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Change Is Sweet

When is a Net strategy more than just a Net strategy? When it enables a company to change an entire way of doing business. At Nestle USA, a bid to create the “very best” Web sites has become a vehicle for reinventing a staid, risk-averse culture.

At 10:45 on a recent Friday morning, Todd Manion was busted.

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He and other members of the advertising-and-marketing team at Nestlé USA were meeting with people from the company’s interactive-marketing agency. For 45 minutes, they had been hard at work in a Nestlé conference room. Suddenly, the 6-foot-5-inch frame of Joe Weller, CEO and chairman of Nestlé USA, filled the doorway.

“What’s going on here?” the CEO boomed.

“What’s going on,” Manion replied, “is that we’re having a meeting — “

Weller cut him off. “I understand, but you know the rule: No meetings on Friday after 10 AM.” Then he turned and walked away, assuming that he had broken up the gathering.

But he hadn’t. “I hate to admit this, but I didn’t think he’d come back,” recalls Manion, 37, an e-commerce marketing manager. “We had a lot of work to do. We kept at it.”

A short time later, Weller returned. Leaning through the doorway again, he delivered a succinct message: “I am sincere.”

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It appears that he is. Weller issued the rule a year and a half ago. His goal: to free people up to think about strategy and to set priorities for the following week. Now, for at least a few minutes on most Fridays, he prowls the corridors of Nestlé USA’s 21-story, glass-and-steel headquarters, in Glendale, California, primed to bust in on any “after hours” gathering that he comes across.

“We have way too many meetings,” says Weller, 56, who has been CEO since 1994. “Meetings waste time and sap people’s energy. They slow us down. So far, I’ve been polite about breaking them up. But this year, I won’t tolerate them.”

Weller’s edict is but one very visible tactic in an all-out campaign to remake Nestlé into a leaner, meaner, and ultimately faster operation. And at the epicenter of that effort lies the Internet. The “Internet changes everything” rhetoric of yesteryear may have lost some of its currency, but Nestlé leaders are relying on the Net to help them overhaul much of what the company does — from buying raw materials to processing purchase orders to marketing the roughly 2,000 products that make up its nearly 200 brands.

The buzz phrase “Make e-business the way we do business” has permeated the vernacular at Nestlé. Weller even makes a point of dropping the slogan into a 45-minute conversation. “E-business has become a catalyst for driving change through the whole organization,” he says. “It will make us a lot quicker. It will help us adapt faster. It’s all about speed, speed, speed.”

A year and a half ago, when small, tech-centered companies seemed to own the Internet, it would have been easy to snicker at Nestlé’s lofty e-dreams. Nestlé USA is the largest subsidiary of the world’s largest food company, Nestlé SA — a 134-year-old global Goliath based in Vevey, Switzerland. It makes Nescafé and Nestea, Friskies and Alpo, Toll House cookie dough and Lean Cuisine dinners. The success of these established brands gave rise to a deeply entrenched in-house establishment. Some of the company’s own managers admit that the food giant had become weighed down by an elephantine structure and a risk-averse culture that made it slow, slow, slow.

Indeed, unlike many of the companies that grabbed headlines during the first phase of the Internet economy, Nestlé doesn’t aim to change the world. It just wants to sell more coffee creamer, more candy bars, more “wet” pet food. It aspires to 4% annual sales growth. (The food-industry average is only 2.5%.) But unlike those early-stage Internet companies, Nestlé has real size (17,300 employees), real assets (34 factories), and real revenues ($8 billion in sales for 2000). All of which puts Nestlé on the front lines of the real economy, where Godzilla-sized companies are rushing to blend the Internet into their traditional operations — and finally, fully to leverage their breathtaking scale.

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Size and success continue to pose a challenge for those who want to change Nestlé. After all, even for an Internet evangelist like Manion, old (meeting) habits die hard. But like Weller himself, with his dogged insistence on breaking up meetings, the company keeps plugging away. From the way it builds its Web sites to the way its managers relate to employees, Nestlé appears determined to try, try again until its Net strategy is truly the “very best.”

Dotcom-ing the Brand

Nestlé was slow to embrace the Web: Its first site, CarnationBaby.com, didn’t go live until June 1997. At the time, Nestlé’s Web strategy was basically the same as that of its competitors (including General Mills, Kellogg, and Procter & Gamble) — which is to say that it didn’t really have a strategy. Nestlé simply let its eight divisions concoct their own Web projects, betting that each unit would figure out what works best online. The result: They all did the obvious, which was to dotcom their brands.

“Basically, we took each of our brands, put a ‘.com’ at the end of it, and put it up on the Web,” recalls Nick Riso, 35, who was vice president of national sales before Weller tapped him to lead Nestlé’s e-business initiative. “We ended up with a mixed bag: LibbysPumpkin.com, Stouffers.com, TollHouse.com.” Riso’s brown eyes widen as he talks; his hands are in perpetual motion. His zeal for Nestlé’s Net effort borders on the evangelical. Colleagues have taken to calling him “the Reverend.”

