2014

ICICI Bank, NU MBA, Term V

by
Report on Strategic
Aniket Saha Management of NESTLE
(P301413CMG296)
Abhijit Nandi
(P301413CMG286)
Submitted to Prof.
Jayant Bose, Course-In-Charge
Aditya Ganti (P301413CMG291)
Business Policies & Strategic Management
Abhishek Satpati (P301413CMG289)
Ankur Bhargava (P301413CMG298)
Executive Summary

The purpose of this report is to evaluate Nestle vis-a-vis the other members in the food industry and
analyze how the company has developed strategic intent for their business organisations following the
analysis of external and internal business environments. We will analyse the strategic management
process as a firm used to achieve strategic competitiveness and earn above-average returns. We 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 external environment and to decide
how to use their resources, capabilities and core competencies in the firm’s internal environment to
pursue opportunities and overcome threats. In order to strengthen this assignment about Nestle, there are
several methods of gathering data has been conducted, such as PEST analysis, Porter’s 5 forces model,
value chain analysis and SWOT analysis.

By the end of this assignment, future strategy will be mentioned as well as our recommendations about
Nestle that will fit into strategic orientation in order to perform better in their business domain, and
continue to develop and implement its learning approach as the chosen large company by using different
strategies.

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Contents

Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................6
Introduction to Nestle.............................................................................................................................6
Vision and Business Model..........................................................................................................................6
Vision Statement.....................................................................................................................................6
Business Model........................................................................................................................................7
Objectives................................................................................................................................................8
Short Term Objectives and Implementation............................................................................................9
Long Term Goals and Implementation..................................................................................................10
Nestle Continuous Excellence (NCE)..........................................................................................................10
Creating Shared Value...........................................................................................................................11
Environmental Scanning and Analysis...................................................................................................11
PESTEL Analysis.........................................................................................................................................11
General Environment Analysis...............................................................................................................11
Demographic Segment..........................................................................................................................12
Economic Segment................................................................................................................................12
Political / Legal Segment........................................................................................................................12
Socio-cultural Segment..........................................................................................................................12
Technological Segment..........................................................................................................................13
Global Segment.....................................................................................................................................13
Porter’s Five Forces Model........................................................................................................................13
Threat of New Entrants.........................................................................................................................13
Bargaining Power of Supplier................................................................................................................14
Bargaining Power of Buyers...................................................................................................................14
Threat of Substitute Products................................................................................................................14
Intensity of Rivalry Among Competitors................................................................................................14
Competitive Environment......................................................................................................................15
Internal Analysis........................................................................................................................................16

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Resource Based View of Nestle.................................................................................................................16
Tangible Resources of Nestle.................................................................................................................16
Financial Resources...........................................................................................................................16
Organisational Resources..................................................................................................................16
Physical Resources.............................................................................................................................16
Technological Resources....................................................................................................................16
Intangible Resources of Nestle..............................................................................................................17
Human Resources..............................................................................................................................17
Innovation Resources........................................................................................................................17
Reputational Resources.....................................................................................................................17
VRIO Analysis of Nestle..............................................................................................................................17
Value......................................................................................................................................................17
Rareness................................................................................................................................................17
Inimitability............................................................................................................................................17
Organization..........................................................................................................................................17
Value Chain Analysis..................................................................................................................................18
Primary Activities...................................................................................................................................18
Inbound Logistics:..............................................................................................................................18
Operations:........................................................................................................................................18
Outbound Logistics:..........................................................................................................................19
Marketing and Sales:.........................................................................................................................19
After Sales (Services):........................................................................................................................19
Support Activities..................................................................................................................................19
Procurement:.....................................................................................................................................19
Infrastructure:...................................................................................................................................19
Technology:.......................................................................................................................................19
Human Resources:.............................................................................................................................20
Internal Factor Analysis for Nestle.........................................................................................................20
Strategies...................................................................................................................................................20
Resource Commitment..............................................................................................................................23
Organizational Structure of Nestle............................................................................................................25

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 Systems.................................................................................................................................................25
Primary Activities.......................................................................................................................................26
Inbound Logistics...................................................................................................................................26
Operations.............................................................................................................................................26
Outbound Logistics................................................................................................................................26
Support Activities..................................................................................................................................26
Procurement..........................................................................................................................................26
Technological Development..................................................................................................................27
Human Resource Management.............................................................................................................27
Firm Infrastructure................................................................................................................................27
Weaknesses of Nestle............................................................................................................................27
SWOT Analysis.......................................................................................................................................27
Organizational Culture...............................................................................................................................28
Nestle’s Organizational Structure:.........................................................................................................28
Adaptive:...........................................................................................................................................28
Absorptive:........................................................................................................................................28
Collaborative:....................................................................................................................................28
Cultural Challenges – Internal................................................................................................................29
Leadership Style....................................................................................................................................30
Evaluation and Control Mechanics............................................................................................................30
Balanced Score Card..............................................................................................................................30
Conclusion and Recommendations...........................................................................................................31
Reference..................................................................................................................................................32

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Introduction

The most important thing for most of business company is an understanding their successful performance
among the other competitors in market place. For some parties, like shareholders, it is essential for
company to make a profit and gain above-average returns. In this assignment, we will discuss furthermore
about Nestlé’s external environment in all aspects such as their general environment, industry
environment, competitive environment, and scan the opportunities and threats of the company. And also
we are going to explain briefly about their internal environment includes their resources, type of their
resources, company’s capabilities, evaluate their core competencies and so on.

