Managing Organizational Change at Nestlé: Strategy Analysis

First-Order and Second-Order Change at Nestlé

The most significant first-order change Nestlé experienced was the decision to relocate its executive offices from Switzerland to the United States — a bold yet necessary move given the threat of World War II and the risk of Nazi Germany nationalizing the company, as the Third Reich typically did in occupied countries. The decisions to acquire L'Oréal and Alcon Laboratories are also first-order changes, as both acquisitions had the potential to significantly alter Nestlé's organizational culture (Burrus-Barbey, 2001).

Divestitures and smaller acquisitions consistent with Nestlé's core business represent second-order change and are therefore less impactful on company culture. Additional second-order change events include the more pragmatic and solution-focused approach to defining how information technology (IT) would be used within Nestlé. Consistent with the culture of Swiss-based companies, Nestlé is risk-averse and pursues first-order change primarily when it will augment existing business models, extending the company into entirely new markets.

First-order change is specifically used to create greater opportunities for intelligent, planned growth that builds on the company's core strengths and competencies (Raisch & Krogh, 2007). This conservatism toward first-order changes is seen as necessary for the firm's survival and its position in rapidly expanding global markets, while keeping the core of the company stable and capable of building sustained process-based competitive advantage over time.

Brabek-Letmathe's Incremental Approach to Change

Nestlé's CEO, Mr. Brabek-Letmathe, recognized that resistance to change within his company was strong, and that too many first-order changes could create confusion and chaos across the company's many divisions and departments. Wisely, he chose to minimize major disruptions to operations in order to alleviate undue stress on employees, who often experience anxiety about job security when significant strategic changes are introduced. Employees react quickly and with great anxiety when they do not understand why a major new strategy is being implemented. Mr. Brabek-Letmathe cultivated a leadership style defined by transparency, accountability, and the nurturing of employee ownership of change (Burrus-Barbey, 2001), and as a result is considered one of the most capable leaders in the industries in which Nestlé competes.

Given that Nestlé concentrates on explaining the reasoning behind first-order change decisions to ensure accountability and transparency with employees, it is clear why Mr. Brabek-Letmathe appears so risk-averse. One must respect a CEO who knows his company well enough not to impose too much change too quickly, which could risk alienating the workforce. Instead, Mr. Brabek-Letmathe focuses on earning employee trust through intentional accountability and transparency, ensuring that employees understand exactly why first-order change decisions are made (Burrus-Barbey, 2001).

The fundamental rationale is that by keeping disruptions to a minimum, the CEO ensures higher levels of productivity and profitability over time, while losing less time to confusion generated by unnecessary change. Given the culture of the company, this conservative pace of change is entirely understandable. As explored in change management literature, leaders who prioritize communication and transparency during transitions are far more likely to sustain employee engagement and organizational stability.