Strategic Management - Nestle Company

STRATEGIC MANAGEMENT - NESTLE COMPANY

1. 1. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 1Executive SummaryThe purpose of this report is to evaluateNestle Company industry based on the casestudy and comprehend how the company develop strategic intent for their businessorganisations following the analysis of external and internal business environments. I willanalyse the strategic management process as firm used to achieve strategic competitivenessand earn above-average returns. I will discuss the strategy formulation that includes business-level strategy and corporate-level strategy.It also aims to identify market place opportunities and threats in the externalenvironment and to decide how to use their resources, capabilities and core competencies inthe firm’s internal environment to pursue opportunities and overcome threats. In order tostrengthen this assignment about Nestle, there are several methods of gathering data has beenconducted, such as PEST analysis, Porter’s 5 forces model, value chain analysis and SWOTanalysis.By the end of this assignment, future strategy will be mentioned as well as myrecommendations about Nestle that will fit into strategic orientation in order to perform betterin their business world. And continue to develop and implement its learning approach as thechosen large company by using different strategies.
2. 2. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 2Table of ContentsExecutive Summary...................................................................................................................11.0 Introduction ......................................................................................................................41.1 Industry and Nestle Summary .....................................................................................4EXTERNAL ANALYSIS........................................................................................................52.0 General Environment Analysis.........................................................................................52.1 Demographic Segment.................................................................................................52.2 Economic Segment ......................................................................................................62.3 Political or Legal Segment...........................................................................................62.4 Socio-cultural Segment................................................................................................62.5 Technological Segment ...............................................................................................72.6 Global Segment ...........................................................................................................73.0 Industry Environment Analysis........................................................................................73.1 Threat of New Entrants................................................................................................83.2 Bargaining Power of Supplier .....................................................................................83.3 Bargaining Power of Buyers........................................................................................83.4 Threat of Substitute Products.......................................................................................93.5 Intensity of rivalry among Competitors.......................................................................94.0 Competitive Environment ..............................................................................................105.0 Opportunities and Threats of Nestlé...............................................................................115.1 Opportunities .............................................................................................................115.2 Threats .......................................................................................................................11INTERNAL ANALYSIS .......................................................................................................116.0 Nestlé’s Resources, Tangible and Intangible .................................................................126.1 Tangible Resources of Nestlé ....................................................................................126.2 Intangible Resources of Nestlé......................................................................................137.0 Capabilities of Nestlé ...................................................1Error! Bookmark not defined.8.0 Core Competencies Analysis..........................................................................................15
3. 3. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 39.0 Value Chain Analysis of Nestlé .....................................................................................169.1. Primary Activities ........................................................................................................169.1.1 Inbound Logistics ...............................................................................................169.1.2 Operations...........................................................................................................169.1.3 Outbound Logistics.............................................................................................169.1.4 Marketing and Sales ...........................................................................................169.1.5 Services...............................................................................................................179.2 Support Activities......................................................................................................179.2.1 Procurement........................................................................................................179.2.2 Technological Development...............................................................................179.2.3 Human Resources Management .........................................................................179.2.4 Firm Infrastructure..............................................................................................1810.0 Weaknesses.....................................................................................................................1811.0 SWOT Analysis..............................................................................................................1811.1 Strengths ....................................................................................................................1811.2 Weaknesses................................................................................................................1911.3 Opportunities .............................................................................................................1911.4 Threats .......................................................................................................................1912.0 Current Strategy..............................................................................................................1913.0 Strategy...........................................................................................................................2014.0 Conclusion......................................................................................................................21References................................................................................................................................22Appendices...............................................................................................................................23Appendix 1..........................................................................................................................23Appendix 2..........................................................................................................................23Appendix 3..........................................................................................................................24Appendix 4..........................................................................................................................26Appendix 5..........................................................................................................................26Appendix 6..........................................................................Error! Bookmark not defined.
