Legal and Ethical Considerations in Marketing, Product Safety, and Intellectual Property

Running Head: CAPSTONE 1

CAPSTONE

Assignment #5

Capstone

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Impact of PepsiCo’s mission, vision, and primary stakeholders.

PepsiCo’s mission statement is very strong and indicates a company that is focused on success while striving to be responsible corporate citizens. Their vision shows their commitment to their mission while building sustainability. They top off these two statements with what they call “Performance with Purpose” which is a very strong statement as well. (Mission & Vision, 2012). (See appendix A). These statements have a huge impact on PepsiCo’s overall success. In the business environment today, not only what is said in these statements, but the actions that follow greatly impact consumers, suppliers, shareholders, customers, employees, and communities. These are all very important stakeholders, which impact the success of the company.

You can clearly see in PepsiCo’s mission and vision statements that they realize the importance of balancing all stakeholders’ interest. The stakeholders have a positive impact on PepsiCo’s overall success through strategic planning and strategic management processes. The mission and vision statements set the path for management to follow when making decisions about how to manage all sides of their operations to insure that all stakeholders’ interest is covered while creating competitive advantages. They are cognitive about the fact that the decisions they make affect the stakeholders differently. PepsiCo has done a very good job balancing their decisions in such a way that the primary stakeholders are satisfied while still practicing ethically. (Hitt, Ireland, & Hoskisson, 2013).

Staying true to their mission and vision statements have contributed to keeping their stakeholders happy, resulting in a recipe for success. This is evident when you look at the success PepsiCo has enjoyed. They are in a highly competitive market and have remained successful doing business worldwide. This is an indication that this combination along with good strategies, management and implementation is working for them and can work for others as well. We can now look at how the five (5) forces of competition impacts the company. (Hitt, et al., 2013).

Analysis of the five (5) Forces of competition and how they impact the company.

The five (5) forces of competition (FOC) effects every company in some way. The impact from each part of the FOC differs from one company to another. For PepsiCo, rivalry among competing firms is the most prominent of the FOC, as it pertains to negative impacts. This is not to say that each of the others do not impact PepsiCo, but the company has implemented processes and strategies that have actually turned some of these into advantages. For example, the bargaining power of suppliers could adversely impact production. However, PepsiCo partners with their suppliers in such a way that the suppliers benefit more by being cooperative instead of trying to leverage their position. A good example of this is found in PepsiCo’s commitment to their stakeholders. (Nooyt, I., 2011).

PepsiCo suppliers enjoy the benefits from the extensive R&D that the company does. They share information and are actively involved with all their suppliers giving them technology and information that they may not otherwise have. This helps them create relationships with suppliers that are very difficult to imitate. As for the bargaining power of buyers, it is clear that they want the lowest price possible. For PepsiCo, “wholesale distributors, grocery stores, convenience stores, mass merchandisers, membership stores, authorized independent bottlers and foodservice distributors, including hotels and restaurants” are their primary customers (Nooyt, I., 2011, p. 26, para. 4).

PepsiCo enjoys good relationships with their customers. According to Nooyt, I., (2011),

Since we do not sell directly to the consumer, we rely on and provide financial incentives

to our customers to assist in the distribution and promotion of our products. For our independent distributors and retailers, these incentives include volume- based rebates, product placement fees, promotions and displays. For our independent bottlers, these incentives are referred to as bottler funding and are negotiated annually with each bottler to support a variety of trade and consumer programs, such as consumer incentives, advertising support, new product support, and vending and cooler equipment placement. (p. 26, para. 5).

Customers that enjoy this kind of support are more likely to remain dedicated to PepsiCo. The iconic brands that PepsiCo offers contribute to this as well. Threats of substitute products and threats of new entrants are always a concern for PepsiCo. (Hitt, et al., 2013).

Even though they have many core competencies, hard to imitate products and processes, as well as, branding to help combat these threats, they do not ignore them. These threats impact the company’s financial returns, especially during economic down turns. However, dedicated brand loyalty consumers would not be affected by these companies. PepsiCo also has been able to respond to these threats through innovative product offerings and smaller packaging processes. Now we will look at rivalry among competing firms. We all know that there has always been and probably will always be rivalries between PepsiCo and Coca Cola, at least in the beverage sector. (Nooyt, I., 2011).

This rivalry impacts PepsiCo’s beverage sales which the two companies rank #1 and #2 worldwide. This rivalry has a history of going back and forth, neither one has completely ran off with the #1 position through the years. However, PepsiCo is able to supplement the losses from the beverage sector through product diversification. They also spend a great deal of money and effort in marketing campaigns. An analysis of the FOC gives us valuable information and a SWOT analysis can give us even more useful information.

