Strategic Management And Analysis Of PepsiCo, An Essay.

Overview of PepsiCo

Question:

Write an Essay on Strategic Management.

Among few organisations being in the news during the last two years is PepsiCo which is a multinational company dealing in food and beverage. (Jeffery, 2017) It is one of the most popular American MNC whose headquarters is situated in Purchase in New York. Since its foundation in 1903, it has grown enormously gaining much reputation with strong market portfolio (Bailey, 2014). It supplies food, snacks, fruit juices and beverages to more than 200 countries. The history of PepsiCo began in New Bern, North Carolina, in 1896. Caleb Bradham was a pharmacist and industrialist who founded the recipe of famous Pepsi and under its namesake was able to expand its venture across the globe. The company had made many acquisitions and mergers one of which was famous and was all over the news in 1965 when it merged with Frito Lay and named the soft drink Pepsi-Cola. Again in 1998 another successful purchase was made by the company, Tropicana, following with another merger of Quaker Oats in 2001 (Pepsico , 2017). Holding the second position worldwide in food and beverage business, the company is owner of chief brands like KFC, California Pizza Chicken, Taco Bell, Wilson Sporting Goods, Pizza Hut, etc. Under the management of Indra Krishnamurthy Nooyi, CEO of the company, the organisation has reached to new highs and is successful in employing more than two hundred and seventy four thousand satisfied people globally (PepsiCo Inc. Success Story, 2017). Though there are many challenges met by the company, but with strategic management and proper analysis, PepsiCo is able to overcome them with ease and have been able to survive in the market with reputation. The vision PepsiCo declare is to become world’s top company dealing in food and beverage. To achieve the goal of becoming first in position, the company follows a strategy to provide value to customers through product diversification and for that constant mergers and acquisitions is been made by the company in order to make a wide range of product portfolio. The corporate strategy provides customers with different quality products according to their preferences which have made PepsiCo recognised as a strong brand and the pattern company follows to come up with new products, helps in maintaining their competitive advantage. (Jannet, 2010)

The concept of strategic management has developed gradually, and the role of intellectual management with practical reasoning has helped in concluding with carving out its own role by means of theoretical concepts in business. (KALPI?, 2002) Management uses several concepts and theories to associate the performance of employees with those of organisation’s management. Selecting theoretical concepts to strategic management is a major task as in a competitive and unstable market, the objective of strategy engages to prepare the organisation to tackle the unreceptive environment and to sustain the same requires appropriate management operations. (Emerson Wagner Mainardes, 2014) It also allows the management to perform systematically and helps in attaining the core object to organise the skills, recommendations, and internal resources of the company. In order to apply theoretical concepts to strategic management, the theory is needed to be examined so that it can be applied to the organisation to provide assistance in gaining sustainability and growth. In order to evaluate the strategy PepsiCo follows, theories like SWOT analysis, PESTLE analysis , and Porter’s five force analysis is been used which will help in understanding the policies and framework of the company with which it has made the company an example of sound strategic management in planning and organising. (RICHARD A. BETTIS, 2014)

Strategic Management in PepsiCo

SWOT analysis is a framework which allows the managers to amalgamate internal resources of the company. Strengths and weakness in them forms a basis for analysis of threats and opportunities of external sources. It is an initial method followed by managers in which collection and evaluation of information about external and internal data is made. (Strategic analysis of Pepsi Co., 2017)It is one of the most important parts of strategic management planning process as great number of issues in the internal and external part is found and leads way in which it can be sorted (Jofre, 2011). Internal strengths and weakness of the company can be managed by organisations, while external threats and opportunities are only reactions of anticipation or regression due to them. The major benefits of SWOT are that it is simple to use and has practical nature which makes it clearly understandable which is why used in most of the organisations. It focuses on internal and external factors which affects the company directly or indirectly and thus helps in identifying goals. Threats and opportunities are uncontrollable factors which usually arise due to variation in the macro environment or competitor’s actions. While opportunities represent external conditions that bring competitive advantage if recognised properly, threats may harm the company if not avoided or defended appropriately. This SWOT analysis illustrates PepsiCo’s position which has grown and reached top position in global market. Also this framework will provide PepsiCo to analyse issues and ways to minimise obstacles in its performance. (Strategic analysis of Pepsi Co., 2017)

PepsiCo attains one of the major brands in the global market and has achieved in gaining attention of the customers by launching new and innovative products. Few examples of its successful brands are Quaker Products, Pepsi Products and Frito Lay Products, which have been able to capture the entire food market with prominence. The strength of the company lays in effective and advanced global production and supply chain which has made PepsiCo an example of well established company in managing international growth and expansion strategy. Since large number of its operation is limited to the area of its main hub i.e. North America and South America, out of its total revenue 70% is observed from it and thus shows its weakness in internal strategic management. It shows that the company is not been able to recognise and yield maximum possible revenues out of American region, and if any uncertainty occurs in food and beverage industry in those areas, the company can face immense threats. Penetration in the marketplace of other developing countries can help PepsiCo in generating increased revenues globally. Dependency on other food market can also be said as one weakness company possess which can only be overcome if the company makes amendments in growth strategy of the company. The marketing strategy which the company management follows also lacks efficiency. Most of its products do not reach to the consumers who are more conscious about health as proper marketing regarding health conscious products have not been noticed recently. On the other hand if the company succeeds in giving stress on its marketing strategy, it can expand its business and reach to its ultimate consumers in all areas. (Pratap, 2016)

