Enterprise Integration: The Pepsi Challenge - Essay Example

Letter of transmittal Mrs. Indra Noori, Chairman and CEO, Pepsi Co, United s of America Dear Mrs. Noori, Sub: Report on Strategic Information Management systems in the Company I am enclosing herewith the detailed marketing report regarding the above mentioned project. As is evident, the main issue confronting PepsiCo is in terms of integrating crucial IT systems throughout the entire company and making best use of Business Process Optimization Plans. Presented for your opinion and valuable suggestions, please. Thanking you, With regards, John McAllister Strategic Information Management Consultant Executive summary The purpose of this study is to improve the decision making, to advice the firm to gain competitive advantage over rivals in food and beverage industry and also to advice the firm to build a more profitable enterprise in PepsiCo. It is a far more competitive marketplace than it used to be. PepsiCo is one of the most successful beverage and snack food business in the world. In the beverage business, Pepsi had lost some momentum compared to other food and beverage industry. Today Pepsi-Cola products account for about a quarter of all soft drinks sold internationally. There are different management styles in each country, and besides they vary depending on the industry. PepsiCo has to study the different styles of management, for acting in the best way in each country, adapting its strategy and its structure as far as possible. As far as possible the rivalry, in general is better the national than the international. The problem we find in PepsiCo is because of lack clear technology strategy. This is because there was a high turnover rate of experienced managers in the company. As a result of this, customer complaints started increasing. The business solutions group (BSG) implemented by the PepsiCo doesn’t prove to be a successful plan. They were not able to solve the customer complaints nor were they able to respond to their queries. Enterprise Integration: The Pepsi Challenge Introduction: PepsiCo is one of the worlds largest convenient snacks, foods and beverages companies. In 2005 it had revenues of more than $32 billion and employed around 157,000 employees. The company is made up of divisions - Frito-Lay North America, PepsiCo Beverages North America, PepsiCo International and Quaker Foods North America. PepsiCo accounts a net profit of over $4 billion. Its soft drinks sale in North America amounts to more than $9.1 billion. PepsiCo was originated in the year 1965; it was founded by Donald M. Kendall who was the president of Pepsi-Cola and Herman W. Lay who was President of Frito Lay. Elmer Doolin founded Frito-Lay with the merger of the Frito Company in the year 1960. Tropicana products of the Seagram Company Ltd were acquired by PepsiCo in the year 1998. Tropicana was founded by Anthony Rossi during 1947. Some of the world’s best and the most recognized advertising are provided by the Pepsi-Cola for their customers. Besides this they also offer services like marketing, sales and promotional support and help in developing a competitive place in the market. The Pepsi-Cola are known as the young brands as the new form of advertising are highly attracted towards the customers and they make maximum use of these brands. Problems: Some of the problems that are faced by the PepsiCo include the following: PepsiCo lacked clear technology strategy. This is because there was a high turnover rate of experienced managers in the company. As a result of this, customer complaints started increasing. The business solutions group (BSG) implemented by the PepsiCo doesn’t prove to be a successful plan. They were not able to solve the customer complaints nor were they able to respond to their queries. Aims and purpose: The purpose of this study was to: 1. Improve decision-making; 2. Enable the firm gain competitive advantage over rivals in the food and beverage industry; 3. Build a much more profitable enterprise. Improve decision making The firm will need well defined directions regarding scope and growth. Objectives alone do not meet the need, and additional decisions are required to ensure that the firm holds a profitable place in the market. Some of the steps that would help to improve the decision making process in PepsiCo include the following: Additional research shall be conducted in order to collect the data that are omitted. Calculate secondary economic effects of abatement scenarios. The research should be strengthened. Apply the policy instrument. (Shah & Nagpal, 1997, p. 93). There are various things that the managers in PepsiCo can do to improve their decision making: Reducing hyper vigilance, decision makers or the managers in PepsiCo can avoid sense of anxiety. The managers should see that the employees do not stick to the early decision rather than look at the downsides or more impartially the alternatives. (Furnham 2005, p.542). Advice to enable the firm to gain competitive advantage over rivals in food and beverage industry: A firm is said to have a competitive advantage over the rivals if the firm’s profits exceed the industry average. So the objective of any firm will be to achieve a sustainable competitive advantage. Michael Porter identified competitive advantage on the basis of two factors, they are cost advantage differentiation advantage When the firm is able to provide benefits like those of its competitors but at a lower cost, then the firm is said to possess competitive advantage, i.e. cost advantage. If the firm is able to provide benefits that exceed those of the competitor’s products then it is known as the differentiation advantage. Thus competitive advantage creates superior value to the customers. The cost as well as the differentiation advantage is known as the positional advantages. They are called so, .because it is the cost and differentiation advantages that determine the firm’s position in the industry. The main aim behind the resource based view is to create superior value among the customers. In order to create the superior value the firm has to utilize the resources in a proper way to create a competitive advantage over its rivals. The following diagram combines the resource-based positioning views to illustrate the concept of competitive advantage: A Model of Competitive Advantage Resources         Distinctive