Nestlé is “the world’s leading Nutrition, Health, and Wellness company” (Nestle, n.a.). To maintain this position Nestlé will implement a combination of strategies: product differentiation, low-cost leadership, and product development. The purpose of this paper is to discuss 1) the implementation plan, 2) required organizational change management strategies, 3) key success factors, budget, and forecasted financials (including a break-even chart) and 4) a risk management plan, including contingency plans for identified risks.
Adopting a combination of product differentiation, low-cost leadership, and product development strategies will help Nestlé maximize strengths and neutralize threats as these strategies support Nestles mission and align with their objectives. Nestlé will continue to develop healthy nutritious food and beverage alternatives for their consumers. Populations are rising and aging quickly. In 2009 39.6 million people in the United States were over the age of 65, predictions estimate there will be 72.1 million Americans in 2030 (AOA, 2010).
Obesity statistics are even more alarming. In America 58 million are considered overweight, 40 million are obese, and three million are morbidly obese (Obesity, 2007). As these statistics rise, so do the number of consumers looking for healthier alternatives. Nestlé has already manufactured a line of products tailored to the aging and weight conscious and will continue to create and improve upon these products. Nestlé creates leading edge products, improving upon them when necessary, and uses their dominant market share to maintain low costs.
To implement a strategic plan successfully, Nestlé must 1) identify short-term objectives, milestones, and deadlines 2) initiate specific functional tactics, 3) Communicate policies that empower people in the organization, rewarding them effectively (Robinson & Pearce, 2011, p. 266), 4) assign task ownership to specific tasks, and 5) allocate resources.
Nestlés short-term objectives are to increase organic growth between five and six percent and to develop two new products and improve two existing products by December 31, 2011. “Short-term objectives are measurable outcomes achievable or intended to be achieved in one year or less (Robinson & Pearce, 2011, p. 268). Setting short-term objectives will help Nestlé implement their strategic plan by; breaking down long-term objectives into shorter more specific goals, highlighting issues and conflicts within the organization that must be resolved before objectives can be met, and making feedback, correction, and evaluation more relevant and acceptable because outcome of action plans or functional activities have been identified for measurement (Pearce & Robinson, 201, p. 268).
Action plans will help Nestlé achieve its short-term objectives by setting specific functional tactics, their time frame for completion, and assigning the tactics to individuals or departments to establish accountability. Functional tactics are the activities that must be completed to realize the short-term goal. The following chart shows what Nestles action plan for increased organic growth and product development may look like.
INCREASE ORGANIC GROWTH
IMPROVE AND DEVELOP PRODUCTS
-Increase ads by 5% before June and another 5% before September
-Provide five weekly online and newspaper coupons, rotate the coupons between the top 10 demanded products
-identify target markets and design ads directly for these groups
-identify how target market receives advertisements and them place them online, in a newspaper, in the mail or text them weekly
-advertise the new products and the improved products after rolling out in test market
-provide 10% off coupons for new/modified products
-create sales forecast
-monitor budget monthly to ensure Nestle stays within guidelines
-prepare written reports for management monthly, detailing items that exceed or fall below budget requirements
-create budget for production
-monitor monthly spending to ensure Nestle stays within guidelines
-prepare written reports for management on a monthly basis, detailing items that exceed or fall below requirements
-perform monthly research to identify customer demands
-review research and analyze data for methods to increase sales or shopping convenience
-perform monthly research to identify customer demands
-design or modify products within three months if feasible
-perform quarterly employee surveys to identify ways to increase employee morale, use suggestion boxes for employees who wish to remain anonymous
-award bonuses to employees who suggest ways Nestle can save money or increase sales
-award bonuses to employees who suggest new products or product modification
-ensure sufficient staff that possess necessary technical skills have been hired for product design
Organizational Change Management Strategies
Organizational change management is two dimensional; it involves strategy and organization, changing where the organization is headed, or the state the organization is in (Mintzberg, Ghoshal, Lampel, & Quinn, 2003, p. 169). Using the change cube in the Mintzberg text, Nestlé will be focusing on strategy by improving or creating additional products. As Nestlé is already committed to being the world’s leading health, nutrition, and wellness company, the organizations vision, positions, programs, and organizational state do not need to be altered. Nestlé will make concrete formal changes to products using the chunking program. This program involves making changes “here and there” (Mintzberg, et al., 2003) to enhance products when necessary. Nestlé will make product changes or improvements based on customer demand, employee suggestions, and trends in health food choices. To continue as a low-cost leader, Nestlé will maintain their relationships with suppliers and distributers as well as leveraging their dominant market share.
Key Success Factors
Some of the key success factors that will help Nestlé maintain their position as the world’s largest food and beverage manufacturer include product quality, breadth of product line, price competitiveness, experience, financial position, R&D advantages, and community reputation. Nestlé strives to remain on the cutting edge with innovative research and a dedication to providing consumers with the “best tasting, most nutritious choices in a wide range of food and beverage categories” (Nestle, n.a.).
A budget is an itemized forecast of a company’s income and expenses over time. A budget will allow Nestlé to look at how much money they will take in during a given time frame. This gives Nestlé the ability to plan their investments, savings, and expenditures. By tracking how the money is spent, Nestlé will be less likely to overspend, thus meeting its financial goals (budget, n.a.).
Break Even Point
To calculate the break-even point, Nestlé must first determine a selling price per unit. Nestlé will use the mark up method and mark their products up 25% above cost. To do this, they will use the formula: Selling Price=Total Cost x (1 + .25) or Selling Price = 2.95 x (1.25)= 3.69. To calculate the break-even point Nestlé will use the following formula: Fixed Cost/(selling price-variable cost) or 495/(3.69-2.95)=669. Assuming Nestlé charges an average price of $3.69 per unit, they will need to sell 669 units before they break even and begin to earn a profit.
