The Process of Organizational Change at Nestle - Case Study Example

RUNNING HEAD: Managing Organizational change Managing Organizational Change Name: Course: Managing Organizational Change Institution: Date: Managing Organizational Change Introduction From the case study in Palmer et al (2009), Nestlé’s has evolved from a domestic Swiss based company manufacturing dairy products for infants to the world’s largest food companies operating in over 80 countries with a diverse product line ranging from chocolates and coffee to cosmetic products and pet food. Under current chairman and former CEO Peter Brabeck- Letmathe, Nestle undergoes continual and incremental restructuring at an annual cost of about $ 300 million (Palmer et al 2009). Nestlé’s current situation can be attributed to a number of factors due to the various changes that the organization has undergone over the last century. This essay will analyse the process of organizational change at Nestle. Drawing on the case study from Palmer et al (2009), the essay will first identify the factors that can be attributed to Nestle’s current position as the world’s largest food company and the nature of change at Nestle. The essay will demonstrate the first order and second order changes that Nestle has experienced the current view of incremental change at Nestle, implications for change managers and lessons from the front line. The essay will then discuss these factors using Weisbord’s six-box organizational model as a diagnostic tool. Nestle Nestlé’s current situation can be attributed to its visionary leadership which has successfully overseen the process of organizational change at the company. Under the tenure of different CEOs, Nestle has changed from a domestic food company into the world’s largest food company with a diverse product line that includes some of the world’s strongest household brands such as Nescafe, Cerelac and Kit Kat. This has been due to a series of aggressive mergers and acquisitions that have seen the company expand its operations into 80 countries worldwide, employing over 224,000 people in over 500 factories (Palmer et al 2009). Nestle can also attribute its market leading position to political and economic changes such as those occasioned by the second World War which drew the company out of its Swiss shell and into the global market. Nestle’s current leadership has also drawn from the company’s institutional memory and created a strong corporate culture committed to long term outcomes through incremental change as opposed to short term profits (Raisch 2008). To better understand Nestle’s current position, one needs to understand the changes that Nestle has undergone in the past. Change at Nestle Nestle has undergone both first order and second order changes as evident from the case study. As indicated in the case study, Nestle underwent first order incremental change by adjusting its systems, processes and structures without fundamentally changing its strategy, core values and corporate identity. This is evident in Nestle’s modification of its approach to global expansion by purchasing local subsidiaries in foreign markets which was an improvement or development as opposed to selling through sales agents. Nestle’s global expansion was motivated by the need to adapt to changes in the economic and political environment such as the increase in demand for dairy products after the first World War and the political isolation of Switzerland which made it necessary to relocate many of its executive offices from Switzerland off shore to the United States. First order adaptive change can also be seen in the role of technology as outlined in the company’s corporate culture. While the company acknowledges the role played by technology in improving production processes and efficiency, it rejects the implementation of new technology as central to the company’s strategic direction (Palmer et al 2009). However, from the case study, Nestle has mainly undergone second order changes. Second order change is transformational and radical, altering the organization at its core. Nestle has restructured itself as a company and significantly changed its corporate identity. This is seen in Nestle’s diversification of its business lines from an entrepreneurial company primarily manufacturing dairy products to a more professional managerial structure (Palmer et al 2009). This entailed significant changes in its corporate strategy, most notably through mergers and acquisitions which were aimed at improving the efficiency and profitability of the company. From the case study, Nestle ventured outside its primary business to become a major shareholder in cosmetics giant L’Oreal and further purchase of U.S based pharmaceutical and ophthalmic products manufacturer Alcon Laboratories. Under CEO Helmut Maucher, Nestle also made several strategic acquisitions alongside the disposal of non profitable business lines. This included the strategic acquisition of Carnation in 1984 and by selling many non profitable or non strategic assets and businesses. At the onset of Peter Brabeck- Letmathe’s tenure at CEO, the company also underwent a complete overhaul of the executive board which was replaced by 10 new executives. Brabeck-Letmathe’s philosophy of change is that it should not be radical but focused and conscious. He seems to prefer slower and more incremental change as reflected in his sentiments towards change; Why should we manufacture dramatic change? Just for change’s sake? To follow some sort of fad without logical thinking behind it? We are very skeptical of any kind of fad. (Palmer et al 2009, p 109) Brabeck-Letmathe’s conservative approach to organizational change focuses on a long term approach towards growing business at the expense of short term changes to increase short run profit