Strategic Analysis and Decision Making - Case Study Example

Strategic Analysis and Decision Making

Word Count: 2221

Abstract

Strategy formulation is undoubtedly one of the most important steps in starting a new business. A successful strategy can help the company in developing an effective competitive advantage in the market. Irrespective of the industry that the company functions in, a good strategy will help it in establishing its hold in the market.

Analysing the internal and external environment of the market is an important step before developing a suitable strategy. It not only helps the company in understanding its competitive environment better, but also helps in developing an effective competitive strategy which will help it in surviving in the long run. PESTEL analysis and Porter’s Five Forces are important models to determine the external environment in which the company functions.

Evaluating the strategies on regular intervals helps the company in determining the progress that it makes in achieving its objectives. Also, any improvements that are needed in the strategies can be implemented by the companies on evaluation. The different stakeholders of a business have different expectations from the business. The success of any company is reflected by how well it fulfils the expectations of its stakeholders. In this paper the strategic positioning of Nestle has been analysed. It was found that the Food and Beverage industry is highly competitive, in which Nestle functions. On the basis of that analysis, suitable strategies will be formulated to position Nestle in the developing international market.

Table of Contents

1. Introduction to Organisation4

2. Internal and External Analysis4

PESTEL Analysis5

Porters’ Five Forces7

SWOT Analysis7

3. Development of Strategic Choices8

Porter’s Generic International Strategy8

4.Evaluation of Strategic Choices10

SAF Framework10

Stakeholders’ Expectations10

Implementation barriers11

5. Recommendation11

6. Conclusion12

7.Reference List13

8.Appendices14

• Introduction to Organisation

Strategic analysis is the method of developing approach for a business by analyzing all the functional aspects of the business and environment in which it operates (Jeffs, 2008). A proper analysis of the environment in which a business functions is important in order to develop a competitive strategy in the long run.

Nestle is chosen for the purpose of the study here. Established in the year 1866, by Henri Nestle, it was initially positioned as an Anglo-Swiss Condensed Milk Company (History, 2016.). At present, Nestle has its presence in 189 countries (Nestle Worldwide, 2016). Dealing with a wide range of products, starting from chocolates to healthcare, Nestle has established itself as one of the biggest consumer products brands in the world.

In this paper, an analysis will be provided on the strategic positioning of Nestle and an assessment will be done on the tactical options available to it for formulating suitable strategy.

• Internal and External Analysis

Nestle has followed a distinctive strategy to position itself as a nutrition, health and wellness brand (Strategy, 2016; Anand, 2015). The company also positions itself as a brand that provides high quality products to the customers. It wants to have a positive impact on the society by engaging with the stakeholders and policymakers and sharing the idea on global health, nutrition and wellness. Nestle has taken the following steps as a part of this strategy (Strategy, 2016):

• Nestle pays a special attention in developing its product portfolio through its research and technological development to provide high quality and nutritional products.
• The researchers are exploring different nutritional therapies in order to find a way to improve or maintain health.
• Nutritional therapies for skin care are another segment that Nestle is exploring. Nestle Health Science and Nestle Skin Health have been created by the company as a part of the strategy.
• The company has initiated United for Healthier Kids program to promote healthy consumption and lifestyle habits amongst kids.
• Nestle is also taking an effort in educating people on the importance of choosing healthy nutritional alternatives.
  • PESTEL Analysis

The PESTEL analysis is a marketing tool to analyse the external environment in which the company functions.

