By Bettina Büchel & Christopher Zintel
Nestlé, the world’s largest manufacturer and marketer of foods, has leveraged the Nestlé Continuous Excellence (NCE) program, a continuous improvement initiative based on LEAN and TPM principles, to deliver the “Nestlé Model” of steady, five to six percent organic sales growth. The NCE has enabled annual savings of CHF 1.5 billion.
One of the main reasons for the company’s continued success is the Nestlé Continuous Excellence (NCE) program.
The story of NCE’s inception, rollout and adoption provides lessons to managers who are concerned with performance improvement and trying to enhance abilities in this area by building organizational capabilities and changing individual mindsets.
Seeds of the idea
Nestlé CEO Peter Brabeck advocated moving “from project-driven initiatives to a sustainable, attitude-inspired approach.”
The challenge was to engage everybody at all levels of the organization in everyday continuous improvement to accelerate performance improvement and ensure sustainability. This was where the first seeds of NCE took root.
When José Lopez started in a new role as Vice President of Global Operations, Brabeck gave him a new mandate: “I need you to think about a way to engage people in order to accelerate execution.”
The first thing that Lopez did in his new position was to tour Nestlé operations around the world, looking at different markets for inspiration in already established continuous improvement initiatives.
In Brazil, Nestlé had implemented LEAN Thinking, a management philosophy focusing on zero waste.
In Malaysia, semi-autonomous work teams (SAWTs) – front-line production teams that were empowered to determine their own goals and directions for improvement in alignment with the company and factory goals had been in place.
In Australia, Nestlé had been working in mini business units, which were similar to the concept of SAWTs in Malaysia.
Nestlé US’s Future Manufacturing initiative focused on teamwork – with teams having 100 percent responsibility – and utilizing all talent in the company.
Nestlé Germany’s Aufwind program was closely related to TPM.
In Southeast Asia (the Philippines, Thailand, Japan and Indonesia) quality circles and small group activities (SGA) had sprung up; these groups of employees identified a problem and were given two months to come up with a solution, which they presented as a group, then the best projects were implemented.
The NCE model
After touring Nestlé operations around the world, Lopez developed his vision of the NCE model – a single operating system for Nestlé operations – that built on the best practices already implemented internally around the world.
He argued that having a common model for the entire organization was critical as it would (1) ensure the sustainability of the program independently of changes in management, (2) use one validated set of best practices, (3) eliminate duplication of effort and (4) enable sharing of learning on implementation.
Lopez advocated an approach that went beyond cost-cutting and focused on consumers, quality and safety.
His proposed performance improvement emphasized three areas – “The 3Cs” – of (1) delighting the Consumer; (2) delivering Competitive advantage; and (3) excelling in Compliance.
NCE’s guiding philosophy of “LEAN Thinking – the Nestlé Way” would be supported by five key principles that focused on value creation: “(1) engage our people; (2) understand value; (3) evaluate which activities add value or not; (4) eliminate non-value-added activities; and (5) continuously improve value creation.”
To implement this philosophy, three NCE foundations had to be in place before undertaking any further activity.
The first foundation element was the Nestlé Integrated Management System (NIMS), which served to ensure that health, safety and quality guidelines and processes were in place and complied with to consistently deliver high-quality products and services to consumers in a safe and trustworthy manner.
The second foundation element was Leadership Development, which consisted of three components: success profiles (defining roles and behaviours), talent pool and succession planning (developing the right people for the job), and leadership and coaching. A major emphasis was placed on coaching and empowerment as these were considered essential to engaging people and unlocking their potential.
The final foundation was Goal Alignment, a set of practices that aimed to align employees’ actions with business priorities and to ensure reliable execution of those actions. Cascading objectives allowed everyone to understand the link between the strategy and their day-to-day actions and promoted teamwork. It included several visual elements: an operational master plan, performance measures, reviews, standard routines and basic problem solving.
An operations unit had to demonstrate that it had effectively implemented the three foundations in order to “unlock the gate” and begin TPM. The next step was to optimize manufacturing operations using the seven TPM pillars. All of these elements combined were called the “ONE Nestlé Operating Model.”
Lopez summarized his views on NCE thus:
This is our road map to improve our performance – but it also serves as our new mindset, which will drive ongoing improvement and continuous excellence in all we do. Engaging all our people will be key to this mindset change. This is the power that will take us to the next level as a company – and indeed beyond.
Creating employee engagement
The history of the company was based on autonomy, independence and the entrepreneurial spirit of local operations.
Lopez knew he needed to win people over and obtain their buy-in to ensure a bottom-up employee-engagement-driven common Nestlé program.
While the idea of having one common approach was applauded by many, the concrete implications were not clear.
One manager commented, “It sounds great. But I’m not entirely sure what LEAN, TPM, goal alignment or NIMS really mean.” Others were more sceptical: “NCE? Another quality performance initiative? Sounds like the flavour of the month to me. Wait another three years and there will be a new one.”
As Lopez planned how to deploy NCE, he considered the rollout of GLOBE, Nestlé’s global IT platform, which established common processes, systems and data across the organization. GLOBE had been a top-down initiative that left little choice to markets. He wanted local management to be excited about NCE and actively pull for this new approach. Lopez also realized that GLOBE would be a key engine to drive NCE, because the standardization of processes, systems and data across Nestlé markets would provide the transparency needed to identify improvement opportunities in operations.
