Entrepreneurial Audit - PepsiCo - Case Study Example

ENTREPRENEURIAL AUDIT of the of the Introduction Corporate entrepreneurship is closely knitted with the concept of innovation. This innovative platform facilitates developing an infrastructure to sustain and support innovation over a specific time period. Entrepreneurial thinking is all about utilizing resources in effective manner so as to maintain unique position in the market place. Entrepreneurial audit is a mechanism to access entrepreneurship level within an organization. This form of audit indicates supporting entrepreneurship and identifying wide array of barriers. Organizations which are indulged into entrepreneurial audit have a clear understanding about its growth and promoting elements. Entrepreneurial audit outlines specific actions to be undertaken for improving current market situation. This kind of audit is exhibited by experts and researchers in order to reflect upon organizational gaps. There are five areas which are focused on through entrepreneurial audit such as strategic intent, people, process, place and outcome. Strategic intent is inclined towards resource alignment and entrepreneurial effort. People are the most valuable asset of an organization. It mainly represents competencies and characteristics which are required for further growth and development. Process is also involved in supporting growth and it encompasses practices, systems or processes. Place is another factor that enables entrepreneurial skills as it comprises of organizational culture and context. Intangible and tangible results are outlined through organizational outcomes. This study would elaborate on entrepreneurial audit and its strengths or loopholes. Entrepreneurial skills are essential for fostering success and growth of a company. However continuous auditing helps to determine those areas which have contributed magnificently towards company’s success story. Background on Company Size, age, short history PepsiCo is a multinational beverage and food corporation of America. The company has its headquarters located in New York. PepsiCo was incorporated in 1965 after merger of two companies – Frito-Lay Inc., and Pepsi-Cola Company. The company was initially established in North Carolina, during 1898. Founders of PepsiCo are Herman Lay and Donald Kendall. This organization has expanded its business operations across the globe. PepsiCo encompasses an employee base of 2, 74,000. The total revenue margins secured by the company as of financial year 2013 are US$66.415 billion (Hisrich, 2012). Products of this company are distributed across 200 countries. PepsiCo is regarded as the second largest beverage and food enterprise across the globe on basis of revenue margins. Company Structure PepsiCo has wide set of operations and it is efficiently handled through different departments. The company is basically divided into four segments such as Pepsi-Cola North America, PepsiCo International, Frito-Lay North America and Quaker Tropicana Gatorade. Each of these departments is responsible for managing operations of specific regions. The organizational structure of PepsiCo is outlined in figure 1. Figure 1: Organizational Structure of PepsiCo (Source: Kumar, 2003) As per figure 1, each of the branches includes four departments like sales, marketing, operations and R&D and product packaging. Current Business Model PepsiCo creates value for its customers on basis of its innovative business structure. The company invests lump sum amount on production, R&D, distribution and marketing. PepsiCo is inclined towards addressing customer demand and manufacturing wide array of innovative products. The company is operating in an intensely competitive market segment and its major aim is to provide additional benefits to customers. PepsiCo follows a decentralized operational procedure where each regional office undertakes separate actions (Kumar, 2003). There are licensed bottlers located in different regions along with PepsiCo actively indulged into bottling or distribution activities. The company manufactures various beverages and food products, and then distributes it through retailers or wholesalers. Products and Services PepsiCo Inc., is focused on distribution, manufacturing and marketing of beverages, grain based snack products and other food items. The namesake product of this company is Pepsi along with wide range of other food and beverages. PepsiCo in 1998 had acquired Tropicana and in 2001 there had been a merger with Quaker Oats. This in turn facilitated addition of Gatorade brand in product portfolio (Fritsch, 2011). The products or brands being sold by PepsiCo are Pepsi, Mountain Dew, Gatorade, Lay’s potato chips, Tropicana beverages, Diet Pepsi, Lipton teas, 7 Up, Cheetos, Quaker snacks and foods, Aquafina, Sierra Mist, Fritos corn chips, etc. Markets PepsiCo was initially confined only to United States. However with growing consumer market demand, business operations of PepsiCo have spread across the globe. It can be stated that the company adopted innovative business strategies in order to acquire large percentage of market share. International expansion business strategy influenced the company to split into four divisions such as PepsiCo Americas Food, PepsiCo Europe, PepsiCo Americas Beverages, and PepsiCo Africa, Asia and Middle East. 71% of overall revenue margins of the company are obtained from South and North American division. 