CHANGE is a constant challenge in the world of business—but perhaps none more challenging than it has been in recent years.

All over the world, the advent of technology and growing competition for market share have forced companies to change long-established practices and models to be able to survive and thrive.

Such was the case at the local unit of global food manufacturing giant Nestlé S.A.

In a recent interview, Nestlé Philippines Inc.’s former chair and CEO Nandu Nandkishore explained how the firm turned itself from a large, lumbering multinational firm into a more nimble and agile organization, ready to meet challenges of a new business environment.

Radical changes

This just a day before he was to leave for the group’s headquarters in Vevey, Switzerland, to serve as its senior vice president and global business head of infant nutrition.

During the interview, Nandkishore explained that the radical changes in Nestlé had actually started more than a decade ago, thanks to the visionary leadership of its then CEO, and now group chair, Peter Brabeck.

“In 1998, the then CEO basically noted that the Nestlé business model has been successful for 135 years,” he said. “We succeeded around the world as an agro-food converter.”

He explained the company’s business model as such: “We could take agricultural raw materials from one part of the world where there was abundant supply, process them into shelf stable form using technology, and market them in a different part of the world where they were not available.”

Bigger and better

“This technology and access to agricultural raw materials basically gave arbitrage which enabled the successful growth of the company over 135 years,” he said.

Under this system, Nestlé actually invented the technology for the manufacture of everyday food products like sweetened condensed milk, milk chocolate and instant coffee, among others.

“All these things that you take for granted today ... were invented by Nestlé or invented by companies which Nestlé eventually acquired,” he said with evident pride.

But a company cannot remain in an attractive market for very long without attracting competitors that are sometimes even bigger and better in the same field.

Nandkishore said the technology-based, agro-food conversion model that sustained Nestlé for the past century had rapidly become unsustainable as the technology became available in the public domain.

So the question that faced Nestlé a decade ago was how to stay relevant over the next 100 years?

In answer, Nestlé’s bosses had to return to the roots of the company’s mission.

“Nestlé’s mission from its founding was ‘good food, good life’,” Nadkishore said. “It was all about producing products that somehow make life better for people. In keeping with this mission, Peter Brabeck realized that our agro-product conversion model was probably not sustainable and needed to be changed.”

Redirection

Since the company had one of the largest investments in research and development, dollar-wise, among firms worldwide (at about 2 billion Swiss francs or 2 percent of its gobal sales annually), it decided to redirect these efforts into producing the next generation of food products that actually nourish and help make people well.

“If you think of a continuum of products from food all the way to pharmaceuticals, what [Brabeck] was saying was that we need to move nearer to ‘nutraceuticals’ where margins would be higher, because you have value-added R&D,” the Nestlé official said, adding that Nestlé Philippines immediately got onboard the plan.

The second, more challenging part of the journey—organizational transformation—began in 2001.

“In the process of strategic transformation, we had a challenge: We were in a diversity of businesses from coffee to cat food to instant formula to ice cream, and even eye care,” he said. “In each of these businesses, you have competitors that tend to be very focused and very nimble and flexible. Some competitors are global, some are regional and local. Each one ... formidable.”

The challenge for Nestlé was to ensure that its size would not become a hindrance to its growth.

“We had a fundamental choice,” Nandkishore said. “[We had] big scale which could be used for efficiency and low cost modeling, which is one paradigm—the Dell computer paradigm. That works. But then, someone came and said what you need to do to stay relevant is to be the Apple, which is, you need to innovate.

“The question was: Are you going to be the Dell or are you going to be the Apple?” he said. “[Brabeck] basically said we would like to be both.”

To do this, Nestlé broke up the organization to create business units which will function like individual companies. It will be their job to be the innovators, the “transformators,” in the mold of the iconic Apple Computer Inc.

Sizing down

“We’ll break it up from being a supertanker to being a flotilla of small, agile ships with a mother refueling ship whose job it is to have the lowest cost,” Nandkishore explained, using another metaphor. “So you leverage scale and you free these guys to be nimble and agile.”

“When I came here in 2003, the company had already started on this journey,” he said. “What I did was, I went out and preached to everybody Brabeck’s vision [on] why we need to change and how we need to change.”

The new thrust was welcomed by the majority.

“I found that people were very willing to embrace the change,” he said. “I find that Filipinos are very eager to embrace change.”

The result is a revitalized Nestlé Philippines today.

“We have a hundred years of history in the Philippines. That’s a hundred years of momentum. For someone like me, the first thing you realize when you come in is that you owe a huge debt to the generations who came ahead of you—the people who built the company to what it is today.”