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Table of ContentsIntroduction................................................................................................................................................2

Operations..................................................................................................................................................3

Market Segments....................................................................................................................................3

Factors Affecting Operations...................................................................................................................4

Changes in Operations.............................................................................................................................4

Summation..............................................................................................................................................5

PepsiCo Case – Environment......................................................................................................................5

Water.......................................................................................................................................................6

Packaging.................................................................................................................................................6

Energy Usage and Emissions....................................................................................................................7

Agriculture...............................................................................................................................................7

Summation..............................................................................................................................................8

Human Resources.......................................................................................................................................9

Culture.....................................................................................................................................................9

Diversity...................................................................................................................................................9

Benefits..................................................................................................................................................10

Development and Mentoring................................................................................................................10

Performance with Purpose (Summary)....................................................................................................11

The Way Employees Work.....................................................................................................................11

The Workplace.......................................................................................................................................11

Human Rights, Communities, and Environment....................................................................................12

Business Integrity..................................................................................................................................12

Summation............................................................................................................................................13

Conclusion.................................................................................................................................................13

Reference Sheet........................................................................................................................................14

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Introduction

When PepsiCo was formed in 1965, through the merger of Pepsi-Cola and Frito-Lay, then President

Donald Kendall and, then Chairman Herman Lay, could not have dreamed the direction the company has

taken over the past 40 years (PepsiCo, 2011d). From just a few soft drink and snack food products,

PepsiCo has grown into a corporation with products ranging from soft drinks, snack foods, juices, bottled

water, cereals, and even dairy products. Over this period of growth, PepsiCo has become one of the

largest food manufacturers in the world, and a responsible global citizen who has pioneered advances

and innovations in eco-friendly manufacturing processes and is responsible for helping developing

communities. These advances and innovations became even more important when, in 2006, Indra Nooyi

was named CEO of PepsiCo (PepsiCo, 2011d). Indra started immediately to build upon the foundation of

global citizenship, and in 2008, released a corporate citizenship report that introduced the concept of

Performance with Purpose. The purpose of this case is to determine the effect that PepsiCo, under the

leadership of Indra Nooyi, has as a global citizen and how being a global citizen affects PepsiCo.

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Operations

Operations management is described as, “the development and administration of the activities involved

in transforming resources into goods and services“(Ferrell, et al., 2011). PepsiCo strives to hire

managers that are qualified for, and excel at operations, such as the transformation process and the

basic structure of the company’s operations. An operations manager’s main duties include making sure

product quality meets customer standards, ensuring production is meeting demand, and ensuring

outputs are worth more than inputs (Ferrell, et al., 2011). Operations managers may also be required to

assist in providing health care, education, and transportation to employees, as well as helping with

hiring practices. If PepsiCo’s operation managers are not successful in their duties, PepsiCo could

experience a loss in market share and revenues.

Market Segments

When it comes to producing food and beverages, PepsiCo is the largest in North America, and second in

the world (PepsiCo, 2010). Throughout its history, PepsiCo has expanded from their trademark soft

drink to a multi-segment approach which includes growth in the soft drink market segment and

expansion into the snack food, sports drink, bottled water, juice, and cereal market segments. Examples

of products PepsiCo markets to the soft drink segment are; Starbucks Frappucinos, Pepsi Colas, Sobe,

Sierra Mist, Lipton Iced Tea, Mug Root Beer, and Mountain Dew. PepsiCo competes in the juice segment

with; Tropicana, Naked Juice, and Ocean Spray. When PepsiCo bought out Frito-Lay, they were able to

compete in the snack food segment as well, with products such as; Doritos and Tostitos tortilla chips,

Frito corn chips, Lays potato chips, and Cheetos. PepsiCo’s Aquafina and Propel fitness water compete

in the bottled water segment. With the purchase of Quaker Oats, PepsiCo entered the cereal segment

with products including Rice-a-Roni, Captain Crunch cereal, and Quaker Oatmeal (PepsiCo, 2011e). With

proper segmentation, PepsiCo has made sure that their products are recognizable on a global scale and

a part of their consumer’s everyday lives.

