Current Strategy of Nestle Company - Essay Example

Strategy in practice - nestle Table of Contents 0 Introduction 3 1 The definition of strategy 3 2 Overview of Nestle 3 3 Current strategy of Nestle 4 2.0 Analysis of the strategy of Nestle 6 2.1 Application of relevant models of strategy to the organization 6 2.2 Critical evaluation of models of strategy in practice 9 3.0 Conclusion and Recommendations 11 3.1 Conclusion 11 3.2 Recommendations for improvements 12 4.0 References 13 5.0 Appendices 15 1.0 Introduction 1.1 The definition of strategy Different approaches have been used for describing strategy, as an element of the business environment. According to the most common view, strategy can be characterized as ‘the means used for achieving organizational objectives’ (Karami, 2012, p.4). Through a more detailed definition, the strategy has been also described as ‘a plan including all goals and policies of each organization’ (Karami 2014, p.4). Moreover, Yaeger and Sorensen (2009) noted that strategy, as a term, is primarily employed in order to show ‘the relationship that an organization has with its environment’ (p.147). At this point emphasis should be made to the following fact: the strategy is not set by any member of the organization; it can be only defined by the organization’s leader (De Wit and Meyer 2010, p.502). Of course, other members of the organization, such as line managers, can have a role in the formulation of organization strategy but this role is limited, usually referring to the provision of information for the performance/ problems of their unit (De Wit and Meyer 2010, p.502). When setting the strategy of the organization leaders can take into consideration the comments of employees in various organizational departments; these comments can affect the organization’s strategy only at the level that the leader of the organization will decide (De Wit and Meyer 2010, p.502). The most important characteristic of strategy is the following: it refers to ‘all functions and parts of the organization’ (Toma 2010, p.16-17). 1.2 Overview of Nestle Nestle was first established in Switzerland in 1866 (Nestle, Organizational website, History). Through the decades the company has managed to expand globally, a strategy that has been followed by the increase of the business objectives/ areas of operations. Indeed, in 1866 Nestle has been solely a milk factory; today the business is considered as one of the leaders in the food industry in general (Nestle, Organizational website, History). 1.3 Current strategy of Nestle The strategy of Nestle is incorporated in a graph presented through the organizational website (Figure 1, Appendices). According to the particular graph the strategy of Nestle is divided into three parts (Organizational website, Strategy): a) the firm’s Competitive Advantages; the R&D department of the organization and its extended portfolio of brands are considered as the firm’s major advantages, b) the Growth Drivers: in this category emphasis is given to the firm’s reputation as a firm promoting health through its high-quality food products. At the same reference is made to the important presence of the firm in emerging markets and its potentials to offer to its customers food that can cover their out-of-home needs for food (Organizational website, Strategy; c) Key elements of Operations; in regard to its operations the firm emphasizes on innovation, the lack of delays/ failures in regard to all parts of operations and the potential of the firm to cover the needs of its customers, a practice that has led to high customer loyalty. The strategy of Nestle has been explored by researchers worldwide. Of particular importance is the following fact: in the relevant reports/ articles emphasis is given to different aspects of the organization’s strategy. This is an indication that Nestle promotes a dynamic and multi-dimensional strategy probably based on the following rule: if severe and unexpected failures would appear in a specific part of the business operations then the damage caused will be covered by profits in other organizational units/ activities. In 2013 the top management team of Nestle decided to promote the improvement of pricing, by decreasing the prices in many products of the firm (Koltrowitz 2013, par.1). This strategy aimed to secure the firm’s position in the global market, which have become quite turbulent. Indeed, through this strategy the firm managed to increase its performance enhancing its position towards its major rivals, i.e. Danone and Unilever (Koltrowitz 2013, par.2). It should be noted that the firm had already tested the above strategy, in the Indian market, and the results were quite satisfactory: in 2012 the firm’s sales in the Indian market were increased by 7.6%, compared to 2011, an