Strategic Management at Nestle - Essay Example

Strategic Management Contents Introduction 3 Discussion 4 Conclusion 11 Recommendations 12 References 14 Introduction Strategic management encompasses implementation and formulation of major initiatives and goals taken by top management of an organization. This approach has its importance in every other organization. It helps in efficiently executing business operations as well as strengthens position of the company in a highly competitive industry. The top authority frames organizational goals on the basis of available resources and assessment of external and internal business environments. Strategic management helps in providing overall direction to a firm and facilitates policy development so as to achieve common objectives. In this approach, resource allocation plays a major role as implementation of a plan requires wide array of resources. There has been numerous models and frameworks developed by practitioners in context of strategic decision making. This approach cannot be considered as static in nature and the models comprise of feedback to monitor execution. Strategies are designed by organizations in order to obtain valuable and unique position in the market place. Strategic management helps an organization to identify its areas of strengths that can be utilized to obtain desirable goals and objectives. In this particular study, strategic management at Nestle will be thoroughly analyzed. Nestle is a Swiss multinational company belonging to the food and beverage industry. The company has its headquarters in Vevey, Switzerland. Nestle can be stated as the largest food company in context of revenue margins. A merger of Anglo-Swiss Milk Company led to the formation of Nestle in 1905. The company has expanded its business operations through product diversification strategy. It initially manufactured infant formula products and condensed but later shifted into wide range of products such as bottled water, tea, coffee, breakfast cereals, baby food, dairy products, frozen food, confectionary, snacks, ice-creams and pet foods. On the other hand, the company has even done series of corporate acquisitions so as to sustain its position in the industry. Discussion Nutrition can be stated as the core principle in Nestle’s business operations. However in the current scenario more emphasis is given on this factor along with wellness and health. Individual business units and corporate wellness units of Nestle are major driving forces in Good Life, Good Food to end users. The global population has witnessed a tremendous growth and it has summed up to six billion. There have been changes in lifestyle and even living standards have improved in comparison to earlier times. Apart from these other demographic factors had a significant influence on the company (Hitt, Duane and Hoskisson, 2012). This is even reflected in the products manufactured by the organization and procedure of its business operations. The company is driving nutritional innovations through science-based expertise and nutritional research. For instance, BAB or Branded Active Benefits is one such example of nutritional innovations. The objective of this concept is to add to an existing product specific health benefit. This kind of value-addition is done in such a manner that it is relevant and meaningful to end consumers. Nestle has incorporated a unique strategic direction so as to enhance nutritional content of its product line. Customers are able to enjoy health benefits through this strategy in terms of healthy physical growth and digestive health improvement. On the contrary, providing nutritional information is not sufficient to retain wide base of loyal customers. Food and beverage industry is a highly competitive segment. In order to survive in this sector innovative policies need to be implemented and hidden demands of consumers are required to be catered (Pringle, 2008). The company has gone to a broader context of nutritional innovations by developing user friendly packaging with full information related to nutrition in their products. There are three elements comprised in such strategic formulation such as good to know, good to talk and good to remember. In the first aspect factual information is provided to customers on nutritional content, and then tips are given regarding diet, healthy lifestyle and diet. Finally the company invites each consumer to official website for their respective opinions and complaints. On a broader scale it can be stated that the company believes in developing strategies in favor of their target audience (Peng, 2013). Research and development is a vital component in overall success of Nestle. This company’s network is spread across 50 countries and it employs more than 5000 people. The top authority of the company believes in hiring highly skilled employees in the team who can apply scientific knowledge and creative ideas within its diverse product category. This kind of managerial approach encompasses various professional areas such as life sciences, production processes, ingredients and raw materials (Mcfarlin and Sweeney, 2008). The company even strengthens its R&D capability on the basis of innovative partnerships. In this approach of strategic management long-term relationship is maintained with suppliers so as to ensure there are no delays in product delivery. On the other hand, this mechanism even enables a firm to share advanced technology platform with its wide base of suppliers. The company is able to provide safe and high quality food solution to end users across the globe since it combines all global R&D resources. Integrating regulatory affairs from initial to final stage in all R&D activities is the basis of efficient and quick launch of Nestle products (Allen, 2006). There is a constant upgradation of products done by the company. This is simply because with changing lifestyle of customers their preferences and needs even changes. The other strategic approach adopted by the firm is in the form of putting customers first. Nestle’s business operations is solely dependent on customers as they select its products in comparison to competitors (Magretta, 2013). Over a billion items is sold by the company and each transaction made by customers adds up to total annual sales. In order to achieve growth and success the firm needs to build trust amongst customers both for Nestle products as well as the company. This is indeed a challenge for the company, as motivation or needs of different age group such as toddlers, adult, babies, growing children, etc., is required to be effectively analyzed. The aim of this firm is to identify customer needs efficiently in relation to other players in the industry (Aaker, 2001). Customer-oriented strategy implemented by the firm is its key to success. It