Frito-Lay, Inc.

(A)

A Strategic Transition

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 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

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 Points of Discussion

„ Strategic importance of HHC

„ Justifying the HHC Investment
„ Managing Risk
„ Implementation Issues

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 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

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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

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 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

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 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

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 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
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 Frito-Lay Strategic Management
Brand Mgmt-1985 Profit Planning-1990

Environment Stable; less complex; Dynamic; complex; strong

weak competition; mature competition; short product
products lifecycle

Org. Structure Brand oriented; Product orientation;

centralized decisions; decentralized decisions;
national P&L local P&L

Top mgmt goals Market share in national micromarketing

brands; low cost producer;
geographic scope

Strategic Uncertainties Market share Product profitability

Control system Price, promotion, Product profitability is key

packaging; sales volume
is key

Time horizon Long planning cycles 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!

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 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.

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 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
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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) 30 mill.
– Data center upgrades 1.2 mil.
– Experienced professionals ($70k*45) 3 mil.
– Minicomputers for dist. Centers 15 mill
$50 million +++
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 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
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 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

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 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

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 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

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 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

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 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

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 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

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 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

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 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”
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