Group # 5 (Case Study of PepsiCo Pakistan)

Case Problems:

Irfan Mustafa joined Pepsi as Area Vice President and the CEO of Pepsi Cola (Pak) Inc, in

October 1991 and was assessing the managerial challenges he had to face in achieving business

goals.

Irfan’s implementation plan to achieve the objectives spelt out in his vision statement as below:

The first challenge Irfan faced was to create an organization that would promote a

culture of openness, trust and individual initiative.

2nd, he wanted to built a management team that would function independently of him,

Irfan had to resolve whether this team would be functional or cross-functional in nature.

3rd, he wanted to reduce his span of control.

4th, he was pondering over some of the steps that might have to take to further

strengthen Pepsi’s relationship with the Bottlers.

Companies Basic Structure (Exhibit 1):

Irfan Mustafa (CEO)

o Sales Operations Manager (Mujtaba Mahmood)

o Marketing Operations Manager (Mujtaba Mahmood)

Asst. Marketing Manager (1)

o Finance Manager (A. Pasha)

o Franchise Manager (4)

S Ahmed (Central Region CR)

S. Abid (S.R Karachi)

o Bottling Companies (8)

Bottlers (C.R)

Bottlers (S.R)

Hierarchy Chart:

Irfan Mustafa (CEO)

Sales Operations Manager

(Mujataba Mahmood)

Marketing Operations Manager

(Mujataba Mahmood)

Assistant Marketing

Manager (1)

Finance Manager (A. Pasha)

Franchise Manager (4)

S. Ahmed

(C.R)

S. Abid (S.R)

karachi

Bottling Companies (8)

Bottlers (C.R)

Bottlers (S.R)

J.S Lee Tech. Director

(Expartriate)

Field Manager Asad Khan (C.R

Lahore)

Field Engr. (A

Sami) S.R.

karachi

Profile of Managers:

Name DesignationAge(Years) Qualification

Experience before Pepsi

Experience Pepsi

Irfan Mustafa CEO 41 MBA 12 1.5

J.S LeeDirector Technical West Asia 41 BSc 7 15

Nizam Khan Marketing manager 48 MA 9 8.5

S. AbidSouthern Operations Manager 36 MBA 8 3

A. Sherazee Country Manager Bangladesh 36 MBA 13 2

Mujtaba Mahmood

Sales/Operation Manager 39 MBA 13 2

Saleem AhmenCentral Operations Manager 29 MBA 5 10

A. Pasha Finance manager 40BA Articles with Ford Rhodes 6 8

Asad khan Field Engg. Manager 31 MSc Mech. Engg. 7.5 1.7

A. Sami Field Engg. Manager 33 BSc Mech. Engg 6 1.5Abid Raza Franchise Manager 26 MBA 3.5 1.2karim Beg Brand Manager 24 MBA 1Faisel Farid Designate Manager 25 MBA 2 6 month

Brief Description of each functional department’s responsibilities (Exhibit 2):

Technical Department:

Field Engineer: Responsible for ensuring the supply and quality of PCI products on a cost

effective basis through application of good manufacturing practice in coordination with other

PCI functions/bottlers/suppliers.

Franchise Department:

Franchise Manager: Responsible for maintaining primary contact between the bottler and PCI.

In addition, designs strategies and works with the bottler to coordinate activities with other

support function within PCI.

Country Manager – Bangladesh:

Responsible for managing the Franchise operated Bottling operations in its entirely from the

standpoint of a business General Manager. Also, ensures PCI’s/Bottlers’ long-term/short-term

business length.

Problems faced by Irfan after Joining the PepsiCo:

1st, even though Irfan had a lot of marketing experience in consumer products, he needed to

understand the dynamics of the soft drink industry. This industry was a totally new business for

him.

2nd, Pepsi was an American company and his previous experience was with Lever Brother, a

British multinational. Irfan had to understand the people, the management philosophy, and

corporate culture of Pepsi International for making necessary adjustments in his own style.

3rd, he needed to develop a working relationship with the old management team of Pepsi Cola

(Pak).