can be stated that Nestle firstly analyzes hidden demand of target group and then manufacture products accordingly. Employees too are aligned with needs and demands of consumer market. There are executives who spend days and years while observing customers at shops and their homes. This has proved to be an effective strategy since it combines creative skills with realistic needs and wants (Andersen, 2006). In comparison to quantitative studies such hands-on research can be regarded as more rewarding. Industry analysis is an essential component for any business. Michael Porter’s five forces model helps in determining various industrial forces. There are five main components in this framework such as intensity of existing rivalry, bargaining power of suppliers, bargaining power of customers, threat of new competitors and threat of substitutes. All these factors portray the competitive position of the company in the market place. This model is the basis of strategy formulation in Nestle. The industry size in which the company operates is large and there are limited competitors for the company. Nestle has achieved competitive position due to its strategy of maintaining nutritional content in its products. The growth rate of this industry is comparatively faster and few competitors enable the firm to explore wide array of market opportunities (Batey, 2012). Bargaining power of suppliers is low since there is low cost in switching suppliers. On the other hand, there is great deal of competition amongst suppliers in terms of offering quality products to manufacturers. It can even be stated that such low bargaining power facilitates higher demand from the company side. There is an added advantage of reduced lead times as suppliers are bound to deliver specified products within a given time period. Nestle is one of the leading companies in the food and beverage industry. This aspect clearly highlights that it has posed a strong entry barrier for other players in the market. Threat of substitutes as per the model is relatively low. Since substitutes of the company has lower performance. On the contrary, there is limited number of substitutes for the company. These substitutes offer much lower quality products in comparison to Nestle. It has been able sustain its position in the industry as it analyzes hidden demand of customers and position its products accordingly (Cole, 2003). However the bargaining of power of customers is high as there are other firms offering similar kind of products. The switching cost of customers is low and hence Nestle has incorporated customer-oriented business approach by keeping customers in the first place. This company considers its loyal customer base as the most important stakeholder. Living up to customer expectations is a major challenge for the company but this strategy even helps the firm to be close to its target group. Threat of new competitors is high as customers are likely to shift to a different brand which offers higher product quality at reasonable prices (Ulwick, 2005). In order to develop an entry barrier for new entrants the firm needs to have strong distribution network. High capital investment is required to develop such network and manage operations across the globe. Customers tend to be loyal towards existing brands in the industry. Hence it is important for the company to build a strong brand name by delivering innovative products to meet hidden demand of consumers (Simerson, 2011). Five Force’s model of Michael Porter states the different dimensions of strategic management at Nestle. The diverse brand portfolio of the company helps in effectively handling industrial forces. Nestle covers all beverage and food categories such as dairy and milk products, breakfast cereals, ice cream, coffee, nutrition, chocolate, etc. Many brands can be defined as having category leadership both in global and national context. There are certain Swiss characteristics identified in the company’s business operations. For instance, the organization is hard working, reliable, pragmatic and effective (Lasserre, 2012). The business objectives of Nestle are to market and manufacture its product line in a manner so as to sustain it for longer time period. It believes in creating value for employees, business partners, shareholders, consumers and national economies where business operations take place. Management of the company gives more importance to long term business development in comparison to short term profits. They even recognize that customers possess legitimate and sincere interest in actions, belief and behaviour of firm behind a particular brand. This interest level facilitates formation of trust between a company and customer. Sourcing of raw materials is an essential factor in business strategy framework (Proctor, 2014). Nestle sources its raw materials for manufacturing either directly from farmers or through any form of trade channels. It has adopted agricultural best practices so as to sustain nutritional content within its product from the initial stage. The company has its own 800 technical advisers, field technicians and agronomists. Their major job is to support business operations by providing technical assistance and this in turn enhances production quality, efficiency and output. Space Matrix analysis in strategic management can be effectively utilized in case of Nestle. As per the framework, strategic posture of the company is more aligned towards aggressive behaviour. Industrial and financial strength are two essential factors which drives competitive position of the company. The company uses its innovative product line either for market penetration or for market development. On the other hand, Nestle even focuses more on diversification strategy may that be related or unrelated. For instance, the brand’s presence is observed in beverage sector as well as in cereals (Henry, 2011). Nestle market its product in various countries and hence it can be stated that it not only implements product diversification strategy but even market diversification approach. Figure1 describes the space analysis map of Nestle. Figure 1: Space Matrix (Source: Porter, 2013) According to figure 1, Nestle takes advantage of its financial arm in order to position its food and beverage products in the industry. Product development concept enables the firm to cater hidden demand of customers or explore hidden market opportunities. BCG matrix is another strategic tool that outlines competitive position of each product category of a firm. Figure 2: BCG Matrix (Source: Hoskisson, Hitt, Duane and Harrison, 2007) Figure 2 resembles the position of Nestle products in respective segment. This graph highlights the growth share of the company in terms of its business units. Milk products, Nestle Milo and Coffee are represented as cash