Impact of Strategic Analysis on Organizational Performance - Nespresso - Research Paper Example

Impact of strategic analysis on Organizational performance: Case Study of Nespresso

• Background of the study

Nestle Nespresso is a famous Swiss brand that developed the concept of capsule coffee. The Nespresso system developed at Nescafe known as the capsule-machine combination, consists of premium quality coffee beans packed in aluminum capsules for the exclusive utilization in specially designed coffee machines. Brian et al (280). Nespresso is an iconic brand that reaches its target customers over 50 countries worldwide. The significant strategies undertaken by Nespresso enhances its growth from its uncertain beginning and lead the company as the fastest growing brand in the industry. The key success factors of Nespresso is thus evaluated by incorporating the key strategic analysis tool. The analytical tool showcases the actual situation within the capsule coffee market and thereby guide the brand to take possible strategic decisions to overcome the present trend of competitive advantage.

This research project will focus on the significant competitive factors and strategies leading to the success of Nespresso. Moreover, the research will highlight possible strategic decisions taken by the brand to improve its operational performance and thereby overcome the competitive environment of capsule coffee market.

• Research Aim

The research aims to find the impact of strategic analysis on the organizational performance of Nestle Nespresso.

• Research Objectives
• To establish the impact of strategic analysis on organizational performance of Nespresso Nescafe.
• To identify the factors that influence the organizational performance of Nestle(Chan, Zenobia, Yuen-ling Fung, and Wai-tong 1)
• To determine the factors that encourage strategic analysis
• To recommend the strategies that could improve the overall process of strategic analysis in Nestle Nespresso.
• Research Questions
• Is strategic analysis technique is efficient to improve the performance of organization?
• What are the analytical tools used by Nestle to improve its performance efficiency of Nespresso system?
• What are the key factors that influence Nestle Nespresso to conduct their strategic analysis?
• Scope of the research

The following research study will significantly focus on Nestle Company and its premium products Nespresso. Nescafe Nespresso is the chosen segment to conduct the following the research study on, as Nestle is considered as one of the accessible companies that has effective strategic plans, and the introduction of Nespresso in a competitive market anticipate stringent analysis of the external environment and internal potential to make the venture successful. The company already reached the leading position in the sector of instant soluble coffee with Nescafe (Jacobides, Michael and Sidney 1370). The Swiss brand focuses to expand its level in the area of Roast and Ground coffee sector. Consequentially, Nestle decided to effectuate a spin-off and invest the revolutionary concept, and finally evolved with the name of Nestle Nespresso.

Nespresso introduced a number of machine and capsule coffee beans, and relocated to Switzerland in order to redefine their brand identity. With the intention to explore a new arena of business, Nespresso emphasize to introduce retail stores to promote the brand. In order to do so, Nestle Nespresso emphasizes to strategically analyze the external market condition and internal capabilities before entering into a collaboration with the Rainforest Alliance.

The study has been conducted to investigate the impact of strategic analysis in the organizational performance of Nestle Nespresso. A survey technique has been implemented by enforcing a set of questionnaires to the selected sample of respondents Keupp et al (380). The entire research study has been executed within a time zone of 6 months.

• Research approach

According to Liu, Feng and Sally research methodology is a well-established framework that defines the sequential approach and structure that assist the researcher to accomplish the study successfully. The research involves tracking strategy study in order to measure the brand improvement over a fixed period of time. Both the primary and secondary data has been collected by the researcher to develop strong insight about significant strategic approach undertaken by Nestle to improve its brand performance.

Moreover, in order to evaluate the tracking strategy, the inductive approach is selected for the present study, in order to evaluate the impact of strategic analysis on organizational performance. The models of strategic analysis require the selection of inductive approach in order to comprehend the evolution of strategies and thereby serve the purpose of developing a new theory for the selected firm level. The present topic does not acknowledge the use of deductive approach depending upon the nature of study and selected topic of research.

Research design helps to identify the framework of research topic, which in turn will guide the researcher to select the pattern of data collection and analysis. Explanatory research design is avoided in this research, as this form of design are applied in longitudinal study, and not applicable for cross sectional topic, as it execute an observational study that involves analysis and evaluation of data collected from the represented subset, at a specific point of time. Descriptive is the chosen design in this particular study, as it helps to describe the detailed process involved in the impact of strategic analysis on organizational performance of Nestle Nespresso.

