Analyzing Nestlé’s Product Portfolios And Strategic Business Units

Corporation Identification

With the increasing global presence of the companies, there are also increasing number of strategic business units of a corporation. The purpose of this report is to analyse one such corporation which has sesveral SBUs and has an extended global reach. For this, Nestlé has been selected as it has vast global presence and long history. The report will highlight the meaning of various concepts such as corporation, product and service portfolio, strategic business units, product and service lines, revenue, operating environment and strategic direction. The report also describes the insight of environmental factors and four primary factors of sustainable competitive advantage. The major focus of the report is on understandings and analyzing the above mention afctors in relevance with Nestlé.

Corporation

A corporation can be defined as an individual lawful corporate body which is distinct from its possessors. Similar to an individual, a corporation is also entitled to enjoy rights and privileges such as paying taxes, owning assets, hiring workforce, borrowing or lending capital and entering into contracts. The corporation is formed when a number of individuals come together and form a group and act as an individual legal entity (Prahalad and Hamel, 2006).

A product portfolio can be understood as the collection of all the products sell by an organisation. There are several kinds of product categories in a company, to present all those products together, it is known as product portfolio. All the products or the diverse brands in a product portfolio are classified with the help of a BCG matrix (Wever, Boks and Bakker, 2008).

A service portfolio is considered as a service catalogue which comprises of the historical as well as present view of the activities which are related to service. The service portfolio offers adequate information to the end users regarding what all services they are entitled to get. An organisation may provide several diverse services. When all these service are clubbed together, they are better recognized as service portfolio (Kohlborn, et al., 2009).

In the year 1866, the establishment of Nestlé as a Swiss corporation took place with the efforts of Henri Nestlé. Nestlé is one of the largest players in the food processing industry and has a presence of its products in around 197 nations across the globe. The company manufactures approximately 10,000 diverse products and serves an extended customer base.  In the segments of wellness, health and nutrition, Nestlé has a recognized presence (Nestlé, 2014).

Strategic Business Units

SBU or the strategic business unit can be defined as a specific business unit which is a significant part of an organisation. The strategic business unit can be a branch or a can also be a business in itself. There are number of SBUs in any corporation and each SBU is liable for its own market share, growth and profitability. It is basically termed as a center of profit of any company which generates higher customer base and revenue for the corporation (Slywotzky, Morrison and Andelman, 2007).

A product line can simply be explained as a series of diverse products of a similar brand that together forms a group. Under several brands, the organisations have a number of diverse products lines. Increasing the product line is one of the expansion strategies of a company so that the extended range of customers can be served.

Product portfolio and Service portfolio

The service line can be understood as a product line in the service industry. In a corporation, the service line is the grouping of diverse range of services which are related to a specific division of any business corporation. Diverse service lines help in meeting the requirements of extended customer base through multiple services (Laforet and Saunders, 2005).

There are numbers of strategic business units of Nestlé but the most prominent and the vital one is the Powdered and Liquid Beverages stgraegic business unit. This unit offers enormous capital gains and brand recognition to Nestlé. The Powdered and Liquid Beverages SBU includes Nescafé, Nido, Milo, Coffee mate, Nestlé low fat milk, nesVita, Acti-V, etc. All these powdered and liquid beverages have captured a strong market for the company (Nestlé, 2017).

The product line of Nestlé is wide and lengthy as there are around more than ten strategic business units of Nestlé which comprise of thousands of brands. The company serves the customers with vast diversity of products that includes number of liquid and powdered beverages for kids, adults, and women and for athletes. The chocolate and confectionery products attract all customers base irrespective of age, taste or any other factor. Similarly there are other numbers of products in Nestlé’s product lines (Nestlé, 2000).

Revenue

Revenue can be explained as the income or the monetary value generated from the selling of services and goods or by exploiting the assets or capital in other sectors, interconnected with the primary operations of a corporation. The revenues are the total value generated before making any adjustments of the expense or costs beard by the organisation (Talluri and Van Ryzin, 2006).

Nestlé earns a significant portion of revenues from all its business units operating in various nations. In United States, the company has maximum market share, from where it produces around 23.5 CHF billions of sales. Other major markets are Greater China Region, France, Brazil, and Germany and so on (Nestlé, 2014).

From all the strategic business units, the largest revenue generation for Nestlé is by the SBU of Powdered and Liquid Beverages. In the annual report of the year 2014, it has been shown that the highest segment of sales is from this unit only which is approximately 20.3 CHF billion. It shows that the Powdered and Liquid Beverages SBU is the dominant one out of all the units and is the primary source of revenue creation for the company in almost all the nations where it operates (Nestlé, 2014).

Operating Environment

The operating environment is the environment in which a corporation operates or works. At number of places the operating environment is also regarded as the external environment. It comprises of all the outside elements which have their significant impact over the business and the business operations. If the company takes strategic decisions or has any kind of change in the operations, there is essential need to have an overall analysis of the operating environment so that it does not impact the operations in a negative manner. There are six major actors which regulates the operating environment of nay organisation i.e. political, environmental, economic, legal, technological and social factors (Sirmon, Hitt and Ireland, 2007).

About Nestlé and its product portfolio

The political factors help in analyzing the political situation of a country which affects the organisational business. It includes elements such as regulations related to entry odes, government stability, tariffs, taxes and government policies.

The political factors help in analyzing the economic situation of a country. These factors supports in analyzing the fluctuation which occurs in the economy. It includes elements such as change in foreign exchange rate, fiscal or monetary policies, rate of unemployment, credit accessibility, consumers’ disposable income, interest rate and inflation rate.