Because of their low-cost leadership, product improvements, and product creations Nestlé is forecasting a 6% increase in revenue. In 2010, Nestlé had revenues of 104,613, to calculate the forecasted revenue Nestlé will use the partial pro-forma formula.
104,613(1+.06)= 110,890 Swiss Francs
Risk Management Plan
Risk is “the possibility of suffering harm or loss” (Risk, 2011). A risk management plan is a plan put into place to avoid the harm or loss risks may cause. Risk management involves four stages.
Risk identification-involves brainstorming to identify possible risks. Risks should be defined by their cause and impact.
Risk quantification-the impact and probability of the risk should be assessed by rating each risk as low, medium, high, or critical in both dimensions, risk priority can be established. Risks that have low-impact and high-probability will receive less attention than those possessing low-probability and high-impact.
Risk response-there are four responses for risks; avoidance, transference, mitigation, and acceptance. Once a risk response is chosen, a risk response plan complete with strategy and action items should be drawn up so that those involved understand their roles in the event action is needed.
Risk control-involves monitoring and reviewing of risks for changes in impact, probability, risk response, and to identify new risks or remove risks that no longer pose a threat (projectperfect, 2011).
Risks Nestlé may identify during product innovation, renovation, and while trying to raise organic growth without losing their low-cost leader advantage may include; changes in market demand, price of raw materials, competitors, exceeding budget allowances, and not meeting the deadlines or milestones on their action plan.
It is imperative that Nestlés R&D centers stay focused on consumers’ demands to ensure Nestlé products will sell. As societies evolve and progress, Nestlé must stay attuned to the changing demands of consumers around the world. To stay in touch with the consumers, market surveys will be offered online, in stores, and through the mail. These surveys must be analyzed for changes in demand. Concern for individual health is on the rise (Pearce & Robinson, 2011, p. 82) and Werner Bauer, Nestlés Chief Technology Officer, says Nestlé must “find solutions to nutrient insecurity in the many parts of the world where it exists-with science and technology” (Nestle R & D, n.a.). By harnessing the latest technology, Nestlé can tailor fortified foods and beverages to local consumers specific nutritional needs and circumstances. Combining their vision of “good food, good life” (Nestle, n.a.) with consumer demand should help Nestlé avoid or decrease the risk of changes in market demand.
To achieve and sustain a low-cost leadership position Nestlé depends on some unique competitive advantages. Because of short supply chains based on local sourcing, manufacture, and consumption, Nestlé can secure the sourcing of high-quality raw materials. These suppliers allow Nestlé to reduce distribution costs and produce affordable products which meet consumer needs and Nestle’s quality requirements (Managing relationships., n.a.).
Should the price of raw materials rise, Nestlé can change suppliers, substitute ingredients, or utilize technology to reduce costs in other areas. Nestle has utilized technology, such as FastPack, to accelerate packaging concepts, and have formed many innovative partnerships to enhance their speed of delivering new products more quickly to the market.
Nestlé benchmarks itself against competitors like Kraft foods and Hershey. This ensures they remain on the cutting edge with innovative research and a dedication to providing consumers with the “best tasting, most nutritious choices in a wide range of food and beverage categories” (Nestle, n.a.). Nestlés low-cost leadership and market share dominance advantages keep the competition risk low. Nestlé needs to remain aware of competitors’ products and prices, this allows them to maintain their competitive advantage and differentiate their products based on nutrition and brand recognition.
Exceeding budget allowances presents a moderate risk. Controls must be established to stay within budget guidelines and expenses will be monitored on a monthly basis. If problems with budget constraints arise, management will need to decide if the budget should be re-created to allow unforeseen expenses or if the new product should be discontinued based on projected sales and expense information.
To reduce the risk of not meeting milestones or deadlines, Nestlé should make a realistic action plan considering delays that could be experienced because of outsourced work and environmental problems, such as natural disasters, which could affect crops or water sources. As Nestlés action plan is created for each goal, key employees and departments must be made aware of their roles and responsibilities in the project. Nestlé further avoids risk by making sure each employee is trained and has the skills necessary to accomplish the tasks set before him or her.
As a worst-case scenario, the economy could falter even further shrinking the disposable incomes of Nestles consumers. Although this may present a financial setback for Nestlé, keeping them from achieving their organic growth goal, Nestlé still produces consumable necessities (food and water). As long as Nestlé can keep their prices competitive, they should be able to endure the economic crisis. So far, despite the current economic downturn Nestlé has continued to increase growth, achieving 6.2% organic growth in 2010 (Press Release, n.a.). As a best case scenario, Nestlé will meet and exceed growth and product development goals bringing Nestlé further brand loyalty and financial success.
To maintain their position as the world’s leading manufacturer of food and beverages, Nestlé must implement their strategies using a thorough and detailed implementation plan. The plan must establish objectives, functional tactics, and action items while giving tasks and task ownership to specific individuals and departments. Deadlines and milestones must be created to monitor performance and resources must be allocated to ensure the necessary equipment, materials, and staffs are available.
Forecasting financials, creating a budget, and a break-even chart will help Nestlé control costs and maximize profits. Initiating a risk management plan will help Nestlé manage as problems and threats to the plan arise. Frequent monitoring of the plan should alert Nestlé to potential issues before they become major problems. Through the use of strategic controls and contingency plans, Nestlé should be able to implement their organic growth and product innovation and renovation strategies successfully.
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