Introduction to Nestle

Nestlé S.A. is a Swiss multinational nutritional and health-related consumer goods company
headquartered in Vevey, Switzerland. It is the largest food company in the world measured by revenues.
Nestlé’s products include baby food, bottled water, breakfast cereals, coffee, confectionary, dairy
products, ice cream, pet foods and snacks. Nestlé employ around 330,000 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 of L’Oreal, the world’s largest cosmetics company. Nestlé history
begins back in 1866, when the 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, a
German pharmacist, launched his Farine lactee, a combination of cow’s milk, wheat flour and sugar,
saving the life of a neighbour’s child. Nutrition has been the cornerstone of the company ever since. In
1905, The Anglo-Swiss Condensed Milk Company, founded by Americans Charles and George Page,
merged with Nestlé after a couple of decades as fierce competitors to form the Nestlé and Anglo-Swiss
Milk Company. The company grew significantly during the First World War and again following the
Second World War, expanding its offerings beyond its early condensed milk and infant formula products.
In 2011, Nestlé was listed No.1 in the Fortune Global 500 as the world’s most profitable corporation. The
Nestlé Corporate Business Principles are at the basis of the company’s culture, developed over 140 years,
which reflects the ideas of fairness, honesty and long-term thinking. Nestlé believes that not only possible
to create long-term value for their shareholders if their behaviour strategies and operations also create
value for the communities where they operate, for their business partners and of course, for their
consumers.

Vision and Business Model

Vision Statement

According to the Vision and Mission Statement of Nestle, they state that:

“Our objective is to be the leader in Nutrition Health and Wellness, and the industry reference for
financial performance, trusted by all stakeholders.”

Therefore, if we analyze the vision statement above, we immediately learn that:

 Nestlé’s vision is to meet the various needs of the consumer everyday by marketing and selling
foods of a consistently high quality. Their objectives are to deliver the very best quality in

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 everything they do, from primary produce, choices of suppliers and transport, to recipes and
packaging materials.
 Their mission is to strive to bring consumers foods that are safe, of high quality and provide
optimal nutrient to meet physiological needs. Nestlé helps provide selections for all individual
taste and lifestyle preferences.
 Nestlé purpose is to offer safe, tasty, convenient and nutritious foods to improve health and well-
being of consumers of all ages all over the world. To meet the needs and desires of today’s and
tomorrow’s consumers, Nestlé is strongly committed to Research and Development (R&D) to
improve products and develop new foods with specific health benefits (Nestlé.com, 2012).
 In addition, Nestle has also specified the benefits of being its shareholder, i.e. it has stated that it
will benchmark its financial performance with the other players in the industry. We take a look at
the financial performance of Nestle in India with respect to its competitors, as under:

Business Model

Nestle has a diversified presence in various sectors of the processed food industry and has several
products catering to different demographic and geographic segments in the same domain. For example, in
the ice cream segments, it has Nido at one end of the spectrum while it has Haagen Dazs at the other end.

The entire range of product of Nestle can be seen as per the figure below:

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Therefore, we can safely say that the business model adapted by Nestle is that of a Profit Pyramid
Model.

Objectives

The Nestlé Roadmap is a strategic performance framework that is intended to create alignment behind a
cohesive set of strategic priorities that are intended to accelerate the achievement of its objectives.

These objectives demand from the people a blend of long-term inspiration needed to build for the future
and short-term entrepreneurial actions to deliver the necessary level of performance.

The roadmap places creating value for our consumers at the heart of all we do, as we will see in the figure
below. By aligning with the “Nestlé Roadmap”, they are investing for the future to ensure the financial
and environmental sustainability of our actions and operations: in capacity, in technologies, in
capabilities, in people, in brands, in R&D. Nestlé’s aim is to meet today’s needs without compromising
the ability of 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 of returns for their shareholders and the society at large over the
long-term.

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In this roadmap we first see that Nestlé’s long term ambition is to be recognized as the world leader in
Nutrition, Health and Wellness, trusted by all its stakeholders, and to be the reference for financial
performance in its industry.

Short Term Objectives and Implementation

Nestle has been able to meet its short term objectives by focusing on Operational Efficiency and Lean
Manufacturing Processes, which combined with high Quality Control Standards, has lead to the
production of better products, with lower wastes, which in turn lead to lower costs, and thus, higher
profits.

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Long Term Goals and Implementation

Nestle has two main programs with which it aims to achieve its long term goals. These are:

 Nestle Continuous Excellence or NCE

 Creating Shared Value

Nestle Continuous Excellence (NCE)

Nestlé’s ‘Nestlé Continuous Excellence’ program is essentially, a systematic approach towards

operational efficiency which helps them to consistently create consumer value and build competitive
advantages.

Nestlé Continuous Excellence is a business program under the “Operational Efficiency” pillar,
calling on the whole organization to incorporate the guiding principles of ‘Lean Thinking’ in all
their activities.

NCE is designed to enable Nestlé to offer its customers faster response times and better value than
competitors, but always in a way that respects people and the environment. NCE does this by improving
efficiencies, reducing waste, and improving overall operations in purchasing, production and distribution
without compromising on quality. It is a set of common continuous improvement initiatives to transform
Nestlé into a Lean Enterprise and has been developed principally to encourage employees at all levels to
think scientifically, make decisions based on facts and continuously improve performance in a sustainable
way whilst engaging in new ways of thinking and problem solving to delight consumers and customers
with a greater value offering.

