Management and organisation of PepsiCo. Analysis of two case studies

Table of Contents

Table of Contents

List of Abbreviations

List of Illustrations

1. Introduction

2. Summary of both case studies

3. Analysis of the case studies through the 7-S Framework

4. Diversity management and Corporate Social Responsibility in the context of leadership

5. Indra Nooyi´s leadership style
5.1 Intercultural background
5.2 Theoretical leadership models
5.3 Evaluation of Nooyi´s leadership style

6. Recommendations for other food and beverage companies

Bibliography

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Illustrations

Illustration 1: The 7- S Framework

Illustration 2: Spheres of Activity in the Management of Cultural Diversity

1. Introduction

The American company PepsiCo is among the world´s leading companies in the food and beverage sector having a net revenue of 66 billion dollar in 2013 and being active in more than 200 countries (PepsiCo 2014). Starting diversity management under the former CEO Reinemund, the company has taken a step towards an increasing trend of multinational companies in the course of successfully entering new markets. The current CEO Indra Nooyi who is representing diversity herself introduced another aspect besides performance orientation to PepsiCo - Corporate Social Responsibility (CSR) reflected in her company vision “Performance with Purpose”. The following seminar paper is guided by the questions of how PepsiCo managed successfully diversity management and CSR, how the company has been led during those changes and how the case of PepsiCo can assist other companies within the same sector.

A brief summary of both case studies will be given at the beginning of this seminar paper followed by an analysis through the 7- S Framework of McKinsey. The ensuing chapter is putting diversity management and CSR in the context of leadership. An analysis of Indra Nooyi´s leadership style will subsequently be given before deriving recommendations for companies being active within the same sector as closing chapter.

2. Summary of both case studies

The first case study written by Thomas, D. and Creary S. (2009) is called “Meeting the Diversity Challenge at PepsiCo: The Steve Reinemund Era”. It is dealing with the topic of diversity management and its implementation at PepsiCo under the former CEO Steven Reinemund. Firstly, the article reveals that the company had been aware of the importance of a diverse workforce since the beginning of its formation in 1965; however, first diversity initiatives have only been implemented in the late 1980´s by forming minority employee resource groups. When Steve Reinemund became CEO of PepsiCo in 1999, he started to seek integration of diversity management into the company´s business strategy. New market opportunities by targeting Hispanic markets for example would enhance PepsiCo´s competitiveness. Hiring a diverse workforce would be the key to appeal to the new customer groups. The first positive outcomes concerning an increasing market share were registered in 2003 but a cultural transformation towards diversity had not been taken place yet until all employees got involved into the issue. Different employee groups were now represented in the senior team which helped to expose specific needs of each group. The cultural transformation of PepsiCo towards a diverse workforce had only been possible by integrating stakeholders. Performance indicator finally revealed positive results regarding revenue generated from urban community customers and decreased turnover rates of the diverse workforce.

The Indra Nooyi Way” is written by Ranjani Jagannathan (2009) and talks about Indra Nooyi´s career and her strategical decisions within PepsiCo until she became the first female CEO of PepsiCo. Since starting her career as Senior Vice President in 1994, she was responsible for significant strategic initiatives such as undertaking divestures of the restaurant chain as non-core businesses and the acquisition of Tropicana to expand the beverage portfolio. In 2000, Nooyi became Chief Financial Officer of the company which lead to the merging with the Quaker Oats Company. Her decisions had the objective to enhance the image of PepsiCo to be perceived as a healthier brand by offering healthier products within their portfolio. To push PepsiCo´s growth forward, Nooyi was responsible for the reorganization of Frito-Lay´s international business which she successfully managed. When Nooyi became CEO in 2006, presenting the company as sustainable and ethical was her top priority linked to the adoption of her vision “Performance with Purpose”. She rearranged the product portfolio by increasing the percentage of healthier products, focused on new market opportunities outside the US and ensured the recruitment of a diverse workforce. Criticism on Nooyi as CEO is referring to her lack of operational experience, avoiding consumer regulations by offering products labeled as healthy that have a negative impact as well as ignoring environmental issues in manufacturing plants for which PepsiCo has been accused.