achievement that was related to the firm’s emphasis on ‘range of products and low pricing’ (Ananthanarayanan 2012, par.5). In 2014 the firm updated its strategy in India: emphasis is given not just to low pricing but also to the healthy diet, as it can be secured through products based on natural ingredients (WARC 2014). The willingness of the firm’s top management team to focus on healthy food products is also reflected in the following fact: in 2014 the support of Nestle to ‘The Partnership for a Healthier America’ (Bradley 2014, par. 1) was announced. In another article, published by Business Week in 2012, the firm is related to sustainability: it is noted that Nestle is a leading firm in the promotion of sustainability in all its operations (Business Week 2012, par.6). The framework that the firm has developed for ensuring the alignment of its operations with the rules of sustainability is based on ‘an ecosystem approach’ (Business Week 2012, par.6); the above approach recommends that in each organization the promotion of sustainability should be promoted by all stakeholders, i.e. not just by employees (Business Week 2012, par.6). In addition to the above practices, a strategy for keeping costs low, at international level has been promoted: in 2013 the intention of the firm to sell its brands that do not reach the required level of profitability has been announced (Joseph 2013, par.1). Currently, the firm’s brands are estimated to 8,000 (Joseph 2013, par.1); it is clear that the firm could reduce its brand portfolio without suffering a reduction in its total profits. This decision should not be considered as a change in the firm’s core strategy: continuous expansion. For example, from 2012 onwards the firm has developed a series of initiatives for enhancing its presence its Africa (Mark 2012, par.1). The above example indicates the value of continuous expansion as a core part of Nestle’s strategy. 2.0 Analysis of the strategy of Nestle 2.1 Application of relevant models of strategy to the organization The effectiveness of business strategies is commonly evaluated by checking primarily the conditions in the internal and external environment. A series of strategic models have been developed in the literature for developing the above task. Internal Environment In regard to the internal environment of organizations, this is usually analyzed using the SWOT analysis. However, this model has a unique characteristic: it refers both to internal and external environment of businesses. Indeed, two elements of the model, i.e. Strengths and Weaknesses, reflect the organization’s internal environment, while Opportunities and Threats show the condition in the external environment of the business. The analysis of the internal environment of each organization is critical because of the following reason: such analysis reveals an organization’s strengths and weaknesses, a fact that allows the strategic planners of the organization to identify strategies that will emphasize on strengths while introducing measures for controlling, or, if possible eliminating, weaknesses (Cadle et al. 2010). In other words, the analysis of a firm’s internal environment aims to help strategic planners to understand the actual potentials of the organization within its industry; in this way, the strategies chosen are feasible (Cadle et al. 2010). The findings of the SWOT analysis of Nestle are presented in Table 1 below. Strengths Weaknesses Opportunities Threats Extensive brand portfolio (Joseph 2013) The firm’s HRM framework is not quite effective; in the firm’s unit in Halifax, UK the failures in regard to safety measures led to the death of an employee (Nieburg 2012) The demand for food products worldwide is in continuous increase; for example: the increased need for food products in Africa (Mark 2012) Global economic crisis has made markets worldwide quite unstable Market image/ reputation The firm has been proved unable to control all aspects of its brands; for example, the severe criticism by Greenpeace against the firm’s Facebook page in regard to a firm’s product: the Palm Oil (Social Media Today 2013) In developing countries, such as India, the prospects for firms operating in the food industry are many Operational costs in all industries tend to be increased; in the long term it may difficult for the firm to keep all its production units/ brands High quality/ range of products The control over the quality/ packaging of the firm’s products is not appropriate. For example, in 2009 FDA has asked the firm to explain the false labeling used in two of its products/ drinks (Los Angeles Times 2009) Competition in the global food industry is quite strong; for example, in India had to reduce its prices for keeping its market position (Koltrowitz 2013) Table 1 – SWOT analysis for