The primary goal of NCE is to engage and empower all employees in a consumer-driven war on waste –
driving a “zero defect, zero waste” mentality across the entire value chain.

To sum it all up, the common short term goals of NCE are:

 '0 (zero) waste’ - continuously driving out waste and creating value in all we do
 ’1 team’ - alignment amongst ourselves and with our consumers
 ’100% engagement’ - engaging all our people and developing their full potential

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In the long term, NCE delivers continuous improvement focused on the 3Cs that forms the core of
Nestlé’s strategy and vision:

 Consumers
 Competitive Advantage
 Compliance

While NCE is a long-term and sustainable approach to performance improvement, it has also helped
deliver many quick wins. By increasing the responsibility levels and skill sets of their employees, Nestle
has been able to reduce accidents, waste, unplanned stoppages, quality defects and consumer complaints,
and improve productivity and overall quality of our products.

For example, NCE has helped Nestlé’s facility in Kurunegala (a multi product facility that produces 90%
of the Nestlé products sold in Sri Lanka) to:

 reduce consumption of water by an average of 10% year after years

 reduce consumption of energy by an average of 9% year after year
 generate operational savings of up to 1.5% of the cost of production over the past years
 and most importantly, enabled us to delight our consumers with superior product offerings

Creating Shared Value

Creating Shared Value is about the optimization of the immediate requirements of key stakeholders and
delivering long term growth. Under this program, Nestle believes in enriching the lives of its suppliers’ at
the grass root levels, such as farmers. By focusing on the enriching the lives and farming techniques of its
farmers, Nestle is ensuring that the its suppliers’ needs are met today so that Nestlé’s needs for tomorrow
are met.

Environmental Scanning and Analysis

The external scanning or environmental scanning has been done with the help of two methods:

 PESTEL Analysis
 Porter’s Five Forces Model

PESTEL Analysis

General Environment Analysis

The general environment is composed of dimensions in broader society that influence an industry and,
indirectly, the firms within it. They group these dimensions into six environmental segments such as
demographic, economic, political, socio-cultural, technological and global. These structured segments are
external to the firm. The challenge to the firm is to scan, monitor, forecast, and assess those elements in
each segment that are of the greatest importance. These efforts should result in recognition of
environmental changes, trends, opportunities and threats.

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Demographic Segment

Nestlé’s product is for everyone. Nearly all age from young to old people can purchase Nestlé. And all six
continents are their customer. For instance, Nestlé has segmented into age groups as well. For babies,
they have Nestlé baby foods while young people can drink Milo, Nescafe or eat chocolates and cookies.
Apart from that, Maggi, one of the leading brands of Nestle has different flavours according to regional
tastes. While Maggi in the UK offers the following flavours – Garlic, Mixed Herbs, Paprika and Sweet
and Sour, here, in India, they offer the spicier Masala versions.

Economic Segment

Although Nestlé is leader in the food industry, it shares its knowledge and expertise with local small and
medium companies. It helps entrepreneurs to compete in the new free trade environment which will
ultimately benefit the industry and the economy by making the market growth. Besides that, Nestlé also
collaborates with local government to provide technical assistance to farmers in planting and harvesting
crops. The farmer will get income and Nestlé will get to purchase good and fresh raw materials to
produce their food. By having own local productions, Nestlé should no longer need to import any raw
materials from other country where they will save much more money. It will also benefit the consumers
whereby consumers could enjoy the local productions with low price. More consumers will use this
product and therefore Nestlé will gain more profit from that.

Political / Legal Segment

Political factors are important especially important in the food industry due to various restrictions on the
allowable preservatives and hygiene conditions. The company policies are affected and its budget is also
affected. Nestlé provides food assurance to the consumers that Nestlé’s products are manufactured,
imported and distributed under the strictest hygienic and sanitary condition. Besides that, to ensure that
consumers do not buy any fake products, Nestlé’s products are always come with the seal of guarantee.
By having the 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 products quality will not be
different with other countries. Consumers are guarantees with full satisfaction of the products all over the
world.

Socio-cultural Segment

Consumers are now switching towards foods which combine taste as well as nutriotional benefits.
Obviously, these types of goods are preferred more than that of junk foods and its relative products.
Moreover, generation Y members, (i.e. those born from 1980s-2000s), possess characteristics such as
acceptance to change and being technologically savvy. These kinds of characteristics should coincide to
the firms’ aggressiveness of using technology especially that this is also the tie of the influx of technology
in the Europe.

Technological Segment

Internet and Mobile Technology is currently growing so rapidly in the market where almost all of the
people nowadays will get contact with it. Nestlé could use this advantage to benefit 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 this internet service to connect to its industry in

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other country such as Australia, Singapore, U.K and more. They did research and development by using
the technology to find more information to satisfy the local tastes and cultural flavours in each country
market. By understanding what each country asks for, Nestlé could market difference product according
to the customer demand in difference country. It is already proven that the technology factors are
important for Nestlé Company.