SWOT analysis.

When you look at the company’s history, it is easy to determine their strengths and weaknesses. We will look at their strengths first. PepsiCo has generated a diverse portfolio and a strong brand through the years. They have enjoyed robust growth and operating income. They also have a presence in emerging markets and are expanding. They have a second to none distribution network. As for their weaknesses, PepsiCo is not perfect; they have weaknesses like any other company.

One of their biggest weaknesses is dependence on large retailers like Wal-Mart. This causes them problems because their business strategies are different. For example, “Wal-Mart’s low price themes put pressure on PepsiCo to hold down prices” (SWOT Analysis, 2012). Another weakness PepsiCo has that also exist in most any Food and Beverage Company is regulations on the industry and allegations about ingredients used in their products. (MarketLine, 2011, June. 8). Now we can look at their opportunities and threats.

There is no shortage of opportunities available to PepsiCo, especially in the global market. People are spending more on food in emerging markets, creating opportunities for expansion. This also creates opportunities for PepsiCo to be innovative in their product offerings to meet local taste. Consumer preferences are changing, opening the door for PepsiCo to offer nutritious and healthy products. (MarketLine, 2011). However, there are threats that come along with these opportunities. These include more competition, especially from private labels. They are also faced with rising food and commodity prices, making it more difficult to compete on price levels. Then of course, “intensifying competition from Coca Cola” (MarketLine, 2011, p. 31). However, PepsiCo can respond to the items in this SWOT analysis by implementing a strategy that will enable them to capitalize on strengths and opportunities, while minimizing their weaknesses and threats.

Strategy for the company to capitalize on its strengths and opportunities, and minimize its weaknesses and threats.

Implementing a strategy to take full advantage of the company’s strengths and opportunities is a crucial step for the company to minimize their weaknesses and threats. The strategy that PepsiCo should use is to continue building on their “unique commitment to sustainable growth, called “Performance with Purpose” (Management Approach, 2012). This strategy has been working for them, but as the business environment changes, focuses within the strategy has to change as well. PepsiCo does a good job at R&D, customer and consumer feedback channels, and development processes to capitalize on their strengths and opportunities while finding ways to minimize weaknesses and threats.

Already in place, they focus on developing new products and/or changing existing products to be locally relevant. They should continue to build on their diverse product portfolio and leverage their brand equity. They need to reinvest in these areas to continue sustaining a competitive position in the market. They should also continue to find ways in creating affordable products for emerging markets. They also need to use their superior technology for strengthening supply chain and go-to-market capabilities. The number one thing they need to do is continue to follow consumer trends and develop products that meet their needs, as well as, continue the path of being good corporate citizens. If they do this, the weaknesses and threats will be minimized. (Management Approach, 2012). We will now look at strategies for maximizing competitiveness and profitability.

Various levels and types of strategies to maximize the firms competitiveness and profitability.

PepsiCo should use the international integrated cost leadership/differentiation strategy as their business level strategy. This is the best strategy for them to use since they have such a diverse portfolio of products. They also operate in many different environments where simply using one strategy would not be effective. Some areas require the company to be price conscious where in others areas consumers may be drawn by difference. They should use the functional structure to implement this strategy since the decision making needs to be partially centralized and decentralized. This is necessary when trying to operate with local relevance. PepsiCo also needs to incorporate a good international corporate level strategy. (Hitt, et al., 2013).

PepsiCo should use the transnational strategy since they want to “achieve both global efficiency and local responsiveness” (Hitt, et al., 2013, p. 236, para. 3). This strategy is implemented through “shared vision and individual commitment through an integrated network” (Hitt, et al., 2013, p. 236, para. 4). PepsiCo should use the related constrained diversification strategy since each business shares product technologies and distribution channels. Each division of the company shares technology, information, processes, and marketing.

Included in the international corporate level strategies, PepsiCo needs to integrate the multidivisional (m-form) structure since they have different divisions located around the world. They should also use the cooperative form of the multidivisional (M-form) structure for implementation of this strategy. “Sharing divisional competencies facilitates the cooperation’s efforts to develop economies of scope” (Hitt, et al., 2013, p.339, para. 2). In order for these strategies to work, the company must accurately communicate them to all stakeholders.

Communications plan the company could use to make the strategies known to all stakeholders.

To communicate strategies to all stakeholders, the company would need to use different sources to do so. Communication should start with top management putting together teams and task forces to delegate the flow of information since the sharing of resources, capabilities, core competencies, and information will be distributed through many different divisions. This will also insure that the right information is getting to the right people. These teams will be responsible for both incoming and outgoing information. Then meetings should be held to include the managers who would be responsible for carrying out operational activities and training done where needed. Letters should be sent out to shareholders as well as communicated in shareholder meetings. (Hitt, et al., 2013).

