Operational Excellence at PepsiCo

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Introduction

Most successful investors know that using modern technology and employing qualified employees are not the only requirements for business success. Businesses require constant evaluation to ensure they meet the demands of their clients. In addition, it is important to conduct frequent checks and identify issues that affect the performance of organizations. Investors should not leave the burden of management to managers and neglect their roles in promoting the performance of their businesses. Stiff competition in various industries is fuelled by the demand for excellent services and high-quality goods and services. A slight difference in the quality of these aspects may spell doom in the performance of a company. Companies that focus on short-term gains may have uncertain futures because of the unpredictable market trends (Briscoe, Schuler, Stone, Kerber, Nightingale, & Srinivasan, 2014). Investors and managers should ensure their organizations perform well by monitoring their activities and evaluating them based on a set of quality measurement guidelines. A simple weakness may pose a serious threat to a company and create room for poor performance and business closure. This discussion examines the existence of organisational weakness and how to improve it to ensure PepsiCo performance well and achieves its objectives.

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Definitions

Organisational excellence refers to the ability of a company to offer high-quality goods and services to its customers (Bozarth, & Handfield, 2006). This includes offering the right products to clients and offering the required technical assistance to ensure they get value for their money. Excellence is defined in terms of customer feedback and satisfaction. A company is deemed poor if its services get poor feedback from the public and nobody approves of or recommends it to new customers. An operational weakness refers to the technical and logistical aspects that hinder companies from offering high-quality services or goods to their clients. Some operational weaknesses may not be visible in cases where customers do not have avenues to express their dissatisfaction. The existence of high-performance culture in organisations is not a guarantee that all customers will be happy with the services offered by a company. The introduction of better management initiatives helps companies to identify and manage weaknesses that threaten their success. Some weaknesses may cost companies after a long time because they do not have visible short-term impacts.

PepsiCo

Company Background

PepsiCo is an American multinational company that specialises in the manufacturing, marketing and distribution of food, beverages and grain-based snack foods. This company was formed after Frito-Lay and Pepsi-Cola merged in 1965. It has expanded its operations and markets by acquiring other companies or merging with them. The latest acquisition and merger were in 1998 and 2001 when it acquired Tropicana and merged with Quaker Oats respectively. The merger enabled this company to add the Gatorade brand to its portfolio. Indra Krishnamurthy Nooyi is its current chief executive officer. He has been at the helm of this company since 1996 and not even the endless scandals associated with it have challenged him to resign. The company has more than 200 outlets located in different parts of the world. This company has approximately 274, 000 employees working in its branches and headquarter and generating an annual average net revenue of about $43.3. It is the largest food and beverage company in North America and the second globally after Coca-Cola. In addition, it uses licensed bottlers to distribute its products in some regions. The reputation of this company has been marred by controversies and accusations that threaten its success. However, most of the blame is on the management of complacency and intentional ignorance of the events that surround its practices.

Organisational Operational Weaknesses

PepsiCo was the greatest threat to Coca-Cola during the 1990 and early 2000s. However, numerous issues have weakened its strength and given its chief competitor opportunities to grow and widen its markets. It is not easy for this company to regain its ground, especially after giving its rival adequate space to explore its weaknesses and take advantage of the slow response to managing problems. PepsiCo has resigned to being in the second position and this means that a new entrant in this industry may have fertile grounds to explore the available opportunities. Economists argue that the weaknesses that this company faces are a result of a rigid board of directors that does not seem to understand what is happening in the company’s financial performance. Arguably, the company sometimes records impeccable performance. However, it has never managed to sustain the momentum and this means that its profitability in unstable. There is no goodwill to improve the operational excellence of this company. Investors believe that managers have the responsibility of restoring the public’s faith in a company by listening to them and seeking their opinions on what should be done to improve service delivery.

