Discuss about the case study Strategic Management for Formulation and Implementation.
Nestle is a Swiss multinational food company headquartered in Vevey, Switzerland. It is involved in supply nutritional and health related products and is the largest food company in terms of revenue. Its products include food products, baby products, chocolates, cereals, pet foods, snacks and many more items. Then operation of Nestle is spread in eighty-six countries that have four hundred and sixty one factories. The company came into existence in the year 1866 (Moura et al. 2015).
Success of the company depends on its strategies itself. It is essential for the company to develop the strategies wisely in order to achieve its goals and objectives. Analyzing the performance of competitors in the market is essential for successful performance. It is essential for the company to analyze the external factors that affect the organization. The external factor is analyzed discussing industry competitive, threats and opportunities of the organization. Internal factor is analyzed to know the capability of the company to handle the resources efficiently (Eden and Ackermann 2013).
The main vision of Nestle Company is to satisfy the needs of the consumers by providing them high quality goods and service as per their need. The mission is to provide best quality goods to its consumers from primary produce to suppliers to transportation to packaging (Nestle.com 2016). The mission is to provide nutritional food to consumers to meet the psychological needs of the consumers. The goods are provided based on lifestyle and individual taste and preference. The company aims at being one of the leading food and Beverage Company in Caribbean region. The company ensures that the good that reaches the consumers are available at competitive prices and maintains the long-term profitability and viability of the organization (Moura et al. 2015).
Nestles purpose is to safe, tasty, convenient and nutritious foods to its consumers in order to improve health and well-being of the clients of all ages. The company uses the Research and development technique to fulfill its aims and objectives so that it able to develop a new product with specific health benefits. Nestle is friendly and efficient organization whose primary focus is on consumers. Customer satisfaction is the top most priority of the organization. It is also in tune with the corporate and social world and care for the environment as well. The company provided good working conditions to its employees with great benefits in order to keep the employees happy and satisfied. The company employs approximately 3330,000 employees (Kabir 2014). It is an innovative company aims at capturing the major market share across the globe.
Figure: Logo of Nestle Company
(Source: Nestle.com 2016).
PESTLE analysis
Pestle analysis is a model that is used to analyze the external factors that affect the business.
Figure: Pestle analysis
(Source: Yüksel 2012)
Political/legal factors: Political factors play an important role in food industry. The products that Nestle supplies comes with a seal of guarantee that the product that the company provides is manufactured under hygienic condition. Strict quality control in food sector plays an essential role (Dey 2016).
Economic factors: Nestle company helps the entrepreneurs compete in new free trade environment that ultimately helps the industry to grow in the market. The company collaborates with the government to provide technical assistance to farmers. The company helps the farmers for its benefit. The company will get good raw material for the production of products, which it does not have to import of the local farmers, are able to produce the product (Rachet 2014).
Social factors: various social factors such as lifestyle income, status, and gender affect the buying behavior of the consumers. The aim of the company is to provide healthy food to its consumers that will promote well being. People are becoming socially conscious and prefer healthy foods rather than junk foods. Mainly the lifestyle and attitude of people affects the purchasing of products provided by Nestle (Dey 2016).
Technological factors: the use of technology is increasing and capturing the major part of the market share. Nestle can use the technology for it benefit to promote the products in a global world. It also helps the company connect to its other branches in other countries. Information can be extracted from the use of technology that helps in research and development of a product (Dey 2016).
Porters’ five forces model is used to analyze the competitive environment and the industry issues that is discusses as follows.
Figure: Porter five forces
(Source: E. Dobbs 2014).
Threat of new entrants: the food and beverage company is very large and competitive in nature. Many industries enter the market to earn profit and gain a portion of market share. Nestle has an advantage as it is a long established industry that supplies high quality product. It has obtained a considerable portion of market share. Hence, it is difficult for the new industries to seize the market share of Nestle Company. The threat of new entrants is moderate for the organization (Coombs and Holladay 2012).