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Factors Affecting Operations

PepsiCo’s operations are affected by numerous factors including economic, geo-political, and social

factors. According to PepsiCo’s annual report, “[o]ur success depends on our ability to respond to

consumer trends” (PepsiCo, 2009). PepsiCo has to adapt to the changing needs of the consumers. The

report also states “[m]aintaining a good reputation globally is critical to selling our branded products”

(PepsiCo, 2009), which appeals to the social factors of consumers. This means consumers are more likely

to purchase goods from a company with a good social reputation because the company will, or appear

to, have the same values as the consumer. To do this, PepsiCo has split their products into three

different categories to help consumers make decisions based on their dietary needs. These categories

are, “fun for you, good for you and better for you” (PepsiCo, 2011b).

Economic factors are the most problematic for PepsiCo’s operations. For instance, the most recent

recession that occurred in the United States has led to a loss of jobs and a decrease in productivity

across the country. This means consumers will have less money to spend and thus, will choose a less

costly substitute. For example, consumers may not be willing to spend the extra $2 for Tropicana orange

juice when they can have an equivalent that may not be as good tasting but will provide and sustain the

consumer’s dietary needs. This has caused PepsiCo to change their products to appeal to consumers and

made them feel like affordable luxuries (Kennon, J., 2011). Geo-political issues affect consumers will to

buy PepsiCo products. For example, changes in food and drug laws (PepsiCo, 2009) will result in a

change in the consumption of those PepsiCo products. As a result Pepsi has to approach this problem

and find a solution that will not cause a decrease in profits.

Changes in Operations

During the recession, consumers are changing the way they buy products, whether it is what to buy,

what to save money on, or justifying buying a product. To respond to this threat, PepsiCo has changed

their operating model accordingly. Indra Nooyi, CEO and Chairperson of PepsiCo, stated she wanted

PepsiCo to be in tune with changing consumer habits (Fortune, 2009). One way PepsiCo is achieving this

is by localizing the products PepsiCo offers to appeal to consumer’s traditions and heritage. Since pricing

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during a recession in the US, and in developing communities, is very crucial, Indra has stated, “this isn’t

the time to do premium innovation; there must be innovation at both ends, premium innovation and

innovation for the value consumer” (Fortune, 2009). PepsiCo wants to develop products that will

provide a small profit and help undernourished consumers. Also, Indra has stated that PepsiCo “will look

east to see if there are low cost rates to grow our business” (Fortune, 2009).

Summation

Operations are essential for PepsiCo to succeed. For PepsiCo to maintain its success, qualified and

competent operations managers must be in place. Using and properly maintaining a multi-market

segment approach will also help ensure PepsiCo’s future success. Despite the recession and many other

factors influencing PepsiCo’s operations, PepsiCo still pushes forward with value innovation and product

development.

PepsiCo Case – Environment

The marketplace today is filled with companies who are eco-friendly and value environmental

sustainability. PepsiCo is no exception. Environmental sustainability, in a broad definition, is “[t]he

maintenance of the factors and practices that contribute to the quality of environment on a long-term

basis” (Environmental Sustainability, n.d.). PepsiCo’s unique take on this definition is “…protecting the

earth's natural resources through innovation and the efficient use of land, energy, water and packaging

in all our operations” (PepsiCo, 2011a). PepsiCo’s commitment to their definition is evident in their

innovations and changes in water consumption, packaging, energy usage and emissions, and agricultural

techniques.

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Water

Water plays key roles in the production process of many of PepsiCo’s products. These roles range from

being used in sanitization of machines and packaging to being the product entirely. The goal of PepsiCo

is to reduce water consumption of the entire company by 20% by 2015 (PepsiCo, 2011f). While this goal

shows commitment to environmental sustainability for the entire company, there are PepsiCo facilities

around the world that have met and exceeded these expectations. In 2005, a bottling plant in India was

using 7 litres of water for every 1 litre of beverage produced. Through the use of reuse and recycling

technologies, the plant now only uses 2 litres of water for every litre produced (PepsiCo, 2011f). The

Walkers potato chip factory in the UK has reduced their water consumption by 42% over an 8 year

period (PepsiCo, 2011f). In the US, a Gatorade production facility uses recycled steam from cleaning

processes and has started to use ionized air instead of water to clean the bottles (PepsiCo, 2011f). The

Aquafina brand has recently started to create sanitary bottles on the production line, thus skipping the

need to clean the bottles at all (PepsiCo, 2011f).