  • Current process analysis. PepsiCo records a mixture of poor and good performance and this means that it cannot predict its future. An analysis of the performance of this company will be made using problem identification techniques. The major operational excellence problem facing this company is a weak marketing and brand market share.
  • SWOT Analysis. The SWOT analysis of this company shows that the board of directors should take immediate steps to arrest the current situation if its future is to be protected (Heizer, & Render, 2004). The company has more than 30 product types and this means that it can command a larger market than its rival that has about seven brands. However, the poor marketing and brand awareness strategies employed by managers makers this company unpopular. Managers do not seem to understand products do not sell themselves, even if they are of high quality. The company has an extensive product distribution channel, but the lack of public awareness regarding its products means that they will not sell. It is not wise to have stocks in outlets yet there are no buyers interested in them. Managers are more focused on expanding the production lines of this company and ignoring the need to adopt efficient marketing strategies to expand the existing markets and create new ones. This is an organisational weakness that hampers the excellence of a company. The company has many corporate social responsibility programmes that were established to help the local communities.

However, these programmes are perceived as curses in disguise because the local communities do not feel their impact. In addition, some communities resist any attempts by this company to partner with them in social activities. Managers should realise that this company’s tricks have failed and people will not buy them anymore. The reputation of the company is marred with allegations of questionable practices like using tap water and passing it as mountain spring water. The brand awareness of its products continues to weaken because this company over depends on Wal-Mart and believes that it is the best economic performance indicators. Some economics applaud PepsiCo for its competency in mergers and acquisitions. However, they criticise how the activities of these new companies integrate into its systems.

In addition, they express dissatisfaction with how the company ignores the previous market lines and brand popularity. The profit margins of this company are too low and its successive three years report shows a similar trend. Managers seem t not to be aware of the need to evaluate various policies and approaches that the company uses to promote its products. The weaknesses of managers to act on the failures that limit the success of this company should be blamed on the executive members. In addition, the pricing of the shares of this company is too low and unaccounted for yet managers do not seem to bother about this negative publicity (Heizer, & Render, 2004). The problem with companies like PepsiCo is that they focus on producing new brands every time they get opportunities and forget the old ones. Therefore, they have numerous brands, yet none of them has a considerable control over the market. The company enjoys a growing beverage and snacks consumption in emerging markets. However, changes in consumer tastes make its products unpopular. This company produces healthy drinks and snacks yet its poor marketing strategies do not help to promote these products. For instance, it should seize the opportunity when consumer demand shifts from fast foods to whole meals and healthy foods. However, it does not have in place any mechanisms to avert looming economic disasters occasioned by changes in consumer demands. This is an operational failure that hinders the realisation of the objectives of this company.

PepsiCo does not have efficient communication channels to reach its customers in case it wants to interact with them. The chief executive officer seems not to be aware of the controversies facing the company. In addition, the few measures adopted to cushion this company from negative publicity continue to wound its reputation. An excellent manager is not supposed to escalate the problems of an organisation during crises.

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  • Total Quality Management (TQM). The operational weaknesses of this organisation originate from the lack of commitment by senior managers to conduct a periodic evaluation of its performance. The company has more than 30 brands of different products. Some economists argue that PepsiCo is committed to introducing new brands in the market and ignoring old ones. The company does not have a robust quality management system to ensure new and old products are of high quality. Its integrative management philosophy does not create room for continuous assessment and improvement of old products. The company knows the expectations of its customers and even tries to work hard to meet the required standards. However, the success is usually short-lived and forgotten once the company achieves a good net profit. Lack of operational excellence in the evaluation and sustenance of high productivity and reliable products to consumers makes this company unpopular. For instance, the company knows that consumer demands are dynamic and issues like health consciousness and modern trends regulate their demand for goods and services. The recent launch of its bottled water has met resistance from a section of the public because the company claims that the water originates from springs yet there is adequate evidence to show that it gets it from taps (Heizer, & Render, 2004).

The company has brand awareness and marketing weaknesses due to the following reasons. Its products are designed cross-functionally and this means that it cannot focus on a single production line. There is no way this company can compete successfully with Coca-Cola that has two production lines. Lack of specialisation affects the excellence of this company. Companies that venture into various fields of production without prior knowledge or adequate research may not achieve their objectives because of the multi-faceted approaches used to manage their activities. Secondly, it has a poor process management approach in almost all its outlets. Most consumers prefer buying goods from companies that understand their work. The issue of bottling tap water and deceiving the public that it is from springs is a serious issue that has affected the reputation of this company. A weak supplier quality management is another weakness that affects the excellence of this company. The company has little control over the activities of farmers who supply grains as raw materials. Modern families prefer natural foods that are perceived to be healthy and nutritious.

