Balanced Scorecard Case Study

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Hubert Hodge
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1 Balanced Scorecard Case Study 1. History In 1965: PepsiCo, Inc. is founded by Donald M. Kendall, President and CEO of Pepsi-Cola and Herman W. Lay, Chairman and CEO of Frito-Lay, through the merger: 1. Pepsi-Cola In 1898: Caleb Bradham, a New Bern, North Carolina, pharmacist, created "Brad's Drink," a carbonated soft drink he created to serve his drugstore's fountain customers. 2. Frito Company 3. H. W. Lay Company The Major products of the companies are: Pepsi-Cola Company Fritos brand corn chips, Lay's brand potato chips, Cheetos brand cheese flavored snacks, Ruffles brand potato chips, Rold Gold brand pretzels. Mountain Dew 2. Growth 1966: Doritos is introduced Pepsi enters Japan and Eastern Europe. 1970: PepsiCo moves from New York City to new world headquarters in Purchase, N.Y Pepsi is the first company to respond to consumer preference with lightweight, recyclable, plastic bottles. 1977: PepsiCo acquires Pizza Hut, Inc 1978 Taco Bell 1980: PepsiCo Food Service International (PFSI) is formed to focus on overseas development of restaurants. 1982: Pepsi Free and Diet Pepsi Free, the first major brand caffeine-free colas, are introduced. Inauguration of the first Pepsi-Cola operation in China. 1985: PepsiCo is now the largest company in the beverage industry. The company has revenues of more than $7.5 billion, more than 137,000 employees. Pepsi-Cola products are available in nearly 150 countries and territories around the world. Snack food operations are in 10 international markets. 1986: PepsiCo purchases 7Up International, the third largest franchise soft drink operation outside the United States. 1993: Pepsi-Cola introduces Aquafina bottled water into test market. 1996: Pepsi-Cola launches Pepsi World at 1

2 3. Global Pepsi products are in almost 200 countries throughout the world. There are 22 different brand lines that account for at least $1 billion per year per brand In 2009 Celebrated 75 years in Canada Was on the Best Food for Women list in Women s Health magazine Began a partnership with the NFL Won U.S. EPA SmartWay Environmental Excellence award Became official beverage of Norwegian Cruise Lines 4. Mission Statement Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity. 5. Vision Statement PepsiCo's responsibility is to continually improve all aspects of the world in which we operate - environment, social, economic - creating a better tomorrow than today." Our vision is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company. 6. Proposed mission Our mission is to be the world's premier consumer products company focused on convenient foods and beverages through stores as well as our website. (1,2.3,4) We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. (5,8,9) And in everything we do, we strive for honesty, fairness and integrity. (6,7) 1. Customer 2. Products or Services 3. Markets 4. Technology 5. Concern for survival, profitability, and growth 6. Philosophy 7. Self-Concept 8. Concern for public image 9. Concern for employees 10. Proposed Vision PepsiCo, in association with smaller brands, offers a wide variety of products from beverages to snacks at low cost. 2

11. External Assessment 11.1. Opportunities 1. Opening in market for less costly products 2. Growth opportunities in developed countries as well as international nonestablished countries 3.

Compete in more than one industry (non-alcoholic beverage industry, the salty or savory snack food industry, and the breakfast food industry) 5.

3 11. External Assessment Opportunities 1. Opening in market for less costly products 2. Growth opportunities in developed countries as well as international nonestablished countries 3. Pepsi recently reacquired ownership of its two largest bottlers, Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) 4. Compete in more than one industry (non-alcoholic beverage industry, the salty or savory snack food industry, and the breakfast food industry) 5. Growth in the carbonated drink market is the largest in Asia and Europe 6. The world's demand is experiencing a growth with the sports drinks, bottled water, and energy drinks Threats 1. Fierce competition from Coca-Cola, which owns the largest piece of the market share 2. The downturn in economy, which lead customers to shift away from bottles of water to tap water. 3. Because of the recession, customers are finding cheaper alternatives to the national brands. 4. Customers are getting more conscious and concerned about their eating habits and general health. 5. Campaign against plastic containers has impacted the sale of bottled beverages 6. Highly dependent on supplies of clean water, to prevent contamination Market share 6% 14% 80% PepsiCo Coca-Cola Others 3

