Innovation & Development: The Case of PepsiCo - Term Paper Example

? Innovation & Development Assignment Contents Introduction 3 The NPD Environment 5 Technological Complexity 5 Environmental Uncertainty 6 NPD Process selection 8 The NDP Strategy 10 Information and Research Strategy 10 Product or Service differentiation Strategy 11 Development Process and Tool 12 Development and Commercialization Strategy 14 Conclusion 15 Reference 17 Introduction The words innovation and innovative are bantered in the business, media and everyday life. The words have evoked a feeling of progress with technology. Innovation is one of the driving forces towards welfare and contributes highly in the standard of living. The work tends to address new forms of innovation which usually takes place in the private sector, between companies and also within the companies (OECD, 2009). Innovation is the ultimate key to success and growth. Innovation is considered necessary as businesses particularly in the west can no longer guarantee themselves to compete globally based on prices only. Also in terms of economies of scale, the BRIC nations which constitute of the countries such as Brazil, Russia, India and China had possessed the internal market in a much greater way than UK. With low cost of transportation and with a better communication means, the BRIC nations have gradually moved on to the market with an increased rate. It has been rightly said that if organization cannot compete on price they need to differentiate and in order to differentiate the organization needs to innovate. Innovation needs to be linked with marketing strategy and also with the business planning process. When innovation and business strategy do not match up to the same level there exists a risk of diverting the key resources which in turn damages the focus of the organization. Thus it is important that the innovation activities are mostly driven by the strategies of the company and of current business imperatives. The type of innovation and extend of innovation should be undertaken keeping in mind the current business performance of the organization and also future expectation. PepsiCo is one of the largest food and beverage companies in the world. The company manufactures and sells about 18 brands of snack food and beverages and generates almost $98billion through retail sales. PepsiCo holds about 36% of the snack food market in US and about 25% in the beverage industry. The company has received many awards and recognition and has been raked in the top 25 in the category of best global brands and has also earned the Green Award by the Environmental protection Agency (Daniels Fund Ethics Initiative, n.d). PepsiCo is one of the companies which have successfully used its resources to create new products for the new as well as for existing market. Managing technology and innovation is crucial to stay ahead in the competitive environment. PepsiCo has a variety of new products around 200 new products that the company keeps on adding to its product portfolio every year. The question arises is in spite of its so many successful products why does PepsiCo introduces new product. According to the chairman of PepsiCo and CEO, Innovation is something which the consumers are looking for especially in their routine life. Thus the product development has seemed to have paid off the company at a successful rate. With its innovation PepsiCo has managed to increase its earnings by 19% in 2003 and increase in sale by 7% (FTP, n.d, p.1-2). Some of the strategic issues with regard to PepsiCo are in the field of technology and innovation. If the new products which are developed by the company do not click into the market, PepsiCo would have faced trouble with regards to revenue and profits. The time, money and effort needed to develop the new product would have been put to waste. Performing these strategies might also result in decline of the share in the market. Another strategic issue could be with regards to healthier food. If the trend of healthier food turns the other way affecting the demand of healthier food there would be a decline in the sales of its products. With its unrelated diversification on Frito Lays Food might face a problem if the business plan fails. Thus R&D for the diversification is hence the best solution to reduce the risk (Word press, 2009). The NPD Environment Technological Complexity Organizations are marketing its product in the era of period which is marked by unprecedented technological, environmental and market changes. Such changes are often related with complexity issues which are frequently faced in the development of new products. As markets evolve, products with multi functions have developed. In the process of developing new products, they require complex technologies. Moreover the marketing of multi functional products are more complex since decision needs to be made in terms of pricing or in the process of communication. New methods, new processes and new materials along with new applications have become accessible more quickly than ever before but at the same time they become obsolete rapidly. In order to develop products which are competitive and provides a competitive advantage over other companies, technological as well as market changes should be reflected carefully during the NDP process. Companies that develop new product and technologies often needs to accelerate innovations in order to remain competitive. Therefore in order to deal with the challenge of complexity, the NPD teams should carefully prepare themselves regarding the project complexity. Organizations which are able to identify access as well as manage the complexities are likely to