Executive Summary
The strategic plan of Pepsi aims at establishing a clear vision and defined goals of how to maintain market leadership of Pepsi and how it has been able to be the best employer in the recent past. Pepsi Co majority of the times had a dominant position in the market, however, at the same time, it has also faced intense competition from its rival, Coca- Cola. The one type of change that it has experience in the last five years is its Diversity Inclusion Project which is now being led by CEO, Indra Nooyi, who has also been a major transformation in the company’s management since she is a women trans-cultural leader. Nooyi has been who has overcome challenges faced by the company by anticipating market change and staying determined towards her goals. Now, the strategic plan of the organization is to focus towards healthy products in order to cater to the increasing health conscious consumers. In order to use change management in innovation and monitor success of the plan, a gated innovation process will be used that involves idea identification, concept validation, customer validation and growth plan. Moreover, employee feedback will be taken at regular intervals to assure their satisfaction and incorporate constructive feedback in the decision making process.
Define organizational change and its applicability in business.
With the advent of globalization and flexibility in the environment, organizations are now required to practice change management in order to survive the thriving competition globally and to be sustainable in the long-run. Organizational change occurs when there is a change in the organization’s structure, culture or values. A change can also occur when there is a change in the vision or mission of the company since the vision gives a broader perspective of where the organization wants to be in the long run. Change management is a new phenomenon and requires change agents in order to make the organizational structure and culture adaptable to the changing environment. It needs to be done strategically and is of utmost importance where the leaders of the organization need to play a distinctive role in successfully managing the change of the company and keeping all stakeholders satisfied. With the advancement in technology and the increasing role of media, the flow of information has become extremely fast-paced and the same time, product development is taking place very frequently. In such a fast-paced environment, organizations are required to come up with new strategic plans and better ideas to maintain the market leadership or penetrate into a new market, otherwise, the competition is so intense that the one who lags behind clearly loses the competitive advantage.
Stages of Planned Change-Lewin’s Theory
Organizational change can be planned or it can be contingent to an emergency situation. Kurt Lewin introduced a theory about planned change where he identified three different stages of change: unfreezing, changing, and re-freezing.
Unfreezing: Unfreezing is the stage where organizations are required to let go off their old practices or old style of management in order to prepare itself for the change, since according to Lewin, change cannot occur unless organizations abandon their old practices.
Changing: This is the stage where you give shape to the melted ice, that is, organization is ready to adapt to new changes such as changing leadership style, changing ways of communication strategies and changing systems. This transition takes place over a certain period of time and requires people to be more tolerant towards the changing practices.
Re-freezing: Re-freezing occurs when the organization has achieved stability and is then in the process of progressing the new ways adopted. At this stage, the change agent is required to reinforce the change and assure that it is helping in achieving the new organizational goals.
Forces of Change
In addition to Lewin’s theory, there are also different forces for change that can either be in favour or against the change taking place. Forces that drive change can be the increased market competition, the new technological advances, and increased demand from customers. These are the external forces that can drive change. Internal drivers for change can be the dissatisfaction of employees with the existing system or the management leading to high turnover and low productivity.
However, at the same time, there can be forces that resist change such as increased internal conflicts in the organization as a result of the change procedure, new project failures since the organization is taking risks as well when undergoing change and the external environment at times might not be ready to accept the change.
In order to enforce positive forces of change and avoid the inhibiting forces, organizations should involve employees in decision-making process and make them participate in teams so that they do not feel alienated and are motivated to work collectively in easily adopting the changed practices and be supportive of each other.
Applicability in Business
Organizational change has been very much evident in today’s organizations with the various transitions in their structure and culture. Pepsi Co, for instance, has been facing constant competition from its rival Coca-Cola, for which it has to keep on changing its marketing strategies and development ideas. In order to do so, it requires charismatic leaders who can think beyond and achieve growth. One of its CEOs, Gary Rodkin, faced a challenging situation when it joined the company; Pepsi Co’s new brand, Pepsi ONE, was failing badly in the market. Rodkin then had to overcome the resisting forces and take big decisions regarding the re-structuring of the organization and a major shift in culture where it focused more towards executing bottling operations than developing strategies. Rodkin had also undergone change management in 2003 when its newly proposed structure called PCNA was not working well. He then proposed a planned change where his major objectives were to inculcate strong leadership team, common vision, unified front to all stakeholders and strengthen product development. Thus, organizational change had been very much applicable in Pepsi Co and it has been a continuous process of learning and developing since over a decade. Similar practices have also been witnessed in other organizations and those that have failed to innovate or change, have meant to fail because of high bureaucracy in organization leading to de-motivation of employees and an unfriendly culture. Therefore, in order for the organizational change to be applicable in the business, managers need to act like change agents and think strategically to plan out a successful change.
