Management - PepsiCo Australia & New Zealand - Case Study Example

Executive Summary  3 Background  5 Critical Analysis  6 Recommendations  13 Works Cited 15 Appendix 16 Executive Summary  This is a work project thatprovides great analysis on the subject of organizational analysis. The company chosen for this problem solving project is, PepsiCo Australia & New Zealand. This company is the world leader in beverages and shares a competitive market share with other brands like Coca-Cola Inc. There is much to learn and solve in the organizational analysis of this great company. PepsiCo Australia & New Zealand is the leader of high quality snacks, beverages and oat meals. The great success of PepsiCo is because of their outstanding organizational management. Methodologies to analyse the organisational behaviour of PepsiCo include; 1) Interviews with 14 questions pertaining to organizational behaviour, work environment and leadership and employment, and 3) analysing organizational theories like leadership and organizational theories. The interview questions can be found in the appendix section of this paper. The identified issues show that the real problem lies in the organizational structure. The reason that PepsiCo is still number two not only in Australia but around the world has more to do with the organizational behaviour than aggressive advertising. PepsiCo’s own annual report sums up the whole problem with; “Demand for our products may be adversely affected by changes in consumer preferences and tastes or if we are unable to innovate or market our products effectively.” (PepsiCo Annual Report, 2011). The biggest problem that PepsiCo faces is their lack of strategy in beating Coca Cola at market share. The shocking aspect of this picture is Pepsi is doing really well in products such as Lays Chips, 7up Drink and Quakers Oatmeal; however, its major weakness remains to be Pepsi Cola, its iconic brand. This can be rectified by; a) Better organizational planning b) Organizational management c) Improving leadership style Background  PepsiCo is a $66 billion global company that stands on top of the world in its sales. Even the biggest rival Coca Cola doesn’t have the variety of products that PepsiCo has. Two complementary businesses have contributed to this outstanding growth of the company Food (snacks) and beverages both being sold all across the world. The recent business performance of PepsiCo Australia has been great contributing to an overall global growth of 14% (PepsiCo Annual Report, 2011). Alejandro Rodriguez Bas is the CEO of PepsiCo Australia and New Zealand. He is responsible for the complex marketing, distribution, sales, finance and IT functions of PepsiCo ANZ (pepsico.com.au), and he is the main focus of this paper. The problem for PepsiCo ANZ is not just keeping the sales up, PepsiCo market share for beverage has been dominated by Coca-Cola Inc. and that leaves PepsiCo far behind. It would be common sense to understand that Pepsi is always trying to excel and get back the dominant market share it once enjoyed. Almost a decade ago, Pepsi lost its “cola war” to Coca Cola and since then they have been rethinking their business strategy (Jennifer, 2009, pp. 84-85). The problem here is not of PepsiCo as an industry, it’s about the product Pepsi Cola which is lagging behind Coca Cola in sales. The major marketing product for PepsiCo was supposed to be Pepsi Cola. But looking at the whole business progress, the company did excel in other marketing products like Frito-Lay Chips. Its bottled water Aquafina is already doing great, while its drink Gatorade holds 80% market of sports drinks (Jennifer, 2009, pp. 85-86). Pepsi Cola began its production in Australia in the early fifties (Brash, 1967, pp. 311-312). PepsiCo has spent a lot of time in Australia to establish itself as the dominant force over the Coca Cola brand. But again, it all comes down to organizational structure and planning that gives the edge over one company to another. Critical Analysis  Many organizational theories have been in practice since the early days of industrial revolution and even before that. It would be an ideal approach to figure out where is it that PepsiCo ANZ lacks in exceling cola says in comparison with Coca Cola beverage. The first thing that needs to be analysed is managerial perspective. For instance it would be very helpful to understand what the take of managers at PepsiCo ANZ is on increasing their Pepsi Cola sales. The earliest concerns of managers were tied only to the increase of sales (productivity) and not on taking care of people (Stevens, Loudon, Harris & Hartman, 2001, pp. 2-3). The question is; is PepsiCo ANZ still stuck with this old form of managers perspective on running their corporate? It is a common observation that