Critical Evaluation Of Nestlé

A presentation on the Structural options, Cultural challenges & the Use of Information and knowledge management in Nestlé Group By Tom Jacob Aniz Yusuf Ali Tanveer Jasmeet Singh Kaushik Sutradhar

Liverpool John Moores University MBA - International Management - Presentation – Oct, 2008

World of Nestlé   





Largest food and beverage company in the world. One of the oldest of all multinational companies. Have an estimated 8,500 brands, manufactures around 10,000 different products in nearly 500 factories in 83 countries and employs some 250,000 people. Markets its products in 130 countries across the world, with annual revenue of more than £71 billion(2007). Invests around £750million in R&D every year. Source: Nestlé (2008)

Functional Relationship Line Relationship Staff Relationship

Present Structure of Nestlé

Board Chairman

(Complex 3D Matrix)

C.E.O. General Secretariat

GLOBE & I.T. Systems

Finance & Control

Operations

Nestlé Pharma & Cosmetics

Nestlé Nutrition

Nestlé Waters

Zone: Europe

Corporate Governance

R &D and Technology

Human Resources

Marketing & Sales

Nestlé Professional

Nestlé Agriculture

Purchasing

Zone: Africa/ Asia/Oceania Purchasing

Production

Production

Production

Distribution

Distribution

Distribution

Quality Check

`

`

Quality Check

Zone: Americas

Core Marketing Units •Nutrition •Chocolate& Conf. •Dairy •Coffee &Beverages •Food •Shelf Stables •Pet Care

Purchasing

` Source: Nestlé (2008)

Quality Check

Critical review of present structure 

Advantages of this structure for Nestlé : 1.

Ability to react quickly to the market conditions. E.g.: Nestlé was able to quickly reintroduce old formula for Maggi Noodles in 1999 in India.

2.

Ability to tailor the products according to the market.

3.

E.g.: All Nestlé products in middle east countries are ‘halal’ certified. Standardisation of products & practises. E.g.: All Nestlé managers are expected to follow ‘The Basic Nestlé Management and Leadership Principles’ document issued by Head office.

4.

Good coordination between various divisions resulting in more efficient use of resources. E.g.: Nestlé(UK) was able to use Nestlé(India)’s expertise when they introduced ‘ready to use’ curry products in UK.

Critical review of present structure 

Disadvantages of this structure for Nestlé : 1.

2.

3.

High administrative costs. E.g.: Nestlé is trying to cut off 250 jobs by 2009 in two of their French plants due to high administrative costs. Lack of effective communication.

E.g.: Nestlé America used to pay 20 different prices for vanilla from the same supplier due to incompatible systems used in different factories. Potential conflict of interest due to role ambiguity E.g.: Nestle have managers dealing with the same things in zones, SBUs and headquarters.

Functional Relationship Line Relationship Staff Relationship

Optional Structure

Board

(Divisional)

Chairman C.E.O.

Zone: Europe Finance & Control R &D

Zone: Africa/ Asia/Oceania Finance & Control R &D

Marketing & Sales S. B. U.s

Marketing & Sales S. B. U.s

Marketing & Sales S. B. U.s

Communications

Communications

Communications

Human Resources Corporate Governance

Human Resources Corporate Governance

Human Resources Corporate Governance

Operations

Operations

Operations

Purchasing Production

Distribution Quality Check

Purchasing Production

Zone: Americas

Distribution Quality Check

Finance & Control R &D

Purchasing Production

Distribution Quality Check

Structural Options - Divisional 

Advantages of this structure for Nestlé : 1. 2. 3.



Increased accountability & result oriented. More flexible to market conditions. Easily analysis performance.

Disadvantages of this structure for Nestlé : 1.

2. 3.

Lack of unity creates unhealthy interdivisional competition. Loss of resources & efficiency due to lack of coordination. Product standardization is difficult to achieve.

Structural Options - Functional 

Functional Structure will not work, because Nestlé is a global organization: 1.

Lack of coordination & communication.

2.

Slow down the response time(Long Chain of command).

3.

Communication through the functional managers.

4.

Conflict between functional departments.

Recommendations on structure 

Continue with the current structure, but with some modifications: 1. 2.

3. 4.

Start a sub division for Environmental & Social Responsibility under Corporate Governance. Start a separate centralized training division under HRD so that higher level of cross cultural competence can be achieved. Purchasing decisions should be centralized under operations which will help in cost effectiveness & standardization. GLOBE System should be completed & commissioned as soon as possible to facilitate better interdivisional communication.

Present Culture of Nestlé Adapt, Absorb & Collaborate 

Adaptive 1. 2. 3.



Absorptive 1.

2. 3. 

Becomes a local company. Tolerant to different cultures & value sets. Puts the consumer first. Continuous learning. Willingness to change. Principles not rules.

Collaborative 1. 2.

3. 4.

Team work. Open, Transparent & Sharing. Pioneers & Innovators. Creating long term sustainable shared value. Source: Nestlé (2008)

Cultural challenges facing NestléInternal 

Workforce try to resist changes in the working system. E.g.: Many local managers tried to resist the implementation of GLOBE system.



Cross-cultural communication & knowledge management. E.g.: Nestlé struggle to successfully implement its own quality control checks in China.



