CENTER FOR Massachusetts

INFORMATION Institute of
SYSTEMS Technology
RESEARCH

Sloan School Cambridge

of Management Massachusetts

PepsiAmericas: Building an Information Savvy Company

Cynthia M. Beath and Jeanne W. Ross

February 2010

CISR WP No. 378

© 2010 Massachusetts Institute of Technology. All rights reserved.

Research Article: a completed research article drawing on one or
more CISR research projects that presents management frameworks,
findings and recommendations.
Research Summary: a summary of a research project with
preliminary findings.
Research Briefings: a collection of short executive summaries of key
findings from research projects.
Case Study: an in-depth description of a firm’s approach to an IT
management issue (intended for MBA and executive education).
Technical Research Report: a traditional academically rigorous
research paper with detailed methodology, analysis, findings and
references.
CISR Working Paper No. 378

Title: PepsiAmericas: Building an Information Savvy Company

Authors: Cynthia M. Beath and Jeanne W. Ross
Date: February 2010
Abstract: In 2009 PepsiAmericas was learning how to leverage an information backbone
designed to provide information to the firm’s decision makers at all levels of the organization.
The firm had built this information backbone—and the business capability to use it effectively—
over an 8-year period beginning in 2001. This case describes how business and IT leaders
worked together to create an information savvy organization. It describes the stream of IT
investments, organizational changes, and metrics that helped PepsiAmericas evolve from a
regional business that shipped truckloads of Pepsi and Mountain Dew to an enterprise that
delivered hundreds of SKUs as needed to powerful national retailers. PepsiAmericas’ IT-enabled
capabilities helped the firm respond to drastic market changes and enhance business
competitiveness. The question PepsiAmericas management faced going forward was how to
leverage its information-based business capabilities in a global market.
17 Pages
 Massachusetts Institute of Technology
Sloan School of Management

Center for Information Systems Research

PepsiAmericas: Building an Information Savvy Company

In 2009, PepsiAmericas (PAS), the world’s sec- The systems and technology changes were ac-
ond largest manufacturer, seller, and distributor companied by major process changes:
of Pepsi beverages, faced the pressures of a If you want to be around—and we want
global economic downturn. The recession, how- to—you have to learn how to adapt and
ever, was a less potent threat than two important change... We’re going through the adap-
long-term challenges: (1) a declining U.S. mar- tation stage right now in a very, very big
ket for carbonated soft drinks; and (2) increas- way… We basically have to reengineer
ingly powerful retail customers. our systems from a go to market per-
Recognizing these challenges, PepsiAmericas’ spective, from plants, to how we ware-
management team was transforming the bus- house, to how we produce, to how we
iness to address these challenges. In 2001, sell, to how we deliver. —Ken Keiser
PepsiAmericas’ business results had depended PepsiAmericas was learning how to use technology
on the individual efforts of the firm’s truck not only to automate processes but also to inform
drivers. By 2009, PepsiAmericas relied on strong decision making. The company began building
central oversight of the price-volume dynamic technology and data management capabilities—
and nation-wide retailer relationships. To make and learning how to apply them—in 2001:
this shift, PepsiAmericas had converted from a
relatively low-tech firm to one that was highly We’ve been doing change for nine years.
dependent on information and technology: It’s been constant change. —Ken Johnsen
SVP and CIO
Ten years ago, if our IT systems blew up,
we could still run our business with The journey had not been easy, but the results
manual backup processes. Today, we were noteworthy.
can’t. All of these processes are so inte-
grated that, literally, we could not oper- Company Background
ate without them. —Ken Keiser The soft-drink bottling industry experienced sig-
President and COO nificant consolidation starting in the seventies
and stretching to the early 21st century. The