margins. However, his perspective of change seems to contradict his actions in the entire overhaul of the executive board which seems radical and fundamentally transformative. In addition, his mindset towards change contrasts with Nestle’s historical experience with change. Historically, Nestle expanded globally through aggressive mergers and acquisitions beyond the comfort zone of its investors and its traditional domain in the food industry to diversify its business lines. Nestle has used mergers and acquisitions to expand its geographical reach, to tap into more profitable business lines in other markets and increase it competitive advantage and economies of scale (Matzler et al 2010). As of 2003, it is estimated that Nestle had made over 50 acquisitions since 1985 (Nestle 2011, Ball 2007). Strategic acquisitions such as Carnation in 1984 and the merger with Anglo Swiss condensed milk Company in 1905 have helped Nestle offset the risk and losses due to the competition between condensed milk and fresh milk dairy products (Nestle). Nestle was also able to tap into other markets such as the seasoning and soups market by merging with Alimentana S.A in 1975 to produce Maggi seasoning and soups. Other ventures include frozen foods companies such as Crosse and Blackwell, Findus Frozen Foods, Stouffer’s Frozen foods and Libby’s Fruit Juices (Nestle). Outside the food industry, strategic acquisitions include L’Oreal and Alcon Laboratories which have expanded their business interests into cosmetics and pharmaceuticals. Under Brabeck-Letmathe, Nestle has also made several acquisitions such as Chef America in 2002 and ice cream giant Dreyer in 2006 which made it the world’s largest ice cream maker (Nestle). Despite Brabeck-Letmathe’s anti-revolutionary philosophy of change, Nestle appears to have undergone a significant raft of radical as well as adaptive changes during his reign as CEO. Significantly, Nestle moved to centralize its global supply chain through the implementation of a costly Enterprise Resource System (ERP) under the Global Business Excellence Program (GLOBE) (Boersma and Kingsma 2005). This entailed standardization of its IT procurement, distribution and sales management systems globally which constitutes a fundamental alteration to the company’s corporate identity as a decentralized multinational. This move cost over $1 billion yet cut costs by over $ 1.6 billion and leading to the closure of 38 factories (Raisch 2008 , Boersma and Kingsma 2005). Brabeck-Letmathe’s view of such changes is that they are incremental and build on the core strengths of the company as opposed to following fads-adaptive change-in addition to giving Nestle its competitive edge. However, in my view, Brabeck-Letmathe appears to be implementing mid range organizational by incorporating radical as well as slow changes at Nestle (Palmer et al 2009). The changes experienced at Nestle have had various implications for the change managers who oversaw these changes. As Nestle expanded geographically, it became necessary for the change managers to bridge the cultural gaps between its employees in Switzerland the rest of its operating markets as well as between the differences between consumer wants, tastes or preferences in its domestic as well as foreign markets (Raisch 2008). As a result of geopolitical pressure- the isolation of Switzerland during the Second World War, Nestle relocated many of its executive offices offshore. The managers at Nestle had to recruit employees in their foreign markets. In bridging the cultural gap, the Nestle management team may have trained new employees to orient them with Nestle’s production standards and procedures. Nestle’s management team may also have spent a significant amount of resources in employee exchange between plants, factories and various headquarters to try and streamline the company’s operations. Nestle’s management team may also have spent a lot of time retraining employees from different divisions, countries and even factories on how to adapt to the new centralized IT system to help them deal with the trauma of change (Palmer et al 2009). Another implication for the managers of change at Nestle was the assumption that changes can be clearly classified between first order incremental changes and second order transformational or revolutionary changes. In Nestle’s case, the company has undergone both first order and second order changes and change managers need to interpret these changes to employees and shareholders. For instance, Brabeck-Letmathe has clearly outlined a policy of preferring incremental change (Palmer et al 2009, Brabeck 2002). However, he needs to explain to shareholders and employees how changes such as the overhaul of the executive board or centralization of the IT systems are incremental and not revolutionary in order to justify his position. For line managers and directors at Nestle, another implication is that change may mean adding to and integrating current practices rather than removing them as outlined by Brabeck-Letmathe. From Nestlé’s case, there are examples of lessons from the frontline as regards challenges to change in downsizing, mergers and acquisitions and new technologies. For instance, downsizing through disposal of non profitable businesses and the centralization of its IT systems have led to job losses and this may negatively affect employee retention by dampening the morale of both dismissed and retained employees (survivor syndrome) (Boersma and Kingsma 2005, Matzler et al 2010). This could be overcome through employee counseling and consultation with employees prior to such company decisions to give them a soft landing. Another lesson is that introduction and implementation of new technology may significantly affect the company’s bottom lines through increased short