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Application of strategic management tools in the context of Nespresso


Task: Apply the Porter’s Value Chain Analysis to an organisation of your choice and use a diagram to illustrate your answer. Critically analyse the framework and recommend how to improve it. Apply Porter’s Five Forces to an industry of your choice and use a diagram to illustrate your answer. Critically analyse the framework and recommend how to improve it. Apply the VRIO framework to an organisation of your choice and use a diagram to illustrate your answer. Critically analyse the framework and recommend how to improve it. Apply Ansoff’s Matrix to an organisation of your choice and use a diagram to illustrate your answer. Critically analyse the framework and recommend how to improve it. Apply Porter’s Generic Strategies framework to an organisation of your choice and use a diagram to illustrate your answer. Critically analyse the framework and recommend how to improve it.


Question 1: Porter’s Value Chain Analysis


This is strategic management tool that is widely used by organisational leaders across the world. This tool was developed by Michael Porter. The objective of this tool is to help firms enhance customer value and further help them to gain competitive advantage. Moreover, this tool is also responsible for recommending value creation for the customers and relevant profit for both internal and external stakeholders of the firm (Anthony, 2019). This segment of the report aims at applying Porter’s value chain analysis to analyse the activities of a renowned firm named Nespresso. Nespresso is the operating unit of Nestle and is known for selling luxury coffee and espresso machines.

Primary Activities

Inbound logistics

The organisation focuses on sourcing parts that are further used for making the final coffee machine. In recent times, the organisation has initiated “Aluminium Stewardship Initiative.” The objective of this initiative is to focus on responsible sourcing and usage of Aluminium while manufacturing coffee machines (Nespresso, 2023a). This initiative also aims at ensuring sustainable business operations within the workplace.


The production of this company is mainly done in Orbe and Avenches. Coffees are roasted here and capsule packaging is also done at these sites.

It has been estimated that almost 4.8 million people in Britain have their own Nespresso machines (Statista, 2020). The main reason behind such increase in sales is effective and high-quality production of the machines. People are highly satisfied with the quality of the product. Therefore, it can be concluded that effective business operations are responsible for increase in sales of the company.

Outbound logistics

The organisation has made sure to release trucks that reach customers and boutique centres for further sale of the product. Moreover, the managers of the company believe in selling through omni-channel mode. This means both online and offline platforms are responsible for selling these products. Nespresso is listed in Amazon. Once, orders on behalf of customers are places, the machine moves after proper packaging from the warehouse.

Marketing and sales

The company is currently focused on online marketing. The marketing practitioners of the company have made sure to leverage various social media platforms to reach their product among customers residing at different geographic regions. Moreover, the company has designed its own websites. Apart from marketplaces, products are also sold from the website of the company. It is estimated that almost 10.4 million people visit the website of the company. Along with that, 49.48% is the bounce rate of the company (similarweb, 2023). The percentage of visitors who only visit one page of the company is determined by bounce rate.


Innovation is one of the key aspects of the company. Moreover, Nespresso has gained popularity from various parts of the world because it believes in building long term relationship with their customers. The organisation aims at providing high-quality services to their customers and add value to their purchase (Celis, 2020).

Support Activities


The organisation is divided into various departments. These departments include Finance, HR, legal, marketing & sales, operations, and supply chain. These departments are responsible for allocating resources, production, marketing and finally sale of the product.


The managers of this company believe in creating a positive work environment for the employees of the organisation. One of the major goals of the organisation is to inspire and care for their employees. The HRM department of the firm believes in diversity and inclusion. People from diverse backgrounds have been hired by the HR team. Such recruitment policies have further helped the company to get information about diverse coffee varieties (Nespresso, 2023b). This is how HRM activities of the firm is helping it to grow significantly.

Technology Development

Nespresso has collaborated with an AI-powered start-up named Demetria. The main reason behind this collaboration is to leverage technology and sustainable within the workplace and during the time of sourcing (Aubyn, 2021).


Raw coffee beans are procured from different parts Latin America and Africa. These raw materials are further used to manufacture coffee capsules. The organisation has made sure to focus on sustainable sourcing.