4th, Irfan have to understand the management of the bottling companies, as they were the

producers of Pepsi brands. According to Irfan, building closer relationship with the Bottlers was

essential to succeed in the market.

Quality check on the Bottlers:

There are two ways through which Pepsi Cola ensures their quality as below:

Personnel of the Technical department of Pepsi (Pak) carried out inspection at plants to

ensure the quality standards were being followed.

2nd, Pepsi (Pak) personnel could pick random samples from retail outlets for the quality

testing at Pepsi quality testing laboratory in Japan.

Pepsi Cola pays operational cost to the bottlers in Pakistan:

The Price of the concentrates supplied by the Pepsi Cola to franchises covered the cost of the

Pepsi Cola (Pak) operations in Pakistan. These operations included marketing support in brand

management and image building. Pepsi Cola (Pak) shared the advertisement expenses with the

Bottlers, and also provided technical and financial support. The bottling companies in turn were

responsible for producing, marketing, distributing and selling of the products in a give territory.

Any increase in the cost of Pepsi Cola operations would increase the price of concentrates, as

well as that of the end product.

So Irfan felt he had to win the trust and confidence of the Bottlers to ensure that they were

willing to spend money to produce Pepsi Cola brands of the required quality.

Irfan Strategy to cope with the Pepsi Challenges:

After discovering that Pepsi had a developed market, Irfan adopted an action plan to exploit the

existing business potential.

The plan focused on three things:

Turing the past relationship of treating the Bottlers as inferior into one of trust and

confidence

Creating well-managed organization

Building a management team which could be delegated powers to implement various

decisions.

Turing the past relationship of treating the Bottlers as inferior into one of trust and

confidence:

1st, Irfan involved management of the bottling companies in his business planning

activities for the coming year, coz in the past Bottlers were mostly kept in the dark

regarding business planning and its implementation.

2nd, Irfan also started sharing information about the philosophy, vision and objectives of

Pepsi International with the Bottlers. As per Irfan it generated a kindred feeling in being

a part of Pepsi International amongst the Bottlers. Over the period of 1 year any new

business idea regarding quality improvement, sales promotion and management system

which were generated at Pepsi Cola were first sent to the Bottlers to keep them in the

picture and to get their commitment to the idea.

3rd, and more important, Irfan helped the Bottlers in forming an Association known as

Pepsi Bottlers Association. The idea behind the creation of this association was to

promote mutual trust among the Bottlers, and to provide them a forum to jointly face

the threads from the external environment.

He also organized a Bottlers Conference in Lahore in the 1st year, the aim of the conference was

to share information about business, and to assess the strengths of the competitors and create

a common business mission with the Bottlers.

In the first year after the Joining of the Irfan as the Pepsi CEO the company has earned the

highest market growth in the last five years. It has won international Quality Award (IQL), and

the Bottlers of the Year (BOY) Award by Pepsi International.

The Future Business Mission:

The top management of Pepsi Cola International planned to derive 25% of its sales and profits

from foreign markets in the next five years. All franchise arrangements and subsidiary

companies abroad were to work towards the attainment of this goal.

Irfan had already prepared the business mission for Pepsi Cola in Pakistan for the period

between 1991 and 1995. The mission included following objectives:

Most Successfully American Multi-National Operations in Pakistan:

Consolidating Leadership Position

Maximizing Bottlers profitability and Return on Investment.

Doubling the Volume.

Becoming No.1 Volume in the Eastern Europe-Asia Division

Overtaking Russia in Volume.

Shortcomings:

In this case it is not mentioned that what are the measure that Irfan had in mind to complete

these task, what is his strategy for like, consolidating leadership, maximizing bottlers

profitability and return on investment etc.