What is one type of change that your company experienced in the last 5 years?
The biggest change that the company experience in the last five years is the collaboration with to build a globally inclusive organization. In order to respond to the global environment, Pepsi Co International was created in 2003. The new corporation aimed at managing change by developing synergies and capitalizing on capabilities in order to achieve competitive advantage. The challenge for the company was to establish shared value systems to manage diversity at a global level in order to ensure smooth flow of the organization.
The company, thus, came up with a cultural transformation project in order to change the values, beliefs and systems incorporated in the organization. In order to do so, it carried out this project on a massive scale where the ultimate goal of the project was to bring the whole global organization on one platform, which involved 90,000 employees across all levels in approximately 180 countries with different time zones and over 40 primary languages.
Pepsi Co wanted to create an inclusive work environment where all employees are treated with fairness and respect. In order to implement the goals, the company adopted the 8-step change model of John Kotter. The organization wanted to achieve growth, continue market expansion and as well as support talent development for a globally inclusive culture. TMC then incorporated Kotter’s 8-step model into four phases, which included: local ownership and relevance, awareness, capability and sustainment. This was implemented by conducting leadership workshops, introducing Diversity and Inclusion Practitioner Certificate Program and conducting 3 hour sessions workshops regarding cognitive and emotional requirements for change.
The preliminary results of this change were witnessed in the last five years with:
In 2010, Pepsico was recognized as the Top Employer around the world by various regional magazines. Forbes magazine recognized it as a place where women can be promoted fastest. The biggest change is evident in the fact that a female trans-cultural CEO took over in 2006, Indra K. Nooyi. She was the one who took the initiatives of spinning off Taco Bell, KFC and Pizza Hut before she took over the office. Once declared as the CEO, the main goal of Indra was to achieve ‘Performance with Purpose’. With the identification of the increased health conscious market segment over the period of time, which has also been one of the reasons for decline in sales in the beverage industry, Indra now aims to focus on more healthy products to cater a larger target market. For PepsiCo, Indra is the new change agent, who has been successful in the past with her strategic decisions and will continue to give a strategic direction to the company by responding to changing consumer needs and the changing business environment that has increased competition for PepsiCo. With the major change of implementing Global Inclusion Project, the company has encouraged diversity and stressed on achieving work-life balance which has been one of the key reasons of how it has been able to achieve performance growth with increased employee satisfaction who then work devotedly to satisfy the end consumers.
Nooyi believed that in the statement of her predecessor Steve Reinemund who stated that in order to be comfortable one has to first become uncomfortable. For doing so, Reinemund gave its employees an unusual assignment where he established different groups such as African-Americans, whites, Asian, women, Latin, disabled, homosexuals, and so on. Each group was assigned an executive sponsor who would be different from the people he is sponsoring. This assignment was done in order to give an experience to managers of how to deal with people of diverse cultures and how leadership roles need to be changed in order to adapt to the situation at hand.
In order to regain Pepsi share in the market, Indra Nooyi has been focusing a lot on how to deal with obesity problems and how Pepsi Co will be implementing a multi-year strategy in healthier future of the people. Her focus is towards corporate social responsibility and better nutrition for consumers by promoting low-calorie Gatorade and whole-grain cereals. The complete shift in her strategy and managing it globally has been a fundamental change in the strategic direction of Pepsi in order to meet the changing needs of consumers. Nooyi is also instilling global leadership among employees and has been one of the highest-ranking executives because of her capabilities of leading one of the largest U.S companies. The CEO will have to keep a close watch at the changing technology and the emerging strategies of competitors while at the same time focus on global inclusion to maintain leadership of Pepsi Co as a brand among all its stakeholders. Such a change has been challenging for the company but has been working in favour of it as well so far.
How will you use change management in innovation to help monitor the success of your plan?
Innovation through change management is not a new phenomenon. In fact, innovation in the recent past has been taking place through change management where leaders are required to go beyond their traditional thinking and come up with new strategic ways of doing business. However, with the high risk of uncertainty in the environment, managing change and innovation at the same time is a tedious task. In order to innovate, something new has to be adopted, be it in a form of technicality or communication skills. In order to undergo such a change, organization needs to learn, not in a reactive way but in a proactive manner. Innovation requires investment, thus, there needs to be a motivation for the organization in order to trigger the change. Some of the external triggers of change are consumer expectations, increased pressure due to competition, new technology, societal change, environmental change or an economic change. Internal triggers can be new leadership, problems in operations, or inconsistency in company’s performance.
