Key issues in the case study
There are a number of key issues that arise from the case of Nestle. One of the major issues that come up is the impact of mergers and acquisitions for large multinationals.
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As a result of its growth Nestle chose to acquire more companies in order to make an impact in its global expansion especially in foreign markets.
It struck big financial deals with companies like L’Oreal and Alcon Laboratories Inc and saw acquisition of the two companies. However, not all these big deals go well and in the case of Nestlé, L’Oreal was largely in debt and to some extent could have contributed to its financial woes.
Another issue is the diversification of the market both in terms of products and market presence. These are seen as key factors in enhancing global expansion as well as profits.
Nestle aimed at improving its finances through diversification as well as strategic acquisitions. It therefore made its presence in the U.S market through Alcon Laboratories Inc.
It also diversified its products to include cosmetics through L’Oreal and pharmaceutical and ophthalmic products I addition to the original dairy products. This diversification could work for or against the company as it requires more resources on the part of the management.
Organizational change is yet another key issue observed in this case. Nestle went through radical changes between the second world war to 1990’s all through to date.
These changes have come in many faces, for example in the outlook of the companies before 1980 and change in the management of the organization as well as the continuous restructuring. More issues on organizational change will be brought up in the topics discussed below.
Importance of innovation in regard to organizational change is also a key issue. Innovation in terms of technology as well as new markets cannot be overlooked.
For long-term continuance of the organization innovation should be consistent with the firm’s objective. New technology and new markets should not be exclusively left be the centre stage of organizational change and growth.
Changes in Nestle
Nestle went through both the first-order and the second-order changes. First order change is the continuous and incremental change which may call for modifications in processes, structures or even systems; however, does not go into changing the basic strategy, core values of the organization and corporate identity.
It is basically meant to sustain organizational order and continuity. Second-order change on the other hand is drastic, transformational and with far reaching implications on the core of the organization. It is aimed at changing the nature of the organization and not developing it.
Nestle went through the second-order change in that it carried out activities that had an effect on the nature and strategy of the organization.
Although the changes may not have been aimed at changing the nature of the organization entirely, it had far reaching implications. For example; a change in the strategy of global expansion and increase in financial gains saw nestle sail through several acquisitions.
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These acquisitions also meant that nestle was no longer an organization that was based on dairy products. Acquisition of Alcon Laboratories Inc and the cosmetic producers L’Oreal made a move to include cosmetics, pharmaceutical and ophthalmic products as part of nestle.
Acquisition as a strategy of growth can also be considered as another example of second-order change. These changes effected before 1980 had far-reaching effects on Nestle and that is why they are considered as second-order change.
Diversification or investment of Nestle into developing markets is another example of second-order change. Nestle diversified into developing markets not only to continue the organization but majorly increase the profits as well a change to include the organization into a cosmetic producer and supplier.
This could also be traced back to when Nestle changed its strategy and started acquiring subsidiaries in foreign markets. Traditionally, Nestle used sales agents in countries that were outside its home market, but it later changed into having their presence in those foreign markets by acquiring some existing factories.
Another example of second-order change evidenced in nestle is the transfer of several executive offices offshore to the U.S. this was instigated by the feeling of isolation in home offices, Switzerland and thus calling for the transfer.
This move was aimed at increasing the efficiency of Nestle both in productivity and financial efficiency. The purchase of carnation in 1984 is also an example of second-order change after a number of failed acquisitions that left Nestle with many non-profitable and nonstrategic businesses.
First-order change for Nestle is evidenced basically in the today’s Nestle in the period after 1990s. However, even before then Nestle sold most of its nonperforming and nonstrategic businesses.
This was basically meant to keep the organization going forth despite the losses. Under the management of Brabeck-Letmathe is seen to be leaning more on the first-order change rather than second-order.
This could be due to the past failures as a result of aggressive acquisition and needed for expansion. When the CEO insists on ensuring the longevity of the organization without necessarily dwelling on short-term profits then this is first order.
The change according to him is also meant to be gradual and slow is evidence that nestle is going into first-order change. As a result, it has developed approaches like corporate growth and a “corporate culture” that will ensure that longevity and continuity.
