International Human Resource Management
Kajun-Princess
nestle.docxLateral Coordination at Nestlé
In April 2000, Nestlé—the world’s largest food and beverage company with 250,000 employees and close to 500 factories in over 80 countries—launched a US$3 billion IT initiative. The Global Business Excellence program (GLOBE) was to transform the Nestlé organization from a loose “federation of independent markets” into a company showing a common face to customers and suppliers around the world.1
While the program could nominally be seen as a massive SAP rollout (in itself a complex undertaking), the purpose went far beyond building a new IT platform. Peter Brabeck, CEO of Nestlé, was explicit about the final goal:
I want this to be very clear. With GLOBE we will create common business processes, stan- dardized data, and a common IT infrastructure—but do not think this is an IT initiative. We are going to fundamentally change the way we run this company.
In Brabeck’s view, Nestlé’s decentralized structure, which had brought the company so much success in the past, no longer fit the new realities of ever-increasing global competition.
Traditionally Nestlé had been structured as a cascading pyramid of major zones and markets—usually countries. Each business was essentially local, neatly aggregated to larger geographical units, all finally coming together in the corporate center. Running alongside this organization in a coordinating role were half a dozen strategic business units, such as beverages, dairy products, and infant nutrition.2 The role of the business unit managers was to increase integration across geographies with a particular focus on new product development, but without profit and loss responsibility.3
The company’s strong focus on product customization to local tastes was the foundation of Nestlé’s success; but this also created duplication and inefficiencies that the company could no longer afford, with sales overhead costs well above its competitors.4 A fragmented supply chain did not provide the desired economies of scale. Bargaining power with cross-border suppliers and retailers was weak—some large customers had better pricing information about Nestlé products in different markets around the world than the Nestlé central office.
Internal coordination was also difficult, as each country’s organization and systems had been operating independently. Identical products had different product codes in different countries, and in HR there was no common grading and compensation system. With different titles for similar positions across countries, it was al- most impossible to agree on who was at the same hierarchical level or performed the same job. Even for senior managers, salaries and bonuses were difficult to compare.5
The aim of the GLOBE program was to build a common platform for Nestlé’s global operations, but the formal structure of the company would remain for the most part configured as a matrix of geographies and businesses. And as Nestlé was determined to maintain its focus on local markets, the company did not want to move too far away from its culture of decentralization. However, in order to cope better with the competitive challenges facing the company, it had to become more globally connected and aligned.
n essence, Nestlé needed to find an alternative route that would balance the bene- fits of local initiative with global leverage but remain in line with Nestlé’s long-standing business principle of “putting people ahead of the systems.” Senior management believed that maintaining local decision-making autonomy while standardizing core processes would achieve this. By simplifying and standardizing basic processes, Nestlé hoped to reduce internal complexity so local management could focus externally on customers and competition. And by flattening the organization and assigning more coordinating responsibility to cross-border and cross-functional teams, the company hoped to move away from the traditional vertical hierarchy to a more flexible network structure, which it believed is more suitable to the new generation of company employees.6
Lateral Coordination at Nestlé
In A
pril 2000, Nestlé
—
the world
’
s largest food and beverage company with 250,000 employees
and close to 500 factories in over 80 countries
—
launched a US$3 billion IT initiative. The
Global Business Excellence program (GLOBE) was to transform the Nestlé organ
ization from a
loose “federation of i
ndependent markets” into a com
pany showing a common face to customers
and suppliers around the world.1
While the program could nominally be seen as a massive SAP rollout (in itself a complex
undertaking), the purpose
went far beyond
building a new IT platform. Pe
ter Brabeck, CEO of
Nestlé, was explicit about the final goal:
I want this to be very clear. With GLOBE we will create common business processes, stan
-
dardized data, and a common IT infrastructure
—
but do no
t think this is an IT initiative. We are
going to fundamentally change the way we run this company.
In Brabeck
’
s view, Nestlé
’s decentralized structure, which had brought the company so much
success in the past, no longer fit the new realities of ever
-
inc
reasing global competition.
