Brown L R (1991) says that Nestle manufactures the products of the international quality under internationally popular brand names such as MILKYBAR, NESCAFÉ, BAR-ONE, MILO, MAGGI, NESTEA, KIT KAT and MILKMAID in the present years. The Company has also introduced the products of daily consumption such as NESTLE SLIM Milk, NESTLE Milk, NESTLE Jeera Raita and NESTLE Fresh natural Dahl. In India Nestle is a responsible organization that facilitates the initiatives that helps to improve the quality of life in the communities where it operates. Today, the Nestle is the worlds largest and most distinguished food company. It has around 540,000 employees worldwide, which operates 600 factories in approximately 500 countries and offers over 9,000 products to billions of customers equally. Strategic management: Robert G (1987) says that strategic management is the art and science of formulating, implementing and evaluating cross functional decisions that will enable an organization to achieve its objectives. It is the process of specifying the organizations objectives, developing policies and plans to achieve these objectives, and allocating resources to implement the policies and plans to achieve the organizations objectives. Accounting for Decision making: The pillars of decision making is an opinion or conclusion gathered after assumptions and the process which includes are generally thinking, memory and evaluation. The foundations of decision making is the exercise of developing one’s mind about some task and also next way to discuss another basic thing which includes here the Process of choosing from various choices memory, products, and taking action. And focus here should be on the decision making facts, basics and models the strategies for making the most accurate, logical and acceptable choice. In classical normative decision theory the parts of the basic model of decision making under certainty are consider to be accurate sets or function. By crisp it states dichotomous-that is, of the yes-or-no type rather than of the more-or-less type”. Accounting for decision making involves a specific way of managing or viewing the decision making process in business. The decision making process does not consist solely of the choice involved between 2 or more alternatives. Figure 1: Relationship between Accounting for Decision making and strategic management Question 2 Does it makes sense for Nestle to focus its growth on emerging markets? According to Michael G (1997) Nestle operates and generates worldwide with a focus on the markets of Europe, which makes up to 80% of their sales. These markets are in the mature lifecycle state in which the industry and additional changes of demography such as the stagnation of growth rate of population makes it very hard for Nestle to generate greater profits through high sales. As a matter of fact the western economies are facing a decrease in growth and output and thus there is a influence in the customers consumption patterns in the retail business. Consumer is becoming more aware of cost and they tend to spend less time for specialization, product differentiation and customization. Another trend is the shift away from branded beverage and food towards cheap non-branded beverages and foods. The introduction of non-branded labeled products makes the large scale to achieve the economies of scale. Fahey L (1986) feels that the result of increasing the non-brand cheap products offered by opponents Nestle find itself in more established needs of market and develops a new strategy either towards a high degree of international penetration of market or away from branding. The below figure shows the imperative criteria of Nestle: Figure 2: imperative criteria of Nestle Katherine M (1996) found that though Nestle stands for high quality products and has various competencies in producing high quality food, it will not make sense to change the strategic group, because it would be likely get struck in the middle. The correct strategy is to expand the new markets in South America, Asia and Eastern Europe. In these markets the cultural habits, the consumer behavior and the macroeconomic environment are different in the western economies. Most of the markets are in growth cycle and it generates an opportunity because they are the emerging markets. The income levels in the emerging markets will increase, and people will gain a greater purchasing power with the unsatisfied demands. By serving the demands is the correct opportunity for Nestle to penetrate the new markets, and builds up the share market at the same time using their profits to defend their old markets in the western economies with low costs. It does make any sense for Nestle to focus their growth in the emerging markets.  According to Capon N (1987) currently Nestle has important presence in most segments of the market in the developing markets, and the further growth requires either taking the share market from the competitors or enters into new segments of product.  Both of these are expensive and that must be repeated continually to sustain the growth above the economic growth level. In contrast, if Nestle gets a good name in the emerging markets, it will be in a better position to grow in the market and the consumer’s purchasing power develops.  Nestle progressively brings new products to the markets, by accelerating its growth. To conclude the expansion of new markets is important for Nestle if it wants to stay as a global player in future. Question 3 Nestlé’s Strategy with regard to business development in emerging markets: Coker D R (1991) says that today Nestle is the world’s leading food company, with 140 year history and operates virtually in every country of the world. The principal assets of Nestle are not factories, brands or even office buildings. It is the fact that Nestle is a global organization comprised of many religions, ethnic backgrounds and nationalities all working together in one single equal corporate culture. The HR professionals of Nestle will embed into the strategy and evaluates the execution of all the departments in the company. Nestle defines the core activities such as keeping, challenging, finding and developing people of diverse backgrounds which exemplifies the core values of Nestle. There are 3 level strategies of Nestle. They are: Corporate Level Strategies, Business level Strategies and Competitive Advantage. Corporate Level Strategies: The corporate level strategies of Nestle are identified as follows: Product’s growth through renovation and innovation. Long-term objectives. Builds