FRITOLAY INC: A STRATEGIC TRANSITION, 19801986 Mike Leach Dawn Schafer Shinsuke Tatsuuma

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FRITO-LAY INC A STRATEGIC TRANSITION,
1980-1986Mike LeachDawn SchaferShinsuke
Tatsuuma
Lets put a Frito Lay logo here
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Background

• Herman Lay store-door delivery of Lays chips and
  Fritos corn chips in 1932
• Grown to 6 Billion in 1986 with 40.6 market
  share across product lines and market segments
• Acquired in 1965 by PepsiCo
• Known for its excellence for execution
• One of the companies noted by Peters and Waterman
  in In Search of Excellence

For execution or Of execution?
One of the companies cited in ISoE. We should
also include Waterman if we mention Peters
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FRITO LAY Success in the 70s

• 3 digit operating profit growth rate
• Senior Management responsible for a single budget
  and P/L decisions
• Strategy Create a quality product and sell at a
  very low price
• Centralized Structure
• Geographic Expansion to fuel growth
• Black Box Management

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Contributing Factors to Frito-Lays Success
Before 1980
Should we include the timeframe that this
employee profile was relevant for?

• Carefully selected and trained extensively to
  understand culture and procedures
• High paying positions (commissions based on sales
  dollar volume)
• The Bible
• No room for deviations from standard procedures

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Doubling Efforts
I dont know if this is the right place for this
slide. Its important to show this data. But I
think that this might be to early in the
presentation for it

• Mid 1960s
• 5000 salespeople sold 30-40 products
• 1986
• 10000 Salespeople sold more than 100 products
• Minimum of two sales visits per week per customer

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Areas of Concern
I think each of these areas of concern merits its
own slide detailing the factors surrounding it

• Market Saturation
• Growth and Profitability
• Competition
• Sales Force Effeciency
• Implementation of New Micromarketing Strategy

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1. Market Saturation

• Geographic expansion had blanketed the nation.
• There was little new territory to conquer unless
  they could identify every niche of market
  opportunity through micromarketing.

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2. Competition

• Competitors began to get stronger
• Anheuser Busch, Borden, and Procter Gamble
• They started buying up small regional competitors
  and became more aggressive in their pricing and
  promotions.

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3. Centralization of Decision Making

• If a salesperson recognized an opportunity to
  increase sales, it often long gone by the time
  the company could decide to act upon it.
• No deviations from the standard operating
  procedures were permitted.
• They planed production during its yearly planning
  cycle.

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4. Customers

• The varied requirements of individual customers.
• Often the needs of the small merchants were
  neglected so the supermarkets could be happy

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5. Sales Force Efficiency

• There was no time to drive an additional sales.
• With the product list growing, transactions were
  also becoming more and more complex.

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Redesigning Frito Lay

• Sales Force was able to make product/market
  decisions
• Micro marketing Strategy
• RD unit commissioned to produce more products
• Manufacturing - Cost cutting
• Changing the way they use technology

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The Ideal Frito-Lay Manufacturing Organization

• Up until the early 1980s manufacturing was seen
  as a necessary function but not a strategic
  function
• Dont screw up approach placed emphasis on the
  day to day operation
• The consensus was that an Ideal Manufacturing
  Organization needed to be developed

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The Ideal Frito-Lay Manufacturing Organization

• In 1982 a group of senior Frito-Lay manufacturing
  executives established a set of strategic goals.
• to operate at the lowest cost while maintaining
  the highest quality and being both flexible and
  innovative

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The Ideal Frito-Lay Manufacturing Organization

• Focus on PEOPLE as the key resource to stay
  competitive.
• In 1983 this new style was implemented in a few
  facilities.
• Although there was some evidence of success the
  initiatives only real long term contribution was
  improved communication between manufacturing and
  the rest of the company

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The Ideal Sales Organization

• An initiative to reorganize Frito-Lays sales
  force led by Bill Korn (Sr. VP of Sales and
  Marketing) in 1982
• This shift to micro marketingwould begin the
  process of decentralizing the decision making on
  promotions and product mix

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Frito-Lays Micro Marketing Initiative

• Through micro-marketing the salespeople would
  identify hundreds of local product/market
  initiatives
• Distribution channels could be tailored to suit
  the needs of individual customers.
• New product and market opportunities would now be
  identified by the field reps

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Frito-Lays Micro Marketing Initiative

• By increasing their distribution channel
  flexibility Frito-Lay envisioned that their route
  drivers could give necessary attention to smaller
  regional brands.
• This would allow the company to grow by expanding
  their brands rather than their geographic spheres
  of influence (Black Box Growth)

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Tying the Ideal Frito-Lay Together through IT

• It became apparent that if the strategic plans
  were to succeed that a substantial IT
  infrastructure would need to be put into place.
• A lack of timely information limited their
  ability to move to their strategic vision.