NESTLE External Environment The power of external environment to influence business performance is reflected in Porter’s Five Forces model (Figure 2, Appendices). The specific model is based on the following rule: in the global market each organization is like to face the pressure of five forces. These forces, are the following: ‘a) Threat of substitute products, b) Bargaining Power of Suppliers, c) Bargaining Power of Customers, d) Threat of new entrants and e) industry’s competition’ (Hill and Jones 2007, p.45). The Model of Five Forces has covered an important gap in business literature: traditionally, strategists have tried to identify strategies that can enhance business performance; however, when developing this task strategists used to ignore the actual power of competition. Indeed, in the past competition, as a concept, ‘was interpreted too narrowly’ (Porter 2008); this means that the role of various factors, such as substitute products or suppliers, in the development of competition was not taken into consideration, a fact that led strategists to false assumptions in regard to the level of competition in their firm’s external environment (Porter 2008). The analysis of the external environment of Nestle using the Five Forces model of Porter would be as follows: a) Substitute Products; the firm’s existing portfolio is quite broad, incorporating food products of various characteristics/ ingredients. On the other hand, the appearance of substitute products in the particular industry would be rather easy but these products would not have the same quality like the products of Nestle; this means that the quality of its products would be the most important tool of Nestle for confronting the appearance of substitute products in its industry; b) Suppliers; the ingredients used in the food industry can be retrieved by many suppliers worldwide; in this context, the suppliers of Nestle would not be able to press the organization for an increase in their prices since the firm could easily switch suppliers for keeping its costs at standard level; c) Customers; the food industry is highly competitive; customers can easily buy from other industry’s firms food products similar to those of Nestle; therefore, customers could be an important force for Nestle; in order for the firm to face the pressure from its customers it should introduce measures for making its products unique or more convenient, for example: in terms of prices or in terms of availability in the market; In this way, by reducing its prices, by introducing offers and by making its products available in more retailers Nestle could significantly increase its popularity worldwide; d) New entrants; new entrants can always appear in the food industry; however, surviving in this industry, and especially at global level, is quite difficult; Nestle, due to its market position, cannot be threatened by the potential new entrants; and e) Industry’s competition; competition in the food industry is high; however, the industry’s firms that are of similar power with Nestle are just two: Danone and Unilever (Koltrowitz 2013). This means that Nestle should try to secure its position against these firms but it would not have to face pressures from other companies of the industry. 2.2 Critical evaluation of models of strategy in practice The strategy of Nestle, as presented above, could be analyzed using appropriate theory. At a first level, the elements and the role of strategy, in the context of business environment, should be made clear. According to Madu (2009) strategy, in general, has to serve the need of the business to achieve its goals. Strategy’s contribution in this activity is the following: strategy ensures that the resources required for the achievement of business goals will be retrieved (Madu 2009). Furthermore, strategy should help the organization to acquire competitive advantage towards its rivals (Madu 2009). The suggestion of methods for keeping costs low and for identifying markets/ products that would secure the success of a business belong to the responsibility of strategic planner (Madu 2009). Using a different approach for explaining strategy, Porter has noted that strategy is a complex framework, incorporating both ‘the goals of each business and the means that should be used for achieving these goals’ (Madu 2009, p.5). The terms presented above should be met in order for a business strategy to be considered as successful, a practice that should be also followed for Nestle. In general, the strategy of Nestle should be structured in such way so that the firm’s goals are achieved. This means that the firm’s strategic planners have checked the conditions in the internal and external environment, as analyzed above, and have develop a business model which is able to support the