business based on sound human principles and values. Long-term commitment to well being and health of people in every country in the Scope of Nestle operations. Business should be conducted by adhering to the management and values with the organizational principles. Business Level Strategies: Hearne, J.C., (1993) says that the business level strategies of Nestle are identified as follows: Low cost transparency is followed. Differentiation is used to reduce the complexity risk of supply chain and decreases the attractiveness for discounters. Nestlé’s strategy is based on a wide range of local names of brand that are not claimed as “Nestle”. The company uses that approach for the comfort factor that the customer is easier to reach because the customer is habituated to this name of brand and the customers think that they know what they are buying. Similarly, marketing is easier and less costly because estimation, loyalty of customer and distribution channel exits already for the product with that brand name. As a result Nestle focus its different competencies on the technological aspects and improvement of product such as innovation process. To conclude the key factor for the According to John L (1987) Nestlé’s success is customization rather than enlarging globalization. This strategy makes the business success. An example is the success of Nestle milk powder at china market. In 1987 there was no infrastructure and no transportations systems when the company entered in the market. Nestle increases the output of the powdered milk from 400 tons in 1991 to 15,000 tons in 1995. This refers to an increase in the output of 800% per year. These figures show the strategy’s flexibility and the success of the strategy, the stable learning process and the environment monitoring. All these factors combine to make up a sense full and successful strategy. Question 4 Nestle Key Performance Indicators and the performance of the company over the last five years: According to Craig Utley (2008) Key Performance Indicators or KPIs are the metric shown in a scorecard. There are different types of scorecards and all the scorecards will contain KPIs. KPIs are the primary drivers of a business. Many measures are also used as KPIs although KPIs have additional attributes. It is important to understand the difference between KPIs and measures and how they are used. The following are the environmental key performance indicators to analyze the performance of Nestle: Greenhouse gas (GHG) emissions per employee per month Waste disposed of per amount of product manufactured Energy saved due to conservation & efficiency improvements Energy costs per unit of production Water used per amount of product manufacture. Water withdrawal: Hearne. J.C. (1985) says that the total sum of water used by the factories of Nestlé from all sources, include the purchase from the suppliers as well as ground, surface and rain water sources. This includes the water which may be treated through the services of industries such as demineralizing and softening non-contact cool water, water used by itself as a raw material and water used for cleaning but does not include the contained water in raw materials. Energy consumption: Oliver D (1992) says that the total sum of all the consumed energy on the factory sites of Nestlé , whether produced or purchased with less energy and in some cases, it is sold. This includes the purchased hot water, purchased steam, purchased electricity, energy required for producing energy and steam generated from fuels including from by-products used for recovery of energy. This indicator considers all the sources of energy used in each site of factory as well as in all the activities and processes including both the activities of business and production that takes place in the factory site. Total water discharge: The total sum of all the effluents of water is discharged from the factories of Nestlé. Water effluents are generated in manufacturing from cleaning, processing, and in cooling processes. Greenhouse gases: The total sum of all the on-site gas emissions of greenhouse at the factories of Nestlé arise from the process of combustion which are used to manufacture the CO2 as well as the product equivalents from refrigerants. These emissions of greenhouse gases result from fuels burning in roasters, electric generators, boilers, dryers, and from refrigerants losses. Greenhouse gases also arise from business travel and transportation. Air acidification: The total sum of all NOx and SOx gas emissions at Nestlé factories result from the whole onsite consumption of energy converted into SOx equivalents. Potential for Ozone depletion: Hunt Carle M (1997) feels that the total sum of the substances that Nestlé factories emit have been shown to have contributed to the ozone layer depletion which has a potential of ozone depletion. The common measurement unit is equivalents of R-11. R-11 is one type of refrigerant, which has been assigned a potential of ozone depletion of one, with all other substances of ozone depletion that was assigned with relative values. The potential of ozone depletion of each substance is determined using conversion factors by similar authorities. These substances are refrigerants in equipment used to freeze or cool products. By-product: Any materials which are generated during the product manufacture that leaves the factory is destined for recovery or reuse including composting, incineration and recycling with heat recovery. They are not limited for the manufactured product and they include all the materials to support the manufacture. Waste (for disposal): John P (1990) says that the waste is a material, which arises during the distribution stage of a product or manufacture at a factory site that is used for the last disposal to offsite, incineration or landfill without heat recovery. The below table shows the performance analysis of a company over the last five years: Figure 3: Performance analysis of Nestle over the last five years Source: Prabhakara P (2002), Nestle Novel, France, Apollo publication Question 5 Nestlé’s strategic posture at corporate level: According to Mint berg H (1994) Multi domestic strategy refers to a business model which focuses on the local needs rather than the global markets. The multi domestic strategy collects and analyzes the data from small areas to determine the better scenario case for a period of growth. Global strategy also uses the relevant data for the purpose of marketing in the whole world. Hornfischer D (1995) says that Multi domestic strategy is