Nestle (0QR4) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Nestle (United Kingdom)

Based on various researches at Oak Spring University , Nestle is operating in a macro-environment that has been destablized by – increasing government debt because of Covid-19 spendings, banking and financial system is disrupted by Bitcoin and other crypto currencies, technology disruption, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing commodity prices, wage bills are increasing, geopolitical disruptions, competitive advantages are harder to sustain because of technology dispersion, increasing household debt because of falling income levels, etc

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Introduction to SWOT Analysis of Nestle

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Nestle can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Nestle, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Nestle operates in.

According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.

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SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix

SWOT analysis of Nestle can be done for the following purposes –
1. Strategic planning of Nestle
2. Improving business portfolio management of Nestle
3. Assessing feasibility of the new initiative in United Kingdom
4. Making a Beverages (Nonalcoholic) sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Nestle

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Strengths of Nestle | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The strengths of Nestle are -

Operational resilience

– The operational resilience strategy of Nestle comprises – understanding the underlying the factors in the Beverages (Nonalcoholic) industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.

Sustainable margins compare to other players in Beverages (Nonalcoholic) industry

– Nestle has clearly differentiated products in the market place. This has enabled Nestle to fetch slight price premium compare to the competitors in the Beverages (Nonalcoholic) industry. The sustainable margins have also helped Nestle to invest into research and development (R&D) and innovation.

Diverse revenue streams

– Nestle is present in almost all the verticals within the Beverages (Nonalcoholic) industry. This has provided Nestle a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.

Analytics focus

– Nestle is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Beverages (Nonalcoholic) industry. The technology infrastructure of United Kingdom is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.

High brand equity

– Nestle has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Nestle to keep acquiring new customers and building profitable relationship with both the new and loyal customers.

Highly skilled collaborators

– Nestle has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Beverages (Nonalcoholic) industry. Secondly the value chain collaborators of Nestle have helped the firm to develop new products and bring them quickly to the marketplace.

Successful track record of launching new products

– Nestle has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Nestle has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.

Cross disciplinary teams

– Horizontal connected teams at the Nestle are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.

Effective Research and Development (R&D)

– Nestle has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Nestle staying ahead in the Beverages (Nonalcoholic) industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.

Training and development

– Nestle has one of the best training and development program in Consumer/Non-Cyclical industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.

Low bargaining power of suppliers

– Suppliers of Nestle in the Consumer/Non-Cyclical sector have low bargaining power. Nestle has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Nestle to manage not only supply disruptions but also source products at highly competitive prices.

Learning organization

- Nestle is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Nestle is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Nestle emphasize – knowledge, initiative, and innovation.

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Weaknesses of Nestle | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of Nestle are -

High dependence on existing supply chain

– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Nestle supply chain. Even after few cautionary changes, Nestle is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Nestle vulnerable to further global disruptions in South East Asia.

Increasing silos among functional specialists

– The organizational structure of Nestle is dominated by functional specialists. It is not different from other players in the Beverages (Nonalcoholic) industry, but Nestle needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Nestle to focus more on services in the Beverages (Nonalcoholic) industry rather than just following the product oriented approach.

Need for greater diversity

– Nestle has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.

Low market penetration in new markets

– Outside its home market of United Kingdom, Nestle needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.

High operating costs

– Compare to the competitors, Nestle has high operating costs in the Beverages (Nonalcoholic) industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Nestle lucrative customers.

Skills based hiring in Beverages (Nonalcoholic) industry

– The stress on hiring functional specialists at Nestle has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.

High bargaining power of channel partners in Beverages (Nonalcoholic) industry

– because of the regulatory requirements in United Kingdom, Nestle is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the Beverages (Nonalcoholic) industry.

High cash cycle compare to competitors

Nestle has a high cash cycle compare to other players in the Beverages (Nonalcoholic) industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.

No frontier risks strategy

– From the 10K / annual statement of Nestle, it seems that company is thinking out the frontier risks that can impact Beverages (Nonalcoholic) industry. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.

Lack of clear differentiation of Nestle products

– To increase the profitability and margins on the products, Nestle needs to provide more differentiated products than what it is currently offering in the marketplace.

Capital Spending Reduction

– Even during the low interest decade, Nestle has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Beverages (Nonalcoholic) industry using digital technology.

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Nestle Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities of Nestle are -

Harnessing reconfiguration of the global supply chains

– As the trade war between US and China heats up in the coming years, Nestle can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help Nestle to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.

Building a culture of innovation

– managers at Nestle can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Beverages (Nonalcoholic) industry.

Reconfiguring business model

– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Nestle to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.

Low interest rates

– Even though inflation is raising its head in most developed economies, Nestle can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.

Increase in government spending

– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Nestle can use these opportunities to build new business models that can help the communities that Nestle operates in. Secondly it can use opportunities from government spending in Beverages (Nonalcoholic) sector.

Leveraging digital technologies

– Nestle can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.

Creating value in data economy

– The success of analytics program of Nestle has opened avenues for new revenue streams for the organization in Beverages (Nonalcoholic) industry. This can help Nestle to build a more holistic ecosystem for Nestle products in the Beverages (Nonalcoholic) industry by providing – data insight services, data privacy related products, data based consulting services, etc.

Finding new ways to collaborate

– Covid-19 has not only transformed business models of companies in Beverages (Nonalcoholic) industry, but it has also influenced the consumer preferences. Nestle can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.

Loyalty marketing

– Nestle has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.

Buying journey improvements

– Nestle can improve the customer journey of consumers in the Beverages (Nonalcoholic) industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.

Lowering marketing communication costs

– 5G expansion will open new opportunities for Nestle in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Beverages (Nonalcoholic) industry, and it will provide faster access to the consumers.

Redefining models of collaboration and team work

– As explained in the weaknesses section, Nestle is facing challenges because of the dominance of functional experts in the organization. Nestle can utilize new technology in the field of Beverages (Nonalcoholic) industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.

Learning at scale

– Online learning technologies has now opened space for Nestle to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.

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Threats Nestle External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of Nestle are -

Easy access to finance

– Easy access to finance in Beverages (Nonalcoholic) industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Nestle can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.

Capital market disruption

– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Nestle.

Technology disruption because of hacks, piracy etc

– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.

Increasing international competition and downward pressure on margins

– Apart from technology driven competitive advantage dilution, Nestle can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate Nestle prominent markets.

New competition

– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Nestle in the Beverages (Nonalcoholic) sector and impact the bottomline of the organization.

Environmental challenges

– Nestle needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Nestle can take advantage of this fund but it will also bring new competitors in the Beverages (Nonalcoholic) industry.

Shortening product life cycle

– it is one of the major threat that Nestle is facing in Beverages (Nonalcoholic) sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.

Increasing wage structure of Nestle

– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Nestle.

Stagnating economy with rate increase

– Nestle can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Beverages (Nonalcoholic) industry.

Aging population

– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.

Learning curve for new practices

– As the technology based on artificial intelligence and machine learning platform is getting complex, Nestle may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Beverages (Nonalcoholic) sector.

Instability in the European markets

– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Nestle will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.

Trade war between China and United States

– The trade war between two of the biggest economies can hugely impact the opportunities for Nestle in Beverages (Nonalcoholic) industry. The Beverages (Nonalcoholic) industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.

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Weighted SWOT Analysis of Nestle Template, Example

Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Nestle needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants. We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –

First stage for doing weighted SWOT analysis of Nestle is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.

Second stage for conducting weighted SWOT analysis of Nestle is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.

Third stage of constructing weighted SWOT analysis of Nestle to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Nestle needs to make to build a sustainable competitive advantage.

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