Bargaining power of supplier: The Company has maintained a positive relationship with its suppliers. Nestle holds more bargaining power than it suppliers due to high purchasing power. The advice of nestle is beneficial for the suppliers as it helps them manage the work efficiently to minimize unnecessary cost (E. Dobbs 2014).
Bargaining power of buyer: consumer bargaining power to purchase product is strong. The preference of consumers is influential due to presence of substitute products. Consumer satisfaction plays an important role for the company. Its main aim is to promote health and well-being of consumers (E. Dobbs 2014).
Threat of substitute products: the products provided by the company have a threat from substitute of products. There are various substitute products available that increases the competition for the industry. The only way company can achieve competitive advantage is by improving the product that it provides (Rachet 2014).
Industry rivalry: Nestle faces a strong competition from its rivals such as Kraft, Unilever and many more. The purpose of all the companies is to outperform each other in the global world. The nature of rivalry is fierce in food processing industry. This gives a power to consumers as they get a better product (E. Dobbs 2014).
Nestle is in a competitive position due to its establishment and the product that it provides to its customers. The model depicts that nestle models a moderate threat from new entrants and substantial threat from substitute products (Rachet 2014).
Opportunities: The opportunities of Nestle Company are high credibility. It has a potential to expand to smaller towns as there are very less industries that like to provide goods in smaller towns. The other opportunities that the company has to expand its business are improving trends, industry leadership, increase in number of partners and diversity of products and offerings (Hill et al. 2014).
Threats: The major threat that the company face is from its competitors. The prices of raw materials are also increasing that is increasing the threat for the company. the main rivals of the company are Kraft, Master foods and Unilever. The company has threats from the substitute products and bargaining power of buyers (Wolf 2014).
Capabilities of Nestle
Capability analysis helps in analyzing the power of the company to manage the scarce resource efficiently. The capabilities of the organization are used in many activities and sectors such as marketing, R&D, management and, manufacturing. It is used to exchange information and knowledge through the human capital in specific functional areas (Hitt et al. 2012). Capabilities of nestle is discussed as follows:
Distribution: the distribution sector of the company is very efficient as it transports 100,000 tones of products everyday from factories to consumers. The distribution channel of the company is managed to avoid emission of green house gases and protect the environment (Johnson et al. 2013).
Human resources: the company employs 330,000 employees from all across the world. The company is involved in providing training to its employees to increase the performance of employees.
Management information system: information technology manages the system efficiently.
Marketing: the brand name of company is very famous whose target is to meet the taste of consumers. The advertisement technique of the company includes use of television, radio, newspaper and internet.
Management: the company has a board of directors that is very efficient in their operations. The day-to-day working is handled by the executive board members and department heads (Sethi 2012).
Manufacturing: the company is indulged in providing large and diversified products to its customers.
R&D: Nestle is the first company to sterilize milk site to develop milk products and processes. The product technology centre is expanded to boost the research and development. It helps in developing innovative technologies to manage the operations worldwide (Johnson et al. 2013).
The main weakness of the Nestle Company is that it has large number of distribution channels. Lack of direct market reduces the profit of the organization. Less availability of raw materials increases the problem for the company. Its customers love the products provided by the company. It is a leader in innovation and renovation as it has engaged in developing many new products with health benefits for the customers (Sethi 2012).
Value, Rarity, Imitability and Organization (VRIO) is a business tool that helps the industry develops strategies. VRIO analysis is an internal analysis tool that helps the industry analyze the internal strengths, weaknesses and resources.
Figure: VRIO framework
(Source: Johnson et al. 2013)
Valuable: the first analysis is whether the use of resources adds the value to the firm in the sense that it helps the firms defend against threat or not. Resource are said to be valuable if the customer value increases. This is achieved by using the differentiation policy to provide the good at lower prices to customer (Lütkenhaus and de Freitas 2016).