gain competitive advantage (Hosni & Khalil, 2004, p.283). Similarly PepsiCo should also undergo changes in its innovation so to survive in the competitive market. PepsiCo has a huge number of products in its product portfolio and has been increasing the number every year. For the development of innovation, technology is necessary thus PepsiCo invest a huge amount of its money for R&D so that it can bring out new and innovative products which will be desired and wanted by the customers. PepsiCo has adopted the technique of organizational learning which is regarded as important in managing the programs with regards to new product. PepsiCo being a competitive company usually tends to face competition and complexities and thus it is important for the company to store, capture and use their learning in order to increase the efficiency and effectiveness of the development programs. PepsiCo is believed to have a systematic knowledge through which it is capable to capture store and also use the learning from the experience to solve the future challenges. PepsiCo has adopted technologies which will keep it way ahead from its competitors such as Coca cola. It has introduced social vending system with features such as full touch screen which enables its customers to connect better with the company and its brands at the point of purchase. It has used digital technology through which any user can gift to a friend beverage simply by entering the name of the recipient, mobile number and a personalized text message. It is a highly technological vending machine but in the production process there has aroused many complexities which the company has been able to surpass. PepsiCo innovative use of telemetry applied on the social vending machine had delivered operational benefits, which has in return allowed customers to manage the level of inventory, update digital content online and other factors. The main vision of PepsiCo is to use innovative technology in order to empower the customers and also create new ways to get engage with the brand (PepsiCo, 2011). Environmental Uncertainty There is said to be an influence of the environmental uncertainty on the process of new product development. Uncertainty has been regarded as a challenge or threat for the organization but at the same time represents as an opportunity. In terms of new product development and innovation Kessler and Bierly (2002) had suggested that time based strategies are the most successful under circumstances such as low uncertainty. But authors such as Chen, Lynn and Reilly had suggested that time based strategies are supposed to work best under high certainty (Chen, Lynn & Reilly, 2005). Environmental uncertainty is often caused by uncertainness arising from changes in the technology and market which is often regarded as both constrain for the organization and also as an opportunity which often influences the process and the internal structure. As a result product development projects often require different kind of strategies to fit into the conditions of uncertainty with respect to the environment. Innovative companies do follow an approach which is special from the technique they would take towards well-known expertise when they are connected with new products in a highly unpredictable market or emerging markets. Thus several established determinants which tend to support the product development to examine the moderating effects of environmental uncertainty include marketing and technical proficiency, project team and also process compression. Figure 1: Conceptual Framework (Source: Bstieler, 2005, p. 271) The extent of technological and market uncertainty usually reflect the amount of uncertainty is faced by a manager in the process of NPD, to response to the conditions in the external environment. Environmental uncertainty which tend to originates in market as well as technology have a huge impact on product development and finally on the performance of the project. For example, the relationship between market environment and the performance of NPD may be affected by the nature of rivalry in each industry (Bstieler, 2005, p. 272). PepsiCo has been taking all the initiatives to survive during the environmental uncertainty. With climate change, or regulatory or market measures to address the climatic change might negatively affect the business of PepsiCo and their operations. PepsiCo has felt that there has been a growing concern that with a rise in carbon dioxide and other green house gases in the environment tends to have an adverse affect on the global temperature. In the event of such climatic change the company might experience a negative effect on its production and may be subject to decreased availability for water due to such climatic changes. In addition to this, natural disasters and with extreme whether condition the operation with the supply chain may get disturbed. The increasing concern over the climate issue might result in more federal, regional and also of global legal requirements in order to reduce the green house effect. The company has currently undertaken measures to monitor the emission and improve the energy efficiency; PepsiCo might experience a significant improvement with regards to costs of operation and delivery (PepsiCo-a, 2010). NPD Process selection Process selection forms an important part in the formulation of NDP. Product design also forms an important part but it cannot b considered separate from the selection process. When different types of companies are observed ranging from a tiny coffee shop to IBM it may seem that these organizations has gone through various types of processes. Some locations are small like Starbucks and some