Nestle SA (based in Switzerland) this week is expected to name CFO Paul Polman as its new CEO, according to numerous media reports. [Update: Oops. They picked Paul Bulcke instead. The challenges below remain relevant.] So what’s the situation that the new CEO faces? Here are some clues, gleaned from various articles in The Wall Street Journal:
Problem: Nestle is the world’s biggest food company (2006 sales of $78.6 billion) but lags the industry in profit margin (13.5% on food).
Problem: An acquisition binge — from Dreyer’s ice cream and Ralston pet food to Jenny Craig weight-loss programs and Gerber baby food — has produced a company so big that it’s unwieldy and sluggish. Weak divisions are being put on a “value destroyers” list (ouch!) that’s reviewed by the executive committee at monthly meetings.
Problem: Too many unprofitable brand variations. Current CEO Peter Brabeck discovered last year that the food maker was churning out 130,000 variations of its brands, and 30% weren’t making money. So he pushed to jettison weaker brands.
Problem: Organizational complexity; the org chart is a thicket of arrows, boxes and subsidiaries, which are being pruned.
Future decision: Whether to buy the rest of consumer-products titan L’Oreal SA (Nestle already owns 29%).
Innovation: Brabeck appointed a new head of innovation (Werner Bauer) and told him to be pickier about which ideas to pursue. The CEO now tracks Nestle’s 10 most promising innovations at monthly meetings. Bauer has slashed the number of new projects by about half.
Technology: CEO Brabeck hopes to finish one of his biggest projects: implementation of a modern ERP system (from SAP AG). The project started in 2002.
Polman’s challenge: Having “already gone after the low-hanging fruit, he could have a tough time squeezing more growth out of the huge company.”