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    Nestle Case Study for Changing Nestle

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    By 2000 Nestle was considered the world's biggest food company with 500 factories operating in 80 countries employing 224,000 people with annual
    sales of $47 billion.149 A worldwide leader known for
    manufacturing products as diverse as chocolates and cosmetics, it is now a far cry from the company that was created by the underlying desire to help new mothers who could not breastfeed their newborn
    infants.150 With a commitment to long-term out­
    comes that "will never be sacrificed for short-term performance,"151 Nestle has clearly been through
    many changes over the years.

    As a Swiss national organization, Nestle only sold through sales agents to countries outside of its home market. By the 1900s, it changed its approach to global expansion and began purchasing local
    subsidiaries in foreign markets.152 1ts launch into the
    American market was initiated when the First World War increased demand for dairy products. Nestle took this opportunity to establish its presence in the United States by acquiring several existing facto­ ries.153 During the Second World War, a feeling of isolation in Switzerland led to the transfer of many
    executive offices offshore to the United States. 154
    These moves into offshore markets were part of Nestle's commitment to changing the company in order to increase efficiency and productivity.
    In 1974 Nestle diversified for the first time out­ side the food industry in order to promote growth. It became a major shareholder in the cosmetic giant l'Oreal. This diversification has had significant conse­ quences for the organization that continue today with investor concern that Nestle may have overextended
    itself with its acquisition of debt-ridden l'Oreal. 155 To
    offset the instability of the risk involved in investing in developing markets,156 Nestle later made a second
    foray outside the food industry with the purchase of Alcon Laboratories Inc., a U.S. manufacturer of phar­ maceutical and ophthalmic produ ts.157
    The CEO during the 1980s, Helmut Maucher, focused on financial improvement through dives­ titures and a continuation of strategic acquisitions. This resulted in the sale of many nonstrategic and nonprofitable businesses and more focused acquisi­ tions such as the purchase of Carnation in 1984. 158

    The restructuring that continued through this period into the 1990s created a company that was
    designed to be more flexible. 159


    You can have slow and steady change, and that is nothing to be ashamed of [CEO Brabeck­ Letmathe].160

    Restructuring is a continual process at Nestle, with restructuring charges of up to $300 million each
    year.161 When he first began as CEO of Nestle,
    Brabeck-Letmathe initiated a complete overhaul of the executive board, replacing it with 10 new exec­ utives.162 Nevertheless, Brabeck-Letmathe views his focus as developing the strengths of the organiza­ tion and holds the view that radical change is ideal for a crisis, but if a company is doing well, then unnecessary change should be questioned:

    Why should we manufacture dramatic change? just for change's sake? To follow some sort of fad with­ out logical thinking behind it? We are very skeptical of any kind of fad.163

    The way in which change occurs at Nestle is focused an(l conscious. Brabeck-Letmathe admits that

    My actions may sound slow in Silicon Valley, but they are fast for a company with factories in more than 80 countries and products that are sold in
    every country in the world.164

    Nestle relies on the commitment of its manag­ ers who have been "steeped in Nestle's corporate culture" and who would choose to maintain the longevity of the organization rather than improve
    its short-term operating profit.16s In this culture,
    Nestle has developed a list of "untouchables"-a number of the company's strengths such as how
    corporate growth should be handled 166 and the
    role of technology. In relation to technology, for example, Nestle does not deny the importance of IT as a tool that can be used within the organiza­ tion but rejects the implementation of new tech­ nology as being a central strategic direction in and of itself.167 For Brabeck-Letmathe, the focus is on how to reinforce and sustain strengths rather than changing them.


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    Solution Preview

    1. Nestle underwent first order change. This change is consistent with prevailing values and norms of the company, meets with general agreement and can be implemented using people's existing knowledge and skills. For instance, Nestle has develop a list of "Å"untouchables" a number of company's strengths. The company avoids radical change and believes that if the company is doing well then unnecessary change is not required. Nestle does not believes in fads and chooses to maintain the longevity of the organization.
    2. Even though Brabeck-Letmathe emphasizes the need for incremental changes, his own action was not incremental. He replaced all the 10 top executives at Nestle when he joined. ...

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