A gated process can be used to implement innovation strategy and inculcate positive change while at the same time reducing the resisting factors to change. The gated process requires idea identification, concept validation, a demo plan, customer validation and the growth plan which ultimately leads to development of the product. The successive gate at each step reduces uncertainties and strives for the road to success by careful decision making at each stage. This happens because innovation is done with assurance at each stage where the concept is validated, then customer approval is considered and then a growth plan is set before actually launching or developing the final product.
Secondly, in order to assure success of the plan, and encourage innovation, firstly, the internal resistance will have to be tackled, that is, employees need to be prepared for the change. In order to do so, a leadership role is required that focuses more towards relationship building and participatory style of management so that the individual goals of the employees are aligned with the organizational goals and resistance due to job insecurity or fear of losing position is reduced. Change management will also be used by taking continuous anonymous feedbacks from the employees by providing them with a structured evaluation form that they would have to fill in every month in order to find out about their satisfaction or dissatisfaction level with the innovations taking place. Moreover, the leader will also be required to establish a clearly defined vision for the organization with specific goals so that employees have a long-term view of the organizational planning. Similarly, employees will be divided into cross divisional teams and relevant ideas will be incorporated in the product development process to assure greater satisfaction. Manager who will be acting like a change agent will encourage constructive conflict where different ideas are put forward and the best alternative is chosen by the employees only. First and foremost, internal branding will be done where employees will at the same time be treated as customers to find out what they have to say about the change in the organizational strategy, product, service or structure.
At the same time, satisfaction of the end-consumers is also immensely important. Failure to satisfy customers results in a serious blow to the company. This had happened in the mid 1970s when PepsiCo launched a new innovation strategy known as ‘The Pepsi Challenge’. It conducted a blind test to compare its taste with that of Coke, and majority of the customers preferred Pepsi. However, when it came into the market it changed its thirty years of differentiation strategy towards direct product comparison. This only worked for a short period of time, since Coca-Cola then responded by offering price discounts which led to a price rivalry between the two companies, resulting in decreasing profits of both the companies .
This also provides a lesson that when a change is being planned while implementing innovation it needs to be done with careful analysis. Since the strategic plan of PepsiCo now involves targeting health conscious customers, it can monitor the success of the plan by identifying key indicators of performance or the critical success factors that can help achieve sustainable sales growth. Also, value-added indicators should be identified in order to find out how much value addition is being done with the implementation of the new plan. Innovation is not possible without value-addition, therefore, it needs to be incorporated in the success of the plan. Moreover, a time frame should be set for each action to monitor the extent to which the plan is being achieved and to encourage and reinforce behaviour if a decline in performance is observed. Such style of management where managers first themselves readily accept change before enforcing it further, would help the employees in successfully implementing the plan.
What is that one challenge the company has experienced recently?
The Pepsi Company is facing a rough stretch due to the poor performance that it has experienced in the recent past. The poor performance is due to the escalation of commodity prices and the changing demands for the sugary drinks. The latest statistics indicated that diet coke sales had overtook those of the Pepsi Company in the United States according to the beverage digest. The coca cola company is putting more pressure to the Pepsi Company because of the stiff competition that it presents globally.
It has become a great challenge to revive the carbonated beverage drinks of the company because it spent more time to focus on health and the awareness about their brands. Despite the much capital investment, the recent reports indicate that the company is showing a slower growth and in the last year it indicated a price fall of 5%. The focus on the health and creation of awareness is a good idea but the company must know that focusing on that issue only will not serve any beneficial gains to the company. The company must step up and increase the capital investment so that it can boost the investors and management confidence in their operations.
What is working well in the organization?
The company’s new strategy is working well with the organization. The company has decided to modify its products and it now pays more attention to offering water, tea, juices and several sports drinks. Aquafina and Gatorade are among its top brands; the Lipton tea and Tropicana sells the most in the world. The goal to modify the products was boosted by hiring of the established nutritionists that worked to reduce fat, sodium and sugar in all its products.
Implementation of management strategies
Pepsi Company has recently implemented managerial strategies that have helped the company to increase its revenue. To raise the profit margin and revive the business the management carried out strategies such as diversification, value chain alignment and one culture maintenance. In the related diversification, the company eliminated restaurants such as KFC, Pizza Hut and Taco Bell from its business portfolio and Tricon Global Restaurants was developed. The Pepsi Company was focusing on connected diversification and eliminated the firms that were not connected to the fundamental business of snacks and beverages. The company has also implemented its strategy of maintaining one dominant culture referred to as Frito-Pepsi culture.