Global Segment

Nestlé Company improves their operational efficiency by integrating the company’s businesses on a
global scale. They are now transitioning to become a genuinely global food company, to behave as one.
Nestlé has a dynamic global network of Nestlé R&D centres working on scientific research and product
development. They have the world’s largest food and nutrition research organisation, with about 5000
involve in R&D. Nestlé’s global R&D is applied locally to meet different consumer needs and
preferences through over 300 Application Groups worldwide.

Porter’s Five Forces Model

Compared with the general environment, the industry environment has a more direct effect on the firm’s
strategic competitiveness and to earn above-average returns. The intensity of industry competition and an
industry’s profit potential are functions of five forces of competition such as the threat of new entrants,
bargaining power of supplier, bargaining of power 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 Forces Model was created to act as a framework for industry analysis and business strategy
development. Porter singled out five different forces that impact competitive intensity which portrays an
image of the overall attractiveness and profitability of a market.

Threat of New Entrants

The food processing industry is very large and competitive. It is uncommon for firms within the industry
to do quite well. As a result, many companies enter into the market every year in an attempt to gain a
portion of the profitable market. For Nestle, the company luckily has been around for over a century and
boasts a long history of quality products and consumer satisfaction, which has allowed the company to
obtain a considerable share of the market. As a result, new entrants into the industry must attempt to seize
a portion of Nestlé’s market share in order to survive. Essentially, Nestlé is constantly a target, and so the
threat of new entrants is moderate.

Bargaining Power of Supplier

Nestlé prides itself on creating and maintaining positive relationships with its suppliers all over the world.
Due to the large purchasing power of Nestlé, and because the suppliers of agricultural commodities offer
a product that is far from unique, Nestlé holds more bargaining power than its suppliers. Aside from this,
Nestlé prefers to create and preserve long term relationships with its suppliers as this helps to ensure the
quality of the raw materials being purchased. In addition, Nestlé also offers useful advice to its suppliers
on how to perform more efficiently to minimize unnecessary costs.

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Bargaining Power of Buyers

Customers have a large amount of bargaining power regarding to their consumption of Nestlé products.
There are close substitutes for Nestlé products which allows for the preferences of the customers to be
very influential. Nestlé understands the power of the customer 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 as society has started becoming more health conscious.

Threat of Substitute Products

Due 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 of similar products that compete
directly with Nestlé. It is vital for Nestlé to continuously find new ways to improve its products and
generate new sources of growth for the company’s future expansion because competition is so violent. In
recent years, Nestlé has focused on the health and wellness aspects of its products to maintain its edge in
the market.

Intensity of Rivalry Among Competitors

Nestle is powerhouse in the food processing industry but so are Kraft, Masterfoods, and Unilever, Nestle
was also facing strong competition at the national and regional level. These companies, among others, are
in a constant and continuous battle to outperform one another. Nestle was increasingly facing fierce
competition as many food producing rivals had achieved significant improvements in their operating
efficiency. Rivalry is fierce in the food processing industry, and this is a good thing for consumers. As
long as these companies continue striving to one up one another, consumers will continue to enjoy ever-
improving product lines.

When applied to Nestlé, the Porter’s Five Forces Model depicts a competitive, but profitable market for
the food processing industry. Furthermore, the model places Nestlé in a somewhat comfortable position
within the food processing industry, while acknowledging the threats to its market share. Specifically, the
model notes a moderate threat of new entrants into the market and a substantial threat of substitute goods.
In addition, the model shows that Nestlé tends to maintain the upper hand over its suppliers as
commodities have exact substitute in the market. And also, their customers have a considerable amount of
bargaining power, as Nestlé must adhere to consumer wants and needs because there are so many close
substitutes. For the final force, the model depicts a large amount of rivalry within the food processing
industry.

Competitive Environment

Nestlé Company encounters higher levels of competition than it currently experiences. Any increase in
the competitive environment may have an adverse effect on Nestlé’s business, earnings and growth.
Through effective competitive intelligence, the firm gains the insights needed to create a competitive
advantage and to increase the quality of the strategic decisions 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 most important sources of competitive advantage. Through the research and
development (R&D) capabilities allow Nestlé Company to lead the way in innovation and provides for
maximum portfolio flexibility. The extraordinarily large scope of Nestlé’s business provides for
significant economic of scale in manufacturing, marketing, and administration. For example, Nestlé
established a number of ventures for growth into new areas related to wellness and nutrition. Nestlé

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moved into the area of nutricosmetics, under the brand name Inneov a joint venture by Nestlé and
L’Oreal. This strong brand reputation is built due to high quality of the products and customer
satisfaction. Competitors’ rivalry in this market is really intense; it is because 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 140 years of research,
development and scientific know-how. While there is a great deal of pure and applied science research
that takes place in their global R&D centres, Nestlé ensures that the consumer, and the consumer benefit,
remains at the core of all their activities. To be successful in today’s food and beverage sector the cost
component is critical and economic of scale are a main cost driver for Nestlé’s Company. Between the
shelf share of multi billionaire brands and recent push of retailer driven private label products a new
entrant would be challenged into executing a successful distribution strategy. The main threat of this
company is their competitors, which is come out with foods and beverages as well, if they go higher than
price ceiling, the other competitors will win by setting up lower price, but if they go lower than that,
competitors will easily eliminate them in market place. That is why the rate of competition is really high
and Nestlé was also facing a strong competition at the national and regional level. Nestlé Company have
strategic advantage over their competitors because their will increase Nestlé value by ensuring long term
availability of raw materials and water, more secure supply of better quality raw materials, producing
products with improved environmental performance, profitable growth, consumer preference for their
products and sustainable, and also to continuously improving environmental performance (Nestlé.com,
2014).