Packaging

Every PepsiCo product has a package of some kind. Because packaging is such a big part of PepsiCo,

PepsiCo includes packaging in their environmental sustainability commitment, specifically the use of

recycled materials and reduction of materials used. A bottling plant in China uses more than 10%

recycled materials in their packaging, 20% of which comes from the region (PepsiCo, 2011f). Because of

the use of recycled materials and other factors, this bottling plant has set the standard for being a green

building in China (PepsiCo, 2011f). With the introduction of a new lightweight bottle, “Eco-fina”

(Aquafina) helps reduce the amount of plastic used by 75 million pounds per year (PepsiCo, 2011f).

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Energy Usage and Emissions

Over the past decade companies have become more aware of the effect that their energy consumption

and emissions have on the planet. Most of these companies have started to take steps to prevent any

further climate change and promote environmental sustainability. PepsiCo is ahead of most of the

competition in this regard. PepsiCo has set goals to reduce overall electricity consumption by 20% and

reduce overall fuel consumption by 25% by 2015 (PepsiCo, 2011f). These ambitious goals, along with

other innovations and partnerships with non-profit environmental agencies, show how much PepsiCo is

dedicated and committed to sustainability. One innovation started at a Quaker Oats plant in the US.

When the plant processes an oat grain, the outer hull is treated as waste. However, Quaker Oats has

started to use these hulls to produce biomass fuel, which is then sold to the University of Iowa as a

cleaner alternative for heating (PepsiCo, 2011f). The Lays plant in Modesto, California is considered to

be one of the most energy efficient in the world. The plant uses 400 solar concentration panels to focus

the solar energy to make steam, which is then used to heat the oil used in the making of Sunchips

(PepsiCo, 2011f).

The innovations in energy conservation, though impressive, are not enough for PepsiCo. In 2007,

PepsiCo also wished to reduce their carbon footprint. A carbon footprint is the amount of greenhouse

gases, specifically carbon dioxide, emitted as a result of a person's activities or a product's manufacture

and transport during a given period (Carbon Footprint, n.d.). To do so, PepsiCo partnered with a non-

profit organization called The Carbon Trust. Together, PepsiCo (specifically, Walkers Potato Chips) and

The Carbon Trust pioneered the carbon footprint label (PepsiCo, 2011f). This label is used to inform the

consumer on how big the carbon footprint was creating the product. Through this partnership PepsiCo

has experienced a 7% reduction in their carbon footprint over 4 years (PepsiCo, 2011f).

Agriculture

Most of the innovations mentioned in previous sections had to do with the manufacturing process.

PepsiCo, however, also realizes that environmental sustainability is relevant at the supplier or

agricultural level as well. Innovations at the agricultural level usually serve two purposes, conservation

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of water and increasing the quality of life for farmers in developing communities. In India, PepsiCo

introduced a direct seeder to rice farmers. This device allows farmers to plant rice without having to

make a patty (flooded field), which saves water (PepsiCo, 2011f). In China, PepsiCo potato farmers have

replaced flood irrigation methods with pivot and drip irrigation methods. These methods allow farmers

to only use half the water they used to and grow potatoes in near desert conditions (PepsiCo, 2011f). By

saving water, these developing communities now have more for themselves and still have productive

crops.

Summation

PepsiCo has stated that environmental sustainability is critical to long-term success and simply part of

how they do business (PepsiCo, 2011f). PepsiCo shows its commitment to environmental sustainability

through the use of long-term goals and the use of innovations such as using oat hulls as biomass fuel,

and using solar energy to help make their products. PepsiCo’s commitment to sustainability places them

in the forefront their industries and the minds of their environmentally conscious consumers.

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Human Resources

PepsiCo is not only incredibly successful, but takes pride in, and is very involved with, its human

resources. There are several areas that PepsiCo puts a large focus on, culture, diversity, benefits and

development.

Culture

In a cultural aspect, this corporation is dedicated to “giving people the taste they crave and the

nutrition they need.” (PepsiCo, 2010). PepsiCo is always attempting to find new ways to benefit people,

communities, and the environment. They believe that success will be achieved if they innovate and

dream big, while still keeping a focus on the details. To find new methods of addressing health concerns,

environmental obstacles and cultural difference, PepsiCo says the answer is new markets.

Diversity

This innovative corporation also strives to overcome diversity. They are continuously trying to do better

than what they have previously done, and are strong believers in breaking down barriers. Unique traits,

points of view, personal experiences and backgrounds are all very important to PepsiCo, and they all

work hard to collaborate on key issues. Respect is essential to the work ethic of PepsiCo because they

believe that greatness spreads and they want everyone to win (PepsiCo, 2010). Diversity for PepsiCo is

not a barrier, but something they use to their advantage to better themselves.

