Analysis of the Strategic Issues Undertaken by Pepsi Co from 2008 - Case Study Example

? International Business Table of Contents Table of Contents 2 Introduction 3 Methodology 4 Main Findings 5 Conclusion 12 Recommendations 13 References 14 Introduction PepsiCo Inc. is basically a food and beverage corporation. The organization is headquartered in New York, USA. Pepsi-Co was formed in 1965 with the merger of Pepsi-Cola Company and Frito-Lay, Inc. Pepsi Co has expanded itself in the broader segment like snacks, foods and beverage items. Pepsi-Co established itself as a global organization gradually. From November 2007, it announced changes in its organization structure and in 2008, it implemented those changes. Pepsi-Co manufactures and sells a large variety of grain -based snacks, sweets, beverages, convenient food items. Pepsi-Co is trying to reduce the negative environmental impacts by taking optimal decisions in the scientific packaging, water, energy initiatives. From the fourth quadrants of 2007, Pepsi-Co announced a new organizational structure which is implemented in 2008. The three businesses have been added in the changed organization structure. 1. PAF- Pepsi-Co American Food including FLNA, LATIN AMERICAN SNACK BUSINSS called LAF, QFNA and also including their Gamesa business in Mexico. 2. Pepsi Co American Beverages (PAB) includes PBNA and also the others Latin American beverages. 3. Pepsi Co international which also includes the other PepsiCo business in Middle East and Africa, UK and Asia. In the first quarter of 2008, six segments were followed for 3 businesses. FLNA LAF QFNA PAB Middle East, Asia, Africa. UK & Europe. The scope of the study depends on the success and fulfilment of the objectives. The objective of the report is to analyse the strategic issues undertaken from 2008 including the organizational development issues and integration of the functional strategies of the business, the analysis of corporate culture and a sustainable competitive situation analysis. Methodology The methodology used here is qualitative research. The analysis is based on qualitative analysis and not quantitative analysis. The analysis is not based on the computations of mathematics; it is the judgmental analysis of the environment. The report does not include any mathematical calculation and it requires the delivery of the report in the same way. The qualitative research analysis is sourced from primary and secondary data analysis. The primary data comprises of first hand data which is collected directly from the field. For example, sample survey, population survey. But secondary research is the second hand research. Books, Magazines, Journals, Reports are the examples of the sources of secondary research. The research report in this case comprises of secondary research because primary data collection is time consuming and costly. Main Findings Strategic Management Pepsi Co. applied the diversification strategy as a part of the movement of organizational structural change. The strategic diagnosis can be done with the analysis of external and internal environment. In the changed scenario, the Market trend is as follows: Popularity of diet food items is on the rise where the calories used is low and market for non-carbonated beverages. Second dimension is on great –tasting, various flavours and styles. The consumer perception in this dimension has changed a lot. Consumer prefers the ready to drink and ready to eat products than other traditional food products and for this reason Pepsi also introduced some products under this product line. Consumer does not only limit themselves between the local brands but they want to have the flavour of global branding. PESTEL stands for Political, Economic, Social, Technological, ecological and Legal Environment (Randall, 2001, p.78). Political Environment: After the shocking recession of 2008, the market protections increased by different governments. So the entry barrier was tough for the international market. The government tried to follow the protectionist policies even in the emerging markets. Economic Environment: During the period of recession the sales level of most of the products got reduced but in case of Pepsi successfully made the strategic decisions to make itself immune from such economic downturns. One of the main reasons that can be cited is that Pepsi offers consumable product. For FMCG goods and other consumable goods the elasticity of demand for products remains almost same. In case of Pepsi, it was analyzed that the sales of Pepsi actually got increased. People were losing their jobs and they had more leisure time to spend. They spent time with their relatives at home and were having more Pepsi. This is the reason which can be cited by the3 organization to venture into new market structures. But the competition is intense strong on the international arena. The main competitor is Coca- Cola along with some local brands. Social: The change in lifestyle of the consumers helped Pepsi Co to introduce new products in their current product line. In the changed consumer lifestyle situation, consumers want healthy fat free and calorie free products. There is high consciousness against obesity among the consumers. But this also harms the interest of sodas with high sugar mix, the carbonated products of Pepsi. Technological: Strong research and development facilities backed by technological advancements lays the foundation stone of introducing new products. Pepsi Co has focused on technology innovation in their packaging system. The newly developed