• Political: There are various political factors in different countries, that affect the functions of companies. Being in the food and beverage industry, Nestle faces the challenge of unstable regulations in food standards and marketing actions (Vilnius, 2008). Nestle has to follow strict standards by regulatory body, Food and Drugs Administration (FDA). Factors such as civil unrest in the markets that Nestle works in may suffer from civil unrest or high inflation which may finally affect the sales of Nestle. The cross border policies of different countries are also different. Therefore, Nestle has to stay in line with all these policies in order to function well in the internal markets.
• Economic: Changing inflation rates, income levels and economic growth rates are few of the factors that affect the functioning of any company in a particular market. Changes in the economic conditions may lead to major restructuring of the companies’ various divisions. The developing markets have cost conscious people, who want good quality products at lower prices. These factors may affect the operations of Nestle in the developing markets (Vilnius, 2008).
• Social: Social and cultural factors of a particular country have a great impact on the performance of any foreign company. Nestle has to approach the developing markets by keeping their social and cultural priorities in mind. The company may launch new food products, representing a particular country, in order to capture that market. Respecting the cultural aspects is another way in which Nestle has to receive acceptability by the target customers in a particular market. Cultural differences may put Nestle at a disadvantage in foreign markets.

• Technological: Changing technological needs and development, growing use of social media and e-commerce platforms etc. are the factors that affect a company while functioning in a market. To mention a latest tendency, companies are using social media platforms as a way to reach out to the target market. Nestle can use the latest technology in order to capture the new market and also to promote its products. For example, if Nestle is planning to launch a new segment of baby food, it can try to reach out to new parents through social media. The various companies in the food and beverage industry are using the latest of technologies to grow their business, which Nestle has to deal with.
• Legal: There can be many legal impacts on Nestle in various countries. One such example is calling back of Maggie noodles from the shelves in India, due to the presence of lead as alleged by few reports. This cost the company millions of dollars. This not only impacted the brand image of the company, but also resulted in competitors taking advantage of the whole situation and promoting their brands.
• Environmental: With the increasing environmental and social concerns of the customers, Nestle is bound to maintain its CSR standards. Focusing on factors like sourcing raw material locally, starting schools and hospitals to benefit the community in which the company functions etc, will help the company in creating a goodwill amongst the people.

• • Porters’ Five Forces

Porter’s five forces tell about the competitive environment of the market in which the company functions (Arline, 2015; Porter, 2008). The five factors here are (Refer Appendix):

Competitive rivalry: The food and beverage market is highly competitive. As the demand in this industry rarely falls, Nestle faces a lot of competition from various players in the market. The cost of entering the food and beverage industry is average. Hence there are a large number of firms available in the market. The switching cost is also lo0w in this industry. Thus the competitive rivalry is very high in this industry and Nestle has to develop a strong competitive advantage in order to function.

Bargaining power of the Suppliers: The bargaining power of the suppliers is less in this industry, as there are a number of suppliers to source the raw material from. This works as an advantage for Nestle as the company can get cost benefits in sourcing the raw materials. That will not only provide Nestle with a discount in the operating cost, but will also help it in pricing the products low.

Bargaining power of the Buyers: In the food and beverage industry, the bargaining power of the buyers is high. The reason for this is that there are a number of competitors available in this industry. This requires Nestle to develop a distinctive competitive advantage for sustenance in the long run.

Threat of new entrants: The food and beverage industry requires moderate to high investment which puts a barrier in front of the new entrants. Although it is not very easy to enter this market, it ensures high returns on quantity. This in a way it is beneficial for Nestle to function in the market.

Threat of substitution: There are a large number of brands that are functional in this industry, which makes it easier for the customers to switch brands as per their requirements. This requires Nestle to develop a unique positioning strategy in the market.

• • SWOT Analysis

SWOT analysis is performed to understand the internal factors that are affecting a business (Taylor, 2016). The SWOT analysis of Nestle is given below:

Image1. SWOT Analysis

(Source: Author’s Creation)

• Development of Strategic Choices

Based on the above environmental and strategic analysis of the company, it can be seen that Nestle has a good opportunity in expanding to international markets. The following strategic choices can be made by the company in order to expand in the international market:

• • Porter’s Generic International Strategy

In the generic model for international strategy, Porter tells how a company can attain competitive advantage in a given market. There are four types of strategies according to the model, which are:

Cost Leadership: According to this strategy, the company can acquire a market by approaching the cost sensitive market segment.

Differentiation: The company can expand into a given market by differentiating itself in the market from the other players. This will require it to achieve a distinctive competitive advantage over the competitors which will help the company in surviving in the long run.

