Strengthening Pepsico Corporation Organizational Design And Structure - Essay Example

Running head: Pepsi Co An assessment, analysis and recommendations for strengthening PepsiCo Corporation organizational design and structure Introduction Wrong organizational structure can destroy all the good works. For example, it is impossible for an organization to function effectively, if the decisions were not taken at the right moment. In order to take right decisions at the right time and to implement it quickly, proper organizational structure is necessary. Organizational structures should be flexible to process requirements quickly and to convert the inputs into outputs without any time delay. PepsiCo is one of the world’s largest food and beverage companies, revenues averaging more than $35 billion as per the statistics available in 2006. It employs approximately 168,000 people worldwide, and its products are sold in more than 200 countries. The major product portfolios include: Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. The PepsiCo portfolio includes 17 brands that generate $1 billion or more each in annual retail sales (PepsiCo unveils new organizational structure, 2007). Operating in most of the continents and countries, the American company Pepsi has a substantial market share in the software industry all over the world. PepsiCo is the leader in software industry at some regions whereas they are at the second spot in other regions (Second only to the arch rival Coca Cola). One of the major strengths of PepsiCo is its sustainable business practices in countries where they operate. For example, in India is providing seeds, fertilizers and agricultural equipments to the traditional farmers in order to encourage farming in India. Because of the huge size and diverse portfolios, PepsiCo has adopted a peculiar organizational system. It is impossible for Pepsi to control all its operations across the world under a centralized organizational control system. So they have divided the entire organization into three different units under the leadership of Indra Nooi as the chairman and CEO. PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), and PepsiCo International (PI) are the three major operating units of PepsiCo at present. This paper briefly analyses the PepsiCo organizational design, structure and its effectiveness. Assessment of organizational design, structure and effectiveness of PepsiCo As mentioned earlier, the new CEO of Pepsi Indra Nooyi has divided the company into three different units in order to control the operations more effectively. Indra Nooyi when took charge, realized that considering the huge growth PepsiCo achieving not only in America, but across the world, it is necessary to divide the company into convenient regional units in order to avoid lack of supervision in any of the regions. The following chart illustrates the current sub units of PepsiCo. (PepsiCo, 2008) According to Indra Nooyi, creating separate units in North America and other international markets helped Pepsi to address the needs of the developed and developing world equally well. She has also restructured the entire business operations of PepsiCo based on the changing needs of the business world. John Compton, former CEO of PepsiCo North America, became the CEO of PAF whereas Massimo dAmore, former executive vice president, commercial, of PepsiCo International, became CEO of PAB. Moreover, Mike White, PepsiCo vice chairman and CEO of PI, continued in his position whereas Hugh Johnston, former vice president of operations for PepsiCo, became president of Pepsi-Cola North America (PepsiCo realigns organizational structure, appoints new CEOs, 2007) According to Indra Nooyi, all the newly appointed executives already proved their worth to the company. In her opinion, Mike White, PepsiCos vice chairman, brings a wealth of diverse, global leadership experiences, strategic insight, and a track record of strong operating results whereas John Compton is a terrific operating executive who brings to his new role strong leadership and deep knowledge of the business, as well as a long track record of building outstanding customer relationships with his 24 years of experience in various parts of the company. Massimo dAmore is an inspiring leader and brand builders in PepsiCo who held various roles in PepsiCo International, including Region President for Latin America Beverages, as well as in PepsiCos corporate division, where he led Corporate Strategy & Development etc (PepsiCo unveils new organizational structure, 2007). The performance of PepsiCo after the restructuring measures clearly indicates the effectiveness of the restructuring process. The following illustrations represent recent performances of PepsiCo (Performance charts, n. d) The above charts represent the performances of PepsiCo immediately after the restructuring process. The gradual increase of earnings per share and cash flow excluding certain items definitely reveals that the restructuring process was effective and the company was able to maintain its growth phase even amidst unfavourable conditions like the global financial crisis which came into exist in 2008. The new slogan Performance with purpose helped Pepsi a lot in increasing customer confidence in Pepsi products. The restructuring of Pepsi organizational structure increased the capabilities of PepsiCo in tackling the challenges raised by the main rival Coke not only in American market, but all over the world. Earlier, all the operations of the Pepsi across the world was directed and controlled from the main offices at America. But the restructuring process helped Pepsi to give more attention to each region and to market their products more effectively. Pepsi was able to post knowledgeable persons at the top of their operational regions. Even if Pepsi is selling same products all over the world, it is difficult for them to use the same marketing or business strategies all over the world. Pepsi knows well that even if the product remains the same, different markets need different business strategies for success. The restructuring process helped Pepsi to strictly adhere to the above principle especially under the current globalized business environment. Caggeso, (2007) has