Strategic Management Case study Analysis of Nestle PDF

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1 Strategic Management: Case study Analysis of 2 Executive summary The report aims to evaluate the strategic management of Company understanding their strategic intent for the business organisation. This has been done analysing the internal and external environment of the business that can offer sig...

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Strategic Management: Case study Analysis of Nestlé

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Executive summary The report aims to evaluate the strategic management of Nestlé Company by understanding their strategic intent for the business organisation. This has been done by analysing the internal and external environment of the business that can offer significant opportunity or hinder the performance by presenting threats. The analysis of strategic management is evident as it helps the country to gain competitive advantage and earn substantial returns that are above average. The report enlightens how the company utilises its resources, core competencies and capabilities to overcome the threats and pursue the opportunities. The strategic management tool that has been utilised to conduct the overall study include PEST analysis, value chain analysis, Porter’s five forces model and SWOT analysis. The report will further assist the company in planning their future strategies in respect to the recommendations provided. Moreover, Nestlé is expected to fit within the strategic orientation with the aim to perform better in its industry. The company has typically implemented the strategies of product differentiation and cost leadership which is analysed to evaluate its effectiveness in improving the performance efficiency. The report starts with the overview of Nestlé Company, followed by the detailed analysis of its organisational structure, strategies, internal and external environment that has significant impact on their business performance. The later part of the report discusses about the strategic trajectory of Nestlé to shift its focus from the current industry and entrance to the new market. This significant approach has been evaluated by analysing the various acquisitions and merging strategies undertaken by Nestlé.

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Table of Contents Strategic Management: Case study Analysis of Nestlé .................................................................. 1 Executive summary......................................................................................................................... 2 Table of Contents ............................................................................................................................ 3 Introduction ..................................................................................................................................... 5 Task 1 .............................................................................................................................................. 5 Environmental and Competitive analysis ....................................................................................... 5 Political ....................................................................................................................................... 5 Economical ................................................................................................................................. 6 Socio-Cultural factors ................................................................................................................. 6 Technological factors .................................................................................................................. 6 Description of Industry Structure.................................................................................................... 7 Issues/problems facing the industry ............................................................................................ 7 Industry Prospect and overall attractiveness ................................................................................... 8 Attractiveness.............................................................................................................................. 8 Unattractiveness .......................................................................................................................... 8 Analysis of Competitive forces....................................................................................................... 9 PORTER’s five forces analysis .................................................................................................. 9 Threat of new Entrants ............................................................................................................ 9 Bargain Power of Customers .................................................................................................. 9 Competitive Rivalry ................................................................................................................ 9 Bargain power of suppliers ................................................................................................... 10 Threat of Substitute ............................................................................................................... 10 Competitor analysis ...................................................................................................................... 11

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Task 2 ............................................................................................................................................ 12 Strategic performance Indicators .............................................................................................. 12 Internal analysis drawing on relevant models........................................................................... 12 SWOT analysis of Nestlé Company ......................................................................................... 12 Competitive strength versus Key rivals ........................................................................................ 14 Strategic Issues.............................................................................................................................. 14 Task 3 ............................................................................................................................................ 15 Strategic plan and Action recommendation .............................................................................. 15 Basic strategic direction ............................................................................................................ 15 Differentiation strategy by Nestlé ................................................................................................. 15 Cost-Leadership strategy .............................................................................................................. 16 Economic analysis .................................................................................................................... 16 Ratio and Liquidity Analysis .................................................................................................... 17 Nestlé’s strategic trajectory....................................................................................................... 20 Major functional support strategy ................................................................................................. 21 Information technology and Control system............................................................................. 21 Eminent failure.......................................................................................................................... 22 Recommendation .......................................................................................................................... 23 Short-term action recommendation........................................................................................... 23 Long term action recommendation ........................................................................................... 23 Reference List ............................................................................................................................... 24 Ancillary references ...................................................................................................................... 26

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Introduction Nestlé Company was founded by Henry Nestlé who was a Swiss Pharmacist, who was focussed on producing the first milk food for infants. The production of milk food was aimed at combating the problem of infant mortality as a result of malnutrition. Soon, the product became popular in Europe, which in turn has created a legacy of shared value embedded within their corporate business principles and values (Boyd, 2012). With its efficient and humble beginning, the company is dedicated to grow its business as the leading nutrition, health and wellness company. Headquartered in Switzerland, Nestlé operates in more than 150 countries having around 465 factories and employs around 339000 people globally (Akhtar, 2016). Experience of Nestlé over the years makes it imperative that it takes decades to build a real competitive advantage. Nestlé’s powerful establishment in the industry is a result of its inimitable strength of strong R&D, product value chain, efficient entrepreneurship, wide geographical coverage, significant corporate values and great people working together.

