EXECUTIVE SUMMARY
Nestlé has been known as the world’s largest, multinational food manufacturer operating across the globe and has many rewards that are recognized by an international award-winning body such as Forbes. Nestle’s using low-cost and differentiation as their competitive strategy. The report shows the quality of Nestle’s performance within its operation and in the community.
Also, incorporating social and environmental responsibility in making a balanced scorecard emphasizes Nestlé’s contribution to the community. Evaluating their strategic goals and objectives is the main point of this report as to how it relates to the modified balanced scorecard and assessing it how the performance measures enhance the balanced scorecard. The results find to be that customers and innovative products can help Nestle maintain the top as the biggest food manufacturer. Also, establishing relationships internally can affect the quality of their performance.
1. INTRODUCTION
Measuring the non-financial performance of the company keeps the entity aligned with its strategy, seeing the management’s effectiveness and efficiency, and lowers the risk of fraud; thus, a bigger chance to achieve its goals in the long-term run. But it seems that they ignore how their non-financial data impacts external things such as their environment and their community. Researchers suggested that incorporating them can help the entity knows ahead of time to plan its strategic goals.
About 156 years of existence, Nestlé passes its wellness generation by generation and proves that its products are trusted by anybody. Making their balanced scorecard and strategic objective can determine how they are maintaining its sustainability. Aligning their strategic goals and modified balance scorecard can determine the performance measure to be focused on and prevent if necessary. In this report, the retention of customers, and innovation are the most recommended for how it will enhance their performance measures
2. COMPANY’S STRATEGY
2.1. NESTLÉ CORPORATION
Nestlé has been the world’s largest food & beverage company in Vevey, Vaud, Switzerland, based on revenue and other parameters since 2014. The Swiss multinational food and drink processing industry ranked 64th on Fortune Global 500 in 2017 and placed 33rd in Forbes Global 2000 in 2016 (DuBois 2011).
With more than 2000 product brands, it produces basic necessities foods like milk, medical food, bottled water, grains or breakfast food, coffees, teas, ice cream, confectionery, snacks, pet care, and dairy products. Around 447 factories operate in many countries and employ thousands of employees. On December 31, 2015, Nestlé generated revenues of almost a hundred billion dollars and an estimated sale of ninety-two billion dollars. Out of its given product brands, twenty-nine (29) of them have annual sales of over a billion dollars. Though its headquarters are located in Switzerland, Nestlé’s largest market share is located in America. According to its financial statements, 43% of the total sales are located in America, 28% in Europe, and 29% are from others (Nestle 2014).
2.2. KINDS OF COMPETITIVE STRATEGY
Competitive strategy is a kind of strategy that a firm has to take in order to attract consumers, survive competitive pressure, and expand its market position (Thomson & Strickland 1998). Porter (1985) defines it also as an internal strategy that is consistent with the entity’s mission which makes the entity distinguishable from its competitor. He enumerated three strategies that help business gains a competitive advantage, namely, cost leadership, differentiation, and focus.
2.3 LOW-COST STRATEGY IN NESTLÉ CORPORATION
Cost leadership strategies are used by the entity that prices lower than rivals. To achieve cost leadership, the firm ensures that the cost of making the products or the source of the products or services is lower than its potential competitors maintaining the quality of the mass. Differentiation is a strategy that makes a product unique to others ignoring its price to the market. Usually, the firm charges a premium price to the customers which emphasizes superiority over rivals’ products. While the focus is a strategy that concentrates on a specific group of people or segments within an industry (Eldenburg et al. 2020).
In the case of Nestlé, the entity uses a low-cost strategy or cost leadership in most product brands. Nestlé aims to preserve its market leadership around the world. Being the biggest food manufacturer in the world, Nestlé has close competition from its almost similar industry, Unilever. Even though both entities have the same size and number of factories spreading around the world, Nestlé manages to stay on top. A group of market analysts in Western Europe conducted research to know what product brands the customers consume the most and the data shows below that Nestle has an 8.9% market share followed by Unilever-8.6%, Greencore- 4.5%, Heinz- 4.2%, Uniq- 3.7% and so on (Schneiderova 2010).