Focus Strategy: The focus strategy narrows down the segment to achieve either cost leadership or differentiation strategy.

Differentiation Focus: The companies may choose to focus on the differential positioning of its products while expanding in a market in a particular segment.

Cost Focus: The company may focus on the low cost approach to expand into a particular segment of a market.

Depending upon the generic model, Nestle can take the following steps in order to reach out to the developing international markets:

• The company can place itself as a differential leader into the international market. The company approach the developing markets such as Africa, China and many countries of Asia. Nestle is already known for its healthcare and nutritional products. Taking specific efforts to develop those products and placing them in the market will help the company in acquiring a large part of target market. This may also trigger brand switch by the customers from other brands to Nestle and help the company in increasing its market share.
• The company can also use cost leadership techniques in order to appeal to a price sensitive market. This strategy is particularly helpful in approaching the developing countries, where the income level of people is increasing, but at the same time, they still have an economic mindset, where they want good quality products at cheap rates. Nestle can successfully implement the low cost strategy by reducing the price of the products. This can be effective if the company focuses on reducing the cost incurred in production and operation. Reduction in the cost of raw material, cost efficiency in transportation processes, reduction in wastage and focusing on the quality of the products are important factors that the company needs to consider to follow this strategy.
• Nestle can approach a particular segment and then try to focus on that segment alone through cost leadership or differentiation strategy. For example, the company can approach the target segment for baby food products. Then it can establish itself as the differential player offering baby food in various flavours or it can also focus on the low cost aspect of the strategy.

• Evaluation of Strategic Choices

Timely evaluation of the strategy is important in order to understand the improvements required to achieve the objectives of the strategy.

• • SAF Framework

The SAF Framework provides evaluation criteria that can be used to evaluate the effectiveness of the formulated strategy (Wu, 2010):

Suitability: Suitability determines how suitable the strategy is for the organisation. There should be compatibility between the strategic goals and the goals of the organisation. The strategy formed for Nestle is to ensure its successful entry into the foreign markets which in turn helps in expanding its market share, which is one of the primary objectives of the company. Also, this will help in increasing market share for the company which in turn will lead to greater revenue generation.

Acceptability: Acceptability determines how acceptable the strategy is to the stakeholders. The acceptability of the strategy is determined by the amount of risks taken and the potential returns. The risk taken by Nestle in entering developing markets is comparatively less as the company functions in food and beverage industry. The industry requires moderate investments and has an abundance of suppliers and buyers. Also, this particular industry can find a potential market in any part of the world as people will always need food products. Following a suitable strategy will help the company in achieving high market share and expected returns.

Feasibility: Feasibility of the strategy is determined by how resourceful the company is in implementing the strategy successfully. Nestle is already known for its research and development and for the high quality of its products. The company can successfully develop the products for the new market as a part of its expansion strategy. Also, financially, the company can support the initial investment required to support its operations into these new markets.

• • Stakeholders’ Expectations

The stakeholders of a company refer to people who are involved in the successful functions of the company in some way or the other (Nestle LC1, 2005). The stakeholders for any business are primarily the employees, clients, customers, shareholders, suppliers etc. The following can be the shareholders expectations from Nestle:

• Employees would want a good working atmosphere in the company.
• The shareholders would look for good performance by the company in the market and a good return.
• The suppliers of the company would want orders on a continuous basis from the company.
• The customers would want good quality products at competitive rates.
• Nestle also has to focus on its CSR (Corporate Social Responsibilities) activities, like spreading health awareness and importance of a healthy lifestyle, in order to meet the expectations of the society.
  • Implementation barriers

The company can face the following barriers while implementing the strategy:

Organisational Barriers: The existing organisational structure may not support the company in its operation in the international market. Also, the employees may find it difficult to function in an international market due to cultural differences.

Funding Barriers: Nestle may not find investors to invest in the business due to lack of trust in the new market.

Leadership Barriers: Leadership plays an important role in managing the functions of any business. Lack of a good leader can prove to be a hindrance in the successful operation of Nestle in a new market.

