MINICASE 2 PepsiCo's Indra Nooyi: Performance with Purpose 451 company has programs in place to reduce water companies. One would focus on beverages (Pepsi, and energy use, increase recycling, and promote Gatorade, Tropicana); the other would focus on snack sustainable agriculture. The goal is to transform foods, several of which such as Lay's and Doritos have PepsiCo into a company with a net-zero impact become multibillion-dollar brands. This move would on the environment. Nooyi believes that young unlock additional profit potential, the argument goes, people today will not patronize or want to work for because the well-performing snack food business a company that does not have a strategy that also would no longer need to subsidize underperforming addresses ecological sustainability. beverages. For the time being, Nooyi has decided that 3. The whole person at work. PepsiCo wants to cre- PepsiCo creates more value when the beverage and ate a corporate culture in which employees do not snack foods divisions are together in one corporation, "just make a living, but also have a life." Nooyi rather than split into two companies. argues that this type of culture allows employees to Although PepsiCo's revenues have remained more unleash both their mental and emotional energies. or less flat over the past few years, investors see sig- PepsiCo's vision of Performance with Purpose nificant growth potential. Over a five-year period acknowledges more than the importance of the cor- between 2012 and 2017, PepsiCo has outperformed porate social responsibility and stakeholder strategy. Coca-Cola by a relatively wide margin. During this Nooyi is convinced that companies have a duty to soci- period, PepsiCo's normalized stock appreciation was ety to "do better by doing better." She subscribes to a almost 50 percentage points higher than that of Coca- triple-bottom-line approach to competitive advantage, Cola (see Exhibit MC2.1). Albeit down from 90 percent which considers not only economic but also social and in 2000, soda drinks still accounted for 70 percent of environmental performance. Nooyi declares that the Coca-Cola's total revenues, while PepsiCo has been true profits of an enterprise are not just "revenues minus much more diversified. With better than expected costs" but "revenues minus costs minus costs to soci- financial results, Nooyi stands vindicated after years ety." Problems such as pollution or the increased cost of of criticism. Despite opposition, she stuck by her health care to combat obesity impose costs on society strategic mantra for PepsiCo-Performance with that companies typically do not bear (externalities). As Purpose-and appears to be reaping the rewards. Nooyi sees it, the time when corporations can just pass on their externalities to society is nearing an end. DISCUSSION QUESTIONS The external environment in the soft drink industry, . What grade would you give PepsiCo CEO Indra however, has become much more challenging. Since Nooyi for her job performance as a strategic their peak in the late 1990s, sales of carbonated soft leader? What are her strengths and weaknesses? drinks dropped some 25 percent. Consumption of bot- Where would you place Nooyi on the Level-5 pyr- tled water, in contrast, surpassed the consumption of amid of strategic leadership (see Exhibit 2.2), and carbonated soft drinks in 2016. Energy drinks such as why? Support your answers. Monster or Red Bull are continuing to grow by double digits in the United States and overseas, making such 2. The first few years after Indra Nooyi took over as products one of the hottest categories in the soft drink PepsiCo's CEO and implemented Performance industry. Moreover, a wide range of governments, from with Purpose, the company underperformed municipalities such as Berkeley or Philadelphia in the archrival Coca-Cola Co. by a wide margin. What United States to entire nation states such as France and should a strategic leader do if his or her vision Norway, now levy sugar taxes on soda drinks, making does not seem to lead to an immediate (financial) them much more expensive for consumers. competitive advantage? What would be your top PepsiCo's archrival Coca-Cola Co. continues to three recommendations? Support your arguments. concentrate on its core business in soda and other non- 3. Do you agree with Indra Nooyi's philosophy that alcoholic beverages. The full-calorie Coke remains "performance and purpose are intimately linked America's most popular soda, as more and more peo- and you can't do one without the other"? Support ple abandon artificially sweetened sodas (number two your arguments. Apply the people, planet and prof- is PepsiCo's full-calorie cola and number three is Diet its model of sustainable strategy (see Exhibit 5.9). Coke). To enhance PepsiCo's strategic focus, critics of PepsiCo's investors require the company to grow Nooyi propose splitting PepsiCo into two standalone about 5 percent or $3.5 billion a year. PepsiCo'sPepsiCo's Indra Nooyi: Performance with Purpose "Performance with Purpose is not how we spend the money we make, it's how we make the money, " says PepsiCo CEO Indra Nooyi.' AS CHIEF EXECUTIVE officer of PepsiCo, Indra Nooyi is one of the world's most powerful business leaders. A native of Chennai, India, Nooyi holds mul- tiple degrees: a bachelor's degree in physics, chemis- try, and mathematics from Madras Christian College; an MBA from the Indian Institute of Management; and a master's degree in public and private manage- ment from Yale University. Before joining PepsiCo in 1994, Nooyi worked for Johnson & Johnson, Boston Consulting Group, Motorola, and ABB. Indra Nooyi has been a regular in Forbes' Top 20 most powerful Indra Nooyi, chief executive officer of PepsiCo, captures her women for the past several years. However, she is not strategic leadership with the mantra "Performance with Purpose." your typical Fortune 500 CEO: She is known for walk- Bin Lee/Bloomberg/Getty Images ing around the office barefoot and singing-a remnant from her days in an all-girls rock band in high school. 1. Human sustainability. PepsiCo's strategic intent is It should come as no surprise, therefore, that Nooyi to make its product portfolio healthier to combat has been shaking things up at PepsiCo, a company with obesity by reducing sugar, sodium, and saturated roughly $63 billion in annual revenues, $165 billion fat content in certain key brands. It wants to reduce in stock market valuation, some 264,000 employ- the salt and fat in its "fun foods" such as Frito-Lay ees worldwide, and business interests in more than and Doritos brands, and to include healthy choices 100 countries. She took the lead role in spinning off such as Quaker Oats products and Tropicana fruit Taco Bell, Pizza Hut, and KFC in 1997. Later, she juices in its lineup. Nooyi is convinced that if food masterminded the acquisitions of Tropicana in 1998 and beverage companies do not make their prod- and Quaker Oats, including Gatorade, in 2001. When ucts healthier, they will face stricter regulation and becoming CEO in 2006. Nooyi declared PepsiCo's lawsuits, as tobacco companies did. Nooyi's goal vision to be Performance with Purpose: is to increase PepsiCo's revenues from nutritious Performance with Purpose means delivering sus- foods, substantially as detailed in her 2025 Perfor- tainable growth by investing in a healthier future for mance with Purpose agenda.* people and our planet.... We will continue to build 2. Environmental sustainability. PepsiCo has insti- a portfolio of enjoyable and healthier foods and tuted various initiatives to ensure that its opera- beverages, find innovative ways to reduce the use tions don't harm the natural environment. The of energy, water and packaging, and provide a great workplace for our associates.... Because a healthier future for all people and our planet means a more Frank T. Rothaermel prepared this MiniCase from public sources. This successful future for PepsiCo. This is our promise. MiniCase is developed for the purpose of class discussion. It is not intended to be used for any kind of endorsement, source of data, or depiction of In particular, Performance with Purpose has three efficient or inefficient management. All opinions expressed, all errors and dimensions: comissions are entirely the author's. Revised and updated: July 1, 2017. DFrank T. Rothaermel