Evaluate the situation in the article below and identify current or potential problems

INTERNAL ISSUES

Organizational Structure

Nestl operates from a strategic business unit (SBU) type organizational structure as illustrated on the com- pany websites About Us section; Exhibit 1 provides a list of Nestls top executives along with their title. It should be noted that there is one woman (Patrice Bula) among 16 top executives; providing opportunities in upper management for women is an area Nestl should work on improving in the future.

Vision and Mission

Nestl does not use the terms vision or mission, but on the company websites About Us section, the firm clearly states that it is committed to enhancing peoples lives by offering tastier and healthier food and beverage choices at all stages of life and at all times of the day. Nestl prides itself on being ethical and nonnegotiable on quality and safety.

Strategy

Being a global organization, Nestls strategy has always displayed a competitive focus. Their corporate roadmap is threefold.

Nestl has certain operational pillars that include innovation, consumer engagement, and operational efficiency.

Nestl also has certain growth drivers. One such growth driver for the group is in its image transformation from a packaged food company to one that focuses on nutrition, health, and wellness. While it has no plans to stop selling chocolate, coffee, ice cream, and other food products that it is world famous for, Nestl is actively engaged in offering healthier food options to its customers. The firm has the largest research and development budget of any food company and it aims use this to produce healthier and tastier food options, from infant formula to products designed for senior citizens. Nestl has recently reduced the amount of salt, sugar, and saturated fats in many of its products as a means of improving the nutrition quotient, and enhancing other flavors so as to not reduce the taste of these products. One key area that Nestl will focus on improving in December 2015 is its Policy on Marketing Communication to Children. The company will be looking at phasing out their marketing communication in schools and increasing their focus on health and wellness education through various mediums including the televi-sion. Nestl currently has a series running in both Mexico and the Philippines to better target children.

The global ice cream markets growth expectation was to go from $67 billion in 2014 to $71 bil-lion in 2015, with Unilever and Nestl having one third of that market share. However, consumers who are more aware of and concerned about healthy diets prefer smaller treats and niche brands with healthier ingredients to large blocks of ice cream. As part of their focus on premiumization, Nestl is putting up some bulk ice cream businesses for sale, while entering new markets, acquiring start-ups, and introducing new products. Independent brands like the United Kingdoms Judes, Americas Ciao Bella, China Mengniu Dairy, and R&R Ice Cream in Europe are gaining market share. Nestl sells the banana-like Peelin Pops, as well as Hagen-Dazs and Movenpick, but some of its consumer ice cream operations have already been sold. More of its ice cream business, which provides the company about $4 billion of its $95 billion in annual revenue, is likely to be divested. In 2015, Nestl sold its South African ice cream business to R&R Ice Cream. Nestls wants its operations to focus on nutrition and health. According to an analyst at the Swiss private bank Vontobel, Nestl may not want to increase its share in the unhealthy ice cream business.

Nestl also looks at its competitive advantageshaving unmatched product portfolio, research and development capacities, and geographic presencein its roadmap. Expanding on its health and wellness portfolio, Nestl sold its stake in LOral in 2014 and used part of the proceeds to gain 100 percent control of Galderma, the foundation of Nestls subsidiary, Nestl Skin Health. The vision behind this acquisition is for it to become the most recognized company in the skin health category in the world through science-based solutions.

Social Responsibility

Nestl is one of the most socially responsible companies in the world, and has even created an award for businesses that excel in rural development, nutrition, and clean water initiatives. In the 2014 social respon-sibility statement to shareholders, CEO Bulcke stated that at the heart of Nestls corporate strategy is a desire to be the leading nutrition, health, and wellness-company in the world. Nestl has shared 38 com-mitments that they aim to meet before or by 2020, including producing healthier food products, focusing on responsible marketing to children and women who opt to use baby formulas instead of breast feeding, water and other environmental conservation, and focus on human rights and workers rights for employees at Nestl. Although Nestl is doing an excellent job of reducing sodium and sugars in foods, providing direction to farmers and rural communities on how to maintain healthy water systems, and displaying ethical marketing of its products, the firm lacks in opportunities for women in upper management. As of 2014, 25 percent of senior leaders and 34 percent of management were women, but only 1 woman is listed out of the 16 people mentioned in the organizational chart of top management (see Exhibit 1 on page 55).