16% of revenue margins come from European region and rest 13% from other operating regions. Entrepreneurial Intensity Assessment The company has set innovative goals in the form of expanding into different markets with new beverages and snacks for all age groups. Innovation encompasses product and process. For instance, the formula for Pepsi was completely new in the industry and it initiated high profit margins. This venture was indeed risk taking since threat of new entrants and substitute products was relatively high in this market segment. Entrepreneurial grid is an effective concept to identify entrepreneurial intensity of an organization. High Frequency of PepsiCo Entrepreneurship Low Low Degree of Entrepreneurship High As per the Entrepreneurial grid, it can be said that PepsiCo has moderate degree of entrepreneurship and high entrepreneurial frequency. It mainly occupies a position heading towards incremental or continuous. This indicates that company is inclined towards constantly improving its market position. PepsiCo is a market driven enterprise. The company since its incorporation has manufactured products as per consumer market demand. Implications of such market driven approach is observed in its product line changes. PepsiCo in current scenario not only includes beverages but has also shifted towards juices after acquisition of Tropicana. There are sufficient resources being allocated by the company to enhance competitive advantage. Entrepreneurial behavior of employees is encouraged through continuous training and development programs, and required financial resources. The firm can capitalize on key opportunities through a wide base of talented employees. Expertise along with lump sum investment towards research and development might prove to be beneficial for the company. The company has followed a standardized procedure in terms of identifying necessary resources. PepsiCo has always attempted to own resources. It is indulged into distribution and bottling operations. This in turn has provided competitive advantage to the company. The company has effectively managed this competency through either exhibiting distribution or bottling operations, or transferring license to local bottlers (Bornstein, 2007). However this company is more opportunity driven since its operations are greatly affected by changes in consumer taste and preference. The cost structure of the company is more fixed cost based. This is simply because PepsiCo needs to invest in manufacturing plants and other related activities. Operating leverage indicates the rate at which revenue growth is being transformed into operating income. 13% of overall revenue margins are utilized by PepsiCo as their operating leverage. There are certain key traits of entrepreneurial personality like passion, perseverance, resourcefulness, open-mindedness and sponge-like nature. The senior executives of PepsiCo are passionate, open-minded and resourceful. This in turn enables the company to work in collaboration with team members. Democratic management style is followed in PepsiCo. Delegation on basis of this management style holds significance for both middle management and upper management. There are incidents such as launching of new products like Lipton tea and Lay’s potato chips where team members actively contributed their creative ideas. Management has adopted this style so as to enable flexibility in workforce and this builds high trust level. This trust level or confidence on management is utilized for regulating workplace environment. The flat organizational structure of PepsiCo initiates innovation within the system. Hierarchical structure usually restricts employees from performing well. Divisional structure enables workforce to focus on their expertise and implement it in required areas of operations. There are four major departments who are involved in developing new processes, products and services. These units are sales, marketing, operations and R&D department. The departments have been allocated specific actions to perform. PepsiCo involves tight organizational control. This is simply because management feels it necessary to align team members with common goals or interests. The control supports entrepreneurship because team members are required to achieve set targets in specific time frame. There is a productive appraisal system incorporated in PepsiCo. Both monetary and non-monetary rewards motivate performers as well as non-performers. It enriches employee behavior since it demonstrates effectiveness of team work. Performance based incentive structure plays a key role in upgrading performance standards. Awards are given to those employees who have performed well throughout the year, maintained good relationship with internal and external stakeholders, contributed innovative ideas and performed magnificently well in group work. Hiring practices in PepsiCo is based on external and internal recruitment policies. Individuals are hired based on their expertise, knowledge, creative and leadership skills. To be more precise PepsiCo demands for innovators rather than followers. Pepsico practices an open and transparent communication system within the company. The managers and leaders of the organization communicate frequently with the employees for enhancing their work performances. The company performs its different function by doing team work. In this process the employees communicates with each other for achieving their team