This paper is primarily aimed at analyzing the problems, which such company as PepsiCo is experiencing now. Furthermore, it is of the paramount importance to develop certain strategies that may possibly alleviate that situation, which has recently emerged. On the whole, we need to fulfill the following tasks:
- improve the decision-making process,
- enable the firm to further strengthen its position in the market and
- build more profitable enterprise.
It should be pointed out that over the last ten years; PepsiCo has suffered a considerable loss profit that can be attributed to various causes.
Certainly, we should not make any far-fetched conclusion yet it seems that this issue is two-dimensional: on the one hand we should speak about the peculiarities of the infrastructure and even about the lack of coordination. Secondly, we must not overlook the fact that there is no effective flow of information in this firm, which subsequently hinders the decision-making and prevents the management from achieving adequate results (Foley, 2003, p 34).
Scholars have not come to the consensus concerning most effective ways of increasing the productivity of the enterprise; however they concur that in the vast majority of case, inadequate results are due to the lack of coordination, especially if we are speaking about large corporations (Hamilton, 2002, p 55).
Additionally, it is not permissible for us to disregard external influence, and the stiff competition that PepsiCo has recently encountered. In this particular case, we should speak not only about Coca Cola. Naturally, these two firms have always struggled for the palm of supremacy in the United States and all over the world. But, here we should also consider smaller companies that put lower prices on their goods, and this makes PepsiCo and its products less attractive.
At this moment, we should emphasize the idea that that this income decline must not be attributed to the low quality of the products in comparison with other companies but mostly due to extra expense on the procurement and delivery. This forces the management of PepsiCo to set higher prices on their goods (Nash, 2003, p 18). Yet, this loss of profit seems to be just the tip of the iceberg and in the long run, the consequences can be much more severe. At this point, the question of enterprise integration becomes probably the most crucial one, because efficient interaction of various departments is the corner stone of the companys success.
It should be taken into account that the products of PepsiCo must not be associated only with soft drinks as it is often done by some people. In point of fact, this firm is arguably the most diverse one in the food industry and we can draw several examples, substantiating this point, namely we need to say that this multinational corporation owns such brands as Tropicana Products, Frito-Lay, Lipton Iced Tea and many others. It stands to reason that this branches or off-shoots have designed their own infrastructural peculiarities, function according to different patterns that were established long before they merged with PepsiCo into a single entity (Stepanek, 2003, p 3).
As a result there are various approaches to problem-solving and management. We may also argue that this corporation and its branches have merged only officially but there are still striking discrepancies among them and it is necessary to reduce these discrepancies to a minimum.
For instance, various divisions employ different technologies and what is more importantly they buy them from various suppliers. At first glance, it may seem that this high level of diversity give certain advantages to PepsiCo over its major rivals, but the more complicated the structure of the organization is the more difficult it is to govern this company. To some degree, the lack of coordination is almost an unavoidable problem. Therefore many economists and managers pay special attention to integration and central leadership (Kent Sandoe et al, 2001, p 41).
Naturally, we may claim that the process of integration is applicable to any field of the activity, but it seems that some aspects may be unified and this in turn will enable to minimize costs that PepsiCo spends on hardware and maintenance. Some of the companys executives believe that that this transudation will strike a severe blow on the functioning of the enterprise. To some extent, it has to be admitted that the process of centralization or integration is long and arduous but we should not assume that it can be performed in a relatively short lapse of time. On the contrary, we need to place the emphasis on the gradualness of this policy.
For this purpose the management should devise the transition plan, and determine the timelines. It should be borne in mind that this change may take approximately four or five years but under no circumstances we can presume that this achievement can be made quickly. Certainly, the exact timelines may vary and much depends upon the size, the structure of the company, sometimes, the transition period may last for one or two years, but it is hardly possible about PepsiCo, especially considering the fact that many of its branches has joined the firm only several years ago and still continue to operate according to old patterns (Gonsalves, 2004, p 3).
The differences, which exist among the divisions, manifest themselves in various ways. First and foremost, we may not forget about the costs, connected with the delivery service. Secondly, we have to discuss the lack of coordination and its effects. It is hardly possible to come up with some universal solution to this issue but perhaps, the company should choose more effective ERP (Enterprise Resource Planning ) System.
The thing is that at this point, Frito-Lay, Lipton and other branches are using different business management soft-ware. Apart from that, their representatives argue that there is no necessity to change anything. Perhaps, the main reason why they are so firmly convinced is that they do not treat PepsiCo as one company but rather as a set of separate parts. But at the moments this parts of the organization do not interact as they should.
An efficient ERP system will help to keep constant updates as to the financial situation in the firm and also will also optimize the supply chain and delivery service. Of course, we should not suggest that the management did not to try to put this policy into practice, some efforts were made but they were erroneous in their core. The main problem was that the timelines for the integration plan were between 2003 and 2005.
In this respect, the question arises whether this plan is realistic or not. One has to consider the fact that PepsiCo has more than four hundred officers throughout the world. Its brands have many subsidiaries throughout the globe in Europe, Asia, Australia and so forth (Stepanek et al,2003, p 4). It is very rash to presume that the company could become centralized in two years. The program, launched in 2003 could have been much more fruitful it had been more fluid. But the management was mostly oriented on short-term result. The fact that the optimization plan virtually failed does not actually mean that the attempts to centralize company must be abandoned.