Nestl solicited the opinions and recommendations of the Bureau Veritas in 2014 to audit its social responsibility initiatives and provide directions for improvements. Bureau Veritas found Nestl was in compliance with all social issues addressed, in particular Nestls work in rural development. Mov-ing forward, a key area for improvement for Nestl would be in developing a clear methodology to quantify the benefits from the firms work in rural development. Currently, Nestl is focusing on case studies of just a few areas where it is working on rural development activities. Bureau Veritas also sug-gested Nestl provide increased disclosure to stakeholders on its R&D programs that are transforming Nestl from a food and beverage business to a health, nutrition and wellness business.

Nestl has received numerous accolades for its commitment to being socially responsible. In 2013, Nestl ranked 3rd among global food providers in the Access to Nutrition Index, which measures firms on a variety of factors such as governance, ethical marketing, accessibility, product labeling, and other parameters. In October 2014, Nestl received a score of 96 out of 100 from the Climate Disclosure In-dex and received a maximum score of 20 from the Carbon Disclosure Project Water. Also in 2014, the Dow Jones Sustainability Index assigned a score of 88 to Nestl, placing the firm second in its industry.

Despite numerous accolades, in August 2015 Nestl was sued in California for allegedly knowingly allowing a Thai supplier that employed slave labor to provide fish for its Fancy Feast cat food products. According to the class action lawsuit filed by the Hagens Berman law firm, Nestl imports around 28 million pounds of seafood-based pet products to the United States through Thai Union Frozen Products PCL. The ingredients in those products have been said to be the result of slave labor. The lawsuit alleges that male individuals are often taken from certain areas in Thailand, Myanmar, and Cambodia, and sold to companies like Thai Union. These individuals work for around 20 hours a day with little pay, and if their work doesnt meet standard requirements they are severely punished. Although protection of human rights is one of Nestls corporate principles, Steve Berman, managing partner of the Hagens Berman law firm, had said that keeping these from the public has allowed Nestl to mislead millions of consumers, who support and encourage slave labor in the production of its pet food without even knowing it.

Research & Development

Nestl has the largest R&D network and budget of any food company in the world, with total R&D expenses of 1.6 billion CHF in 2014 that amounted to 1.8 percent of total sales. Hershey and Mondelez (producers of Cadbury, Nabisco, and other products) by comparison had no R&D expenses listed on their respective income statement in 2014. Nestl has 34 R&D facilities with over 5,000 employees around the world working to provide healthier food options for consumers. Switzerland is the base for almost two-thirds of Nestls research and development. While these expenses are still relatively small in relation to total revenues, Nestl is aiming to transform itself from merely a food company to a health and wellness company. With its strategy to produce healthier food and baby formulas, and to enter into the skin care market, research and development is likely to become of increased strategic importance for Nestl moving forward. In fact, Nestl plans to open R&D centers in the United States for frozen foods, and in Shanghai for skin care products focused on an aging population.

Finance

Nestls revenues dropped marginally in 2014 as revealed in Exhibit 2, but its net income increased 43 percent. Total assets, as shown in Exhibit 3, increased 10 percent in 2014 mostly due to a 10 percent increase in the companys goodwill and intangibles.

Segments

Nestl is well diversified within the food industry with a range, for example, from pet food and skin care products. Exhibit 4 below reveals Nestls 2014 and 2013 revenues over its 7 segments. Note that sales dropped in 5 product categories in 2014, only increasing in the Nutrition and Health Science segment and the Water segment. The year 2014 as a whole was slow for many in the food industry, so Nestls sales are not out of line with industry norms. Nestls increase in Nutrition and Health Science sales is in line with the firms overall strategy of becoming increasingly a health and wellness firm, rather than solely a packaged-food company.

Competitors

Nestl competes primarily in the food and beverage business with 70 percent of operating profits derived from these products and the remaining profits derived relatively evenly between skin care and pet food products. Within the food and beverage business, Nestl finds itself competing with global chocolate giants, Hershey, Mars and others, along with firms such as French-based Danone, European focused Nomad Foods, U.S.-based Kraft, and many more. In the skin care business, Nestl competes with a slew of consumer products firms such as giant Unilever. On pet foods, Nestl competes with familiar competitors such as the world leader in pet food, which may be surprising to some, Mars. Del Monte, along with Procter & Gamble (P&G) are also in the pet food business.