Employing Theories in Strategic Management

PepsiCo from the beginning has believed in the strategy of constant mergers and acquisitions in other brands and companies related to food and beverage. (Fergusan, 2017) Although it had made company’s portfolio strong, but the weakness which lies is that the company becomes highly dependent on food and beverage market and any sudden change in it can be appalling for the company. In order to make this weakness turn into strength, the company can make purchases of other companies who do not deal in food and beverage and with the product diversification; the risk associated can become less. Collaboration and alliance with other complimentary corporations can also increase market sustainability and company’s existence with power. Other companies like Coco-Cola, Dr Pepper Snapple etc. have always given PepsiCo tough challenges and influenced the organisation severely. Changing habits of customers have also been one reason of threat for the company as with growing concern regarding health and lifestyle has made PepsiCo constantly generate new and innovative ideas to satisfy its consumers failing which it might lose them (Divine, 2017). Management must look into the issue and take strategic approach to reduce the threats. To observe the possible opportunities behind them, SWOT analysis can prove to be the most excellent median and can be applied in strategic management of PepsiCo. (Young, 2017)

In strategic management PEST or PESTLE analysis is the theory which can prove to be an effective tool to analyse and identify major external forces that can affect the company. The main objective behind this application is to recognise current external factors that affect the business in positive or negative way and to identity directions which might be required to make changes accordingly. (Frue, 2017) In order to access any new market, management uses PEST analysis before entering in it. With planning and strategic approach, the negative forces are observed before handed and dealt with. PEST analysis can be performed by the management only after gathering external and environmental information as much as possible. Internet and customer survey is the most reliable way in which the information can be gathered quickly and organised accordingly. The major areas covered in PEST analysis is political aspects, environmental factors, social factor, and technological factor along with legal aspects, economics, and socio cultural aspects are taken into account by management. (Jurevicius, 2013) Since PepsiCo has an immense structure that makes it the second largest company globally dealing in food and beverages, PEST analysis is an effective tool that can provide great assistance for to the managers of the company to enable strategic management. (Kevin-F, 2010)

Analysis of PepsiCo's Strategy

PESTLE analysis will help in conducting an evaluation which are exterior to the company’s control but are relevant to smooth functioning of PepsiCo. Global market challenges are one major threat faced by the company which also provides scope of opportunity to make improvisation in its growth path. By making acceptable external evaluation and reformation on its basis, PepsiCo can attain sustainable market with longevity. Political aspect of the countries it deals in is very important as if the government is stable and co operative, it provides opportunity for global expansion and diversification. In PepsiCo, political stability and inter governmental support has played an important part in its growth and sustainability. Economic threats faced by the company is on a regular basis as initiatives against carbonated and sweetened drinks and an increase in concerns among consumers regarding healthy products affects the income of the company. The same threat can be avoided and turned into opportunity if the company keeps changing its recipes and product presentation along with making it healthier. (Meyer, 2017) Countries which PepsiCo deals in are fairly developed and have stable economy with soaring growth rates which again gives good opportunity for extending its division globally besides development is also possible to great extent. Thus, to attain intercontinental growth and expansion, PepsiCo can utilise economic factor of countries and create steady market diversification. On the other hand there are few developing countries like China, whose unstable government has affected the company’s growth in those areas.

Social factors on which the company depends on is the changing habits and standard of living in people who are more inclined in purchasing ready to eat foodstuff. PepsiCo’s strategic management has played here well and provided its customers with food and beverages according to their preferences, especially in urban and industrial areas worldwide. After considering social factors of PepsiCo it can be said that if the company is able to align consumer’s choice and product with suitable marketing strategy, it can gain competitive advantage also. In PepsiCo, acquiring latest technology and advanced equipments can enhance the production quality and speed. Thus in technological aspect, the company requires taking strategic decision and increase application of latest trends and methods which can develop PepsiCo technologically. (Meyer, 2017)  Since PepsiCo is a recognised brand and possesses an example of sustainable brand image, environmental links are concerned with it as consumers expect the organisation to be more eco friendly and non hazardous. The environmental element in PESTLE analysis enables company to take strategic decisions regarding ecological issues. PepsiCo can utilise this opportunity to gain public support by improving waste management strategies and increase its recycling processes. The company also faces problems related to climatic change as if any uncertainty occurs it might disturb the supply chain management and availability of food crops for its production. On the other hand, with proper diversification in global supply chain and utilising resources to maximum extent can enable PepsiCo rise above the threat (Swe, 2011). With enhanced environmental force and stable supply chain, it can catch the attentiveness and increase strong relationship with customers. Genetically Modified (GM) crops in European countries are being modified and developed which is not accepted by some customers and taken as non healthier substance. With the reduction of GM substance in products, PepsiCo can give country regulations assurance by presenting safe and healthier consumable products. With this legal analysis, the management of the company can gain opportunity by complying with legal aspects of the country while focussing on product improvisation which also provide external benefits to the organisation. (Dudovskiy, 2016)

