Frito-Lay It Strategy
The following sample essay on Frito-Lay It Strategy. Frito-Lay in the mid to late 1980’s was looking to change its way of doing business. As with many large companies, decisions were made on a corporate level, with field operations carrying out the business plan. This model, though efficient in terms of use of resources on the corporate level, did not allow for the kind of flexibility that the snack foods market demanded. The outgoing CEO, Willard Korn, had set forward a micromarketing strategy where each field office would be responsible for identifying demand, conducting promotions and other marketing activities and ordering replenishment.
The problem with this approach was that Frito-Lay lacked the technological framework to make it happen in an efficient manner. (Frito-Lay, 1992) Overlap Between IT and Corporate Strategy Frito-Lay’s corporate strategy, set forward by the new CEO, Michael Jordan, was to initiate the micromarketing strategy begun by his predecessor, but do so in a way that will allow the company to retain overall control while allowing regional decision making to adapt to market changes.
Essentially, Mr. Jordan was implementing the same strategy, but his approach was to garner much more success.
The key to success would be to use technology to improve the flow of information to and from production, sales, marketing and the corporate level. The IT strategy would center on understanding the information needs of the business and designing and executing a technology solution that will help achieve corporate goals. Overlap Between IT and Functional Area Strategy The central problem Frito-Lay was experiencing was that information gathering and decision making was most efficient when closest to the consumer process, or “where the rubber meets the road”.
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“ She followed all my directions. It was really easy to contact her and respond very fast as well. ”
Given variations from region to region, different marketing efforts needed to be developed and no corporate marketing plan would allow for the most efficient use of resources across the entire company. To achieve this, IT strategy would center on developing an efficient and usable system to allow the free flow of information from consumer purchases up to regional sales offices. The primary tool that would be used in this effort would be the handheld computer (HHC). This tool would allow field representatives to gather restocking information, sell-through and other sales data when visiting each store that sells the product.
This information could then be sent, in real-time, to the regional office for ordering replenishment and marketing analysis. (Frito-Lay, 1992) The functional area strategy is the plan for Frito-Lay to implement the new IT and corporate plans on the operational level. Obviously, any well-laid out corporate and IT strategy is useless if it isn’t implemented properly in the operation of the business. Strategic Plan Items Needing Review Obviously such a large change in operating procedure would require review of the plan by management of both the IT process and business processes.
If a review is not conducted, then money and resources may be spent on projects that end up not working as intended, thereby wasting those resources. (Turban, 2010) The first thing that should be reviewed is the overall business strategy and whether the plan will achieve the objectives of moving operational and marketing decision making downstream, closer to the consumer. This includes the following items: 1)Will the sales force be able to use the information quickly? 2)Will replenishment be more efficient than under the current model? )How will marketing decisions be made and what influence will the corporate strategy have on them? Secondly, the IT strategy must be analyzed to determine if the technology solutions will meet the business need: 1)Can the HHCs be used by the current workforce without a significant investment in training? 2)Will the regional sales offices be able to make accurate and timely decisions based upon the information gathered? 3)Can the corporate offices aggregate the information into usable analytics? 4)Is there any potential for cost or time overruns? What is the critical path?
Justification of Key Components 1)Will the sales force be able to use the information quickly? – A central goal of the business strategy is to allow decentralized, micromarketing to be done in each of the 32 regions. Since the gathering of data is done in each vendor store, the lead time will be dependent upon operations. For example, if a given region has several large stores and dozens of smaller ones, is the replenishment done on a regular basis in all of them? If the larger stores order new inventory less often, it may result in a delay in pertinent sales data. )Will replenishment be more efficient than under the current model? – Obviously gathering restocking information “at the store shelf” is very efficient, but can that be translated into just-in-time inventory? Can the information be used to accurately forecast demand in the future? On a smaller, regional scale, activities by the consumer can affect demand. A good example of this may be a parade in a given town. If more people have taken to the streets to celebrate, they may purchase more snack food?
How will this scenario affect stock and sales? 3)How will marketing decisions be made and what influence will the corporate strategy have on them? – Armed with more timely information about regional sales, the micromarketing strategy will allow regional managers to decide the best marketing mix to use in order to meet goals. What portion of the decision should be theirs? How will the local efforts align with national advertising campaigns? 4)Can the HHCs be used by the current workforce without a significant investment in training? Aside from the regional sales force, the biggest change in job functions under the new strategy will be the field representatives. Where before they used essentially pen and paper to order new inventory, now they will be confronted with an automated computer system in an age when computers were generally a luxury item for most people. What kind of training must be done? Will the new system have a negative effect on efficiency in the short run? What will the cost of that be? 5)Will regional sales offices be able to make accurate and timely decisions based upon the information gathered? On the back-end of the HHCs will be a new decisions support system, which will assist management in making decisions that are aligned with the corporate goals. Can the staff be trained in its use? Will managers previously accustomed to independent decision making will now be confronted with a computer telling them the best course of action, which will not always seem most evident.
This can lead to implementation problems much like the HHC and the field staff. 6)Can the corporate offices aggregate the information into usable analytics? On a national level, the data gathered regionally will be used to decide the best impact for advertising dollars. How will the data differ from the old method, which had a much longer lead time? Can this improvement in timeliness be leveraged at the corporate level? A good example would be a news story about tainted corn supplies. Obviously this may lead to a drop in sales of corn-based products across the country. How will the company respond? Can they measure the drop effectively and decide the response in time? )Is there any potential for time or cost overruns? What is the critical path? – Lastly, Frito-Lay needs to look at the overall schedule and ensure the implementation is done in a way that will put all relevant departments on schedule. A clear understanding of the schedule of the project and its critical activities will ensure that the company gives priority to those that will result in delays. A delay on this scale could significantly hurt profits, since executive management needs to know completion in order to have an accurate business plan. Turban, 2010) Effective Communication Strategies Communicating an IT strategy to executives is a challenge because of the different background they often come from and the different way of looking at the business. While any business person can understand cost savings and extended costs over time, the unique nature of technology requires that each detail be explained in the context of the overall initiative, in this case, the transition from central decision making to regional offices supported by a strong information systems infrastructure.
