The Pepsi Challenge - Case Study Example

Pepsi Challenge Like many organisations, Pepsi has experienced a few roadblocks on the way of becoming an IT powered company. The report aims to explore the main issues that the organisation has faced, which include resistance from certain sections of the organisation in adopting an uniform platform and conformity related problems which have risen due to the several types of platforms that parts of the company has been using over the last few years. The report also tries to recommend additional measures which might help Pepsi to become a top performer in the food and beverage industry by directly affecting the bottom line of the organisation. These new measures are related to the use of open source software, extensive training in the pre-installation phase and the outsourcing of certain IT backed functions in the organisation. Table of Contents Pepsi Challenge 1 Abstract 2 Table of Contents 3 Brief Outline of Problem 4 Aims and Purpose of Study 5 Background 5 Approach/ Methodology/ Theoretical Framework 6 Pepsi's IT struggle 6 References: 12 Conclusion 13 Introduction Brief Outline of Problem The case study deals with Pespi Inc. and the issues it faces with the implementation of enterprise software platform throughout the length and breadth of the organisation. The organisation faces challenges on several fronts. It confronts resistance to change - from the different business divisions, high costs of implementation and labour issues. The organisation's transition to a techno savvy business entity has not been smooth and this report aims to analyse the different incidents which that comes across. Autonomy and fragmentation are the biggest obstacles that the organisation has to resolve. Autonomy is charectised by the reluctance of the different divisions to follow suit in pursuance of a central data warehousing system -because of a variety of reasons. Fragmentation is apparent due to the different software and hardware supports on which the different sections of this huge organisation runs. Aims and Purpose of Study The purpose of this report is to firstly identify the chief areas of concern that the organisation is facing, and secondly suggest alternatives to the top management so that these problems can be overcome. The case brief outlines the steps that the management has already taken to chalk out a path for the organisation towards becoming an IT backed system - which also includes the problems it has encountered on the way. This report aims to explore newer opportunities that could have gone unnoticed by the management. It is understood that the organisation is huge - Pepsi operates in over 200 countries and the group revenues were to the tune of 43,251 million U.S. dollars in the fiscal year of 2008 (We are Performance with Purpose - Pepsico 2008 Annual Report, 2008). So the challenges that such a company would face while implementing a different outlook towards IT would, invariably be enormous. Background The background of the report is a case brief which deals at length with Pepsi, the issues it faces with the implementation of enterprise software and the efforts that need to be taken by the company in order to overcome the situation. The organisation is faced with several challenges - it operates in a highly competitive market, which is heavily dependent on the prices of the raw material and with issues to tackle major socio - political issues across the globe. It is in this background that the company has embarked on a mission to come up with a leaner supply chain and better data warehousing. "We depend on information technology as an enabler to improve the effectiveness of our operations and to interface with our customers, as well as to maintain financial accuracy and efficiency", states the latest annual report of the company (We are Performance with Purpose - Pepsico 2008 Annual Report, 2008). Approach/ Methodology/ Theoretical Framework The case brief required a thorough analysis. It was found necessary to visit the official website of Pepsi and study the latest annual report. It was also found necessary to revisit the concepts concerning the role of IT in a business organisation and how information management, technology and systems play a major role in making the organisation a force to reckon with. Pepsi's IT struggle There has been a considerable increase in the IT related expenditure of organisations - there has been a high correlation between competition and technology since 1990. In a concentrated marketplace there are only certain companies which have resulted in the majority of market share. Competitive forces have ensured that organisations have to look forward to newer avenues to bolster their bottom lines - their offerings are similar as they cater to a highly informed and empowered clientele. The relation between the performance of companies and the nature of competition as influenced by IT can be seen through a study done across three different parameters; industry concentration, turbulence and performance spread. Source: (McAfee A. & Brynjolfsson E., 2008). IT usage eventually will help a company to use its resources better and thus pass on the benefits faster to its clients. However, it will not be exclusive, industry rivals will eventually follow up, resulting in an ultimate increase in concentration. Thus an enterprise needs to follow a charted approach - it should first put in place a consistent technological platform. Secondly, it must incorporate better work practices. Finally it should be able to spread the business innovations through the chosen platform. IT acts as an agent of change in these circumstances - it helps in the formulation of better ideas to run businesses, as it spares up resources for alternative uses, and delivers the ideas. There are two prominent barriers which the top management face and must overcome enroute to becoming an IT friendly company - autonomy and fragmentation. Regional and functional heads are often given a headway in choosing their own IT system - this results in a cobweb of systems, which conflict in purpose and fail to resolve the purpose of saving money and streamline systems in the long run. In Pepsi's case, the