Pepsi invests heavily in advertisement, hiring super models, sportsmen and celebrities to promote their sales. But is there sufficient spending on its own people so that they could come up with brilliant ideas to once again capture the cola sales? For the purpose of this paper, the focus is on Australia and New Zealand operations of PepsiCo; however, if it can be done here, it can be implemented all across the world. Two types of diversities serve as highly appreciated tools for organizational management; surface level and deep level. Surface level diversity refers to organizational aspects that are clearly observable (Philips & Gully, 2011, pp. 41-42). For instance, the average age of people working in that environment, their race, gender, ethnicity, physical abilities etc. This form of diversity can be readily seen in an organization by just a visit or an interview. Deep level diversity refers to “individual differences” that cannot be observed with the naked eye. For instance, internal goal setting, decision-making styles/patterns, skills and attitudes etc. (Philips & Gully, 2011, pp. 41-42). These aspects are more difficult to learn as compared to surface level characteristics, but they are nonetheless more powerful and affective in the success of an organization than the surface level diversity tools. The level of employee diversity at Coca Cola company is very high. They learnt their lesson some 11 years ago and realized that diversity in an organization is the key to success. In 2000, the Coca Cola company paid $192.5 million to settle charges that they discriminated against the black employees of the company (Philips & Gully, 2011, pp. 40-41). After that litigation process was complete, the black employees enjoyed the same level of pays, promotions and all other benefits that other races enjoyed. Without going into the ethical debate of whether Coca Cola wanted to pay the litigation charges or not, they acted promptly and made a very wise business move that has been serving them in more than one ways. Diversity is fundamental and an indispensible value (Philips & Gully, 2011, pp. 40-41) and it serves the organization in long term as well as short term. Organizations are defined and recognized in social perspective, which is why cultural and social diversity is paramount in today’s competitive organizational culture. One way to understand the meaning and significance of organizational culture is that the representation of people in one social system that has different and distinct group affiliations (Greenberg, 2003), is the way people understand the culture of an organization. This not only becomes the identity of the organization but it also impacts the business directly; profits and losses. It is obvious that Google Inc. will never be able to generate the huge amount of profits that it generates today without its diverse and casual corporate culture. If Coca Cola Inc. can change and renovate their cultural design, why can’t PepsiCo? In terms of practice framework, companies that don’t have simple business functions (generally the ones that have a whole range of products like PepsiCo) usually have more to look inward as well as outward. The thing with giants like Coke and Pepsi is they are not just companies or organizations, they are two brand giants. And so much goes into making brand and keeping it on top of the other that all organizational theories get so much more complex than some middle size manufacturing company. The reason so much focus is on organization of PepsiCo is that they are behind Coca Cola because of their mismanagement at internal level. Organizational culture makes or breaks an organization. The sales figure of 2010 show that sales of Coca Cola have remained much higher than Pepsi. In fact, Coca Cola’s Diet Coke sold more (9.9%) than regular Pepsi Cola (9.5%), which is of much concern for PepsiCo than previously thought (Zamuda, 2011). PepsiCo is lagging behind in beverage sales not because it has less finances or some market disadvantage. Coke and Pepsi both face similar market dynamics everywhere in the world including Australia. Talking specifically of Australia, the demand for Coca Cola beverages is much higher than Pepsi Cola’s. For instance, in supermarkets of Australia and New Zealand, the demand for Coca Cola is three times of Pepsi Cola’s and in overall sales, this demand in Coke exceeds to five-six times to that of Pepsi’s (Lin, 2012). In the end, a close analysis is needed to know the answer as to why Pepsi is lagging behind in sales. One way to put it (according to an executive close to Pepsi Co) in a nutshell would be to compare the two beverage giants as; one company invested inwards, and recognized the value of brand building and its long term impact on the sales. This company (Coca Cola) invested heavily in its brand and built its company on its heritage (organizational culture), and most importantly it invested in its people, the true asset of a company (Zmuda, 2011). On the other hand, the other company (PepsiCo) only invested outside, never cared about brand building as much as the other. It went into a “tailspin” and tried to turn the tables of its fortunes overnight. In the process this company lost its best people, the flow in business was lost and now it has lost its winning direction (Zmuda, 2011). The impact of this organization management failure is that Coca Cola has established a better brand and therefore better brand loyalty, which translates into better demand and better sales. Looking around in Australia, Coke is available almost everywhere in comparison with Pepsi. When talking about supermarkets in Australia, there are usually one or two places in one market that only sell Pepsi, while all other food outlets sell coke (Lin, 2012). Renowned food brands like; McDonalds, Subway, Nando’s and many Sushi restaurants sell only coke while only KFC sells Pepsi specifically (Lin, 2012). That is enough observational evidence for a common man to understand why the sale of Coke is far better than Pepsi’s. To put this common observation into other words; wherever Pepsi is sold, Coke is available but it is not necessary that one will find Pepsi where Coke is being sold. Managerial Decision Making Process Three aspects come into play in the managerial decision making process (Wang, 2011); a) The kind of information needed to incorporate in to the decision making. This is very crucial as this first step can set the alignment of the whole decision and its impact. b) ‘Who’ should participate in the decision making process. Lower managerial layers don’t mean that everyone gets to participate in making corporate decisions. c) Objective reasoning, to set the best course of action. This process is the first step for PepsiCo in addressing solving its sales problems. Key issues Major issues that influence PepsiCo ANZ are marketing contracts. Well renowned food restaurants like McDonalds and Nando’s already have agreements with Coca Cola, it is a huge hindrance in way of PepsiCo ANZ to break the sale streak of Coca Cola. The other issue is advertisement; heavy investment in advertising also pushes the rival Coke to put out more advertisements and that goes into a head on battle of more TV space with the rivals. Conflicts There are no conflicts for PepsiCo ANZ to hinder their sales at the moment. However, back in September 2011, Coca Cola did drag Pepsi into court for allegedly ripping off the curvy design of the bottle (Dagge, 2011); PepsiCo ANZ needs stay cautious of such acts in the future. Situational factors influencing ethical-moral and socially PepsiCo has not faced any major ethical or moral issue in Australia or New Zealand. However there is a rising campaign against the use of plastic water bottles. Aquafina is the brand that Pepsi sells. Ethically speaking, PepsiCo needs to start investing in less use of plastic for its bottling plants. As a matter of fact PepsiCo is already developing processes that use less plastic for bottling clean water (PepsiCo’s Journey, n.d.). Contingency Theory The theory addresses the aspect that how an organization deals with various economic market conditions. Each organization has different contingency plans specific to their own corporate profile (Bacher, 2007). For PepsiCo, they need to have their assumed contingency plans as well as a solid plan for playing the Game Theory with Coke as their rivals. Economics of Organising Institutional arrangements govern transaction costs for an organization and the economic agents have only this much influence here as to choose the route of transaction. Organizing economic activity becomes crucial as such buying and selling by an organization would be incomplete for cost efficiency without including the economics of organization (Altmann, 2010). But it is somewhat disappointing when considering the case of drop in cola sales for PepsiCo ANZ as there is hardly an active organizational economics present when compared with Coca Cola. Critical Theory: Exploited or Empowered? Critical theory refers to examining the society and culture by using tools from humanities and social sciences (Pensky, 2005). This theory remains valid in the fierce business competition of today. Probably there is not much difference in taste between the two rivals Coke and Pepsi however it does matter for the companies to follow trends and social moods to capitalize sales on them. For instance, the kind of pricing strategies Coke does for Australian national and sports events are clearly going in their favour and translating into sales. It is just