‘Hands on’ corporate parenting create tension between corporate and local managers. E.g.: Problems in Nestlé’s Perrier production sites in France.

Cultural challenges facing NestléExternal 

Struggle to find the right balance between it’s homogeneous culture and various national cultures. E.g.: Backlash it received while promoting breast milk substitutes in some countries.



Product standardization problems - struggle to maintain consistency in quality, labelling, packaging, ingredients etc in different parts of the world. E.g.: Deceptive labelling of powdered milk in Colombia.

Cultural challenges facing NestléExternal 

Laws of the lands in which Nestlé operate will provide challenges. E.g.: Nestlé was forced to withdraw its takeover bids of

Hershey Company by Pennsylvanian government. 

Customer preferences are changing quickly around the globe, forcing Nestlé to rethink its product placements. E.g.: Indian consumers with more disposable income are demanding better quality products.

Cultural challenges facing NestléExternal

Source: Nestlé India (2007)

Possible actions on Cultural challenges 







Start a centralized training division under HRD so that higher level of cross cultural competence can be achieved. Quicker implementation of GLOBE system will facilitate better cross-cultural communication & knowledge management. It will also help in standardizing products. Inspire, Motivate & Compensate - This will ease tensions between managers, facilitate better knowledge flow and win over the workforce. Better knowledge management practices of GLOBE system will help in increasing the awareness of laws of the land.

Current Information & Knowledge Management Procedure 

How Nestlé collects information: 1.

2. 3.

4.

Executive Information System(EIS) department gathers data from the firm’s subsidiaries & reporting units. HR (personal & performance) data is collected. EIS department checks, validates and consolidates these data, storing them in EIS databases. GLOBE when fully operational will absorb EIS and together will replace all other legacy informational management systems, providing standardization. Source: Oggier, Fragnière & Stuby (2005)

Current Information & Knowledge Management Procedure 

How Nestlé manages knowledge: 1.

Nestlé’s open communications(collaborative) culture facilitate knowledge-sharing thus facilitating innovation & creativity.

2.

3. 4.

Nestlé uses team-based working system to assist knowledge-sharing. Standardize practices with in the company. Nestlé offers tailored training and mentoring programs & in-house socialization opportunities to it’s workforce.

Source: Nestlé (2008)

Current Information & Knowledge Management Procedure 

SECI model of dynamic organizational knowledge creation (Spiral)

Source: Nonaka & Takeuchi (1995)

Areas of concern in current I. & K. Management 

Cross-cultural communication issues. E.g.: Language barrier hinders effective communication.



Workforce try to resist changes. E.g.: Many local managers tried to resist the implementation of GLOBE system.



Problems with standardization of information & procedure. E.g.: GLOBE system is still years away from being 100% Source: Nestlé (2008)

Opportunities for improvement in current I. & K. Management 





Quicker implementation of GLOBE system will facilitate better cross-cultural communication & knowledge management. It will also help in standardizing practices. Start a centralized training division under HRD so that higher level of cross cultural competence can be achieved. Inspire, Motivate & Compensate - This will ease tensions between personnel, facilitate better knowledge flow and win over the workforce.

Conclusion 







Continue with the current structure, but with some modifications. Start a centralized training division under HRD so that higher level of cross cultural competence can be achieved. Quicker implementation of GLOBE system will facilitate better cross-cultural communication & knowledge management. It will also help in standardizing products. Ultimately, evolution rather than revolution in all areas will lead Nestlé closer to their stated goals .

Reference   

  

  

 





http://www.nestle.com/ http://www.nestle.com/SharedValueCSR/Overview.htm http://www.nestle.com/InvestorRelations/Investor+Relations.htm http://www.greenpeace.org/international/news/chinese-consumer-challenges-ne http://www.businessweek.com/magazine/content/08_15/b4079042498703.htm http://multinationalmonitor.org/hyper/issues/1988/11/mm1188_10.html http://www.globalexchange.org/campaigns/fairtrade/cocoa/3391.html http://www.coopamerica.org/programs/responsibleshopper/company.cfm?id=269 http://money.cnn.com/magazines/fortune/fortune_archive/1994/09/19/79744/i ndex.htm http://www.brethren.org/genbd/GBResolutions/83NestleBoycott.html http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/2789801/N estl%C3%A9-chief-Paul- Bulcke-savours-the-challenge.html http://factiva.com/collateral/files/casestudy_nestle_1074.pdf http://www.mcspotlight.org/beyond/companies/nestle.html#WWW

Reference 

http://www.corporatewatch.org.uk/?lid=240#labelling



http://edition.cnn.com/2003/US/Northeast/03/01/hershey.100.ap/



http://en.wikipedia.org/wiki/Hershey_Foods_Corporation#cite_note-33



http://www.iblf.org/docs/geography/foodbeverage.pdf



http://www.polarisinstitute.org/files/Nestle%20October%20update.pdf



http://www.super-business.net/Intercultural-Management/302.html



http://www.providersedge.com/docs/km_articles/Understanding_the_Difference_B etween_IM_and_KM.pdf



http://hosteddocs.ittoolbox.com/Hitachi30306B.pdf



http://www.12manage.com/methods_nonaka_seci.html