Competencies Cost Advantage or Differentiation Advantage Value Creation Capabilities         (Competitive advantage 2007). Resources and Capabilities: The resources possessed by the company should be superior to those of its competitors, only then it could develop a competitive advantage over its rivals. These resources are the assets that would help the company to create a cost or differentiation advantage. Some of the resources that serve as useful assets for the company include the following: Patents and trademarks Proprietary know-how Installed customer base Reputation of the firm Brand equity After the resources are properly allocated, it is necessary to ensure whether these resources are utilized effectively. The ability of the firm to utilize these allocated resources effectively is known as the firm’s capabilities. It focuses on bringing the products in the market faster than its competitors. These capabilities of the firm cannot be documented easily nor is it easy for any of the competitors to replicate. When the resources and capabilities of the firm combine together it comes to know as the distinctive competencies. It brings about quality, efficiency and customer responsiveness which aid in creating a cost or differentiation advantage. Value Creation: Porter identified that values can be created by a series of activities that can be termed as the value chain. For this the firm has to operate in a system of the vertical activities of the value chain. The activities include upstream and downstream channel members. In order to gain a competitive advantage over the rivals the firm has to perform one or more value creating activities than that of its competitors. Values are considered to be superior if they are created at a lower cost that would derive maximum benefits to the customers. The customers must feel attracted towards this value and should derive maximum benefits from this. This can be achieved by developing a product at lower price that could derive maximum benefits to the customers. The company could succeed only if it is able to create products or services that are differentiable from that of its competitors which the customers pursue as unique and derive maximum benefits from it. It is important for the company to undergo a market research in order to develop various differentiation techniques and strategies. Every attempt must be made by the company to see to it that if there is any opportunity that would provide the customers with more beneficial services than that of its competitors. If the customers feel that the services offered by the company are of greater value, then the company could earn maximum profits out of them. Differentiation Strategy & Focus: The differentiation strategy is focused on creating a product or services, which is perceived as unique by the customers. A higher price is charged for the products or services that the company offers. The focus strategy focuses on limited number of market segments. They usually concentrate on the niche markets. Need for differentiation arises in this niche markets and the products are offered to the customers at a low cost. (Brooker 2009). Related diversification of any firm helps the industry to convert its strategic fit into a competitive advantage. PepsiCo is one company that has diversified its business to other related business. The related business of PepsiCo includes soft drinks like that of Pepsi, diet Pepsi, mountain dew, mug and slice. PepsiCo also manufactures fruit juices such as Tropicana and dole; they are also involved in the manufacture of sports drinks, i.e. Gatorade. Other beverage of PepsiCo includes Aquafina bottled water, Sobe, Lip-ton ready to drink tea, Frappucino and they were also involved in the international sales of 7UP. The snack foods of PepsiCo consists of Fritos,, Lay’s, Ruffles, Doritos, Tostitos, Sanitas, Smart Food, Rold Gold Pretzels, Cheetos, Grandma cookies, Sunchips, Cracker Jack, Frito-Lay dips and salsas. They are also involved in the manufacture of cereals, rice and breakfast products. Diversification provides opportunities for combining the activities of the value chain and also helps in creating new resource strengths and capabilities and thus enables the company to compete with its rivals. The most important advantage of related diversification is the ability to produce the products at relatively lower costs than its competitors. The related business activity helps in consolidating the costs and helps in eliminating the costs. These savings of costs can be termed as the economies of scope. “The greater the economies associated with cost-saving strategic fit, the greater the potential for a related diversification strategy to yield a competitive advantage based on lower costs.” (Arthur A 2004, p. 247). PepsiCo that has turned its strategic fit into competitive advantage has the greatest possibility of adding gains in the shareholder value. So the company has a basis of earning better than average profits. But this can be achieved only if the strategic fit has the strong potential for making the related business perform more profitably than they could have performed as individual enterprises. But the thing that has to be taken into consideration is that, there are limitations of related diversification as well. It is not at all necessary that diversification may bring huge profits to the company. If the costs savings of the related business activities and economies of scope are over estimated, in these cases the costs savings and the profits that are gained may be too small. The other limitation arises at the time of transferring the resources. If the transfer is interrupted with any obstacles it may result in diminishing the strategic fit that may bring benefits for the company. The competitive advantage can be developed as a result of innovation. The most important factors that are needed to create industrial competition and national prosperity has to be developed. Advice to build a more profitable enterprise: In order to create a profitable business enterprise, one should be aware of his vision. The company’s goal should be focused on where the business should be directed. All the efforts of the company should be identified as the best by their customers. So it is necessary for the company to meet the needs and wants of the customers. It is necessary to understand their desires and