However, PepsiCo’s management has failed to regulate and demand that farmers supply grains produced using acceptable interventions. The use of genetically modified seeds by farmers has tainted the reputation of this company yet the senior managers are not worried about this issue. Economists and successful business people argue that customers should always be treated as kings because they are the reason people invest in different business activities. Customers are key stakeholders in a company and thus they must be given a central position. The voice of the public should be given preference to the need by companies to make profits. PepsiCo seems to ignore the fact it cannot be in existence if customers decide not to buy its products. The main focus of this company is on producing a lot of products and forcing customers to buy them. Customers have been ignored and that is why they think that they do not enjoy its success. The corporate social responsibility programmes established by this company have targeted areas where it has a lot of suppliers. This means that the company uses a selection criterion that discriminates against people who are perceived not to be suppliers of raw materials (Bozarth, & Handfield, 2006).

The customer care and information desk of this company do not seem to pay attention to the need to help. Most people must have presented their dissatisfaction and argued that the company deceives them by selling bottled tap water instead of spring water. The information desk should communicate this problem to the relevant departments for appropriate action to be taken. However, this has not always been the case as is evidenced in the numerous complaints that continue to be reported regarding the activities of this company. Companies like Coca-Cola and Samsung have a very active information desk that ensures customer complaints and queries are addressed within a very short time. Customers believe that they should be served properly and in good time. However, companies that are unable to offer the required assistance to customers in time become unpopular and discourage potential clients from buying their products. Customer service failure is a serious issue that shows how companies are poor in handling problems caused by default or substandard goods and services. PepsiCo assumes that problems originating from its employees or operations should sort themselves out without involving its leaders. The public has taken a different approach to managing these problems and resorted to using social media to express their dissatisfaction (Heizer, & Render, 2004).

The management does not seem to pay attention to the issues that affect customers and this may affect their loyalty to it. PepsiCo has a weak leadership structure and management. The present CEO has been at the helm of this company since 2006 and it is illogical to expect him to make innovations that will improve its performance. The fact that this company has weak brand awareness and marketing techniques show that the chief executive officer is to blame for laxity. Power is centralised and all key decisions are made by just a handful of senior employees. The manager has individualised the company and that is why the marketing and product promotion strategies used were the same as those that were used during the early 2000s. There is no committed leadership because the company seems to drive itself. The voice of the company’s leader is seldom heard in times of crisis and this means that he may not be not aware that there are weak brand promotion and marketing of its products (Bozarth, & Handfield, 2006). Leadership is inborn and people perfect it through experience and training. However, this company does not give room for leaders to improve their skills. The limited leadership development space makes senior managers underutilise their skills. Some employees may have realised that the company’s brand name is unpopular and its stocks are cheap, but they cannot voice their concerns for fear of victimisation. Leadership occurs in terms of giving direction and guidance to employees and ensuring company policies are followed. However, this does not mean that managers should lock out other employees from contributing to the success of their organisations. The case of PepsiCo disregarding its customers’ complaints shows that there may be internal wrangles between senior and other employees. This weakness discourages employees from passing the relevant information to managers and participating in activities that protect and improve the reputation of their organisations. An organisation cannot record excellent performance if it does not have leaders who are committed to its work. Management and leadership are different aspects that should be combined to ensure organisations reduce the risks posed by various performance weaknesses (William, 2005).