The social factors support in evaluating the various social factors present in a country which impacts the attitude of a buyer. The social factor provides evaluation of the aspects such as wealth distribution, education level, domestic structure, social lifestyles and cultural implications (Yüksel, 2012).

With the globalization impact, there is rapid technological advancement. The change in technological factor affects the operations and functions of a business in a much deeper sense. The elements that are analyzed in the technological factor include various pioneering technological platforms, rate of technological advancement and new discoveries.

The legislative changes occur from time-to-time. There is setting up of rules and regulations which impact the business in numerous ways. There are certain legal factors which are required to be take care of such as safety and health regulations, patent infringements, competitive regulations, employment and product regulations.

The environmental factors include the location based elements that impacts the operations of a business. There are several climatic changes which have their great impact on a business. The environmental factors includes attitude of people towards the environment, regulations related to energy consumption, laws regarding the waste disposal, weather and climatic conditions and geographical location (Cadle, Paul and Turner, 2010).

The primary business of the Powdered and Liquid Beverages SBU of Nestlé is in the United States which is around approximately fifty percent. Following is the external environment analysis of the Powdered and Liquid Beverages SBU of Nestlé.

The democratic set up of the nation is very robust. It is considered as one of the leading powers across the globe. It shows that the SBU of the company do not have any political threat and therefore it is a sustained factor which leads to long-term sustainability of the company.

The GDP of the US is around $16.760 trillion, it shows that there is well-developed national economy that supports the functional and operational units. Because of the recession, there was downturn in the economy but presently the robust US economy supports the efferent growth of Nestlé.

There is more of aging population in the United States; it impacts the functioning of SBU as there is shortage of labor. But the attitude of the people towards the products is positive irrespective of the age as all types of individual’s are the customer base of Nestlé.

The US economy is one of the most technologically advanced economies in the entire world. Thus, it impacts the operations as Nestlé is required to have continuous technological advancements and innovations in the products of its SBU. This will save the company from competitive threat and the continuous innovations which takes place in the food processing industry (Kemp and Volpi, 2008).

Business Unit Research

There are several regulations and policies in the United States related to consumption and production of caffeine and healthcare. The firmness of the government policies impacts the production of the various products of the Powdered and Liquid Beverages SBU of Nestlé.

There is high concern related to global warming and other environmental issues in the United States. It has high impact upon the production of the good as all the products are required to have positive impact on the environment. There must be no harmful impact upon the nature and the climate. Nestlé focuses on production of highly nutritious elements. Thus, the environmental factors do not impact the successful operations of the Powdered and Liquid Beverages SBU (Kitayama, 2009).

The four factors of sustainable competitive advantage

To achieve sustainable competitive advantages, there is a need of having reliable and significant focus upon the four major factors of sustainable competitive advantage that includes valuable, rare, inimitable and organized. The first factor is valuable; it led emphasis upon the resources of a corporation to be highly competent in nature so that they can offer extensive value to the organisation. The second factor is rare; it means that the resources must be exceptional and must not be easily found in any other organisations, so that the corporation can attain several competitive benefits. The third factor is inimitable; this means that the resources of the capabilities of a corporation must be exceptional and unique in nature so that they cannot be easily imitable and the organisation can mark its uniqueness in the market. The fourth and the last factor are organized; the resources if the corporation is required to be highly organized.  The more the resources are organized; the increased is the sustainable competitive advantages (Cardeal and Antonio, 2012).

There are several resources or factors of the powdered and liquid beverages SBU of Nestlé that offer sustainable competitive advantages to the company. The diverse range of product availability, squat and affordable prices high availability and strong global presence offers sustainable competitive advantages to the organisation. A strong brand such as Nescafe, which is the leader of the coffee industry, also offers competitive parity to the SBU. The variety of powdered beverages offers temporary competitive advantage to the SBU (Shodhganga, 2009).

Strategic Direction

A strategic direction is the course of action developed in a corporation for the rapid and successful attainment of the set goals and objectives. The strategic direction provides guidance or a path to the various organisational strategies so that there can be accomplishment of the organisational aims. They help in providing a future sustainability to a corporation (Kuratko and Audretsch, 2009).

• Responding to specific nutritional needs: It is recommended that there must be development of products which have more emphasis and focus upon the specific nutritional needs of individuals. For example, there are more products in the category of kids and their nutritional values. But similarly, the SBU of Powdered and Liquid Beverages should also introduce products having focusing upon nutritional needs for women, men, adult as, athletes and also individuals suffering from mal-nutrition.
• On-going renewal: There is a need of continuous renovation in the processes and the product so that the diverse needs of the customers can be met.
• Improving operational safety and quality: It is recommended that with the improved nutritional values there must also be increased operational safety and quality, so that there can be no contingency takes palace.
• Online availability: To enhance and extend the market segment of Powdered and Liquid Beverages SBU, there must be increase online availability of the products. This will help in up surging the reach of the products to extended range of customers.
• Untapped rural areas: there is also recommended expansion plan to the Powdered and Liquid Beverages SBU, it will be beneficial for the unit if there is marketing of the products in the untapped rural areas so that new customer base can be target (Nestlé,  2017).

Conclusion 

 From this report, it can be concluded that, a strategic business unit has its major significance in the growth and success of a corporation. The Powdered and Liquid Beverages SBU of Nestlé is regarded as one of those SBUs which offer great competitive advantages and market share to the common. From this report it can also be stated that by having a strong strategic business unit, a company can have greeter band visibility and extended customer base.

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