Internal Analysis

Here, we discuss about the nature of Nestlé’s firm’s internal environment analysis. Evaluate the role of
resources and capabilities in developing core competencies, which are the sources of the firm’s
competitive advantages. In this section, we will discuss the techniques firms can use to identify and
evaluate resources and capabilities and the criteria for selecting core competencies from among them. It
also discusses the value chain concept and examines four criteria to evaluate core competencies that
establish a competitive advantage to Nestlé Company.

Resource Based View of Nestle

Tangible Resources of Nestle

Financial Resources
 Total Revenue : CHF 83.64 billion
 Operating income : CHF 12.538 billion
 Profit : CHF 9.487 billion
 Total Equity : CHF 62.60 billion
 Total Assets : CHF 111.64 billion

Organisational Resources
 Nestlé’s governing body is the Annual General Meeting of shareholders.
 Leading the company is the Chairman of the Board and CEO.

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  The most relevant of Nestlé’s organisational measures were the creation of Product Technology
Centres, Local Application Centres and Clusters.

Physical Resources
 Coffee
 Water
 Ice Cream
 Baby Food
 Healthcare nutrition
 Confectionary
 Pharmaceuticals

Technological Resources
 Nestlé moved from being a technology led company that produced convenient, tasty foods and
beverages for sustenance, to being a science driven, health and Wellness Company.
 Continual involvement of rapid technological change.

Intangible Resources of Nestle

Human Resources
 Approximately 330,000 people have been employed by Nestlé Company.

Innovation Resources
 Nestlé R&D generates the innovative science and technology needed to build nutritional and health
benefits into products offerings Nestlé legendary sensory excellence.

Reputational Resources
 Nestlé scientists play their part in communicating the health and wellness benefits of products to
consumers.
 From consumer need into research priorities.
 From emerging science into consumer benefits and services.

VRIO Analysis of Nestle

Value

Resources are valuable if they help organizations to increase the perceived customer value. In 2006
Nestle became the first company to introduce the shared value approach. Nestle has focused on shared
value by focusing on sectors like rural development, water and nutrition. This also builds a strong base of
performance in environment sustainability and compliance.

Rareness

Nestle has been world leader in larger number of nutritional technologies like fermentation and
probiotics, extrusion, healthy fats, foam booster technology, malt extraction, portion distribution. The
company has a dedicated group of food scientists who have successfully patented a lot of their offerings,
hence ensuring a competitive advantage for Nestle.

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Inimitability

Firms that have valuable, rare and costly to imitate resources can achieve sustained competitive
advantage. Nestle has been the market leader in snack with their most popular offering, Magi. Although
the inimitability is significantly low, Nestle has been able to sustain the market share with continuous and
rigorous R&D and marketing.

Organization

A firm must organize its management systems, processes, policies, organizational structure and culture to
be able to fully realize the potential of its valuable, rare and costly to imitate resources and capabilities.
Only then the companies can achieve sustained competitive advantage. Nestlé’s strategy has always been
guided by its fundamental and core principles which stresses on growth through innovation and
renovation while maintaining a balance between geographic activities and product lines. The company’s
priority has always been to bring the best and most relevant products to people which make a difference
in their lives.

Value Chain Analysis

The typical value chain, as given by Porter, has been shown as per the diagram below:

Let us now analyze the value chain of Nestle based on the above parameters:

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Primary Activities

Inbound Logistics:
 Nestle follows a supplier code which seeks to source raw materials responsibly by helping suppliers to
develop sustainable and ethical practices.
 Inbound logistics also include warehousing and inventory control.
 Transparency and monitoring through deployment of IT –all transactions through ERP.
 Efficient storage facilities, easy storage and retrieval.

Operations:

 Inclusion of research into food development

 Transforming the raw materials into commodities relevant to consumers thereby creating value.

Outbound Logistics:

 Distributors well spread all across the country.

 Nestle has started to set up distribution channels in each country where its production plant is set up so
ensure timely delivery

Marketing and Sales:

 “Brand Building the Nestlé Way” is a distinctive process that sets Nestlé’s marketing function apart in
the industry
 End-to-end marketing service in three key areas: brand management, communications and consumer
insight.
 Focus on the consumer ensures seamless service, hand in hand with the Customer & Sales teams.

After Sales (Services):

 Feedback mechanism to ensure prompt collection of data

 Call centers and toll free numbers which cater to consumer complaints.
 Large network of distributors & retailers.

Support Activities

Procurement:
 Procurement done through variety of trusted channels. 
 High grade quality check and standards followed.
 Effect of Business Intelligence driven technologies in procurement.
 Direct sourcing from farmers which also helps drive the rural development initiative.

