An Analysis of Innovation at PepsiCo - Case Study Example

An analysis of innovation at PepsiCo BY YOU HERE HERE OTHER RELEVANT INFO HERE TABLE OF CONTENTS 0 Introduction……………………………………………………………. 4 2.0 PepsiCo and its competitive foods industry………………………... 4 3.0 Is PepsiCo innovative?.................................................................... 5 4.0 The most innovative product…………………………………………. 6 5.0 A Contribution for PepsiCo…………………………………………… 7 6.0 Conclusions……………………………………………………………. 8 7.0 Recommendations…………………………………………………….. 9 Bibliography EXECUTIVE SUMMARY PepsiCo brand products have over a 100 year history (combined) and the company consistently ranks in the highest market share status over competing food and beverage manufacturers. PepsiCo maintains many different innovations, including process innovation and leadership innovation as it serves many customers across the globe in highly competitive marketplaces. This report shows why PepsiCo is innovative and offers an analysis of their innovative strategies. An analysis of innovation at PepsiCo 1.0 Introduction PepsiCo is a major manufacturer and distributor of many carbonated beverages and specialty drinks, such as flavored bottled water. The company has also extended its business into different consumer foods areas such as snack foods and Quaker brand oatmeal products. PepsiCo has evolved from its traditional beverage operations which has a rich history of business spanning over 100 years and has become one of the foremost multi-national food distributors in the world. This report highlights innovations at PepsiCo as well as a discussion of innovation philosophy in order to determine whether PepsiCo maintains a high level of invention or novel product creation to be considered truly innovative. 2.0 PepsiCo and its competitive foods industry PepsiCo maintains a company history which is so diverse and goes back for so many generations that it would be impossible to discuss all of its business evolutions in the 20th Century. However, ever since the company decided to move out of strictly beverages and into other snack food dimensions, the business has been competing in a very large variety of marketplaces against other small- and large-scale competition. In terms of market share, PepsiCo maintains 30.8 percent of the total beverage industry (Bauerlein, 2009). PepsiCo further earned $7 billion (USD) as a result of total business operations from 2007-2008 (PepsiCo, 2008). These are stellar profits, which suggests that PepsiCo understands how to properly innovate its products, making them stand out against other competing companies, and are able to build customer interest in these products through innovative marketing and manufacture of new product lines. In the beverage division of the company, the largest competitor is Coca-Cola. However, both companies are experiencing a drop in overall sales volume, which is driving further innovation on behalf of both companies to compete for market share in this division. Coca-Cola experienced a 3.1 percent drop in sales in 2008 while Pepsi experienced 4 percent in the same period (Bauerlein, 2009). This suggests an external consumer who is not spending as before on beverages, calling for innovative sales and product strategies to regain lost market share and satisfy customer needs at the same time. According to the company’s chief executive officer, “Success in this competitive environment is dependent on effective promotion of existing products and the introduction of new products” (PepsiCo, 2008, p.46). This is clearly one of the main challenges facing PepsiCo in the future, especially at a time where the global economy is slowing and consumer incomes are not as high as they once were in many regions of the globe. It seems that the business’ main strategy is to rely on the expertise of its research and development teams to consistently remanufacture food products with unique concepts, flavors, textures or brand identifications (packaging, etc.). PepsiCo recognises that it competes in “highly competitive markets” all across the globe and it seems that innovation is the number one strategy to remain a leader in snack foods (PepsiCo, 2008, p. 46). 3.0 Is PepsiCo innovative? One expert in innovative philosophy offers that “innovation cannot just come from the people at the top of an organisation. Innovation is encouraged from the grass roots” (Coffin, 2008, p.51). This means that a business cannot rely on only its senior-level strategists to build innovation, lower-level staff members, manufacturing experts, distribution professionals, and multiple other business regions must work together to create innovation. This would likely be especially true at companies like PepsiCo which are so diverse both in machinery necessary to build innovative products and the tools by which to ensure they are distributed to different countries. Under this definition of innovation, PepsiCo seems to have a well-developed talent pool of individuals who are being utilised to create products which, in the minds of customers, outperform other snack food and beverages businesses. According to another professional, innovation cannot simply “be decreed for if it doesn’t make sense to those involved, it will not be supported in the business” (Maddock, 2007). The company’s annual report supports that this type of innovation exists at PepsiCo when stating, “Our continued success is also dependent on our product innovation, including maintaining a robust pipeline of new products, and the effectiveness of our advertising campaigns and marketing programs. We devote significant resources to meet this goal” (PepsiCo, 2008, p.46). Throughout the company’s annual report, there is mention of innovation as well as the team-based culture which exists as the company that makes significant social contributions across the globe. There is no evidence that PepsiCo simply creates a vision or mission statement decreeing the need for innovation but actively involves the entire business, as a system-thinking organisation, to the development of superior foods and beverages products. From a different perspective, another several other professionals identify that in order to meet the many challenges of today’s business climate, organisations must not only be flexible, but innovative. This is accomplished by having a change strategy involving transformational leadership and the development of a positive organisational culture (Sarros, Cooper and Santora, 2008). Innovation would then, under this ideal, be defined as the ability to enhance internal staff activities and behaviours toward meeting the corporate goal of providing superior, competitive, innovative products. As previously mentioned, PepsiCo has all of these strengths and more with its recognition of the multi-talented staff members who contribute to the goal of gaining market share and enhancing consumers’ lives across the globe with new product concepts or developments. 