• Recommendation

Nestle can approach the international market as a low cost differential leader. The reason for it to follow this strategy is that the company has already acquired the position of a differential leader in the market. This will keep the company from totally diverting from its existing marketing strategy. It will also help the company in gaining a strong competitive advantage in the market long run. Selecting cost leadership strategy will help it to approach the lower income segments of the developing countries. This will provide scope to the company to acquire a large portion of the market share. Also the fact that the company has all the resources to develop its product portfolio in order to reach out the new markets makes it an even more feasible model. The main focus of the company in achieving a cost leadership differential model is to lower the price of the products. The following steps can be taken to lower the prices:

• Having a profitable deal with the suppliers by getting discounted deals.
• Benefiting from economies of scale by production of large volume.
• Trying to acquire a large part of the market share to gain higher profit.
• Saving on the operational costs such as transportation, maintenance of the warehouse, wages for workers etc.
• Also, reducing the package sizes will allow the company to offer the products at comparatively lower rates.
• Conclusion

Strategic analysis is an important tool for any company to determine the performance of a company in the market. In the paper, an analysis is provided on the existing strategy of Nestle. The company follows a differentiation strategy, by placing itself as a nutritional brand and focus on the quality of the products.

The company operates in the food and beverage industry. This is highly competitive industry and requires moderate to high investment to operate in this industry. The company has a competitive advantage of being a well-known brand all over the world, which makes it easier for it to expand in the international markets. The company also has a good distribution channel, which makes its reach to the customers even stronger.

In the paper, strategy was formulated for Nestle to enter the developing markets. Also, evaluation techniques for the strategies were suggested. Finally recommendation was provided to deal with the challenges in the implementation of the strategies.

• Reference List

Anand, K., 2015. Nestle India a classic example of Warren Buffett's strategy of buying business in distress: Experts. [Online] ET Markets. Available at: < http://economictimes.indiatimes.com/markets/stocks/news/nestle-india-a-classic-example-of-warren-buffetts-strategy-of-buying-business-in-distress-experts/articleshow/47552867.cms > [Accessed 24 June 2016]

Arline, K., 2015. Porter's Five Forces: Analyzing the Competition. [Online] Business News Daily. Available at: < http://www.businessnewsdaily.com/5446-porters-five-forces.html > [Accessed 24 June 2016]

History, 2016. Nestle. [Online] Available at: < http://www.nestle.com/aboutus/history > [Accessed 24 June 2016]

Jeffs, C., 2008. Strategic Management. California: SAGE Publications

Nestle LC1, 2005. [Online] Castelar Articles. Available at: < http://articles.castelarhost.com/nestle_competitive_strategy.htm> [Accessed 24 June 2016]

Nestle Worldwide, 2016. [Online] Nestle. Available at: < http://www.nestle.com/aboutus/globalpresence > [Accessed 24 June 2016]

Porter, M. E., 2008. Competitive Advantage: Creating and Sustaining Superior Performance. New York : Simon and Schuster

Strategy, 2016. [Online] Nestle. Available at: <http://www.nestle.com/aboutus/strategy> [Accessed 24 June 2016]

Taylor, N. F., 2016. SWOT Analysis: What It Is and When to Use It. [Online] Business News Daily. Available at: < http://www.businessnewsdaily.com/4245-swot-analysis.html > [Accessed 24 June 2016]

Vilnius, 2008. Study of Food Products and Beverages Industry. [PDF] Available at: < http://www.kpmpc.lt/Skelbimai/SEK_EN/EN-Maist.%20sekt08.07.30.pdf > [Accessed 24 June 2016]

Wu, T., 2010. Strategic Choice- Johnson and Scholes Suitability, Feasibility, and Acceptability Model. [Online] Available at: < http://www.tolobranca.nl/wp-content/uploads/2015/08/SFA-Matrix-learning_strategic_choice.pdf > [Accessed 24 June 2016]

• Appendices

Appendix 1

Porter’s Five Forces

(Source: Arline, 2015)