In order to gain momentum and rouse employee engagement, NCE was piloted and rolled out across the technical organization in 10 reference factories. Zone managers proposed factories in their regions, who then talked to the technical managers, visited the factories and interviewed the factory managers to assess their readiness. The launch of NCE in a factory began with formally handing over the production lines to the operators. Operators were asked to write down what was wrong with their machines on red slips of paper, which were stuck to the machines. The problems were then quickly corrected. To ensure the shop-floor-level teams took ownership during the weekly operational review meetings, only factory workers were allowed to contribute. Review meetings took place in a reserved space demarcated by a green line that the factory manager was not allowed to cross. Whiteboards were used to list KPIs, which were reviewed during the meetings. Each worker had to write the KPI for which they were responsible. If it was not achieved, the worker responsible had to cross it out and write a new target, in red.
The initial results of the pilot were encouraging: Consumer complaints decreased by more than 30 percent, the Master Schedule Attainment level improved by more than 14 percent, conversion cost reduction was down by more than 9 percent and efficiency was at 90 percent with zero accidents.
NCE beyond operations
As the benefits of NCE became apparent, enthusiasm spread.
But could it be applied to other areas of the business like finance, marketing, IT and human resources?
Some were convinced that NCE could make a contribution outside of operations.
Others had concerns about how appropriate NCE was for different functions:
NCE is a very structured approach, which is good at reducing waste in operations but if it’s implemented in a function like marketing, there is a real danger that it will limit creativity. Not everything can be inserted into a process and optimized using the tools offered by NCE.
The Nestlé board approved the decision to roll out NCE beyond operations. Nestlé then started to introduce NCE – which now touched a third of the overall staff – to the rest of its factory network and into other functions.
Next CEO Paul Bulcke sees NCE as key to the company’s success:
Taking our performance to the next level and beyond will be led by NCE: a long term, permanent approach that will change our mindset to one of ongoing performance improvement. NCE will provide the focus, tools and experiences for all our people to adopt LEAN Thinking the Nestlé way. Starting in Operations and then moving through the group, it will result in zero waste, simplicity and efficient activity – at individual, team, factory and eventually function levels. NCE will build on our past success in performance improvement and change how we act: People will have greater control over their destiny, the consumer’s demands will determine our business and operational responses, and we will increase the distance between our leadership positions and our nearest competitors.
The story of NCE’s inception, rollout and widespread adoption provides the following lessons to managers in other industries looking to introduce sustainable continuous improvement cultures to drive performance in complex organizational environments.
Create your own adaptable model:
In seeking to roll out a global continuous improvement initiative, Nestlé adapted different approaches and techniques – elements from LEAN, TPM, Six Sigma, quality circles and SAWTs – with existing internal Nestlé global best practices in areas such as leadership development, functional excellence and compliance to create the unique Nestlé approach: NCE and “ONE Nestlé Operating Model.” As NCE was rolled out to different functional areas, the flexible base model allowed each functional area to introduce local adaptations. In other words, Nestlé global operations provided each functional area with a plain hamburger and allowed them to add different toppings to suit local tastes.
Start with the foundations:
To succeed in continuous improvement and change initiatives, companies must begin with strong philosophical foundations. Nestlé implemented three foundational elements for NCE – goal alignment, leadership development and compliance – which had to be in place before undertaking any further activity. Goal alignment is of critical importance: During his experience as market head, Lopez developed the belief that, “technical operations has to align with the business strategies.” Goal alignment which linked business goals to operational goals was also key to attaining results early on, as goals were broken down in each factory into clear activities that could be improved in a short time-frame. Having aligned goals for NCE early on, Nestlé then focused on leadership development with an emphasis on coaching and empowerment as well as on compliance, which ensured that health, safety and quality guidelines and processes were in place. The combination of these three elements constituted the foundation of NCE’s success.
Changes will not come quickly:
Many companies believe that continuous improvement will provide a quick fix, but this is rarely the case. Nestlé realized that NCE is a 10- to 20-year journey. Employee engagement takes time and must be based on changing attitudes and behaviours rather than just tools. NCE has its own in-built sustainability and a long-term focus: It was designed as a sequence of steps that took on average between 2 and 10 years to complete. At each step, progress was assessed against milestones to demonstrate concrete performance improvement in waste elimination. The introduction of a gate in the NCE model was not a “one time pass – always pass” gate: monitoring was done on a regular basis. As such, the gate served as a continuous improvement tool but also as a way to slow down quick implementation, which might not be sustainable.
Balance local agility and global efficiency:
A central dilemma facing many large organizations is how to balance the desires for local flexibility and global efficiency. Nestlé is successfully leveraging scale and global efficiencies with GLOBE and is growing more agile and locally focused with NCE. Together with GLOBE, which shows benchmarks of best practices across locations, the methodologies provided by NCE enable Nestlé employees to proactively drive sustainable performance improvement at all levels of the organization.
Multi-level leadership is critical:
A combination of sustained senior management support, strong in-country management and entrepreneurial local talent contributed to the success of NCE. Launching a continuous improvement initiative requires persistence and patience on the part of top management. Additionally, Nestlé realized that it is not just the leadership at headquarters that matters: Local champions, middle management and trained coaches are critical to the increased adoption of NCE throughout Nestlé’s global network.
Encouraging participation and owner-ship is necessary to create a mindset and behaviour change:
Companies can make a big difference in encouraging participation and ownership through continuous improvement.
Nestlé realized that engaged employees feel enabled to perform well, are involved in decision making, are free to voice their ideas and concerns, and are listened to by management at all levels of the organization.
The NCE initiative depends on employees who “go the extra mile” and feel engaged and empowered to pursue continuous improvement in their everyday positions.
About the Authors
Dr. Bettina Büchel is Professor of Strategy and Organization at IMD. She is also the Director of IMD’s Orchestrating Winning Performance and teaches on IMD’s Partnership Programs.
Christopher Zintel is a Research Associate at IMD.
The material is based on the IMD case series: Nestlé Continuous Excellence