Also, the group also compares Nestlé’s strategy to Unilever, their rival, in terms of good customer relations, covering health wellness issues, quality products, and branding image (See the table below). Ultimately, Nestlé advances the quality with nutrition development using a scientific tool which gives them a competitive advantage. They plan to align with science in giving the consumer benefits, thus, it can match global progressive technology.
2.4 DIFFERENTIATION STRATEGY IN NESTLÉ CORPORATION
A differentiation strategy can be applied to the entity. Ten thousand different products under 8,500 varying brand names are simply identifiable from other industries because of their unique specification, quality, packaging, and other features. These products are processed following strict quality and health standards. Nestlé promises to compensate the value of the service for the customers’ money. While innovating new products in the market, Nestlé assures that it establishes a unique feature in the customers’ minds and their choices. They strive to build a differentiated positioning among their competitors on the basis of the quality of the product and aligning nutrition and health benefits.
2.5. KEY SUCCESS FACTORS
Through its efficient management, the entity allows expanding its market share by focusing on or targeting middle-income earners, which makes it the largest part of the customers around the world. Middle-income earners generally place significant importance on pricing; thus low-cost is the best competitive strategy to cater to the needs of the largest consumer group. Nestlé emphasizes the low price and availability of its products across the globe, thus it generates high sales growth and increasing brand awareness that enhances its competitive advantage. The last key success factor is maximizing Nestlé’s supply chain efficiency by giving discounts and promotions to get its sales target and manage the pressure against its competitor, especially the closest ones. The intended output of these promotions and discounts that offers on a limited-time basis is to raise the brand’s popularity and encourage consumption.
Applying their success factors, Unilever and Danone are significant rivals for Nestlé since they are also in the food and beverage industry. For instance, Unilever shows a 26% annual profit growth due to its fast-tracked sales in food and beverage. Whereas, Danone reported a 38% acceleration in its sales due to an increasing share price. Based on their report, their yogurt helps Danone’s earning boost. However, Nestlé effectively and efficiently manages to garner itself at the top in the world’s market by implementing a new accounting method and modifying internal processes which cause a diminishing in the cost of sales by giving allowances, discounts, and promotions for its retailers in its sales proceeds. Though they have lower growth sales, they managed to win against their opponents in the middle of their tough competition (Best 2011).
Cost leadership, as the main strategy, outlines many benefits experienced by Nestlé Company such as gaining brand popularity, expanding the customer target market, encouraging consumption, and aiming their sales target by making their product brands affordable, thus, choosing a cost leadership strategy is very suitable for the entity.
3. PERFORMANCE EVALUATION
3.1. LIMITATIONS OF TRADITIONAL PERFORMANCE
The management is focused on short-term information. Many organizations collect information that is only on financial and operational data, not on past performances. Focusing only on the short term is one of the drawbacks experienced by organizations over a long period of time. Minimizing this, the entity must consider the customer’s marginal utility, employee satisfaction, product/service quality, and public responsibility measures.
Management usually does not study more on the process. They focus on the quantitative data found in the financial statements, thus, some of the data used in the Financial statements are irrelevant to the demands of the entity’s business environment. Performance measurement results usually are too late to apply corrective actions.
Management does not analyze the performance measurement eagerly the process which is essential to have a relevant decision in what are the value-added and nonvalue-added activities. Performance measurement does not create an integrated or holistic view of performance since it is based on single dimensions of performance, so managers are not able to give an accurate evaluation of whether the implemented strategies are effective or not. Also, it encourages competition and discourages teamwork. A report in performance measurement often compares one business unit to another performance, rather than comparing to its own establish goals or performance.
There are things that can lessen the limitation of performance measures. They are listed in this paragraph. Concentrate on measuring the significant key variables rather than the immaterial ones. The parameters to be measured shall be correlated to the success factors. Quantifying data shall be from three perspectives which are a mix of past, present, and future. The purpose of the performance measurement is in accordance with the needs of customers, shareholders, and others. Performance shall start from the top managers to all levels of employees in an organization. Multiple data shall be merged if necessary to give a better overall assessment of performance. Performance measurement shall be adaptable to any changes in its environment and strategies. Lastly, it shall have targets or goals that are based on the data that the entity researching or investigating (Agarwal 2015).