Lack of strategic planning on how to manage poor brand awareness and marketing strategies makes this company appear smaller than its financial abilities. Most people do not know that there are other beverage and drinks companies apart from Coca-Cola. The business expansion activities of PepsiCo show that this company does not have an effective strategic planning department and techniques. The company uses traditional practices where the manager is the initiator and giver of all directions while other employees implement policies. PepsiCo is known for the hands-off operations of its senior managers. These employees expect their juniors to solve the problems facing the company yet they do not have the financial abilities to do so. Poor brand awareness is caused by a lack of strategic planning on how to manage long and short-term projects. The food and drinks industry is unpredictable and requires companies to have speedy strategies for compatible and unexpected changes. Moreover, cross-cultural training is another serious issue that causes operational challenges in this company. The company produces more than 30 brands of drinks and snacks. There is a little specialisation of duties and this means that employees may know almost all processes. However, they lack the adequate and professional knowledge required to provide high-quality services. Cross-functional training makes the company focus on nearly 30 brands at the same time. Lack of division of labour and specialisation hinders the successful implementation of its objectives. In addition, the company does not have time to address the needs of each product because it wants to give a blanket solution to improving brand names and marketing of its products. Lastly, there is poor employee involvement in the decisions that affect the marketing and branding of its products. Managers believe that they know better than other employees and this excludes them from key decision-making programmes. Employees play important roles in promoting the brand names of their companies and ensure all marketing strategies used are effective. They represent their companies on different occasions and this means that they must have excellent knowledge about them. However, PepsiCo has a weakness of not allowing its employees to represent it on different occasions. Therefore, its poor reputation and the weak brand name remain a serious weakness that hampers operational excellence.

Six Sigma

This type of evaluating the performance of a business focuses on quality improvement methodologies (William, 2005). The technique involves evaluating the performance of a business by identifying and removing the causes of weaknesses. PepsiCo cannot achieve sustained quality improvement because of a lack of commitment from the entire company. The brand of its products seldom influences people to buy them because they are marketed poorly. Top-level management has a hands-off approach when dealing with the weaknesses of this company.

Just-in-Time

PepsiCo should be credited for effectively using this approach to improve its performance. The just-in-time approach involves reducing costs by cutting inventory expenses, increasing the prices of goods and services, and other costs. This practice focuses on continuous improvement to enable a company to reduce the impacts of its weaknesses and maximise its strengths and the available opportunities (Bozarth, & Handfield, 2006). PepsiCo has a weakness in using this approach to managing its long and short-term challenges. Its employees and customers are usually the ones that suffer the greatest loss when this company adopts knee-jerk reactions to manage its challenges. The company may have the right products, but its brand awareness campaigns are misplaced and lack creativity and the attraction required to catch the public’s attention. For instance, when a problem occurs in a production line the company does not stop the whole process to address the issue. Instead, it uses other second-hand approaches to solving the problem. This explains why its products have a poor ranking and reputation in the international market. Lack of consistency of its marketing approaches is another weakness that makes this company not focus on long-term solutions.

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Pareto Analysis

This is a statistical technique that companies use to select limited numerous tasks that will transform their performance and cushion them from unexpected losses (Heizer, & Render, 2004). Most companies understand that a lot of problems have similar causes. Therefore, they identify major weaknesses in their organisations and use the solutions to solve other problems. It is a universal way of managing problems that have similar causes. PepsiCo has not utilised this approach efficiently because of the failure of the management to take part in transforming this company. This company has ignored the need to improve its brand name and marketing strategies. Therefore, all other related problems will continue to affect it unless it changes its approach to solving this issue. This approach enables the company to realise that almost all its problems can be solved by focusing on the few key work that requires changes. However, the managers and other key responsibilities. This weakness is responsible for the challenges that PepsiCo has experienced since the great economic depression of 2007.

Solutions

The solutions to the weaknesses facing this company are plenty and it requires the efforts of all stakeholders to enhance operational excellence. PepsiCo is the greatest rival of Coca-Cola but its inaction and resistance to change give its competitor higher chances of controlling more markets. The following are some of the issues that may help in reducing the severity of its weaknesses and promoting excellence in PepsiCo.

The transformation of the management system

PepsiCo requires a robust management system that should be decentralised to give power to other employees. The current chief executive officer has a lot of powers and responsibilities and this explains why he is unable to integrate the operations of the company. The responsibility of the chief manager should be an oversight, but this case is not possible in this company. The allegations facing this company do not have a specific department to address them due to the complexity of the nature of its structure. A centralised management structure limits the possibility of having a specific department to solve matters related to customers’ complaints. Managers should be at the forefront in helping their organisations to shape and market themselves.