4 11.4. Revenue distribution Stock price history 12. Internal Assessment Strenghts 1. Strong brand equity 2. Well-known worldwide 3. Innovating company 4. Ethical, socially responsible, and sustainable company 5. Strong advertising company with more than 40 slogans and songs 6. PepsiCo as the largest part of the market share after Coca-Cola 4

5 7. PepsiCo owns a wide variety of smaller brands which able them to offer a large product range from beverages to snacks Weaknesses 1.PepsiCo production is really expansive because of the need to constantly develop new products to meet the changing customers demands 2. PepsiCo is experiencing a lack of focus towards Pepsi sodas 3. PepsiCo is experiencing product recalls 4. PepsiCo has a low employment productivity and a weak distribution 5. PepsiCo depends too much on the US market 6. PepsiCo is far behind Coca-Cola in the international market Income statement (in millions except per share amounts) 2009 Net Revenue $43, Cost of sales $20, Selling, general and administrative expenses $15, Amortization of intangible assets $63.00 Operating Profit $8, Bottling equity income $ Interest expense ($397.00) Interest income $67.00 Income before Income Taxes $8, Provision for Income Taxes $2, Net Income $5, Less: Net income attributable to noncontrolling interests $33.00 Net Income Attributable to PepsiCo $5, Net Income Attributable to PepsiCo per Common Share Basic $3.81 Diluted $3.77 5

6 12.4. Balance Sheet (In millions except per share amounts) 2009 Assets Current Assets Cash and cash equivalents $ 3, Short-term investments $ Accounts and notes receivable, net $ 4, Inventories $ 2, Prepaid expenses and other current assets $ 1, Total Current Assets $ 12, Property, Plant and Equipment, net $ 12, Amortizable Intangible Assets, net $ Goodwill $ 6, Other nonamortizable itangible assets $ 1, Nonamortizable Intangible Assets $ 8, Investments in Noncontrolled Affiliates $ 4, Other Assets $ Total Assets $ 39, Liabilities and Equity Current Liabilities Short-term obligations $ Accounts payable and other current liabilities $ 8, Income taxes Payable $ Total Current Liabilities $ 8, Long-Term Debt Obligations $ 7, Other Liabilities $ 5, Deferred Income Taxes $ Total Liabilities $ 22, Commitments and Contigencies Preferred Stock, no par value $ Repurchased Preferred Stock $ (145.00) PepsiCo Common Shareholders' Equity Common stock, par value 1 2/3 cents per share (authorized 3,600 shares, issued 1,782 shares) $ Capital in excess of par value $ Retained earnings $ 33, Accumulated other comprehensive loss $ (3,794.00) Repurchased common stock, at cost (217 and 229 shares,respectively) $ (13,383.00) Total PepsiCo Common Shareholders' Equity $ 16, Noncontrolling interests $ Total Equity $ 17, Total Liabilities and Equity $ 39, Strategy Market development is a strategy that PepsiCo should apply by expanding in countries that not already established Use forward integration to acquire smaller companies in foreign markets to increase their market share 6

7 Product development and related diversification should also be considered while trying to produce and distribute healthier products Recommendation In the next 3 years, PepsiCo should acquire 3 brands per year in an international marketplace One of these 3 brands per year must be healthy Increase production and distribution of carbonated drinks in Asian and European countries PepsiCo will expand into Africa to make use of the international market they are not part of Objectives Spend $15 million on a healthier more eco-friendly beverage brand in an already established country Spend $15 million on a healthier more eco-friendly snack brand in an already established country Spend $10 million to acquire a smaller brand in Africa Increase our revenues by 5% in 2010 Start our own environmental cause fund with $1 million Assumption Spend $40 million to acquire new brands Spend $1 million to start an environmental cause group Revenue increase of 5% Decrease short-term and long-term debt by using some of our cash and cash equivalents as well as retained earnings Questions: Develop the Strategy Map and the Balanced Scorecard for the PepsiCo 7

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