The strategies can also be communicated through the company’s website, email, and media when appropriate. The sales team should be responsible for communicating with the customers. Consumers can be informed through the media with advertising campaigns. However, certain information does not need to be shared; only the appropriate information needs to be given to some stakeholders. For example, consumers only need to know what is going to benefit them; they do not need to know the particulars involved. Another example is for the shareholders, they are interested in how these strategies are going to benefit their bottom line, and they may not care about whether decisions are centralized or decentralized. This is another reason there should be teams and task forces created. They can monitor and direct the flow of information. (Hitt, et al., 2013). We will now look at corporate governance mechanisms.

Evaluation of how effective two (2) corporate governance mechanisms are at controlling managerial actions.

The Board of Directors is one mechanism that PepsiCo uses and the way it is used is very effective at controlling managerial actions. “PepsiCo's business strategy and affairs are overseen by our Board of Directors, which is comprised of one executive director and twelve independent outside directors” (PepsiCo Inc., 2012). Having outside independent board members can sometimes see things from a different prospective than someone inside the company. Inside board members may be too close or attached to a situation which can keep them from seeing the whole picture. PepsiCo also elects a diverse group of people for their board of directors, adding another dimension. (PepsiCo Inc., 2012).

PepsiCo has also appointed committee charters to enhance their corporate governance. For example, they have a nominating and corporate governance committee charter, an audit committee, and a compensation committee. All of which are made up of independent Directors of the Board. The compensation committee is the second mechanism that PepsiCo uses that is effective in controlling managerial actions. This committee does much more than making sure that executive compensation is in line with industry norms and report executive compensations “ in accordance with applicable rules and regulations” (PepsiCo, 2012).

One of the ways that this mechanism is effective is through periodic reviews of managerial performance, assessments of any conflict of interest, and oversees executive evaluations. Many of the responsibilities of this committee make it very difficult for an executive to act opportunistic. For example, according to PepsiCo, (2012), the committee has sixteen primary responsibilities that include:

Oversee the evaluation of the executive officers1 and other key executives deemed to be

under the Committee’s purview (other than the CEO), and evaluate and approve, based on the recommendation of the CEO, the individual elements of total compensation, including special benefit and perquisite practices, and the hiring and termination terms for such officers. Periodically review the Corporation’s compensation policies and practices for employees to assess whether such policies and practices could lead to unnecessary risk-taking behavior. (n.p.).

When you look at the success of PepsiCo and their track record for employee satisfaction, it appears that this mechanism is being used correctly and has a positive effect on managerial actions. Effective leadership is another very important element for success.

Evaluation of the effectiveness of leadership including at least one recommendation for improvement.

PepsiCo illustrates very effective leadership. This is evident when you look at their track record of achievements and employee satisfaction. You can also see this when you look at their relationships with other organizations and stakeholders. They have a complete understanding about the value of talented human capital. “PepsiCo is committed to hiring developing and retaining employees from diverse backgrounds” (Management Approach, 2012). Diversity is a very important element for a global corporation. PepsiCo understands this and has put in place a “Global Diversity and Inclusion Governance Council” (Management Approach, 2012). PepsiCo has extensive councils, training programs, and sustainability leadership programs to ensure that their leaders and associates are effective. (Management Approach, 2012).

According to Annual Report, (2011),

Our attention to leadership development has earned PepsiCo recognition on numerous 2011 rankings as one of the best places to work. We also were recognized in 2011 as a “Top Company for Leaders” by Aon Hewitt, Fortune and the RBL Group and as one of the “Best Companies for Leadership” by Hay Group. (p.16, para. 3).

The company has earned many more awards, too many to list here. PepsiCo also takes pride in building strong ties with their external stakeholders. They are actively involved with their external stakeholders, sharing information and technology. They are very successful with communicating their objectives through a “heterogeneous top management team” which is effective at getting people to “think outside the box” (Hitt, et al., 2013). Considering that everything you find when looking at PepsiCo’s leadership, it is difficult to think of any recommendation for improvement.

When you look at the criteria involved in determining effective leadership, PepsiCo has it covered. After all, they have strategies in place that are effective in developing human capital and social capital, organizational culture, ethical practices, and organizational controls. (Hitt, et al., 2013). PepsiCo has leadership committees, councils, and teams in every aspect of their business making sure that the right people are in place doing the right thing. So, when trying to come up with a recommendation for improvement, there appears to be none needed. PepsiCo not only has excellent leadership, but they also do a very good job at being responsible (ethical) corporate citizens.