4. 4. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 41.0 IntroductionThe most important thing for most of business company is an understanding theirsuccessful performance among the other competitors in market place.For some parties, likeshareholders, it is essential for company to make a profit and gain above-average returns. Inthis assignment, I will discuss furthermore about Nestlé’s external environment in all aspectssuch as their general environment, industry environment, competitive environment, and scanthe opportunities and threats of the company. And also I am going to explain briefly abouttheir internal environment includes their resources, type of their resources, company’scapabilities, evaluate their core competencies and so on.1.1 Industry and Nestle summaryNestlé S.A. is a Swiss multinational nutritional and health-related consumer goodscompany headquartered in Vevey, Switzerland. It is the largest food company in the worldmeasured by revenues. Nestlé’s products include baby food, bottled water, breakfast cereals,coffee, confectionary, dairy products, ice cream, pet foods and snacks. Nestlé employ around330,000 people in over 150 countries and have 461 factories or operations in 86 countries.Nestlé sales for 2011 were almost CHF 83.7 billion. It is one of the main shareholders ofL’Oreal, the world’s largest cosmetics company. Nestlé history begins back in 1866, whenthe first European condensed milk factory was opened in Cham, Switzerland, by the Anglo-Swiss Condensed Milk Company. In Vevey, Switzerland, Nestlé founder by Henri Nestlé, aGerman pharmacist, launched his Farinelactee, a combination of cow’s milk, wheat flour andsugar, saving the life of a neighbour’s child. Nutrition has been the cornerstone of thecompany ever since. In 1905, The Anglo-Swiss Condensed Milk Company, founded byAmericans Charles and George Page, merged with Nestlé after a couple of decades as fiercecompetitors to form the Nestlé and Anglo-Swiss Milk Company. The company grewsignificantly during the First World War and again following the Second World War,expanding its offerings beyond its early condensed milk and infant formula products. In2011, Nestlé was listed No.1 in the Fortune Global 500 as the world’s most profitablecorporation. The Nestlé Corporate Business Principles are at the basis of the company’sculture, developed over 140 years, which reflects the ideas of fairness, honesty and long-termthinking. Nestlé believes that not only possible to create long-term value for their
5. 5. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 5shareholders if their behaviour strategies and operations also create value for the communitieswhere they operate, for their business partners and of course, for their consumers.Nestlé vision is to meet the various needs of the consumer everyday by marketing andselling foods of a consistently high quality. Their objectives are to deliver the very bestquality in everything they do, from primary produce, choices of suppliers and transport, torecipes and packaging materials.Their mission is they strive to bring consumers foods that are safe, of high quality andprovide optimal nutrient to meet physiological needs. Nestlé helps provide selections for allindividual taste and lifestyle preferences.Nestlé purpose is to offer safe, tasty, convenient and nutritious foods to improve healthand well-being of consumers of all ages all over the world. To meet the needs and desires oftoday’s and tomorrow’s consumers, Nestlé is strongly committed to Research andDevelopment (R&D) to improve products and develop new foods with specific healthbenefits (Nestlé.com, 2012).EXTERNAL ANALYSIS2.0 General Environment AnalysisThe general environment is composed of dimensions in broader society that influence anindustry and, indirectly, the firms within it. They group these dimensions into sixenvironmental segments such as demographic, economic, political, socio-cultural,technological and global. These structured segments are external to the firm. The challenge tothe firm is to scan, monitor, forecast, and assess those elements in each segment that are ofthe greatest importance. These efforts should result in recognition of environmental changes,trends, opportunities and threats.2.1 Demographic SegmentNestlé’s product is for everyone. People from any area, any culture, any age, and incomewill drink water. It is not any luxury item which is used by a specific people. Nearly all agefrom young to old people can produce Nestlé. And all six continents are their customer. Forinstance, Nestlé segment into different of age. For baby, they have Nestlé baby foods whileyoung people can drink Milo, Nescafe or eat ice cream, chocolate and cookies. In
6. 6. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 6Vietnam,Nestle has the Maggi brand with many kinds of Asia sauce, but Maggi do not existin England because of the different in the geographical taste.2.2 Economic SegmentAlthough Nestlé is leading food industry, it shares its knowledge and expertise with localsmall and medium companies. It helps entrepreneurs to compete in the new free tradeenvironment which will ultimately benefit the industry and the economy by making themarket growth. Besides that, Nestlé also collaborates with local government to providetechnical assistance to farmers in planting and harvesting crops. The farmer will get incomeand Nestlé will get to purchase good and fresh raw materials to produce their food. By havingown local productions, Nestlé should no longer needs to import any raw materials from othercountry where they will save much more money. It will also benefit the consumers wherebyconsumers could enjoy the local productions with low price. More consumers will use thisproduct and therefore Nestlé will gain more profit from