Traditionally Nestlé had been structured as a cascading pyramid of major zones and markets
—
usually countries. Each business was e
ssentially local, neatly aggre
gated to larger geographical
units, all finally coming together in
the corporate center. Running alongside this organization in a
coordinating role were half a dozen strategic business units, such as beverages, dairy products,
and infant nutrition.2 The role of the business unit managers was to increase integration acros
s
geographies with a partic
ular focus on new product development, but without profit and loss
responsibility.3
The company
’
s strong focus on product customization to local tastes was the foundation of
Nestlé
’s success; but this also created duplication
and inefficiencies that the company could no
longer afford, with sales overhead costs well above its competitors.4 A fragmented supply chain
did not provide the desired economies of scale. Bargaining power with cross
-
border suppliers
and retailers was weak
—
some large customers had better pricing information about Nestlé
products in different markets around the world than the Nestlé central office.
Internal coordination was also difficult, as each
country’s organization and sys
tems had been
operating independently. Identical products had different product codes in different countries,
and in HR there wa
s no common grading and compen
sation system.
With different titles for
similar positions across countries, it was al
-
most impossible to agree on who was at the same
hierarchical level or performed the same job. Even for senior managers, salaries and bonuses
were difficult to compare.5
The aim of th
e GLOBE program was to build a common platform for Nestlé
’
s global operations,
but the formal structure of the company would remain for the most part configured as a matrix of
geographies and businesses. And as Nestlé was determined to maintain its focus
on local
markets, the company did not want to move too far away from its culture of decentralization.
However, in order to cope better with the competitive challenges facing the company, it had to
become more globally connected and aligned.
Lateral Coordination at Nestlé
In April 2000, Nestlé—the world’s largest food and beverage company with 250,000 employees
and close to 500 factories in over 80 countries—launched a US$3 billion IT initiative. The
Global Business Excellence program (GLOBE) was to transform the Nestlé organization from a
loose “federation of independent markets” into a company showing a common face to customers
and suppliers around the world.1
While the program could nominally be seen as a massive SAP rollout (in itself a complex
undertaking), the purpose went far beyond building a new IT platform. Peter Brabeck, CEO of
Nestlé, was explicit about the final goal:
I want this to be very clear. With GLOBE we will create common business processes, stan-
dardized data, and a common IT infrastructure—but do not think this is an IT initiative. We are
going to fundamentally change the way we run this company.
In Brabeck’s view, Nestlé’s decentralized structure, which had brought the company so much
success in the past, no longer fit the new realities of ever-increasing global competition.
Traditionally Nestlé had been structured as a cascading pyramid of major zones and markets—
usually countries. Each business was essentially local, neatly aggregated to larger geographical
units, all finally coming together in the corporate center. Running alongside this organization in a
coordinating role were half a dozen strategic business units, such as beverages, dairy products,
and infant nutrition.2 The role of the business unit managers was to increase integration across
geographies with a particular focus on new product development, but without profit and loss
responsibility.3
The company’s strong focus on product customization to local tastes was the foundation of
Nestlé’s success; but this also created duplication and inefficiencies that the company could no
longer afford, with sales overhead costs well above its competitors.4 A fragmented supply chain
did not provide the desired economies of scale. Bargaining power with cross-border suppliers
and retailers was weak—some large customers had better pricing information about Nestlé
products in different markets around the world than the Nestlé central office.
Internal coordination was also difficult, as each country’s organization and systems had been
operating independently. Identical products had different product codes in different countries,
and in HR there was no common grading and compensation system. With different titles for
similar positions across countries, it was al- most impossible to agree on who was at the same
hierarchical level or performed the same job. Even for senior managers, salaries and bonuses
were difficult to compare.5
The aim of the GLOBE program was to build a common platform for Nestlé’s global operations,
but the formal structure of the company would remain for the most part configured as a matrix of
geographies and businesses. And as Nestlé was determined to maintain its focus on local
markets, the company did not want to move too far away from its culture of decentralization.
However, in order to cope better with the competitive challenges facing the company, it had to
become more globally connected and aligned.