Incremental approach to change
Incremental approach to change is arguably the most effective method of change. Brabeck-Letmathe has to some extend used incremental approach in implementing change.
One of the ingredients used is identifying the strengths of the organization and trying to come up with ways to improve. This does not only dwell in strengths but also in weaknesses, opportunities and threats and trying to work on them.
Incremental approach to change is also focused and conscious. It ensures a slow injection of change and at the same time trying to maintain internal balancing.
A focus on the long term goals of the organization without laying much effort on the short-term profit motives is one of the factors key to incremental approach to change.
This ensures the continuity of the business without involving radical measures that could be more destructiveness to the organization. Brabeck-Letmathe has used two vital tools that steer this type of change.
These are entrenching a corporate culture and mechanisms for corporate growth. This approach ensures that Nestle establishes strengths that are not easily swayed. This is made much better by the fact that the managers have been incorporated into that corporate culture.
However, there are some aspects of Brabeck-Letmathe approach that do not concur with incremental approach to change. For instance the complete wipe out of the executives was too radical a move.
However important it may be to have managers who are well entrenched in corporate culture, we cannot ignore the fact that there is a need to listen to people or employees before creating an organizational change.
In addition, we cannot ignore the role of technology in incremental corporate approach. Brabeck-Letmathe appears reluctant in embracing technology which is instrumental to growth.
Though he is right on not making it the central strategic pivot point of growth his reservations are uncalled for. Brabeck-Lameck does not value social preferencing as a key aspect of incremental approach.
This could be a better approach in dealing with the change managers. He seems put and as already having structures that is necessary for change.
Additionally, his measures are too qualitative to fit in incremental approach to change because; this approach majorly builds on measurable quantitative aspects that become its key limitation.
Implications for change managers
Change managers in Nestle should have acumen in coming with the approaches that can well meet the needs of nestle. One of the key issues in consideration is the need to ensure longevity and continued existence of Nestle regardless of short operating profits.
Another challenge lies with the fact that Nestle is a multinational company that has over 80 factories in different countries. This calls for efficiency and increased productivity.
This increased efficiency and productivity should ensure that it doesn’t use measures that are too radical that could plunge Nestle into another financial difficulty.
Restructuring process is another possible source of implication for change managers. It is costly ($300 million yearly) and a slow process that requires a lot of patience.
Nestle management may have reacted to the need to sustain the longevity of Nestle by identifying factors that threatened its efficiency. For instance dropping out all non-profitable acquisitions as well as concentrating efforts on one line of products, probably dairy products.
Change managers should also focus on ensuring that all the 80 factories are productive to avoid a scenario where they are servicing unproductive outlets.
Therefore monitoring and evaluation should be done using the yardsticks of long-term goals of the company. In the quest of bringing change and restructuring, they should be careful to avoid strategies that may eat into company’s growth in the long run, as in the case of prior acquisitions.
A similar challenge could be easily brought up by overemphasis on technology at the expense of sustainable growth. It is also beneficial for the change managers to come up with restructuring strategies that are less costly
Three examples of lessons from the front line of Nestle case and possible solutions
Three issues come up from the frontline of this study case. One of the major issues is the numerous sub branches of Nestlé and the impact of aggressive acquisitions and mergers to penetrate foreign markets.
Another subject of discussion is the diversification of products as varied as chocolate, milk products, cosmetics and pharmaceutical products. The third aspect is long-term performance or longevity of an organization Vis a Vis the short-term profit performance.
Nestle just like many other big organizations used acquisition approach as a vehicle to global expansion and productivity. However, they did not consider the factors behind the deal or the financial position of the subsidiary company.
This led to financial problems that saw its bad days kick in just like many other huge deals. Secondly, the need to diversify into many other foreign markets and with new products is likely to cause diseconomies in terms of management and finances.
It is important for managers to weigh these implications and put structures to deal with them before hand. Finally, many organizations and managers tend to overlook the long-term being and prefer high short term profits using very aggressive second-order approaches with great economic implications.