Savings in good times ready for bad times
Business firms are sometimes oblivious to the bad times looming ahead of the hay days, some are pretty cautious.
PepsiCo: Creating urgency in good times
Craig Weatherup, the president of a PepsiCo division with more than $7 billion in annual sales, had a problem. It was not a problem concerning the division’s current performance, in fact, current performance looked very good- earnings were up 10% and the US based division was more profitable than its domestic counterpart at Coca Cola. However, as he looked ahead several years, Weatherup saw a potential crisis- domestic consumption of soft drinks was at an all time high, and it was much higher than consumption rates anywhere else in the world. If sales began to plateau and competition grew more intense and placed even greater emphasis on price, how would PepsiCo maintain its profitability? While this problem loomed large in the president’s mind, it clearly was not perceived as a pressing problem for the other 30,000 people in his organization. How could he convince them to tear their successful organization apart and rebuild it to face a threat that even he admitted was several years away from materializing?
Weatehrup’s answer was to create a sense of crisis, even though a crisis did not yet exit. He called a 3day off site meeting of the top eleven managers at which they were to consider the division’s future. He opened this meeting by bluntly explaining that while many executives would be thrilled with 10% annual earnings growth, he was not. He explained that in order to avoid pressure to increase price based competition; he felt the division needed at least 15% annual growth.
He let them know that from now on, he would hold them accountable for nothing less than 15% growth. ‘There’s a freight train out there, he told the startled group, and it’s called 15% earnings growth. We’re standing on the track, and we’d better figure out something or it will run us right over.’ To drive home his point, he handed each of the managers a model train engine with the number 15 painted on the side. The model was barreling down a track toward eleven tiny panicked figures.
The division then followed this meeting with a series of similar 3 day meetings that eventually included all 30,000 employees. At the start of each of these meetings, Weatherup retold the story of an oil rig worker who had survived a 150 foot plunge into the North Sea when the platform he was on caught fire. When asked why he had broken all the safety rules and jumped, the worker said, ‘I chose probable death over certain death.’ Weatherup’s point was that for PepsiCo, business as usual was certain death. To emphasize his message, Weatherup used quotes from PepsiCo’s most important customers, such as ‘there is nothing about the way your company does its business with us that I like.’
After getting everyone’s attention with such stories, Weatherup then closed the meetings with a discussion of how all employees could help the division respond to the crisis. He explained his vision for a future PepsiCo in which the customer would be the focus of the entire organization and teams of employees would have the skills needed to reengineer processes to make them work better for customers. He then backed this general vision statement with specific proposals for change.
The organization got the message. Over the next 2years, Weatherup and his team restructured the organization, redesigned how it did its work, and redefined jobs thought the organization. These changes included breaking the division into 107 customer focused units and dramatically revising core processes, such as order fulfillment and demand management. These moves saved the organization tens of millions of dollars. And industry experts have concluded that the company is now in a much better position to survive any move to greater price based competition.