Frito Lay, Inc.

: A Strategic Transition- A Case Analysis 1

Frito Lay, Inc.: A Strategic Transition- A Case Analysis

Souma Basu, Soumabrata Dasgupta, Sparsh Arora

Symbiosis Centre for Information Technology

Abstract

Frito- Lay, Inc. a subsidiary of PepsiCo worldwide Foods saw plummeting profits when CEO

Michael Jordan assumed reins of the company. He decided to return decision making powers to

the corporate headquarters. This came after a failed effort to implement a Micromarketing

Strategy. The case speaks about how Frito-Lay returns to rising profits through process

reengineering and building an information infrastructure which together improves productivity

and paves way for an effective Micromarketing Strategy. The case begins at a situation when

Frito-Lay is doing a retrospective on failure of the past change effort. Though Frito-Lay enjoyed

high market share, it saw a drop in profit margins which was due to a cumulative effect of a

strictly functional approach, non-streamlined processes at different levels of speed and

effectiveness, lack of ground-level information at corporate level. The case moves on to describe

the new strategy implemented by Frito-Lay. A new organization structure with cross-functional

approach, shorter planning cycles, faster delivery processes and an MIS aligned to the

information needs of the organization meant they were now prepared for effective

implementation of a Micromarketing Strategy. In its pursuit to prepare for a situation where they

could manage the marketing effort at micro levels understanding the needs of local markets, the

organization ended up with leaner processes, an established information infrastructure and more

aware and involved functional units.

Frito Lay, Inc.: A Strategic Transition- A Case Analysis 2

Introduction
This paper gives an insight into the strategic transition of Frito-Lay, the steps taken by the top
management to bring it back to growing profits and to prepare for a Micromarketing strategy. It
shows how new CEO Michael Jordan re-examines, re-designs and re-engineers to meet an
overall re-organized approach towards change. The paper begins with defining the problems
faced by Frito-Lay and moves on to describe the steps taken to overcome them. It describes how
the organization takes a step at a time to redesign its functions, build information architecture
and finally tune it to organizational goals. The paper also throws light on the key strategic
decisions made by the company which helps it succeed in the change effort. The paper also gives
recommendations as to what should follow next from where they have reached so as to
implement an effective micromarketing strategy.

Problems and Challenges Faced by Frito-Lay

Frito-Lay, Inc. saw a high market share and huge profit margins in the 1960s and 1970s, while in
late 1970s the growth began to evaporate. Company President Willard Kon had a vision for
transforming the organization, which became necessary with the inevitable change in the
business environment. But the attempt at change brought the organization to a halt. This was
chiefly due to two reasons. First, there was no support for the new strategy in terms of
management processes, organization and information systems. A successful strategy is one
which balances Business Strategy, Organization strategy and IT strategy. Second, the company
went wrong in streamlining the business cycle by only streamlining the core operating processes
without a corresponding streamlining of management processes. The key to this would be to
streamline, integrate and time-synchronize both operating and management processes.
Processes were time consuming with paper-based work and hierarchical decision making which
was a roadblock in responding to fast changing market conditions. Standardization was absent
with sometimes slow moving inventory and other times, inventory arriving after promotions.
Jordan led a re-examination of the vision for change to find out the root causes of failure. Few
problems discovered were a) Functional orientation of the units- with no cross-functional
approach led to great performance within functions for example Logistics but not adding up to
company profits b) No synchronization between processes- different processes at different levels
of speed and effectiveness c) Annual Planning Cycles- not absorbing the changing market
Frito Lay, Inc.: A Strategic Transition- A Case Analysis 3

conditions d) Lack of required information at all levels- no ground level information at Corporate
level and field sales team unaware of business objectives e) Long delivery processes- meant 7
days for delivery out of 35-day shelf time for products e) Less frequent review and monitoring of
business against targets- 4 week period reviews meant delay in analysis and therefore a delay in
action, slowing down business fatally in a competitive environment.

Evolutionary approach towards new strategy by Frito-Lay

Among the first steps towards the solution Jordan drew three lessons from the earlier failure.
First, the need to implement a corporate-wide strategy against a field sales initiative. Second,
they needed the efficiency and control of a centralized structure and the flexibility and speed of a
decentralized one. Third to achieve such a hybrid structure they would need information
infrastructure. From 1987-1991 Frito-Lay went through a complete organizational
transformation. The phase 1987-1989 saw efforts towards building the organizational and
information architecture while the next two years were spent in restructuring the organization
and tuning the information architecture. The aim was to start with increasing productivity within
functions and streamlining and then integrating processes across functional areas. This would be
followed by developing an information infrastructure. Such efforts were accompanied by
implementation of handheld computers (HHC). The HHC Project eliminated problems of
inventory shortages, reduced manual work so that sales people could concentrate on selling than
paperwork. The Pipeline Project was accompanied with redesigned operations and management
processes. There was a need for a MIS that would integrate the top management strategy with
local market dynamics. This caused senior managers to define the information needs at all levels.
The phase 1990-1991 saw a redesign in organization. Now the business was divided into 4 area
business teams (ABTs), which meant functional units reporting to their functional head and also
to the Area Head (AGM). The restructuring meant, functions were in a position to understand
what they were doing and how it affected the P&L of the company. This created a cross-
functional focus. New weekly mini-reviews were introduced to add to the 4-week review periods
enabling fast decisions. Two new approaches (PDD and TDD) were added to delivery process
which bypasses the warehouse and distribution center to reduce time and effort. Information now
was a boon and also a bane with an unmanageable volume. Managers realized the need of
Frito Lay, Inc.: A Strategic Transition- A Case Analysis 4

dynamic data, a new Area Information Manager now took care of the information needs. He now
made sure the business people concentrated on business rather than on data. The organization
still saw more restructuring in 1991 with ABTs renamed as divisions and the AGM position
elevated to President Division who would now report direct to the CEO. This new structure
ensured consistency across organization and an elimination of less important positions. Now
there were only 4 major roles in the organization structure. Two levels at the bottom were
Districts followed by Zones. The next important level was Area Business Teams with
responsibilities of P&L, Size and Brand Selection and Promotions etc. and the topmost level
Headquarters & Division Business teams responsible for the strategic direction, new product
decisions etc.
Conclusion
Looking at the targets Frito-Lay had set to achieve, they have considerably faired on the mission.
First of all they have been able to achieve a corporate wide goal of reengineering processes and
reorganizing Frito-Lay. Next, with the restructuring and forming a 4 level hierarchy with divided
decision rights at headquarters and at ABT level they have ensured a hybrid model of
centralization and decentralization. With rollout of the HHCs and with the Pipeline project they
have established a flexible, dynamic and integrated information infrastructure tuning it to the
needs of all levels of the organization.

Recommendations
Frito-Lay has taken steps to prepare itself for a micromarketing strategy, but to ensure the
effectiveness; there are few things that should still be taken care of. For instance it needs to give
enough decision making rights to the ABTs so as to understand the needs of the local markets
and act accordingly- which is key to an effective micromarketing strategy. The Headquarter and
divisional team should take a supervisory role as far as the local operations are concerned.
Secondly, there should be dedicated teams to handle information; a single AIM may be
inadequate to handle such large volume of data. The information infrastructure should enable a
seamless integration of all processes which would take the cross-functional approach another
step forward. With increasing competition and pressure to reduce prices, Frito-Lay should also
try and reduce cost through leaner processes and leverage its information infrastructure to speed
up business and save time.