There is another facet of the problem that appears to be even more complex. Of course, it is possible to install a new ERP system and select a more appropriate procurement system. But this is just the technical side of this problem. There is some other obstacle that should be surmounted, namely the resistance of the local executives. We need to elaborate this statement; the overwhelming majority of the divisional officials are extremely afraid that centralization will deprive them of the power.
But, their misgivings are evidenced-based because the superior officers have no intention to dismiss them. But, the main objective, which centralization must achieve, is to establish the flow of information between the divisions, branches, subsidiaries, departments and so forth. A great shift in the culture of the organization is needed for PepsiCo to become centralized. At first, it is vital to produce the change in attitude.
One of the root causes for the failure of optimization program is the unwillingness of the local executive, who are very reluctant to share their power. They completely overlooked the fact that policy might have contributed to the development of the company and boost its further growth. It turns out that private ambitions are much more important than the general wellbeing. Now, we need to outline possible strategies for dealing with this task. It goes without saying that integration is not directed against local authorities. And the management should bring this self-evident fact home to them.
In this respect that we should point out that there must no threats or admonitions. It is necessary to provide a powerful stimulus for the divisional management to change their attitude towards the process of integration. Probably, it is necessary to provide some awards to those people, who have succeeded in merging their unit to the overall system. At this moment, the top managers of PepsiCo have not assumed ant definite position toward this question though the situation becomes more and more urgent. Thus we may infer that the origins of the companys difficulties may also be traced in its very culture not only in delivery service or the costs of production.
In part, this loss of profit is due to the actions of PepsiCo rivals such as for instance, Coca Cola, General Mills, Kraft, and many others. Now, we need to illustrate the major difference between these firms and Pepsi. We have said earlier that Pepsi probably the widest range of products. In sharp contrast, its competitors are much more specialized. For example, Coca Cola focuses only on the production of soft drinks, and General Meals is mostly engaged in food processing industry. The stay more focused, and as a result they have managed to organize effective delivery service and selected most optimal procurement routes.
We need to acknowledge that Cola also has many branches and divisions but they function on a different basis, first they were founded by this company but not purchased. Consequently, all of them are more unified and rely on the central leadership. The situation is drastically different with Pepsi. Its branches still act as some separate entities which are virtually not subordinate to the headquarters. Unlike them PepsiCo has yet to establish a single procurement system, and the management is not always able to keep track of all transactions. Moreover, we need to mention the delivery service. In whole, we may argue that this process may be accelerated.
Only a few years ago, the management developed the so-called “presell system” enabling to shorten or to simplify the supply chain (Stepanek et al, 2003 p 4). But its effects have not manifested themselves to full extent. Though, it should be noted, that the transformation of delivery service yield considerable results in short time.
Therefore, it is quite possible for us to arrive at the conclusion that the problems of PepsiCo are motivated by various factors. First, we should speak about the policies of the company: they completely disregard long-term objectives and sometimes lead to rather adverse affects. The process of integration and centralization cannot be completed in short time, namely two years, this reform should have been carried out in the course of five or even more years. Secondly, we need to mention such factor as the reluctance of the local executive officers who think that the centralization will deprive them of their control.
In order to facilitate the decision-making process in this organization the management should implement an effective ERP system but more importantly they must change the very culture of the company. Executive officers must not regard the divisions of PepsiCo as some separate units. On the contrary, they need to look at them as the parts of the system. Recent loss of profits is also caused by the stiff completion of other beverage and food companies. The main reason why Pepsi is not able to put lower prices on their products is the failure to select most appropriate procurement route, and distribution model.
Antone Gonsalves (2004), “SAP Joins the Pepsi Generation,” InformationWeek.
Charles J. Petrie (1992). “Enterprise integration modeling: proceedings of the first international conference”. MIT Press.
Cheng Hsu (2007). “Service enterprise integration: an enterprise engineering perspective”. Springer.
Gregor Hohpe, Kyle Brown, Bobby Woolf (2005). “Enterprise Integration Patterns: Designing, Building, and Deploying Messaging Solutions”. Addison-Wesley.
John Foley (2003), “Beverage Makers Seek Efficiencies,” InformationWeek.
Kent Sandoe, Gail Corbitt, Raymond Boykin, Aditya Saharia (2001). “Enterprise Integration”. Wiley.
Kim S. Nash (2003), “Bumps and Grime,” Baseline.
Kim S. Nash and Mel Duvall (2003), “PepsiCo: No Deposit, No Return,” Baseline.
Kim S. Nash (2003), “Roadblock: The Business Unit CIO,” Baseline.
Matt Hines (2004), “SAP Siphons Pepsi Away from Oracle,” ZDNet.
Melanie Warner (2006), “Soda Sales Fall for First Time in 20 Years,” The New York Times.
Mel Duvall (2003), “Fanatical Focus on Integration,” Baseline, 2003.
Pepsi Co (2005), PepsiCo Annual Report on Form 10-K for the fiscal year ended 2005, accessed through Yahoo! Finance 2006. Web.
PBG (2006). Web.
Rick Whiting (2005), “Analysis Tool Cuts Bottler’s Costs,” InformationWeek.
Scott Hamilton (2002). “Maximizing your ERP system: a practical guide for managers”. McGraw-Hill Professional.
Stepanek, M., Agostino, D., and Field, A. (2003) “Case Study: The Pepsi Challenge,” CIO Insight.
Wing Hong Lam, Wing Lam, Venky Shankararaman (2007). “Enterprise architecture and integration: methods, implementation, and technologies”. Idea Group Inc.
Yusufali F. Musaji. “Integrated auditing of ERP systems”. John Wiley and Sons, 2002.