Most Admired and Respected Multi-National Operations in Pakistan:

Career oriented company

Consistent high quality image

Professional Marketing and sales management operations

To win the highest number of performance awards:

o 2 IQA

o 3 BOY

o 1 BOY Worldwide

Best corporate citizen

Most Innovative and Entrepreneurial Partnership in Asia/Eastern Europe Division:

Pro-Active Management style and Decision making

Closest to the customer

A Fully Developed Operating Company: The would mean:

o Development of effective business plans

o Changing Pepsi image from a traditional concentrate supplier to that of a

company which believed in the partnership with a bottlers

o Focusing on the individual growth through training, and encouraging managers

to work together as a team.

The Implementation Challenges:

1st, Issue Irfan had to tackle was to secure the commitment of his managers to the business

mission.

He had to decide exactly how should he deal with his managers, either ask them to

implement or should he involve them in assessing its viability.

He has to evaluate the pros and cons of each pathway before getting onto the

implementation stage.

2nd, he did not wanted to support the hierarchical relationship within the company.

Most of the managers in the company felt that Irfan’s approach would lead to

disorganization and disorder.

Irfan wanted to produce at least 5 successors, who will handle the work effectively

during his absence as he had to travel abroad a lot of the times.

One of them is Saleem Ahmed how had worked with him in Lever brothers as well and

very good performer.

He actually following the same path as of Pepsi international CEO D. Wayne Calloway,

how is in favor of decentralized culture in order to gain speed in the decision marking to

cope with the fast growing market.

o So to improve the speed in the decision making, Irfan felt that his current span of

control was too extensive, so he planned to reduce it (Implementation is

pending)

3rd Irfan wanted to build a management team and an organization culture that supported esprit

de corps (A sense of unity).

He need to build a team to work according to the vision of Irfan, to maintain the

partnership with bottling companies, and to provide a cross-functional and across

markets integration to obtain the best possible results.

The Problem faced by Irfan is that some “Old timers” in the company was not sure that

how would they respond to his radical team building effort.

o For the old timers he wanted to train them to help in building the managerial

excellence and promote team efforts.

o Although he was worried about the consequences if these people did not adopt

to change.

4th Irfan was planning to hire a human resource manager.

He was looking for a manager who could not act like the traditional HR manager rather

he wanted someone who could assist him to build a culture that promoted risk-taking,

openness, respect for diversity, boldness and speed in decision making.

As a HR manager he had to resolve whether to recruit someone with line experience, or

a specialist in the area.

5th although Irfan took some steps in the development of the relationship with Bottlers, he

wanted to further cement this relationship.

He also planned to bring out a magazine, the first of its kind in West Asia, it’s called

“Partnership” the main purpose of this magazine is to communicate with the bottlers,

and to promote new business ideas.

He also wanted to focus on the marking of the Pepsi products, which means that products are

available at the doorstep of the consumer, and letting them know that it was available.

Further he also looking for an efficient and effective MIS (management information system) and

sales organization structure in the bottling operations, to be more cost effective and respond

promptly to the customer’s needs.

Pepsi Management System:

According to Irfan’s management system he wanted a system that encourages:

Giving and receiving feedback

Performance assessment

Career management

Hands on management (which focus on resolving long term results and on resolving

organizational issues through debates and discussions.

Irfan says that he could not bear:

Dishonesty

Telling lies

Pursuit of hidden agendas

Disrespect for the lower staff

Finally Irfan wanted to implement the Business Mission before the year is out.

Application of the Decision making in the Case:

Step 1: Identification of the Problem:

Following are the problem that Irfan have faced after his joining the PepsiCo Pakistan:

Need to restructure the organization which would have characteristics

A culture of openness, trust and individual initiative.

To build a management team that would function independently of him, Irfan had to

resolve whether this team would be functional or cross-functional in nature.

To reduce his span of control.

Strengthen Pepsi’s relationship with the Bottlers.

Step 2: Decision Criteria:

To cope with the above problems, we have defined a decision criteria based on which we would

try to define a model that could help to resolve above issues, according to the above problems

we really need to focus on:

Leadership style for the Managers

Work Specialization

Departmentalization

Chain of command

Span of control

Centralization and decentralization

Formalization

Organizational Culture

Team selection criteria

Selection a management team of the Bottlers

Work Specialization:

With the higher work specialization the organization tend to more rigid and slow, what Irfan is

looking for is the low work specialization so that their employee would work in different

dimensions and able to took decisions quickly rather slow.