Rare: resources that are available to only few industries are said to rare. Since Nestle Company helps the farmers, so it gets the raw material that is fresh in nature.
Imitate imitating the products that have been developed by other industries is costly if the company does not have proper access to resources and technology. Nestle is known for its innovation and renovation.
Organized: the operations of the industry should be organized in order to capture value and increase the reputation of the company. Management of the organization is important in order to achieve competitive advantage (Lütkenhaus and de Freitas 2016).
The competition of the food-processing unit is strong. The competitive position of Nestle Company is good due to strong establishment that the company has set. The consumers love the products that the company provides. The company is also successful in maintaining the brand loyalty. It is a leader in innovation and renovation. Its core competencies are the products that the company provides and the brand name that it has established (Babatunde and Adebisi 2012).
SWOT analysis
SWOT analysis is a business tool used to analyze the strengths, weakness, opportunities and threats of the organization.
Figure: SWOT analysis
(Source: Soni 2015)
Strengths: the company has a very long history of over 140 years. The operation of the company is spread across seventy-seven countries. It is considered as a leader in innovation as its R&D activities very developed. The company is involved in providing a diverse range of products that is healthy and nutritious in nature. The CEO of the company is very efficient in its management of operations. The company has strong workforce of 330,000 employees that work to achieve and accomplish the goals and objectives of the organization (Nestle 2013).
Weakness: the company’s weaknesses are that it has a large distribution networks for products. The company sometimes lack in raw material especially during the time of low harvest or crop failure. The consumer research is less in few areas. The brand name and equity is hampered due to health-based products. The main weakness arises due to increase in tough competition from the food products. The company has threat of new entrant and threat from substitute products.
Threats: the threat of the company is form its rivals or the competitors. The prices of raw material are also increasing that is increasing the threat for company. The main threat of the company is from substitute products produced by the other industries and threat from new entrants into the market (Nestle 2013).
Opportunities: the company has the opportunity to expand in small towns. It is a well-known company with a strong brand name. The customers of the company are loyal due to the product that it provides to its customers. The products that are nutritious and health is gaining popularity due to which the demand for the products of Nestle is increasing. The company is ranked first in terms of leader of innovation and renovation in the global competitive environment (Soni 2015).
Value chain analysis is a technique used by the industries to evaluate the cost and the means to implement the strategy developed by the organization. The value chain of a firm is segregated into primary and support activities. Primary activities are concerned with firm’s distribution, sale, physical creation, service to buyers. Support activities are concerned with providing assistance to the industry to carry out primary activities (Fearne et al. 2012). The main objective of Nestle is to build trust among all its stakeholders by providing good quality products that is healthy. Merging as an efficient leader in a corporate world is essential and is a key to success. The emphasis of the company is to spread well being by providing nutritious product. Maintaining brand name is essential for the organization. The primary activities of Nestle include inbound logistics, operations, outbound logistics, marketing, and sales. The support activities include procurement, technological development, human resource management and firm infrastructure (Nollet and Toldra 2015).
Figure: Value chain analysis
(Source: Fearne et al. 2012).
The main aim of the business is to expand its operation. Ansoff’s matrix explains the expansion of new or existing product in either new or existing market.
Figure: Ansoff’s matrix
(Source: Grünig and Kühn 2015).
Nestle operates in a multidimensional market with diversification in products. Market penetration the company lowers the prices to sell them in the market. The strategy of the company to enter the market is to lower the price. The strategy of the company is to take the existing products into the new market to develop the market. Examples are company has launched Nescafe coffee in China. Product development strategy was used to expand its product lone especially in European market (Grünig and Kühn 2015). The company has also diversified it product to cosmetic company such as L’Oreal. The main strategy of the company is market development and product development.