Infrastructure:
 Nestlé India has presence across India with 8 manufacturing facilities and 4 branch offices.
 The 4 Branch Offices located at Delhi, Mumbai, Chennai and Kolkata help facilitate the sales and
marketing activities

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  Research and Development (R&D) in India is part of Nestlé S.A.’s global R&D network and supports
all markets worldwide with new product development and manufacturing excellence for Noodles
 Wide product portfolio

Technology:
 Nestlé Research Center encompasses the nutritional value and sensory characteristics of products,
commercial feasibility and food technology, along with consumer behaviour, nutrition needs and
social aspects of food and eating
 At the forefront of all of Nestlé’s research activities is the commitment to utmost quality and safety
 The Nestlé Research Center does not work alone. It is part of the worldwide Nestlé R&D Network,
which translates science and technology into products, business and systems

Human Resources:
 Engaging the best talent in industry
 HR business partnership helping line managers improve commercial performance through people

Internal Factor Analysis for Nestle

Internal Factor Evaluation Matrix Weight Rating Weighted Score

Strengths  

Brand Image/Equity 0.15 5 0.75

Wide variety of offerings 0.05 4 0.32

Dedicated research & development team 0.10 5 0.50

Global Presence 0.10 4 0.40

Extensive Supply Chain 0.10 4 0.40

Weakness  

Faulty food products 0.05 1 0.05

Stiff competition from big domestic players 0.15 3 0.45

Increasing competition amongst other FMCG

companies 0.10 4 0.40

Absence in rural areas 0.10 4 0.40

Avoidance of consumer sentiment 0.10 2 0.20

Total 1   3.87

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Strategies

For evaluating the strategies of Nestlé’s products, we use the BCG Matrix, which classifies the products
of a company in terms of the industry growth and relative market share into four categories, which are:

 Stars
 Dogs
 Cash Cows
 Question Marks

We now classify the various products that Nestle has on offer in India, based on the above. The following
products were taken into consideration for the analysis:

Nescafe, Maggi, Cerelac, Kit-Kat, Nescafe Decaf, Nestum, Marties, Nesquik, Nestea, Milky Bar,
Nestle Crunch, Nestle Munch, Nestle Dahi, Smarties and Haagen Dazs.

Stars: Undoubtedly, out of the above products, Nescafe and Cerelac are the products that are the stars in
Nestlé’s product line up. The current coffee consumption in India is estimated at around 97,000 metric
tons and the industry continues to grow at a rate of 5-6% annually. In addition, Nescafe (52%) has a much
larger market share compared to its nearest rival in India, Bru (34%). Likewise, Cerelac also commands
an 85% market share in the Rs. 1500 Crore baby food market in India.

Cash Cows: We have considered Maggi and Kit-Kat to be the cash cows due to their large sales volumes.
However, the growth for both of these in the noodles and chocolates industry is low, primarily due to a
large number of substitute products such as Top Ramen, Knorr Soupy Noodles, local manufacturers in the
noodle segment and Cadbury Perk, Nestle Munch etc in the chocolate industry.

Similarly, based on industry and market share studies, we can classify the rest of the products into the
other categories as under:

Question Marks: Nesquik, Decaf, Smarties, Haagen Dazs and Nestum.

Dogs: Nestea, Milky Bar, Nestle Munch and Nestle Crunch.

Therefore, the BCG matrix looks like the following:

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The product life cycle graph based on the BCG matrix has also been drawn as under:

Growth/Diversification Strategies

We use Ansoff’s diversification matrix for the analysis and evaluation of growth and diversification
strategies for Nestle.

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Nestle operates in a plethora of different markets. Keeping each market in mind it develops different
strategies. The Ansoff matrix shows four different kinds of strategies that companies can follow in order
to achieve their goals.

 Market Penetration: In market penetration the strategy is to lower the prices so that they can enter
into the market more quickly.For example, Maggi has recently brought out packs of 5 rupees each so
as to gain market share.
 Market Development: In Market development strategy, the company takes an existing product into a
new market. This can be seen as when Nestle took Kitkat to foreign markets or when it launched
Nescafe coffee in China
 Product Development: Product development is when a company remains in the same market it is
presently operating but starts to expand its product line. Nestle was seen using product development
when it remained in the European market but started venturing into health and nutritional products and
expanding its product line.
 Diversification: The firm grows by diversifying into new businesses by developing new products for
new markets. Nestle also has a diversified portfolio as it invested in the cosmetic company L’Oreal and
is also the stakeholder in a number of pharmaceutical companies worldwide.Nestle may introduce new
products such as pet food and bottled water in India as it tries to revive growth in the domestic market.

Resource Commitment

Nestlé’s products and brand portfolio ranges from global icons to local favourites. It is supported 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 countries where they are present, but also due to the depth of their roots in
those countries. They have operated in most of their locations for generations. This has created strong
relationship between their brands and their consumers as well as an unrivalled understanding of
consumers. 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 binds their people

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together all over the world with a shared set of doing business. Their culture combines a long-term mind-
set with short-term action. It encompasses a passion for quality in products, in relationships, in everything
they do. It is focused on competitiveness, calculated risk-taking and an unswerving determination to
deliver their goals, while creating value for society as a whole.

The capabilities of a firm are its firm’s capacity to deploy resources that have been purposely integrated
to achieve a desired end state. Capabilities are often based on developing, carrying and exchanging
information and knowledge through the firm’s human capital and also often developed in specific
functional areas, such as R&D, marketing, manufacturing, management and so on. In this section, we
briefly evaluate of Nestlé’s capabilities and possible resource committments.

Distribution
 Nestlé distribution network ensures that every day more than 100.000 tonnes of products are
transported to customers from their factories and distribution centres.
 Optimises their distribution network such as transport and warehousing in order to minimise
greenhouse gas emissions, to ensure the most efficient use of their transport to reduce the distances
travelled.