that.2.3 Political/Legal SegmentPolitical factors are important especially in food industry. The company policies areaffected and its budget is also affected. Nestlé provide food assurance to provide assurance tothe consumers that Nestlé’s products are manufactured, imported and distributed under thestrictest hygienic and sanitary condition. Besides that, to ensure that consumers do not buyany fake products, Nestlé’s products are always come with the seal of guarantee. By havingthe seal of guarantees, consumers are now more confident and trust of Nestlé’s products.Strict quality control played a role in political factor too. It means that Nestlé’s productsquality will not be different with other countries. Consumers are guarantees with fullsatisfaction of the products all over the world.2.4 Socio-cultural SegmentA good diet and adequate food supply, the central for promoting health and well-being isthe focus of every person even these days; whether people tend to value products thatincorporate with them healthy benefits. Obviously, these types of goods are preferred morethan that of junk foods and its relative products. Moreover, generation Y cohorts, those bornfrom 1980s-2000s, possess characteristics such as acceptance to change and beingtechnologically savvy. These kinds of characteristics should coincide to the
7. 7. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 7firms’aggressiveness of using technology especially that this is also the tie of the influx oftechnology in the Europe.2.5 Technological SegmentInternet and Mobile Technology is currently growing so rapidly in the market wherealmost all of the people nowadays will get contact with it. Nestlé could use this advantage tobenefit them by using technology to promote their products over those advanced technology.Customer could get any information from their site. Nestlé’s employees could use thisinternet service to connect to its industry in other country such as Australia, Singapore, U.Kand more. They did research and development by using the technology to find moreinformation to satisfy the local tastes and cultural flavours in each country market. Byunderstanding what each country asks for, Nestlé could market difference product accordingto the customer demand in difference country. It is already proven that the technology factorsare important for Nestlé Company.2.6 Global SegmentNestlé Company improves their operational efficiency by integrating the company’sbusinesses on a global scale. They are now transitioning to become a genuinely global foodcompany, to behave as one. Nestlé has a dynamic global network of Nestlé R&D centresworking on scientific research and product development. They have the world’s largest foodand nutrition research organisation, with about 5000 involve in R&D. Nestlé’s global R&D isapplied locally to meet different consumer needs and preferences through over 300Application Groups worldwide.(The detailed data are given in Appendix 1)3.0 The Industry Environment AnalysisCompared with the general environment, the industry environment has a more directeffect on the firm’s strategic competitiveness and to earn above-average returns. The intensityof industry competition and an industry’s profit potential are functions of five forces ofcompetition such as the threat of new entrants, bargaining power of supplier, bargaining ofpower buyers, threats of substitute products, and intensity of rivalry among competitors(Hanson, D., Hitt, M., Ireland, R. D., &Hoskisson, R. E., 2011, p.48). Porter’s Five ForcesModel was created to act as a framework for industry analysis and business strategy
8. 8. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 8development. Porter singled out five different forces that impact competitive intensity whichportrays an image of the overall attractiveness and profitability of a market. To aid in myevaluation of Nestle and its status in the industry, I will apply Porter’s Five Forces Model tothe company.3.1 Threat of New EntrantsThe food processing industry is very large and competitive. It is uncommon for firmswithin the industry to do quite well. As a result, many companies enter into the market everyyear in an attempt to gain a portion of the profitable market. For Nestle, the company luckilyhas been around for over a century and boasts a long history of quality products andconsumer satisfaction, which has allowed the company to obtain a considerable share of themarket. As a result, new entrants into the industry must attempt to seize a portion of Nestlé’smarket share in order to survive. Essentially, Nestlé is constantly a target, and so the threat ofnew entrants is moderate.3.2 Bargaining Power of SupplierNestlé prides itself on creating and maintaining positive relationships with its suppliersall over the world. Due to the large purchasing power of Nestlé, and because the suppliers ofagricultural commodities offer a product that is far from unique, Nestlé holds morebargaining power than its suppliers. Aside from this, Nestlé prefers to create and preservelong term relationships with its suppliers as this helps to ensure the quality of the rawmaterials being purchased. In addition, Nestlé also offers useful advice to its suppliers onhow to perform more efficiently to minimize unnecessary costs.3.3 Bargaining Power of BuyerCustomers have a large amount of bargaining power regarding to their consumption ofNestlé products. There are close substitutes for Nestlé products which allows for thepreferences of the customer to be very influential. Nestlé understands the power of thecustomer and has taken specific steps to meet the needs of its products consumers.Specifically, Nestlé’ is incorporating health and wellness into the creation of its products associety has started becoming more health conscious.
