Managerial Economics: Pepsi Cola Company Essay
Enrico is contemplating changes that might have a wrenching impact on the Pepsi organization. What specific issues is he trying to solve? Don’t simply recite signs; dig down and establish the root economic issues
Roger Enrico, President, and CEO of Pepsi Cola are concerned about the following three issues in the firm.
- Whether the battle between the three divisions hinder the company to compete in the market;
- Whether the present construction is cost-competitive; and
- Whether the current organizational construction will have the flexibility to meet the challenge posed by the competitors;
Among the three problems recognized by him the primary problem relates to Human Relations, the second one pertains to finance and the third one relates to operations and advertising. It is critical to sort out all three issues to unravel the present crucial situation.
There is much less cohesion between the three subdivisions of Pepsi Cola. A good organizational relationship is indispensable for the success of any enterprise concern. The current construction of the corporate appears to be less cost-effective. The present decentralized setup requires individual managerial assets for each division. Every further resource will add to the whole cost structure. Over the years the company’s market share has increased marginally but profitability stays fixed as evident from the given monetary statements of the corporate. This reveals that the corporate isn’t having an effective cost control system. For profitability to extend with the increase in the sales volume, the fee ought to be minimized accordingly.
Pepsi USA is the major advertising division of the corporate. They supply the focus for the bottling division and carry out promoting and other advertising function. The responsibility to produce the bottled product rests with the bottling division. They have a sophisticated marketing setup and their margin is decrease in comparison with Pepsi USA. Pepsi USA doesn’t have a direct relationship with the shoppers. But Pepsi Bottling Group takes steady effort to maintain up a great relationship with the customers. Therefore a correct reorganization should be accomplished to solve the issue. Each division ought to be conscious of its duty in order that there might be less conflict sooner or later.
Each division must be thought-about as a cost middle and the profitability of each division ought to be worked out separately. Centralization of actions might scale back the general cost. In a centralized setup, there might be only one organization and one division for each function. For instance, in the current case, there are separate advertising departments for the three divisions of the company. But when centralized a single department will carry out the whole advertising activities.
Roger felt that the current organizational construction can not meet the challenges posed by the competitors since they had an organizational construction totally different from its competitors. Coca-Cola is the main competitor of Pepsi Cola who has a larger share in the market. To work out a revised group Roger appointed a task drive consisting of three divisional presidents and the vp of the HR division. They had given two options for the reorganization of the corporate. They are totally decentralized and matrix organizations. The professionals and cons of these two options are mentioned within the next portion.
What are the professionals and cons of reorganizing around geographic regions? If you had been compelled to pick out one -full decentralization or matrix reorganization- which would you recommend and why?
The two options available for the company are full decentralization or forming a matrix organization. As per the model new concept of full decentralization all three divisions shall be introduced underneath one umbrella. Only one superior authority might be there for every operate. For example, the advertising head of Pepsi in Canada will handle the entire marketing function of his region Canada. This is the case with other capabilities of financing, HR, and so forth.
The second option is matrix group. Under the matrix group, the advertising operate will be decentralized. There might be a number of regional heads for the marketing perform. But the other functions will remain centralized. In short, this follows a combine of centralization as well as decentralization. An overview of the professionals and cons of each options will help to know the best alternative for the scenario.
Under a decentralized setup, there will be good efficiency of operation as each function will be managed by a single individual. Responsibility can be simply recognized because there is solely one individual to whom all people is accountable. There shall be good management over the situation. Duplication of activities is absent in the case of a totally decentralized setup. Though full decentralization has these deserves it additionally faces certain demerits that forestall them from being applied within the group. Full decentralization shall be a hindrance for innovative concepts as there is only one individual on the top for each operate. Costing might be difficult in the case of full decentralization because the costing data of the whole company needs to be managed at a single level.
Under the matrix organization, the advertising operate is decentralized and the others are centralized. The main advantage of this method is that aside from gross sales and marketing HRD and Finance would report back to the corporate workplace. So there is no change within the conventional work culture of Pepsi which is a key consider its success story. Sales and marketing are the most important actions of the corporate. When it is decentralized it’ll result in extra freedom for regional managers. They can design their promoting strategies and gross sales incentives depending upon the area.
While comparing each the options it could be seen that the matrix methodology is much more advantageous. Full decentralization makes a drastic makeover within the organization whereas matrix organization doesn’t make a full change within the existing system. Thus if the system is changed to matrix organization employees will really feel comfy as it is main only to minor changes within the present setup. The key function of the corporate is advertising and gross sales which when decentralized will give an additional competitive advantage to the company. Delivery and repair are given nice prominence in the new setup.