“Excuse me, but CarnationMilk.com is not a go-to site!” he exclaims, warming to his theme. “People aren’t exactly falling over each other to check out canned milk in a dotcom. But what’s clear now wasn’t so obvious two years ago, when every other consumer-products company did the same thing. We all had ‘brand.com.’ The philosophy was ‘Build it, and they will come.’ “

For a while, they did come. Wonka.com, an early Web venture that showcases kid-oriented candies like Gobstopper and Nerds, generated 13,000 hits during its first month, in December 1997. Nestlé executives were elated. But back then, Webheads would hit on just about anything with a URL. Once they logged on to a site like CarnationMilk.com and discovered that there was no “there” there, however, the hits stopped coming. “We quickly realized that we had taken the wrong approach,” Weller recalls.

Even worse, responsibility for Nestlé’s Net strategy fell to its brand-marketing representatives, who gave it a low priority — and for good reason. They were each expected to spend just 15% of their time developing tactics for growing the company’s Web presence. “I knew the person in our nutrition division who was supposed to be devoting 15% of her time to the Web,” recalls Becky Chao, 32, who now directs e-business for confections and snacks, and who was previously the brand manager for Carnation Instant Breakfast. “In fact, she saw the Web as a nuisance. I really couldn’t blame her — not when 85% of her performance evaluation was based on measurements that had nothing to do with the Web.”

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Chao admits that she too was slow to appreciate the Web’s potential. “I’m not an early adopter,” she says. “I didn’t have any vested interest in the Web, other than to see the company excel in this area.” But she is a straight talker. In the fall of 1999, she attended an off-site for gen-X employees that had been organized by a group of Nestlé’s senior leaders. When the conversation turned to the Web, Chao didn’t hold back: “They asked us, ‘How are we doing? Are we at least performing better than our competitors?’ I told them that we weren’t even on the same playing field.”

Indeed, Nestlé leaders were somewhat at a loss over what to do next. So they did something that was pretty radical for a big, entrenched market leader: They conceded that they didn’t have all of the answers, and they enlisted in-house proselytizers like Riso and Manion to talk with people who seemed to be in the know — employees, retailers, consumers, key figures from AOL, Yahoo!, and other Web heavyweights.

“We put a lot of questions to those folks — especially people from the portal sites,” recalls Manion. “We asked, What’s really happening in the marketplace? What are customers telling you? What have you discovered that can help us drive our business?”

A Return on Trust

Nestlé’s Web gurus came back with two big insights. First, brand-centric sites come off as abrasive and obtrusive to jaded online consumers. In a world that bombards them with more and more advertising, Web users instinctively look for beacons of trust and reliability. Second, the Internet has helped transform branding from a one-way lecture into a two-way conversation.

How, then, should Nestlé approach brand-leery, Net-savvy consumers? The answer: Nestlé would invert its entire approach to Web marketing. Instead of putting the brand first, it would put the consumer first. It would treat the brand as a resource.

Nestlé’s new Web strategy focuses on creating sites that help and inform consumers. Each new site draws on a common functionality and a common language, starting with the site name, which incorporates the company’s ubiquitous “very best” slogan: “VeryBestBaking.com” (recipes and cooking tips), “VeryBestPet.com” (advice on grooming and nutrition for dogs and cats), and “VeryBestBaby.com” (what you’d expect).

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Nick Riso pulls a chair up to his PC and clicks on VeryBestBaking.com. Right away, you can see what he and his colleagues have done: They’ve shrunk the brand. The Nestlé logo appears just once, in ant-sized type, on the site’s home page. Replacing the focus on the Nestlé brand is a user’s guide to cooking. Riso’s cursor glides first over “Recipes” (“Hundreds of choices”) and then over “Kitchen Helpers” (“fun stuff for moms & kids”). He clicks on “Sign-Up,” where people can subscribe to an e-newsletter on baking. As a link pops up, he delivers a chalk talk on what this interactive approach could mean for building market share.

“Take any consumer product,” he says. “On average, about 8% to 10% of the people who buy it have a bonded relationship with that brand: They don’t even think about any other brand. Well, in the case of our products, that 8% to 10% typically buy 50% of what we sell. If we can use the Internet to increase the percentage of consumers who are bonded to our products by even a few points . . .” Here, the possibilities leave Riso almost speechless. “Well, that’s just a huge growth opportunity for us.”

The opportunity might be there, but when will Nestlé see a payoff? While the company reports that traffic on its “VeryBest” sites has steadily increased, the new strategy has yet to yield bottom-line results. That’s because Nestlé is shifting its orientation from return on investment to what might be called “return on trust.” Nestlé hopes that positive attitudes toward its informational sites will rub off on its brands — and eventually translate into an inclination to buy those brands. If, however, consumers decide that Nestlé’s sites are little more than elaborate infomercials, this strategy might last about as long as it takes to eat a Nestlé Crunch bar.