Departmentalization:

Before Irfan there was a rigid departmentalization in Pepsi (Pakistan) he wanted to convert his

organization to cross functional by building a cross functional team that could operate in the

fast changing environment, so no rigid departmentalization in the organization.

The teams are divided in Pepsi Pak is based on functional departmentalization.

Chain of Command:

Irfan clearly wanted to have a free flow of the information in his organization as mentioned in

the case that “Irfan did not wish to promote hierarchical relationship in his company”. But most

of the managers in the company however, felt that Irfan’s approach would lead to

disorganization and disorder.

Span of Control:

It was being mentioned in the beginning of the case that Irfan wanted to have low span of

control so he was looking to cut short the extra layers of the management from the

organization.

Centralization and decentralization:

He is clearing looking for the decentralized structure as he wanted to have people in the

organization that can took the decision in order to work faster, so he wanted to deliberate the

jobs to their subordinates.

Formalization:

For the organic organization that Irfan is looking for he needs to low formalization.

Step 3: Allocation Weight to the Criteria:

Work specialization 6

Departmentalization 8

Chain of Command 7

Span of control 9

Centralization and decentralization 8

Formalization 6

Step 4: Developing Alternatives:

Simple structure

Functional structure

Divisional structure

Team structure

Matrix structure

Boundary less structure

Step 5: Analysis of the Alternatives:

 

Low work specialization

Departmentalization (cross functional team)

Chain of Command (Cross functional)

Low span of control

Decentralization

Low formalization

Simple Structure 7 5 6 8 7 7Functional Structure 5 4 6 4 4 5Divisional Structure 4 4 5 4 5 4Team Structure 8 7 8 7 8 8Matrix structure 8 7 8 8 8 6Boundary less structure 8 8 8 8 8 8

Step 5: Selection of an Alternative:

 

Low work specialization

Departmentalization (cross functional team)

Chain of Command (Cross functional)

Low span of control

Decentralization

Low formalization Total

Simple Structure 42 40 42 72 56 42 294Functional Structure 30 32 42 36 32 30 202Divisional Structure 24 32 35 36 40 24 191Team Structure 48 56 56 63 64 48 335Matrix structure 48 56 56 72 64 36 332Boundary less structure 48 64 56 72 64 48 352

Apparently from the analysis it seems that boundary less structure is the best fit for the model

that Irfan is looking for but it has a major drawback which also have a very strong effect i.e. lack

of control and communication difficulties which he definitely not wanted in his organization, so

the best fit structure is the “Team Structure” which would have following characteristics:

A structure in which the entire organization is made up of work groups or teams.

Employees are more involved and empowered, reduce barriers among functional areas,

have low chain of command.

Step 6: Implementation of the Alternative:

The implementation of this organizational model is not as simple for that we have to define the

parameters based on which he can implement this organizational structure in his organization,

Irfan need to do the following things:

Create and develop leadership style that have both characteristics of People oriented

and product oriented.

Need to define clear selection criteria for the new human resource, so that the new

employee would best fit in the model.

Need to develop an organizational culture that would help people to understand the

organizational goals and missions.

Selection of the managerial team for the bottlers in order to improve the relationship

with the bottlers further.

Let’s look one by one into the details of the each step:

Leadership Style for the Managers:

It is really important to define the leadership qualities based on which Irfan needs to set a

criteria for that what kind a leadership style did he need to implement in the Pepsi and what

kind of Managers (Leaders) he wanted to have in the organization that would create a culture

of openness, trust and individual initiatives.

We think the best leadership theory that fits with the model is the “HERSEY AND BLANCHARD’S

SITUATIONAL LEADERSHIP THEORY” and “PATH-GOAL THEORY” because these two theories

can well defined that leadership style should be vary according to the demand of the followers,

for example if the employee is at the beginning stage of his carrier he needs to choose the

Telling or Directive style so that the employee have the clear direction to cope understand the

procedure and work on his managers instructions and on the contrary if we are talking about an

experience employee then the leaders should adopt the Delegating and achievement oriented

leadership style because those employee are already know about the work and they do not

want to be boss around all the time it will shake their temperament or trust on the company

and leader.