are huge such as Ford Motors. There seems to be a huge difference in the process but certain companies tend to have certain characteristic in common. Process selection usually refers to the strategic decision made during the process of selection. All the processes can be broadly categories into two groups, intermittent operation and repetitive operations. Intermittent operations are a process that is used to produce variety of products with different processing usually required in lower volumes. Repetitive operations are processes which are used to produce one or few standardized products usually in a high volume. Intermittent operations can be further divided into batch and project process. Repetitive operation is further divided into line process and continuous process. Project processes are used to make only one kind of products in accordance to customer’s specifications. The process is highly used when there is a high customization and low product volume. Batch processes are used in the production of small quantities of product usually in batches or groups. The process is also known as job shops. Line processes are designed to produce a large volume of standardized product for mass production and in the continued process it tends to operate continuously in order to produce high volume of fully standardized products. Figure 2: Types of Processes (Source: Wiley, n.d) PepsiCo have adopted the line process as the company produces a wide variety of food products and beverages. The products are made in high volume with almost little or nil customization. The NDP Strategy Information and Research Strategy Information and research strategy forms an integral part of innovations. It is important for a marketer to analyses the past history of the products and whether it was a success or a failure and according decide on its strategy and process of development. As it has been said that with uncertainty, globalization and innovation are not new and the only thing certain about the future environment is that it will be as uncertain as it is today. History suggests that even though the market along with the technological shifts is dramatic the basic issue of innovation still remains the same. Thus it is said that organization needs to look for actively and widely accepted innovation which would help to develop a strong and reliable future (Tidd, Bessant & Pavitt, 2005, p. 45). It is always better to develop new product based on past information and survey. Information can be gathered through means of survey conducted and research both primary and secondary. With the help of the questionnaire, data can be collected regarding the new product and analyzing the data it can be concluded whether to launch a particular product and when to launch it. Some important types of research strategy include historical research where historical evidence will be drawn with regards to the type of product that is in the process stage of NPD. The next type of research would be experimental which one of the most common research methods is. This type of research is usually quantitative and deals with controlled circumstances. Apart from the customer surveys and opinion it is important for the new ideas to be effectively screened and the bad ideas should be killed off quickly but sympathetically. An effective screening prevents the organization from innovation overload. It is necessary to recognize new ideas in order to survive with its innovation. PepsiCo also performs information and demand strategy in order to find out whether the new product would prove to be a success or a failure. Some of the important consideration for PepsiCo research strategy is such as demand drive where the research strategy response to some key gaps and should evolve according to the needs of its customers. To add value and to avoid reinventing the wheel this helps the company to generate new idea and knowledge about the market and product (International Labor Organization, 2008, p.3). Before the launch f its product PepsiCo conducts detailed research about the consumer behavior their needs and desire and finally get into the process of NPD. Product or Service differentiation Strategy A differentiation strategy is usually based on providing the customers with unique features which makes the organization product or its services distinctive from its competitors. Organization which tends to use the differentiation strategy has a product organization design where each of the products has its own marketing, manufacturing and also R&D departments. But in the process of differentiating the product one of the biggest disadvantages faced by the organization is maintaining a premium price for its product. Price becomes an issue when the product or the services enters its maturity stage. Organization sometimes overdoes its differentiation which place a burden for the R&D department (Hellriegel & Slocum, 2007, p.391). Most of the companies tend to believe that they have differentiated product unless and until their strategy imitate another product. Luxury brands usually stems from a differentiation strategy. An extension of the product differentiation strategy is to create a new market where competition is almost zero and referred to as blue ocean strategy (Dubrin, 2011, p.136). PepsiCo in order to differentiate its product from the rivals especially Coke, had adopted the differentiation strategy. The Pepsi challenge had changed the long competitive rules in the industry. The basis of competition shifted primarily by differentiation of lifestyle advertisements to direct comparison of products. Pepsi strategy has changed the very nature of differentiation in the industry. The company