The research philosophy chosen for this study is positivism. Positivism applied in the present study, helps to improve the analysis of the hidden facts and gives better insight of the hidden information and facts that correlate strategic analysis with the performance of the organization (Leslie, et al, 1294). The data collection process involves both the qualitative and quantitative techniques. The researcher conducts the quantitative data collection process by sharing a set of questionnaires with the respondents online. I have collected the qualitative data by conducting rounds of interview.

The quantitative data collection process is conducted with the 62 employees of Nestle, whereas the qualitative data is collected from 3 managers of Nestle giving their views on strategic approach towards redefining Nespresso. The findings are represented and evaluated statistically for better understanding of the student.

The sample of Nestle employees was simple random probability sampling, because the researcher did not involve any particular criteria for selection Nguyen et al (180). On the other hand, managers of Nestle were considered by using the non-probability sampling technique.

Both the quantitative and qualitative techniques have been used to conduct the research study and evaluate the purpose. Nestle employees are considered to be the respondents of survey, whose responses is likely to highlight the various attempts of strategic analyses undertaken by the organization. Nonetheless, the managers of Nestle shall confirm the rate of improvement in organizational performance after conducting strategic analysis periodically prior to the emergence of Nespresso in the Office market.

The process of data analysis involved screening of the data gathered by the researcher to ensure that all the questionnaires contain accurate and valid information Friederike et al (101). The statistics include percentage distribution of responses, simple tables, frequencies, pie charts and bar charts. The collected responses further evaluated by using variances, mean and standard deviation.

The researcher must follow certain ethical consideration while conducting the study which is likely to add standardization to the topic. Data must be gained by stringent research on the topic and by understanding the trend of impact that strategic analysis tends on have on organizational performance in reference to Nestle Nespresso. Moreover, the findings are strictly limited to academic use by restricting any application of commercial data. In addition to this, the researcher should not exert any external pressure to the respondents, rather they should be encouraged to take part in the feedback process voluntarily. Nonetheless, the identify of respondents are kept anonymous for any kind of physical or mental harassment.

• Problem statement

It has been found that various organizations conduct strategic analysis; however majority of them fails to comprehend the factors that have significant impact on their organizational performance. Considering this effect, the management ends up formulating wrong strategy within an organization, as a result of which performance degrades.

In reference to the chosen company, the technology behind the Nespresso system gained immense support from the food service division, and identified that it is a suitable product to enter the market of restaurant. However, the management decided to abandon the strategy in favor of targeting the sector of office coffee. This strategic approach taken by the Nestle management focuses to develop brand awareness and create a strong base of loyal customers. As a result, they formed a partnership with an already established Swiss Company having experience to serve the office market (Stanley, 392). Initially it was felt that, Office managers in comparison to homemakers are less sensitive to the relatively high price of Nespresso coffee machine.

When tested, this was considered to be a high risk strategy, since, the office market is not easy to keep a control of and it would be easier to shut down if not successful. However, this strategy of Nestle Nespresso will have a negative toll on the organizational performance of the company.

Nestle Nespresso developed a unique which is difficult to imitate and internally consistent business model. Moreover, the business model is established on the sustainable positioning with the aim to meet the long term business trends that include expresso culture, convenience and digitalization of the distribution system. In addition, the Nestle’s big launch Nespresso (coffee and expresso machine) is flawlessly aligned with the positioning and supports it in a unique manner. Nespresso has a clear model of value creation and value capture system in order to create unique value for its customers along with a well-functioning and clearly defined profit formula.

In particular, the idea to market coffee in capsules has been found to copy many a time previously, however what is hard to copy is the entire system and the business model of Nestle Nespresso. Hence, this is supposed to be the non- duplicable business model which provides foundation for a sustainable success.

• Thesis

The development analysis influences the strategic plans of organization, which in turn improves the organizational performance of a company.

• 2. Literature review

Strategic analysis pertains to the analysis of a business position, by determining its strengths and weaknesses. In order to conduct a strategic analysis of a business or a given firm, it is essential to comprehend the influence of internal and external factors in this position. Strategic analysis is conducted by using several frameworks, some of which are discussed in details below.