But Becky Chao has a ready comeback. “There is no strict ROI here,” she says. “It’s not about whether hits translate into sales. This investment is all about developing credibility and building a relationship with consumers. You can’t build credibility if your site looks like advertising. The relationship is the gold standard, the ideal.”

While Nestlé waits to see if its Internet soft sell will work, the company is putting its muscle into nonconsumer sites, where new efficiencies can result in real returns. Last year, it launched NestléEZOrder, the first direct-to-retailer e-commerce site to be implemented by a major food company. Nestlé hopes that the site will eliminate most of the 100,000 phone and fax orders that it gets annually from mom-and-pop shops, along with the high transaction costs that come with those orders.

Nestlé is also investing heavily in intranet technology. Its HR department, for example, has created a series of two-hour, online training modules that people can complete whenever and wherever they want. Previously, far-flung employees had to fly to southern California to attend training sessions. The company hopes eventually to convert 10% of all meetings into Web-based affairs, thereby saving millions of dollars in travel expenses.

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The next challenge for Nestlé: getting buy-in for all of this change from its own employees. “Putting these technologies into place is the easy part,” says Riso. “It’s much, much harder to get 17,000 people to change their behavior and really incorporate this stuff into their thinking.”

Roll Up the Rugs

“The biggest impediment to change is our own history,” says Rich Vincent, 39, who directs executive development for Nestlé USA. “I hear it all the time: ‘We’ve got 130 years of success. We’re beating the competition. We’ve got great, powerful brands. Why do we have to relearn our whole way of doing business?’ It’s very easy for people to slip back into the old way of doing things. They use the new jargon, but they really don’t adopt the new risk-taking behavior.”

For Weller, the urge to shake things up goes back to 1994, when he became CEO. One of his first initiatives was to create a document that would lay out a common set of objectives for his highly fragmented company. The result was a two-sided sheet of paper titled “Blueprint for Success.” It’s one of those hokey mission statements that most people in most companies ignore. Just consider: The Nestlé USA “vision,” according to the blueprint, is to be “the very best food company in the United States.” But Weller believed that the document could be a blueprint for real change — that it could help unify Nestlé and turn it into a fast-moving, entrepreneurial company.

Still, change was slow in coming. Three years ago, Harvard Business School professor John Cotter met with Nestlé’s leadership team. He asked the 19 executives in attendance to close their eyes and cast a blind vote: Is this team dynamic enough to remake Nestlé into a fast, performance-driven organization? Only a few people raised their hands. “I was a little surprised by that vote,” says Weller. “It showed that we had to learn how to be leaders and not just managers.”

So when Riso pitched his new Net strategy to the leadership team, back in 1999, he found a keenly receptive audience. Weller and his colleagues saw the new approach as a way to throw some accelerant on Nestlé’s smoldering change effort. Instead of creating a separate e-business division, they would make e-business an integral part of every division and every department of the company.

Today, each operating division has an “e-business catalyst” who helps its managers develop its Web presence. Chao, for example, works side by side with brand managers in Nestlé’s confection-and-snack division to create a Web-based strategy for marketing products like Butterfinger and Crunch. Riso works with similar catalysts in each staff area — hr, communications, purchasing — to build out Nestlé’s B2B, B2C, and B2E functions. The goal is to infuse the entire organization with people who are steeped in the Net.

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In the end, big competitors like P&G didn’t force Nestlé to embrace the Internet. Neither did the herd of Internet startups. The push for change came from within. People like Weller and Riso, Manion and Chao saw that e-business could extend way beyond the Internet, way beyond technology. E-business could change everything about the company: change the way it markets, change the way it sells, change the way it relates to its own employees.

And at Nestlé, change begins literally at the top — on the 21st floor of the Glendale office tower. Early this year, workers could be seen rolling up Oriental rugs and removing mahogany desks from what had been the company’s executive suites. They were making way for employee meeting rooms and for temporary offices to be used by telecommuters. Weller and other top executives moved their offices down several floors, in part so that they could work alongside people in the trenches.

“If our initiative is successful, e-business will permeate the company’s DNA and all of our thought,” says Riso. “We won’t need e-catalysts. In the end, the term ‘e-business’ has to disappear. I have to work myself out of a job.”

For now, at least, Riso’s job seems to be safe. Case in point: a recent attempt by Rich Vincent to follow Weller’s lead by busting up a Friday meeting.

“It was 10 AM, and my team was just coming out of a meeting,” Vincent recalls. “There was another manager with his group waiting to use the room, and I half-jokingly told them that they couldn’t come in, because there are no meetings after 10. And this manager looked at me as if to say, ‘You’ve just embarrassed me in front of my entire team.’ “

So did the group turn around and walk away from the room?

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“No,” Vincent says with a frown. “They marched into the room, and they went ahead and had their meeting.”

At Nestlé USA, change is still a work in progress.

Bill Breen (bbreen@fastcompany.com) is a Fast Company senior editor. Visit Nestlé USA on the Web (www.nestleusa.com).