Leadership qualities described in the Case:

In the Exhibit 5 in the case Irfan actually described leadership qualities that he is looking for:

. (Knowledge of the Leader)

Market Knowledge

o Staying abreast of changing industry and market conditions.

o Being aware of competitors’ strengths and weakness.

o Understanding the critical “Leverage points” of the business.

Business Priorities:

o Establishing functional priorities that reflect the long term needs of the business.

o Helping subordinates understanding the tradoffs between NOPAT, SOM, ROAE.

o Helping subordinates focus on the bottom line impact of decision, projects or

programs.

Building a long term commitment to excellence:

High Standards

o Establishing high performance goals and standards for subordinates,

o Consistently demonstrating high levels of integrity in your daily contacts with

other.

o Relating rewords to excellence of performance, rather than to other factors

(such as personal relationship)

Continuity

o Solving immediate problems without sacrificing long term results.

o Managing change in a thoughtful and well planned manner rather than a

reactive manner.

o Selecting the right people to staff the organization.

Demonstrating a Responsive Leadership style.

Interpersonal Flexibility

o Being willing to change one’s management emphasis as the needs of the

business/function change.

o Dealing effectively with multiple priorities and many conflicting issues.

o Encouraging new ideas and alternative points of view.

Decisiveness

o Being willing to make tough decisions in implementing plans.

o Being willing to speak out on issues, even when your view is unpopular.

o Controlling conflict situations in an honest and direct manner.

o Giving subordinates a clear-cut decision when they need one.

Creating a climate of individual responsibility.

Delegation

o Giving subordinates the opportunity to influence the setting of individual and

departmental goals.

o Being clear and thorough in delegating responsibilities.

o Expecting subordinates to find and correct their own errors rather than doing

this for them

Entrepreneurship

o Encouraging innovation and calculate risk taking.

o Encouraging entrepreneurial behavior by avoiding excessive controls.

o Recognizing subordinates for good performance more than criticizing them for

performance problems.

Coaching for results.

Supportiveness

o Being supportive and helpful in contacts with subordinates and in contact with

subordinates.

o Going to bat for subordinates when you feel they are right.

Constructive Feedback

o Being open and candid in dealings with people rather than being vague and

indirect.

o Working constructively with subordinates to correct performance problems.

o Explaining the rationale for decisions that are made.

Carrier management

o On an ongoing basis, coaching subordinates on how to succeed at Pepsi

o Considering subordinates needs when making career decisions.

Establishing a network for success.

Contacts

o Maintaining a broad circle of contacts throughout PepsiCo.

o Using contacts outside PepsiCo to accomplish your objectives.

o Using informal channels to collect information and achieve business objectives.

Collaboration

o Working effectively with people in other departments functions.

o Encouraging subordinates to collaborate with other departments or factions.

So based on above details in the case he would actually want to have leadership which is both

task oriented and relationship oriented.

According to the Managerial Grid model he is looking for a team Management with (9,9) of

Concern for Production and Concern for People scale.

Team Selection Criteria:

It is really important to define the team selection criteria to build a culture of change and

decentralization in which, new employee’s vision should be match with the vision of the

organization.

As it was mentioned in the case that he needed to train at least 5 successors that can handle

the work as per his requirement in his absence, selection criteria is also very much important to

build or change an organizational culture.

Philosophy of Organization's Founder

Selection Criteria

Top Management

Socialization

Organization's Culture

1. Hiring Fresh Graduates or MBA’s and Train them according to the company’s vision:

As it is really difficult to alter the mindset of the People that are already working for years in an

certain organizational culture, they need high rewards, lots of effort to change their attitude

and working styles, so he need to hire the fresh graduates or MBA as per the job requirements

and need to train them according to the culture of the organization, need to communicate

them a clear companies vision so that they could carry it along with them in their work and

their work actually reflect the company’s vision.