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Benefits

Supplying employees with benefits is a top priority for PepsiCo. They give many choices, such as medical,

vision, dental, and life insurance, for their health and insurance benefits. Personal wellbeing is also

important to this corporation as they have wellness benefits provided to improve health and to achieve

personal goals. Work and life benefits include options such as employee assistance, adoption assistance

and service awards. Through these benefit programs; it is obvious PepsiCo is invested in their

employees. They have also set up a plan for retirement benefits. These include, pre-tax savings plan with

matching PepsiCo contributions, company funded retirement benefits, and a stock purchase program.

Development and Mentoring

Development is defined as, “training that augments the skills and knowledge of managers and

professionals” (Ferrell, et al., 2011). PepsiCo has “hired 300,000 entrepreneurs, dreamers, doers,

rainmakers and shakers” (PepsiCo, 2010). What many people don’t know is that 80% of PepsiCo’s team

is promoted from within (PepsiCo, 2010). This large amount of in-house promotion is yet another way

PepsiCo differentiates themselves from many of their competitors and is something they take pride in.

With PepsiCo’s internal promotion percentage being so high, it encourages employees to work at their

optimal level so they can eventually be promoted. With so many managers being hired from within the

company, unique ideas are often brought to the table that stem from the manager’s experience and

knowledge in the lower levels in their field. With managers who have work experience in the area of the

workers they look after, it allows them to act as role models and mentors for the workers the control to

show what happens when you work hard (PepsiCo, 2010). The video, “I worked my way into PepsiCo and

now act as a mentor,” (PepsiCo, 2010) is the story of a man by the name of Ronald Connor. The story is,

in essence, about when Ronald was a new hire and was taken under a more senior employee’s wing,

and afterwards, reciprocating those actions to another new hire. Ronald’s story is a perfect example of

how the development system works at PepsiCo, and is an excellent piece to encourage people to work

there.

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Performance with Purpose (Summary)

The concept of Performance with Purpose was introduced by PepsiCo in 2008. Since then, the concept

has been an underlying factor in the decision making process at PepsiCo. The concept of Performance

with Purpose is defined by PepsiCo as, “…delivering sustainable growth by investing in a healthier future

for people and our planet” (PepsiCo, 2010). To deliver sustainable growth, PepsiCo developed four

sustainability objectives; Performance (financially), Human Sustainability (people and communities),

Environmental Sustainability, and Talent Sustainability (employees) (PepsiCo, 2010). These objectives

are evident in all aspects of PepsiCo, specifically, about and application of the way employees work, the

workplace, human rights, communities and environment, and business integrity.

The Way Employees Work

PepsiCo employees are dedicated to one basic tenet; making a positive impact in all they do (PepsiCo,

2010). Examples of this include collaboration with small businesses to find local needs, focusing

innovation towards better choice for consumers, creating community improvement programs in areas

where employees live, and partnering with leading research firms to find better and more sustainable

ways to farm (PepsiCo, 2010). Focusing on making a positive impact is an example of how PepsiCo is

trying to meet their Human Sustainability objective, as well as their Talent Sustainability objective.

The Workplace

The workplace of PepsiCo is a unique environment. While always sticking to their roots, this corporation

is always coming up with new ideas to better themselves. There is always cooperation and respect in the

workplace, and diversity is looked at as a benefit rather than an obstacle. Even in developing

communities, PepsiCo endeavours to ensure a significant percentage of new hires are women or

culturally diverse. Diversity in the workplace allows for a very innovative environment that can be

flexible to changes in social or economical trends. Every detail of PepsiCo’s procedures is done with

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incredible amounts of care and accuracy, as this corporation takes pride in their product. PepsiCo’s

ability to form goals to inspire them, allowed them to increase their revenue by 30% (PepsiCo, 2010).

Even the phrase, Performance with purpose, sums up the dedication put into their success and their

products. (PepsiCo, 2010)

Human Rights, Communities, and Environment

PepsiCo is involved in multiple communities worldwide. In each community they visit, PepsiCo believes it

is their duty to help support economic development, improve environmental footprint, and work

towards solutions to help preserve and protect natural recourses. PepsiCo is striving to create more

efficient uses of land, energy, water and packaging in all their operations. Too ensure that land is being

used efficiently, PepsiCo is critiquing practices to make them more efficient and sustainable.

