Nestle stays tip-top by innovating

  • Business
  • Saturday, 01 Sep 2012

Bright ideas: Vogt showing the creative graffiti on the walls in the stairwell that links all seven floors of Nestle’s office in Surian Tower. He says it is the small and continuous improvement that wins the consumer over.

THE hoo-hah about moving towards an more innovative society may appear up in the clouds to some, but for many multi-national companies, innovation is a down-to-earth key to survival in the tough business world.

For Nestle (M) Bhd, innovation is a must-win battle to stay ahead in the consumer business.

“We must excel, clearly better than the competitors if we want to be successful. Innovation is top on our agenda,” managing director Peter Vogt says. In an environment where margins are getting tighter due to higher cost of commodities and tough competition,

Nestle remains focused on innovation and renovation as well as continuous improvement of its operations and people development to sustain growth.

Vogt says that innovation is not about creating new and out of this world flavours and edibles but “renovation” of existing products to enhance its value to the customer.

“We're actually quite pragmatic about this. Innovation includes renovation, especially in the case of food products because people usually like things they know from early on, like Milo for instance.

“You can't bring in something totally new and expect people to taste it and say it's great. It's different from a new mobile phone. We are very adaptable in the technology aspect butfor food, we are not so because we can only make small adjustments to the taste,” he explains.

For the food business, new innovations are very few and far between. “Mostly, it is the small and continuous improvement that wins the consumer over.”

Given that, Vogt adds that Nestle's strategy is to always maintain focus on its research and development in nutrition and the convenience of consuming its products. Nutrition becomes more important nowadays as consumers are increasingly aware of what they want to put into their bodies.

“Hence, we continue to work on how we can improve the nutritional profile of our products because we have moved from just wanting to fill the stomach to something that gives people energy for the day, makes them feel good and does not have negative implications on their health,” Vogt points out.

Nestle has two ways of looking at innovation; one is for the consumers through innovation and renovation of the end products and the other is through changes in the internal structure via the Continuous Excellence initiative which looks at how the company can improve the way it operates.

“If you think about how we produced 20 years ago and how we produce today, it's vastly different,” he says, “From a production point of view and a logistics point of view, the cost of transport and raw materials have gone up.”

He concludes that innovation is not necessarily related to what a company offers but how it operates throughout the value chain.

Vogt, who hails from Switzerland where Nestle is headquartered, says that innovating internally is important to keep costs efficient. But how does innovation translate onto the financial statements?

He notes that while it is difficult to trace the specific impact from the small changes on products and operations, the company makes sure that whatever new elements it introduces to the market will have to be of satisfactory margin.

“Without innovation and renovation, you don't get growth for your topline but for our bottom line, we have to make sure that the margin that we are getting from these products are good enough and that there is a sizeable volume to sell,” he says.

Vogt says that the various departments under the company have their own targets on how much they can save internally through innovative processes.

Savings opportunities will help the company counter rising commodities prices and contribute to net profit growth.

For its 2011 financial year, Nestle achieved 18% growth in net profit at RM456.3mil from RM386.9mil previously.

Another crucial aspect of bringing innovation to the company is in the pworkforce. Vogt emphasises on the need for organisations to see innovation as an everyday process and the employees need to constantly think about how they can do something more effectively or differently.

As a leader, Vogt's battle is always to challenge the “if things are going well, why do we need to change” mindset of the employees.

“I generally find Malaysians are quite open to changes because they have seen a lot of changes in the last few decades,” he says, comparing the local workforce with those of other countries, especially the developed nations.

“The whole issue with Europe to a certain extent is like that, they have not changed. Things have developed quite well but then they became too static and now the labour market is not innovative enough,” hesays.

Vogt believes that if a company continuously improves and changes its corporate or operation structures, it will not have toterminate the services of its employees.

Retrenching a large number of workers at any one time shows that the company “has not been doing its homework to adapt to situations in the past few years”, he says, adding that “constant evolution prevents big restructuring.”

Besides this, it helps that the younger generation that Malaysia has is more open to change.

While talent is important, the discipline to translate ideas into something tangible and profitable is equally crucial.

Vogt notes that the effort made into fine-tuning and following through with each idea makes or breaks the success of incorporating innovation.

“Discipline (is needed). While innovation has a lot to do with understanding your customers well and then creating something new, to create the perfect product takes a lot of discipline,” he says.

Vogt explains that to make an innovative product work, the process includes consumer feedback to get the right product and cost that allows Nestle to make a margin.

Among the innovations that Nestle has come up with are the Milo Sejuk, a cold water-soluble Milo mix and the Dolce Gusto brewing machine that makes coffee from capsules.

Nestle's has announced a capital expenditure of RM180mil to upgrade its existing plants and setup a new manufacturing site in Shah Alam, which was acquired from British American Tobacco.

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