SFA analysis
SFA (Suitability, feasibility, acceptability) is an evaluation of the strategy proposed by the industry. SFA is a situational analysis framework that is objective oriented. The SFA analysis is used in managing the effectiveness of the organizational strategy. The strategic operation model is used to evaluate the success criteria that are based on suitability, feasibility and acceptability of a product or the company.
Figure: SFA analysis
(Source: FitzRoy et al. 2012)
Suitability: suitability criteria are used to evaluate the rationale of the overall strategy. The key issue is to specify and evaluate the issues that the organization is likely to face after the implementation of the strategy. Rules that are used to evaluate suitability are ranking strategic options and decision tree (Shanbhag et al. 2016).
Feasibility: feasibility is concerned with the availability of resources to implement the strategies developed by the firm. The resources include human capital, technology, funding, time, information and knowledge. Tools that are used to evaluate feasibility are break even analysis, cash flow analysis and resource deployment analysis (FitzRoy et al. 2012).
Accessibility: acceptability is the expectation that the stakeholders of the organization from the strategies that the company has developed. The stakeholders of the organization are customers, employees and shareholders. Implementing strategies can be risky in nature, as the developed cannot predict the outcome and response of the stakeholders from the strategies. It can either be positive of negative (FitzRoy et al. 2012).
Conclusion
Formulation of strategy is not difficult but implementation of the strategies is difficult. The executive skills for the execution should be efficient to maintain the culture of the organization. Nestle is an international company that has gained superiority by achieving competitive advantage in today has globalised world. The main strategy adopted by the company is product differentiation strategy. The aim of the company is to provide the products that are differentiated based on price and quality. Company provides its customers the products that are healthy and nutritious. Nestle is one of the most innovative company that aims at emerging as a market leaders in the international market. The company was established in 1912 in Malaysia as a Swiss international company. Company realizes that it is very essential to spread brand awareness to expand the business.
References
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Coombs, W.T. and Holladay, J.S., 2012. The paracrisis: The challenges created by publicly managing crisis prevention. Public Relations Review,38(3), pp.408-415.
Dey, K., 2016. The fast food industry in the UK. Analysis of McDonalds with PESTEL, VRIN and Porter’s Five Forces.
Eden, C. and Ackermann, F., 2013. Making strategy: The journey of strategic management. Sage.
Fearne, A., Garcia Martinez, M. and Dent, B., 2012. Dimensions of sustainable value chains: implications for value chain analysis. Supply Chain Management: An International Journal, 17(6), pp.575-581.
FitzRoy, P., Hulbert, J., Ghobadian, A. and O’Shannassy, T., 2012. Strategic management: the challenge of creating value. Routledge.
Grünig, R. and Kühn, R., 2015. Global Environmental Analysis. In The Strategy Planning Process (pp. 89-96). Springer Berlin Heidelberg.
Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.
Hitt, M.A., Ireland, R.D. and Hoskisson, R.E., 2012. Strategic management cases: competitiveness and globalization. Cengage Learning.
Johnson, G., Whittington, R., Scholes, K., Angwin, D. and RegnŽr, P., 2013.Exploring Strategy Text & Cases. Pearson Higher Ed.
Kabir, M., 2014. Internship report on Nestlé Bangladesh Ltd.
Lütkenhaus, D. and de Freitas, M.N., 2016. Strategic management applied to the Six-Sigma suitability appraisal for R&D in FMCG companies. Revista iPecege, 2(1).
Moura, A., Branco, M. and Camoesas, M., 2015, June. Nestlé, A Global Firm And Its Customer Relationships. In IMC 2015 International Management Conference 26th June 2015 (p. 96).
Nestle, M., 2013. Food politics: How the food industry influences nutrition and health (Vol. 3). Univ of California Press.
Nestle.com. (2016). [online] Available at: https://www.nestle.com/randd/ourvision [Accessed 30 Jul. 2016].
Nollet, L.M. and Toldra, F. eds., 2015. Handbook of Food Analysis, -Two Volume Set. CRC Press.
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