Assessment of the efforts by the corporation to be responsible (ethical) corporate citizens and a determination of the impact they have on the bottom line.

In the global business environment today, this is one of the most important parts of doing business. PepsiCo realizes this and have taken huge measures in trying to be one of the best in this area, as well as, one of the leaders. It is clearly stated in their mission and vision statements, along with their values and philosophy. Acting ethically is one of PepsiCo’s top priorities as evident in their code of conduct. They not only have a code of conduct for the employees, but they include one for their suppliers as well. Included in this code of conduct; “we believe acting ethically and responsibly is not only the right thing to do, but also the right thing to do for our business” (PepsiCo Inc. 2012). PepsiCo has multiple teams, committees, and councils overseeing everything pertaining to ethics and environmental issues.

PepsiCo also has joined up with various organizations around the world in efforts to help in all areas of the environment. Some of those include The World Food Programme, USAID, UN CEO Water Mandate, UN Global Compact, UN Caring for Climate, The business Leadership Platform, and International Policy Declaration on Water. PepsiCo also has; “Environmental Sustainability Leadership Team (ESLT), the PepsiCo Environmental Compliance Council (ECC) and Environmental Sustainability Council (ESC)” (Management Approach, 2012). These are to mention just a few. PepsiCo is steadfast about being responsible corporate citizens in every aspect of their business; they also contribute large amounts of time and money into the communities. Not only the communities in which they operate, but others as well.

The actions that PepsiCo has taken to be responsible corporate citizens have also contributed to their bottom line in many ways. Through their R&D in different areas of the environment, many cost savings have been developed. For example, they have enjoyed cost savings in production through their efforts to cut back on water usage. Also through agriculture innovations that help farmers produce more crops at a lower cost has afforded them a cost saving in supplies. Last but not least, finding ways to use alternative fuels has created huge saving in energy cost resulting a positive effect on their bottom line. This is evidence that doing the right thing can be profitable. (PepsiCo Inc. 2012). You could go on and on with this section of this paper since PepsiCo is an industry leader in this category, and they are defiantly responsible corporate citizens.

References

Annual Report, (2011). PepsiCo Annual Report for 2011.Retrieve from: http://www.pepsico.co m/annual11/downloads /PEP _AR 11_2011_Annual_Report.pdf

Hitt, M.A., Ireland, D.R., Hoskisson, R.E., (2013). Strategic Management (10th ed.). Mason, OH: Cengage Learning.

Management Approach, (2012). PepsiCo Management Approach. Retrieved from: http://www.pe psico.com/purpose/overview/management-approach.html

MarketLine, (2011, June. 8). MarketLine, Company Profile, PepsiCo, Inc. EBSCOhost database. Retrieved from: https://web-ebscohost-com.libdatab.strayer.edu/ehost/pdfviewer/pdfvIe wer?sid=8b0d5600-68a6-4d45-ad9e-cb593bf83c60%40sessionmgr10&vid=5&hid=12

Mission & Vision, (2012) Our Mission and Statement. Retrieved from: http://www.pepsico.com /Company/Our-Mission-and-Vision.html

Nooyt, I.K., (2011). Dear Fellow Shareholders, from Chairman and Chief Executive Officer, PepsiCo Annual Report for 2011.Retrieve from: http://www.pepsico.com/annual11/do wnloads /PEP _AR 11_2011_Annual_Report.pdf

PepsiCo Inc. (2012). PepsiCo, Corporate Governance. Retrieved from: http: //www.pepsico.com/ Company/Corporate-Governance.html

SWOT Analysis, (2012). SWOT Analysis PepsiCo. Retrieved from: http://www.marketingt eacher.com/swot/pepsi-swot.html#

Values & Philosophy, (2012) PepsiCo Values & Philosophy. Retrieved from: http://www.pepsi co.com/Company/PesiCo-Values-and-Philosophy.html

Appendix A

Our Mission and Vision

At PepsiCo, we believe being a responsible corporate citizen is not only the right thing to do, but the right thing to do for our business.

Our Mission

Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.

Our Vision

"PepsiCo's responsibility is to continually improve all aspects of the world in which we operate - environment, social, economic - creating a better tomorrow than today."

Our vision is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company.

Performance with Purpose

At PepsiCo, we're committed to achieving business and financial success while leaving a positive imprint on society - delivering what we call Performance with Purpose.

Our approach to superior financial performance is straightforward - drive shareholder value. By addressing social and environmental issues, we also deliver on our purpose agenda, which consists of human, environmental, and talent sustainability.