management control system at nestle

8/10/2019 Management control system at Nestle

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IIM Indore-UAE Campus

Management Control

System at Nestl

S.A.

Shivam Goyal (2013PGPUAE040)

11/5/2014


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Management Control System at Nestl S.A.

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Shivam Goyal

(2013PGPUAE040)

Contents

NestlAbout company ..................................................................... 3

Group objectives and values ............................................................... 4

Organisational Structure ..................................................................... 5

Role of Top Management ................................................................... 6

Role of a Manager / Team leader in Nestl ......................................... 6

Responsibility Centres ......................................................................... 6

Transfer Pricing ................................................................................... 6

Reward System at Nestl .................................................................... 7

Enterprise Risk Management .............................................................. 9

ERM classification ............................................................................. 10

Budgeting .......................................................................................... 11

References ........................................................................................ 12


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NestlAbout company

Nestl S.A. is a Swiss multinational food and beverage company headquartered in Vevey,

Switzerland. It is the largest food company in the world measured by revenues.

Nestls products includebaby food,bottled water,breakfast cereals,coffee and tea, confectionery,

dairy products, ice cream,frozen food,pet foods,and snacks. Twenty-nine of Nestls brands have

annual sales of over CHF1 billion (about US$1.1 billion), including Nespresso, Nescaf, Kit Kat,

Smarties,Nesquik,Stouffers,Vittel,andMaggi.Nestl has 447 factories, operates in 194 countries,

and employs around 333,000 people. It is one of the main shareholders of LOreal, the worlds

largestcosmetics company.

Nestl was formed in 1905 by the merger of the Anglo-Swiss Milk Company, established in 1866 by

brothers George Page and Charles Page, and Farine Lacte Henri Nestl, founded in 1866 byHenri

Nestl.The company has made a number of corporate acquisitions, includingCrosse & Blackwell in

1950,Findus in 1963, Libbys in 1971,Rowntree Mackintosh in 1988, andGerber in 2007. With a

market capitalization ofUS$233 billion, Nestl ranked No. 9 in theFT Global 500 2013.
http://en.wikipedia.org/wiki/Multinational_corporationhttp://en.wikipedia.org/wiki/Veveyhttp://en.wikipedia.org/wiki/Baby_foodhttp://en.wikipedia.org/wiki/Baby_foodhttp://en.wikipedia.org/wiki/Bottled_waterhttp://en.wikipedia.org/wiki/Breakfast_cerealshttp://en.wikipedia.org/wiki/Dairy_productshttp://en.wikipedia.org/wiki/Ice_creamhttp://en.wikipedia.org/wiki/Frozen_foodhttp://en.wikipedia.org/wiki/Pet_foodshttp://en.wikipedia.org/wiki/Swiss_franchttp://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/Nespressohttp://en.wikipedia.org/wiki/Nescaf%C3%A9http://en.wikipedia.org/wiki/Kit_Kathttp://en.wikipedia.org/wiki/Smartieshttp://en.wikipedia.org/wiki/Nesquikhttp://en.wikipedia.org/wiki/Stouffer%27shttp://en.wikipedia.org/wiki/Stouffer%27shttp://en.wikipedia.org/wiki/Stouffer%27shttp://en.wikipedia.org/wiki/Vittel_%28water%29http://en.wikipedia.org/wiki/Maggihttp://en.wikipedia.org/wiki/L%27Or%C3%A9alhttp://en.wikipedia.org/wiki/Cosmeticshttp://en.wikipedia.org/wiki/Henri_Nestl%C3%A9http://en.wikipedia.org/wiki/Henri_Nestl%C3%A9http://en.wikipedia.org/wiki/Crosse_%26_Blackwellhttp://en.wikipedia.org/wiki/Findushttp://en.wikipedia.org/wiki/Libby%27shttp://en.wikipedia.org/wiki/Libby%27shttp://en.wikipedia.org/wiki/Libby%27shttp://en.wikipedia.org/wiki/Rowntree%27shttp://en.wikipedia.org/wiki/Gerber_Products_Companyhttp://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/Financial_Times_Global_500http://en.wikipedia.org/wiki/Financial_Times_Global_500http://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/Gerber_Products_Companyhttp://en.wikipedia.org/wiki/Rowntree%27shttp://en.wikipedia.org/wiki/Libby%27shttp://en.wikipedia.org/wiki/Findushttp://en.wikipedia.org/wiki/Crosse_%26_Blackwellhttp://en.wikipedia.org/wiki/Henri_Nestl%C3%A9http://en.wikipedia.org/wiki/Henri_Nestl%C3%A9http://en.wikipedia.org/wiki/Henri_Nestl%C3%A9http://en.wikipedia.org/wiki/Cosmeticshttp://en.wikipedia.org/wiki/L%27Or%C3%A9alhttp://en.wikipedia.org/wiki/Maggihttp://en.wikipedia.org/wiki/Vittel_%28water%29http://en.wikipedia.org/wiki/Stouffer%27shttp://en.wikipedia.org/wiki/Nesquikhttp://en.wikipedia.org/wiki/Smartieshttp://en.wikipedia.org/wiki/Kit_Kathttp://en.wikipedia.org/wiki/Nescaf%C3%A9http://en.wikipedia.org/wiki/Nespressohttp://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/Swiss_franchttp://en.wikipedia.org/wiki/Pet_foodshttp://en.wikipedia.org/wiki/Frozen_foodhttp://en.wikipedia.org/wiki/Ice_creamhttp://en.wikipedia.org/wiki/Dairy_productshttp://en.wikipedia.org/wiki/Breakfast_cerealshttp://en.wikipedia.org/wiki/Bottled_waterhttp://en.wikipedia.org/wiki/Baby_foodhttp://en.wikipedia.org/wiki/Veveyhttp://en.wikipedia.org/wiki/Multinational_corporation