Blow mentioned are the characteristics that should be criteria for hiring a new person:

Should be energetic

Good grades this at least inform the persons intelligence and seriousness towards

person own goals.

Self driven

Intelligent (Should form an IQ test to judges it)

Knowledgeable

Interested and willing to do work

Should take work as priority

Should have High need for achievement

He needs to build a complete selection criteria based on series of interview’s test and

presentations that would help the HR team to judge the complete characteristics of the

employee.

2. Hiring HR team:

As per the Hierarchical chart given in the case there was not HR team in the organization that

would took care of hiring people that could carry on the company’s vision. So Irfan has decided

to hire an HR manager first of all who would not act accountant or labor officer. HR manager

could assist him to build a culture and team that promotes risk taking, openness, and respect

for diversity, boldness and speed in decision making.

Now the issue is either he would hire a someone with line experience, or a specialist in the

area, we think that preference would given to the field specialist as again the experience person

would carry a culture of centralization, and rigid organizational structure that would be very

difficult to change.

3. Building a top managers team and turning Old timers attitudes

Irfan has to decide the clear criteria about the management working styles as below:

Giving and receiving feedback

Performance assessment

Career management

Hands on management (which focus on resolving long term results and on resolving

organizational issues through debates and discussions.

In other words we can say management by objective (MBO) is the best solution for the

efficient team building in his organization.

The major hurdle Irfan was facing in this is the Old timers’ attitudes and their working as style

as it would be very difficult to term their attitudes and working style it’s like slow moving

process of:

Unfreezing

Turning around

Refreezing

Means as a first step he need to unfreeze their previously used working style by:

Selecting the appropriate Leadership style, depending upon the followers’ level.

Motivating their managers by fulfilling their need according to their level.

Make them motivated and convince them on the argument that decentralized

organization culture is better for the company’s and their growth in the organization.

Below is the diagram of Progressive change in the employee attitudes:

Because as they thought the Irfan’s plan can destabilize the organization, and if after doing all

above effort the older employees are not getting agree then maybe fire them so that there

would be a place for the person how could accept the change and work according to the

requirement.

Organizational Culture:

From the above chart of steps to develop and organizational culture it is clear that culture

would come from the founders philosophy passes through management to the employees

through the process of “Socialization”.

Irfan need to focus and communicate the importance of the organizational culture to their

employees again and again. All attribute of the strong culture needs to be followed in the

organization to change the organization.

Culture should be in line with the National Organizational Culture:

Need to be very careful that organization culture should be in line with the National culture of

Pakistan, according to the Shaista Khaliji’s Paper the following attributes need to be adopt in

order to form a strong organizational culture:

Culture of openness, trust and strong Islamic values should be prevail within the

organization.

Culture should be team oriented team structure needs to be promoted.

High level of aggressiveness.

High outcome oriented.

Focus should be on employees to learn the culture quickly

o Management needs to narrate the spirit of the organization.

o Ritual, values need to be followed strongly.

Conflict resolution through debates and discussion.

Playfulness Humor

Freedom of making the decision.

Selection of the managerial team for the bottlers in order to improve the relationship

with the bottlers further:

Final portion of this case includes the improvement of the relationship with the bottlers,

although Irfan has took many step to improve these relationship by forming the bottlers

organization, getting them involve in the each new idea or plan, but still we need to find a way

that this relationship would further improve and enhanced.

Following the suggestions that need to be undertaken to improve the further relationship with

the Pepsi Pakistan:

Forming a team that could particularity focus on the activities with the bottlers, and give

feedback to Irfan.

People from major bottling supplier should sit in the Pepsi head office in Lahore so that

they would update with the new information all the time and make strategies to work

effectively.

Bottlers marketing strategies, operational strategies should be in line and monitor by

the team in the head office.

Step 7: Evaluation of the Decision Effectiveness:

The final step in the decision making process is the effectiveness of the decision, which would

be the feedback after the implementation whether is a good decision or not, or there would

any amendment required in the decision criteria etc.