target. As a result strong communication happens in between them. The company has market oriented organizational culture. The key values of this culture involves in focusing the competition for achieving success in the business. Pepsico believes in getting the job done by its employees. This culture is reinforced by the company by implementing rules and providing training to its employees (Mcfarlin and Sweeney, 2008). To some extent market culture supports entrepreneurship. The company is very much efficient in managing large number of employees. Based on its product the company has divided its organizations into different units. These units are controlled and managed by efficient people. As a result the company is able to implemented procedures and policies easily as per the requirements. The employees of Pepsico are frequently given training to adopt different organizational changes and to learn new things. So when the company changes some of its process and policies the employees feel that this change will benefit them in the long run. Therefore most of the employees gladly accept the change. When an employee fails to fulfill its target or responsibilities then Pepsico coordinates with the employee and try to understand about the problems he has faced for performing his job. On the basis of those problems, the company provides training or supports the employee in doing his job. The firm operates its business operations for fulfilling the ongoing sense of urgency. When the company observes that the market is following some new trend related to the products the company is dealing with then Pepsico follows the market trend by developing or enhancing its products. The most entrepreneurial department area of Pepsico is its Research and Development department. In this department the employees make innovative products ideas which help the company to capture the market. The least entrepreneurial department of this company is its sales department. Here the employees hardly get any chance to innovate new ideas. They only have to focus on selling products. Donald M. Kendall and Herman Lay are the two innovation champions in the company. They have founded the company. With these innovative skills and capabilities the company has been able to establish a strong position in the competitive market. They have designed the business in such a way which helps the company to achieve its target (Weber, Story and Harnack, 2006). Pepsico has launched its new soft drink call Pepsi Max. This new product is far better that the old soft drinks of Pepsi. For making this product unique the company has added many more ingredients and flavors in Pepsi Max which is helping the company to attract more customers. Another entrepreneurial thing the company has done is launching Doritos Jacked 3D snacks (Kish, Riskey and Kerin, 2001). This snack has different flavors which is attracting and satisfying more customers. As the organization follows market oriented culture so its gets many less scope for developing innovating strategies, products and policies. They mainly follow the market trend. For this reason the company puts less focus on developing innovative products and ideas. Therefore the company gets less competitive advantage. Climate Assessment Critique of top management The top management is solely responsible for framing business strategies. Entrepreneurship mainly reflects innovation. This innovation takes place at the top managerial level and then trickles down at lower managerial levels. Democratic leadership approach is promoted in PepsiCo and this in turn gives power to top management in context of undertaking final decision. It can be stated that entrepreneurial intensity is facilitated through upper management of an organization (Fuchs and Shapira, 2005). Top management of PepsiCo has always been aligned with corporate goals. Their main aim was to develop a base of talented employees and make them future leaders of the company. Innovative strategies which are market oriented are designed by upper management of PepsiCo. Company vision and overall strategy PepsiCo’s vision is to undertake programs and environmental concerns, so as to design actions that can benefit stakeholders and society. Shareholder value is created through wide spread operations of the company. This in turn helps to transform the company into a sustainable one. PepsiCo aims at creating a sustainable image in the market place. The corporate strategy of PepsiCo revolves around employee empowerment and customer centric approach. Market oriented approach has enabled the company to secure high profit margins. The company alters its business strategies according to changing market trends. This aspect enhances entrepreneurial intensity of the company in form of adopting new techniques and addressing hidden consumer market demand. Internal Strategy Internal strategy mainly corresponds to innovation and entrepreneurship. Business strategy can be classified into two types such as internal and external. External business strategy deals with customers and their respective demand conditions. On the other hand, internal business strategy is associated with employees and workplace environment. It is evident that internal business strategic formulation needs to be effective enough in order to implement innovative strategies. PepsiCo encompasses an internal business strategy in which employees are encouraged to participate in decision making process (Birley, 