Human Resources
 The Company employs around 330,000 people, operates in over 150 countries.
 Nestlé provides training on the Code, with staff from the 14 departments that are part of the Code’s
compliance system participating in yearly or twice yearly training.

Management Information System

 By using their research for Information Technology, control all aspects more efficient.

Marketing
 Famous 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 Company advertise their product
in different ways, as for as Nestlé pure life is concerned company use television, radio, newspaper, bill
board.

Management
 Nestlé Company has a Board of Directors, led by their Chairman Peter Brabeck Letmathe, who was
the former Nestlé CEO.
 The day to day management of Nestlé business is taken care of by Executive Board members
composed of company executives and department heads.

Manufacturing
 Nestlé produced a probiotic especially for all infant formulas and created and patented a spray drying
process, used in manufacturing milk powders and Nescafe was first used to make powdered paint
dispersions.

R&D
 Nestlé Company first acquired the milk sterilising site to develop milk products and processes.
 Nestlé’s is boosting its research and development in Switzerland by extending its Product Technology
Centre (PTC) in Konolfingen.
 The extension will help to enhance Nestlé’s innovative technologies for new product development and
apply these to the company’s operations worldwide.

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Organizational Structure of Nestle

Nestle uses a hybrid or mixed form of an organizational structure. The key benefits of these are:

The organizational structure of Nestle is as under:

Systems

The value chain analysis is a template that firms use to understand their cost position and to identify the
multiple means that might be used to facilitate implementation of a chosen business-level strategy. A
firm’s values chain is segmented into primary and support activities. Primary activities are involved with
a products physical creation, its sale and distribution to buyers and its service after sale. Support activities
provide the assistance necessary for the primary activities to take place.

Primary Activities

Inbound Logistics

Nestlé’s Pure Life purchase plastics bottles with different size form supplier. Establish warehouse in
different countries and setup of water filling plant and disseminate inputs to their products.

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Operations

Nestlé operations are water filling packaging and account maintenance. They know and have approved
the manufacturing for all their raw materials and packaging materials. Nestlé Company immediately
instituted a programmed of major improvement to bring the facility on par with international standards,
introduce more efficient machinery. This has helped them speed up production. Nestlé handle their
account for exclusive sale in their regional office.

Outbound Logistics

Nestle Pure Life deliver their product to their house. Operation has been done that deliver to their regional
offices according to their customer demand, innovations in bottled packaging and eco-efficient
packaging.

Marketing and Sales

Nestlé 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 personal marketing, TVC, sales
promotion and public relation.

Services
Nestlé provides the service home office delivery. They distribute bottle for exclusive selective on shops,
restaurants, hotel, etc. Their service is very efficient as compared to others.

Support Activities

Procurement

The key raw materials purchased by Nestlé are milk, coffee, and cocoa. These, as well as fruit,
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 to contribute to the sustainable and
profitable development of their company by providing the base 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 timing needed, at the lowest possible system costs.

Technological Development

Nestlé is strengthening its leadership in research and development by enlarging its global Product
Technology Centre for confectionary, based in United Kingdom. Nestlé Product Technology 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 these technologies to the company’s operations.

Human Resource Management

Human research is dedicated to their employees and ensures that they have all the right people with the
right skills. Understanding their people are the bedrock of all their business strategies, it is their mandate
to enhance their skills with cutting edge training and provide them with world standard facilities. Their

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Management Trainee Programmed aims to develop talented young men and women and help them
achieve their potential in a dynamic and enabling environment.

Firm Infrastructure

The Nestlé Report provides a fact based analysis of how, over time, their manufacturing plants have
helped to create large, skilled labour forces in rural areas and educate the people who supply them, as
well as build an important infrastructure such as roads and water treatment systems. Through its
infrastructure, the firm strives to effectively and consistently identify external opportunities and threats,
identify their resources and capabilities of Nestlé and support their core competencies.

Weaknesses of Nestle

One of weakness of Nestlé can be pointed out that there are too many distribution channels for certain
products. The main weakness of the LC-1 division of Nestlé is that they were not as successful as they
thought they would be in France. The launch in France was in 1994, but since the late 1980s, Danone had
already entered the market with a health-based yogurt. The second weakness is that LC-1 was positioned
as too scientific, and customers did not understand that LC-1 was a food and not a drug. Nestlé do not
have direct market outlets and this can be one of the weaknesses as it can cause difference in profit made.
They are not having enough raw material production units; they depend on either local raw material
producers or through other trade channels.

SWOT Analysis

Strengths
 Have a very long history over 140 years
 Operated factories in 77 countries in all six continents, a truly global company
 Considered the innovation leader in the global food and nutrition sector with 3500 scientists in
company R&D network
 Offering thousands of local products, research and development capabilities.
 Have a great CEO, Peter Brabeck and very strong workforce.

Weaknesses
 Less consumer research in few areas.
 Increasing instances of product recalls hampering brand equity
 Entering into markets that are already mature and can give a tough competition to new entrants.

Opportunities
 Well-known company and strong brand name
 Health based on products are becoming more popular in the world, including United States
 Ranked first in nearly all the product segments in which it operated (market leader)

Threats
 Some markets they are entering are already mature
 Global competitors
 Increasing prices of raw materials
 Highly competitive market, multinational companies are very organized and financially strong

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Organizational Culture

The way or method through use of a hierarchy that a group, business, organization, people or object
collaborate to achieve success on one common goal.

