In this paper, we seek to ascertain the reasons why Nestlé decentralized structure, which had brought the company success in the past. In the following section, we will analyse the main objectives of Global Business Excellence program that Nestle launched in an effort to counter the increasing global competition. Lastly, the paper will identify why the GLOBE program is more than just a SAP change.
Why was the decentralized structure of Nestlé that had brought the company success in the past no longer fit the new realities of increasing global competition?
Traditionally, the structure of Nestle was that of a surging pyramid of major zones and markets, which are usually countries. Each business is essentially local and orderly aggregated to larger geographical units all in the end coming together in the corporate centre. Operating alongside this large organization in a synchronizing role involved half dozen strategic business units like beverages, infant nutrition, and dairy products. Decentralization refers to the reallocation of decision-making authority, assignment of accountability and responsibility for results. Decentralization comes with the delegation of commensurate power to units or individuals at all the heights of an organization even those which are away from the headquarters or other authority centres.
The new realities of increasing global competition paralysed the decentralization structure of Nestle as it came with several challenges. The responsibility of the business unit managers was to enhance integration across regions with attention on new product development. However, this was without loss of responsibility and profit. In the increasing global competition, this did not happen to other competitive firms, which were in a disadvantage comparing to the Nestle firm. The decentralized structure worked against the object of profit making, which was normally the aim of all the firms as they were incurring losses, and no one took responsibility.
Focusing on the decentralization structure, the company’s main attention on product customization to local tastes was the basis of Nestlé’s victory. However, this was the rise in inefficiencies and duplications that marked that the company could no longer meet its expenses as the sales overhead costs were higher than those of its competitors were. This meant that the decentralization was working against their initial goal, and the competitors were benefitting from their ideas. Another notable reason to why the decentralized structure of Nestlé is not working currently is because the splintered supply chain has not given the wished economies of scale. Decentralization meant that different regions had their powers, and this affected the bargaining power with cross border retailers and suppliers negatively. The most esteemed customers had more pricing information concerning the Nestle products in various markets around the globe than the Nestle headquarter office had (Evans, Pucik & Björkman, 2009).
In addition to the above reasons, decentralization worked against Nestle Company as internal coordination was complicated because each regional firm and system was running independently. Similar products had different product codes in various regions, and there was no universal grading and compensation system of the human resources. This meant that it was hard to grade personnel who were in the same hierarchy, but, in different countries, in turn, it was difficult to compare senior personnel bonuses and salaries.
What were the objectives of GLOBE program?
GLOBE refers to the Global Business Excellence program that Nestle Company launched to introduce the idea of centralization. Initially, Nestle ran on a decentralized structure whereby the companies in different regions operated independently. The idea of GLOBE was to change this decentralization to centralization where the operations of all the Nestle companies were to be centred on one major place. In the founder’s words, GLOBE was to change Nestle Company from a loose federation of independent markets into an organization with a similar face in all its branches. This is because the decentralization structure did not work to their success anymore as the new realities of global competition had been set in the market.
GLOBE’s main idea was to come up with common business processes in all its branches in the regions it was located. This is to enable it to have similar procedures as common business. In addition to this, GLOBE will create standardized information and a common information technology infrastructure connecting all its operations. In other words, this introduced centralization in the operations of Nestle to replace the initial decentralization structure in use.
How was GLOBE more than just a SAP change?
SAP refers to System Application Program, which has a relation to an information technology. GLOBE was an initiative that meant to transform not only the IT infrastructure but also similar business processes and standardized information. This program was to affect all the departments in the Nestle Company including human resource, supplies, production, marketing, and many other sections of the company. GLOBE’s purpose was to come up with a way in which Nestle as a company with branches all over the globe would have had common features in the eyes of its customers and suppliers. The program was to transform Nestle Company from the decentralized structure to a centralized structure, and this did not happen in the information technology alone.
Changes that GLOBE program was to bring were to have an impact not only on IT department but also on all the functional departments of the company. The CEO of Nestle makes this clear by stating that GLOBE program is not just an IT initiative. The program is meant to change the way Nestle has operated by ensuring that they have a common centre where all its operations can be decided.
Reference
Evans, P., Pucik, V., & Björkman, I. (2009). The Global Challenge: International Human Resource Management. New York: McGraw-Hill Higher Education. Web.