Frito-Lay, Inc.

(A)
A Strategic Transition

1

Overview of Case
CEO and President Bill Korn is under pressure to return company to double digit sales growth Ambitious program centered on the HHC Case deals with the background and the development and implementation of HHC Role of top management and top IT e3xecutive in bringing about the HHC Deals too with management of change
2

Points of Discussion
Strategic importance of HHC Justifying the HHC Investment Managing Risk Implementation Issues

3

Strategic Importance of HHC
F-L Competitive Environment in early ’80s
– Very service-oriented company – 6 of F-L’s potato and corn chip brands among the top 50 selling dry grocery brands – Geographical expansion had no where to go – F-L’s attempts at new product introductions were only marginally successful – Lower inflation in ’81 provided for less pricing freedom – National competitors, e.g., P&G, Borden, began to make inroads in F-L’s territory – Single digit sales growth

4

Strategic Importance of HHC
Michael Porter in action:
– Threat of new entrants
• P&G, Borden, Anheuser-Busch

– Bargaining power of buyers
• Supermarket consolidation, ↓ dependence on FL due to scanner data, store gets info w/o FL

– Bargaining power of suppliers
• Market saturation in traditional markets
5

Korn’s Strategy to Respond
Product
– Increase from 100 at time of (A) case to 400+ by 1990 – Increased dependence on smaller share ($20-30 million brands, local brands versus $100 million national brands) – Shortened product lifecycle

6

Korn’s Strategy to Respond
Market
– Segmentation of sales force to increase share in supermarkets and “UADTS” accts
• UADTS represents 25% of F-L profits but 80% of accounts • F/L lacked information on this market segment

– Micromarketing v. broad, national market. – Local versus national promotions
7

Korn’s Strategy to Respond
Customers
– Provide customers with product profitability info to encourage favorable assignment of shelf space and neutralize increasing customer power

In general, new competitive environment and new strategic initiatives required
8

Frito-Lay Strategic Management
Brand Mgmt-1985 Environment Stable; less complex; weak competition; mature products Brand oriented; centralized decisions; national P&L Market share in national brands; low cost producer; geographic scope Market share Price, promotion, packaging; sales volume is key Long planning cycles Profit Planning-1990 Dynamic; complex; strong competition; short product lifecycle Product orientation; decentralized decisions; local P&L micromarketing

Org. Structure

Top mgmt goals

Strategic Uncertainties Control system

Product profitability Product profitability is key

Time horizon

Short planning cycles

9

Agree With Korn’s Strategy?
Can they implement this strategy with its current business and management processes? No, change is needed!

10

Is HHC Critical to Achieve Strategic Objectives?
HHC is important first step As it stands at end of (A) case, HHC is best thought of as a productivity tool for sales force Potential is there to use the HHC information. Potential is unrealized without the design of an extensive information infrastructure, also called an information architecture.
11

Current Paper-Based System
HHC would replace manually-written sales tickets and manually-prepared reports
– Time consuming and error prone

Errors → inaccurate reporting of sales activities → influences the accuracy of data used to develop production, pricing & promotion strategies and sales force commissions Problems expected to increase; old scanner technology no longer supported by IBM
12

Justifying the HHC Investment
Companies often have difficulties in justifying technologies to increase individual productivity and effectiveness How much to implement this project?
– – – – – R&D Machinery per truck ($3k*10000) Data center upgrades Experienced professionals ($70k*45) Minicomputers for dist. Centers $50 million +++ ??? 30 mill. 1.2 mil. 3 mil. 15 mill
13

Expected Benefits
Salespersons save 2 ½ hours per week.
– F-L believes this could be used to drive $20 million in additional sales

Can F-L guarantee this figure?
– Geographic saturation – Better understanding of markets (UADTS accounts and micromarketing) – Sales force must be committed to driving new sales or to lower costs – Working with stores for better shelf space – Control accounting with sales force – Correct ordering, especially with UADTS accts. – Replace existing dated system – Improved sales force attitude
14

Managing Risk- IS HHC A High Risk Project???
Size
– Relative to other F-L projects, this is huge

Structure
– Pilot tests help to increase project structure – But how to obtain business benefits unclear – Impact of HHC on mgmt control systems, org. structure, roles, other functions is not clear – These tend toward a moderately structured project

15

Managing Risk- IS HHC A High Risk Project???
Experience with technology
– HHC is relatively new technology at the time – HHC is VERY NEW technology to F-L

16

How To Manage These Risks
Size
– Formal project management techniques
• Modularizing project • Tracking project • Scheduling

– Structure
• Involvement and leadership of sales force

– Technical expertise
• Strong IT leadership needed, given their lack of experience • Examine other HHC-types of uses/companies
17

Implementation
Speed of implementation
– Evolution or revolution? – Probably phased is better but do not drag – 2 year completion – start slow and pick up speed

Where to start?
– – – – Worst performing group? Small, out of the way group to minimize risk? Some “representative” group of employees, customers, etc.? “Best and brightest” to see how to achieve business benefits?
• Well respected persons to train others • Understand the HHC vision & be committed to it
18

Implementation
Leadership
– Business leadership is needed, given the issues addressed already – Technology leadership is needed, given the issues addressed already – Need for organizational redesign and change leadership needed

19

Implementation
Training
– Turn loose and sink or swim – Sales force still recovering from the unpopular segmentation policy – F-L used the “train the trainer” approach – F-L focused on driving organizational change from the middle

20

Summary
Obtain sales force commitment
– Off-site training – Use of videos – Use of training manuals – Video stresses
• Saving time • Error reduction • Info critical to F-L as a company
21

Summary
Management of the HHC project size
– F-L brought in someone whose experience included managing plant construction projects – Los Angeles chosen as “best of best” to begin HHC – MIS and sales VP led the HHC project – Training done by “training the trainer”
22

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