problem can be traced back to 1986, when delivery staff was issued mobile handheld computer units with the aim of giving them the power to set pricing and to promote products themselves. The staff was given the authority to take a call on prices, on spot instantly so that they could add value to the company manifold over. This needed a big change in the data warehousing capacity of the company, loads of data was being fed directly into the Frito-Lay mainframe the end of each day, which needed to be documented so that proper retrieval could be done at a later date. However, this system was adopted through the entire organisation at a slow pace and soon different sections were using different software and computers. This increased the complexity many fold - the sections were responsible for maintaining supervisors and so did the central management which needed to amalgamate the output from the varied sources. The central management's effort to resolve this conflict also hit major blocks. The Business Solutions Group was responsible to unify these sources and create a central data mine. It would aim to centralise human resources, finance, and procurement systems and then proceed to integrate the sales and marketing efforts so as to create a better supply chain function for the organisation. Here arose the issues concerning autonomy. Business divisions did not like the newer systems which were at times forced on to them. They failed to realise that the loss of autonomy was a necessary prerequisite to centralisation. Pepsi tried to tackle these issues with adopting SAP, or at least attempting to do so. The aim was good - the organisation wanted a transfer at the different levels followed by integration. But this move was also faced with issues. What would have been more beneficial in such a situation was proper training that would try to educate the business heads much prior to the implementation of the systems. Another approach that the management could have taken would have involved the use of open source software - which is easy to acquire and customise. Such a software system could have been implemented across the cross-section of the company, the feedback recorded duly, differences ironed out and finally the company could have moved to the enterprise solution platforms. The company can also improve its productivity by directly integrating its sales efforts with the demand schedules of its vendors. Thus it will be saving money by shifting from investments in the latest IT gadgets for its sales force, to empowering its clients by letting them run their businesses on a better information platform by sharing the IT requirements. Such an arrangement has been used effectively by other organisations - Wal-Mart shares sales feeds with its prime suppliers like P&G and in turn expects the latter to replenish in a co-ordinate fashion (Kotler P. & Keller K. L., 2006). This can help Pepsi to chart new territories - it will be able to analyse data right at the source, some fine tuning will also help the company to see the purchase patterns of the specific dealers and devise dealer specific offers. Moreover the vendors using the same platform will ensure no data loss and vital savings in the field of data storage. Enterprise solution software implementation will bring along with itself labour and staff issues. Like in the case of Pepsi, sales staff would be found missing on their variable component of income, the sales commission. This forced Pepsi to limit the launch of presell to areas where it was least expected to face labour issues. One alternative approach here should have been linking vendor incentive to the usage of the software on the part of the dealers. Pepsi could go ahead and bear a part of the cost of implementation. This would translate to savings, albeit long turn, surely for both the vendor and for the mother company. On a different note, in addition, the company can look forward to other avenues in which IT can be used to affect the bottom line of the company. These include the outsourcing of certain information technology based support services and administrative functions, namely payroll processing and benefit plan administration, to separate third-party service providers. References: Anncchino M. A., 2003, New Product Development - From Initial Idea To Product Management, Elsevier Kotler P. & Keller K. L., 2006, Marketing Management, ISBN 8177586904 McAfee A. & Brynjolfsson E., 2008, "Investing in the IT That Makes a Competitive Advantage", Harvard Business Review, July - August 2008 Lodish L. M., 2007, Marketing That Works, Wharton School Publishing We are Performance with Purpose - Pepsico 2008 Annual Report, (2008), [Online] Available: http://phx.corporate-ir.net/phoenix.zhtmlc=78265&p=irol-reportsannual [15th May, 2009] Conclusion "We have embarked on a multi-year business transformation initiative that includes the delivery of an SAP enterprise resource planning application, as well as the migration to common business processes across our operations.", says the latest annual report of Pepsico. It also states that the organisation is not very sure about the probability that the expenditure in the enterprise software platform will reap benefits at all. This brings to the forefront an interesting observation - on the road to business efficiency, it is not always technology which can help a company. Better practices in management - like a lean production cycle, faster cash collection practices can propel a company into the league of premier organizations. Though IT can be a differentiating factor among top companies, in regard to the usage and integration, this difference is not sustainable. Competitors will acknowledge the difference technology is creating in the functioning in the company and thus adopt them. Nevertheless, IT acts as an agent of change in competitive circumstances - it helps in the formulation of better ideas to run businesses as it spares up resources for alternative uses. Pepsi should try and accept newer practices into the running of the business. It should encourage the use of the newer tools among the general staff, making them realize that this would do them good in the long run. Read More