The best method for communicating the overall IT concept to executives is an in-person presentation with supporting analysis in the form of a chart or graph. This allows the executive team to look at the big picture in a format that will allow questions and feedback. It also summarizes the scenario without providing so much detail that the presentation will be mired in questions and discussion. A second approach is a cost analysis report with full detail. While not as personal or interactive as a presentation, the full report will give every detail of the project with upporting data. (Turban, 2010) Communication of a new initiative to senior management may take on a similar approach as executive communication, but with additional detail on implementation plans and less “big picture” numbers such as extended costs, IT hardware investment, etc. Senior management will want to know the schedule of the rollout and any required modifications to workflows from other departments in order to plan effectively for resources and budgets in their own areas. When one looks at the team level of communication, a different approach is needed.
Since this level isn’t making large scale decisions, but instead carrying out an objective set forward by management, documentation is more effective. While all teams could be placed into a large meeting to go over the proposed changes, the best way of conveying the changes are in written form, either via email, internal memo or even posted to a company intranet. This allows each team member to read about the changes independently and understand what needs to be done. These team members can then work together to achieve the objectives.
Evaluation of Effective Communication Strategies In the context of the Frito-Lay case study, communicating IT strategies becomes much more important. In the mid-1980’s, the average level of technological understanding was lower among everyone, including executives. Technology was just starting to be leveraged to realize internal cost savings through improved efficiency in the 1980’s. Because of this, it was far more unproven than it is today. The most effective approach would probably be to do both of the aforementioned methods in order to communicate the plan to management.
A detailed report with complete numbers should be provided to the executive team days to weeks in advance of the presentation. This allows them time to review and formulate questions and concerns to bring up in the discussion following the presentation. Senior management would need a slightly altered presentation compared to executive management. This is because senior management will be concerned with budgeting, resource allocation and project planning for the new initiative instead of information required to make a decision.
This also means that any reports presented before or after the in-person presentation should focus on smaller operational level numbers instead of larger market data. Team-level communication, in the form of a meeting followed by emails/memos is effective for this group because of the need for detailed information about the processes that will be changing, new workflows, changes in organization, new equipment, etc. This can then be followed up with additional training as required for each functional area.
For example, only the team level would need to learn how to use the handheld computers, so only they would really need the documentation for the HHCs. Differences in Communication Needs Between IT Staff and Executive Staff As mentioned before, the executive team is unlikely to understand the details of the technology being deployed. A person with a traditional business background looks primarily at a small number of factors in making a decision. Questions they will ask include: What is the up-front investment cost? What are the extended costs over time? What is the payback period?
These are all business indicators that involve the profitability of the company and the costs versus benefit. IT staff is much more likely to look at the scalability and utility of the technology as opposed to the business bottom line. While cost is still a concern, the IT professional is likely to have a longer view of the costs, in the scope of years as opposed to quarterly budgets. Further, the communication may take the form of a more detailed analysis of the standards of the hardware being purchased and whether those standards are expected to change in the future with contingency planning for a migration.
For this purpose, a full report may be more useful than a presentation. (Turban, 2010) Strategic Framework that Aligns IT Strategy with Business Strategy The best approach Frito-Lay could use to align its IT and Business strategies would be Business Service Management. Under this methodology, each component of the project will have a key performance indicator (KPI) to determine its impact on the business as a whole. In addition to IT having a KPI, the business side of the company will also have a complimentary KPI.
This approach is useful because in a project of this size, a constant measure of the impact and progress must be done to ensure the company is meeting its goals. By setting forward the plan ahead of time and determining what areas must achieve goals and to what extent, the project can be kept on track with an eye to the bottom line. In this case its even more important because of the large investment required of Frito-Lay. A poorly executed initiative could badly damage the profitability of the company. IT Assistance to Business Unit Strategy Development IT can help develop strategy in a number of ways: )A robust and widespread data mining and analytics system will allow business managers to understand where the maximum impact for their investment is being made, thereby allowing them to maximize those dollars. Moreover, the ability to trend out sales data in real time based upon real figures allows each business unit the ability to understand where they are going based upon where they have been. 2)A well designed decision support system will allow different managers in different business units to make decisions that are complimentary to one another and align with the company goal.
While the facts available to one area of the business may signal a given course of action, the decision should be made with an eye to the overall objective as well as what other business units are doing. The further use of an automated decision support system (ADS) will further assist management in ensuring that the BU strategy aligns with the overall company direction. 3)A final area where IT may help business strategy is in understanding the trends in the technology itself. This can include internal infrastructure and technology trends in general. For example, Frito-Lay may have looked to invest in a company network to link each regional office. This would have required a big investment. As of the late 1990’s, the internet as we know it wasn’t yet around for the general public. A few years later, it was established, and that investment would not be needed. ?
References
- Frito-Lay, (1992) Frito-Lay Inc, A Strategic Transition (Abridged) Turban, Efriam. (2010).
- Information technology for management: improving performance in the digital economy, 7th edition . Manoa, HI: Wiley.
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