achievement of business goals. This business model is based on a series of strategic choices, or tactics, which need to be feasible in terms of the resources required (Casadesus-Masanell and Ricart, 2009, Figure 3, Appendix). The above conditions are included in the Generic Two-Stage Competitive Framework included in the study of Casadesus-Masanell and Ricart (2009). The specific Framework reflects the following idea: a business is able to secure its competitiveness if its strategic choices are quite successful, meaning that these choices can secure the achievement of the firm’s goals. For Nestle, this Framework will be used for evaluating the effectiveness of the firm’s strategies; the use of findings of the analysis of the firm’s internal and external environment should be unavoidable. Using the Generic Two-Stage Competitive Framework, as presented in Figure 3, the strategy of Nestle should be characterized as follows: the firm has set as a priority to be the industry’s leader in regard to the quality/ range of its products and to its ability to respond to its customers’ expectations (see also section 1.3) For achieving this target the firm has employed the following methods: emphasis on innovation, extended portfolio of products and continuous expansion. The above targets have not been fully achieved due to failures in regard to the following business sectors: HRM, Product control and Marketing. Result: the firm’s strategy should be characterized as effective; however, it is necessary for improvements to be made in the specific parts of business operations, so that the firm’s long term success in the global market to be secured. 3.0 Conclusion and Recommendations 3.1 Conclusion Nestle is a leading firm in the food industry worldwide. The firm’s success in the global market can be related to its strategies, especially to its emphasis on R&D and innovation. By highly investing on these sectors the firm has managed to secure its market position towards its rivals which are quite strong. The evaluation of the firm’s internal and external environment has led to the following assumption: the firm’s existing strategy, as analyzed in section 1.3 above, is quite satisfactory, as also verified through the firm’s financial performance and its expansion globally. However, in the future, the potential of Nestle to secure its profits is not guaranteed. The decision, in 2013, of the firm’s top managers to reduce the brand portfolio of the organization, by proceed to sales of certain of its brands (Joseph 2013), denotes the pressures that the firm has started to face in covering its costs globally. At the same time, the SWOT analysis revealed that the expansion of the firm in new markets has not stopped. This fact shows the lack of emergent or severe threats in regard to the firm’s financial performance. However, the high instability of the global market and the continuous efforts of the firm’s competitors to improve their market position (Koltrowitz 2013) show the need for update of the firm’s existing strategies according to the market conditions and the firm’s available resources. 3.2 Recommendations for improvements The changes required on the firm’s current strategies would refer to different organizational sectors: a) At a first level, the firm’s HRM should be updated; the accident in Halifax, UK (Nieburg 2012), where a firm’s employee died, reveals the ineffectiveness of the firm’s HRM, both at international and at local/ unit level; the firm’s top managers should ensure that the firm’s HRM are reviewed and improvements are made so that any potential problems of health and safety are addressed on time; in this way, similar events in the future would be avoided. The firm’s current strategy of employee motivation should be also checked, in order to make sure that employees are appropriately supported and rewarded, a fact that would secure high employee performance; b) the marketing practices of the organization should be also checked; the severe criticism against the firm’s Facebook page (Social Media Today 2013) revealed that the marketing schemes of the firm are not carefully reviewed; this fact is severe, if taking into consideration the characteristics of the firm’s industry. The food industry is related to public health and marketing failures by firms operating in this industry may not be tolerated by the public; c) a similar issue is the firm’s mechanisms in regard to the quality and packaging of its products; the two incidents related to the firm’s failure in developing accurate labels for its products (Los Angeles Times 2009) have proved that the firm is not able to monitor effectively all its phases of its production process; the introduction of a mechanism, probably based on a relevant IT application, for checking the entire production