run costs and disruption of day to day business (Boersma and Kingsma 2005). The centralization of the supply chain at Nestle was not only costly but also faced significant resistance from employees resistant to change. Therefore, it is important to identify political barriers to such changes, clearly communicate the impact of technological changes to employees and to obtain the necessary support for such changes. Another lesson from the frontline is that proper due diligence needs to be conducted before any merger is entered into or acquisition made. In Nestlé’s case, it had to dispose some unprofitable business lines which demonstrate the importance of proper planning before entering into a merger or making an acquisition (Ball 2007, Matzler et al 2010). Conversely, well planned strategic acquisitions and expansions of product lines have turned into Nestle the world’s largest and one of the most profitable food companies. Post merger, employee retention and integration is also important in ensuring the success of the venture. Six Box Organizational Model Like any other organization, managing change was important for the survival and growth of Nestle as a company. Central to managing change in any organization is a diagnosis or diagnostic tools which are used by organizations or managers to identify the pressures of change and what remedial measures to take. In identifying the factors that have contributed to Nestlé’s current situation, Marvin Weisbord’s six-box organizational model is particularly useful. An organizational model is a representation of the organization which gives us a framework for; understanding organizational behaviour, categorizing data about the organization, interpreting data about the organization and providing a common short-hand language to discuss an organization’s characteristics (Palmer et al 2009). Organizational models also guide the change managers as to what sequence of action to take in a particular situation. Weisbord’s six-box organizational model is the most appropriate model for analyzing change at Nestle. Weisbord’s model is relatively uncomplicated as compared to other models and helps change managers and practitioners visualize the interactions or the interplay between an organization and the environment it operates within. This is particularly useful in Nestlé’s case as it highlights the fit between the organization and the environment given Nestlé’s history of change. The model categorizes organizational life in six facets; purpose, structure, rewards, helpful mechanisms, relationships and leadership (Palmer et al 2009). Each of these six boxes poses a question which when answered will demonstrate the choice of the model in explaining the factors contributing to Nestlé’s current situation. In purpose, the questions asked include what business are we in? What are the organization’s values, vision, mission and goals? Nestle is the world’s largest food company with business lines and brands ranging from dairy products, beverages, confectionaries to pet food, cosmetics and soups and seasoning. As shown in its mission statement, it is a wellness company that through research, aims to provide good food for a good life. Under structure, the question posed is how do we divide up the work? Is there a fit between the purpose and the internal structure of the organization? Nestle is structured into various departments and divisions such as production, sales and marketing, IT and research and development. It also has a managerial structure that handles its assets such as shares in L’Oreal and Alcon after the company’s divestitures in the mid 1900s. Under relationships, what kind of relationships exists between individuals and the organization? As stated in the case study, Nestle managers are steeped in a corporate culture of maintaining the longevity of the organization. Under rewards, do all needed tasks have incentives? Nestlé’s continual growth ensures stability and makes it one of the largest employers in the food industry (Raisch 2008). Under helpful mechanisms, how adequate are we in coordinating technologies? Nestle has centralized its global supply chain under ERP and has a research and development and IT team which enable the company integrate new products and technologies. Under leadership, does someone keep the boxes in balance? Do leaders define purposes? What is the style of leadership? Under Brabeck-Letmathe, Nestle has a clear philosophy towards change and has repeatedly outlined the focus towards strengthening and sustaining Nestles’ core strengths. Conclusion Nestle’s current position as the world’s largest food company can be attributed to the various organizational changes that the company went through in the 21st century. Nestle underwent both first order incremental changes and second order transformative changes. First order changes included purchasing foreign subsidiaries abroad. However, Nestle mainly underwent second order changes in the form of divestitures and aggressive mergers and acquisitions. Under Peter Brabeck-Letmathe, Nestle is now an organization wary of radical or transformative change but steeped in a corporate culture of incremental change as evidenced by their wary approach to new technology. Using Weisbord’s six-box organizational model as a diagnostic tool, one can identify the factors or pressures of change that acted upon Nestle. References Ball, D. (2007). Crunch time: After buying binge, Nestle goes on a diet. The Wall Street Journal, July 23. Retrieved on July 24, 2011 from < http://www.imm.bwl.uni- muenchen.de/dateien/3_lehre/dec_in_marketing/nestle.pdf> Boersma, K. & Kingsma, S. (2005). Developing a cultural perspective on ERP. Business Process Management Journal 11 (5), 123-136. Brabeck, P., (2001). 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