9. 9. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 93.4 Threat of Substitute ProductsDue to the nature of the industry, Nestlé is afflicted with the threat of substitute goods.Ranging from ice cream, frozen foods and confectionaries to pet food, there are arrays ofsimilar products that compete directly with Nestlé. It is vital for Nestlé to continuously findnew ways to improve its products and generate new sources of growth for the company’sfuture expansion because competition is so violent. In recent years, Nestlé has focused on thehealth and wellness aspects of its products to maintain its edge in the market.3.5 Intensity of Rivalry Among CompetitorsNestle is powerhouse in the food processing industry but so are Kraft, Masterfoods, andUnilever, Nestle was also facing strong competition at the national and regional level. Thesecompanies, among others, are in a constant and continuous battle to outperform one another.Nestle was increasingly facing fierce competition as many food producing rivals hadachieved significant improvements in their operating efficiency. Rivalry is fierce in the foodprocessing industry, and this is a good thing for consumers. As long as these companiescontinue striving to one up one another, consumers will continue to enjoy ever-improvingproduct lines.When I applied to Nestlé, the Porter’s Five Forces Model depicts a competitive, butprofitable market for the food processing industry. Furthermore, the model places Nestlé in asomewhat comfortable position within the food processing industry, while acknowledging thethreats to its market share. Specifically, the model notes a moderate threat of new entrantsinto the market and a substantial threat of substitute goods. In addition, the model shows thatNestlé tends to maintain the upper hand over its suppliers as commodities have exactsubstitute in the market. And also, their customers have a considerable amount of bargainingpower, as Nestlé must adhere to consumer wants and needs because there are so many closesubstitutes. For the final force, the model depicts a large amount of rivalry within the foodprocessing industry.(The detailed data are given in Appendix 2)
10. 10. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 104.0 Competitive EnvironmentNestlé Company encounters higher levels of competition than it currently experiences.Any increase in the competitive environment may have an adverse effect on Nestlé’sbusiness, earnings and growth. Through effective competitive intelligence, the firm gains theinsights needed to create a competitive advantage and to increase the quality of the strategicdecisions it makes when deciding how to compete against its rivals (Hanson, D., Hitt, M.,Ireland, R. D., &Hoskisson, R. E., 2011, p.60). The brand image of Nestlé is one of the mostimportant sources of competitive advantage. Through the research and development (R&D)capabilities allow Nestlé Company to lead the way in innovation and provides for maximumportfolio flexibility. The extraordinarily large scope of Nestlé’s business provides forsignificant economic of scale in manufacturing, marketing, and administration. For example,Nestlé established a number of ventures for growth into new areas related to wellness andnutrition. Nestlé moved into the area of nutricosmetics, under the brand name Inneov a jointventure by Nestlé and L’Oreal. This strong brand reputation is built due to high quality of theproducts and customer satisfaction. Competitors’ rivalry in this market is really intense; it isbecause in Nestlé’s market there are a lot of branded rival such as Kraft, Unilever,Masterfoods, Johnson & Johnson, and Wal-Mart.Innovation is one of Nestlé’s key competitive advantages. They have more than 140years of research, development and scientific know-how. While there is a great deal of pureand applied science research that takes place in their global R&D centres, Nestlé ensures thatthe consumer, and the consumer benefit, remains at the core of all their activities. To besuccessful in today’s food and beverage sector the cost component is critical and economic ofscale are a main cost driver for Nestlé’s Company. Between the shelf share of multibillionaire brands and recent push of retailer driven private label products a new entrantwould be challenged into executing a successful distribution strategy.The main threat of thiscompany is their competitors, which is come out with foods and beverages as well, if they gohigher than price ceiling, the other competitors will win by setting up lower price, but if theygo lower than that, competitors will easily eliminate them in market place. That is why therate of competition is really high and Nestlé was also facing a strong competition at thenational and regional level. Nestlé Company have strategic advantage over their competitorsbecause their will increase Nestlé value by ensuring long term availability of raw materialsand water, more secure supply of better quality raw materials, producing products withimproved environmental performance, profitable growth, consumer preference for their
11. 11. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 11products and sustainable, and also to continuously improving environmental performance(Nestlé.com, 2012)5.0 Opportunities and Threats of Nestle5.1 OpportunitiesHigh credibilityPotential to expand to smaller townsImproving trendsIndustry leadershipIncrease the partnershipProduct diversity and offerings5.2 ThreatsHighly competitive marketIncreasing prices of raw materialsStrong rival like Kraft, Masterfoods, and UnileverThreat of substitute productsBargaining power of buyersINTERNAL ANALYSISHere, I discuss about the nature of Nestlé’s firm’s internal environment analysis.Evaluate the role of resources and capabilities in developing core competencies, which arethe sources of the firm’s competitive advantages. In this section, I will discuss the techniquesfirms can use to identify and evaluate resources and capabilities and the criteria for selectingcore competencies from among them. It also discusses the value chain concept and examinesfour criteria to evaluate core competencies that establish a competitive advantage to NestléCompany.