Task 1 Environmental and Competitive analysis The strategic analysis of an organisation usually starts with the evaluation of its external environment. PESTLE analysis is one of the main tools for conducting micro-environmental analysis that will investigate on the political, economic, social and technological aspects of the environment in which the firm is operating (Almohammad, 2010). The main purpose of this tool is to identify the possible threats and opportunities offered by the whole industry. Political In reference to the political aspects the bureaucratic regulations, political stability and taxation policies play an essential role in international business operations. Moreover, Nestlé generates steady sales in its targeted market, in presence of political stability. The strict governmental laws in certifying the use of safe and natural raw materials, public financial disclosure and regulations on fraud and bribery has significant influence on each phase of Nestlé’s strategic planning and

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organisational performance (Boyd,2012). In respect to the Chinese market, Nestlé’ has been facilitating a lower corporate tax with the preferential policies offered by the municipal or central government to huge MNCs. As a result of which Nestlé has expanded its growth at an unprecedented rate over a period of 20 years in the region of greater China. Economical The economical factors varies from one country to another and mainly deals with the components related to inflation and exchange rate, economic growth, rate of interest which tends to have significant impact on the decision-making processes and business strategies planned by the company. Nestlé’s entrance to a new market or launching of a new product in a particular region has been planned by considering the disposable income and purchase power of its consumers (Bradley, 2014). Recent statistics on Global food industries reveal that Nestlé is focussed on expanding its business in the Middle East markets by shifting its focus from Europe and America due to the increasing number of middle class population and growth in disposable income within their economies (Vrontis and Vignali,2015). Socio-Cultural factors With effective business strategies across the global market, Nestlé is likely to capture the consumer behaviour which in turn increases its operational efficiency and productivity. The success of Nestlé in Africa country respective to their socio-cultural aspects is presented as an example (Davies, 2000). The production of chicken bouillon cubes by Nestlé is widely used to enhance the flavour of dish in developed countries; however, the low income groups in Africa directly mix rice with this cube. Hence, to customize the product with the local consumption habit and storage conditions, Nestlé has focussed to introduce small packets of bouillon chicken cube, so that the middle group can easily have one piece in their meal. Technological factors Nestlé is the proud owner of the largest R&D department for its wide range of food that are served across the world. The company has been consistent in producing healthy and nutritious food as a result of its strong capacity and great benefits its potential from its capacity and associations of strong research centres. With the advancement in technology, Nestlé has experienced opportunities for its new product lines, improvement in product, innovation

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marketing and promotion strategies such as online stores and e-commerce (Harzing, 2004). Nestlé leverage its competitive advantage of efficient world-class R&D to become the lead in food and beverage industry.

Description of Industry Structure Nestlé is a Swiss multinational company mainly manufactures health and nutritional goods. The wide product range of Nestlé include breakfast cereals, baby food, confectionery, ice-cream, bottled water, snacks, pet food and coffee, dairy products, etc (Vrontis and Vignali, 2015).Nestlé’s vast industrial spread across 150 countries, include 461 factories that employs more than 330000 people. The corporate business principles of Nestlé is entirely based on their culture, that was developed 140 years ago, that reflects the ideas of honesty, long-term thinking and fairness. The history of Nestlé dates back in the year 1866, when the the Swiss condensed milk company developed thefirst Eur`opean condensed milk factory in Cham Switzerland. (Pritchard and Fagan, 1999). The main objective of Nestlé is to provide safe, nutritional and tasty food to its consumers so as to improve the health and wellbeing of its consumers. Nestlé is committed to its huge network of R&D to develop new food products with significant health benefits, in order to meet the changing taste of consumers (Vrontis, D. and Vignali, 2001). The food and beverage industry is highly competitive due to the presence of potential players such as Kraft foods, Danone, etc. The competition becomes stiffer, with equal strength of competitors in the market. For instance, the joint venture between Nestlé General Mill could bring significant changes in the breakfast cereal; hence, such collaboration is successful, which in turn makes the industry all more high performing (Saphan,2014). One of the main shareholders of Nestlé is L’oreal, the leading cosmetic company, whose collaboration has significantly enhance their operational efficiency. Issues/problems facing the industry Majority of consumers are motivated to purchase nutritional products that are closely aligned with their health and well-being. Manufacturing of such products are done by eliminating artificial ingredients, pesticides or GMO’s, etc. Such consumption behaviour has resulted in the development of cleaner labels, thereby increases products in the non-GMO and organic segments

