PepsiCo Case

Q:        What course of action should he recommend?

A:        Roger Enrico should recommend the building of a matrix organization because this would enable PepsiCo Worldwide Beverages to maximize the level of coordination among Pepsi USA, Pepsi Bottling Group and the Fountain Beverage Division. This was a critical consideration because a considerable level of waste of resources was taking place as a result of lack of coordination among the three separate operating divisions. With the building of a matrix organization, the top management at PepsiCo would be able to strike a balance between decentralization and retaining the functional core competencies that were the cornerstones of its unique corporate culture. It was clear that the management should do everything in its power to enhance the level of coordination among the three separate units in order to minimize the level of costs. However if the management were to implement the strategy of decentralization, then the regional managers would be given too much autonomy and this might compromise the level of alignment with the strategic focus of the organization. Reorganizing along functional lines as would happen according to the matrix structure would maintain the cultural orientation of the company (cited in Hitt, 2007).

Q:     Were the divisional conflicts and coordinating delays hurting Pepsi’s ability to compete in a marketplace that increasingly required nimble reactions to local competitive thrusts?

A:        The divisional conflicts and coordinating delays were impairing the company’s competitive advantage because they were hurting the company’s ability to respond effectively to the competitive threat posed by Coca-Cola. In this respect, mounting effective communications programs was at the heart of developing a unique selling proposition. However because there were divisional conflicts and coordinating delays among the three separate operating units, promotional efforts were being duplicated. This reduced the return on investment in marketing expenses. Therefore the lack of interaction among the three units was hurting the company’s ability to implement the strategy of quick response.

Q:        Was the present structure cost competitive or was Pepsi’s divisionalized structure making it a high-cost competitor?

A:        The present structure was not cost competitive because the marketing strategies were being duplicated. This added to the cost of operations. As mentioned before, this was happening because of the lack of interaction among the three divisions. This was also having a negative effect on employee morale. Lack of communications meant that there was a lot of misunderstanding among the three divisions. For example, employees of Pepsi USA were considered to belong to a higher status than either the employees of Pepsi Bottling Group or of the Fountain Beverage Division. As a result, employee productivity in Pepsi Bottling Group and in the Fountain Beverage Division was suffering. Therefore organizational productivity was suffering on both fronts of net operating profits and return on assets.

Q:        Did the present three-divisional structure represent an effective organizational alignment in light of the changes taking place in the grocery trade and the competitors’ (and Pepsi’s) bottler networks?

A:        PepsiCo operated in an industry in which the bargaining power of buyers was very high. This was because the process of mergers and acquisitions had created fewer, larger regional retail chains. These chains were implementing the strategy of centralized decision making. This meant that there were larger, fewer stores which wielded a considerable level of supermarket power and the retail chains used this increased power to demand more and larger discounts. This meant that PepsiCo would have to maximize its level of coordination in order to meet the demand patterns that were generated by the retail chains. In this respect, the present three-divisional structure was a limiting factor in terms of limiting the company’s ability to coordinate the marketing programs in such a manner as to maximize the level of return on investment (cited in Fred, 2006). The bargaining power of buyers also went up because of the substitute products offered by Coca-Cola.

Q:        When and how should the management implement the changes?

A:        As mentioned before, the management at PepsiCo should reorganize the three-divisional structure along functional lines. This meant that the decision making structure would be a matrix one. The major stumbling block in this respect was the selection of a leader for the new organization and alignment of cultural differences. In selecting a leader for the new organization, the top management at PepsiCo should consider external sources of recruitment. It is clear that the employees at PepsiCo are not familiar with the operational challenges of implementing a matrix reporting structure. It is also clear that if the selection were to be made from the internal employees, then it would have a negative effect on the other employees. Recruiting externally would solve this problem.

            The second issue to be dealt with is that of cultural alignment among the three separate operating divisions. This is an issue of managing change that should be addressed according to the bottom-up approach. Therefore a project management team should be formed and this team should be assigned the responsibility of overseeing that the divisional integration into a matrix structure is implemented effectively. In this respect, the management might also consider hiring an external change management consultant. However it is important that the project management team is represented by employees from all three divisional units to ensure that the new corporate culture incorporates elements from all three. In this manner the problem with cultural alignment might be addressed. This will also solve the problem of employee resistance to change.

References

Fred, David. (2006). Strategic Management: Concepts and Cases. Prentice Hall.

Hitt, Michael A., et al. (2007). Strategic Management Concepts. Wiley.