BUSINESS SUSTAINABILITY ASSIGNMENT

A Corporate Sustainability Example

PepsiCo is one of the world's largest food and beverage producers with annual revenues of more
than $64 billion and a product line that includes brands such as Quaker, Gatorade, Pepsi-Cola,
and Frito-Lay10. Over the past decade, PepsiCo has become a leader among corporations in
water conservation and energy usage. In 2012, PepsiCo received the Stockholm Industry Water
Award in recognition of its efforts to reduce water and energy usage across all of its business
operations, from supply chains to factories. The company continues to set the pace for water
conservation among major corporations.

PepsiCo sustainability efforts include:

 Working with farmers to monitor water usage and carbon emissions and maximize crop
yields.12
 Retrofitting factories and corporate offices to improve energy efficiency, such as the 300-
plus-employee Casa Grande Frito Lay facility in Arizona. The facility generates half the
plant's electricity requirements with solar power, water is recycled to drinking standards,
and waste is recycled wherever possible. The facility is one of over 20 other PepsiCo
sites certified to LEED sustainability standards.

PepsiCo's success in this area shows how effective green marketing can be, and the impact it can
have on generating more sustainable practices in the marketplace.

1. Identify the strategy which helps Pepsi achieve a competitive advantage? As per your
opinion what other methods can the organization adopt in order to achieve its goal?

ANS.1 PepsiCo is the second biggest player in the global food and beverage industry. The
company offers a diverse array of products. PepsiCo’s generic competitive strategy is based on
the need to address market pressure coming from its biggest rivals, including the Coca-Cola
Company. A firm’s generic strategy (based on Porter’s model) defines the basic strategy used to
maintain competitive advantage. On the other hand, PepsiCo’s intensive growth strategies are a
response to the evolving global food and beverage market conditions. Intensive growth strategies
outline how firms support their growth. PepsiCo’s generic strategy for competitive advantage
matches its intensive strategy to ensure long-term growth.

PepsiCo’s intensive growth strategies enable the company to effectively use its generic strategy
to maintain strong competitive advantage. PepsiCo’s success is an indicator of the
appropriateness of these strategic directions, especially how the generic strategy supports
competitiveness.

PepsiCo’s Generic Strategy (Porter’s Model)

PepsiCo applies different generic competitive strategies, considering the company’s wide array
of products. However, the main generic strategies that contribute to PepsiCo’s competitive
advantage are as follows:

 COST LEADERSHIP
 BROAD DIFFERENTIATION

PepsiCo uses cost leadership as its primary generic competitive strategy. This generic strategy
focuses on cost minimization as a way to improve PepsiCo’s financial performance and overall
competitiveness. For example, to compete against Coca-Cola products, PepsiCo offers low prices
based on low operating costs. The company also sometimes has special promotional offers with
discounted prices. On the other hand, PepsiCo uses broad differentiation as its secondary generic
competitive strategy. This generic strategy enables business competitive advantage by attracting
consumers to some unique features of the firm’s products. For example, PepsiCo’s Lay’s potato
chips are marketed as a healthful snack product because of reduced saturated fat content. A
strategic objective for the cost leadership generic strategy is to automate production processes to
minimize PepsiCo’s operating costs. In relation, PepsiCo’s strategic objective for the broad
differentiation generic strategy is to innovate products to address concerns about their health
effects.
PepsiCo’s Intensive Strategies (Intensive Growth Strategies)

Market Penetration. PepsiCo implements market penetration as its primary intensive growth
strategy. This intensive strategy supports business growth through increased sales, such as from a
bigger market share. For example, PepsiCo uses aggressive marketing to attract more consumers.
A strategic objective linked to this intensive growth strategy is to minimize costs and prices to
attract more consumers despite market saturation. As such, PepsiCo’s generic competitive
strategy of cost leadership supports this intensive strategy for growth.

Product Development. PepsiCo’s secondary intensive growth strategy is product development.

This intensive strategy requires offering new products to capture more consumers. For example,
PepsiCo continues to develop products or variants of existing ones, such as low-calorie, reduced-
salt, or low-saturated-fat variants of its food and beverage products. A strategic objective linked
to this intensive growth strategy is to boost R&D investments for product innovation. PepsiCo’s
generic competitive strategy of broad differentiation supports this intensive strategy by offering
unique or novel products to attract more consumers and grow the business.

