Nestl Tries for an All-for-One Global Strategy - Case Study Example

Nestlé Tries for an All-for-One Global Strategy 1.0. Overview of Nestle Problem Nestle company has been in existence for quite a long time in the global market, and identifies with the challenges of large enterprises in the competitive market. It has been using technology to steer its business processes and coordinate data and activities, from the different branches located across the globe. However, the only problem was that even after embracing technology, Nestle had employed a decentralized strategy that allowed its branches (local organisations) to individually conduct their operations to the best of their application, due to the differences in distinguished marketing environments that had varying business cultures and local conditions (“Nestlé Struggles,” itu.edu). Decentralisation could best apply in different situations, but as organisations grow and establish more branches in different areas, numerous problems arise. Establishing individual organisations could need a lot of infrastructure, and capital to conduct operations in any decentralized system. For Nestle, the decentralised strategy had created inefficiencies and accrued extra costs, which hindered the company from fully realizing its profits and competing through electronic commerce (“Nestlé Struggles,” itu.edu). From this, the company was exposing itself to potential external threats, such as its shared global suppliers, and competitors. Even with the huge investment on numerous computer and information system resources, decentralization gave room for inefficiencies, more expenditure, inventory mismanagement, distributed decision making, operation complexity and data isolation that prevented data sharing, due to the differences in Information Systems, and lack of a standard platforms. It was obvious that the company was not receiving the exact benefit that could come with information systems. 2.0. Analysis of the Response Due to the differences and challenging experiences in the global market, Nestle SA had to act towards business integration and consolidation, so as to allow standardization and coordination of its business processes and information systems (“Nestlé Struggles,” prenhall.com). The company embarked on a global implementation of SAP R/3 ERP software, which intended to replace the SAP R/2 version that had been operating in most of the local organisations. Through the introduction of the software, the inefficiencies and accrued costs would be cutback in the long run, to allow the company realise its full benefits. The top management of the company must have had difficulties in tracking the different reports, financial data, and forecasting the entire company’s demands. The initiation of the company’s operations and processes reorganisation through the SAP’s R/3, would result in integration of the numerous autonomous divisions, such as those in Nestle USA that had different organizations’ structure and business systems and processes, such as the 9 and 28 distinguished ledgers and customer entry points respectively (“Enterprise system,” 39). The reason for the integration and standardization was to enable an aspect of centralization, so that the business could operate as a single entity, after the deployment of the SAP’s R/3. The aim was through achieving common practices after adopting similar organization systems and process, in the distributed branches, in the manufacturing, management, procurement, marketing, accounting, sales, and distribution operations. Of course, it would affect the businesses’ technical aspects, adoption of new rules, and business protocols that would affect both the management and employees globally. It also called for business reorganisation and changes in management, whose consequences would affect the supply chain management and other functional sectors of the individual branches. The approach towards centralization would enable efficiency and timely entry of data in the system, from sales, orders and customer records, which could use similar Information Systems to store and retrieve. This would improve inventory and database management, enable data sharing, compiling management reports and demand forecast for company’s top management, reduce cost in investment, and maintenance of the different Information systems (IS) in the long run. By 2002 the SAP project implemented in Nestlé USA had led to savings worth $325 million, most of it arising from improved demand forecasting in the supply chain area (Dieringer uwosh.edu). Another reason for the Nestle action was to limit data isolation, and improve consistency and transparency in business conduct, especially in production, sales, and financial areas. Another reason was to enforce a unified corporate culture, to avoid the complexities and expenses that came with complicated supply chains, and purchases that demonstrated different biased prices from the company supplies. 3.0. Analysis of their Action 3.1. A good move and taking the right direction Nestle company was new to technological changes and how beneficial and expensive it could be. Therefore, the move towards centralization was good and headed in the right direction, if the management and implementers would commit fully, to see the procedures and operations changed in every Nestle facility. According to the transaction theory, firm specific (FSAs), country specific (CSAs), and internationalization advantages determine the international operations form and competitiveness of the multinational enterprises (Rugman 223). Since the FSAs include the transactional advantages, Nestle Company’s solution best fits with the theory through the manner it ought to economize transactions costs incurred from the distributed systems, and expenses from complex supply chain management. The cost reduction in transactions through the use of standardized systems, and business process in the entire Nestle Company would be achieved easily with coordination of tasks and activities, rather than the previous isolated activities in decentralized system. The case study indicated cutting back of company data centres from a hundred to four, and development of an online database management system, limiting the numerous processes into just few modules. According to Solomon (22), transactions happen when transfers are made between technologically separable interfaces, and organizing transactions assist in countering threats from opportunism. Considering that Nestle Company had numerous transactions carried out on different technological interfaces, more transparency and accountability was needed, to ensure managers from different locations could not engage in self interested activities. One of the main concerns of the Nestle Company top management and executive board was to improve the way transactions were managed and reduce transaction costs, which are the main concerns of transaction cost theory. 