saying the same thing but with different words. Exploit or empower, the result is the same. Institutional Theory: why mimesis matters The world has transformed into a global village. The theories that worked like a charm on industries and corporates back in the 60s and 70s are not very useful any more. International business researchers are now encouraged to design new theoretical frameworks for various levels of business environment (Tihanyi, Devinney & Pedersen, 2012, pp. 36-37). Business environments vary throughout the world and hence offer different pressure for businesses; the mimetic pressures matter a lot and in fact push the organization to develop her own survival mechanism. Neo-Institutional Theory: why change matters Neo-Institutional theory is a re-introduction to the earlier focus of bridging in conflicting expectations (Knights & Willmott, 2007, pp. 214-215). Change matters because society develops, the moods keep changing as well as people’s choice in buying shopping items or beverages. The strategies that worked for PepsiCo ANZ back in the sixties can never be useful now in 2012. Companies that adapt their organization to the changes not only survive but become market leaders like Coke. Practice Theory It is one thing to come up with the governing principles and theories, quite another to put it practice. Implementing principles also require theories, these practice theories need to be honed according to goals as well as the employee behaviour. Behaviourist focus at the level of an individual and then deduce these theories (Walsh, 2010, pp. 125-126). PepsiCo needs to renew its practice theory and probably hone it in correspondence with the game theory. Innovating Organization Innovation is not a onetime wonder, it is a constant process that helps organization to keep discovering rediscovering the best way to organize. For instance, now in Toyota any worker at the floor can halt the production process if a quality issue is detected (Foss, Pedersen, Pyndt & Schultz, 2012, pp. 30-31). The CEO of PepsiCo ANZ needs to ask this to his team, what innovation in the organization have they brought lately? Recommendations  After analysing the market positioning and market sales profits, it is easy to understand that Pepsi lacks in implementing solid organizational principles. Organizational culture is always evolving and a corporate as big as PepsiCo needs to stay ahead of the competition in this game to be able to take lead in sales. This is especially true for PepsiCo ANZ as the competition sells five-six times more cola than Pepsi. The first recommendation for PepsiCo ANZ is to address and reinvent its organizational behaviour. Losing the most crucial assets, which is the people, is simply an irreplaceable loss. PepsiCo sells less cola because she is losing her brain, her intellectual asset. Pepsi needs to come up with better retention strategy so that the most innovative and marketing magician minds stay with the company through thick or thin. The major problem at PepsiCo can be addressed by retaining intellectual asset. The employee need for attaining goals strengthens the bond between an employee’s wish to stay with the corporate and corporate brand identity (Wheeler, Richey, Tokkman & Sablynski, 2006). In other words, if PepsiCo ANZ emphasizes more on brand promotion as well as cultural congruence, the employees would like to stay with an evolving and improving organizational culture. No one wants to leave a place where organizational behaviour welcomes the employee. Other than employee retention, PepsiCo also needs ‘leadership modification’, this doesn’t at all mean that there should be an immediate replacement of Alejandro Rodriguez Bas, the CEO of PepsiCo Australia and New Zealand. The recommendation is to modify the leadership style. It is a fact that leadership style is almost a permanent aspect of leadership behaviour, and therefore very difficult to modify (DuBrin, pp. 144-145). However, the organization can help match leadership styles to situations. PepsiCo ANZ needs to ask, do they want to increase the sales of Pepsi Cola and beat the record sales of Coca Cola? (that would be an obvious yes). The second question they need to ask it whether Alejandro Rodriguez Bas is the right person for this task (and more importantly in this situation) or not? There is an advantage for PepsiCo in strategizing the increase in its cola sales; they don’t have to walk that extra mile to address the local responsiveness to the demand and sales of Pepsi in Australia. The demand is almost the same for cola drinks (in terms of proportionality) as is anywhere else in the world. They need to waste time on studying Australian culture to increase the sales of Pepsi. Coca Cola is already selling more than Pepsi that means that there