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The purpose of this report is to evaluateNestle Company industry based on the case
study and comprehend how the company develop strategic intent for their business
organisations following the analysis of external and internal business environments. I will
analyse the strategic management process as firm used to achieve strategic competitiveness
and earn above-average returns. I will discuss the strategy formulation that includes businesslevel 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 firms 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, Porters 5 forces model, value chain analysis and SWOT
analysis.
By the end of this assignment, future strategy will be mentioned as well as my
recommendations about Nestle that will fit into strategic orientation in order to perform better
in their business world. And continue to develop and implement its learning approach as the
chosen large company by using different strategies.
Table of Contents
Executive Summary...................................................................................................................1
1.0
Introduction.......................................................................................................................4
1.1
EXTERNAL ANALYSIS.........................................................................................................5
2.0
2.1
Demographic Segment.................................................................................................5
2.2
Economic Segment......................................................................................................6
2.3
2.4
Socio-cultural Segment................................................................................................6
2.5
Technological Segment................................................................................................7
2.6
Global Segment............................................................................................................7
3.0
3.1
3.2
3.3
3.4
3.5
4.0
Competitive Environment...............................................................................................10
5.0
5.1
Opportunities..............................................................................................................11
5.2
Threats........................................................................................................................11
INTERNAL ANALYSIS........................................................................................................11
6.0
6.1
Capabilities of Nestl......................................................................................................13
8.0
9.0
Support Activities.......................................................................................................17
9.2.1 Procurement........................................................................................................17
9.2.2 Technological Development...............................................................................17
9.2.3 Human Resources Management.........................................................................17
9.2.4 Firm Infrastructure..............................................................................................18
10.0 Weaknesses.....................................................................................................................18
11.0 SWOT Analysis..............................................................................................................18
11.1 Strengths....................................................................................................................18
11.2 Weaknesses................................................................................................................19
11.3 Opportunities..............................................................................................................19
11.4 Threats........................................................................................................................19
12.0 Current Strategy..............................................................................................................19
13.0 Strategy...........................................................................................................................20
14.0 Conclusion......................................................................................................................21
References................................................................................................................................22
Appendices...............................................................................................................................23
Appendix 1..........................................................................................................................23
Appendix 2..........................................................................................................................23
Appendix 3..........................................................................................................................24
Appendix 4..........................................................................................................................26
Appendix 5..........................................................................................................................26
Appendix 6............................................................................................................................4
1.0 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, I will discuss furthermore about Nestls 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 I am going to explain briefly about
their internal environment includes their resources, type of their resources, companys
capabilities, evaluate their core competencies and so on.
1.1 Industry and Nestle summary
Nestl 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. Nestls products include baby food, bottled water, breakfast cereals,
coffee, confectionary, dairy products, ice cream, pet foods and snacks. Nestl employ around
330,000 people in over 150 countries and have 461 factories or operations in 86 countries.
Nestl sales for 2011 were almost CHF 83.7 billion. It is one of the main shareholders of
LOreal, the worlds largest cosmetics company. Nestl 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, Nestl founder by Henri Nestl, a German
pharmacist, launched his Farinelactee, a combination of cows milk, wheat flour and sugar,
saving the life of a neighbours 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 Nestl after a couple of decades as fierce competitors to form
the Nestl 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, Nestl was listed No.1 in the
Fortune Global 500 as the worlds most profitable corporation. The Nestl Corporate
Business Principles are at the basis of the companys culture, developed over 140 years,
which reflects the ideas of fairness, honesty and long-term thinking. Nestl 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.
Nestl 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 everything they do, from primary produce, choices of suppliers and transport, to
recipes and packaging materials.
Their mission is they strive to bring consumers foods that are safe, of high quality and
provide optimal nutrient to meet physiological needs. Nestl helps provide selections for all
individual taste and lifestyle preferences.
Nestl 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
todays and tomorrows consumers, Nestl is strongly committed to Research and
Development (R&D) to improve products and develop new foods with specific health
benefits (Nestl.com, 2012).
EXTERNAL ANALYSIS
2.0 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.
2.1 Demographic Segment
Nestls product is for everyone. People from any area, any culture, any age, and income
will drink water. It is not any luxury item which is used by a specific people. Nearly all age
from young to old people can produce Nestl. And all six continents are their customer. For
instance, Nestl segment into different of age. For baby, they have Nestl baby foods while
young people can drink Milo, Nescafe or eat ice cream, chocolate and cookies. In
Vietnam,Nestle has the Maggi brand with many kinds of Asia sauce, but Maggi do not exist
in England because of the different in the geographical taste.
2.2 Economic Segment
Although Nestl is leading 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, Nestl also collaborates with local government to provide
technical assistance to farmers in planting and harvesting crops. The farmer will get income
and Nestl will get to purchase good and fresh raw materials to produce their food. By having
own local productions, Nestl should no longer needs 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 Nestl will gain more profit from that.
2.3 Political/Legal Segment
Political factors are important especially in food industry. The company policies are
affected and its budget is also affected. Nestl provide food assurance to provide assurance to
the consumers that Nestls 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, Nestls products are always come with the seal of guarantee. By having
the seal of guarantees, consumers are now more confident and trust of Nestls products.
Strict quality control played a role in political factor too. It means that Nestls products
quality will not be different with other countries. Consumers are guarantees with full
satisfaction of the products all over the world.
2.4 Socio-cultural Segment
A good diet and adequate food supply, the central for promoting health and well-being is
the focus of every person even these days; whether people tend to value products that
incorporate with them healthy benefits. Obviously, these types of goods are preferred more
than that of junk foods and its relative products. Moreover, generation Y cohorts, those born
from 1980s-2000s, possess characteristics such as acceptance to change and being
technologically
savvy.