2005). This in turn initiates a sense of ownership amongst all team members. Internal strategy is deeply correlated with team work which contributes towards entrepreneurial intensity. Company Structure and Management Levels A flat organizational structure has been adopted by PepsiCo in order to eradicate the concept of hierarchy. The major reason behind this approach is to shift locus of control. Top management of PepsiCo believes in transforming control so as to gain required control on team members. This particular structure enables the firm to gain further knowledge on region wise demand or preferences. On the other hand, management levels also affect entrepreneurship intensity. The company comprises of three managerial levels in broader context and they are indulged into decision making process. However decisions are framed at these managerial levels is not communicated across other departmental members (Jones and Dimitratos, 2004). Structure along with management levels outline intensity of entrepreneurship at PepsiCo. Control Systems Control system is another component which contributes towards entrepreneurial intensity. In overall context, control is an essential element since it is aligned with accomplishment of tasks. PepsiCo is focused on tight control system which is highly contradictory with its democratic management style. This management style indicates that employees are given flexibility to perform and undertaken tasks. However tight control on team members restricts them from performing well or contribute creative ideas. This factor is responsible for entrepreneurial intensity since it states open mindedness, team work and passion of an entrepreneur. The tight control mechanism lowers the level of entrepreneurial intensity. Human Resource Management Human resource management is the most valuable intangible asset of an organization. They are responsible for creating an innovative workplace environment. PepsiCo encompasses a wide base of talented employees. These employees contribute towards company success and growth. PepsiCo has its operations spread across wide geographical areas. There are multiple departments who are responsible for handling such widespread business operations. Human resource management in PepsiCo includes performance appraisal system. This system is inclined towards rewarding those employees who are performing well in respective departments. Human resources in PepsiCo are provided with continuous training and development programs. These programs help team members to gain leadership skills or attributes for future success and growth. Culture Culture is an important aspect that governs entrepreneurial intensity. Organizational culture basically denotes values or ethics followed by team members. Entrepreneurs are responsible for developing a culture where employees are constantly motivated to perform well. PepsiCo encompasses an organizational culture where team members are influenced to frame innovative ideas and implement in real time scenario. Culture over the years has intensified entrepreneurship within PepsiCo. Team members feel a sense of ownership while performing in this company. This creates value addition in workplace environment. On the other hand, a friendly work culture is a key to success for many companies. This culture has supported founders of PepsiCo to expand on its business operations over wider geographical regions. Recommendations PepsiCo is supposedly one of the most renowned companies across the globe. This organization has been able to secure high profit margins over the years with the support of team members. Employees are encouraged to formulate innovative strategies and rewards are based on their performance level. Performance based pay structure has influenced many employees to perform above standard. However there are certain areas which need to be focused on to improve upon entrepreneurial intensity. Firstly the market oriented workplace culture is not suitable for long run. This is simply because there is lack of innovation in the entire business approach. Innovation is directly linked with entrepreneurial activities. It can be stated that all entrepreneurs are majorly innovators and risk takers. Risk taking capability is comparatively low in PepsiCo. There are many multinational enterprises which have not stayed confined to specific product category. PepsiCo should undertake product line extension. This would give the company a wider scope to operate. It is also essential to retain market position for long run. Competitive advantage cannot be gained through following market oriented business strategies. This aspect can be addressed only through being innovative and undertaking risks which can guarantee future growth. Market oriented strategies provide the company with ability to remain competitive in the industry. PepsiCo has restricted its business operations to beverage and food industry. It has entertained different forms of mergers and acquisitions as risk measures. As per current scenario PepsiCo needs to focus more on research and development activities. On basis of these activities entrepreneurial intensity will be enhanced in terms of new product development. It is recommended that the company should incorporate changes in organizational culture. These changes will be aligned with corporate goals. Democratic management style is followed by PepsiCo but it also encourages tight organizational control. The company is