3. Analysis of the case studies through the 7-S Framework

The two given case studies will be analyzed with the help of the 7-S Framework which had been introduced in the 1970´s by former McKinsey consultants. The framework is made up of interrelated factors as key elements of a successful organization which have to be taken collectively into consideration when conducting organizational change (Bryan 2008). Illustration 1 is showing the seven determinants which are influencing the company´s ability to change. Overall alignment is necessary for organizational change to be effective (Peters 2011): Structure, Systems and Strategy are considered to be the hard Ss which are tangible and easier to identify and influence by the management. Skills, Staff, Style and Shared values are forming the soft Ss; these factors are rather intangible and difficult to describe (Mind Tools 2015).

Abbildung in dieser Leseprobe nicht enthalten

Illustration 1: The 7- S Framework (Mind Tools 2015)

PepsiCo has implemented two principal organizational changes during the past years starting from diversity management under the former CEO Steve Reinemund to CSR measurements under the present CEO Indra Nooyi. In order to evaluate whether PepsiCo has successfully implemented organizational changes, each factor of the 7-S Framework will be investigated to lastly assess the overall alignment.

1) Strategy

Strategy is referring to a company’s actions in order to improve its competitive position as response or anticipation to changes in the external environment such as customers or competitors (Waterman et al. 1980, p.20). The decision of Reinemund to implement a diversity strategy in PepsiCo was a response to the demographic shift in the United States of America (USA) to seek opportunities in minority markets which had a low penetration (Thomas and Creary 2009, p.5). The introduction of Nooyi´s vision “Performance with purpose” to positively impact the society resulted out of a change in consumer preferences towards healthier food and beverages in the domestic market. It was also a tactic of anticipating a possible loss of the company´s reputation through ignoring ethical and sustainable norms (Jagannathan 2009, p.7).

2) Structure

Structure relates to the company division, the hierarchy, the decision making process and the roles within an organization (Singh 2013, p.44).

In his first attempt to implement diversity, Reinemund failed to share responsibility for diversity among the whole organization. Later, Reinemund created a new system by including all relevant stakeholders across divisions and giving everyone the responsibility to engage to PepsiCo´s diversity initiative (Thomas and Creary 2009, p.9).

To exploit the full potential of emerging markets, the operating structure of Frito-Lay snack business was reorganized by Nooyi towards three independent units each having their own CEO (Jagannathan 2009, p. 6). Concerning the relationship between Nooyi as CEO and her employees, she puts high emphasis on open communication to align expectation of the employees with the company´s goals. By valuing direct communication, unnecessary layers are eliminated. Furthermore, Nooyi is empowering her workforce to come up with innovative ideas and involves them into the decision making process (Jagannathan 2009, p.8).

3) Systems

Systems are the day by day procedures and infrastructure of an organization (Waterman et al. 1980, p.21). It refers to what internal rules have to be followed by the employees (Mind Tool 2015) which is also linked to the degree of bureaucracy within the organization (Singh 2013, p.44).

Under Reinemund as CEO and Nooyi as Chief Financial Officer (CFO), a new distribution system was introduced with the purpose of cost reduction and improvement of the client to sales representative relationship. The superior distribution system eliminated middlemen to reach customers directly which could be identified as a step towards decreasing the level of bureaucracy (Jagannathan 2009, p.3). Furthermore, the key for transforming PepsiCo´s corporate culture was the introduction of a new system under the CEO Reinemund by establishing direct engagement between the senior team and the employee network groups in order to identify specific needs of each group (Thomas and Creary 2009, p.9).

4) Style

Style is referring to the corporate culture and the informal rules of the organization (Bryan 2008). It defines the way in which managers interact with their employees (Singh 2013, p.45).