argued that the international revenue of Pepsi has reduced its reliance on the United States market, where it gets the majority of revenue, compared with only 30% for rival Coca-Cola Co (Caggeso, 2007). The new organizational system helped Pepsi to compete more effectively in the international market. Earlier Pepsi was tied up in American continent alone whereas its arch rival Coke was exploiting the international market. Pepsi has realized that the globalization has brought many opportunities for them in international market and in order to exploit them, it is necessary to concentrate more on international market. In fact the appointment of Indra Nooyi, a wonderful management specialist of Indian origin, as the CEO of PepsiCo underlines Pepsi’s awareness about the importance of international market. Pepsi has realized that Americans may not have much exposure to the Asian market, and a CEO from Asian region will definitely boost their possibilities in the rapidly developing Asian region. Recommendations for strengthening PepsiCos organizational design and structure At present Pepsi are operating under three different business units, two of them concentrating on American market whereas only one is looking after the operations in the rest of the world. Considering the huge business potential, population size and economic growth, I think PepsiCo should form two separate business units; one for the Asian and Middle East region and the other for the Europe alone. India and China are the rapidly developing economies in the world and these two countries are the most heavily populated countries in the world. The better economy and heavy population size of these countries offer Pepsi enormous business opportunities which should be exploited by forming a separate unit or division for this region. Middle East is another promising region for Pepsi products. The hot climatic conditions in this region, made it extremely difficult for the people to avoid Pepsi like soft drinks in this region. Moreover, Middle East is one of the prominent business hubs in the world where people from all over the world explore their possibilities and opportunities. Europe is another emerging region for Pepsi’s business interests. With the destruction of communism from Europe, Pepsi products or the American products have more opportunities and acceptance in the European world. Pepsi management can strengthen organizational system still by isolating the European operations and giving more importance to it. Pepsi should concentrate more on injecting fresh bloods into the organization in order to bring more fresh ideas. A careful blend of fresh and experienced hands in the organization will allow Pepsi to bring more innovative ideas into business without sacrificing the traditional norms of business. It is better for Pepsi to recruit more local people for their regional operations. Only the local people may have the better knowledge about the local business conditions and hence they can perform better than foreigners at least in their own territory. For example, it is not wise for Pepsi to appoint an American as the head of their Indian or Chinese operations. Even though the top management team is comparatively stronger, same thing cannot be said about the middle and lower level management. In fact the lower level management team is interacting directly with the customers and hence Pepsi should concentrate more on recruiting efficient people at the lower management levels as well. Instead of going after the hierarchical, functional or divisional structure, in my opinion, it is better for PepsiCo to adopt a matrix structure. A matrix structure allows the grouping of employees with respect to function and product. This type of organizational structure combines the goods of the other models and moreover it encourages team work. Team work is essential in the current business world in order to take advantage of the strengths and to make up for the weakness of the employees. In a matrix structure, Pepsi can offer sales, service, accounting like critical functions for each Pepsi product under different departments. For example, sales of Pepsi cola can be controlled by the sales department of the Beverages division whereas the sales of Quaker, Lays etc can be controlled by the sales department of the food division. Conclusions PepsiCo has developed a lot after the restructuring process of its organizational system by the current CEO and managing director Indra Nooyi. By posting different people at the top of the three vital operational units, Indra Nooyi was able to reduce the burden of the top management. The recent positive performances of PepsiCo clearly show that the restructuring process was effective and useful for the future growth prospects of PepsiCo. At the same time PepsiCo needs to concentrate more on the emerging Asian and European markets and for that purpose it is desirable for Pepsi to make separate operational units for Asia and Europe. Asian continent is the most heavily populated continent in the world because of the presence of world’s first and second largest populated countries; China and India. Both these countries are on the verge of enormous economic development and Pepsi should focus more on these countries. References 1. Caggeso M, (2007), Dividing to Conquer: Pepsi Shifts Organizational Structure and Management to Focus on Emerging Markets, Retrieved on 20 June 2010 from http://moneymorning.com/2007/11/07/dividing-to-conquer-pepsi-shifts-organizational-structure-and-management-to-focus-on-emerging-markets/ 2. PepsiCo realigns organizational structure, appoints new CEOs, (2007), Retrieved on 20 June 2010 from http://www.drinks-business-review.com/news/pepsico_realigns_organizational_structure_appoints_new_ceos 3. PepsiCo unveils new organizational structure (2007), Retrieved on 20 June 2010 from http://www.prdomain.com/companies/P/Pepsi/newsreleases/200711649534.htm 4. PepsiCo, (2008), Note 1. Basis of Presentation and Our Divisions Basis of Presentation Retrieved on 20 June 2010 from http://www.pepsico.com/Annual-Reports/2008/financials/notes-01.html 5. Performance charts (n. d), Retrieved on 20 June 2010 from http://www.pepsico.com/annual09/financialHigh_performance_charts.html Read More