PepsiCo Strategic Initiative
FIN/370
PepsiCo strategic initiative Paper
Making critical changes are complicated no matter what the size of the organization. In order to make these changes an organization needs to do strategic planning. Strategic planning is a “systematic process of envisioning a desired future, and translating this vision into broadly defined goals or objectives and a sequence of steps to achieve them” (businessdictionary.com).
In the following, Team B will identify a PepsiCo strategic planning initiative and discuss how it will affect the organization’s financial planning, analyze how it will affect costs and sales, and discuss any risks associated with the initiative and the financial effects they may have.
Initiative Affects of Organizational Financial Planning
According to PepsiCo website, PepsiCo offers the most compelling value to shareholders. Some of the key initiatives are increased investments on their iconic brand, implementation of a three-year productive plan, improvement on net return on invested capital, and enhancement of returns to share holders. Doing all of this allows PepsiCo to become more successful than they already are and to maximize gross profit.
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Increasing investments on their iconic brand is a marketing ploy that makes sure they are advertising enough to ensure the world knows about their new and old products. “Advertising and marketing spending will increase by $500-$600 million in 2012, the majority in North America” (PepsiCo, 2012).
In order for this to happen the advertising will be supported by total revenue of the company.
PepsiCo plans to “implement a three-year productivity program that is expected to generate over $500 million in incremental cost savings in 2012, further incremental reductions in the cost base of about $500 million in 2013, and an additional $500 million in 2014” (PepsiCo, 2012).
All the money that will be coming in from this plan will be invested into more efficient technology in order to run smoother and faster. This new technology “heightens focus on best practice sharing across the globe; consolidating manufacturing, warehouse and sales facilities; and implementing simplified organization structures” (PepsiCo, 2012).
Improving PepsiCo’s net return on invested capital is focusing on the spending capital and working capital management. “As an example, in 2012 we will be reducing capital expenditures by 10% versus 2011. The emphasis is on systematically improving the efficiency of the existing asset base” (PepsiCo, 2012).
Enhancing returns to shareholders “through both a 4% increase in its annual dividend beginning with the June 2012 dividend payment, and also the execution of a share repurchase program this year of at least $3 billion” (PepsiCo, 2012).
PepsiCo Initiatives
PepsiCo as a company has pushed itself to be one of the world’s best global companies. Despite of accusations, PepsiCo has grown its brand through many different avenues. “Our main businesses — Quaker, Tropicana, Gatorade, Frito-Lay and Pepsi-Cola — make hundreds of enjoyable foods and beverages that are loved throughout the world” (Nooyi, n.d.).
PepsiCo also has taken a big step to make their products healthier for people to consume. Their labels show the health and nutrition facts about each product. This is being done because they recognize that health concerns are becoming a larger part of the food and beverage market on a yearly basis. An example of this would be Gatorade Prime Energy Chews for athletes. This product has been created to help athlete’s perform at their peak, by including ingredients that provide both energy and vital vitamins.
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The company is starting to see the global market slow down so they have taken a harder look at what they can improve on inside the company. This has given them the opportunity to make PepsiCo more efficient with products and innovations. These initiatives included increasing “investment in our iconic global brands, stepping up our innovation program and launching new products, and implementing a multiyear productivity program that resulted in over $1 billion in savings in 2012 alone. We successfully completed these initiatives while returning $6.5 billion to shareholders through share repurchases and dividends during 2012” (Nooyi, n.d.).
This has shown positive amounts of money for PepsiCo. They have kept up with new trends, ensuring people the products they want. In keeping up with trends PepsiCo has transformed their products to give customers more options for healthier food and drinks. In the production of all these products, which PepsiCo has, they have been using different ways to produce natural ingredients. They have started to use new technology in agriculture to show they are becoming more environmentally friendly. They use a method called drip irrigation that uses less water and also get more water to the plant.
Risks
There are many risks which could be associated with the above mentioned initiatives. Demand for PepsiCo products could be adversely affected by changes in consumer preferences and tastes. Consumer preferences can shift due to a variety of factors. PepsiCo lists the following factors which can adversely affect their sales, “aging of the general population, changes in social trends, changes in travel, vacation or leisure activity patterns weather, negative publicity resulting from regulatory action or litigation against companies in our industry, a downturn in economic conditions or taxes specifically targeting the consumption of our products. Any of these changes may reduce consumers’ willingness to purchase our products” (Pepsico, 2013).
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It could also be affected if they were unable to innovate or market their products effectively. Damage to PepsiCo’s reputation can also adversely affect their business. It is critical that PepsiCo maintain a good reputation globally. In order to do this they must maintain high standards for safety and product quality.
Conclusion
Financial planning is essential to any organization. Without a solid financial plan, an organization may find itself unable to weather the bad times. PepsiCo, like any organization must have a strategic plan put into place. Their strategic plan must be one which keeps costs down and helps drive sales. As this paper has concluded there are risks associated with every strategic initiative that can adversely affect any organization. It is up to the company to monitor their financial and strategic plans updating them often to ensure company success.
References
Mayo, H. B. (2012).
Basic finance: An introduction to financial institutions, investments, and management (10th ed.).
Mason, OH: South-Western.
Nooyi, Indra K. (n.d.).
Global Code of Conduct: The Purpose Behind Our Performance. Retrieved from the Pepsi-Cola website:
PepsiCo Announces Strategic Investments to Drive Growth. (Feb 02,2012).
Retrieved from http://www.pepsico.com/PressRelease/PepsiCo-Announces-Strategic-Investments-to-Drive-Growth02092012.html
Strategic Planning. 2013. Retrieved from http://www.businessdictionary.com/definition/strategic-planning.html#ixzz2hdbYamHA
Titman, S., Keown, A. J., & Martin, J. D. (2011).
Financial management: Principles and applications (11th ed.).
Upper Saddle River, NJ: Pearson/Prentice Hall.