The change towards a corporate culture that is inviting and engaging making every employee feeling valued has been one of the biggest challenge for Reinemund. The single approach of viewing diversity as a business strategy had not lead to an internalization of the diversity process into PepsiCo´s culture. Resistance of employees who did not feel affected by diversity measurements or who were concerned about promotion depending on a diverse background subsequently arose (Thomas and Creary 2009, p.6). The inclusion of both the minority groups as well as white male into a dialogue has been a critical factor to success (Thomas and Creary 2009, p.11). The engagement of all stakeholders towards an open dialogue about the needs of each group along with the organization of diversity events for PepsiCo´s workforce led to a successful transformation of the corporate culture (Thomas and Creary 2009, p.9 f.). Previously driven by performance, the corporate culture changed in the course of the diversity management challenge towards a culture that is encompassing people and their development (Thomas and Creary 2009, p.12). This is also reflected in Nooyi´s people- oriented leadership style (see chapter 5.3).

5) Staff

Staff is linked to the employee base, the recruiting process and the talent management (Singh 2013, p.45).

The recruitment of a diverse and talented workforce to keep the company competitive was one of the major priorities of Reinemund (Thomas and Creary 2009, p.6). In the early stage of diversity implementation, he introduced a scorecard to track the recruiting of a diverse workforce which had to make up 50% of all recruitments in conjunction with the measurement of the retention rate. However, diversity targets were not met mainly because the company failed to transform the corporate culture (Thomas and Creary 2009, p.6 f.). In the course of Reinemund´s diversity management process, PepsiCo improved the representation of minority groups within the employee base and the management level by reducing parallely the turnover rate (Thomas and Creary 2009, p.12 f.) Under Nooyi as new CEO, the diverse recruitment was continued by hiring management staff from different cultural backgrounds to successfully expand PepsiCo´s activities towards emerging markets (Jagannathan 2009, p.8).

6) Skills

Skills are referring to the ability of an organization to work and to perform well (Singh 2013, p.45). It is built upon skills and capabilities of employees (Mind Tools 2015).

A diverse workforce is reflecting the diverse consumer base of PepsiCo which helps the company in turn to create a better understanding of their consumer’s needs. Creativity and innovation are positively influenced by diversity which is strengthening PepsiCo´s competitive position (PepsiCo b 2015). A representation of minority groups and women of 45 % as well as an ethnic representation of 19% of the overall workforce in 2006 (Thomas and Creary 2009, p.13) is enabling the company to rely on a multitude of sources of skills and capabilities within their workforce to be successfully active in more than 200 countries.

7) Shared values

Shared values are expressing the fundamental ideas of an organization and the reason for why it was created (Waterman et al. 1980, p.24). Changing the values lead to a change in all other six elements since they derive from those core values (Mind Tools 2015).

PepsiCo´s values are linked to taking over social and environmental responsibility which forms the basis of every company decision. This is reflected in the vision ”Performance with Purpose” established by Nooyi. Both the PepsiCo´s guiding principles are including the concern about customers as well as following a diversity strategy (PepsiCo c 2015)

To complete the analysis, organizational changes in PepsiCo have been successfully implemented by achieving an overall alignment of all seven factors. Adjustments have been carried out where necessary in order to manage change effectively.

4. Diversity management and Corporate Social

Responsibility in the context of leadership

Cox and Blake (1991) identified a number of spheres of activity shown in Illustration 2 which an organization must address when managing cultural diversity. Those spheres are referring to the organizational culture, the human resource management system, programs which are supporting working woman, building heterogeneity in race, ethnicity and nationality, establishing educational programs, addressing cultural differences and the organizational way of thinking about diversity. Principally, diverse organizations do not only have to implement diversity actions but need to address changes in attitudes within the managers and employees minds. Organizations that have been successful in changing their culture embrace diversity as one of their core values (Miller 2015, p.230).

[...]