an international strategy in which the operating and the strategic decision are decentralized to the unit of strategic business in each country and allows that unit to classify the products to the local market. Multi-domestic Strategy is used for a: Customized Product for each market. Decentralized control - local decision making. Effective when big differences exist between the countries The advantages of local responsiveness, product differentiation, minimized exchange rate risk and minimized political risk. The below figure shows the multi domestic strategy: Figure 4: Multi domestic strategy Question 6 Nestlé’s multi domestic strategy: Multi Domestic Strategy in Nestle: Morrison J L (1984) feels that Nestlé describes itself as a health, nutrition, and food and wellness company. Recently Nestle has created nutrition which is a global organization business that is designed to strengthen the focus on Nestlé’s core nutrition business. Nestle believe that the strengthening and their leadership in the market is the key factor of their multi domestic strategy. This market is classified as one in which the primary motivation of a consumer for a purchase is the claims made by the product based on the content of nutrition. According to Davis R (1985)In order to reinforce the competitive advantage Nestlé has created Nestlé Nutrition as an autonomous business unit within the organization, and charge it with the profit and loss and operational responsibility for the claim-based business of Performance Nutrition, Infant Nutrition and HealthCare Nutrition. Mandy J (1987) says that This unit aims to supply the superior performance for business by offering the customers trusted, with science based nutrition services and products. The current multi domestic strategy of Nestle can be given as follows: Figure 5: Multi domestic strategy of Nestle William L (1992) says that the Unit of Corporate Wellness was designed to combine value-added nutrition in their beverage and food businesses. This unit will drive the health and wellness, nutrition, and nourished organization across all their beverage and food businesses. It encompasses a major effort of communication both externally and internally, and strives to align closely the R&D expertise of Nestlé’s scientific with the benefits of consumer. This unit is responsible for integrating horizontal, cross-business projects which addresses present concerns of customer as well as anticipating the future trends of consumer. Question 7 Alignment of overall strategy with strategic goals of Nestle: According to Whitely M A (1993) Nestlé acts on the principle of “think global – act local”. Research & Development is structured accordingly. The process development and the global product is combined vertically in all the core business of Nestle and it is pushed out locally to the markets with some 600 factories in 150 countries around worldwide. Nestle is a world wide firm and it highly focuses on strong stretegies and policies for the best results. 300,000 Nestlé people make a valuable contribution by their links across all the sectors. In the local level, Nestlé communicate daily with over 2 billion customers. James L (1985) says that the Research & Development structure offers the flexibility to use the big source of local ideas, and develop them and brings them back for global implementation. This adds the power of the broad-based insight of customer to the power of innovation. Local and global approaches helps you These local and global approaches together give the capacity for vast response in a faster changing socio-economic of global environment. According to Nuefewld W P (1985) for strategic alignment, Research & Development interfaces with the Strategic Business Units. The Strategic Business Units coordinate all the strategies within the individual business categories of Nestle. This includes competitive analysis, investment, quality, key performance indicators, portfolio management & standards of strategic brand. The below figure shows the management structure of Nestle: Figure 6: Management structure of Nestle The Nestle Research & Development Center is recognized internationally for their record breaking work in the nutritional and food sciences. In house expertise, they are reinforced by the collaborations with the winners of Nobel Prize and prestigious universities, provides a strong base for the innovation of Research & Development across all the business sectors of Nestle. The Business Technology Centre enhances and develops all the systems of Nestlé’s business to improve their operations and efficiency constantly. Schwartz F (2002) says that There are 8 Product Technology Centre and each centre are employed in a single location with mass experts in engineering and food technology to act as a hub for all the process development and global product in one or more businesses of Nestle. There are 9 Research & Development Centre that have a double ocal/global role, which works closely with the PTC in joint projects, but fulfills the regional needs requiring the input of Research & Development. Prabhakara P (2002) says that there are two hundred and eighty Application Groups based in the factories of Nestlé that supplies the Research & Development process at the local level, and ensures that the products comply with the taste preferences and local regulations. They also work with the experts from Research & Development Centers and Product Technology Centers in the factories to test and install new lines of process and ensure first-line follow-up in the day-to-day operations. Thus it is evident that Nestle’s management structure and philosophy is aligned with its overall strategic posture. In addition, Nestlé would not have been able to make the right decision on which strategy it should undertake in different markets unless it has used SMA. For example, as Nestlé aimed to be a cost leadership in emerging markets (Case Study). Therefore, SMA was important for the company, as it enabled Nestlé to transfer cost and cost structures as well as determining a number of techniques through which it can operate more efficiently. Thus, SMA plays an important role in helping Nestlé to shape its costs to fit its strategic objectives. References: 1. Edward R (1996), The learning factory, Lanham, MD: University Press of America. 2. Brown L R (1991), How to Shape An Environmentally Sustainable Globe, New York, W.W. Norton. 3. Robert G (1987), Strategic planning clarified. Washington, Clearinghouse on Higher Education. 4. 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