SUMA K4100: MEMO 3 1
Student X - UNI1234
From: Student X for Hans Joehr, Nestlé Corporate Head of Agriculture
To: Peter Brabeck-Letmathe, Chairman
Subject: Sustainable Agriculture Initiative Nestlé (SAIN)
Date: October 24, 2012
Recommended Action
I recommend that Nestlé create open lines of communication and encourage or require
collaboration between the decentralized arms of the company, such that Nestlé can
expand Sustainable Agriculture Initiative Nestlé (SAIN) and amend its marketing
strategy to include environmental, social, and governance (ESG) initiatives in order to
economically realize increased value created by the company’s sustainability efforts.
Issues
Nestlé’s efforts in sustainable agriculture address the economic realities of the firm by
increasing profitability, ensuring a steady supply of high quality raw materials at lower
prices, and enhancing prestige as a socially and environmentally responsible company.
SAIN primarily benefits Nestlé through risk management and cost savings. Nestlé can
expand its quality control at the source by working upstream directly with farmers.
Implementing Nestlé’s own best practices, knowledge, and advanced technology at the
farms will mitigate or reduce risks to raw product quality by maintaining key
environmental services, reducing contamination problems, and ensuring optimal crop
yield in the long term, which will maintain a steady stream of reliable, and high quality
agricultural inputs to Nestlé’s products. Reducing risks upstream will result in less need
to compensate downstream for low quality inputs, thereby reducing spending on
processing. Sustainability initiatives decrease cost wherever inefficiencies throughout
Nestlé’s production system can be rectified, and expanding focus into the agricultural
beginning of the value chain will create a ripple effect throughout the company. Hans
Joehr argued in 2004 that when, “Process performance is enhanced, customer
satisfaction is improved, and the bottom line is impacted through cost savings and
increased revenue.” (7)
Nestlé’s decentralized corporate and organizational structure has hindered SAIN’s
progress by creating a disconnection between marketing activities and many other
aspects of the business. A structural constraint is that the company policy of modesty
does not allow direct marketing of environmental and social values on product
packaging. Nestlé’s sustainability initiatives increase the company’s intangible value,
but much of this value goes unrealized if potential consumers concerned about the
environment, labor, and social conditions are unaware of Nestlé’s commitments to
sustainability. Nestlé can amend the disconnection by encouraging communication and
collaboration between marketing managers and managers in other departments.
An obstacle to expanding SAIN is establishing directly related costs and revenues.
Managers with a range of responsibilities conduct sustainability efforts within the firm,
and time allocation is unclear. Another obstacle is that SAIN increases long-term value
by lowering risk and increasing quality, but may not increase short-term revenue or
Student X 2
stock price. However, the broad shared value implications and growth capabilities
driven by these initiatives supersede the short-term obstacles.
Nestlé should expand SAIN to address sustainable sugar sourcing. Implications would
be broad because Sugar is a staple raw material for the company, and opportunities
abound for increased resource quality, efficiency, and ecological responsibility, such as
in water usage and erosion reduction.
Nestlé’s defines sustainable agriculture as, “productive, competitive and efficient while
at the same time protecting and improving the natural environment and conditions of the
local communities.” This definition has influenced the evolution of SAIN
environmentally, socially, and economically. The words, “productive, competitive, and
efficient,” shaped SAIN primarily as a business strategy in that all projects must
enhance profitability. Economically and socially, Nestlé understands that upstream
involvement in agribusiness helps farmers improve their own businesses through
sustainable farming methods, which ensures long-term quality and quantity of raw
material inputs to Nestlé’s products, creating shared value for Nestlé and its suppliers.
Nestlé enhanced the livelihood of many coffee bean farmers through financing and
teaching best practices based on ecologically sound farming methods, and addressed
environmental and social inefficiencies by teaching farmers to diversify and plant
optimally for the local climate, society, and economy. Purchasing coffee beans directly
from farmers allowed them to earn more money incentivized by high quality, and
allowed Nestlé to increase profits by decreasing risks and paying less for better raw
materials. According to the above definition of sustainable agriculture, SAIN initiatives
are enhance business as usual.
Options
An alternative option is to cease sustainability initiatives. Pros of this option are
decreased short term overhead and opened up opportunity cost of focusing resources
elsewhere, such as in further expanding product lines. Cons of discontinuation are
negative impacts on the company’s reputation, lowered competitiveness in an industry
where consumers are increasingly concerned about food source and quality, loss of
consumer trust and loyalty, and unrealized gains from increased efficiency, improved
quality, and lower procurement costs of raw materials.
A second alternative is to focus more on marketing an image of sustainability than
sustainability initiatives themselves. Pros of this option are potential short term
increased consumer interest, publicity, and reputation. Cons of this path are lost
consumer trust, a tarnished long-term reputation for “green washing,” and unrealized
gains in production efficiency, quality, and cost savings.
Implementation
To begin the implementation of the expansion of SAIN and the revamping of Nestlé’s
marketing strategy, I request your authorization to set up a meeting with the head of the
marketing department to align strategies and increase communication and
collaboration.
