MGT 6640 ORGANIZATIONAL POLICY & STRATEGY

CASE ANALYSIS REPORT

Sustainable Nestle

In 1866, Henri Nestlé a chemist and an inventor, achieved some dramatic results with a milk-
based formula that had been given to a premature baby to help him recover to good health. From
this early and modest beginning, Nestlé has grown to be the largest food manufacturing company
in the world, producing high quality products to suit the testes and needs of the consumers all
over the world. By 2022, the company employed over 276,000 people worldwide.

One of the country branches is the famous Nestlé Malaysia. As of 2021, Nestlé Malaysia has
contributed a total of RM11.6 million towards community relief efforts. 20 percent of the total
production is exported to more than 50 countries around the world directly sourcing options for
Muslim minorities in certain areas. RM93 million spent for COVID-19 operational expenditure
to ease the need of society, including workforce protection efforts. With the total turnover of
RM5.7 billion, Nestlé Malaysia is the biggest halal producer in the Nestlé world. Along with
market capitalization of RM31.47 billion, operating six factories and a national distribution
center, Nestlé Malaysia is one of the pioneers in moving towards total sustainability movement
with the achievement of transitioning to 100 percent renewable electricity for the purpose of
manufacturing starting 1st January 2022. Complete localized, 100 percent of manufacturing
workforce are Malaysians.

History
Nestlé had long recognized the need of diversifying its operation beyond the Swiss
frontier. Nestlé believes, if there is a parallel growth in any country, the company also can grow
over there. It is with this spirit of partnership and enterprise that Nestlé arrived at the shores of
Malaysia in 1912. The first Nestlé office was set up in Bishop Street, Penang. The company, then
called Anglo-Swiss Condensed Milk Company, quickly made progress. In 1939, Nestlé house

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was established in Kuala Lumpur as the headquarters to centralize nation-wide operations under
one roof. With the objective of enlarging a market that it had developed over half a century;
Nestlé through Food Specialties (Malaya) Ltd. opened its first factory in Petaling Jaya in 1962.
This factory locally manufactures sweetened condensed milk, tomato ketchup, chili sauces and
Milo, a chocolate-based beverage. Since then, more factories were set up to produce the varied
Nestlé products both for local and export markets.

In 1889, Nestlé was listed in the Kuala Lumpur stock exchange at an issue price of RM
5.20 each. On 2nd May 1996 and 26th December 2000, the price of the share was RM21.00 each.
Even there was heavy financial crises in south Asian countries, but still Nestle Malaysia
performance in the market was outstanding in the stock market. Under the ASEAN industries
join venture project, Nestle Asean (M) Sdn Bhd was set up. its first factory commenced
operations in 1994 producing Kit Kat and Smarties Chocolates. In October 1994, another
company was incorporated, Nestle Cold Storage (M) Sdn Bhd, when Nestle SA entered into a
joint venture with Cold Storage Malaysia Berhad. This company is the manufacturer and
distributer of Nestle ice cream, pasteurized UHD and dairy products. The last take over was in
January 1996, when Nestle food brought over the local ownership of a yoghurt company –
Sunglo Natural Food Sdn Bhd.

Internal Issues

Mission, vision, and objectives

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“Good food, good life” and “unlocking the power of food to enhance quality of life for everyone,
today and for generations to come”.

Nestlé believes in the power of food to enhance lives. Good food nourishes and delights
the senses. It helps children grow healthy, pets thrive, parents age gracefully and everyone live
life to the fullest. Good food brings us together. Good food also respects our planet and protects
resources for future generations.

Nestlé Malaysia constantly explore and push the boundaries of what is possible with
foods, beverages, and nutritional health solutions to enhance quality of life and contribute to a
healthier future. Nestlé focuses on energy and resources where unlocking the power of food can
make the greatest difference to the peoples’ lives, protect, and enhance the environment, and
generate significant value for our shareholders and stakeholders alike.

Organizational Structure
Based on the organizational chart, Nestlé operates with functional organizational design
where different departments based on work specialization and designated leader assigned to
supervise the related employees. Gender wise, it is fairly balanced.