Critical analysis of the model

This model is responsible for segmenting strategic activities of an organisation. It not only helps firm to add value to the purchase of the customer but it also directs organisational leaders to thrive in this competitive business environment. Moreover, another major advantage of this strategic management tool is to create as well as sustain superior performance (Jones,, 2019). It has been found that managers who are a part of operation and supply chain department mostly use this strategic tool to make strategic decisions. However, there are few disadvantages associated with the strategic management tool that can create barriers for managers. This is how managers might take ineffective strategic decisions. This tool fails to implement the overall vision or the business strategy of the company. Moreover, this tool fails to speak about the strengths and weaknesses of the firm. This tool is also not flexible. Business scenarios are becoming highly uncertain. However, this tool fails to align with any kind of business scenarios. Thus, it can be concluded that lack of adaptability is another major drawback of the selected tool.


The findings of the report suggest that the value chain of Nespresso has been designed by the strategic leaders of the organisation in order to add value to the purchase of the customers. Moreover, implementation of this tool in the core business activities of the firm also can help the firm gain competitive business advantage.


It is highly recommended to the organisational leaders to analyse the internal capabilities of the firm by using SWOT tool. This is how the managers along with other employees of the firm can understand the process in which opportunities can be grabbed in order to remove any kind of threats.

Question 2: Porter’s Five Forces


The current business environment is highly competitive and uncertain. Thus, in the current scenario, one of the main objectives of the organisational leaders is to thrive in the competitive business environment, gain competitive advantage and increase share in the market. There is no exception in case of coffee industry. Companies operating in coffee industry mainly sell coffee beans, coffee machines and edible coffee. There are various companies like Keurig, Ethical Bean coffee, Nespresso and many more that are operating in this industry. Moreover, Starbucks is one of the largest players in the market and it has focused on developing strategies that can help them to thrive in this competitive industry. This report aims at leveraging Porter’s five forces analysis and applying it in the selected industry.

Bargaining power of buyers

When customers have various options and therefore, they can pressurise the seller to lower the cost of the product it is known as bargaining power of buyer. The power of the buyer mostly depends on the substitutability of costs (Dertwinkel-Kalt&Wey, 2020). In the coffee industry, the power of the buyer is high because there are large players in the market. These players provide high-quality products and have less differentiation.

Bargaining power of suppliers

There are various suppliers who are ready to provide authentic coffee beans. The supply chain leaders of the company therefore have plenty of options. Moreover, there are various companies who are known for producing their own coffee beans. Thus, the bargaining power of the suppliers in this coffee industry is low.

Threats of substitutes

When similar products are available and customers can purchase those products outside the industry, it can be identified as threats of substitutes. It is important to identify such threats to gain sustainable competitive advantage (Hifza,, 2020). Companies operating in this industry often receives threats from their substitutes. Since there are large number of substitutes or players in this industry, therefore, threats are significantly high. Moreover, tea can be identified as one major substitute of the coffee industry. There are many countries where tea is highly preferred over coffee and coffee is consumed occasionally. Moreover, various other local beverages can also be marked as substitutes of coffee.

Threats of new entrants

When new companies enter the industry, it increases the intensity of the competition. This can be identified as a threat. In the coffee industry, threats from new entrants are high. The process of entering in the coffee industry is smooth and leaders can prevent themselves from encountering challenges if they develop effective market entry strategies. Moreover, the capital requirement for starting a coffee business is not massive. Therefore, leaders often choose this sector to start their new business.

Competitive rivalry

The coffee industry is growing at a significant rate. However, the industry is facing intense competition because the number of players in the market is increasing. Starbucks is currently leading the coffee industry. Moreover, there are major players in this industry that includes costa coffee, Caribou, and many more. These industries are also generating significant amount of revenue (Adamkasi, 2020). The financial strength of most of these companies are extremely high and therefore, they are providing intense competition to each other. Thus, from the above discussion it can be found that leaders who are trying to enter in the coffee market should focus on developing effective differentiation strategy. Such strategy can further help them to thrive in this competitive market.