3.2. A risky move However, the action was a risky when undertaken, especially given that the company would have to continue functioning, while technical changes were being implemented. Again, it was initiating a move that was already established by other larger and competitive companies; hence, before fully getting familiar with the new infrastructure, the other companies would be taking a competitive advantage. Remember that an organisation is not the structure, but the association of people coordinating to achieve an objective. Hence, Nestle was dealing with managers and employees from different cultural diversities, who were reluctant to change and feared the repercussions afterwards. According to the CIO magazine, Nestle USA faced numerous challenges in changing the business processes, rebellion from the employees right from the project inception, how to use the system and understanding the new processes, technical problems, pressure due to time constraints, accumulated costs, and numerous dead ends (1-8). The UK Nestle initial expedition was disorganised following the differences in divisions and HR departments’ interests, which later called for a neutral re-launch in establishing HR intranets and support technology (Holt ikmagazine.com). It was evident that Nestle SAP project challenges ware intensely from human resistance, which made it difficult for supply chain re-engineering and adoption of similar businesses processes, than time and financial reasons. The challenges and delays were numerous and quite unexpected, considering the allocated schedule, but generally, it was worth and more benefits continue to be realized with more embrace of SAP R/3ERP. Basically, the Nestle Company must have found opportunities after studying and analyzing competitors’ experiences, before implementing their software that established customers’ relationships to achieve success. According to Markman and Phan, the entrepreneur firms that exploit opportunities by bringing new offers in the market, get to harness the good will of customers by providing satisfactory alternative, and preventing them against past frustrations with the existing products and services (450). Through the ERPs, customers get to interact with the company through ordering and feedback processes, which strengthens the firm and customer relation and establishes customer loyalty. By means of restructuring the Nestle USA 29 vanilla brands into a single known vanilla brand, the company had set a customer good will strategy that could not be imitated; hence increasing customer lock in, which could prevent them from searching for alternative offerings or changing providers. As the customer lock in theory emphasizes on motivation of customers to engage in repeated transactions, Nestle best reflect on this idea through brand loyalty, promotions, the ordering, sales, and purchase modules that facilitated one on one interaction (e.g. sharing of information that comes with customer loyalty and feedback). Through the ERP, Nestle has been able to lock in customers, by offering informed choices about their products, enhancing customer trust in their brands and company, and increasing interaction in business respect through social networks and mobile communication. Customer lock in is a product of the ERP that manages customer relationship with the Nestle company 4.0. Role of Information Technology According to Dieringer, both the UK and USA Nestle branches have received notable benefits so far. Although it has not been easy, UK nestle was able to recoup the money spent on the system in a span of 2 years, improve inventory control and the altitude towards business process, and foster a culture of continuous improvement. USA Nestle came together as a single organisation, and was able to convert the 29 different brands into one brand of vanilla, thanks to the establishment of common databases (uwosh.edu). Like any other business, marketing, which is the ultimate determinant of sales and benefits of the company, is always at a risk of being threatened by internal and external factors; hence its alteration could either trigger more profits or losses. However, the SAP R/3 installation and consequences have given rise to increased benefits. As of 2009 and 2010, the revenues were quite high, but were later followed by a drop in 2011, even though investors have the hope in profits generation as the company saw a growth of 10.21 percent in 2012, with more predicted positive progress in 2013 and 2014 (financial times, ft.com). So far, Nestle SA is performing well and the technology innovation and implementation has played a positive role, to solve the decentralization problem. The benefits of standardization and coordination of business processes and system approach can be realized by the company, which has a positive average growth rate in earnings indicating the benefit of the integration and centralization actions. Works Cited CIO Magazine. “Nestle’s ERP ODYSSEY.” 210.212.115.113. 15 May, 2002. Web. 18 February 2013. Dieringer, D. S. “Enterprise Implementation at Nestle.” uwosh.edu. 24 June, 2004. Web. 18 February 2013. “Enterprise Systems.” swlearning.com. 24 May, 2004. Web. 18 February 2013. Financial times. “Nestle SA.”ft.com. 18 February, 2013. Web. 18 February, 2013. Read More