3.2. NESTLÉ’S DIFFICULTIES AND STRATEGIC GOALS
Recently, Nestlé announced that they cut ties between them and the Astra Agro Oil Lestari (AAL) by the end of this year. Nestlé does not explain the reason why they are cutting ties but it seems Astra Agro Oil Lestari, an Indonesian Palm Oil Company, has an environmental issue in their country regarding deforestation. AAL was formerly an indirect supplier of Nestlé of Palm Oil, a very important ingredient in making their different product lines. Because of this action, Nestlé affects its market shares, production, and customer satisfaction, thus, getting its nonfinancial performance is also a little bit hard to measure. Nestlé pledges to itself that the source of its palm oil as an ingredient is deforestation-free (Saba 2022).
Moreover, Nestlé consulted financial expertise. They face two problems. First, they hardly understand how to evaluate their competency level and what their subordinate needs. Second, managers do not seem to value their knowledge of the business and are sometimes hesitant to disclose that they do not recognize its basic principles. The conflict between the needs of individuals and the perception of the management is a potential hindrance to achieving its strategy. Training solution is linked to solving conflict and it is efficient on the part of the management. Online training increases its usage and has long-term benefits to them.
Their financial expertise provides Nestlé with informative courses that cover basic finance, business, and accounting. Their staff across the globe can access the training embedded in the Nestlé website and customized and delivered in different languages, namely, English, Spanish, French, and German. The courses are suitable for Nestlé’s corporate culture and specified content about Nestlé’s business environment. Also, including Chief Financial Officer (CFO) messages recapping the significance of the courses they take and aligning with the company’s strategic objectives.
Based on the solution provided, the performance rewards they get are employees become aware of gaps in their knowledge and enhanced their competency through online courses provided by financial expertise. Nestlé takes a bigger step in informing of corporate goals for long-term growth and enhanced shareholder value. E-learning has utilized its value by spending time on training and transforming a process more efficiently and effectively while the staff is on duty which makes the learning process easier and more accessible. Because of its multi-national or multi-lingual workforce, financial expertise complements Nestlé’s existing classroom methods in training their staff. Their staffs are now able to evaluate themselves, thus, knowing their competency level. Focusing on the finance team, Nestlé sees it as one of the core skills that management shall have. Irrespective of its function, all staff are given the opportunity to learn about finance, business, accounting, and how these subjects are significant to the company. Nestlé is aware of the fact that the corporation’s success shows in its professionalism, attitude, and responsibility to its management and employees. Hence, recruiting the right people and having training and development is vital. At all levels in the organization, by consulting its final expertise, Nestlé keeps providing ongoing training and enhancement of professional skills. Managers shall lay 100% trust in their subordinates. Investing in training for its employees shows that Nestlé prioritizes staff’s career growth.
In assuring its strategic goals, Nestlé shall apply their expertise in health and wellness, and everybody’s nutrition to help their customer, families, people, and pets live happier and healthier lives. They shall be different from others and shall do product innovation aiding nutrition science and maintaining food product excellence. Moreover, produce affordable, safe, and high-quality products for everyone regardless of their income level. In short, Nestlé shall focus on their growth in product innovation, operational efficiency, and diversification of the customers (Deshmukh 2022).
4. BALANCED SCORECARD ON THE COMPANY
4.1. NESTLÉ’S MISSION-VISION STATEMENT
Its mission statement indicates the company ranks the experience of its consumers as a top priority. Boosting health, improving lives, and improving communities are the most important points of this statement. For years passed, Nestlé has been known for its diligence in assuring that all its food products follow the minimum health standard requirements in which they ensure that their products are protected from contamination and ensure that their product is of high quality. Not only in health, but also recognize in society as they help people and contribute to combating climate change (Varma, 2017).