is much room for improvement in the efficiency of PepsiCo at the organizational level. Almost all studies suggest that the reason for drop in the sales of Pepsi is the mere attachment of people to Coca Cola as a brand. Better marketing and better brand strategy puts Coke ahead of Pepsi. One obvious thing that PepsiCo ANZ can improve is the availability. She needs to at least be available at every centre, shop, restaurant that sells coke. This is such a simple but hugely effective strategy that it can work wonders. If a person is a loyal customer of Pepsi Cola (meaning that he/she prefers Pepsi over Coke) he would prefer to buy Pepsi WHEREVER POSSIBLE. But if that person has to walk farther to fetch Pepsi when he/she can grab a can of Coke from the shop right next to his/her home, then it adds up as to why he/she would soon lose interest in chasing Pepsi. Stretching this proposition, and tracking it backward to the PepsiCo ANZ headquarters, they need better supply chain management, so that Pepsi could be available wherever Coke is. Plus they need better marketing strategy that would make restaurants and cafes ‘Pepsi specific’. Moreover, once they get an edge with the sale of their Pepsi Cola, they can built better branding by investing in energy drinks, which is also an upcoming market trend that is already knocking the doors of revenue wonders. PepsiCo ANZ can also work towards decentralizing their business operations. Australian culture is open and welcoming, the strategies that are used in third world countries cannot be used in Australia. For instance it is a common observation that employees prefer less managerial layers and less distance to power, that makes the organization more human. And in cultures where the power distance is small, people are more sceptical towards the authority (McFarlin & Sweeney, 2012, pp. 42-43), as it helps to keep the people in power (the authorities) in check. This strategy will also help in improving employee retention as people will consider themselves the part of the organization. Works Cited 1. Altmann, MP 2010, Contextual development economics: A holistic approach to the understanding of the economic activity in low-income countries, Springer, London. 2. Bacher, C 2007, Contingency theory: What are the strengths and weaknesses of the systems approach as used by contingency writers in analysing organizations, GRIN Verlag, 3. Brash, DT 1967, American investment in Australian industries, Routledge, Sydney. 4. DuBrin, AJ 2012, Leadership: Research findings, practice and skills, Cengage Learning, Mason. 5. Dagge, J 2011, Battle of bottles goes to court – Coke versus Pepsi, Daily Telegraph, viewed 19 October 2012, < http://www.dailytelegraph.com.au/news/battle-of-the-bottles-goes-to-court-coke-versus-pepsi/story-e6freuy9-1226145387483> 6. Foss, NJ, Pedersen, T, Pyndt, J & Schultz, M 2012, Innovating organization and management: New sources of competitive advantage, Cambridge University Press. 7. Greenberg, J 2003, Organizational behaviour: The state of the science, Routledge, Mahwah. 8. Jennifer, G 2009, Understanding and managing organizational behaviour, Person Education, India. 9. Knights, D & Willmott, H 2007, Introducing organizational behaviour and management, Cengage Learning EMEA, London. 10. Lin, H 2012, Coca Cola vs. Pepsi: The economics behind Coke’s dominance, Economic Students, viewed 19 October 2012, 11. McFarlin, DD & Sweeney PP 2012, International organizational behaviour: Transcending borders and cultures. Routledge, New York. 12. Pensky, M 2005, Globalizing critical theory, Rowman and Littlefield, Oxford. 13. PepsiCo 2011 Annual Report 2011, The Power of PepsiCo, viewed 19 October 2012, < http://www.pepsico.com.au/> 14. PepsiCo Australia and New Zealand n.d., Company (Leadership), viewed 18 October 2012, 15. PepsiCo’s Journey Toward an Ethical and Socially Responsible Culture n.d. Daniels Funds Ethics Initiative, University of New Mexico, viewed on 19 October 2012 < http://danielsethics.mgt.unm.edu/pdf/PepsiCo%20Case.pdf> 16. Philips, J & Gully SM 2011, Organizational behavior: Tools for success. Cengage Learning, Mason. 17. Stevens, RE, Loudon, DL, Harris, J & Hartman, SJ 2001, Organizational behavior, Routledge, New York. 18. Walsh, J 2010, Theories of direct social work practice, Cengage Learning, Belmont. 19. Wheeler, AR, Richey, RG, Tokkman, M & Sablynski, CJ 2006, ‘Retaining employees for service competency: The role of corporate brand identity’, Journal of Brand Management, vol. 14, pp. 96-113. 20. Zmuda, N 2011, How Pepsi blinked, fell behind Diet Coke, Huffington Post, viewed 19 October 2012, Appendix Interview questions 1) What is the real power of PepsiCo ANZ? Would that be sufficient to reclaim its place in soda industry? The real power of PepsiCo ANZ is its product diversity. Beverages and snacks are the two main categories of our products. We don’t rely only on one item, as a matter of fact; the products of PepsiCo are being consumed across 200 countries. 