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IT Innovations at Frito Lay

• Before 1980 all the information required to
  operate the business was in the executive offices
• The Hand Held Computer (HHC) concept is developed
  as a solution to Frito-Lays lack of good
  information that would make micro marketing
  feasible

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The Benefits of the HHC

• Order processing time was substantially reduced
• Reduce paper work
• Non-value added time could be spent serving
  customers
• Information collected would be merged with
  supermarket scanner data to increase the
  effectiveness of micro marketing

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The Restructured Sales Force

• Segmentation was cited as the first step in
  micro marketing.
• There would be 2 types of sales people
• Route Drivers would serve the small stores in
  their areas
• Supermarket Drivers would take care of the
  special requirements supermarkets had.

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What Do You Think?

• Were the changes the right strategy for Frito-Lay
  management to implement?
• What was the result of the strategic changes
  implemented by management?

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Losing Control at Frito Lay

• Decentralizing decision making and Increasing new
  products was disastrous
• Paper-based processes and hierarchical management
  control systems were not timely and flexible
• Inventory Problems and communication issues to
  the field
• Reporting systems not timely

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A Less than Ideal Strategy Implementation

• The new incentive system designed for
  segmentation for drivers decreased the take home
  pay
• Route drivers were generally considered to have
  easier jobs
• Drivers didnt have access to the information
  management said they would need when the strategy
  was conceived

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The IT Nightmare at Frito-Lay

• Between 1978 and 1981 the MIS budget grew from 4
  million to 18 million dollars yet no clear value
  could be derived from this increased spending
• Moral was very low turnover was over 40
• Average seniority was less than 2 years

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More IT Blues

• Software was outdated
• A huge backlog of requests prompted users to
  develop their own stand-alone systems
• April 1981, Charlie Feld was hired to fix
  Frito-Lays MIS problem. He would not be able to
  turn his attention to the HHC project until late
  1984

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What Ever Happened to the HHC?

• Pilot projects in Mesquite and Minneapolis were
  wildly successful yet the HHC was never
  implemented (pre1986)
• High turnover and poor leadership rendered the
  MIS professionals at Frito-Lay unable to complete
  the project
• The HHC project was made a top priority again in
  1985 when John Korn became president

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Salty Success Disappears
I love the title of this slide Dawn
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Streamlining the Business Cycle
So on these 2 slides well talk about how
generally the process should be streamlined?

• Operating Processes
• The activities through which an organization
  designs, production, marketing, delivery and
  supports its products or services
• Management Processes
• The activities through which an organization
  manages the design, production, marketing,
  delivery and support of its products or services.

Then on 13 and 14 well talk about how they did
it at Frito Lay? Or do we still talk in general
terms and get specific in 15?
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Streamlining the Business Cycle

• Many companies attempt to streamline the business
  cycle by streamlining operation w/o streamlining
  management processes
• Key to success is to streamline, integrate and
  time-synchronize both operating and management
  processes.

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Learning from Mistakes

• Vision for change as a corporate wide initiative
  vs. functional initiative
• Hybrid Model
• centralized for efficiency and control benefits.
• Decentralized speed in decision making
• Information for support of both decision making
  models

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An Ideal Business Cycle Streamlining
Implementation
Management Processes
Operational Processes
When properly implemented both types of processes
change in proportion to one another.
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Frito-Lays Attempt to Streamline Its Business
Cycle
Shortened Management Processes
The company as a whole is askew
Operational Processes Insufficiently Shortened
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Recommendations

• International Growth
• Implement HHC throughout Sales Force
• Value Chain Efficiency
• Partner with other PepsiCo distribution channels

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Food For the Fun of It
Food for the fun of IT. That is good humor. I
hope Chen has a sense of humor.

• Mr. Doolin bought the recipe for Frito Corn Chips
  in 1932 for 100
• 1953 Frito introduces the Frito Kid
• 1959 VP Richard Nixon takes Frito Corn chips to
  Russian President Nikita Khrushchev
• 1963 Betcha cant eat just one
• Doritos means little bits of gold in Spanish

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Food For the Fun of IT
Funions kick ass!!!!

• 1969 Funions Introduced
• 1980 Cheetos introduced
• 1983 Grandmas cookies begin nationwide
• 1986 Chester Cheetah arrives
• 1990s Product Explosion

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Conclusions

• What lessons can we as managers learn from the
  mistakes made at Frito-Lay?
• When is redesigning or restructuring or
  reengineering the best method of strategic change?