PepsiCo Organizational Design
PepsiCo's organizational design is not rigid but rather dynamic as it is has gone through various restructuring processes to ensure that it aligns with changes in the global market. The current design is reflective of the company’s aims of effective leadership and global expansion. These aims are in line with the company’s vision statement which highlights its aim of becoming a global leader in convenient foods as well as beverages. This vision implies that the company needs to have an organizational design that is capable of supporting international growth. More so, the organizational design is structured in such a way that the company has more control in its global offices, despite differences in market conditions. For a long time, PepsiCo operated under a hierarchical organizational structure but with mergers and acquisitions, the company has had to change its design.
The current structure has various characteristics which revolve around functional corporate offices, market divisions, and global hierarchy. The functional corporate office's characteristic is crucial as it allows for the implementation of strategies to enhance its corporate control. Market divisions are one of the most visible features of PepsiCo and they are two variables which are geography and business. The geography variable entails Europe, the Americas, and other regions while the business variables encompass Quaker Foods and Frito-Lay (Kayabas et al., 2017). On the other hand, global hierarchy is a crucial characteristic that supports control, monitoring, and governance functions both at the corporate and global levels. Together the three characteristics become means through PepsiCo ensures that there are no deviations from its policies, strategies, vision, and mission.
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Strategic Control Systems
PepsiCo operates in a dynamic business environment which forces the company to review its strategic plan in a bid to retain its competitiveness. The company has practical strategic control systems which are used in monitoring its business practices to ensure that they align with organizational objectives. In particular, PepsiCo has practical control systems that are geared towards budgeting, human resource, and variance analysis as these factors determine if a company will be sustainable or not. The company is committed to maximizing the strengths and capabilities of its human resources, considering that they are pivotal to the achievement of its strategic plan. It is for this reason that PepsiCo’s corporate is pegged on articulate traditions that value employees’ inputs through practice reward and compensation programs to elicit collaboration. Heneman et al. (2001) indicate that “most effective compensation programs align reward systems with business strategy, organizational structure, and organizational culture”. PepsiCo is keen on improving its workforce through collaborations to pave the way for excellence and efficiency. The company being the second-largest player in the food and beverage industry must maintain a vibrant, culturally competent, and high-performing workforce to maintain significant market share and dominance.
PepsiCo is keen on venturing into the global market and it is for this reason that it has a distinct budgetary framework for facilitating long-term business activities. A budget is a crucial tool for outlining the source of revenues and at the same time plan how the company will generate profits through the right investment avenues. PepsiCo’s budget provides a framework for conducting variance analysis which in turn allows the company to implement practical cost management measures for exposing and eliminating unnecessary expenditures. Moreover, the company conducts regular reviews which are aimed at establishing if there are budget variances and from here determine courses for action to resolve the discrepancies. The other cost management approaches that the company uses to control its budgetary mechanism are transactional and benchmarking value analysis to establish expenditure patterns. These measures are crucial since they help the company to prioritize spending in marketing, advertising, and market research in a bid to increase sales volumes.
Effects of Strategic Control Systems on the Implementation of PepsiCo’s Strategy
The strategic control systems highlight PepsiCo’s commitment to its strategy or retaining a significant market share in the competitive beverages and food industry. The focus on its workforce to ensure that its performance is at its peak is of uttermost significance. PepsiCo has managed to instill a sense of ownership in its employees, an aspect that improves its chances of sustainability and profitability. Pryor et al. (2009) note that people are a crucial aspect of the control system, especially if they possess unique capabilities and competencies for implementing strategic plans. The company has effective human resource management strategies in that it opts for both in-house and import promotions when recruiting talents. According to Garrow & Hirsch (2008), “when focusing on specific posts one often needs to understand the external labor market very well, as perhaps these people cannot be developed purely internally” (p. 390).
PepsiCo endeavors to retain the existing employees or hire outside employees if they have the requisite skills to achieve the strategic plan. Apart from people, the company’s success is dependent on the effectiveness of its budgeting, information, and reward systems. Budgeting systems in particular is a complex strategic control mechanism since it determines if a company will be in a position to implement a new strategy or not. In cases where the strategy requires information that is not readily available in the existing accounting systems, it means that its implementation will be slow. In light of this reality, PepsiCo has adopted a flexible accounting system that allows the introduction of new business strategies that align with its corporate objectives. This flexibility is crucial as it facilitates decision-making processes and as a result ensures that PepsiCo competes effectively to maintain a significant market share.
Evaluating the Fit between PepsiCo’s Mission, Strategy, and Organizational Components Crucial to the Implementation
PepsiCo aims at becoming a market leader in the beverage and food industry which is very competitive as well as saturated. In line with this objective, the company has adopted a practical and vibrant organizational structure that allows for the incorporation of various strategies. The company’s organizational structure which adopts the global hierarchy model focuses on regional and global market needs. In particular, the company can establish clients’ preferences depending on their purchasing powers as well as the existing market gaps. Moreover, the global hierarchy model enhances the company’s capacity to control, monitor, and govern its operations on a global scale (Kayabas et al., 2017). The functional corporate offices complement the organizational structure as they allow for rapid implementation of strategies and policies. These strategies are centered on the improvement of systems controls most notably accounting, rewards, people, and culture. PepsiCo understands the need to invest in a high-performing workforce through the development of practical systems.
