10PGHR46_Strategy Implementation Project

8/7/2019 10PGHR46_Strategy Implementation Project

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MANAGEMENT DEVELOPMENTINSTITUTE, GURGAON

Implementation of Strategicrecommendation at PepsiCo

Strategy Implementation project

Submitted to:

Prof. Harsh Wardhan

Submitted by:Shuchi Tomer

10PGHR46


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Strategic element chosen(recommendation)

Focus on bringing healthier products to market keeping old product

portfolio intact, by using:i) New product developmentii) Mergers and acquisitions with companies developing new

product

New product development in the healthier products direction is a keyto sustainability in convenient foods and beverages business because:

i) Consumption of convenient foods and beverages is expectedto increase owing to a faster and more mobile world whichneeds to satiate hunger anywhere in instants

ii) It is expected that in future, people will look forward to having

convenient foods and beverages not as a supplement tomeals but as a substitute and in that case only healthierconvenient foods and beverages will survive the market.

The most recent wave of the Agencys Consumer Attitudes Survey,conducted in July 2007found that:

Health conscious pragmatists represent 22% of the UK adult populationand tend to embrace modern cuisines and are willing to experimentand try new foods.

Convenience driven health rejecters, representing 29% of the

population, are likely to rank convenience above health whenchoosing what to eat and look to food for immediate gratificationand stimulation, and enjoy eating out regularly.

Concerned health advocates, who rank healthy eating the most highlyof all the groups, represent 25% of the UK adult population.

Traditional cooking enthusiasts comprising 24% of the population, areenthusiastic cooks and tend to disapprove of convenience food andare passionate about making proper meals the proper way.

Some facts collected about healthier convenience foods andbeverages:

Consciousness for health: Shoppers continue to rely on nutritionlabels for information to fuel their decisions, according to MichaelSansolo, senior vice president, FMI, in an article in the November 8,2004, issue of FMIs e-publication, Facts, Figures, & The Future.Sansalo refers to Shopping for Health for the latest shoppersbehaviors. Eighty-three percent of shoppers say they regularly


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look at nutrition labels when buying a product for the first time, hesays. The report found that the reason consumers read labels rangefrom specific diets to concerns about improving their ability toavoid specific illnesses. Health concerns were at the top of the list,with 42% of shoppers admitting to purchasing foods that claim to

reduce the risk of heart disease and 26% admitting to purchasingproducts that claim to help fight cancer.

Customer preferences: The Internet-based food and beverage Website www.foodnavigator.com reported in January that products suchas drinkable yogurts, sugar substitutes, and prepared foods arecontinuing to experience large sales growth according to the site.

Consumption trends: ACNielsens recent executive news reportWhats Hot Around the Globe Insights on Growth in Food andBeverages 2004 identified the top two trends that have driven the

sales growth in the food and beverage categories analyzed overthe last 12 months as A Continued Focus on Health and TheNeed for Convenience. This annual report analyzed retailpurchases of 59 countries with data across 89 food and beveragecategories and 12 product areas. The encouraging news from thisresearch for nutrition professionals is that the worlds fastest-growing products support healthy diets, weight loss, and on-the-golifestyles. Health and weight-loss diet trends were predictors ofretail sales growth, especially in developed markets. The ACNielsenfindings revealed the top global growth in the categories of soy-based drinks (+31%), drinkable yogurts (+19%), and eggs (+16%).

The high-protein/low-carb craze of 2003-2004 dictated the fastest-growing category as meat, fish, and eggs (+6%), particularly inmore developed markets (eg, North American). On the other hand,the non-sweet carbohydrates experienced the lowest growth rate(+2%). Interestingly, the non-alcoholic beverages category,specifically carbonated beverages, was the largest grower in theglobal marketplace (+5%).

Reason for increased interest in healthier foods andbeverages:Obesity, heart disease, type 2 diabetes and certaincancers are dramatically increasing daily.

