Pepsico

Competitive and Corporate Strategy

Why did PepsiCo expand its operations beyond soft-drinks?

Playing second fiddle to Coke in the cola industry and rising sugar prices was a wake-up call for PepsiCo. They realized that diversification of their business would bring:

1. Growth through economy of scope (Free from the restrictions of a single industry)Exhibit1

2. Risk reduction by reducing dependencies and price inefficiencies (e.g. sugar prices)

3. Value creation by entering attractive new segmentsExhibit2 (e.g. not only soft drinks, but total beverage business and expanding into international markets).

4. Profit by matching their existing capabilities to other highly related markets.

It was important that new segments were attractive, competitive advantages and complementarity could be created.

What value does PepsiCo provide to its business units?

With PepsiCo’s decentralized model, Corporate-Level management brought their skills of finance and strategy, giving Business Units (BU) the flexibility to focus on their own strengths. PepsiCo Corporate enables its BUs by providing an ecosystem with the following functions:

* Centralized scalable functions that reduce cost and provide direct support to BUs (e.g. HR, legal)

* Planning, resources, budgeting and performance monitoring so that BUs can focus on their specific strategies and gain insight and approval from Corporate.

* Strategic acquisitions that compliment the goals of the BUs and allow to sell more, it increase the market power.

It also provides the framework to correctly formulate strategies in order to establish competitive advantages in each BU, as this is key to compete and win in each specific market. In addition, they provide synergy to individual BUs through best practice and winning strategy sharing.

Should PepsiCo push for further integration? If so, how?

Yes, but only where transaction costs for a particular service are higher than administrative costs of...