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McKinsey: You came to Nestle through its acguisition of Carnation. What differences did you see in the two companies?
Joe Weller: I was with Carnation when Nestle acquired it in 1985. In a way, buying Carnation was an opportunity to jump-start Nestle in the United States. Carnation, at over $3 billion, was almost as big as the whole Nestle US operation. Carnation was highly centralized, tactical, opportunistic, and very short term. We were always trying to do better than the previous year. Carnation had achieved 32 consecutive years of increased earnings at the time of the acquisition in 1985. Nestle, on the other hand, is decentralized, strategic, long term, and willing to invest. Right from the beginning, I thought that if we could marry the two, we would have a winner. My message to our people here is to take the best from a centralized and a decentralized approach to business.
As a result, we have what I would describe as an activity-based approach to an organizational structure. We examine every process that we perform, from the mail room to the board room, and try to optimize it. For employees, this means a mindset of constant change.
Let me give you an example. Three or four years ago, we needed a process to improve purchasing, so we centralized it. We set up a program to help manage our suppliers. Thanks to this program, for example, we went from 43 suppliers of corrugated cardboard to three. When you are a big enough customer, you get beyond just price savings into technological and systems savings. You become a real partner. This is where, we believe, you can get the real competitive advantage.
So we centralized first, but now we have decentralized back down to the operating companies. Because we now have a tested process in place for purchasing, we feel we no longer need to manage it in a centralized fashion. To'to envisage a continuum between centralization and decentralization; then imagine there is a "dot" on the continuum that is constantly searching for the point of optimization. The environment around us is changing so fast that we must constantly adjust if we are going to be efficient.
What advantages does the optimization approach give you?
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