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

Source: Nestlé (2008)

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.

Present Structure

of Nestlé(Complex 3D Matrix)


Board

Chairman

C.E.O.

Corporate

Governance

Human

Resources

GLOBE &

I.T. Systems

General

Secretariat

Functional Relationship

Line Relationship

Staff Relationship

OperationsFinance &

Control

R &D and

Technology

Marketing &

SalesCore Marketing Units

•Nutrition

•Chocolate& Conf.

•Dairy

•Coffee &Beverages

•Food

•Shelf Stables

•Pet Care

Nestlé

Agriculture

Nestlé

Waters

Zone:

Europe

Nestlé

Nutrition

Nestlé Pharma

& Cosmetics

Nestlé

Professional

Zone: Africa/

Asia/Oceania

Zone:

Americas

Production

Distribution

Purchasing

Quality Check

Production

Distribution

Purchasing

Quality Check

Production

Distribution

Purchasing

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.

E.g.: All Nestlé products in middle east countries are ‘halal’ certified.

3. 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. 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.

2. 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.

3. Potential conflict of interest due to role ambiguity

E.g.: Nestle have managers dealing with the same things

in zones, SBUs and headquarters.

Optional Structure(Divisional)

Board

Chairman

C.E.O.

Operations

Finance &

Control

R &D

Marketing &

Sales

S. B. U.s

Communications

Human

Resources Corporate

Governance

Operations

Finance &

Control

R &D

Marketing &

Sales

S. B. U.s

Communications

Human

Resources Corporate

Governance

Operations

Finance &

Control

R &D

Marketing &

Sales

S. B. U.s

Communications

Human

Resources Corporate

Governance

Zone:

Europe

Zone: Africa/

Asia/Oceania

Zone:

Americas

Production

DistributionPurchasing

Quality Check Production


Quality Check Production


Quality Check

Functional Relationship

Line Relationship

Staff Relationship

Structural Options - Divisional

Advantages of this structure for Nestlé :

1. Increased accountability & result oriented.

2. More flexible to market conditions.

3. Easily analysis performance.

Disadvantages of this structure for Nestlé :

1. Lack of unity creates unhealthy interdivisional competition.

2. Loss of resources & efficiency due to lack of coordination.

3. 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. Start a sub division for Environmental & Social Responsibility under Corporate Governance.

2. Start a separate centralized training division under HRD so that higher level of cross cultural competence can be achieved.

3. Purchasing decisions should be centralized under operations which will help in cost effectiveness & standardization.

4. GLOBE System should be completed & commissioned as soon as possible to facilitate better interdivisional communication.

Present Culture of Nestlé -

Adapt, Absorb & Collaborate


Adaptive 1. Becomes a local company.

2. Tolerant to different cultures & value sets.

3. Puts the consumer first.

Absorptive1. Continuous learning.

2. Willingness to change.

3. Principles not rules.

Collaborative1. Team work.

2. Open, Transparent & Sharing.

3. Pioneers & Innovators.

4. Creating long term sustainable shared value.

Cultural challenges facing Nestlé-

Internal

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.


External

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.


External

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.


External

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

Source: Oggier, Fragnière & Stuby (2005)

How Nestlé collects information:

1. Executive Information System(EIS) department gathers

data from the firm’s subsidiaries & reporting units.

2. HR (personal & performance) data is collected.

3. EIS department checks, validates and consolidates

these data, storing them in EIS databases.

4. GLOBE when fully operational will absorb EIS and

together will replace all other legacy informational

management systems, providing standardization.


How Nestlé manages knowledge:

1. Nestlé’s open communications(collaborative) culture

facilitate knowledge-sharing thus facilitating

innovation & creativity.

2. Nestlé uses team-based working system to assist

knowledge-sharing.

3. Standardize practices with in the company.

4. Nestlé offers tailored training and mentoring programs

& in-house socialization opportunities to it’s workforce.



Source: Nonaka & Takeuchi (1995)

SECI model of dynamic organizational

knowledge creation (Spiral)



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%

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/index.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

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