packaged bottles are attractive for the consumers as well. Environmental: Environment friendly water management system and packaging system is the prime focus of the company. The company has taken the initiatives to give back 1.5 times more water than they take from the environment for producing soft drinks. Legal: the company tries to follow the legal standard and the food quality issue of different markets according to the government rules and regulations in different nations. Although there have been some issues regarding the use of pesticides in soft drinks but the company has implemented usage of substitutable products. SWOT stands for strength, weakness, opportunity and threat of a company. Opportunity: Pepsi Co has adopted different flavours across the world. While going into the international market, the focus is on adopting the local tastes. With the changing environment of global market where the customers focus on better healthy lifestyle Pepsi Co has come up with the new slogan of “ Better for you” “Good for you”. Pepsi Co has increased the ratio of employing the local employees as an international HR strategy. By imposing this kind of strategy Pepsi Co has been able to show themselves as a part of domestic body. After 2008, Pepsi Co focused more on the developing countries like China, India, Mexico and Russia. They offer a wide variety of products in the developed US market. They have now expanded their product categories in the outside market also. As per the new customer expectation Pepsi has introduced low calorie and low saturated fat products in other countries. Brazil and China in this sense can be a greater opportunity for Pepsi. After 2008, the potentials shown in the market are as follows: Threats: The increased awareness for the healthy, fat free sugar free items has reduced the consumption of carbonated drink sales. The negative impacts of government regulations as discussed earlier are a threat for the organization. The intense competition in the global market by the competitors like Coca Cola, Nestle, and Kraft Foods is also a threat for the organization. In 2008, a strike took place in India and for that a shut down continued for nearly one month (Henry. 2008, p. 34) In a nutshell, after the restructuration of Pepsi Co, they focused on snacks and beverages. It started the acquisition strategies and realignment to increase the profit of Pepsi Co. The actual analysis of the strategic management situation after 2008 has been shown by the diagram above. There were five dimensions in the strategic management issues and every dimension was discussed briefly above. The product diversification of the company under consideration happened in the healthy snacks items where they used natural oils as ingredients. They did research on new recipe and new flavour for more customer attraction. With international acquisition Pepsi Co strengthened its financial capability. Organization’s development With large acquisitions taking place internationally Pepsi Co’s employees were worried about their career growth path with Pepsi. The organizational structure of Pepsi Co has been shown in the above diagram. It has been clearly mentioned that after the restructuring of 2008, Pepsi Co has four segments worldwide. These four divisions are further classified into different divisions. Pepsi Co is well known for maintaining the employee-employer relationship (Cummings, 2008, p.4). In international market, Pepsi Co focused on the principle leadership models which included the leadership competencies and the introduction of 360 degree evaluation process. Some other models have been discussed below- “My develop net” model provides the assessment tools. “My career connection” is a tool used for cross border job posting. From a standardized process to an adapted brand, Pepsi Co changed its dimension of functional relationship. HR function was the prior function in this respect. For cross border aspects they focused on standardized language. Integration of the Functional Strategies of the business: The company has taken several steps to ensure efficiency in its functions in supply chain management. They plan in advance for 2 years. They have coordination with various manufacturing firms and continue to receive the raw materials from the suppliers. A major percentage of production process is automotive for Pepsi Co. The company needs to manage the delivery process of the product. The procurement process is maintained by third party management under close supervision of the company. Order handling is done by the shipping department and the transport department manages the vehicles. Sales forecasting depends upon the capability of the organization. It follows a yearly forecast for their demand forecasting. The supply chain department is informed about the annual target of sales. In order to manage the incoming orders of customers Pepsi behaves in best possible manner and make decisions on the inventory decisions as well. Pepsi has two types of demand - one is seasonal and the other is non seasonal demand. For non seasonal demand they maintain “Just in time” inventory to reduce the cost of inventory. In seasonal periods they follow normal inventory stock in process. The shipping manager handles the sales orders acquired from the sales team or through the distributor by mail, phone, and fax. Sales are made after getting advance payment. Culture of the organization: The company believes that people are the most valuable resources for any organization. Culture depends on the environment where a person