Wednesday, February 13, 2008

Nestlé's CEO to Wall Street: I did it my way

After 11 years at the helm, Peter Brabeck-Letmathe will soon step down as chief executive of Nestlé, the world's largest food company, whose brands include Nescafé, Jenny Craig, Gerber and Poland Spring, San Pellegrino, Stouffer's and Maggi. It hasn't all been plain sailing, as the world economy has had to deal with the Asia crisis, the bursting of the tech bubble and 9/11.

But throughout Brabeck's tenure, Nestlé, which is based in Vevey, Switzerland, has managed to maintain steady growth even as many of its rivals including Britain's Unilever (UN), Kraft Foods (KFT) and France's Danone have stumbled or failed to match its pace. Sales, of about $90 billion, are 50% higher than when Brabeck took over and the company's profit margins have been rising too. In an interview with Fortune, Brabeck - who's staying on as chairman - talks about his record, how he has changed the company, what the new challenges facing his successor are likely to be, and how the conventional wisdom on Wall Street was wrong.

Fortune: The financial community likes to talk about the need for corporations to focus. You've pooh-poohed that as a fallacy. Why?

Brabeck: In the 90s there was a paradigm that only "focus" would lead to operating efficiency. It meant selling off lower-margin businesses and not investing in new markets, so that there would be an instant improvement in EBIT. Almost all of my competitors followed this. But we saw that with focus, there was a danger that you would not be able to get long-term growth. We looked for a different model. We wanted to combine a certain complexity with operating efficiency. That way we could have top-line growth improvement and long-term margin improvement. This is biology - the day you stop growing you start dying. If you focus and focus and focus you will end up in the hands of somebody else.

You reorganized the company to give greater autonomy to business divisions and put in place a big IT platform called Globe that's supposed to tie the whole company together. You've described it all as taking a supertanker and turning it into an "agile fleet of fast boats." Where did that idea come from?

Back in the 1970s (while based in Latin America), I was invited by the Chilean navy to spend two days with them on an exercise. I was very impressed. The frigates went off on their own, and the only centralized structures were one supply boat for fuel, one for food and one for munitions. I never forgot this.

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