As far as the early 1900s, Nestlé has known the art of leadership. The organization has been recognized by many other corporations for its product and service excellence they served. Being a leading company and delivering improved values are major points of its vision statement (Kantabutra 2007).
Based on their mission-vision statement, increasing customer retention, creating more high-quality products both food and nonfood, and enhancing the distributor, employee, or supplier relationship can be the strategic object might the Nestlé be considered. Increasing customer retention can produce an indefinite trust of customers and security of what they eat or use. High-quality products can be an advantage to other competitors with compliance with legal and health standards. Lastly, creating a good relationship status between suppliers, employees, and any other stockholders can be an indicator that Nestlé has good leadership and a well-rounded community in their workplace.
4.2. NESTLÉ’S ENVIRONMENTAL AND CORPORATE RESPONSIBILITY
As part of environmental responsibility, Nestlé is taking a rounded approach in committing responsibility to make its packaging 100% recyclable and if not, reusable by 2025; thus, reducing the usage of virgin plastic by one-third. Globally, the entity supports its local government in tackling its plastic waste management and becoming a leader in preventing climate change worse (Nestle 2021).
As part of corporate social responsibility, Nestlé is devoted to impacting every individual, family, community, and the planet as a socially responsible across the globe aligning its commitment, to its three pillars namely, nutrition, water, and rural development.
Figure 1: Nestle Balanced Scorecard Incorporating Society and Environmental PerspectiveIn the figure above, Nestlé’s balanced scorecard are being tied up to corporate social and environment responsibility. There are five ways in incorporating environmental responsibility into the balanced scorecard and they are the following: full integration, partial integration, adding the fifth perspective, and seeing the perspective for climate change coupled with other environmental aspects integrated into the financial perspective (Khalid et al. 2019).
4.3 INCREASING CUSTOMER RETENTION
Increasing customer retention can be achieved by getting the percentage of customer churn. Thus, identify the top five reasons why customers leave and how to reduce the number of customers who leave based on each reason. It takes so much time to earn customer loyalty. Retaining a customer’s business indicates that a company’s product, service, or brand is pleasing enough to the existing customer for them to stay with the company rather than switch over to a competitor.
There are four ways to have a customer retention strategy. The first is to have a smooth onboarding process. It is key to customer retention. Making this strategy can build success for succeeding years. A personalized and hands-on strategy that on removing as many flaws as possible. The second is to make a customer feedback list. Knowing the customer’s critics is the biggest step in retaining a customer. When management understands customer suggestions and what the customer wants or not, management have appropriate action on the feedback they collected by making a solution, innovating the process, and unique product needs. The third is to keep the products services a top priority by copywriting, email marketing, generating a promo contest in social media, and creating a high-quality content associated with important keywords. The fourth is to reward promoters and loyal customer. Loyal customer shall be rewarded and prioritize by giving discounts and surprises gifts since they are major part in generating quick sales. Its up to the management how they determine their loyal customer. For example, giving a trivial gift to a customer who are now in 10th order and so on.
4.4. INNOVATING PRODUCTS
Producing high products can be achieved by getting the number of returns per month and revisiting specification limits. Increasing the quality of the products means fewer complaints and customer returns.
There are eight ways to produce a high-quality product. The first is to define a product’s quality. Before the start of production, the production department shall set the predetermined specifications and utilization of the customer. The resulting production shall positively answer if the product is tailored to the customer’s needs, solved a problem, polished, efficient, and easy to use.
The second is to invest in machinery. Usually, if it is labor intensive, higher chance that the products are prone to errors and defects. The third is to adopt a quality management system. A quality management system (QMS) is a group of internal rules or policy that establishes how the businesses creates, process, and delivery a high-quality product. It is applicable in manufacturing products insourcing and outsourcing. QMS can regulate the organization in complying its latest regulation and health standards in innovating a product quality. Infusing it can have significant impact to the overall performance of the company or business itself. Effective QMS allows the entity meet customer’s satisfaction as well as following regulatory compliance. Also, to thwart errors, save money, and ongoing innovating products. Most of all, assuring consistent a high-quality product can improve the entity’s image, trust, credibility, thus, improving customers’ satisfaction.