PepsiCo has also recognized fresh, clean water as a human right, and are making great efforts to cut

back on water use within the company, and to make clean drinking water more readily available to

people all over the world (PepsiCo, 2011c). In order to minimize their environmental footprint in

packaging and delivery, PepsiCo is making great efforts to use renewable recourses, remove

environmentally sensitive materials, and to promote the reuse of packaging in the entire process.

Business Integrity

PepsiCo is dedicated to maintaining their integrity by ensuring that consumer needs are met when

producing their quality products. PepsiCo has always made sure that their brand is referred to as a

“respected household name,” and that the brand “stands for quality” (PepsiCo, 2010). From a

performance standpoint, PepsiCo has always been consumer driven when it comes to innovating quality

products. This increases the chance that a consumer will choose a PepsiCo product over competitors,

which increases financial performance.

One of PepsiCo’s human sustainability goals is to contribute to health challenges, like obesity and

malnutrition, which affect not only North America, but also countries all around the world (PepsiCo,

2010). PepsiCo is determined to decrease the obesity and malnutrition rates through investing a lot of

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capital and labour into healthier products (PepsiCo, 2010). PepsiCo has put together a team of experts

that focus their attention on “nutrition, food sciences, and the effects their products have on

consumer’s health,” (PepsiCo, 2010). Although PepsiCo is creating healthier products, they still stand by

their brand trademark of “superior taste and convenience,” (PepsiCo, 2010).

Summation

Since the implementation of Performance with Purpose, PepsiCo has learned what they are capable of

doing, the impact of their actions, and priority areas that require attention (PepsiCo, 2010). By meeting

all four of these sustainability objectives and the goals they represent, PepsiCo can guarantee success in

any and all endeavours they try.

Conclusion

PepsiCo under Indra Nooyi has flourished. A solid system of operations helps PepsiCo succeed, even in

trying economic times. Being aware of the environmental impact that their manufacturing processes

have, and finding ways to reduce said impact, will help create a loyal consumer base and help guarantee

future financial success. Human resource development and diversity continues to help PepsiCo remain

competitive and flexible in today’s marketplace. Performance with Purpose continues to be the rallying

cry to which all decisions are made, whether at the executive or manufacturing levels. By emphasizing

financial Performance, Human Sustainability, Environmental Sustainability, and Talent Sustainability,

PepsiCo will not only help themselves succeed, but help the world succeed as well.

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Reference Sheet

Carbon Footprint. (n.d.). In Merriam-Webster’s Online Dictionary. Retrieved from http://www.merriam-

webster.com/dictionary/carbon%20footprint

Environmental Sustainability. (n.d.). In Business Dictionary.com. Retrieved from

http://www.businessdictionary.com/definition/environmental-sustainability.html

Ferrell., Hirt., Iskander., & Mombourquette. (2011). Business: A Changing World (4th ed.). Toronto, ON:

Mcgraw-Hill Ryerson

Fortune. (2009). PepsiCo’s recession strategy [Video file]. Retrieved from

http://money.cnn.com/video/fortune/2009/09/08/f_mpw_nooyi_economy.fortune

Kennon, J. (2011). Managing your portfolio during a recession. Retrieved from

http://beginnersinvest.about.com/od/economics/a/recession_1a.htm

PepsiCo. (2011a). Environmental Sustainability. Retrieved from

http://www.pepsico.com/Purpose/Environmental-Sustainability.html

PepsiCo. (2011b). Fox Business’ Interview with Indra Nooyi [Video file]. Retrieved from

http://www.youtube.com/PepsiCoVideo#p/u/0/FJ1qPic5_r0

PepsiCo. (2011c). Human Sustainability [Video file]. Retrieved from

http://www.pepsico.com/Purpose/Human-Sustainability.html

PepsiCo. (2011d). Our History. Retrieved from http://www.pepsico.com/Company/Our-History.html

PepsiCo. (2011e). PepsiCo Brands. Retrieved from http://www.pepsico.com/Brands.html

PepsiCo. (2009). PepsiCo Business Risks. Retrieved from

http://www.pepsico.com/annual09/financialContent_mda_our_business_risks.html

PepsiCo. (2011f). PepsiCo Environmental Sustainability [Video file]. Retrieved from

http://www.youtube.com/watch?v=QuXM9ylA0_o&feature=player_embedded

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PepsiCo. (2010). Sustainability Summary 2010. Retrieved from

http://www.pepsico.com/Download/PepsiCo_2010_Sustainability_Summary.pdf