Critical analysis of the model

Profit optimisation and cost reduction are major goals that are formulated by managers of all the industries across the world. Porter’s Five forces model is widely used by industry leaders across the world because it helps them to understand factors that can ensure profits. Moreover, this model help managers to understand the condition of the market and whether they should currently enter in that market. This model also guides managers in developing competitive strategies. Thus, it can be concluded that application of this analytical model can help managers of the firm get an overview of the competitors within the market. However, this model can sometimes be ineffective. When Porter developed this model, he considered each industry to be same. Moreover, the model was developed without considering uncertainties within the industry. These are primary limitations of the model. Furthermore, this model has been developed by not considering the development in technology (Isabelle,, 2020). This is how application of this model in ensuring firm’s profitability might not help managers in the most significant way.


The aim of this task was to analyse coffee industry with the help of Porter’s five forces model. The findings of the task suggest that there are large number of players in the coffee industry. Moreover, substitutes of coffee like tea and other local beverages are also increasing. Such increase in substitutes is further increasing the bargaining power of buyers. Furthermore, there are large number of suppliers in the coffee industry. Industry leaders can choose from wide range of suppliers. This is how the bargaining power of suppliers in coffee industry is becoming low. The critical analysis of the model has also been done. This critical analysis suggest that Porter’s five forces is responsible for helping managers develop competitive business strategies. However, this model has been developed by not considering business uncertainties and changes in technology. This has been identified as the major limitations of the selected model.


It is highly recommended to the managers of the organisation to analyse the importance and impact of technological development. The process in which innovation and technology can be leveraged to initiate new product/service in the market should be thoroughly analysed. This can help the firm understand the change in the needs and desires of customers. This is how porter’s five forces can help leaders of firm analyse competition in the market and the process in which competitive advantage can be gained.

Question 3: VRIO Framework


This is a strategic framework evaluating resources and capabilities of an organisation to determine which of these resources or capabilities help in gaining sustainable competitive advantage in the market (Miethlich& Oldenburg, 2019). This analysis takes place based on the four criteria of valuable, imitability, rarity and exploitation by organisation. VRIO framework has been applied to Nespresso for evaluating its resources and capabilities based on these four stated criteria.


Valuable- Nespresso comprises of adequate financial resources that are highly valuable for making significant investments, gaining market opportunities and responding to external threats (Chatzoglou, et al., 2018). Its highly differentiated local food products have also high perceived value for attracting potential customers. Nespresso also consists of highly trained workforce, patents, trademarks and copyrights and strong distribution network as valuable resources.

Rare- Furthermore, strong financial resources are rare as they are comprised by only top firms of industry. However, local food products can often be substituted by rival firms. Employees and their skills, expertise and knowledge are also infrequent and unique to the company alongside patents or trademarks that are hardly available in the market (Nespresso, 2023c). Its strong distribution network is also a rare resource that are difficult to find in other firms in the market.

Inimitable- Other firms find it costly to imitate the strong and significant financial resources of Nespresso as they have been acquired with years of operation and experience. However, rival firms or new firms can easily imitate its local food products or substitute them with their alternative products. Employees’ skills and expertise can also be imitated through proper training programs or hiring them in rival firms (Clarke, 2018). Nevertheless, patents or trademarks cannot be imitated as it legally impermissible. In addition, competitors also find it highly costly to imitate the strong distribution and supply chain network of the company.

Organisation-Nespresso has organised financial resources that enable it to capture value by making right investments, exploiting market opportunities and minimising threats or competition. However, patents are also fully being used by the company, thus, making it an unused competitive advantage. On the other hand, its efficient distribution network is also highly organised that enables the firm to cater to large number of customers in the global market (Miethlich& Oldenburg, 2019).

From the above table, it is clearly evident that two resources or capabilities, namely, strong financial resources and efficient distribution network have passed all the four criteria of valuable, rare, inimitable and organised. Thus, they help in providing sustainable competitive advantage to Nespresso in the market.