Strength and Weaknesses of PepsiCo's Approach

Five force analyses is another important tool in strategic management which was created by M. Porter to recognize the key competitive forces affecting an organisation and examining the reasons behind them. This tool is applied in corporate management to determine the strength of competition in the organisation and its productivity level. The forces recognised are threats of entrants which allows new entrant to enter the market if they see higher profits in the organisation or scope of high return with sustainability. Bargaining power of suppliers is the ability of suppliers to increase the cost of raw materials due to their monopoly or scarcity of resources. Bargaining power of customer’s shows the strength customer possesses to make down the company’s rates due to large availability of other identical brands or products from other company. Threat of substitutes is the extent of availability of different products or services that can be used instead of the determining company. Lastly, rivalry among existing competitors establishes the force of competition in the market. It is very necessary to verify the competitive factors as stronger the forces are, profits comes down in the industry. Thus, it becomes an important role for strategist’s to evaluate the competitive position of the company and make out its strengths and weaknesses that can be subjugated to strengthen its position. (Martin, 2017) Similarly in PepsiCo, the success can be linked to its core capability and way it holds the challenges which is shown while evaluating Five Force analysis. To sustain in the market with top position it is necessary to identify potential problems and adjust its strategy to bring effectiveness in external factors that are significant in food and beverage industry.

While evaluating competitive rivalry in PepsiCo, the management has to tread cautiously as the firms in food and beverage industry generally possess aggressiveness like innovating products constantly, changing marketing policies and switch costs frequently. Therefore it is a strong force on PepsiCo as strengthening of its rivalries makes its customers easily shift from one provider to the other. This analysis suggests management to identify the competitive force strategically as it is the strongest one. To satisfy customers is the main objective of PepsiCo and the affect of customers can be determined with the help of five forces analysis. In food and beverage industry, since there are lot of competitor’s, customers are more prone to switch to other company. As information about food products is written on the package, customer gains more than required information which also makes them easy to compare and choose between PepsiCo and other brands. Thus it is shown that bargaining power here is strong in PepsiCo’s case and requires the management to ensure customer satisfaction by providing efficient products or else it may lose them. Bargaining power of suppliers of PepsiCo seems fairly weak as the overall supply of raw materials is enough and exceeds demand sometimes.  Also, the integration between suppliers is not so strong which limits their control over supply to PepsiCo. Although there are few big suppliers also, but the weak forces applied to them weakens their influence on the organisation. This element of analysis regarding suppliers bargaining power can prove to be beneficial for PepsiCo and a positive approach for further expansion. (Smithson, 2017)

Opportunities and Threats for PepsiCo

The threat of substitutes in PepsiCo is a strong force as there are many other satisfactory products available in the market which can make customers shift easily to them. Since PepsiCo deals in soft drinks, availability of other fresh juices can easily attract customers, along with it the availability of instant tea or coffee can substitute its Tropicana products also. High availability of substitutes in groceries and food markets makes consumers buy those along with other necessary items. This component of five force analysis shows strong force of external factor and must be taken by the management as priority issue facing the company. Threats relating new entrants seem moderate for PepsiCo. To enter in the market is easy for new entrant as customer can easily shift to another product. But at the same time brand recognition plays an important part as it becomes difficult for new entrant to directly compete with company like PepsiCo. With availability of strong portfolio and holding the strongest brand in food and beverage industry, PepsiCo can prove as a threat to new entrant and makes this element as secondary concern for the management.

Conclusion

The above evaluation shows the impending performance PepsiCo has followed and the way it has cultured its organisation is outstanding which makes the company an example for well established management. The potential PepsiCo has is on high while selling more products worldwide and with expansion to other developing countries can prove more advantageous for the organisation. (PepsiCo Inc. Success Story, 2017) Therefore committed and integrated management team who are also aware of cultures and customer preference, can make the company come in first position from second (Jofre, 2011). Although there are few areas like marketing and limited diversification which holds back the company, with the help of strategic management and strategic approach can deal with the situation. While gaining loyalty among customers is uncertain, PepsiCo with the aid of efficient supply management and by adding on new products like Cheetos, Gatorade, Lipton Teas, Lays Potato Chips, Fritos Corn Chips, etc and still counting has gained much attention in recent years. (News about Pepsico Inc., including commentary and archival articles published in The New York Times., 2017) The efficient company’s management has also enabled PepsiCo gain a reputed position in food and beverage market in spite of facing many threats and challenges like increase in competitors and increasing concern for healthy products. The company’s innovative to safeguard natural resources by utilizing different methods like use of solar energy; rain water capture, recycling wastes etc have also made PepsiCo one of the common topics in news recently. On concluding note it can be said that a company whose products are liked and consumed by billion’s of people, shall be taken as an example of strategic management practices.

References

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