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Organisational Structure

As shown in the figure above, Nestl Organisational structure is more of a Hybrid in nature with a

control department headed by Ms. Wan Ling Martello reporting to the CEO.

Nestl has a strict code of conduct for management and control as a part of their one of the ten

principles of business operations.

The risk management department at each global level report to the Finance and control head.

Reporting is done through Enterprise risk management system, whereas Auditing is taken care of

both by internal auditors as well as external Auditing Agency like KPMG.


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Role of Top Management

A Global Risk Appetite is defined by the Executive Board and reviewed and validated on an annual

basis by the Board of Directors.

GRC (Governance, Risk management and Compliance) model acts in accordance with the Risk

Appetite, internal policies and guidelines and external regulations and thus becomes basis of

effective internal controls.

ERM (Enterprise Risk Management) system, created in 2001 to coordinate activities related to risk

management in quality, Compliance, Operations, etc. This system reports to Finance and Control.

The progress id however regularly presented to and approved by general management.

Role of a Manager / Team leader in Nestl

1. As a Leader, he should posses credibility, innovation, risk appetite, alignment of objectives.

2. As a Responsibility owner, managers are encouraged with broad spans of controls along

with clear levels of responsibility to the task owner. As a principle, every team has a leader

who assumes full responsibility.

3. Proactive cooperation

4. Nurturing talent and growing the talent pool

5.

Encourage knowledge sharing with cross team culture

Responsibility Centres

At Nestl , The responsibility lies with the Team Leader/ Manager as stated above.

Transfer Pricing

There are 3 main methods to determine transfer pricing

1. Market based transfer price

2. Cost based transfer price

3. Negotiated transfer price

At Nestl , the transfer pricing is generally followed is Market based transfer pricing, i.e. they choose

to price based on the similar product pricing in the market. When the external price of a service/

good is not available that negotiated transfer price is used between the departments and business

units.


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Reward System at Nestl

The Performance based reward system at Nestl is governed by Nestl Total Reward policy. Nestl

places strong emphasis on the simplicity and flexibility of its Total Rewards programmes.

Programmes may vary within Markets depending on the external environment, government-

mandated policies, and the prevailing tax regime. The specific elements of an employee

remuneration includes

1. Fixed pay

a. Base Salary

It is set based on local surveys, slightly above the median, between the market median

and the third quartile of a comparative competitor.

b.

Cash Allowances

2. Variable pay

To stimulate the entrepreneurship of participating employees and to ensure they are

motivated to perform beyond expectations. The framework is decided at group level and

local market conditions. Employee could only be a part of either one of the scheme

a. Short Term Bonus

Alignment of objectives and Short term bonus payout is based on achievements against

expected collective and individual factors defined in the beginning of calendar year/

performance period.

b. Sales Incentives

Designed for sales staff and/or individuals affecting sales operations in rewarding the

achievement against sales targets. The structuring of the incentive scheme lies with local

markets/ business.

c. Other Variable Remuneration Plans

d.

Special Payments

Non recurring spot bonuses to individuals with extraordinary achievements

e. Long Term Incentives

The LTI Plan is designed and driven by Corporate HR and is a key retention scheme for

top management. It includes Equity and/or Cash based programmes.

3. Benefits

a. Pension and Retirement Schemes

Benefits aim at supporting employees ensuring an adequate standard of living after


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retirement, according to local standards and in addition to State/social security benefits,

personal savings and/or other individual retirement financial arrangements.

b. Insurance Benefits

Insurance benefits aim to provide protection against risks such as illness, accident,

death, and disability with the accompanying financial consequences.

c.