12. 12. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 126.0 Nestlé’s Resources, Tangible and Intangible ProductResources are the source of the firm’s capabilities. Resources are bundled to createorganisational capabilities. Some of a firm’s resources are tangible and intangible. Tangibleresources are assets that can be seen and quantified. Intangible resources include assets thattypically are rooted deeply in the firm’s history and have accumulated over time. Intangibleresources are relatively difficult for competitors to analyse and imitate. The four types oftangible resources are financial, organisational, physical and technological. And the threetypes of intangible resources are human, innovation and reputational (Hanson, D., Hitt, M.,Ireland, R. D., & Physical ResourcesCoffeeWaterIce CreamBaby FoodHealthcare nutritionConfectionary¬ Organisational ResourcesNestlé’s governing body is the Annual General Meeting of shareholders.Leading the company is the Chairman of the Board and CEO.The most relevant of Nestlé’s organisational measures were the creation of ProductTechnology Centres, Local Application Centres and Clusters.¬ Financial ResourcesTotal Revenue : CHF 83.64 billion (2011)Operating income : CHF 12.538 billion (2011)Profit : CHF 9.487 billion (2011)Total Equity : CHF 62.60 billion (2010)Total Assets : CHF 111.64 billion (2010)(The detailed financial resources paragraph are given in Appendix 3)¬Hoskisson, R. E., 2011, pp. 75-78).6.1 Tangible Resources of Nestle
13. 13.  Innovation ResourcesNestlé R¬ Human ResourcesApproximately 330,000 people have been employed by Nestlé Company.¬ Technological ResourcesNestlé moved from being a technology led company that produced convenient, tastyfoods and beverages for sustenance, to being a science driven, health and wellnesscompany.Continual involvement of rapid technological change.6.2 Intangible Resources of Nestle¬[BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 13Pharmaceuticals& Reputational ResourcesNestlé scientists play their part in communicating the health and wellness benefits ofproducts to consumers.From consumer need into research priorities.From emerging science into consumer benefits and services.7.0 Capabilities of NestleActually, capabilities are the firm’s capacity to deploy resources that have beenpurposely integrated to achieve a desired end state. Capabilities are often based ondeveloping, carrying and exchanging information and knowledge through the firm’s humancapital and also often developed in specific functional areas, such as R¬D generates the innovative science and technology needed to buildnutritional and health benefits into products offerings Nestlé legendary sensoryexcellence.&D, marketing,manufacturing, management and so on. In this section, I briefly evaluate of Nestlé’scapabilities (Hanson, D., Hitt, M., Ireland, R. D., & DistributionNestlé distribution network ensures that every day more than 100.000 tonnes ofproducts are transported to customers from their factories and distribution centres.¬Hoskisson, R. E., 2011, p.79).