• • 2.1 Concept of strategic analysis

According to Vaismoradi et al. (401) strategic analysis is the mechanism of conducting research about the business environment within which the organization operates and has significant impact on the organizational performance. Strategic analysis has been defined in various manner, however the chief aim of this process is to develop key strategic decisions so that the organization can perform efficiently considering the potential competition, uncertain events and internal capabilities as well as problems. The description of strategic analysis, may differ in respect to various context, however the aspects discussed below tends to remain constant. They are:

• Identify and evaluate the data relevant to formulation of strategy
• The Strategic analysis is done by employing range of analytical methods such as PESTLE, SWOT, Porter’s five forces analysis, value chain analysis, etc. The industry before and after the introduction of Nespresso was entirely different. Hence, the industry environment was further evaluated by using the Porter’s five force model.
• The impact of macro-environmental factors in Nestle Nespresso is scrutinized by using PESTLE.

The key analytical tools that are used to analyze the strategies implemented in an organization are discussed in brief below.

• • 2.2 SWOT analysis

Andrews et al. (291) opined that SWOT is a classical strategy analysis tool based on four key factors: Strengths, Weakness, Opportunities and Threats. Categorized into two distinctive parts, SWOT enables the researcher to determine the internal aspects of a firm by analyzing its strengths and weaknesses, and also provides an external view by highlighting the threats and opportunities. If Nespresso had analyzed the coffee market before its invention, by using SWOT analysis, which consequentially reveals the opportunities of Nespresso by signifying that coffee has become a more popular drink among the consumers (for both the homemakers and office goers). Hence, coffee market has an ethical and sustainable trend. However, SWOT analysis mark the threats of Nespresso considering the challenges from other drink alternatives, and ineffective supply chain of coffee beans .

Figure 1: SWOT analysis

(Brian et al, pp.291)

The strategic analysis of Nestle Nespresso has been is carried out by evaluating the strengths and weaknesses of the organization. In addition, the effectiveness of the strategies implemented by Nestle is analyzed by evaluating its opportunities to expand the capsule coffee machine in the office market and threats imposed by the market to its successful expansion.

For instance, The price of Nespresso capsule is three times higher than the alternative brewing mechanism. Such an attribute has enticed its competitors to manufacture Nespresso compatible capsules. Consequentially, Nespresso customers are shifting to more affordable capsules than purchasing from Nespresso. However, Nespresso has been successful in creating value by producing the unique capsule system perfectly in line with its positioning. The capsule coffee beans has been produced in 16 different tastes in individually vaccum-packed capsules that retain the flavor of freshness. Nespresso’s development of own coffee machine along with electronic water temperature control which also include brewing system and patent extraction of 19-bar high pressure pump. Similarly, the value capturing system focuses on advancing its Nespresso system, production of quality coffee beans and marketing. In accordance, AAA sustainability Quality program has been introduced by Nespresso, which ensures sustainability and quality through generated shared value. Nespresso has the plan to obtain 80 percent of its total coffee beans from the farmers whose operation is based on the Rainforest Alliance certificate.

This proves that high cost of capsule is a significant weakness of Nestle Nespresso that encourage its customers to look for affordable alternatives thus posing a threat on its growth. Hence, the above evaluation can be made by strategic SWOT analysis on the firm which has significant impact on its organizational performance as discussed.

(Please provide the lecture notes or handouts provided in class to answer these questions)

• • 2.3 PESTEL Analysis

This is another key tool of conducting strategic analysis, considering the political, economic, socio-cultural, technological, environmental and legislative aspects. PESTEL analysis is a significant tool applied to evaluate the factors that drive long term change in business Chan et al. (1). Nestle conduct its strategic analysis by incorporating PESTLE framework in order to determine how and why these changes incurring within the industry. It will also help the organization to determine the long term trends underlying such variations. Moreover, the theme of PESTLE evaluate the phenomena of globalization, rapid alterations in technology, change in consumer preferences, and so on.

Figure 2: PESTLE analysis

(Chan et al. pp.1).

For instance, the selected coffee beans are mainly procured from , BrazilThe supply in coffee beans is likely to get affected due to the heavy drought in Arabica. Moreover, the decrease in supply of coffee beans will enforce considerable increase in cost by 60%. Nonetheless, the cost will directly lead to an increase in the capsule price, which in turn will increase the cost pressure on customers thereby discouraging them from purchasing Nespresso at high price.

Hence, the following estimation can be made by conducting PESTEL analysis on the external environment before introducing the Nespresso in the target market.

