Earning the Right to Grow
Brabeck had to identify new growth opportunities to realize his goal of 4 percent internal growth.Organic growth in mature markets could only be reached by strengthening Nestle’s innovative capacity . This approach required signifities invesments in the group’s R&D and marketing capabilities. Because Nestle has always been a model of rock-solid accounting,Brabeck intended to generate the massive cash flows required for a large-scale growth offensive by improving the company’s capital efficiency. His strategy was to force the businesses to become more efficient by cutting back on their investment budget. ‘The investment budget is declining.Our efforts must switch to maximizing exising assets ,maximizing capacity utilization and maximizing distribution logistics. Paradoxically , the first task on the road toward achieving the internal growth target was thus to strengthen the company ‘s operational efficiency. Lars olofsson ,the former nead of Nestle’ Europe,explains ‘The real this objective is to generate growth.To reach this objective,however,costs have to be reduced so that we can have more resources that can be used to strengthen the brands ,spur innovation and thus allow us to remain competitive.
Initially , brabeck launched a manufacturing efficiency program called MH97.The objective was to reduce raw material costs and to optimize production processes.Between 1997 and 2002,165 factories wer closed ,which generated saving in excess of CHF 4 billion.MH97 was followed by a program called Target 2004+ that focused on improving performance by creating a regional manufacturing network . The project relied strongly on benchmarking and best practice transfer.By refocusing on a small number of high-performing factories,the program generated saving of more than CHF3 billon between 2002 and 2004. Target 2004+ was succeeded by a program called Operation Excellence 2007 that redeploys many of the prior projects’ concepts. This program’s key objectives are to improve supply chain productivity, optimize planning,eliminate overheads, and reduce product complexity.