The rewards which are either intrinsic or extrinsic are aimed at motivating employees so that they own the company’s mission and vision. Furthermore, PepsiCo uses cost leadership, an aspect of accounting systems in a bid to reduce unnecessary expenditures as a way of improving its financial performance. A reduction in operating costs means that the company is in a position to offer low-priced products and in this way compete with Coca-Cola, its major rival. These approaches indicate that there is a fit between the company’s mission, strategy, and control systems that are crucial in the strategic plan implementation.
Discussion on PepsiCo’s Company's Sense of Business Ethics as Evidenced in its Strategic Management Process
Ethics are crucial aspects that provide a framework for formulating missions, visions as well as strategic plans that protect the wellbeing of stakeholders. Schulman (2006) indicates that the integration of ethics into strategy is guided by organizational objectives, values, and mission. In as much as ethics ought to be part of the corporate long-term strategic plan, mission statements, and codes of conduct, there is a need to adopt the best approaches. Schulman refers to these approaches and provides a 13-item list that highlights best practices in incorporating ethics into a strategic plan. The most outstanding prescriptions are ‘obey the law and spirit of the law everywhere you do business’, ‘have the right organizational structure’, and ‘articulate a complete strategy, including purpose’ (Schulman, 2006). The three prescriptions reflect PepsiCo’s sense of business ethics as outlined in its strategic management process.
The first prescription on obeying the law in all the places that one does business aligns with PepsiCo's global expansion strategy. The company’s organizational structure which is grounded on global hierarchy, allows PepsiCo to analyze different market conditions. More so, the hierarchy is a framework for analyzing labor and business laws to ensure that the strategies are ethical. The other two prescriptions on having the right organizational structure which articulates purpose are embedded in business ethics that are pegged on global expansion. In particular, PepsiCo understands that the beverages and food industry is highly competitive, thus the need to develop a competitive advantage. In the case of PepsiCo, the strategy focuses on reducing operational costs and in turn low priced products that meet the needs of diverse customers (Bedawy & Shawky, 2013). Overall, the company has an articulate business strategy that aligns with its mission of becoming a market leader through the adoption of practical and ethical accounting and human resource practices
Changes that Assure the Success of PepsiCo’s Strategy
PepsiCo has a clear strategic plan which revolves around global expansion in a bid to seal market gaps that are evident in various regions. The company which competes closely with Coca-Cola understands that the beverages and food industry has so much potential. However, to achieve this objective, there is a need to invest in market research, human resource development as well as an ethical business framework. So far, the company has made various changes, most specifically to its organizational structure to ensure that it addresses the concerns that may arise Currently, the company has PepsiCo’s organizational structure has been reformed several times to address changing global market conditions.
The company has a divisional organizational culture that is aimed at ensuring that the company has control over regional and global operations. While this structure reflects the company’s vision, mission, and strategic plan, it requires adjustments to enhance its competitive advantage. The divisional structure presents a disadvantage because it is inflexible, considering that the company has only one Frito-Lay global division (Kayabas et al., 2017). This aspect means that PepsiCo is not in a position to respond to market changes and variations in time, thus giving its competitors an upper hand. In a bid to ensure that PepsiCo maintains a significant market share and remains competitive, there is a need to opt for regional market divisions as opposed to single global divisions. Such a change in PepsiCo’s organizational structure and hierarchy would enhance its responsiveness to global market variations.
Conclusion
PepsiCo operates in a highly competitive and dynamic industry with Coca-Cola, its main rival has managed to attain a significant market share. Such market dynamism means that PepsiCo must design a strategic plan that gives it a competitive advantage to enhance its profitability. The company’s mission which is to become a market leader in the food and beverages industry depicts its commitment to the cause. More so, the company has an articulate business strategy that revolves around global expansion so that it can compete alongside other players. So far, the company has succeeded mainly because its organizational structure espouses vibrant strategic control systems. PepsiCo has practical accounting, reward, and human resource systems that have improved its competitiveness. The adoption of global hierarchy as a part of its organizational design ensures that the company is in a position to control and govern regional and global operations. However, a single global division for handling its operations is faulted due to its inability to handle market variations. For this reason, the company should instead invest in regional market divisions to enhance its capacity to compete effectively and in this way, increase its profitability and achieve sustainability.
References
Bedawy, R., & Shawky, Z. (2013). Upholding competitive advantage through endorsing corporate social responsibility: A case study of PepsiCo Egypt. Procedia - Social and Behavioral Sciences 106(4), 3216 – 3234
Garrow, V. and Hirsh, W. (2008). Talent management: Issues of focus and fit. Public Personnel Management, 37(4), 389-403.
Kayabas, T. D., Boyraz, G., & Derdiyok, R. (2017). Examining Coca-Cola and Pepsi brands under the basis of globalization and multinational companies. International Journal of Academic Research in Business and Social Sciences, 7 (12), 351-360. DOI: 10.6007/IJARBSS/v7-i12/3617
Heneman, R. L., Fisher, M. M., & Dixon, K. E. (2001). Reward and Organizational Systems Alignment: An Expert System. Compensation & Benefits Review, 33(6), 18–29. https://doi.org/10.1177/08863680122098694
Pryor, M.G., Singleton, L.P., Taneja, S., and Toobs, L.A. (2009). Teaming as a strategic and tactical tool: An analysis with recommendations. International Journal of Management, 26 (2), 320-334. DOI: 10.1109/EMR.2011.5729967
Schulman, M. (2006). Incorporating ethics into the organization . Markkula Centre for Applied Ethics. https://www.scu.edu/ethics/focus-areas/business-ethics/resources/incorporating-ethics-into-the-organization/
