Case Assignment What Would You Do

Chapter 14

Case Assignment What Would You Do?

PEPSICO

Headquarters, Purchase, New York. Growing up in India, the city water supply was only on between 3 am and 5 am, so thats when you got up to fill every bucket in the house. Two buckets were for cooking, and there were two each for you, your sister, and your brother. Because water was scarce, you learned to live your life off those two buckets. Well, its a long way from those buckets to being CEO of PepsiCo, one of the leading beverage and snack companies in the world. Fourteen years ago in your first job as Pepsis chief of strategy and head of mergers and acquisitions, the CEO asked you to create a strategy that would make Pepsi the defining Corp. for the 21st century. You responded with a bold plan to sell PepsiCos restaurants, Kentucky Fried Chicken, Pizza Hut, and Taco Bell (which then became Yum! Brands). With the billions of dollars from that sale, you then recommended acquiring Tropicana (the juice company) for $3 billion and Quaker (Quaker Oats and Gatorade) for $14 billion.

These were huge, but very successful, changes for PepsiCo, and helped it address significant competitive issues. Now, as Pepsis CEO, the challenges that you face are no less daunting. Commodity prices have soared worldwide, so PepsiCo is paying more for everything from corn, to oats, to cooking oilthe main ingredients in many of its products. The Coca-Cola Company, your primary worldwide competitor in beverages, is thriving again under new leadership and is taking away market share. Coke moved aggressively into healthy, noncarbonated beverages, recently acquiring Energy Brands and its fast-growing products Vitaminwater and Smartwater. In carbonated beverages, PepsiCo sales are down 3 to 4 percent. As a significant source of profits and cash flows, that must not continue. Even Frito-Lay, Pepsis bulletproof cash cow, which controls 60 percent of the U. S. snack food market and provides 50 percent of company profits, faces significant challenges. With public-health experts and the medical profession drawing attention to widespread obesity, activists, the media, and government are turning their focus to fast-food restaurants and snack food companies that sell cheap, calorie-dense foods. Schools are eliminating soft drinks and unhealthy snacks from vending machines. Soccer moms, who bring treats for their childrens teams, are under pressure to buy healthy snacksbut because of allergies and other medical restrictions, they cant bring nuts or products with wheat. The challenge for Frito-Lay is to adapt its best-selling brands, such as Lays, Doritos, Tostitos, Cheetos, and Fritosnone of which are thought of as healthy productsto this changing consumer market.

Of course, as CEO, you wont do any of these things yourself. Your job is to lead, inspire, and influence PepsiCos people to address these challenges. Your first leadership issue is to find a way to motivate and challenge PepsiCos hard-working managers and employees to again make significant changes to keep the company competitive. What will you do to get them to be creative and innovative, to question assumptions, and to look at problems and situations in new ways? Your second leadership issue is to choose a strategic direction for Pepsis future that will address the challenges to its business. How should PepsiCo position itself to compete with Coca-Cola, address rising commodity prices, and produce healthier products without sacrificing profits and market share? Finally, you need to build a management team to help lead the company. With these challenges, should your top executives have stronger leadership or management skills? Which are more important? And, you have to find a way to keep the top manager who lost out to you when PepsiCo made you CEO. How are you going to do that? If you were the CEO of PepsiCo, what would you do?

Questions

1.What will you do to get managers and employees to be creative and innovative, to question assumptions, and to look at problems and situations in new ways?

2.How should PepsiCo position itself to compete with Coca-Cola, address rising commodity prices, and produce healthier products without sacrificing profits and market share?

3.With these challenges, should your top executives have stronger leadership or management skills? Which are more important? And, you have to find a way to keep the top manager who lost out to you when PepsiCo made you CEO. How are you going to do that?