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8/9/2019 lay Inc. (a) Case
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Frito-Lay, Inc. (A)
A Strategic Transition
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Overview of Case
CEO and President Bill Korn is underpressure to return company to double digitsales growth
Ambitious program centered on the HHC Case deals with the background and the
development and implementation of HHC
Role of top management and top ITe3xecutive in bringing about the HHC Deals too with management of change
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Points of Discussion
Strategic importance of HHC Justifying the HHC Investment
Managing Risk Implementation Issues
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Strategic Importance of HHC
F-L Competitive Environment in early 80s
Very service-oriented company
6 of F-Ls potato and corn chip brands among the top 50selling dry grocery brands
Geographical expansion had no where to go F-Ls attempts at new product introductions were onlymarginally successful
Lower inflation in 81 provided for less pricing freedom
National competitors, e.g., P&G, Borden, began to makeinroads in F-Ls territory
Single digit sales growth
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Strategic Importance of HHC
Michael Porter in action: Threat of new entrants
P&G, Borden, Anheuser-Busch
Bargaining power of buyers Supermarket consolidation, dependence onFL due to scanner data, store gets info w/o FL Bargaining power of suppliers Market saturation in traditional markets
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Korns Strategy to Respond
Product Increase from 100 at time of (A) case to400+ by 1990 Increased dependence on smaller share($20-30 million brands, local brands versus
$100 million national brands)
Shortened product lifecycle
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Korns Strategy to Respond
Market Segmentation of sales force to increaseshare in supermarkets and UADTS
accts
UADTS represents 25% of F-L profits but 80%of accounts
F/L lacked information on this market segment
Micromarketing v. broad, national market. Local versus national promotions
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Korns Strategy to Respond
Customers Provide customers with product profitabilityinfo to encourage favorable assignment of
shelf space and neutralize increasingcustomer power
In general, new competitiveenvironment and new strategicinitiatives required
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Frito-Lay Strategic ManagementBrand Mgmt-1985 Profit Planning-1990
Environment Stable; less complex;weak competition; mature
products
Dynamic; complex; strongcompetition; short product
lifecycle
Org. Structure Brand oriented;centralized decisions;national P&L
Product orientation;decentralized decisions;local P&L
Top mgmt goals Market share in nationalbrands; low cost producer;geographic scope
micromarketing
Strategic Uncertainties Market share Product profitability
Control system Price, promotion,packaging; sales volumeis key
Product profitability is key
Time horizon Long planning cycles Short planning cycles
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Agree With Korns Strategy?
Can they implement this strategy withits current business and managementprocesses?
No, change is needed!
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Is HHC Critical to Achieve
Strategic Objectives?
HHC is important first step As it stands at end of (A) case, HHC is best
thought of as a productivity tool for sales
force Potential is there to use the HHC information.
Potential is unrealized without the design ofan extensive information infrastructure, alsocalled an information architecture.
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Current Paper-Based System
HHC would replace manually-written salestickets and manually-prepared reports Time consuming and error prone
Errors
inaccurate reporting of salesactivities influences the accuracy of dataused to develop production, pricing &promotion strategies and sales forcecommissions
Problems expected to increase; old scanner
technology no longer supported by IBM
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Justifying the HHC Investment
Companies often have difficulties in justifyingtechnologies to increase individualproductivity and effectiveness
How much to implement this project? R&D ??? Machinery per truck ($3k*10000) 30 mill. Data center upgrades 1.2 mil. Experienced professionals ($70k*45) 3 mil. Minicomputers for dist. Centers 15 mill
$50 million +++
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Expected Benefits Salespersons save 2 hours per week.
F-L believes this could be used to drive $20 million in
additional sales Can F-L guarantee this figure?
Geographic saturation
Better understanding of markets (UADTS accounts andmicromarketing)
Sales force must be committed to driving new sales orto lower costs
Working with stores for better shelf space Control accounting with sales force
Correct ordering, especially with UADTS accts.
Replace existing dated system
Improved sales force attitude
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Managing Risk- IS HHC A
High Risk Project???
Size Relative to other F-L projects, this is huge Structure
Pilot tests help to increase project structure But how to obtain business benefits unclear
Impact of HHC on mgmt control systems, org.
structure, roles, other functions is not clear These tend toward a moderately structured project
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Managing Risk- IS HHC A
High Risk Project???
Experience with technology HHC is relatively new technology at thetime HHC is VERY NEW technology to F-L
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How To Manage These Risks
Size Formal project management techniques
Modularizing project
Tracking project
Scheduling Structure
Involvement and leadership of sales force
Technical expertise
Strong IT leadership needed, given their lack ofexperience
Examine other HHC-types of uses/companies
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Implementation
Speed of implementation
Evolution or revolution?
Probably phased is better but do not drag
2 year completion
start slow and pick up speed
Where to start?
Worst performing group?
Small, out of the way group to minimize risk?
Some representative
group of employees, customers, etc.?
Best and brightest
to see how to achieve business
benefits?
Well respected persons to train others
Understand the HHC vision & be committed to it
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Implementation
Leadership Business leadership is needed, given theissues addressed already Technology leadership is needed, giventhe issues addressed already Need for organizational redesign andchange leadership needed
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Implementation
Training Turn loose and sink or swim
Sales force still recovering from the
unpopular segmentation policy
F-L used the train the trainer approach F-L focused on driving organizationalchange from the middle
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Summary
Obtain sales force commitment Off-site training
Use of videos
Use of training manuals Video stresses Saving time Error reduction
Info critical to F-L as a company
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Summary
Management of the HHC project size F-L brought in someone whose experienceincluded managing plant construction
projects Los Angeles chosen as best of best tobegin HHC MIS and sales VP led the HHC project
Training done by training the trainer