2) When you look ahead, what kind of strategies would you employ to achieve more? Moving ahead, we are constantly focusing on sustainable growth. For a company like PepsiCo, sustainable growth can only come from brand building. To get the attention of people, we are working on a number of innovative products that will be hitting market shelves. Consummation of snacks and beverages is only going to increase in the future and we are looking to capitalize on that. 3) What kind of strategy do you have in mind for the people’s health and the environment? We believe in performance with purpose, without adding anything positive to the world and the community, there is no real growth. We can only grow our business by doing the right thing for the people, which means healthier food and beverages that are great to taste as well. We are already working on our factory processes to consume less plastic for bottling to make the environment healthier. 4) Other than the obvious competition (Coca Cola), what kind of other challenges do you face today in business? Renewing a successful company is the biggest challenge in business and we are facing it at the moment. To position is appropriately for long term growth as well as healthy profitability, however all of this needs to be done while staying and competing in the current market place. 5) It is obvious that the financial crunch took the best of many giant corporates, how has PepsiCo been coping with that? Despite the financial crisis, we have stayed resilient and strong. For instance in 2011 alone; Our revenue has been up by 14% at $66 billion Operating profits up by 7%, operating margins by 16% Our shareholders have been very happy with us as we have given them an EPS increase of 7% 6) Brand loyalty has the importance that can never be overlooked, what kind of new products are you adding to your product range? The 2011 has been a great year for PepsiCo where we introduced three new products; Mountain Dew Diet, Brisk and Starbucks ready to drink beverages. These products have been very successful as they returned $1 billion in annual sales. 7) What kind of critical theory do you discuss in your meetings? As I said, we are looking forward to a whole bunch of innovative products to launch. However, each product will be made according to the region. For instance one drink might be very popular in the world but Australians won’t be into it that much, so an alternative drink needs to be prepared to capture the taste of Aussies. 8) Do you have a plan for expanding your contract range with restaurants other than KFC? We have a different business strategy than our rivals. We believe in acquisitions and divestitures, all dependant on the business conditions. For instance, KFC as you mentioned as well as Pizza Hut were owned by PepsiCo but later they were divested. But Tropicana Juice brand and Quaker Oats were acquired. 9) Do you have more acquisitions in your plans? Yes we do have them in our plans but that depends on the business conditions. 10) What kind of contingent theories do you have? This question is in fact linked with the previous one. Our contingencies are based on acquisitions and divestitures. We believe in creating more food universes. For instance, we acquired Sabritas and Gamesa in Mexico but that was just the opening of the door. We went in and now local brands like Poffets and Sabritones are sold under PepsiCo’s logo. 11) Do you have a special advertisement strategy? PepsiCo’s advertisements are quite easy to distinguish as we project Pepsi as the choice of the new generations. We usually have shown for our cola commercials where a celebrity choses Pepsi over Coke. 12) Other than product diversity and expensive advertisements, are there any other business ventures for PepsiCo? We have a very successful campaign of Pepsi Stuff going on. First we started with USA but now you can get Pepsi merchandise like caps, T-shirts, hats, leather jackets bags and even mountain bikes with Pepsi logo on it. 13) Have you benefitted from online selling? We have been really successful at that and in fact have huge plans for online campaign, especially after the boom of social media. We collaborated with Yahoo as early as 2000; we definitely have more plans down that line. 14) This is the era of innovation; do you have any special plans regarding innovation to beat the competition? Yes we do have such plans. Pepsi Refresh Project (PRP) was launched back in 2010 and it has been serving the company in a big way. It serves us in marketing promotions but it also gives back to the community. Read More