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Case Study 3.1

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Pepsi’s Indra Nooyi: Performance with a Purpose Rakesh Dhungel University of the Potomac Strategic Management BUS 510 May 4, 2021 Dina Rady

Case Study 3.1

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Abstract

The objective of this paper is to analyze the business strategy of PepsiCo, lead by CEO Indra Nooyi. Nooyi declared PepsiCo’s vision as performance with a purpose in three dimensions: Human sustainability, environmental sustainability and the whole person at work. This paper we will examine the different facets of this vision and the impact it has had on the company and industry since Nooyi began implementing this idea. PepsiCo’s vision of Performance with Purpose acknowledges more than the importance of the corporate social responsibility and stakeholder strategy. Nooyi is convinced that companies have a duty to society to “do better by doing better.” She subscribes to a triple-bottom-line approach to competitive advantage, which considers not only economic but also social and environmental performance. Nooyi declares that the

true

profits

of

an

enterprise

are

not

just

“revenues minus costs”

but

“revenues minus costs minus costs to society.” Problems such as pollution or the increased cost of health care to combat obesity impose costs on society that companies typically do not bear (externalities). As Nooyi sees it, the time when corporations can just pass on their externalities to society is nearing an end.

Case Study 3.1

3 Pepsi’s Indra Nooyi: Performance with a Purpose

1. What “grade” would you give PepsiCo CEO Indra Nooyi for her job performance as a strategic leader? What are her strengths and weaknesses? Where would you place Nooyi on the Level-5 pyramid of strategic leadership (see Exhibit 2.4), and why? Support your answers. As a strategic leader, I would give Indra Nooyi an A, because she has rightly identified that profit is no longer sales-cost. Also she has put emphasis on making the company a better place to work, by providing safe and healthy work environment for employees. She uses Performance with Purpose to emphasize the importance of human and environment sustainability. Over a five-year period between 2012 and 2017, PepsiCo has outperformed Coca-Cola by a relatively wide margin and PepsiCo’s normalized stock appreciation was almost 50 percentage points higher than that of Coca-Cola.

Based on the case study, Nooyi’s strengths include communication, relationship building, having a moral compass, and having an overall positive work attitude. Using these strengths, Nooyi was able to inspire people towards a larger than life goal. The only weakness of Nooyi that was reflected in the case was the inability to make complex decisions. It was suggested to split Pepsi Co. into two parts focusing on beverages and snacks separately to generate higher profitability but Nooyi decided not to go in that direction. It is no doubt that Nooyi has a strong vision, but I think it needs to be conformed more to the consumer market.

I would place Nooyi on Level 5 on pyramid of strategic leadership because she is the mastermind behind the Performance with Purpose vision and she continues to motivate businesses to march toward consistent growth and success while working in the best interest of the earth and the people living on it. 2. The first few years after Indra Nooyi took over as PepsiCo’s CEO and implemented Performance with Purpose, the company underperformed its archrival Coca-Cola Co. by a wide margin. What should a strategic leader do if his or her vision does not seem to lead to

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an immediate (financial) competitive advantage? What would be your top three recommendations? Support your arguments. When implementing the new and risky concept like Nooyi did, one should not just expect immediate success but rather should have patience and give it some time to get the expected results. Listed below are few recommendations that a strategic leader should do if his or her vision does not seem to lead to an immediate (financial) competitive advantage.

1. Leader should be positive and should focus on social and environmental progress of the project rather than just focusing on financial progress. These social and environmental accomplishments will have long-term positive impact to the business.

2. Build a reliable team that is helping her implement Performance with Purpose and make sure they are on the right path and doing all the right things to reach their goal.

3. Build a strong research team, that focuses on different parts of the project more in depth and build the strategy based on collected data. 3. Do you agree with Indra Nooyi’s philosophy that “performance and purpose are intimately linked and you can’t do one without the other”? Support your arguments. Yes, I definitely agree that “performance and purpose are intimately linked and you can’t do one without the other”. Without a purpose, your performance will be non-existent. There will be no point in performing well or even at all if you don’t have a purpose. One needs to perform well in the company in order to achieve a specific goal. Having a defined purpose allows everyone to be held accountable when it comes to performing. Without one, the other fails.

4. PepsiCo’s investors require the company to grow about 5 percent or $3.5 billion a year. PepsiCo’s top line, however, remained flat for the past few years. Where would future growth for PepsiCo come from?

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As stated in the case, PepsiCo sees great potential in creating healthier products. As of today, people are more concerned about healthy products while the unhealthy soft-drink market is declining. I believe for the future growth of Pepsi Co, it would be in PepsiCo’s best interest to invest in their healthier product lines. Also stated in the case, is the fact that the consumption of bottled water is becoming increasingly popular and would also be a viable opportunity for growth. Investing in the bottled water market segment both domestically and internationally could prove beneficial for PepsiCo. The case also talked about the rapidly growing energy drink market. Thus investing on energy drink would be a great opportunity for growth of PepsiCo.

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6 References

Rotharemel, F.T. (2017). Strategic Management: Concepts and Cases, 3d ed., NewYork: McGraw-Hill. “Conversation with Indra Nooyi Yale SOM ’80,” Yale University, March 3, 2010, Retrieved from www.youtube.com/watch?v=-msw7mJPF6A “The responsible company,” The Economist, The World in 2008....