Adnan Pawanteh Geetha Balakrishna

Executive Director, Business Executive
Corporate Affairs Officer, Foods

Ng Su Yen
Business Executive
Alessandro Monica Officer, MILO
Executive Director,
Technical & Production Tengku Ida Adura
Tengku Ismail
Executive Director,
Juan Aranols Legal & Secretarial
3Chief Executive Officer
& Director Salman Nazir
Executive Director,
 Executive Director,
Sales Yit Woon Lai
Business Executive
Officer, Nestlé
Professional

Craig Connolly Shahzad Umar

Chief Financial Officer & Executive Director,
Director Human Resources

Source: The Org

Nestlé in Society: Creating Shared Value

Nestlé is heading towards greener, healthier, and more sustainable future that could upgrade
our everyday life to be better. Its objective is summarized in the phrase ‘good food, good life’.
“Our objective is to be the leader in Nutrition Health and Wellness, and the industry reference
for financial performance, trusted by all stakeholders”. Due to the dynamic change of the
customers; Nestlé response for a change to thrive itself to be the leader in food processing
industry as well as to add more value to its products by focusing on health, nutrition, and new
pharmaceutical related products for everyday life (Vitamin C supplement for boosting immune
system). Perhaps the phrase ‘everyday life’ is essential and critical for its success; we human can
not live without food and beverages. Thus, waking up in the morning we would go straight to
coffee (preferably Nestlé) then cereal or milo and etc. Nestlé seems to be in our everyday life. It
captures our hearts psychologically with its marketing strategy. So now let us discuss about what
are existing strategies used by Nestlé to capture our heart and mind for its products preference.

Product development and diversification; currently Nestlé tries to answer to new healthy
trends of its consumers by adding what so called ‘value-creation strategy’ which simply means
that the products have more value to customers and right for consumers’ demand. Nestlé
develops new related product lines that are healthier and sustainable for consumers, pets, and

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planet. Nestlé claims to believes in sustainability and longevity for it thrives to help people,
families, and pets to live happier and healthier lives. Therefore, plant-based food and beverage
options are offered to meet the needs of modern-day consumers who are more likely to prefer
healthier choice. The variety range of products offered by Nestlé is also served as market
segmentation strategy which each product would target different groups of consumers ranging
from demographic, geographic and psychological. Though having a thousand of product might
be challenging for the company to respond to rapid change of demand; the company seems to
continue to build a successful diversified portfolio and strives to continuously innovating and
developing new products to meet modern day consumers’ demand.

Hence, it becomes Nestlé’s culture and core principles to center around Creating Shared
Value (CSV). Through CSV, Nestlé strive to create a resilient and sustainable future for all,
including stockholders, employees, customers, and society collectively in adhering the primary
objective. CSV approach is premised around three focused areas where the utmost benefits can
be obtained which are: enabling happier and healthier life for families and individuals,
developing thriving and resilient communities, and stewarding the planet's natural resources for
future generations. To elevate the importance of achieving CSV’s objectives and benefits, Nestlé
aim to set new benchmarks for the industry by incorporating best practices across all operations
end-to-end, be this in terms of compliance standards, corporate governance or strict adherence to
local and international laws and regulations. This is complemented by the Nestlé Corporate
Business Principles (NCBP), which play an integral role in the CSV strategy and will be
illustrated as below.

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Source: Nestlé Malaysia Annual Report 2021

Included in the aspect of CSV, Nestlé also strive to enhance the need of ‘respect’ towards
four main elements in order to adhere to the goal in achieving comprehensive sustainability.
These four elements are explained through respect for ourselves where fairness, integrity and
authenticity starts with ourselves. Next, respect for others where positive interactions will create
mutual trust hence, elevating the collectiveness of efforts to uphold the goal of sustainability.
Respect for diversity, inclusivity in respecting differences comes a long way to the need of
establishing values within societies. Respect for the future, the world will keep on evolving and
future generations are expected to be embraced, for the purpose of positive sustainability.

Building on Nestlé’s global long-term commitment and role in contributing to the

development of the United Nations’ (UN) 17 Sustainable Development Goals (SDGs), global
CSV framework focuses the efforts on three global ambitions across areas with the highest
potential for positive change. This allows Nestlé to ensure continued alignment with the SDGs
and guides in benchmarking the progress against the UN’s 2030 Agenda for Sustainable
Development. Towards this end, at Nestlé Malaysia have honed in on localised initiatives that

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Nestlé believe will have the most value. Complementing this focused approach, Nestlé have
framed our CSV actions and their contributions towards the SDGs as a way to meaningfully
measure tangible results, ensuring that Nestlé Malaysia remains true to their purpose.

Finance
The year 2020 was critical for company in terms of sales growth, gross income growth,
SGA growth, pretax income growth as well as net income growth. Though it was still stable in
2020, the profit after tax was RM186.3m which was 20.7% lower compared with 2019 which
was RM235m. Due to the pandemic when market activities were not as much active and vibrant.
The drop in profits was attributed to factors such as higher commodity costs, an earlier Chinese
New Year in 2020, currency exchange volatility, Covid-19’s impact on Nestlé Malaysia’s out-of-
home business and other expenses concerning of protection in staff safety and ensure the
operational continuity during the pandemic.