cows since it operates in a slow growing industry and generates cash higher than the cost required to maintain business. These products possess the highest market share amongst all Nestle products. On the other hand, dogs denote the break-even point where minimum cash is generated in order to sustain business operations. Nestle cornflakes and chocolate drinks fall in this category since they have low market share and are a part of slow growing industry (Wintzer, 2007). Question marks in this model are supposedly the initial phase of any business. Nestle’s culinary products and ice cream are new offerings in a market of high growth rate. However in the starting phase these products have comparatively low market share. These question marks need to be transformed into market leaders in least time possible or else it would degenerate into dogs as soon as there is a decline in market growth. Stars are basically those units that exist in fast growing industry and have high market share. This unit requires high rate of investment in order to maintain growth rate and fight against competitors (Porter, 2008). In case of Nestle stars are fruit drinks, Nestle Pure Life Water, milk pack and confectionaries. These products generate maximum cash for the company and support its overall global and local operations. It can be stated that the company has launched different set of products to meet diverse consumer demand and even to enhance their brand image in every possible industrial sector. There are certain problems faced by the company though it has a strategic posture for its business operations. Nestle is witnessing a major problem in context of milk quality. Customer’s mindset is unlikely to shift to packed milk offered by the company (Aaker, 2001). On the contrary, lack of proper management in certain sector had led to nutrition deficiency in certain products affecting large percentage of target group. Though the company in later phase adopted best practices but a negative perception about the brand is retained in consumer mind. Conclusion As per the study Nestle has implemented a well structured strategic framework in its system. The company works in coordination with all stakeholders to achieve business goals and objectives. Nestle considers customers to be a vital component in its success and growth. It has always put customers first and implemented strategies that could benefit the society as a whole. Top management of the company states that long term successful business development is more essential in comparison to short term profits. Brand development is a critical element in strategic management and the firm has been able to design a renowned brand image. In this study there has been various strategic frameworks incorporated so as to compare business operations of Nestle with respective models. Porter’s five forces model outline the industrial analysis of a firm, growth share matrix portrays specific market share of business units and space matrix highlights the strategic posture of a company. These models collectively state the competitive position of Nestle in food and beverage industry. On basis of this study it is clearly evident food and beverage industry is a highly competitive industrial sector and players need to adopt innovative mechanism so as to sustain its market share. Nestle has diversified its operations into multiple market segments with wide array of products. The firm believes in closely associating with end customers and identifying their hidden needs and wants. Nestle encompasses a team of experts who manage operational procedure of the company and even has executives who observe consumer behaviour at shops and home. The major strength of the company is its brand image and large base of loyal customers. It has been able to maintain high nutritional content in each of its products. This in turn builds a strong bond between customers and the firm. Recommendations There are certain areas which need to be taken into consideration by the organization for achieving better results. Firstly, the company needs to promote their products more not only in terms of product benefits but even outlining the high nutritional content maintained in its products. Global expansion strategy is followed appropriately by the firm but there are regions of high opportunities left unexplored by the company. For instance, Pakistan offers a great scope for future development and success as it is the second largest producer of milk. Nestle consist of certain product category that has low market share and generates less revenue. For instance cornflakes and chocolate drinks occupy the least market share and should be eradicated from the system. Through this approach the firm can invest sufficient amount in other products or develop a completely new product for the target audience. Fund management is an essential factor in such large organizations. Hence proper action shall be taken in terms of discarding products that offers less profit margins and investing more in profitable segments. There has been negative perception developed in consumer’s mind as the firm has failed to maintain desirable nutritional content in all its products. However in the later phase the company has rectified its mistake but message was not conveyed effectively to target audience. The most convenient approach can be distributing their performance report on online platform so that customers are aware about the advanced technology based strategies adopted by Nestle to deliver superior quality healthy products. Nestle usually follows a collaborative approach in the workplace but there is a need for frequent discussion sessions with team members. This in turn will motivate employees to perform well and even contribute their creative ideas for industrial growth. It is highly recommended that Nestle continues with its diversification strategy and develop other products not related to food and beverage industry. Through market diversification the firm will be able to generate sufficient funds required to execute daily business operations. References Aaker, D.A., 2001. Developing business strategies. UK: Wiley. Allen, M., 2006. Analysing the organizational environment. UK: Select Knowledge Limited. Andersen, T.J., 2006. Perspectives on strategic risk management. USA: Copenhagen Business School Press DK. Batey, M., 2012. Brand meaning. USA: Psychology Press. Cole, G.A., 2003. Strategic management. Singapore: Cengage Learning EMEA. Henry, A., 2011. Understanding strategic management. New York: Oxford University Press. Hitt, M., Duane, R., and Hoskisson, R., 2012. Strategic management cases: Competitiveness and globalization. USA: Cengage Learning. Hoskisson, R., Hitt, M., Duane, R., and Harrison, J., 2007. Competing for advantage. 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