Change of attitude

The employees of this company are not enthusiastic about their work and employer. They do not have the morale and zeal to work as hard as they would have wished. The huge social and professional distance between employees and managers has created a rift that makes it impossible for them to be proud of the company. Cases of the poor brand image may have been reported to the employees who interact with the public. However, they cannot pass the message to managers because they know this may not have any impact on the practices and traditions of the company. The attitude of employees towards their managers and companies shapes the perception of the public regarding its reputation (William, 2005). PepsiCo should focus on ensuring that employees felt they were part of the ownership of the company. The morale of employees influences the public to develop a positive or negative attitude towards it. The weaknesses exhibited by this company can be corrected if it uses its employees effectively. In addition, the company should stop behaving like it is offering assistance to its customers. Most managers forget they need their customers just as the public needs the goods and services they produce (Bozarth, & Handfield, 2006). The objective of this company should be to ensure employees are involved in key decision-making processes to motivate them.

Improved product design

Competition in the beverage and foods industry has increased because of the demand brought by urbanisation. Most people do not travel back to their homes to have lunch, but instead, visit restaurants and other food joints to save time and energy. This has attracted various players and increased competition. Therefore, PepsiCo should use improved designs to promote the popularity of its products. It is necessary to explain that its main rival has changed the design and packaging of its products several times to attract customers and retain existing ones. A change in the design of a product may have significant positive impacts because of the attractiveness of the packaging materials used. Branding is the cheapest yet most effective way of advertising a product. For instance, it is not easy for illiterate people to differentiate between the products of Coca-Cola and PepsiCo because of the similarities of the colours of their drinks and bottles. Therefore, proper branding helps customers to identify and differentiate products and this promotes sales. The reputation of PepsiCo cannot improve if it does not distinguish its brand from those available in the market. Poor branding weakens a company’s marketing strategies and creates room for rivals to use propaganda to discourage customers from buying their products (Heizer, & Render, 2004).

Improved process management

Process management refers to all the activities and people involved in ensuring a company produces goods and services that meet the demands of its customers. Most people believe that products that target customers are likely to win and attract them compared to those that are produced for the sake of filling a vacuum (William, 2005). PepsiCo faces criticism from the public because it has a hands-off approach when managing its problems. For instance, it does not seem to address the issue of environmental pollution and the risks posed by genetically modified foods. The process of recruiting staff has met resistance from some people who claim that this company does not give preference to local communities. In addition, most customers believe that this company does not have their interests at heart because of the negligence and arrogance exhibited by its employees. The best solution to these challenges includes the establishment of performance improvement programmes that will evaluate the roles of its employees (Bozarth, & Handfield, 2006). The programme will help managers to identify weak areas and correct them. In addition, they will ensure the company is cushioned from inefficiencies. It seems that there is nobody or department ready to address the issues that disturb the public. The company has a human resource and publicity department. However, these departments seem not to play their roles effectively because of the angry reaction from the public whenever it needs redress.

Improve supplier quality management

PepsiCo relies on the raw materials supplied by farmers from across different regions. It gets the raw materials from farmers who use various production methods. One of the fiercest criticisms facing this company is that it buys grains produced through genetic engineering. Farmers use different agricultural production methods to boost their products. The problem, with this freedom, is that there is no regulation on the number of fertilisers, pesticides, and insecticides that farmers can use (Heizer, & Render, 2004). Therefore, the company gets raw materials of different qualities. Consumers have developed a new trend of evaluating the quality of raw materials and processes used in the production of goods (William, 2005). Companies that are perceived to use unethical methods are avoided to compel them to conform to the norms of modern society. PepsiCo should stop being reluctant and thinking that customers must buy its products. This company should focus on modern trends and ensure all the needs of their customers are addressed properly. The company should pay attention to what its customers say and use its employees to study and understand markets. Companies cannot use poor raw materials and expect to produce high-quality goods.

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Manager, employee, and customer relations

The success of a company depends on how its stakeholders relate and understand each other. Companies that ignore their employees or customers do not go far because they cannot survive if they do not make profits (Bozarth, & Handfield, 2006). Employees interact with customers on a personal level and can be the source of useful information that may help companies to improve performance. On the other hand, managers should create a healthy and free environment with their juniors to motivate each other and facilitate communication. PepsiCo seems not to pay attention to the need to make regular contacts with various stakeholders.