Other

Vacation and Perquisites

4. Personal Growth and Development

a. Performance Evaluation

Performance evaluation measures and recognises individual performance in a fair and

transparent manner. Through performance evaluation, employees know what to focus

on in a given performance year. Whilst WHAT is achieved in terms of objectives is

important, Nestl puts an equal emphasis on HOW these objectives are delivered, by

focusing on some key behaviour that are in line with Nestl values and principles.

Through performance evaluation, employees should also receive honest and regular

feedback in order that they may continually improve.

b. Career and Development

International careers may be made available to appropriately qualified employees, and

create further opportunities for advancement in an employees career. Employee action

plans are implemented to engage employees to perform better, fulfil their potential and

to reach their long-term aspirations, taking advantage of the learning opportunities

available.

c.

Training and Learning

The individual who is responsible for his/her own development; the Manager who

encourages, coaches and mentors that development and the Training and Learning team

who completes the triad by offering learning consulting, products and services to assist

leaders, employees and the business in their quest for continuous improvement.

d. Recognition

encourages the recognition of special efforts for achievements, as well as the loyalty and

long-term commitment of its employees, contributing to the overall success of the

Company.


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Enterprise Risk Management

ERM is a system through which goals and objectives are achieved through Simple and Flexible Multi

Functional teams through self assessment and the responsibility is owned by the team leader.

The process can be defined in the following process

1. Highlighting most relevant business risks and objectives

2. Supporting cross fertilization between different businesses

3. Information hunting and finding relevant information

4. Identifying relevant risks to avoid deployment of high value resources to manage low risks

5.

Keeping the process efficient and pragmatic through functional support


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ERM classification

In order to achieve the following objectives

1. Identification and quantification of tangible (financial, operational, physical, human assets, etc.)

and intangible(reputation, brand image, intellectual property, etc.) risks in a transparent manner

2. Development of a common language for communicating and consolidating risk

3. Prioritisation and identification of where to focus management resources and activity.

Following Assessment processes have been identified

1. Top Down Assessment

2. Bottom Up assessment

Overall Group ERM reporting combines the total results of the "Top-Down" assessment and the

compilations of the individual "Bottom-Up" assessments. The results of the Group ERM are

presented to the Executive Board, Audit Committee and Board of Directors annually. In the case of

an individual risk assessment identifying a risk which requires action at Group level, an ad hoc

presentation is made to the Executive Board.

TOP DOWN ASSESSMENT

The "Top-Down" assessment occurs annually and focuses on the Group's global risk portfolio. It is

performed with all members of the Executive Board and addresses the most relevant risks related to

the strategic development of the Nestl Group. An annual Compliance Risk Assessment is also

performed by the functions represented in the Group Compliance Committee. The individual "Top-

Down" assessments of Zones, Globally Managed Businesses, and all markets are consolidated,

Anticipate(identification

of risks)

Prevent(cross

fertilization)

Plan(information

hunting)

Finance(resource

deployment)


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presented and discussed with the Executive Board. It is intended to provide a high-level mapping of

Group risk and allow Group Management to make sound decisions on the future operations of the

Company. Risk assessments are the responsibility of line management; this applies equally to a

business, a market or a function, and any mitigating actions identified in the assessments are the

responsibility of the individual line management. If a Group-level intervention is required,

responsibility for mitigating actions will generally be determined by the Executive Board.

BOTTOM UP ASSESSMENT

The "Bottom-Up" process includes assessments performed at an individual component level

(business unit, function, department or project). The reason for performing these component level

risk assessments is to highlight localised issues where risks can be mitigated quickly and efficiently.

The timing of these assessments varies, and any mitigating actions required are the responsibility of

the line management of the individual component unit.

Budgeting

Nestl has moved away from conventional Budget to a new concept called Dynamic Forecasting

or a rolling forecasting method.

Dynamic Forecasting starts with the agreement of strategy which is discussed at the top and then

communicated down as a top down process. Once it is approved, it is translated into objectives, long

term and mid-term objectives and milestones.

These forecasts developed helps to show the gap between the target and the estimates both

positive as well as negative gaps. As a responsible manager, one is going to analyse the gap and work


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on it. This also helps to always keep strategy above numbers and some gaps might not be attended

to if new opportunities come up.

Nestl utilizes organisation wide ERP system that helps them to make and consolidate the forecast

at each functional level in the same format.

References

1. Nestl s Annual Report 2013

2. Year in Review report of 2013 of Nestl

3. Corporate Business Responsibility report 2013

4. International Journal of Research in Commerce, Economics and Management(IJRCM) May,

2011 ISSN 2231-4245

5. Nestl Total Rewards Policy November 2011

6. Beyond Budgeting - Breaking free from the annual fixed budget November 1, 2005

www.iioe.eu/fileadmin/files/conferences_seminars/bb_panel.pd

7. www.juergendaum.com/events/FW_Rolling_Forecasting_2007_short.pdf

8. Wikipedia

management control system at nestle

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