Pepsi Case Analysis
Pepsi Case Analysis
In 2000, under the leadership of the former CEO Steve Reinemund, PepsiCo. launched a new business strategy that based on the racial and culture diversity. It emphasized the importance of having equal working and promoting opportunities for all employees from different ethnic groups. In order to help the company keep up with the demographical shifting in United States, this strategy was initially resisted by some of the employees as well as senior division managers. The resistance led to a failure in Frito-Lay division of meeting its diversity goal, and consequently caused the company to miss its consolidated goals in 2002.
Witha strong belief that diversity will greatly benefit the company in the long-run, Reinemund insisted to carry on and successfully improved the company’s market share in 2003. Later, motivated by creating a more inviting and engaging work environment for employees, Reinemund made the diversity part of the PepsiCo. ’s culture. He encouraged authentic conversations between shareholders, employees and managers to infuse diversity into every level of the company. As the results, all three divisions of PepsiCo. reported substantial growth of revenue from 2004 to 2007.
In addition, the turnover rate for minority workers was reduced significantly; the representations of women and minorities were increase noticeably; and the organizational health scores showed an overall positive work experience for the PepsiCo. . Leadership Analysis Several leaders before Reinemund were aware of the need of managing diversity in the company and made their attempts to reconcile it, e. g. , D. Wayne Calloway first addressed the company need for a “people development” culture in late 80s; and Roger Enrico and Philip Marineau founded an external African American Advisory Board in 1999.
However, these actions were considered to be “inclusive” and relatively not effective (i. e. company’s turnover rates for minorities and women employees were twice higher than majority employees). In 2000, as soon asReinemund was appointed to be the new president and chief operating officer of PepsiCo, which is considered as the signal of him being the next CEO, he proposed to make diversity as company’s business strategy and take diversity management to the next level. He worked with then senior vice president of human resources Peggy Moore and Ron Harrison to shape the company’s diversity agenda.
In addition, by comparing the growth of the ethnic populations (including Latinos, Blacks and Asians) and Brand Development Index (BDI), Reinemund identified company’s new opportunities in urban and Hispanic markets and drew a conclusion that the ethnic populations would be appealed and consequently increase market penetration if the diversity strategy was well implemented. Compared to the previous leaders, Reinemundwas able to relate company’s internal diversity issue to the potential market and the new targeted groups (ethnic populations), and let the market to be the external guidance for the company’s diversity development.
This was never considered nor done by any of the previous leaders, which was creative and praiseworthy. In many situations, “creativity implies risk. ” (Levi, 2001, P209), however, Reinemundwas’s creativity had led to organization to growth. Another reflection of Reinemund’s leadership was at the time he faced difficulties. The first challenge was found when Reinemund just launched the diversity strategy. Resistances were generated from the departments that in which employees didn’t directly interact with customers as well as from the senior team and the board of directors.
To resolve this, he brought the diversity goal to the same importance as the financial goal, and insisted to make the measurements and objectives of this diversity program applicable to all departments and people in the company – including himself. For example, in 2002, the Frito-Lay division missed its diversity goal, and subsequently caused the company to miss its consolidated goal. Some senior members suggested that as long as the company passed its sales and profit goals, diversity shouldn’t be overemphasized and be the only barrier to stop leaders getting their full annual bonuses.
However, Reinemund made his position clear by requiring the chairman of the compensation committee to reduce his annual bonus. This action certainly showed Reinemund’s determination and made everyone in the company realize their responsibilities for executing this diversity strategy. In other words, we can say that he is a great decision maker, his flexibility leadership style, which means “the ability to adapt to situation. ” (Levi, 2001, P170) is considered one of the most important characteristic of his leadership style.
The second challenge was originated from a question that Reinemundwas asked y a MBA student at Stanford, which can be seen as a turning point for him to rethink and reevaluate the diversity strategy. The question was if he would still carry out the diversity strategy if it weren’t good for business. He stumbled through the question on the day and started pondering how to internalize PepsiCo’s diversity process, in other words, changing PepsiCo’s culture. He then realized that the idea of diversity was not only about business, “it was to balance any business case with our own values, and ‘the right thing to do’”.
It is very natural for leaders to think and make decisions from the “making the company more profitable” point of view, as long as the strategies can help companies to progress and have more market share. However, by only thinking and acting in this way, leaders sometimes failed to truly elevate the company from the “adding value to the company” point of view. The inconsistency of implementing an external profitable strategy without truly understanding and absorbing it internally may prevent PepsiCo, from successfully establishing its public representation as well as cause misunderstanding and even conflict within the company in the long-run.
Reinemund quickly identified the key problem from the question, and, “as a result of this intense reflection”, believed that he had to create a new PepsiCo. ’s culture that every employee felt valued. By having this nice vision, Reinemund set himself apart from those leaders who only focus on making money for their companies. Reinemund’s leadership also embodied through his approach to infuse diversity concept into each level of the company. He first extended the definition of diversity to gay, lesbian, bi-sexual and transgender groups in the company, and then assigned each member of the PepsiCo.
Executive Committee (PEC) to be a sponsor of each group to make the senior members more visible and responsible for the diversity development. By doing so, he not only successfully shared his responsibility with other PEC members, but also brought more focus to each one of the minorities groups. He also included stakeholders into his “authentic conversations” related to diversity and inclusion, in order to make diversity more widely-accepted.
In addition, different employee groups were encouraged to have more communications with each other; and subsequently, more cultural similarities and understandings were generated among groups. As the results, the turnover rate for minorities groups was substantially reduced; the organizational health scores were improved; and net sales of PepsiCo. wasincreasing year by year as well. Conclusion In general, Reinemund was a visionary leader with good management and communication skills. For instance, during phase one of the strategy, he reduced his own bonus to convince others what he believed in.
And later used statistics (increase of market share in the targeted market) to further prove his strategy and earn more trust from those performance-driven senior members around him. During phase two of the strategy, he also showed his unique insight toward the company’s long-term development by incorporating diversity into PepsiCo. ’ s purely performance- driven culture. He set up a new system which each PEC member was a sponsor of a minority group, in order to bring more management focus into group.
In addition, not only he himself was good at sharing his vision with others (i. . kept delivering the message of diversity inside and outside of the company to a point where people thought it was unnecessary), he also encouraged having authentic conversations with shareholders, managers and employees from different groups. He is a talented and systems-orientated leader oversees an organizational system that enables each employee to reach her or his potential. (Philip R, 2004, P189) One recommendation can be made after analyzing his leadership. During phase one, the communication between him and other senior members should happen more quickly and effectively.
If he was able to share his vision and let them truly embrace the diversity strategy before putting the strategy into practice at the local-level, the diversity goal would have met and the action of requiring a reduction of his bonus would have been avoided. From teamwork point of view, to insist the rules that leader himself has set up was praiseworthy; however, this action would potentially put the leader in a harmful situation where others might also felt being pushed and reluctant to carry out his future commends.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 18 November 2016
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