is born and brought up. Culture means the norms of a society and the values of a society. Pepsi holds an open culture for its employees. Pepsi Co has a unique culture. After the restructuring, PepsiCo strongly maintains the policies directed towards employee satisfaction. They introduced workplace wellness activity and programmes. Pepsi Co follows the diverse profile and looks to pass on the benefits to the employees of the organization. Pepsi supports maintenance of legal and ethical code of conduct through arrangement of training modules and tries to stick on its commitment towards the objective for socially endowed business policies. For proper understanding of the cross border culture Pepsi Co has established itself as a global firm where emphasis is given to extension of the number of local employees. It is very important for any organization to adopt the culture of the host country to mix itself with the host country’s environment. In general, most of the mergers and cross border acquisitions fail because of the cultural changes. Pepsi Co is not lacking itself in the area as it introduces more local workforce in their decision making process also. Moreover, Pepsi follows a systematic approach to maintain the cultural code. With the changing cultural dimension the company is on course to keep its objective intact. The examination of risk that can hamper the competitive advantage of Pepsi Changes of consumer behaviour with respect to changes in tastes and preferences of the consumers: The success of the company depends on consumer’s satisfaction. In a changing environment if Pepsi could not maintain its position by changing the nature of its business then there will be a financial downtrend for the company. For example, as the consumer’s lifestyle is changing towards healthy items they focus on different low calorie as well as low fat products. But in the same way if they are not able to adjust the product line according to the changing consumer’s tastes and preferences then it can pose some kind of trouble for the company (Bensoussan, 2012, p.145). Damage of brand image: Any agitation against their reputation can hamper the brand image a lot. The recent agitation against them for using the pesticides in the product hampered a lot of their brand image. But Pepsi maintained its strong CSR in their packaging, water recycling and strong anti campaign helped it to regain its position in the market. Financial lose can get accrued if the business activities collapses in the developed market: The profit part largely depends on the growth in the developing nations. But due to economic or political reasons if Pepsi is not able to operate in developing nations, it will lose a huge portion of profit. Conclusion After analysis of the entire project, it is clear that after 2008 Pepsi introduced restrictions in their organizational structure. In the changed organizational structure they focused on diversification strategy. Basically they moved to the developing countries like Brazil, China, India and Russia. The diversification strategy includes changes in the flavour of their products and the segment of their products according to tastes and preferences of the consumers. The organizational structure focuses on employee-employer relationship. Pepsi is well-known to maintain good structural relationship maintenance. After 2008, Pepsi maintained two types of inventory maintenance policy based on their demand forecasting. Even they are more focusing on the direct purchase from manufacturers. Pepsi Co maintains a stable culture looking forward towards its mission. Recommendations Pepsi Co in the changing scenario needs to follow the sustainable growth paths as that will contribute it in penetrating into new markets. The adaptation should be based on the tastes and preferences of the consumers of the particular countries. As an example, in Mexico it should adopt the spicy Mexican flavours while for India it should adopt the cultural aspect of non vegetarian tastes and for Europe market the focus should only be on providing healthy foods. Second option can be aggressive market entry policies in the emerging market by collaborating with the local bodies. Third option is to rely on the research and development strategies and more focus on the market demand worldwide. This can be proved as a better option as the market is very competitive in nature. The consumer’s behaviour is also rapidly changing and it is uncertain. So, it is better to research on the future prospects and accordingly initiates the proceedings. One important aspect for Pepsi Co is that it is the second largest company in its segment. But the products they are introducing in the market cannot be regarded as new inventions. They are only a follower in the market. So it can be a future threat for the company if they do not take the right strives for product differentiation and aim to become the leader of the market (Paladino, 2011, p.232). Another recommendation is to continue with the eco friendly activity they are presently practicing to maintain a sustainable position in the competitive market. References Bensoussan, B. E., 2012. Tools to Make Better Strategic Decisions. FT Press: New Jersey. Cummings, T. and Worley, C., 2008. Organization Development and change. Cengage Brain.Com: Canada. Henry. A., 2008. Understanding Strategic Management. Oxford University Press: USA Paladino, B., 2011. Five key principles of corporate Performance Management, UK: Wiley.com. Randall, G., 2001. Principles of Marketing. Stanford: Thomson Learning. Read More