Strategic planning to accommodate uncertainties

No company is immune to unexpected economic challenges. The economic recession of 2007 was an important lesson to multinationals that rely on foreign markets and international trade (Heizer, & Render, 2004). Companies should have strategic plans to cushion themselves from unexpected inflation and other economic challenges. The high interest rates charged by financial institutions during inflation should not be a discouragement to companies that wish to expand their operations. Strategic planning is an effective measure of ensuring a company’s weakness does not expose it to risks or injure its reputation.

Specialisation

The greatest challenge facing PepsiCo is the production of too many brands making it difficult for consumers to identify it. In addition, these brands have different names since others retained their logos even after acquisitions and mergers. Coca-Cola is successful because it has about seven brands under its logo. Customers can identify them easily and that is why it is popular in all countries and amongst people of different ages (Bozarth, & Handfield, 2006). On the other hand, PepsiCo has more than 30 brands and most of them have different names that make them appear as if different companies produce them. This company should not give its customers the burden of identifying its products amongst the many options available in the market. In addition, specialisation of labour will enable this company and its employees to pay attention to the quality and quantity requirements of different products.

Appraising Solutions

Consumers’ response

The company can get useful information from its customers if it conducts surveys to collect information from the public. Most people do not usually give false information when interviewed about the performance of a company. The poor brand reputation and low stock sales of this company are an indication that it is not popular. Consumers who are loyal to this company will be ready to offer information that will be used to improve its performance. Appraisal of the above solutions can be done by getting feedback on how employees treat customers. In addition, the company can put suggestion boxes in its outlets where customers can drop their responses or queries regarding quality issues and interaction with the Company. Secondly, it can put in place standard evaluation tests to ascertain the contributions and roles of each employee (Bozarth, & Handfield, 2006). The company faces numerous challenges associated with the complexity of its production lines. Appraisal of employees’ performance can be done regularly to evaluate their response and cooperation when serving clients. It is necessary to explain that most of the weaknesses exhibited by this company occurred due to poor employee and customer relations. Thirdly, an evaluation of the volume of stock traded can help a company to know its performance. A good performance will attract investors and this means that more stocks will be traded. However, the result may not be felt immediately these changes are introduced because it takes time before customers realise that a company has transformed (Heizer, & Render, 2004). A comparison of its previous stock turnover and sales record is a vital appraisal technique that may help this company to evaluate its performance.

Conclusion

Companies can’t avoid all weaknesses that hamper the effective realisation of their goals. Operational excellence occurs when a company identifies its weaknesses and establishes measures to manage them. PepsiCo has a weak reputation and brand name and a struggling stock value due to the weaknesses that have hindered the implementation and realisation of its objectives. This company has a poor communication channel that complicates the process of handling customer complaints. In addition, it focuses too much of its attention on brand expansion instead of development. Currently, it has the most complicated production process to meet its complex market segments. The chief executive officer has all the governance powers in the organisation and this means that other employees play insignificant roles in decision-making. The total quality management approaches recommended will create room for the creation of a vibrant customer care desk and delegation of duties. In addition, the company should pay attention to the quality of raw materials from the supplier to ensure it does not expose the health of its customers to risks. PepsiCo can improve its operational excellence if it focuses on the issues that customers raise without questioning or ignoring some parts of the population.

References

Bozarth, C., & Handfield, R. B. (2006). Introduction to Operations and Supply Chain Management. Upper Saddle River, NJ: Prentice Hall.

Briscoe, D. R., Schuler, R. S., Stone, P. A., Kerber, J. E., Nightingale, D. J., & Srinivasan, J. (2014). Achieving Operational Excellence through Innovative IT Strategies: Becoming More Efficient and Focusing on Your Constituents with ERP. University Business, 17 (6).

Heizer, J., & Render, B. (2004). Principles of Operations Management. Upper Saddle River, NJ: Prentice Hall.

William, J. S. (2005). Operations Management. Boston, MA: McGraw-Hill.

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