In the implementation of management strategies, the company spun off more than half of its operations related to bottling across the globe. This performance helped the country to earn $1 million on the initial public offer. It was implemented to make the company more specialized and focused in new product development and marketing strategies to support them.
The other strategy that has been implemented by the company is the value chain alignment between its brands and products in order to enhance competitive advantage and economies of scale. The present strategy was aiming to cut annual costs by restructuring value chain activities of the company’s beverage and snack firms. To do this, the company integrated corporate global procurement, joint supply of Quaker snacks and integration of Tropicana and Gatorade hot fills. All these factors have contributed to tremendous growth of Pepsi Company to become one of the largest Beverages and Food Product Company in America. The strategies have also helped the company to enhance its competitiveness in both domestic and international market.
The above strategies were highly influenced by a reason that can be divided into two main factors; external factors and internal factors. The external factors were due to the rise of market saturation and increase in price competition. There was developing number of beverages and fast food firms with increase in value dependency. The volume of the product rose in the market hence cause price variation among the competitors. As a result, the company was forced to undertake such effective strategies to maintain its position in competitive market. There have been existing opportunity in the international market but yet the entrance in this market was challenged by its connected risks. Different taste and preferences, government restrictions unavailability of qualified personnel and costs of site development posed entry barrier to the market. To overcome this, Pepsi Company has to develop and implement management strategy that will promote its operation in the international market. The internal factors that drove the implementation of these strategies were the company’s expertise in its operations. The company aimed to meet the consumers’ satisfaction by providing quality services and products and equation of value.
Organization Theory
The company can appropriately embrace theory X, constructed by Douglas McGregor, as an organization theory that can help it to enhance growth off the business. This theory X focuses on human resource with perspective that workers should be coerced with reward as motivational factor. The theory assumes that workers need to be directed since they always avoid responsibilities. The theory would assist the company to be more productive because optimal utilization of resources is attained when the workers are monitored and motivated. Workers should not be allowed to control themselves; therefore, managers should always be there to give direction.
Describe and Diagram the Organizational Structure
The company is considered an adaptive organization that is seeking for massive improvement, creative ideas and innovations that will enable it to be stepped further in competing in the market world. The organizational structure is decentralized and the operational decisions are made and implemented by the company units at every level. The organizational structure of Pepsi Company highlights three major areas: The pre-November 2007, post- November 2007 and the reasons for the change in the organizational structure. The recent Pepsi structure is made up of three units:
i. PepsiCo Americas Foods: includes Frito-lay North America, Quaker and Latin foods
ii. PepsiCo Americas beverages: PepsiCo North America, the Gatorade and Tropicana drinks
iii. PepsiCo International: it covers Europe, Asia and Africa.
The organizational structure of the company was changed so that they could compete with the stiff competition from other companies and also increase their profit margins and success. The company took a step of reorganization by adding a senior management level so that they could capitalize the advantage across the globe. The manager stated that the company was growing at a faster rate and it had the ability to manage the three levels instead of the two.
The structure modification aims to manage and promote the growth of the company in different parts of the globe. The operations of the company are divided so that it can prevail and conquer the other companies in the existing universe. It can be seen that, the structure is a decentralized one and it empowers the employees to stand up and accomplish their roles as per the mission and vision of the Pepsi Company.
Do adjustments need to be made in the leadership structure to implement internal efficiencies for maximum profitability? Why?
I support the need for adjustments in the leadership structure of the Pepsi Company. The adjustments will help to maximize profits that are generated by the company. The leadership must be composed of strong, qualified and talented work force that is inspired in improving the company performance. The adjustments in the leadership structure will ensure that the current leaders get into serious matters that will boost the performance or lie in the fate of losing a job. There will be monitoring and evaluating to scrutinize departmental units and individual performance so that replacement of the leaders who do not carry out their roles adequately get replaced by other individuals. The company also has very ambitious goals to expand globally and increase their sales; this is another reason for additional senior-level managers that will steer the efforts to reach different parts of the world. The new organizational structure of the company which has three units needs more senior managers to play a role in the implementation process.
There is also a need to promote the procurement and the information technology departments through employment of experienced managers to fully adopt them in the company. The adjustments to the leadership structure of the Pepsi Company will eliminate the unfocused senior level managers who do not work for the benefit of the company. The injection of fresh blood in the management team will boost the morale of the workforce and increase their willingness to work with the new managers.