Critical Analysis

VRIO framework is helpful for analysing the unique value gained from some specific resources or capabilities of an organisation by identifying its strengths and weaknesses. This is a strategic tool that helps in analysing the internal environment of a firm by assessing its resources based on four definite criteria (Knott, 2015). Such analysis helps the firms to understand which resources or capabilities they can further build on for ensuring sustained competitive advantage in the market. This also becomes useful for enhancing the organisational capability of staying ahead of competitors in the market. VRIO tool helps in identifying opportunities or threats, determining sources of competitive advantage, reducing operating costs and increasing efficiency of the firms (Ariyani&Daryanto, 2018). Thus, it is useful for proper allocation of business resources through identification of necessary or unique features that can lead to firm’s success.

However, it is rather difficult to define or ascertain a specific set of resources only that can provide sustainable or universal competitive advantage to the firm, which is the main assumption under VRIO framework (Ariyani&Daryanto, 2018). This framework can also be criticised as it fails to explain the differences in company performances or how resources and capabilities can be built or managed for gaining competitive advantage. VRIO framework becomes weak when comparing performance of managing resources or capabilities between two or more firms is required. Besides, the market is constantly changing, which makes it impossible to claim that identified resources or capabilities can provide long-term competitive advantage (Ariyani&Daryanto, 2018). In addition, it also ignores the shifts and changes in market demand that interferes with resources or capabilities usage.


This task has applied VRIO framework of Nespresso to find out that financial resources and distribution network provide sustained competitive advantage to the company. In addition, various strengths and limitations of this strategic tool have also been pointed out in this analysis. These limitations have been suggested to be improved through various other specific suggestions.


VRIO framework can be improved in a number of ways. Instead of focusing on sustained competitive advantage, the tool can emphasise how some specific resources or capabilities provide competitive advantage over competitors in the industry. Furthermore, it needs to take into consideration where external factors such as market demands or shifts, changing consumer behaviours, technological advances, government intervention and others that can prevent firms from utilising their resources or capabilities. Besides, the framework can be modified by adding criteria like contributing to firm’s performance to assess the resources and capabilities. This can help in comparing the management of these resources between two or more firms based on both the parameters of competitive advantage and improved performance. Instead of specifying the set of resources or capabilities, these can be classified under various groups or departments like human resources, marketing and sales, finance, advertising, supply chain and others that are essential for the operation of firms. In addition, it also needs to explain about managing of these resources or capabilities so that they can contribute towards competitive advantage.

Question 4: Ansoff Matrix


The purpose of this task is to apply Ansoff Matrix to the chosen organization Nespresso, analyzing this strategic framework and providing recommendations for improving it.Ansoff matrix is considered as a strategic planning tool providing a decision matrix for developing strategies for growth and diversification (Khajezadeh, et al., 2019). This strategic planning tool provides options of selecting four main strategies that can be undertaken based on their current performance. These strategies are market penetration, product development, market development and diversification. Ansoff Matrix has helped in identifying which strategy Nespresso has been using and the reasons behind using it while discarding the others.


Market penetration- This strategy involves increasing the sales of existing products in the existing markets (Clarissia, 2020). Nespresso focuses on penetrating existing markets with its coffee products by ensuring high quality at every step. This extensive focus on maintaining quality and sustainability of the products enable it to retain existing customers and increase sales from these markets (Nestlé Nespresso, 2023). Manufacturing of high-quality coffee alongside other coffee machines help in increasing their productivity and managing farms in a sustainable way. This enables them to increase the sale of their existing products to the customers and develop a strong and loyal customer base in the market.

Product development- It refers to the strategy of introducing new products to the existing and new customers of the same operational markets. Nespresso undertakes this strategy for increasing its competitiveness in the market and achieving new customers. NespressoMomento machines received new low touch and touchless functionalities that helped in ensuring safer coffee moments at every office during the pandemic outbreak in 2020 (PR Newswire, 2020). Nespresso also created a paper-based capsule compostable at home for delivering high-quality coffee to the consumers. This new range of products have been enabling customers to enjoy sustainably sourced coffee (Nestle, 2022).