14. 14.  R¬ ManufacturingNestlé produced a probiotic especially for all infant formulas and created and patented aspray drying process, used in manufacturing milk powders and Nescafe was first usedto make powdered paint dispersions.¬ ManagementNestlé Company has a Board of Directors, led by their Chairman PeterBrabeckLetmathe, who was the former Nestlé CEO.The day to day management of Nestlé business is taken care of by Executive Boardmembers composed of company executives and department heads.¬ MarketingFamous brand name and efficient strategy to meet the taste of each type of consumers.To increase sales and build an image in the mind of consumer, Nestlé Companyadvertise their product in different ways, as for as Nestlé pure life is concernedcompany use television, radio, newspaper, bill board.¬ Management Information SystemBy using their research for Information Technology, control all aspects more efficient.¬ Human ResourcesThe Company employs around 330,000 people, operates in over 150 countries.Nestléprovides training on the Code, with staff from the 14 departments that are part ofthe Code’s compliance system participating in yearly or twice yearly training.¬[BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 14Optimises their distribution network such as transport and warehousing in order tominimise greenhouse gas emissions, to ensure the most efficient use of their transportto reduce the distances travelled.&DNestlé Company first acquired the milk sterilising site to develop milk products andprocesses.Nestlé’s is boosting its research and development in Switzerland by extending itsProduct Technology Centre (PTC) in Konolfingen.The extension will help to enhance Nestlé’s innovative technologies for new productdevelopment and apply these to the company’s operations worldwide.
15. 15. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 158.0 Core Competencies AnalysisNestlé’s products and brand portfolio ranges from global icons to local favourites. It issupported by an unmatched research and development capability, with clear priorities,focused on driving innovation and renovation that is relevant and attractive for consumers.Nestlé Company has an unmatched geographical presence, due to the number of countrieswhere they are present, but also due to the depth of their roots in those countries. They haveoperated in most of their locations for generations. This has created strong relationshipbetween their brands and their consumers as well as an unrivalled understanding ofconsumers. This enables them to anticipate their needs and improve the quality of their lives.Their people, culture, values and attitude are their greatest strength. The Nestlé culture bindstheir people together all over the world with a shared set of doing business. Their culturecombines a long-term mind-set with short-term action. It encompasses a passion for quality inproducts, in relationships, in everything they do. It is focused on competitiveness, calculatedrisk-taking and an unswerving determination to deliver their goals, while creating value forsociety as a whole.Nestlé Company wants to be a leader in innovation and renovation, whether of products,systems or processes. They need to have the most efficient supply chain, from farm to fork toensure that they have the best raw materials, the bet processes and the freshest products ontheir customer’s shelves. Nestlé Continuous Excellence is their approach to operationalefficiency, with its objectives of eliminating waste, increasing efficiency and effectiveness,and improving quality in all operations. To make the most innovative products in the mostefficient way, they also need to ensure that their products are available sustainably wherever,whenever and however consumers want to buy them. Of course, they need to communicatewith their consumers in a dynamic way, both to keep them abreast of all that is new andexciting, but also to learn from them, so that Nestlé can bring their experiences to bear ontheir upcoming innovation and renovation (Nestlé.com, 2012)
16. 16. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 169.0 Value Chain Analysis of NestleThe value chain analysis is a template that firms use to understand their cost position andto identify the multiple means that might be used to facilitate implementation of a chosenbusiness-level strategy. A firm’s values chain is segmented into primary and supportactivities. Primary activities are involved with a products physical creation, its sale anddistribution to buyers and its service after sale. Support activities provide the assistancenecessary for the primary activities to take place (Hanson, D., Hitt, M., Ireland, R. D.,&Hoskisson, R. E., 2011, p.84).9.1 Primary Activities9.1.1 Inbound LogisticsNestlé’s Pure Life purchase plastics bottles with different size form supplier. Establishwarehouse in different countries and setup of water filling plant and disseminate inputs totheir products.9.1.2 OperationsNestlé operations are water filling packaging and account maintenance. They know andhave approved the manufacturing for all their raw materials and packaging materials. NestléCompany immediately instituted a programmed of major improvement to bring the facility onpar with international standards, introduce more efficient machinery. This has helped themspeed up production. Nestlé handle their account for exclusive sale in their regional office.9.1.3 Outbound LogisticsNestle Pure Life deliver their product to their house. Operation has been done thatdeliver to their regional offices according to their customer demand, innovations in bottledpackaging and eco-efficient packaging.9.1.4 Marketing and SalesNestlé charge value price, product designing Nestlé produce tasty water in plastic bottles.That produce is place in major city of Pakistan. Nestlé promote their produce by personalmarketing, TVC, sales promotion and public relation.