Pepsi Company has recently implemented managerial strategies that have helped the company to increase its revenue. To raise the profit margin and revive the business, the management carried out strategies such as diversification, value chain alignment and one-culture maintenance. In the related diversification, the company eliminated restaurants such as KFC, Pizza Hut and Taco Bell from its business portfolio and Tricon Global Restaurants was developed. The Pepsi Company was focusing on connected diversification and eliminated the firms that were not connected to the fundamental business of snacks and beverages. The company has also implemented its strategy of maintaining one dominant culture referred to as Frito-Pepsi culture.
In the implementation of management strategies, the company spun off more than half of its operations related to bottling across the globe. This performance helped the country to earn $1 million on the initial public offer. It was implemented to make the company more specialized and focused in new product development and marketing strategies to support them.
The other strategy that has been implemented by the company is the value chain alignment between its brands and products in order to enhance competitive advantage and economies of scale. The present strategy was aiming to cut annual costs by restructuring value chain activities of the company’s beverage and snack firms. To do this, the company integrated corporate global procurement, joint supply of Quaker snacks and integration of Tropicana and Gatorade hot fills. All this factors have contributed to tremendous growth of Pepsi Company to become one of the largest beverage and food Product Company in America. The strategies have also helped the company to enhance its competitiveness in both domestic and international market.
The above strategies were highly influenced by a reason that can be divided into two main factors; external factors and internal factors. The external factors were due to the rise of market saturation and increase in price competition. There was developing number of beverages and fast food firms with increase in value dependency. The volume of the product rose in the market hence cause price variation among the competitors. As a result the company was forced to undertake such effective strategies to maintain its position in competitive market.
There have been existing opportunity in the international but yet the entrance in this market was challenged by its connected risks. Different taste and preferences, government restrictions unavailability of qualified personnel and costs of site development posed entry barrier to the market. To overcome this, Pepsi Company has to develop and implement management strategy that will promote its operation in the international market. The internal factors that drove the implementation of these strategies were the company’s expertise in its operations. The company aimed to meet the consumers’ satisfaction by providing quality services and products and equation of value.
Organization theory
The company can appropriately embrace theory X, constructed by Douglas McGregor, as an organization theory that can help it to enhance growth off the business. This theory X focuses on human resource with perspective that workers should be coerced with reward as motivational factor. The theory assumes that workers need to be directed since they always avoid responsibilities. The theory would assist the company to be more productive because optimal utilization of resources is attained when the workers are monitored and motivated. Workers should not be allowed to control themselves; therefore, managers should always be there to give direction.
Importance of Management Strategies
The most significant reason why the management strategies are important is making of the difference in how well companies are operated. The strategies are based on the question to the failure or success of the business, and why company operating under the same environmental situation differs. The answer is simply because; the companies that embrace and implement the management strategies have many opportunities and high performance level that enhances the company’s competitiveness.
The management strategies are also essential in decision making of a particular organization. The world is rapidly changing and growing resulting to resources becoming more scares. Thus an organization has to be armed with management tools to contain the effects of scarce resources. The changes also exert more pressure on global business environment and efficiency in competition. The company also needs to be innovative, unique and meet the satisfaction of its customers and other stake holders. All these needs can only be met if the management formulates and implements new strategies to perform as managerial tools. These strategies help a company to attain success and its objectives since the company can be able to sustain threats and exploit new opportunities.
In conclusion, managerial strategies enhance efficiency, distribution system, familiarity and exploitation of new and external markets. The company can also be able to target their interested group of customers. Consequently, the company can be able to increase its production, increase sales and cut cost to operate as a profitable firm in a competitive environment. The company can also be able to beat its competitors and stand out as a unique organization in the market environment.
References
Hamstra, Mark (April 28, 2012). "PepsiCo sells Hot 'n Now, eyes other divestitures". Nation's Restaurant News. Retrieved December 15, 2010.
Johnson, G, Scholes, K, Whittington, R. (2008). Exploring Corporate Strategy, 8th Edition, FT Prentice Hall, Essex.
Berlitz Company. (2009). Connect Cultures. Maximize Performance. Retrieved November 7, 2012, from Berlitz: http://www.berlitz.com/SiteData/docs/TMCPepsiCo/9ffce16a0e3f1f24/TMC_PepsiCo_03.pdf
Hill, C., & Jones, J. (2008). Strategic Management: An Integrated Approach. Boston: Houghton Mifflin Company.