Include below are the income statement and balance sheet to highlight the strong
financial position and financial growth of this company.

Income Statement

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Balance Sheet

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 Product innovation and development and accelerating e-commerce platforms seem to be
key ingredients for company’s stability amidst the pandemic. Nestlé have introduced new ‘at-
home focus’ product to the market to meet consumers’ demand in pandemic time and launched
its products in e-commerce platforms such as Lazada, Shopee etc. For instance, it joined venture
with Starbucks to make product that consumer can enjoy Starbucks coffee without having to go
to Starbucks due to lock down. Nestlé is capturing growth opportunities across all channels,
including e-commerce acceleration and the increased demand for home-delivery products – (so
will look at) expanding the range of Nestlé products available for consumers shopping online.
From this, Nestlé uses crisis and turns into opportunities could be good lesson for many other
businesses for it is good strategic planning to stabilize the firm in difficult time.

Market penetration and pricing; to be well known brand Nestlé uses its marketing
strategies which include TV commercial ads and hiring celebrities to promote its products.
Making deal with celebrities and influencers has always been wise strategic decision making of
marketing penetration by Image for influencers and celebrities could bring great impact to the
sale growth. Nestlé is seen everywhere starting from digital platforms and TV commercials
building strong image as well as indoctrinate people to be intrinsically inclined towards buying
its products. As for the pricing, Nestlé claims to produce affordable, safe, and high-quality
nutrition for everyone, regardless of their income level, taking advantage of our long-standing
presence around the world. Nestlé uses various pricing strategy and offers fair prices based on its
market segmentation. Nestlé’s strategy will be to look after its existing customers well, keep
prices low and offer products to win over new customers. Currently, with the pandemic attack
and Russian war that might cause food shortage thus increasing in pricing; Nestlé sets up for the
implementation of its ‘fuel the growth’ strategy which focusing on the efficiency of supply
chain, intensified trade as well as consumer promotions.

Competition
Currently, it is a new trend that many Malaysians shift towards a healthier diet and lifestyle.
The Malaysia government has run several healthy eating campaigns to amplify health concern
trend. Therefore, apart from Nestlé, there are many rivalries that march their way up hoping to be

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on top of the food chain in food and beverage industry, also adapting and developing new trend
of health and nutrition.

F&N (Fraser & Neave)

F&N Fraser and Neave is one of the largest beverage manufacturers and distributors in
region; ‘its aim is to be a leading Asian-based company focused on a balanced portfolio,
comprising food and beverage, publishing and printing’. It is also one of the most successful
brands in Malaysia. F&N is one of the Malaysia’s massive soft drink manufacturers and F&N is
very popular among children and consumers. F&N focuses on innovation for the growth of
product portfolio with emphasis on benefits of healthier ingredients and convenience to the
consumers. Throughout the years, F&N maintain its success by product development, market
penetration, diversification and strengthening its e-commerce presence by launching its online
flagship store. It seems F&N has an aggressive E-commerce strategy which claims to serve
consumer’s ever-changing needs. Similarly, F&N uses big media platform such as
advertisements and tv commercials with celebrities and influencers promoting its products.
However, F&N focuses more on soft drinks and so far, not so many of new entrance which
makes them non-attractive. Unlike Nestlé who focuses on drinks which benefits health and
wellness of the people and has a competitive differentiation as consumers nowadays are seeking
for healthier alternatives.

Dutch Lady

The other competitor of Nestlé Malaysia is Dutch lady; it is a milk industry that produce
dairy products based in Malaysia. The company claims to make milk that is loaded with essential
nutrients and vitamins to meet the dairy needs of Malaysians of all ages. With the mission of,
“Its aim is to nourish every Malaysian’s strength and ability to better themselves with the
nutritional goodness of milk”. Therefore, it is mainly to promotes strong bones and body for
individuals to become stronger due to its nutritional health benefits. The recent product
development and product innovation have been implemented which aim to strengthening its
market share in formulated milk power for children. The new entrance of formulated milk power
contains DHA and many other nutrients targeting consumer in demographic segment as it is for
children category. Moreover, the penetration pricing strategy was used in order to create low
prices products in the market to gain competitive advantage in the market. However, with the

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rising of plant-based trend; Dutch Lady still behind Nestlé regarding product development
targeting plant-based consumers that are growing rapidly in this new era. Also, Dutch Lady does
not offer much of diversification which makes it less in competitive advantage.