An ideal healthy convenient should satisfy following criteria:

Calories per serving (100 to 200 calories is a snack or part of a mealand 300 to 500 calories is a whole meal)

Low saturated fat (less than 4 grams per serving)Sodium level (500 milligrams or less per serving)


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Dietary fibre source (good sources have 3 grams to 5 grams andexcellent sources have 5 grams or more)

The ingredient list (unhealthy culprits such as hydrogenated oils andhigh-fructose corn syrup that may be lurking in the top fiveingredients should be absent)

Phood (combining food and medicine) has become the new wonderdrug as researchers unlock the secrets of phytochemicals, omega-3fats and other substances that promise to forestall ailments.

Action plan for PepsiCo:

From above stated facts and research results it is justifiable to goahead with this action plan:

i) Continuous research: Identify the food intake patterns specificto a particular region where PepsiCo wants to enter themarket. Collect data about:a. Purchasing capacity of peopleb. Expense patterns i.e. how much people spend on food and

in that on packaged foods and beverages (demand can becreated if people can buy)

c. Criteria people consider before purchasing convenientfoods and beverages

d. Percentage people having convenient foods and beveragesas supplement for meals, etc. and their views about

healthier convenient foods and beverages (estimatemarket size)ii) Carry out new product development for healthier foods in

facilities where according to research, market is waiting andstrong for the product. Use specific local flavours to enhancethe product appeal (as is the third trend inhttp://www.coembesa.net/Top-10-Food-Trends.html).

iii) Use dry runs on small population, receive feedback from themand enhance the product by acting on recommendations.

iv) Launch the product.v) Once successful in one market, check for similar favourable

conditions in other markets as well. Repeat the sameprocedure there.vi) At a later stage, flavours can be standardized and products

can also be developed on a global scale when there issufficient market to support healthier products at a globalscale.


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Evaluation and Clarification

Although the product developments have already been divertedtowards healthier ones, but each and every firm goes its own way.To explain this point, GMA foods, Tyson Foods, Whole Foods, WildOats, etc. i.e. all firms showing a trend towards a healthier productportfolio, will have different ways of doing this. They all willimplement this differently. PepsiCo can take the advantage of thispreliminary setting by acquiring firms which have products whichhave great potential to either compliment the present PepsiCoproduct range or substitute the present product range. Theproducts will be successful if launched through PepsiCosdistribution channels which is the advantage to the acquired firm.The costs borne by the firms for new product development will notbe incurred on PepsiCo directly as it will acquire only those firmswhich have products satisfying PepsiCos present products criteriai.e. have the potential to be successful.

PepsiCo may not have a first movers advantage stand alone, but hasthe potential to have the same if it uses this strategy. Mergersinstead of acquisitions would also suffice. Also, being limited onlyto the snack industry is also an obstacle to being self-sufficient asmany other firms competing in healthier products arena may covermeals as well. Thus, having strategic alliances with firms whosesupport will prove to be synergic is a way forward. In the strategicenvironment, thus, the value is generated through strategicalliances as follows:

Fewer and lower investments undertaken in terms of new productdevelopmentLow riskfacedCapturing first movers advantageOvercoming limitations of being only a snackindustry

In the industrial environment, PepsiCo needs to do all this before itscompetitors. It needs to capture the market before its competitorsor be able to snatch market from them at any stage. Thus, throughmy recommendations, PepsiCo will achieve the first part. For beingable to snatch market from already established players it needs to

invest in its own R&D and needs to develop global productscustomized to local tastes or variants. This was also a part of therecommendation which is also postulated in the action plan. Thisovercomes the problem of not being able to find an appropriatestrategic partner. Thus, in an industrial environment, the value isgenerated through:

Strategic alliances by being fast to marketSelf sufficiency by investing in R&D to tackle competition


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From the consumers perspective, when only few healthier productsare available, products could compete with others without fulfillingsome of the criteria of an ideal healthier product. Thus, a way out iscoming up with products which partially fulfil the ideal healthy

product criteria to capture the public trust on the product brand(Yes, we are doing something about it, we are trying to reducetrade-offs between convenience and nutrition) as well as themarket while continuing research to fulfil all the criteria of an idealhealthy product. Thus, here, value can be generated through newproduct development through:

Partially fulfilmentof the ideal healthy product criteriaContinuous improvementin the direction

For although India is the worlds third largest food producer, thecombined turnover of its ten largest food companies is only $2 billion

one-tenth the sum turned over by Nestls operations in Europe. Themarkets for the products on which Indias food companies haveconcentratedhigher value-added items such as breakfast cereals,jams, and saucesare indeed small because these products are aimedat elite. The big, and so far largely untapped, opportunity lies withmass-market productspackaged wheat flour, poultry, and liquid milkwhich could eventually account for more than 80 percent of the totalmarket. PepsiCo cannot enter this segment while being profitable andthis is also a limitation which it needs to consider.