Nestle’s Organizational Structure:

Adaptive:
Ability to become a local company
Tolerant to different cultures and value sets

Absorptive:
Continous learning
Flexible-willingness to change
Principles not rules

Collaborative:
Team Work
Open, Transparent and sharing
Pioneers and innovators
Creating long sustainable shared values
 
For a business to be successful in the long term, it must create value not only for its share holders but
also for the society. Nestle recognize that success means creating value for every one from farmers
who supply products to the employees and to consumers and communities where Nestle operate.

Shared Values
Creating shared value in Nestlé goes beyond philanthropy. It focuses on judicious use of resource
following the Gandhian principles. It believes in doing good work. It wants to focus n the bottom of the
pyramid. Since the bottom of the pyramid is an integral part of the economy, the challenge is to create
inclusive growth. Our response to these common issues will impact the sustainability of efforts to create
inclusive growth.

In homes across South Asia, Nestlé touches the lives of millions every day. Nestlé is amongst the most
trusted companies in India. Focused on understanding the changing lifestyles and needs of consumers, it
emphasises science based innovation and renovation to develop products that provide affordable nutrition.

Cultural Challenges - Internal

1. Work force try to resist the changes in the working system.

Eg: local managers tried to resist the implementation of Globe or ERP (Enterprise Resource
Planning) System.

2. Cross – Cultural communication & Knowledge Management.

Eg: Nestle struggles to successfully implement its own quality control checks in China.

3. Hands on corporate parenting create tension between corporate and local managers.

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 Eg: Problems in Perrier production site in France.

 Cultural Challenges – Internal

1. Nestle struggle to find out the right balance between its homogeneous culture and various
national cultures of different countries.

Eg: Tough resistance it received while promoting breast milk substitute in some of the
countries.

2. Production standardization problems – struggle to maintain consistency in quality, labelling,

packaging ingredient etc, in different parts of the world.

Eg: Deceptive labelling of powdered milk Columbia by the local mafia.

3. Law of land in which Nestle operates will provide challenges.

Eg: Nestle was forced to withdraw its takeover bid of Hershey Company by Pennsylvanian
Govt.

4. Customers preferences are changing quickly around the globe forcing Nestle to rethink its
product placement.

Eg: Indian consumers with disposable income are demanding better quality products.

Leadership Style

Decentralised leadership as far as possible. Ensuring collaboration within a flexible organisation with
minimal levels of management and broad spans of control, which enables people development. That’s
what Nestlé’s Leadership all about.

Leadership Philosophy of Nestlé as per their website: "Leadership at Nestlé is about a long-

term commitment to growing the business while growing people and our leadership development efforts
continue to stress the importance of learning from real, often international, experience, supported in
more innovative ways aligned to people's changing aspirations and personal circumstances. This may
include more short-term assignments, global projects, and even weekly commutes, as well as peer
coaching and mentoring. Executive education will continue to play a supporting role." — Edward Marsh,
Head of Talent & Organisation Development.

Evaluation and Control Mechanics

Balanced Score Card

We carried out an analysis of the evaluation and control mechanics on Nestle India using the Balanced
Score Card as the method. Following are the results:

Nestlé describes itself as a food, nutrition, health, and wellness company. They believe strengthening
their leadership in this market is the key element of their corporate strategy. This market is characterised

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as one in which the consumer’s primary motivation for a purchase is the claims made by the product
based on nutritional content. In order to reinforce their competitive advantage, Nestlé created Nutrition as
an autonomous global business unit within the organisation, and charge it with the operational and profit
and loss responsibility for the claim-based business performance by offering consumers trusted, science
based nutrition products and services. The Corporate Wellness Unit was designed to integrate nutritional
value-added in their food and beverage businesses. This unit will drive the nutrition, health and wellness
organisation across all their food and beverage businesses. It encompasses a major communication effort,
both internally and externally, and strives to closely align Nestlé’s scientific and R&D expertise with
consumer benefits. This unit is responsible for coordinating horizontal, cross-business project that address
current customer concerns as well as anticipating future consumer trends. Nestlé business-level strategy is
integrated cost leadership or differentiation with wide range of products and low cost operators. Nestlé
strategic leadership is to force the business to become more efficient, to create a regional manufacturing
network, integrate the company’s business on a global scale and to reduce marketing expenditures by
exploiting the synergies between brands. Their strategy to develop R&D network by improving existing
products and creating tomorrow’s nourishments, two third of company’s R&D activities are dedicated to
renovating existing products, the remaining third is reserved for radical product innovations, improve on
operational level and a number of organisational changes.

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Conclusion and Recommendations

The theory based frameworks and models might be very useful but the application in practice might be
achieved very hard. It will also depend on the execution skills of the companies and the organisational
culture. Nestlé Company is an international company which came to the stage it is today by gaining
superior competitive advantages over its rivals. The focus product differentiation strategy has been
very successful although it may not work for other firms. The company is able to create and deliver
value not only by offering distinguished products but also gaining effectiveness and efficiency by
reengineering its business processes. By doing all recommendations and follow all these steps of
strategic management processes, We are sure that Nestlé Company will do better in the future than their
competitors and might be the new trendsetter in some criteria and also gain its above-average returns to
their company.

Reference

1. www.nestle.in

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