Market Development. PepsiCo applies market development as its supporting intensive growth
strategy. This intensive strategy supports business growth by capturing new markets or market
segments. For example, PepsiCo continues to expand its distribution network to reach the last
remaining markets or segments, especially in developing regions. However, market development
is only a supporting intensive growth strategy because PepsiCo already has significant presence
in all regional markets worldwide. A strategic objective for this intensive strategy is to expand
PepsiCo’s supply chain to support the growth of its distribution network. The cost leadership
generic competitive strategy enables PepsiCo to effectively use this intensive growth strategy
through cost minimization despite additional investments used for expansion to new markets or
market segments.

2. Suggest what steps can be taken by Pepsi in order to make business more sustainable?
ANS 2 - Sustainability is becoming more important for all companies, across all industries. 62%
of executives consider a sustainability strategy necessary to be competitive today, and another
22% think it will be in the future.

Simply put, sustainability is a business approach to creating long-term value by taking into
consideration how a given organization operates in the ecological, social and economic
environment. Sustainability is built on the assumption that developing such strategies foster
company longevity.

As the expectations on corporate responsibility increase, and as transparency becomes more

prevalent, companies are recognizing the need to act on sustainability. Professional
communications and good intentions are no longer enough.

 Pepsi and Coca-Cola have both developed ambitious agendas, such as increasing focus
on water stewardship and setting targets on water replenishment.

In order to address sustainability appropriately companies need to bridge two critical gaps:

 “The knowing – doing gap”: A study that I participated in by BCG/MIT finds that
whereas 90% of executives find sustainability to be important, only 60% of companies
incorporate sustainability in their strategy, and merely 25% have sustainability
incorporated in their business model.

 “The compliance – competitive advantage gap”: More companies are seeing

sustainability as an area of competitive advantage, but it is still a minority – only 24%.
However, all companies need to be compliant. Management should address these topics
separately – not mesh them together. Compliance is holistic, a “must do”. For
competitive advantage, only a few material issues count.

Companies that stand out in the area of sustainability address both gaps. They have evolved from
knowing to doing and from compliance to competitive advantage. They also know the risk of
getting this wrong. For instance promising and not delivering, or addressing material issues
without being solid on compliance.

Some practical recommendations :

 Align strategy and sustainability

  Compliance first, then competitive advantage: First and foremost companies need to
address compliance, which often relates to regulations in waste management, pollution
and energy efficiency as well as human rights and labour responsibility. Compliance is
also an issue that concerns investors. Recent BCG/MIT data shows that investors
increasingly shy away from compliance risks. A full 44% of investors say that they divest
from companies with poor sustainability performance.

  Reactive to proactive: Many of today’s leading companies in sustainability, like Nike,

Coca-Cola, Telenor, IKEA, Siemens and Nestlé have stepped up largely as a
consequence of a crisis. For example, Nike faced boycotts and public anger for abusive
labor practices in places like Indonesia throughout the 90s, but turned the tide around. In
2005, it became a pioneer in establishing transparency by publishing a complete list of
the factories it contracts with and a detailed 108-page report revealing conditions and pay
in its factories. It also acknowledged widespread issues, particularly in its south Asian
factories. By recognizing the impact of sustainability in a crisis these companies have all
developed more proactive sustainability strategies.

  Quantify, including the business case: All companies struggle with quantifying the
return on their sustainability investments. With regards to compliance this is a straight
forward issue. With regards to areas of competitive advantage, however, companies need
to link sustainability to a business case. But the ones that actually do form a relatively
small group.
 Engage your ecosystem: We see that collaboration is critical for efficient sustainability
practices, in particular in solving crises and in shaping broader solutions. The MIT/BCG
data shows that 67% of executives see sustainability as an area where collaboration is
necessary to succeed.

  Finally – and most importantly – engage the organization broadly: One example of
engagement is Salesforce.com which through their “1/1/1” philanthropy program
contributes to each employee’s personal ability to engage with environmental
organizations and initiatives that support local communities. Another good example is
Nespresso, responding to the debate over the sustainability of its capsules, the company
has embedded sustainability into the DNA of every part of its business. Nespresso’s very
purpose is linked to the so called “Positive Cup” campaign. Sustainability is considered
during every decision made at Nespresso. The company seems sincere about reducing its
impact and is even looking at its aluminum sourcing.