Implementation

THE HARD ELEMENTS of 7S Mckinsey Model

Strategy: PepsiCos mission is to be the world's premier consumerproducts company focused on convenient foods and beverages andtheir vision is to continually improve all aspects of the world in whichwe operate - environment, social, economic - creating a bettertomorrow than today. The strategy to achieve mission and vision isthrough a movement towards healthier convenient foods bysimultaneously developing product development capabilities at thefirm and having strategic alliances with firms who also support the

same movement.

Initiatives that need to be taken:

New product development

Structure:


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Appropriate investments should be made in R&D for newhealthier product development which, not only doesnt harmhumans in any way, but also may provide added benefits tothem through consumption (benefits may be extra proteins,calcium, etc. to fulfil deficiencies in their bodies).

5 small independent research teams should work on the aboveideal healthy product criteria separately, each team taking up adifferent criteria as a problem to be solved.

These research teams should share their findings with eachother.

When the teams are able to find a solution to their problem thenthe findings should be shared with other research teams to boostthem up and also to show them a possible way of finding thesolution. A new product can be developed which has partiallyfulfilled healthy product criteria, if any breakthrough is notexpected in other departments soon.

Teams which have already achieved their target can club theirfindings to check whether a new product can be developed withall the improved features (for which teams were able to findsolutions).

At this time, the team structure will be like amoeba whereteams, which were able to solve individual problems, will cluband try to check whether the solutions are compatible.

It is at the new product development stage that the researchteams who have completed their tasks will be clubbed withmarketing research department, who most effectivelyunderstand the customer perspective, so that they give theirinputs to the people from the research department.

This process will continue till all the research teams havefinished their jobs.

They can further work upon making environmental friendlypackaging.

Strategic alliances with other firms

Structure:

The products will act as strategic business units which in coordination

with the functional marketing department will search for appropriatefirms for strategic business alliances. Once the search is complete theywill choose the best possible firm and then coordinate with the financedepartment and the top management directly about the strategicinterest with all the reports of the market value of the firm andpossible business prospects. Through cross-functional meetingsinvolving the trio, a final proposal will be made which will be presentedto the opposite party. If the alliance is set to happen, then other


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Customs duty reduced on freezer van from 20% to 10% from2005 06

Implementation of Fruit Products Order Implementation of Meat Food Products Order Enactment of FSS Bill 2005

Food Safety & Standards Bill, 2005

Apart from these initiatives, the Centre has requested stateGovernments to undertake the following reforms:

Amendment to the APMC Act Lowering of VAT rates Declaring the industry as seasonal Integrating the promotional structure

THE SOFT ELEMENTS of 7s McKinsey Model

Shared values:

PepsiCos focus on hiring young people relates to its value ofencouraging innovation as this step depicts a thirst for new ideas.Positive reinforcement can also be a method to boost shared values.Other shared values stated in the mission statement are fairness,honesty, integrity and performance with purpose.

Skills:

PepsiCo definitely has the necessary skills required for this initiative tobe taken up. It is considered a young firm as its average employee ageis below 25 years. Thus, they have many young creative minds tosupport formation of research teams.Staff:

Each team member has equal authority but there is definitely a teamlead that takes care of carrying work forward.

Style:

The teams will be very independent in their governance and decisionmaking. The management style to be used by the team leads againstother team members and by top management towards team membersis participative.


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Conclusion

While it is relatively easier to formulate and recommend a strategy, itis actually very difficult to implement it successfully as all the elementswhich are required to be affected by the change, vary each othersimultaneously. The process is dynamic and with too many variables,all changing and affecting each other due to those changes, it isactually very difficult to think through all the contingencies of thefuturistic desired situation. Strategies may suffer many challenges andmay even fail.

