In April 2017, Peter Brabeck-Letmathe was appointed chairman emeritus of Nestlé SA. He was CEO of the Nestlé group from 1997 to 2008. He then held the dual positions of CEO and chairman from 2005 to 2008, after which he remained chairman.
Mr. Brabeck was born in 1944 in Austria and graduated from Vienna’s University of Economics and Business with a degree in trade and economics. After joining the Nestlé group in 1968, he spent a significant amount of his career in Latin America before being transferred to Nestlé’s international headquarters in Vevey, Switzerland, first as senior vice president and then as executive vice president and a member of the executive board. He was in charge of Nestlé’s strategic business units, marketing and sales and corporate communications during this time.
Mr. Brabeck also serves as vice chairman of the Board of the World Economic Forum and as president of the Foundation Board of the Verbier Music Festival. He is an independent director of Delta Topco (Formula 1). He served as a board member of Hoffman and Roche, Credit Suisse, L’Oréal and Exxon Mobil Corporation. He was also chairman of the 2030 Water Resources Group, a public/private partnership that he founded in 2008. He received an honorary doctoral degree from the University of Alberta for his work on the responsible stewardship of water resources and has received numerous awards and accolades throughout his leadership career.
On a personal note, I have known Mr. Peter Brabeck-Letmathe and been on a first-name basis with him for almost twenty-five years. At IMD (Lausanne), I was the Nestlé professor of strategy for some ten years, and, in that time, I got to know Nestlé and was given the company’s trust. I believe that this interview will give our community’s members a better picture of the leader behind the myth, the businessperson who had a clear vision for Nestlé and the person who took prudent risks to pursue that vision and had the drive to implement it.
Last, no longer an active member of Nestlé’s organization, Mr. Brabeck stressed that his interview comments express only his opinions and that they do not necessarily reflect Nestlé’s official positions.
Q: An increasing number of companies are promoting the concept of healthy food. Can you please share your thoughts about it?
PBL: Throughout most of the history of mankind, a major concern has been the issue of availability of food, so as to get sufficient amounts of calories. We humans were able to figure out how to improve our own food by having access to fire, thus making food safer and in general better quality. This development is attributed to the fact that we humans developed along a fast-track trajectory compared to chimpanzees, for instance. Our brains’ cognitive development outpaced what our expected height and life span alone would entail.
Now, there is generally enough food per capita, i.e. enough calories, especially in the more developed part of the world. The concern today has gradually shifted to assessing the quality of our food, especially its impact on health and wellness. Increasingly, the focus is shifting towards reducing the calorie content! An evolution is taking place from a scarcity of food to having enough food to having healthier food.
Q: Can you expand on what you mean by the evolution in foods?
Surely! Science has played a major role in the evolution of food. The so-called industrialization of food started some 150 years ago and came to focus primarily on three factors:
To increase agriculture’s yield (mechanization, use of man-made fertilizers, hybrid technologies, good-quality development, . . .)
To ensure that safer food is being produced
To conserve food safely, above all so that it might be more easily transported and stored (Pasteur, for instance, came up with a way to treat red wines from Bordeaux so that they might be transported without becoming vinegar – pasteurization).
Thus, as of the 1990s, a general realization came about: that less calories would be preferable. In all modesty, Nestlé pioneered this development during my tenure as CEO. Indeed, the changes and priorities we made back then have had a fundamental effect on the entire food industry. The industry went from being what we might call a food business to now a nutrition and health business. And life sciences increasingly came to play a central role: to strive for better nutrition and a better life quality (Nestlé’s slogan is “Good Food, Good Life”). As consumers, we are seeking fewer calories, less salt, fewer carbohydrates and relatively more proteins and vitamins.
Q: Hasn’t the desire for healthier foods always been there in the market?
No, Peter, quite on the contrary! This new realization only came about over time. At first, things seemed to be much less clear. Change came gradually, and people had to spearhead the change. History matters!
It became clear that core businesses such as coffee, ice cream and chocolate would still remain core pillars, even after the nutritional upgrading. However, coffee, for instance, became significantly strengthened regarding the antioxidant side, chocolate became darker, etc.
Again—and in all modesty—Nestlé was the first food company within the industry to see the paradigm shift and to go for it in full. Among our competitors, Danone also jumped on this shift in trend almost immediately. Others—such as Pepsico, Unilever and Coca Cola—became early adopters. Gradually, virtually all of the industry followed, but Nestlé was first. Most industry experts estimate that we gained a 4- to 5-year advantage over the competitors!
Q: How do you consider the issue of water, both as a business for Nestlé, and the question of water scarcity in general?
Let me first share with you water as a business. It was my predecessor as CEO of Nestlé, Helmut Maucher, who led the establishment of Nestlé as a world-leading water bottler. He saw a potential long-term lack of clean water, and, in a sufficient amount, it could become a potential threat to several of Nestlé’s core businesses—such as Nescafé, Maggi (soluble soups) and powdered milk. Under his leadership, leading brands such as Vittel, Perrier and Poland Springs were acquired and developed. Under my time, we created Nestlé Pure Life, the world’s most important water brand today, and made many more acquisitions, including San Pellegrino.