• • 2.4 Porter’s Five Forces analysis

The analytical tool of Porter’s five forces helps the firm to identify its competitive position. Brem, Maier and Wimschneider (140) opines that, the theory is grounded on the concept of five forces that drives the attractiveness of market, and also determine the competitive intensity. Researches state that Strategic analysts preferably make use of Porter’s five forces to evaluate whether the introduction of new product or service would be potentially profitable. Similarly, before the introduction of Nestle Nespresso in the target segment, the Five forces analysis would be evidently beneficial to identify the areas of strategic input required in order to position the product in market. In precise, the five forces include the power of supplier ( to drive up the price), power of buyers ( to drive the price down), Competitive rivalry (potential competitors in the industry), threat of substitute ( availability of alternative products in response to high price), lastly, the threat of new entrants , that likely to erode the range of profitability. (provide the hand out/six force components taught in class)

Figure 3: Porter’s Five Force Analysis

(Brem, Maier and Wimschneider,pp140)

For instance, Starbucks the key competitor of Nestle Nespresso is launching its own expresso machine known as Verismo. Moreover, the expresso machine system is made similar toNespresso, in order to give a tough fight and increase rivalry in the industry. Starbuck’s aims to facilitate their customers with the opportunity to prepare Starbuck coffee at home. Thus strategic analysis on market trend through Porter’s five forces reveals that the launch of Verismo is a significant threat to Nespresso, as the possibility of losing customers to Starbucks is high. This increases the rivalry among the big brand competitors in the industry, thereby offering low switching cost to customers and switching cost to suppliers.

Hence, the above example proves the importance Porter’s Five forces analysis in strategic decisions making which helps to enhance the organizational performance.

The main characters involve in the chosen sector include the customers, competitors in the coffee industry, suppliers of coffee beans, regulators, both governmental and non-governmental organizations, etc.

The value logic of Nestle signifies its effort to develop the Nespresso System in collaboration with several machine specialists and external design partner, and consequentially filed 1700 patent applications. The company has decided to hold on to its value by conducting its manufacturing and distribution of Nespresso coffee machines through the established manufacturers holding a license agreement with Nestle.

(Please provide the lecture notes or handouts provided in class to answer these questions)

• • 2.5 Value chain analysis

Before making a strategic decision, it is essential to evaluate, how the activities within an organization create value for its customers. Value chain analysis is the key tool of strategic analysis that has significant impact on the overall performance of an organization.

In this analytical tool, the activities within an organization are categorized into separate sets that adds value to the system. Organization tends to identify and assess each sets of activities in order to evaluate its internal capabilities effectively.Matzler et al (35) Nonetheless, each of the value adding activities within the chain is considered to be the key source of competitive advantage.

Value Chain analysis

(Matzler et al. pp35)

The following steps in value chain analysis can enhance the organization performance, in the given manner.

• Split the operations of an organization into primary and support activities- The primary activities include the physical manufacturing of a product, marketing of the product, delivery of product to the end customers, and after sales support as well. Moreover, the primary activities are facilitated by the support activities.
• Allocation of cost to each activities – Evaluation of cost information on each activities helps the managers with valuable insight on the internal capabilities and about the anticipated requirements.
• Identification of activities essential to customer satisfaction and organizational efficiency- The three essential considerations while evaluating theactivities that are crucial in value chain analysis are ( 1) Company’s mission , (2) Type of industry, (3) Value system. Firstly, the mission of an organization has considerable influence on the choice of activities undertaken within the firm. Secondly, the nature of industry ensure the relative significance of organizational activities. Lastly, the value system considers the upstream and downstream partners that plays an active role in providing products to the end customers.

Moreover, Value chain analysis is a comprehensive technique to analysis the internal environment of an organization in relation to the external industry environment. This key analytical tool enhances the organizational performance by identifying the key sources of competitive advantage.

(These are additional parts written by the client)

For instance, the core competency of Nestle lies on its production and product marketing. Nestlé’s decision to introduce Nespresso system has been done in collaboration with various machine specialists and external design partners. The value chain architecture of Nestle emphasizes on the advancement of Nespresso system by the production and marketing capsule coffee beans. This major decisions has been taken by analyzing the core competency of Nepsresso which is evaluated to be the production of coffee beans. Hence, the value chain analysis enforce the logic value creation, where the company shapes its processes and activities based on their internal capabilities. Similarly, value chain analysis byNespresso, helps the brand to identify its core and non-core elements which is essential to make their strategic move.

• • 2.6 Impact of strategic analysis on business performance

Jacobides, Michael and Sidney (1370) opined that strategic analysis performed by using the tools assist the organizations to plan their strategic philosophy, based on which the firm would identify and update its mission, vision and value statements. Moreover, strategic analysis enforces the concept of action plan based on the various internal and external factors evaluated using the SWOT,PESTLE or PORTER’S five forces tool, which further layout the strategic goals of an organization that needs to be accomplished. Action plan involves the specification of objectives in respect to each s strategic goals defined by the organization.