Market development- This refers to the strategy of entering new markets for providing the existing products or services for earning more revenues (Khajezadeh, et al., 2019).Nespresso undertakes this strategy as well for expanding its business and gain more share in the global market. For example, it decided to expand its business by entering new markets of three continents during the year 2016. It opened up a Nespresso boutique in Bangkok, Thailand. Another boutique was established in Bucharest, Romania for providing unique brand experiences to the consumers (Nestlé Nespresso, 2016). Nespresso has also been increasing its market presence in the African continent for taking advantage of the rising demand for high-quality specialty coffee.

Diversification- This is the strategy where firms enter new markets for offering its new products and services (Clarissia, 2020). Diversification is the riskiest strategy out of these four strategic options. This can be either unrelated or related diversification. Nespresso has undertaken related diversification strategy for entering the Thai or Romanian markets. It focused on opening up a boutique in Thailand for offering its highest quality coffee machines that are both stylish and easy-to-use alongside personalized services to the customers through its Nespresso club membership (Nestlé Nespresso, 2016). This was developed based on the specific needs and tastes of Thai customers.

Critical Analysis

There are various advantages and disadvantages of Ansoff Matrix’s application to an organization. It is an effective tool for providing various strategic options to ensure growth and diversification of firms. One of the most significant benefits of using this strategic framework is that it displays increased or decreased risks of choosing one strategy over other (Lasserre, 2017). This helps managers in undertaking decisions regarding those strategies that would be most suitable for their firms. Ansoff matrix helps in collaborating and understanding various strategic options by providing a visual representation of them. It becomes useful for product-oriented businesses. It is a simple and easy tool to use that helps in analyzing risks of different strategic choices. Thus, it makes observing all possible alternatives together that helps managers in undertaking effective decisions.

However, there are certain limitations associated with the application of Ansoff Matrix. This framework lacks flexibility and agility, which makes it more useful for industries instead of arenas. It ignores the fluctuations or changes occurring in the market, which can make it challenging to use such strategic options in the short term. Ansoff matrix further ignores the fact that both market development and diversification strategies require change based on everyday business and specific customer requirements (Henry, 2021). It remains as a theoretical model and fails to take into consideration various activities of competitors.This shows that competitors are completely ignored under this model and strategies are only formed based on company’s products and market. It is also difficult to make any accurate predictions about unforeseen events as the model only takes a demographic view of the entire market. No cost-benefit analysis is undertaken about any of the strategies, thereby creating confusion about which strategy becomes more beneficial for a firm (Henry, 2021). In addition, it becomes difficult to analyze the impact of any of these strategies in the long run.


This task focused on applying the strategic tool of Ansoff Matrix on the selected company Nespresso. For this purpose, it has been reviewed how Nespresso uses each of the four strategies of penetrating existing markets, developing new products, entering new markets and diversifying. Findings have suggested that the firm has been successfully using these strategies for ensuring its growth and diversification in the global market. A critical analysis of the Ansoff matrix has also been carried out by pointing out its strengths and limitations. Based on this analysis, recommendations for improving this strategic tool have been provided.


Ansoff matrix can be improved in several ways. It must take into consideration the activities of the competitors and accordingly, devise the strategic options for firms. Furthermore, various external factors should also be considered here for making the model more realistic. In this regard, it is important to include consumers’ behavioral changes, their preferences and experiences for devising more effective strategic options of growth and diversification. In addition, risks and benefits associated with each of these strategies must also be clearly stated, thereby making it easier for firms to select them.

Question 5: Porter’s Generic Strategies


In the 21st century, business environment is constantly changing. Technological changes, political instabilities, economic fluctuations are major reasons behind such changes. Apart from that the needs, tastes and preferences of customers are also changing. Therefore, R&D team of various firms are trying to innovate products or services and launch them in the market. This is how organisational leaders are focusing on gaining competitive advantage. There is no exception in case of Nespresso. This report aims at applying porter’s generic strategies to the business activities of Nespresso.