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(Kumar, Massie and Dumonceaux, 2006). This puts more pressure on the food and beverage industry as majority of companies find it difficult to adapt the trend. Unlike the industries of consumer appliances, electronics and household products those have already gained a firm establishment in the e-commerce space, food and beverage manufacturers are significantly slow in their propagation towards e-commerce. As more number of consumers are shifting their preferences towards the online shopping, the manufacturers are lagging behind until they find ways to adapt e-commerce as the key part of their marketing and sales.

Industry Prospect and overall attractiveness Attractiveness The food and beverage industry is characterised by oligopoly, with the intense presence of Nestlé, Kraft Foods, Denomne performing well. With the advancement in technology, faster information technology and better infrastructure has increased the invention of newer products thereby facilitating the manufacturers to establish their brand image more firmly (Hasan, 2015). The enhancement in consumers’ standard of living, especially in the emerging markets is another great prospect for the producers. Unattractiveness Unlike the electronics, consumer appliance and household product industries that has developed a strong presence online through e-commerce, Nestlé is slow in developing their presence online. The increasing preference of consumers for online shopping is making the industry unattractive to a great extent. In addition, major organisations like FDA and WHO is appearing with policies against high sugar intake and thereby recommending a cap of no more than 10% of daily calories (Harzing,2004). As a result, consumers are not purchasing foods that have high in sugar. This is another means of unattractiveness presented by food and beverage industry.

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Analysis of Competitive forces PORTER’s five forces analysis According to Hasan (2015), Five forces analysis determines the position of a company respective to its rivals. This strategic analytical tool helps the company to formulate strategies in order improve the profitability, thereby making it less vulnerable. Threat of new Entrants Nestlé being a well known brand has been serving the market over a century and hence, developed a strong presence in the industry by boosting its quality products and customer satisfaction, which has made it imperative for the company to enjoy a substantial share of the profitable market (Kent and Doherty, 2014). Consequentially, new entrants must impart sufficient effort to seize a considerable portion of the Nestlé’ market share in order to establish their position in the industry and survive. As a result of which, Nestlé is the main target of the new entrants; hence, the rate of threat is moderate. Consequentially, the threat of new entrants is low. Bargain Power of Customers Customers enjoy huge bargain power in regards to their consumption of Nestlé products, due to the presence of abundant substitute. Substitute of Nestlé products allows enough preferences for the customers, thus having significant influence on the consumer purchase behaviour. Nestlé acknowledge the consumer power and has taken considerable measures to customise their range of products according to the changing taste of customers (Kumar, Massie and Dumonceaux, 2006). Hence, the bargain power of customer is high. Competitive Rivalry Nestlé was facing intense competition at the regional and national level due to the presence of potential rivals in the food processing industry such as the Unilever, Kraft, and Masterfoods. These powerhouse companies were in consistent effort to outperform one another without leaving any space for the competitors. Nestlé was experiencing fierce competition from the industry rivals as the giant players has gained considerable market share due to their improved performance and operating efficiency. The fierce rivalry within the food processing industry has

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facilitated the consumers with enough bargain power which is again a threat for Nestlé and the other potential brands (Markides and Charitou, 2004). As a result, Competitive rivalry is strong. Bargain power of suppliers Due to the brands large purchasing power, the suppliers and agricultural commodities offer products that are far from unique to Nestlé. Consequentially, Nestlé enjoys a large bargain power than its suppliers. In addition, Nestlé ensure the quality of raw materials while purchasing from the suppliers by maintaining a long term and trustful relationship with them (Mohajan, 2015). Nestlé also offers useful advice to its suppliers on reducing the unnecessary costs and perform more efficiently in future. Thus, the bargain power of suppliers is low. Threat of Substitute Nestlé is subjected to threat of substitute goods due to the intense competition within the industry. The wide range of similar products that include frozen food items, confectioneries, milk products, ice-creams and pet foods tends to give tough competition to Nestlé. As the competition is extremely violent, Nestlé must emphasize on finding new ways to improve its products and increase the product lines, generate new means to develop sustainable growth and expansion in future (Nestlé, 2011).

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Competitor analysis

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