17. 17. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 179.1.5 ServicesNestlé provides the service home office delivery. They distribute bottle for exclusiveselective on shops, restaurants, hotel, etc. Their service is very efficient as compared toothers.9.2 Support Activities9.2.1 ProcurementThe key raw materials purchased by Nestlé are milk, coffee, and cocoa. These, as well asfruit, vegetables, cereals, and potatoes are partly sourced directly from farmers. Sugar, oil,meat, spices and other ingredients are sourced only through the trade; Sourcing has tocontribute to the sustainable and profitable development of their company by providing thebase for quality differentiation of finished products to customer or consumer satisfaction.This requires a supply of raw materials at specified quality, in the quantities and the timingneeded, at the lowest possible system costs.9.2.2 Technological DevelopmentNestlé is strengthening its leadership in research and development by enlarging its globalProduct Technology Centre for confectionary, based in United Kingdom. Nestlé ProductTechnology Centres have two roles. The first is to develop breakthrough technologies,building blocks that are basis of new product development. The second is to deploy thesetechnologies to the company’s operations.9.2.3 Human Resource ManagementHuman research is dedicated to their employees and ensures that they have all the rightpeople with the right skills. Understanding their people are the bedrock of all their businessstrategies, it is their mandate to enhance their skills with cutting edge training and providethem with world standard facilities. Their Management Trainee Programmed aims to developtalented young men and women and help them achieve their potential in a dynamic andenabling environment.
18. 18. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 189.2.4 Firm InfrastructureThe Nestlé Report provides a fact based analysis of how, over time, their manufacturingplants have helped to create large, skilled labour forces in rural areas and educate the peoplewho supply them, as well as build an important infrastructure such as roads and watertreatment systems. Through its infrastructure, the firm strives to effectively and consistentlyidentify external opportunities and threats, identify their resources and capabilities of Nestléand support their core competencies.(The detailed basic value chain diagram are given in Appendix 4)10.0 Weaknesses of NestleOne of weakness of Nestlé can be pointed out that there are too many distributionchannels for certain products. The main weakness of the LC-1 division of Nestlé is that theywere not as successful as they thought they would be in France. The launch in France was in1994, but since the late 1980s, Danone had already entered the market with a health-basedyogurt. The second weakness is that LC-1 was positioned as too scientific, and customers didnot understand that LC-1 was a food and not a drug. Nestlé do not have direct market outletsand this can be one of the weaknesses as it can cause difference in profit made. They are nothaving enough raw material production units; they depend on either local raw materialproducers or through other trade channels.11.0 SWOT Analysis11.1 StrengthsHave a very long history over 140 yearsOperated factories in 77 countries in all six continents, a truly global companyConsidered the innovation leader in the global food and nutrition sector with 3500scientists in company R&D networkOffering thousands of local products, research and development capabilities.Have a great CEO, Peter Brabeck and very strong workforce.
19. 19. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 1911.2 WeaknessesLess consumer research in few areas.Increasing instances of product recalls hampering brand equityEntering into markets that are already mature and can give a tough competition to newentrants.11.3 OpportunitiesWell-known company and strong brand nameHealth based on products are becoming more popular in the world, including UnitedStatesRanked first in nearly all the product segments in which it operated (market leader)11.4 ThreatsSome markets they are entering are already matureGlobal competitorsIncreasing prices of raw materialsHighly competitive market, multinational companies are very organized and financiallystrong12.0 Current StrategyNestlé’s objectives are to be recognised as the world leader in Nutrition, Health andWellness, trusted by all its stakeholders, and to be the reference for financial performance inits industry. They believe that leadership is not just about size, it is also about their behaviour.They recognise trust is earned only over a long periods of time by consistently delivering ontheir promises. These objectives and behaviour are encapsulated in the simple phrase, “GoodFood, Good Life”, a phrase that sums up their corporate ambition. The Nestlé Roadmap isintended to create alignment for their people behind a cohesive set of strategic priorities thatwill accelerate the achievement of their objectives. These objectives demand from theirpeople a blend of long-term inspiration needed to build for the future and short-termentrepreneurial actions, delivering the necessary level of performance. They are seeking toachieve leadership and earn that trust by satisfying the expectations of consumers, whosedaily choices drive their performances, of shareholders, of the communities in which they