Porter’s Generic strategies

The objective of this strategic model is to demonstrate the process in which a company can gain competitive advantage across the market scope that is chosen by the company. There are 4 different components of this competitive strategy.


When the company focuses on differentiate its products or services from other players in the market, they tend to launch differentiation strategy. An organisation can optimise their profitability by reducing cost or by initiating differentiation (Maulana,, 2019). This strategy is leveraged by the strategic team of the organisation. Nespresso has not only focused on innovating the business model in order to differentiate their product from other players. The manufacturing team of the firm have made sure to manufacture a machine that can make 3 different types of coffee. It includes filtered, espresso and instant. Previously, espresso coffee machines were very costly. Nespresso reduced the price of their product and made the process of making espresso affordable (Geenhuizen, 2019). This is how the managers of the firm have made sure to understand the preferences of customers and launch unique products in the market.

Cost leadership

When a company seeks large scale production abilities and reduce the cost of production it is known as cost leadership technique. This strategy is not followed by the strategic team of the organisation. Leaders who adopt this strategy focuses on innovating new ways to reduce costs of production in order to optimise profit. However, managers and other members of Nespresso believes in providing high-quality products to their customers. The leaders of the firm focus on satisfying the needs of coffee lovers (Nespresso Professional, 2023). Thus, managers and other senior leaders of the firm are focused on satisfying customers. They are also empathising on brand building. Moreover, cost-leadership strategy also contradicts with the core business goals of the company.

Cost focus

When customers are attracted by company leaders only based on the price of the product it is known as cost focus strategy. This strategy is also not implemented by the leaders of Nespresso. Nespresso have made the process of production of espresso affordable. However, the company is not attracting customers by marketing the price of their product. The leaders of the company believe in product quality. They are sourcing coffee beans from different parts of the world to manufacture coffee capsules to intense coffee lovers. This is how the company is not only focused on cost but also on production and quality of products.

Differentiation focus

When the leaders of a company focus on narrow market coverage it is known as differentiation focus. There are various organisational leaders who tend to choose this strategy if cost leadership or differentiation strategy fails to bring effective results (Ali&Anwar, 2021). Nespresso has not yet adapted this strategy. The differentiation strategy that has been implemented in the core business operations of the company is helping the company to optimise their production. Moreover, this strategy involves increased cost and inconsistency. Such inconsistencies can lead to major failures within the business.

Critical analysis of the model

This model is widely used by industry leaders from different parts of the world because it helps them to choose a component that can be aligned with the current business situation. There are various new players who are trying to enter in to the market. These new players or new entrants can make any industry highly competitive. This is a strategic management tool also helps to create entry barriers. Finally, this is a strategy that help an organisation to optimise profit by launching new products/services in the market or by reducing cost of production. However, this model has also been criticised by various players in the market. This strategy can be aligned well with large companies by Nespresso but small companies find it difficult to choose the correct strategy included in this model. Finally, this strategy also guides organisational leaders to invest in R&D activities. Such activities can only help the firm to launch differentiated products in the market. Thus, investments become high when this strategic model is implemented by strategic managers of firms.


This task aims at applying Porter’s generic strategies in the core business operations of Nespresso. The findings of the task suggest that Nespresso is leveraging differentiation strategy to gain competitive advantage. The leaders of the firm are making sure to provide premium quality coffee machines at an affordable price. Moreover, coffee lovers can make 3 types of coffee in one machine. Such unique and wide range of features are attracting coffee lovers to buy their products. This is how Nespresso is gaining competitive advantage and is increasing their share in the coffee beverage industry. However, it has been recommended that usage of Porter’s generic strategies involve lots of investment that can often have an impact on the productivity of the firm.


The components of this framework are too generic and can often become misfit for the real-world scenario. Therefore, it is recommended to the organisational leaders to choose hybrid model strategy. Hybrid model strategy can help managers launch differentiated product in the market at an affordable price. This can be done by increasing the manufacturing capabilities of the production department of the firm. Moreover, industry leaders are also recommended to research thoroughly before making any major decisions. In-depth research is recommended because it can help them to understand uncertainties or problems in the market.


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