These
kinds
of
characteristics
should
coincide
to
the
firmsaggressiveness of using technology especially that this is also the tie of the influx of
technology in the Europe.
capabilities allow Nestl Company to lead the way in innovation and provides for maximum
portfolio flexibility. The extraordinarily large scope of Nestls business provides for
significant economic of scale in manufacturing, marketing, and administration. For example,
Nestl established a number of ventures for growth into new areas related to wellness and
nutrition. Nestl moved into the area of nutricosmetics, under the brand name Inneov a joint
venture by Nestl and LOreal. 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 Nestls market there are a lot of branded rival such as Kraft, Unilever,
Masterfoods, Johnson & Johnson, and Wal-Mart.
Innovation is one of Nestls 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, Nestl ensures that
the consumer, and the consumer benefit, remains at the core of all their activities. To be
successful in todays food and beverage sector the cost component is critical and economic of
scale are a main cost driver for Nestls 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 Nestl was also facing a strong competition at the
national and regional level. Nestl Company have strategic advantage over their competitors
because their will increase Nestl 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
(Nestl.com, 2012)
High credibility
Potential to expand to smaller towns
Improving trends
Industry leadership
Increase the partnership
Product diversity and offerings
5.2 Threats
INTERNAL ANALYSIS
Here, I discuss about the nature of Nestls firms internal environment analysis.
Evaluate the role of resources and capabilities in developing core competencies, which are
the sources of the firms competitive advantages. In this section, I 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 Nestl
Company.
Total Revenue
Operating income
Profit
Total Equity
Total Assets
Physical Resources
Coffee
Water
Ice Cream
Baby Food
Healthcare nutrition
Confectionary
Pharmaceuticals
Technological Resources
Nestl 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.
Innovation Resources
Nestl R&D generates the innovative science and technology needed to build
nutritional and health benefits into products offerings Nestl legendary sensory
excellence.
Reputational Resources
Nestl 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.
Actually, capabilities are the firms 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 firms human capital and also often
developed in specific functional areas, such as R&D, marketing, manufacturing, management
and so on. In this section, I briefly evaluate of Nestls capabilities (Hanson, D., Hitt, M.,
Ireland, R. D., &Hoskisson, R. E., 2011, p.79).
Distribution
Nestl 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.
Nestlprovides training on the Code, with staff from the 14 departments that are part of
the Codes compliance system participating in yearly or twice yearly training.
Manufacturing
Nestl 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
Nestl Company first acquired the milk sterilising site to develop milk products and
processes.
Inbound Logistics
Nestls 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.
9.1.2
Operations
Nestl operations are water filling packaging and account maintenance. They know and
have approved the manufacturing for all their raw materials and packaging materials. Nestl
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. Nestl handle their account for exclusive sale in their regional office.
9.1.3
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.
9.1.4
That produce is place in major city of Pakistan. Nestl promote their produce by personal
marketing, TVC, sales promotion and public relation.
9.1.5
Services
Nestl 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.
Procurement
The key raw materials purchased by Nestl 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.
9.2.2
Technological Development
Nestl is strengthening its leadership in research and development by enlarging its global
Product Technology Centre for confectionary, based in United Kingdom. Nestl 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 companys operations.
9.2.3
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 Management Trainee Programmed aims to develop
talented young men and women and help them achieve their potential in a dynamic and
enabling environment.
11.2 Weaknesses
11.3 Opportunities
States
Ranked first in nearly all the product segments in which it operated (market leader)
11.4 Threats
future to ensure the financial and environmental sustainability of their actions and operations
in capacity, technologies, capabilities, in people, in brands, in R&D. Their aims to meet
todays 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 of
returns for their shareholders and society at a large over the long-term.
13.0 Strategy
Nestl 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 as one in which the consumers primary motivation for a
purchase is the claims made by the product based on nutritional content. In order to reinforce
their competitive advantage, Nestl 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 Nestls 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.Nestl business-level strategy is
integrated cost leadership or differentiation with wide range of products and low cost
operators. Nestl strategic leadership is to force the business to become more efficient, to
create a regional manufacturing network, integrate the companys 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 tomorrows
nourihsments, two third of companys 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. (See Appendix 5)
14.0 Conclusion
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. Nestl Company is an international company which
came to the stage it is today by gaining superior competitive advantage 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, I am sure that Nestl 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.
References
Book:
David, F. R. (2009). Strategic management: concept and cases (12th Edition). NJ: Pearson
Prentice Hall.
Hanson, D., Hitt, M., Ireland, R. D., &Hoskisson, R. E. (2011).Strategic Management:
Competitiveness and globalisation (Asia-Pacific 4th Edition). South Melbourne:
Cengage Learning Australia.
Electronic Media:
September
17,
2012,
fromhttp://www.articlesbase.com/management-
articles/strategic-management-at-nestle-5907881.html
Nestle (2012), Nestl Good Food, Good Life.
Retrieved September 18, 2012, from http://www.nestle.com
Nestle (2011). The worlds leading Nutrition, Health and Wellness Company Annual Report
2011.
Retrieved September 20, 2012, from http://www.nestle.com
Scribd Inc. (2012). Competitive Advantage of Nestle. Retrieved September 19, 2012, from
http://www.scribd.com/
Appendices
Appendix 1
Theexternal environment
Economic
Demographic
Industry Environment
Threat of new entrants
Power of supplier
Power of buyers
Product substitutes
Intensity of rivalry
Political/Legal
Competitor environment
Global
Technological
Appendix 2
Source: www.google.com
Appendix 3
Socio-Cultural
Appendix 4
basic value chain
Appendix 5
The