Let us now discuss the so-called 2030 Water Resources Group. We had a report prepared by McKinsey & Co. in 2009: “Charting our Water Future.” The report pointed out that, on a global basis, there seemed to be around 20% more water consumed than what was added back in a natural way. The deficit was ameliorated by various unsustainable means such as tapping aquifers (until they were ultimately becoming dried up) and emptying lakes (Aral) or rivers (Rio Grande) or melting glaciers. And the report further pointed out that this problem was likely to become significantly more severe relatively soon, with 40% over-usage in 2030, unless something was done to ameliorate the situation.
The report pointed out that solutions to these problems would tend to be local but not necessarily national. For example, the Nile is a prominent water resource both in Sudan and in Egypt. And the water challenges would definitely not be global, i.e. not analogous to the challenge of limiting CO2 emissions.
Local governments became involved, and initiatives such as the Sustainable Water Initiative and the Hydro-Economic Analytics framework followed.
As of 2019, there seems to be a consensus that the 2030 Water Resources Group has had a significant impact.
Q: What about environmental issues and challenges in general?
In general, our common way of life is far too resource intensive; we humans take from our good Earth much more than what we are able to channel back! We are thus not in a sustainable circular economy. This seems, in particular, to be the case regarding resources such as water, arable land (for farming to support suboptimal food consumption) and mining (especially of rare types of materials such as lithium for the batteries used in electric cars). But more resource-friendly business firms are developing more-sustainable business models such as Airbnb or various car-sharing solutions. However, I do not want to oversimplify. For instance, the advent of the electric car might paradoxically bring with it a particularly serious challenge, namely the scrapping of lithium batteries (exceptionally heavy, and with around a 5-year lifespan only).
Q: How do you see the challenge of creating more meaningful innovation in companies today?
It is a myth that start-ups are more innovative than large companies. We know that many start-ups fail; it is said that, out of 10 startups, eight typically fail, one barely reaches its breakeven and only one becomes a big success. This one big success tends to be the one we hear about. Many of these successful smaller companies do tend to be acquired by larger firms ultimately; however, this contributes to the myth of smaller firms generally being more entrepreneurial than larger ones.
That said, there are of course challenges. In a large company, the risk is real that new innovative approaches might threaten existing established business activities. Thus, the risk is relatively higher that existing revenue might be jeopardized. Nespresso, for instance, was to a certain degree held back at Nestlé for ten years due to concern regarding potential dysfunctional effects on Nescafé sales—the latter being a main business for Nestlé. One of the first things I did as CEO of Nestlé was to allow Nespresso machines at the Nestlé headquarter! In retrospect, we see how unwarranted the fear was; we should only have started earlier.
Often, innovations that involve new processes might meet somewhat less resistance in the sense that there might be fewer cannibalization concerns. For instance, we launched the corporate-wide GLOBE IT system under my tenure. With comparable types of information regarding sales, margins, volumes, production, purchasing, etc., we had a vastly better overview and transparency throughout Nestlé. Nobody could “hide” their own unique information, say, applicable to their own markets! Again, today everyone takes the GLOBE system for granted, but back then, it was a struggle to get it done.
Q: What are the key challenges of so-called new routes to market?
Closeness to the consumer is probably more critical today than ever. Up until some ten years ago, food producers such as Nestlé would find retail chains and distributors between themselves and the customers, many of them powerful and with significant resources. Over the last decade or so, the emergence of Web-based sales and marketing has allowed producers such as Nestlé to establish direct contact with the consumer.
We see a move towards a “bundling” of services where the traditional products may be only a small part. To be able to put together such service/product offerings that the consumers would need and want is likely to become key! What gives value to the consumer beyond the product? Perhaps being able to order a tasty Asian dinner over the Web or a good-tasting low-calorie diet (to counterbalance overeating at lunch) rather than simply buying a Maggi bouillon cube might be the answer!
In my view, it may be hard to time precisely the introduction of such complex offerings on the Web. But it would always be better to be too early rather than too late!
Q: What do you see as the key leadership/management challenges now?
First, let us keep in mind that organizations typically are “flatter,” less hierarchical today than before. This means that organizational structure, in effect, now represents a more networked reality than before! Effective leadership skills will become even more key. Management and managers, on the other hand, will become relatively less critical.
Second, good leadership is built on being able to interpret the future in a reasonable way (some call this strong analytics-based intuition!). But, to do this, the leader must have a good sense of where he/she is coming from—i.e. an understanding of the past, historical insight. Only then can he/she have a reasonably good idea of where one’s industry might be likely to go and be, say, in ten years.
Third—when key questions, problems or challenges come up—the leader must already have thought through the overall vision beforehand, i.e. be prepared to act and not be surprised or hesitant. Only when the vision is clear, and truly only then, might implementation step one be taken, then the next step and so on.
Q: What makes some leaders more effective than others?
Leaders must identify themselves with big challenges and risks, in line with an identified vision. In short, go for it; fight for it!
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The Lorange Network wishes to thank Peter Brabeck-Letmathe for an inspiring and instructive interview.
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