The fourth is to check on competitors plans and trends. Checking and comparing the plans to other entities that have a similar industry can help to develop more and think some innovating ideas that will help improve the quality of the products. Making a competitor analysis allows the entity knows their strength, and weaknesses in their newly-made product, compare to its rival, and find what is the effect of its demand in the market. Conducting a research in the competitor is important, not only for there future product innovation but also putting a better position to compete to other similar industry that manufactures the same product.
The fifth is to align the quality in the company’s culture. Managers should follow their own intuition and perception to handle their subordinates’ responsibilities. Several employees take a big part to analyze its quality message associated to the strategic objectives. Meaning to say, managers shall lend their ears and listen to their employees about their suggestions, concerns, and recommendation regarding to the certain procedures and policies in enhancing the product quality because they know what is the best for the product to sell its market.
The sixth is to train employees. At all staff level, training employees can also help improve product quality, employee’s competency, and prevent problems. Trainings conduct either in online or physical. Management can set up an initiation program for the newly-hired employees, and train them to focus on how to deal quality problems and technical problems in machines and equipment. The seventh is to perform product testing. Product testing allows seeing how the product do in the market, if it follows the specific innovating plans such as accessibility, quality, efficiency, and usability. This will be a preparatory in making a marketing strategy as well as how the new products compete to its competitor. Lastly, the eight is to listen to customers’ criticism. Collecting customer critics can give insights into what response to be made in enhancing their new products. Negative feedback helps the entity step up the game.
4.5. BUILDING RELATIONSHIP TO ITS SUPPLIERS, CUSTOMERS, AND EMPLOYEES
Enhancing relationships with customers and suppliers can be achieved by getting the percentage of market share in each location. Then, maintain or develop relationships with them. Enhancing relationships with employees by getting the percentage of employees trained areas, then cross-training employees.
There are nine ways to enhance the relationship with suppliers. Building trust and confidence to suppliers is important to the organization because they can share knowledge and identify an improvement opportunity. The first is to be proactive. Early discussion about issues, problems, and concerns can help strengthen their trust and respect. The second is to communicate regularly. Communication is the key for creating mutual relationship. A mutual understanding prevents confusion and arguments. Face-to-face discussion is the effective way in addressing issues.
The third is to establish roles and responsibilities. Performance is the product of ability and motivation. Both parties shall have a clarity for their role in an organization, know their counterpart, and understand how the parties’ value each of their beneficial role. Understand the relationship it wants before starting building it. The fourth is to know the contractual obligations of both parties which is clear and mutual. The fifth is to have an ethics and positive attitude at all time.
The sixth is to monitor its deliverables. Managers wants to know what they are expecting to receive, service or goods. Performance also includes in deliverables. Monitoring is a continuous task. The seventh is to identify risks. Risks are inherent. It cannot be eliminated but can be control. Suppliers favors an organization that has a controllable risk. The ninth is to be reasonable and fair. Being fair prevents conflict to supplier. Managers shall have a balanced relationship between their suppliers
5. CONCLUSION
To have a competitive advantage, Nestlé uses a low-cost strategy over its rival. By targeting middle-income earners, they garner a spot on the top.
Customer retention, product innovation, and suppliers relationship are the performance associated with its strategic objectives and included in the balanced scorecard.
A balanced scorecard creates value for the company in the case of Nestlé by integrating the set of performance measures that are based on the entity’s strategy and this strategy shall align how the company’s objectives are being achieved (Garrison et al. 2015). Also, it maintains the sustainability of the company and maintains it is a top multinational product business around the globe. Supporting this, a professor recommends incorporating social and environmental measures help the balanced scorecard to be sustainable by conducting a research study (Hubbard 2009).
Incorporating society and environment in the balanced scorecard recognizes Nestlé’s impact on society which they prove it in the long-term aligning its strategic objectives. This business report concludes that to maintain its brand name, Nestlé shall focus on customers’ satisfaction, retention, product innovation, and relationship with others.
6. References (using RMIT Harvard Format Referencing)
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