Implementation challenges

The implementation challenges include communication amongresearch teams and between them and marketing department,keep the few members in research team motivated even in face offailure, inter-departmental coordination, aligning people forcommon purpose post-alliances, breaking the barriers between thesynergic parties, lack of adequate quality control and testinginfrastructure, etc.

Core methodology

At first, I went through my previous trimesters project for strategyformulation and then through the guidelines for this trimestersproject for strategy implementation. Then I thought through what

all can be of use from course reading material and searched oninternet about PepsiCo, 7s McKinseys Model, and facts to supportmy recommendation. Facts to support the recommendations of myproject included research data, news pieces, articles and data onconsumption patterns from government sites. I referred McKinsey7s model to suggest implementation strategies. Searching forconsistency was the key methodology used here. Whatever things Isuggested should have been consistent with each other. It was likegoing back again and again just to cross check that everything wasin place.

According to a consumer research people are taking a more proactiverole in seeking foods with medicinal properties, added healthbenefits, and lower calories. On the other side of the coin, foodmanufacturers are responding to consumer demands and heedinggovernment dietary recommendations. The surge of re-packaging,relabeling, and reformulating has only just begun. Its up tonutrition professionals to help consumers decipher between whatreally are healthier products.


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References

Course materialBusiness Strategy Implementation Course Material

Websiteshttp://www.pepsico.com/Company/Our-Mission-and-Vision.htmlhttps://www.mckinseyquarterly.com/http://www.magportal.com/nr/rdir.php?w=437035http://hbswk.hbs.edu/item/6674.htmlhttp://www.healthyperson.net/wp-

content/uploads/2009/03/fast-food.gifhttp://www.todaysdietitian.com/newarchives/td_0405p44.shtmlhttp://www.food.gov.uk/news/newsarchive/2008/jul/attitudes15

07

Articleshttp://wcd.nic.in/research/nti1947/6.%20Consumption

%20expenditure.pdfhttp://www.fao.org/docrep/005/AC911E/ac911e05.htm
http://www.pepsico.com/Company/Our-Mission-and-Vision.htmlhttps://www.mckinseyquarterly.com/http://www.magportal.com/nr/rdir.php?w=437035http://hbswk.hbs.edu/item/6674.htmlhttp://www.healthyperson.net/wp-content/uploads/2009/03/fast-food.gifhttp://www.healthyperson.net/wp-content/uploads/2009/03/fast-food.gifhttp://www.todaysdietitian.com/newarchives/td_0405p44.shtmlhttp://www.food.gov.uk/news/newsarchive/2008/jul/attitudes1507http://www.food.gov.uk/news/newsarchive/2008/jul/attitudes1507http://wcd.nic.in/research/nti1947/6.%20Consumption%20expenditure.pdfhttp://wcd.nic.in/research/nti1947/6.%20Consumption%20expenditure.pdfhttp://www.fao.org/docrep/005/AC911E/ac911e05.htmhttp://www.pepsico.com/Company/Our-Mission-and-Vision.htmlhttps://www.mckinseyquarterly.com/http://www.magportal.com/nr/rdir.php?w=437035http://hbswk.hbs.edu/item/6674.htmlhttp://www.healthyperson.net/wp-content/uploads/2009/03/fast-food.gifhttp://www.healthyperson.net/wp-content/uploads/2009/03/fast-food.gifhttp://www.todaysdietitian.com/newarchives/td_0405p44.shtmlhttp://www.food.gov.uk/news/newsarchive/2008/jul/attitudes1507http://www.food.gov.uk/news/newsarchive/2008/jul/attitudes1507http://wcd.nic.in/research/nti1947/6.%20Consumption%20expenditure.pdfhttp://wcd.nic.in/research/nti1947/6.%20Consumption%20expenditure.pdfhttp://www.fao.org/docrep/005/AC911E/ac911e05.htm


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Source: D&B Research

Structure of the Indian Food Processing Industry

Food Processing Units in Organised Sector (numbers)

Major Food Processing Companies in India


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10PGHR46_Strategy Implementation Project