should try to fulfil them in the best possible way. The strength of the company should be analyzed from the point of view of the customers. This would help them in developing the products that the customers desire to achieve and would help in increasing their profitability. Unique value of products and services should be identified. The company must be capable of fulfilling the promises made to the customers. The products and services offered by the company should be unique and different from that of their competitors. Efforts must be made to ensure that the advertising messages are made clear and attractive to the customers. The company should also focus on its capability and flexibility. It should be ensured that proper training is made available to all the staffs in the company. Unless it is made available the productivity of the company will remain low and they won’t be able to provide quality products and services to the customers. A highly skilled work force should be maintained in the company, to ensure profitable growth of the company. In the context of PepsiCo the main problem would be in terms of the fact that plans to centralize key IT systems did not succeed, considering the fact that each division had individual targets to fulfil and they were quite satisfied in meeting or exceeding such targets. The need to integrate with the overall business strategy of PepsiCo was not a priority for divisional management. Thus what really occurred was that each business or product group or unit had its own IT staff which collided with BSG, or the overall Business Service Group. This problem could be solved by better communication networking with divisional managers and greater interaction among the divisional managers themselves. They need to be made to realize that although they are well integrated product groups within themselves, they are also part of the PepsiCo fraternity, and thus also need to think in terms of total unit. Again, it could also be seen in terms of the fact that an integrated approach keeping in view the entire perspective of PepsiCo needs to be taken, especially with regard to centralized IT system. Another problem with regard to marketing of PepsiCo products was heavy returns of beverages. For instance, “Haulbacks-unsold soda that drivers have to bring back to the warehouse at the end of each day can run as high as 30 to 40 percent of each delivery truckload, and they add to inventory and handling costs.” (Enterprise integration) The main reason attributed to this could be in terms of the fact that earlier the delivery staffs were also responsible for booking orders, which resulted, perhaps in more emphasis on selling and less on marketing, which resulted in laxity in delivery and distribution. However, by following a presale system, the responsibilities of selling and delivery has been bifurcated and delivery personnel need not concern themselves with hard core selling. It is believed that under this system, the degree of sales returns could come down substantially. In order to provide for Business Process Optimization Plan, which is intended to remove conflict areas and smoothen the entire business process at PepsiCo, the role of the work force and support staff is very important. Another aspect has been the cola war between Coca Cola and PepsiCo. “Coke has been an established brand with a greater degree of acceptability. But the younger generation prefers Pepsi.” The current Pepsi Theme “The choice of a new generation” is another expression of its youth strategy which is the key point of attack against the “older” Coca Cola. (Ries & Trout 2005, p. 123). It is seen that Pepsi’s marketing strategy has been to attack the weak point of Coca-Cola’s strength, its long market standing and acceptance, preferably by the older generations. Thus, by targeting Pepsi to the newer and younger generation, it sought to make inroads into their markets. (Knowles 2006). Recommendations: Pepsi needs to be ahead of its times. It needs to be visualising the marketing challenges that would lie ahead, not only in terms of is existing rivals and competitors but also the potential threats and challenges that could evoke in the food and beverage (F&B ) market in the long term future. Thus its long term strategies need to be deep rooted and robust, while it also needs to conjure up short and medium term strategies to tackle upcoming and temporary bottlenecks. By entering pristine territories and marketing destinations, co-ordinating with marketing staff and bottlers, reaching out to a wider, diversified and oriented market on a global basis, staying one ahead of the competion and always seeking ways and means to remain on the top posit in F &B markets through dedicated, well intentioned marketing efforts and strategies. Conclusion PepsiCo is one of the most successful beverage and snack food business in the world. PepsiCo is subject to new techniques of manufacturing, for their three business sectors, snack food, juices and soft drinks. Today Pepsi-Cola products account for about a quarter of all soft drinks sold internationally. There are different management styles in each country, and besides they vary depending on the industry. PepsiCo has to study the different styles of management, for acting in the best way in each country, adapting its strategy and its structure as far as possible The Company’s goal should be focused on where the business should be directed. All the efforts of the company should be identified as the best by their customers. So it is necessary for the company to meet the needs and wants of the customers. We expect Pepsi to continue to face strong head winds from unfavorable currency movements during the next two quarters Reference Arthur A, Thompson et al 2004, Crafting and executing strategy: text and readings with online learning center with premium content card, McGraw Hill Professional, viewed 2 May 2009, http://books.google.com/books?id=D35W13gPIpAC&pg=PA246&dq=competetive+advantage+of+pepsi+over+their+rivals+in+the+food+and+beverage+industry&ei=TDX5Sc7vKZGIkAT8lIzpBA#PPA247,M1 Competitive advantage 2007, Quick MBA: Knowledge to power your business, viewed 2 May 2009, http://www.quickmba.com/strategy/competitive-advantage/ Brooker, Katrina 2009, The Pepsi machine: sales are soaring, margins are up, and investors are cheering. 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