20. 20. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 20operate and of society as a whole. They believe that it is only possible to create long-termsustainable value for their shareholders of their behaviour, strategies and operations are alsocreating value for the communities where they operate, for their business partner and also fortheir consumers, and they call this Creating Shared Value. They are now investing for thefuture to ensure the financial and environmental sustainability of their actions and operationsin capacity, technologies, capabilities, in people, in brands, in R&D. Their aims to meettoday’s needs without compromising the ability of the future generations to meet their needs,and to do so in a way which will ensure profitable growth year after year and a high level ofreturns for their shareholders and society at a large over the long-term.13.0 StrategyNestlé describes itself as a food, nutrition, health, and wellness company. They believestrengthening their leadership in this market is the key element of their corporate strategy.This market is characterised as one in which the consumer’s primary motivation for apurchase is the claims made by the product based on nutritional content. In order to reinforcetheir competitive advantage, Nestlé created Nutrition as an autonomous global business unitwithin the organisation, and charge it with the operational and profit and loss responsibilityfor the claim-based business performance by offering consumers trusted, science basednutrition products and services. The Corporate Wellness Unit was designed to integratenutritional value-added in their food and beverage businesses. This unit will drive thenutrition, health and wellness organisation across all their food and beverage businesses. Itencompasses a major communication effort, both internally and externally, and strives toclosely align Nestlé’s scientific and R&D expertise with consumer benefits. This unit isresponsible for coordinating horizontal, cross-business project that address current customerconcerns as well as anticipating future consumer trends.Nestlé business-level strategy isintegrated cost leadership or differentiation with wide range of products and low costoperators. Nestlé strategic leadership is to force the business to become more efficient, tocreate a regional manufacturing network, integrate the company’s business on a global scaleand to reduce marketing expenditures by exploiting the synergies between brands. Theirstrategy to develop R&D network by improving existing products and creating tomorrow’snourihsments, two third of company’s R&D activities are dedicated to renovating existingproducts, the remaining third is reserved for radical product innovations, improve onoperational level and a number of organisational changes. (See Appendix 5)
21. 21. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 2114.0 ConclusionThe theory based frameworks and models might be very useful but the application inpractice might be achieved very hard. It will also depend on the execution skills of thecompanies and the organisational culture. Nestlé Company is an international company whichcame to the stage it is today by gaining superior competitive advantage over its rivals. Thefocus product differentiation strategy has been very successful although it may not work forother firms. The company is able to create and deliver value not only by offeringdistinguished products but also gaining effectiveness and efficiency by reengineering itsbusiness processes. By doing all recommendations and follow all these steps of strategicmanagement processes, I am sure that Nestlé Company will do better in the future than theircompetitors and might be the new trendsetter in some criteria and also gain its above-averagereturns to their company.
22. 22. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 22ReferencesBook:David, F. R. (2009). Strategic management: concept and cases (12thEdition). NJ: PearsonPrentice Hall.Hanson, D., Hitt, M., Ireland, R. D., &Hoskisson, R. E. (2011).Strategic Management:Competitiveness and globalisation (Asia-Pacific 4thEdition). South Melbourne:Cengage Learning Australia.Electronic Media:Jones, S. (2012). Strategic Management at Nestle.Retrieved September 17, 2012, fromhttp://www.articlesbase.com/management-articles/strategic-management-at-nestle-5907881.htmlNestle (2012), Nestlé’ Good Food, Good Life.Retrieved September 18, 2012, from http://www.nestle.comNestle (2011). The world’s leading Nutrition, Health and Wellness Company Annual Report2011.Retrieved September 20, 2012, from http://www.nestle.comScribd Inc. (2012). Competitive Advantage of Nestle. Retrieved September 19, 2012, fromhttp://www.scribd.com/
23. 23. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 23AppendicesAppendix 1 Theexternal environmentAppendix 2 The five forces model of competitionSource: www.google.comIndustry EnvironmentThreat of new entrantsPower of supplierPower of buyersProduct substitutesIntensity of rivalryCompetitor environmentEconomicSocio-CulturalGlobalDemographicPolitical/LegalTechnological
24. 24. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 24Appendix 3 Financial Statements of Nestlé’s
25. 25. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 25Source: 2011-Financial-Statements-EN.pdf
26. 26. [BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012Nestlé Company 26Appendix 4 The basic value chainSource: www.google.comAppendix 5 Business Level StrategySource: www.google.com