Arguably, the key cause of a business failure is not having a strategic analysis in place. Keuppet al.(371) states that, a business is likely to wander aimlessly changing its priorities constantly, if me space nerrmit has very little idea about the internal and external environment of its business and operating industry.

The key purpose of strategic analysis is to predict and detect the important events strategically at the earliest. The anticipated reason for a strategic analysis is to identify the initial attempt of attack from the competitor, or assessing the likelihood of a given scenario transforming into reality. In other words, Strategic analysis helps to identify the early warning system. Veldman et al(1397) suggest that early warning system enable the organization to gain insight on the seven significant areas that has key contribution on the performance efficiency of an organization. The key areas are considered in details below.

• Market definition- With the help strategic analysis, the organization can gain considerable visibility about the scope of arena that can be further explored for a better business opportunity. For instance, whether the arena is a geographical location, market or a brand.
• Open systems- Enable to capture extensive range of information on the key competitors
• Filter- The extensive range of information collected is filtered as per the requirement and importance. Interpretation by experts is mandatory to strategically identify the significant events that calls for strategic shift or move.
• Communication intelligence- It ensure that the key group of people in an organization receives the regular briefing by effective communication through main signals
• Predictive intelligence- Strategic analysis helps to identify the forces and direction towards which a competitor is likely to move. The predictions are further assessed to detect the probability of occurring and their potential impact on the performance of business.
• Planning of contingency- Analysis helps to identify the events that has strong potential impact or tendency to cause impact may require contingency plans. For instance, the mitigating actions required or change in strategy.
• Cyclical process- The process of strategic analysis is carried on to scrutinize the external and internal analysis in order to gain signals on new warning. As there are more emphasize on the emerging opportunities and threats, the process within an organization should be flexible enough to handle the unexpected situations.

Hence, in order to become successful, a business needs a roadmap for success. Strategic analysis helps the guides and offers a direction to the business, it points the specific objectives that are needed to be achieved, and also assist in establishing a course of action in order to attain those goals. Moreover, strategic analysis is evident in aligning various work units within an organization with common goals.

• Time-Horizon

Main activities/ stages

Week 1

Week 2

Week 3

Week 4

Week 5

Week 6

Week 7

Selection of the research topic

Approval of topic from the supervisor

Designing of the survey questionnaires

Data collection from secondary sources

Creating layout

Literature review

Formation of the research Plan

Selection of the Appropriate Research Techniques

Primary data collection

Analysis & Interpretation of Data Collection

Findings of the Data

Conclusion of the Study and recommendation

Formation of Rough Draft

Submission of Final Work

• Conclusion

Previous and present strategies have made it apparent that there is always an increased uncertainty in external and internal environment due to the emerging opportunities and incurring threats. Lack awareness about the environmental issues leads the organization aimlessly towards an unknown direction. Various organizations waste their time in identifying and reacting to unexpected problems and changes, rather preparing or anticipating for them. The research study assesses the impact of strategic analysis on organizational performance considering the case study of Nestle Nespresso.

The use of essential analytical tools like SWOT analysis, PESTLE, and Value chain analysis helps the Nespresso to gain deeper insight on its internal capabilities, external trend and hence decide the significant strategic move that would enhance its organizational growth.

The Nespresso capsule machine combination is targeted to the office market and consumed away from home. On conducting strategic analysis, Nestle evaluated that consumers shifted from the traditional coffee and developed the taste of inventive with premium priced specialty coffee. The present trend suggests that, the popularity of traditional coffee is declining, and expresso is highly accepted as the socially elite drink. Hence strategic analysis helps Nestle to find that the office market is suitable for developing long term and profitable business for the Nespresso system.

• Recommendation

The study conducted points out that Nestle Nespresso has emphasized on strategic analysis before introducing their advanced coffee concept within the industry. Majority of obstacles will fall short on conducting strategic analysis in advance and then plan progress further. Similarly, Nestle should accord priority attention to the elements of strategic analysis to identify the scope of Nespresso system in the Office market. It is suggested that SWOT, PESTLE and PORTER’s five force model are that key analytical tools that can be used to acknowledge the environmental conditions and incorporate strategic planning consequently in order to improve performance.