The Future

Kuala Lumpur reported on April 26, 2022, revenue of Nestlé Malaysia increased by
17.14 percent in the first quarter of 2022 from RM 175.16 million to RM 205.18 million.
However, it was low in year earlier due to low sales and COVID-19 expenses. This growth target
was hit despite the inclining products and services prices and impact of the prosperity tax.

Nestlé’s quarterly revenue rose 16.91% to RM1.69 billion from RM1.45 billion, driven
by both higher domestic and export sales. The strong performance of both the core food and
beverage business and the out-of-home business under Nestlé Professional benefited from the
increased mobility and reopening of hotel, restaurant and café channels post lockdown.
Compared to the immediately preceding quarter, net profit jumped 83.02% from RM112.1
million for 4QFY21 as revenue rose 16.49% from RM1.47 billion.

Nestlé Malaysia noted, current conflicts between Ukraine and Russia affected business
environment, widespread of inflation in Asia and in the world. This challenge impacted further
prices of available key commodities such as wheat, barley, and sunflower oils.

“We are confident in sustaining growth momentum across the year even if we see
growth levelling down from current high levels in the coming quarters. “Overall, 2022 is shaping
as a year of solid growth in the top line and some pressure on the bottom line as we do our best
to balance the tensions on our cost value chain with internal efficiencies and moderate price
increases,” said the group. Despite the foreseeable hurdles, Nestlé said it aims to continue
leveraging all possible opportunities to drive another year of solid and resilient results while
making meaningful progress in its environmental, social and governance agenda to contribute to
Malaysia’s sustainable progress.

Albeit the group remains focused on delivering high-quality, great-tasting, and nutritious
products that meet the diverse needs of Malaysians, alongside ensuring excellence in consumer

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communications, digital engagement, and in-store activities. Nestlé Malaysia continued to
accelerate the sustainability agenda during the quarter. 100% of the electricity needs now comes
from the green tariff enabled by the Ministry of Energy and Natural Resources in 4Q21 (the
fourth quarter of 2021). Resulting to Nestlé’s share price settled at RM132.90, higher by 0.3% or
40 sent, valuing the company at RM31.17 billion.

Islamic Perspectives
Strategic plan is a road map for organization, where the organization is now, where it wants
to be in the future and how to get there. Therefore, this road map needs involvement of guru of
different fields, especially involvement of head of divisions and managers in complex entities
such as corporations. These experts know what to do and what to be contributed from their side
or division to achievement mission of the organization. Strategic planning is not the job of a
single person due to limited knowledge of a person in all fields especially in complex
organizations. So, when a person has limited knowledge then follow the instruction of Islam in
the strategic planning process as Islam clearly indicated, “ask people who are guru of the field if
you don’t know”.

Al Nahl-43 َ‫فَا ْسَألُوا َأ ْه َل ال ِّذ ْك ِر ِإن ُكنتُ ْم اَل تَ ْعلَ ُمون‬

On the other hand, strategic planning process is a consultation process, how to expand
organization, deliver better services for humanity and profit maximization. Without consultation,
strategic planning process will mislead the organization as Islam also instructed us to consult
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with each other for achieving specific goal. 42:38 ‫شورى بَينَهُم‬ ‫ َوَأم ُرهُم‬.

When the organization made the plan through consultation by involving experts of their own
fields in strategic planning process and the organization agree upon the road map. This means,
the organization reduced the chance to do not achieve its mission. The next step is to start
implementation process by delegating activities to each individual units and personnel and rely
on Allah (SWT) to be successful in yours strive. Allah (SWT) clearly indicated in 3:159

َ‫اورْ هُ ْم فِى ٱَأْل ْم ِر ۖ فَِإ َذا َعزَ ْمتَ فَت ََو َّكلْ َعلَى ٱهَّلل ِ ۚ ِإ َّن ٱهَّلل َ ي ُِحبُّ ْٱل ُمت ََو ِّكلِين‬
ِ ‫َو َش‬

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 Consult them in the matter, when you have decided, then rely upon Allah. Indeed, Allah
loves those who rely [upon Him]. 3:159

There are many hadith as well which emphasis on consultation in planning process such as:

1. Aisha (‫ )رض‬said, “I have not seen a person who would consult in matters more than
the Prophet (PBUH)” Hadith-Tarmidhi.
2. Saahl Ibn Saad Al Saidi (‫ )رض‬reported that the Prophet (PBUH) said, “one who
consults is never deprived and the one who depends upon his opinion is never
happy.” Hadith-Tarmidhi.

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