process before the delivery of the product to the market should be among the firm’s priorities no matter the cost of the relevant plan. 4.0 References Ananthanarayanan, R., 2012. “Nestle’s long-term strategy hits short term growth.” Nov 12, 2012. Live Mint & The Wall Street Journal. Available at http://www.livemint.com/Money/vieYx14PPnNK96RLjBCb3L/Nestles-longterm-strategy-hits-short-term-growth.html [Accessed at 27 March 2014] Bradley, D., 2014. “Global Strategy Group aids Nestlé Waters with Healthier comms.” PR WEEK, http://www.prweekus.com/article/global-strategy-group-aids-nestle-waters-healthier-comms/1285568 [Accessed at 27 March 2014] Business Week, 2012. “What sets Nike, Nestle apart in their sustainability strategies?” Aug 3, 2012. Available at http://www.greenbiz.com/news/2012/08/03/nike-nestle-sustainability-strategy [Accessed at 27 March 2014] Cadle, J., Paul, D. and Turner, P., 2010. Business Analysis Techniques: 72 Essential Tools for Success. Swindon: BCS, The Chartered Institute. Casadesus-Masanell, R. and Ricart, J., 2009. “From Strategy to Business Models and to Tactics.” Harvard Business School. Working Paper 10-036. Available at http://www.hbs.edu/faculty/Publication%20Files/10-036.pdf Cummings, T. and Worley, C., 2014. Organization Development and Change. 10th ed. Belmont: Cengage Learning. Daft, R., 2009. Organization Theory and Design. Belmont: Cengage Learning. De Wit, B. and Meyer, R., 2010. Strategy: Process, Content, Context : an International Perspective. Belmont: Cengage Learning EMEA. Harrison, A., 2013. Business Environment in a Global Context. Oxford: Oxford University Press. Harrison, J. and Caron, J., 2009. Foundations in Strategic Management. 5th ed. Belmont: Cengage Learning. Hill, C., and Jones, G., 2007. Strategic Management: An Integrated Approach. 8th ed. Belmont: Cengage Learning. Joseph, S., 2013. “Nestlé to sell off underperforming brands.” Oct 1, 2013. Marketing Week. Available at http://www.marketingweek.co.uk/news/nestl-to-sell-off-underperforming-brands/4008093.article [Accessed at 27 March 2014] Karami, A., 2012. Strategy Formulation in Entrepreneurial Firms. Aldershot: Ashgate Publishing, Ltd. Koltrowitz, S., 2013. “Nestle pricing strategy helps lift sales in tough markets.” Oct 17, 2013. Reuters. Available at http://www.reuters.com/article/2013/10/17/us-nestle-results-idUSBRE99G06V20131017 [Accessed at 27 March 2014] Los Angeles Times, 2009. “Nestle rebuked by the FDA for misleading nutritional labeling.” Dec 25, 2009. Available at http://latimesblogs.latimes.com/booster_shots/2009/12/nestle-fda-juicy-juice-boost-nutrition-label.html Madu, B., 2009. “Vision: the relationship between a firm’s strategy and business Model.” Journal of Behavioral Studies in Business, 1-9. Available at http://www.aabri.com/manuscripts/131630.pdf Mark, M., 2012. “Coca-Cola and Nestlé target new markets in Africa.” May 4, 2012. The Guardian. Available at http://www.theguardian.com/world/2012/may/04/coca-cola-nestle-markets-africa [Accessed at 27 March 2014] Nestle, 2014. Organizational website. Available at http://www.nestle.com [Accessed at 27 March 2014] Nestle, 2014. Strategy. Available at http://www.nestle.com/aboutus/strategy [Accessed at 27 March 2014] Nieburg, O., 2012. “Nestle fined £180,000 for failures leading to worker’s death.” Mar 12, 2012. Confectionary News. Available at http://www.confectionerynews.com/Regulation-Safety/Nestle-fined-180-000-for-failures-leading-to-worker-s-death Pfister, J., 2009. Managing Organizational Culture for Effective Internal Control: From Practice to Theory. London: Springer. Porter, M., 2008. “The Five Competitive Forces That Shape Strategy.” Harvard Business Review. Available at http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1 Social Media Today, 2013. “Social Media Brand Failures: Lessons to Learn.” March 28, 2013. Available at http://socialmediatoday.com/jitheshrnair/1327481/brand-failures-social-media-and-lessons-learnt Toma, D., 2010. Building Organizational Capacity: Strategic Management in Higher Education. Baltimore: JHU Press. WARC, 2014. “Nestlé redraws strategy in India.” Jan 15, 2014. Available at https://www.warc.com/Content/News/Nestl%C3%A9_redraws_strategy_in_India.content?ID=60ce3681-6f8c-46be-8131-edca3261b4c0&q= [Accessed at 27 March 2014] West, D., Ford, J. and Ibrahim, E., 2010. Strategic Marketing: Creating Competitive Advantage. Oxford: Oxford University Press. Yaeger, T. and Sorensen, P., 2009. Strategic Organization Development: Managing Change for Success. Charlotte: IAP. 5.0 Appendices Figure 1 – Strategy of Nestle (source: Organizational website, Strategy) Figure 2 – Porter’s Five Forces Model (source: Porter 2008) Figure 3 – The generic two-stage competitive process framework (Casadesus-Masanell and Ricart, J., 2009, p.36) Read More