4.0 The most innovative product Outside of just products, PepsiCo has developed internal innovation as a means of reducing energy costs of manufacturing by redesigning how the business is powered. The company recently constructed a wind turbine method of generating power in India as well as several solar-powered manufacturing facilities in the United States (PepsiCo, 2009, p.33). This is both innovation in company operations as well as strategies to ensure that cost-reduction keeps the business profitability at expected levels to out-compete other companies. To classify this innovation, this would be a process innovation and a technological innovation. Another main reason to adopt these renewable energy options for plant operations is to satisfy the growing consumer demand for eco-friendly products and business behaviours. One need only watch television or read local newspapers to recognise that eco-friendly products are finding higher volumes of sales success today, more than ever. PepsiCo’s development of renewable energy sources builds innovation in marketing and promotion by showing consumers that the business is responsible as well as working constantly to provide better products and new snack options. The main benefit of this innovation is that it has a very long life cycle as only competitors with the financial resources and spending power like PepsiCo would be able to capitalise on these renewable energy options. Coca-Cola, perhaps, could develop (or may has already developed) wind turbine and solar power facilities, however the breadth of competition able to create this expensive technology is likely limited to companies which profit billions of dollars each year. The new technologies were launched at a time where consumer attitudes toward eco-friendly and energy-efficient lifestyles was a trend, therefore it likely maintains the ability to bring competitive advantage until these social trends shift away from eco-friendly. Because this new innovation in energy is so new, it is difficult to measure just how much it has allowed PepsiCo to compete in its many business divisions. Clearly, there are benefits in cost reduction in relation to manufacturing operations and could potentially save enough revenue which could be resourced to new and innovative manufacturing machinery. When costs of operating a plant are reduced, there is very large competitive advantage in terms of cash availability and potential expansion efforts. 5.0 A contribution for PepsiCo Because this programme involves engineering, my largest contribution to this company would be in considering the technologies necessary to create better products. In a leadership position, innovation might require looking at other competing companies and their manufacturing processes and attempting to build new methods to create better products at a faster pace. For example, as a leader with foresight into the external environment, I might have the engineering know-how to expand on existing manufacturing processes to allow for labour reductions or to apply a radically-different method to how raw materials become the finished product. At PepsiCo, this might be as simple as adjusting how salt is transferred on its Lay’s brand potato chips or how the soda can be more cost-savings from mixer to bottle. As it was previously identified that there must be a certain amount of flexibility in innovation, process improvements would be part of process innovation and PepsiCo could benefit from my talents in this region, upon receipt of my programme degree. Leadership is another strength which could be offered to PepsiCo . One business expert offers that “innovative organisations should avoid the product commoditization that comes with the flat world” (Carroll, 2008, p.12). What the author is essentially stating is that an organisation requires leadership who can recognise when a product is being commoditized (undistinguished) and work to build a better image for the company. If in a leadership position as a decision-maker, I might suggest that PepsiCo consider reincorporating separate branded products back under the PepsiCo name in its promotional materials. For instance, remind consumers that PepsiCo is the name which understands Quaker and Gatorade as it is the mind and talent which developed them. This is repositioning of marketing whereby the PepsiCo name is strongly attached to its existing branded products. This would require a leader who can offer innovation in promotion, which the chief executive suggested as a business success factor, as another of my talents to contribute to the company’s successes as a competitive foods manufacturer. 6.0 Conclusions The largest conclusion which can be drawn from PepsiCo is that the company is very much an innovator, fully capable of competing against smaller and larger foods and beverages companies. They have innovation in the organisation itself (staff and leaders), they have transformational leadership elements, and PepsiCo also has what appears to be a positive organisational culture. In fact, many of these smiling employees, in multiple business areas, can be seen smiling throughout the company’s annual report as they are engaged in regular business activities. This is positive promotion, and innovation in teams, which has made this such a profitable company. 7.0 Recommendations It is recommended that PepsiCo strongly consider taking their existing, but separate products (Quaker, Gatorade) and bring them back to the original PepsiCo name. Pepsi’s rich history and consumer loyalty which has generally existed for 100 years might be a new innovation in creative marketing by altering brand theories and coming up with a new way to present its existing products (and new products) by giving PepsiCo the largest brand promotion on its packaging. All of the research seems to point toward a deficiency in this area, however the business most definitely understands how to create new products which give customers many, many foods options. This stronger focus on promotion, and changing the way its food and beverage products are presented, might just be able to draw on new innovation in reaching customers to get them to buy more product. This would be something that Coca-Cola does not do and could give Pepsi their stronger competitive advantage and increase market share without creating much cost to the business. Rather than redeveloping manufacturing process, it might only be a matter of reconnecting customers with the Pepsi name to be a leader in innovative sales promotion. Bibliography Bauerlein, Valerie. (2009). “Soda-Pop Sales Fall at Faster Rate - - Coke and Pepsi Look to Marketing, Packaging to Turn around Four-Year Skid”. Wall Street Journal Online. March 31, 2009. www.wsj.com. (accessed April 10, 2009). Carroll, Jim. (2008). “Advice for a flat world”. CA Magazine, Toronto. Vol. 141, Iss. 5, p.12. IBI/INFORM Global Database. (accessed Apr 12, 2009). Coffin, Bill. (2008). “Leading with Wisdom”. Risk Management. Vol. 55, Iss. 9, pp.48-51. IBI/INFORM Global Database. (accessed April 11, 2009). Maddock, Su. (2007). “Seeds of change”. Public Finance, London. 21 Sep, pp.20-22. PepsiCo. (2008). “We are Performance with Purpose”. Company annual report. http://www.pepsico.com/Downloads/2008-Annual-English.pdf (accessed April 11, 2009). Sarros, J., Cooper, B. and Santora, J. (2008). “Building a climate for innovation through Tranformational leadership and organisational culture”. Journal of Leadership & Organisational Studies, Flint. Vol. 15, Iss. 2, p.145. IBI/INFORM Global Database. (accessed April 12, 2009). Read More