greatly dependent on market conditions due to lower levels of innovation and risk taking nature. In intensely competitive market place it is essential for all firms to be inclined towards innovation. Innovation begins at upper managerial level but needs to be communicated across the system. This is simply because employees have to gain required skills so as to ensure that they are future leaders of the company. Tight organizational control of PepsiCo degrades the level of entrepreneurial intensity. It is recommended to incorporate laissez faire leadership approach in organizational system. This particular leadership style is beneficial in context of enhancing skills and knowledge base of employees. On basis of this approach team members are regarded as individual leaders in their respective departments. Employees can then explore wider base of ideas and utilize it for overall profitability. In real word scenario, laissez faire is a complicated mechanism to be implemented by any firm. This aspect weakens control of an organization. However laissez faire is a critical component when it comes to entrepreneurial activities. The approach lays the foundation whereby employees are involved into strategic decision making process. It can be stated that decision making process is a vital factor in business strategy formulation. Employee involvement is essential in such process since it is associated with effectiveness of business strategy. Innovation is linked with laissez faire leadership approach since it encompasses employees exploring creative ideas. This is accompanied with leaders exercising less control over organizational system. To certain extent an organization needs to have control over employees. Tight control restricts team members from contributing innovative ideas which could be beneficial for an enterprise. Entrepreneurial intensity can also be enhanced through following appropriate performance appraisal system. Appraisal system as incorporated by PepsiCo only deals with rewarding those employees who are performers. This strategy is not suitable for non-performers. The company needs to take into consideration both performers and non-performers. Employees can be motivated only when they feel sense of ownership within the system. Team members should be able to consider themselves as most valuable asset of organizational system. Training and development is not a frequently occurring phenomenon in the company. This area needs to be focused on top management of PepsiCo. Training programs should be designed in such manner that performers as well as non-performers are equally benefitted. It is observed that majority companies are inclined towards upgrading skill set of those employees who perform well in the industry. On the contrary, non-performers are not retained by a company. Human resources are most essential intangible asset of an organization. Entrepreneurial intensity can only be increased when team leaders are focused on incorporating necessary skills within team members. These skills and constant support from management is a tool to keep employees motivated. Open communication system is prevalent in PepsiCo but it is recommended to be improved. Communication system has to be strong in any organization. This is not only centered towards gaining feedback from employees but also involves undertaking required actions. Employees have to be approached by management in order to analyze their problem areas and suggest solutions. PepsiCo has encountered trade union issues in the past and it is due to ineffective communication channels between both parties. Entrepreneurial activities are not only confined to formulating innovative strategies but also comprises of dealing with critical situations. Two-way communication channel is established only when problems are discussed well between both parties to gain effective solutions. As discussed earlier, culture is an important factor which contributes towards entrepreneurial intensity. This cultural aspect needs to be altered in PepsiCo. Cross-cultural diversity management has to be a major strength of the company. Employees coming from different cultures contribute magnificently towards company success and growth. This form of cross-cultural concept enables team members to analyze various factors associated with different regions. Entrepreneurial intensity is increased only when management is able to handle diverse cultural background employees. These diverse culture based employees shall not only contribute innovative ideas but will also help in identifying risk factors associated with specific regions. References Birley, S. (2005). International entrepreneurship. UK: Routledge Bornstein, D. (2007). How to change the world: entrepreneurs and the power of new ideas, updated edition. New York: Oxford University Press. Fritsch, M. (2011). Handbook of research on entrepreneurship and regional development: national and regional perspectives. UK: Edward Elgar Publishing. Fuchs, G. and Shapira, P. (2005). Rethinking regional innovation and change: path dependency or regional breakthrough. USA: Springer. Hisrich, R. D. (2012). International entrepreneurship: starting, developing, and managing a global venture. USA: SAGE Publications. Jones, M. and Dimitratos, P. (2004). Emerging paradigms in international entrepreneurship. UK: Edward Elgar Publishing. Kish, P., Riskey, D. R., and Kerin, R. A. (2001). 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