Aashca Joshi BUS 6990 BC 6 to 9 pm

Nestle Case
1. What are the cross-business synergies within the Nestl organization throughout its history,
and what are the potential costs involved when leveraging these synergies?

Nestle has acquired a lot of other companies throughout its history like Anglo Swiss condensed milk, Hersheys, Stouffer, Gerber, Novartis, Valio, Alpo and many more. It also merged with Maggi, a large European producer of food enhancers and prepared foods such as soups. Numerous acquisitions followed in canned and frozen foods, bottled water, ice cream, and pet foods. Nestle encouraged managers of the acquired companies to stay, with new operations typically remaining intact and reporting to the Nestle country managers in each market. Nestle also expanded beyond food with the 1974 purchase of a 25 per cent interest in French cosmetics firm LOreal and the 1977 acquisition of Alcon Laboratories, a U.S. firm specializing in eye care products. By doing so, Nestle doesnt have to compete with these companies for selling its products and further they can reduce the price negotiation issue and its worthy of their knowledge of American market. Also, with these acquisitions they can expand their product portfolio and increase their buying and borrowing power. 2. Which corporate growth directions did Nestl take throughout its history? Nestls major corporate growth was in the direction of acquisitions throughout its history. It had acquired a wide variety of organizations such that their market was not limited to just chocolate, milk and such products but it went on to frozen food market and even cosmetics. Further, four complementary platforms had been identified that could double the companys sales over the next 10 years health, nutrition, and wellness; emerging markets; out-of-home consumption; and premiumization of existing products.

3. With which corporate management mechanisms does Nestl leverage its synergies? After the mergers, they could have combined their production with that of the other company so as to achieve economies of scale. Also by utilizing the same means of transportations for their products. The companies acquired may have better R&D facilities and Nestle would have the access to it after the acquisition.

4. Which perspectives on corporate-level strategy do the various CEOs of Nestl have (e.g.
Maucher, Brabeck and Bulcke)?

Helmut Maucher, under this new Chief Executive Officer, Nestl approached the 1980s with a renewed flexibility and determination to evolve. The Company's strategy for this period was twofold: improve its financial situation through internal adjustments and divestments, and continue its policy of strategic acquisitions. Thus, between 1980 and 1984, the Company divested a number of non-strategic or unprofitable businesses. At the same time, Nestl managed to put an end to a serious controversy over its marketing of infant formula in the Third World. This debate had led to a boycott of Nestl products by certain lay and religious organizations. This issue is still alive in some quarters, but there is no longer any significant boycott activity. In 1984, Nestl's improved bottom line allowed the Company to launch a new round of acquisitions, including a public offer of $3 billion for the American food giant Carnation. At the time, the takeover, sealed in 1985, was one of the largest in the history of the food industry. Brabecks strategy was to focus the business to become more efficient by cutting back on their investment budget, which would allow the company to maximizing existing assets, maximizing capacity utilization, and maximizing distribution logistics. Brabeck launched a suite of process innovation initiative tospur general growth (Raisch & Ferlic, 2006).Brabeck launched a manufacturing efficiency program called MH97 with the objective of reducing raw material costs and optimizing production processes. The program generated savingin excess of CHF 4 billion. Bulcke, saw GLOBE as an important vehicle for continuous improvement. GLOBE would allow best practices to be identified and shared across plants and business units. He believed that the future growth of the company will come from its internal growth. He found out the strengths of the company like its R&D department, companys culture, their products and portfolio, etc. So his main approach was to just drive growth from this asset base while being as efficient and as productive as possible. 5. What are future scenarios for Nestls corporate-level strategy, based on the integrated organization and portfolio organization perspective?

Acquisitions and diversification strategies of the firm should also be controlled and monitored to avoid it to resort to greater levels of diversification because of low performance (Hitt et al 2003). Ineffectiveness or inefficiency should be regarded as a multi-option of divestures, restructuring or internal and external improvements not just simply an option to release a lot of money to buy new firms or subsidiaries in different business. The trend of Nestle in latest acquisition/ partnership is to team up with pet foods and cosmetics industry apart from being human food company. Economies of

scale and scope might not be realized rather reflect the opportunistic behaviors of managers to retain their positions of increased their salary due to increased responsibility. As a result, Board of Directors awareness and knowledge of company operations and evaluation of managers are necessary to identify the culprit in the organization. Transparency should be adhered while directors should convene regularly to have in depth grasps of the logical cause of a proposed diversification. Thus it should pay more attention on its quality over anything else.