has altered the business model and also adopted a new differentiation strategy in order to stay ahead of Coke. In response to Coke strategy, PepsiCo decided to respond by way of cutting prices. But in the process, customers started expecting price discontinuing which had an adverse effect on the brand loyalty and thus the value associated with differentiation got reduced and had experienced declining profits (Hill & Jones, 2007, p.220). PepsiCo goal is to differentiate its marketing strategies from that of Coke and other competitors ranging from different products, different taste, and different entities like snacks food, PepsiCo explores all of the categories. PepsiCo had taken all the necessary steps in order to differentiate its product so to remain a market leader. Their ability to innovative has proved to be a competitive advantage for the firm. Product differentiation ends to reduce threat for the company. PepsiCo different products have proved to stay competitive and with innovation it has been able to gain customers interest. Development Process and Tool The NPD process is defined as set of tasks and steps which describes the means through which the company converts the idea into saleable products and services. Two commonly use NPD process includes a five stage framework which links new product development opportunity to test, deign, information and also profit management. Next NPD process model is the stage gate system which recognizes the importance of cross functional teams, processing activities and predevelopment activities needed in the process of new product development. At the very strategic level, the concepts, tool and the techniques which are use in the development of new product remains to be same but at the operational level the requirements of the process and technology changes. Figure 3: NPD Process (Source: Boyer & Verma, 2009, p.74) In spite of the framework used in the process of NPD, organization tends to include the other elements; development of new idea usually requires input from sources such as competitors, suppliers, customers, the employers and other industries. Thus the idea generation in the NPD process is quite complex and difficult; the process of NPD requires multiple and steps which sometimes overlap each other. At every stage of the new product developed the company evaluates whether the new idea should be developed further or dropped at the stage; and lastly the NPD process requires participation from the other multifunctional teams in order to complete the process and introduce a new product in the market (Boyer & Verma, 2009, p.74). PepsiCo implements the above NPD process and thus achieves success with its product. PepsiCo has a variety of product in its product portfolio and thus has achieved success with its product differentiation and with its two dimension process stage. Development and Commercialization Strategy Product development and commercialization strategy is described as an output of the business technology and market. Product strategy identifies a mix required in the product offering and decides if the company would offer complete solutions to its customers. The commercial success for the product also needs to be clarified. The process starts with the approval and feasibility and exploration. Here all the alternatives are explored and the most optimal option is selected through which the commercial and market viability is assessed. The next phases include the product, project and planning, next are design, and the third stage is the customer qualification along with manufacturing. The next stage takes care of the commercialization of the new product. As the product enters the product life cycle, CIP project are often initiated in order to improve the product line (Rafinejad, 2007, p.165). The following figure 4, explains the various stages. PepsiCo has also puts its product into various stages of the development and commercialization process before launching the final output in the market. The last stage in the NPD process is the commercialization process which is as important as the generation of new idea. It is the stage when the company actually implements the new products and makes its available to its customers. Figure 4: Product Development and Commercialization Price (Source: Rafinejad, 2007, p.165) Conclusion It could be said that the one of the primary objectives behind product innovation are to create value which would help to obtain a competitive advantage and to achieve a long run success through the entire NPD process. Innovation plays a vital role in the process of NPD, which is much needed in the competitive world. PepsiCo has survived in the competitive world and it has happened because of its continuous innovation in the snack food and beverage sector. PepsiCo has about 18 products in its portfolio and makes sure that it innovates something new each year. It follows the process of NPD and makes sure that the products are not in contrast with customer’s wants and desire. PepsiCo makes sure to stay ahead of its closest and also the toughest competitor which is Coke and achieve a high rate of market share in place of its operation. Thus it can be said that PepsiCo ability to innovate and introduce new products has proved to be a competitive advantage for the company which has ultimately leads to brand recognition and success for the organization. Reference Boyer, K. K. & Verma, R., (2009). Operations and Supply Chain Management for the 21st Century. USA: Cengage Learning. Bstieler, L., 2005. The Moderating Effect of Environmental Uncertainty on New Product Development and Time Efficiency. [Pdf]. 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