This case study was prepared by Cynthia M. Beath of the University of Texas, Austin and Jeanne W. Ross of the MIT Sloan
Center for Information Systems Research. This case was written for the purposes of class discussion, rather than to illustrate
either effective or ineffective handling of a managerial situation. The authors would like to acknowledge and thank the
executives at PepsiAmericas for their participation in the case study.
© 2010 MIT Sloan Center for Information Systems Research. All rights reserved to the authors.
number of franchises declined from a high of PepsiAmericas’ global operations were the re-
around 400 to fewer than 100 in 2009. Re- sponsibility of President and Chief Operating
flecting this consolidation trend, in 2000, Officer Ken Keiser. The heads of worldwide
PepsiAmericas, which itself had been created in supply chain, information technology, human
mergers of existing Pepsi Cola bottlers, merged resources, international operations, and U.S.
with the Whitman Corporation, which owned a operations all reported to Keiser. Keiser, in turn,
bottler serving 10 states in the USA and four reported to Chairman of the Board and Chief
countries in Central Europe. The new combined Executive Officer Robert Pohlad, as did EVP
entity served 17 states in the USA, four coun- and CFO Alexander Ware. (See Figure 2 for a
tries in Central Europe, and several countries in partial organization chart.)
the Caribbean.
Addressing a Changing Market
As of 2009, PepsiCo had a 44% ownership share
of PepsiAmericas. As most soft drink manu- When PepsiAmericas was formed, the firm
facturers do for their bottlers, PepsiCo created served its customers through conventional route
new products, managed the brands, and developed sales. In this model, truck drivers were salesper-
national marketing campaigns. PepsiAmericas sons who estimated each day’s requirements and
managed manufacturing, logistics, and retailer loaded product at a distribution center. The
relationships.1 driver/salesperson then called on customers,
writing and filling orders and stocking shelves
By 2009, PepsiAmericas operated in 19 U.S. with the products from the truck. Conventional
(mostly Midwestern) states (69% of sales), route sales had long met the needs of the soft
Central and Eastern Europe (26% of sales), and drink industry:
the Caribbean (5%). (Figure 1 provides details
on operations.) With 2008 net sales of almost $5 Our industry was built on big mega
billion, PepsiAmericas accounted for nearly brands. Pepsi and Mountain Dew were
20% of PepsiCo's total US beverage sales.2 90% of the business. Marketing and ad-
Despite economic and competitive challenges, vertising were very basic. Network TV was
the major medium, reaching 90% of house-
PepsiAmericas’ revenues grew 10% while oper-
holds, so it was effective in getting prod-
ating income grew 9%.
uct and promotion news to the consumer.
Bottling industry competition was based on The can package made up 70% of the
brand awareness, pricing and promotions, retail volume. Cans were very efficient to pro-
space management, customer service, and prod- duce, transport, warehouse and deliver.
uct innovations. PepsiAmericas’ principal com- —Ken Keiser
petitor was Coca Cola Enterprises (CCE), Coca- President and COO
Cola’s largest franchise bottler, but the firm also By the time PepsiAmericas was formed in 1999,
competed with national and regional bottlers of the conventional route sales approach was be-
other beverages. From 2002–2008, PepsiAmericas’ coming impractical. The company’s product line
common stock significantly outperformed that quickly grew to include water, energy drinks,
of its primary Coca-Cola bottler rival as well as juices, ready-to-drink coffees, teas, and a variety
that of the Pepsi Bottling Group, PepsiCo’s of other drinks.
largest franchise bottler; it also outperformed
the S&P “Bottling Group Index” and the S&P Packaging was also more diverse. Water was
MidCap 400. mostly sold in plastic bottles, which were bulk-
ier than cans and a truck could carry only 1,000
1
PepsiAmericas also had franchise agreements with some cases of water compared to 2,400 cases of
other beverage firms. canned soda. President and COO Ken Keiser
2
The largest Pepsi bottler, Pepsi Bottling Group, accounted estimated that the number of SKUs had grown
for around 55% of PepsiCo’s US beverage sales. The from around 35 to 40 in the early nineties to
remaining 25% of PepsiCo’s US beverage sales were
divided among almost a hundred small bottling companies. nearly 400 15 years later. Truck drivers could no
Beath and Ross Page 2 CISR Working Paper No. 378
longer estimate the optimal mix of product that common systems and technology platform
needed to be loaded on a truck for the day’s sales. across its 13 regions:
And the challenges were growing. Even as sales We had at least four different suites of
of bottled water were rising, consumers were back office, selling, and supply chain
voicing concerns about the ecological effects of systems across the combined company.
the proliferation of plastic water bottles. Execu- None of them could support the move to
tives at PepsiAmericas noted that constant inno- pre-sell, so we had to build that. We
vation would become a trademark of the leveraged our PeopleSoft ERP to the
bottling industry: extent we could, and we used a combi-
nation of custom and best of breed
Consumers want and demand variety in package solutions for the call center,
the flavor and package offerings of our selling, delivery, and order management
products. The ability to react to these type systems. That was a three-and-a-
changes quickly and without disruption to half year initiative. —Ken Johnsen
the supply chain and the entire organi- SVP and CIO
zation is critical to our success.
—Rich Frey The new platform provided both salespeople
VP, Sales Operations and drivers with handheld devices. The hand-
held captured order data that could then be used
Reflecting its history of mergers, PepsiAmericas
to plan the truckloads, and to plan and execute
was organized into 13 regional divisions respon-
the picking and loading of trucks. PepsiAmericas’
sible for production, distribution, and sales.
drivers had been using handheld devices for
Leaders within the regions designed their sys-
some time, but their prior equipment couldn’t do
tems and processes as they saw fit, and the
much more than print an invoice.
mission of PepsiAmericas’ centralized IT group
was to address their individual needs. However, The implementation of the handheld was chal-
the regional structure was not efficient for lenging. IT managers were unable to find any
manufacturing an increasingly diverse product handheld devices on the market in 2001 that could
line, nor was it effective in meeting the demands meet the firm’s expanded needs. Instead the IT
of increasingly powerful national retailers. In unit developed a handheld device for pre-sell:
2001, PepsiAmericas management initiated a All the components had problems. The
series of IT-enabled business changes to address handheld ran out of battery, the wire to
changing market demands. the handheld was not ruggedized, so it
would break, and then it went to a
Next Gen: Defining a Common Platform Motorola cell phone where the con-
The first business change initiative, called “Next nection to that would break. So we were
Gen,” involved redesigning the sales and constantly fixing it. But that was the only
distribution process. Next Gen replaced the choice we had. There was no integrated
conventional route sales process with a pre-sell device back in 2001. —John Kreul
process that involved taking orders from re- VP, Applications and Customer Service
tailers prior to loading the truck.
Because of these technology issues, business
Pre-sell divided what had been the truck driver’s leaders tended to think of Next Gen as “the
responsibilities among three specialists: a sales handheld project,” but the technology problems
representative who worked with customers to represented the tip of the iceberg. In addition to
place orders; a driver who picked up the ordered introducing the handheld device, Next Gen
goods at a distribution center and delivered implemented new processes; redesigned roles;
them to stores; and a merchandiser who stocked and built a call center to take customer orders
shelves and built product displays. To enable and provide customer service. Senior managers
these new roles, PepsiAmericas introduced a

Beath and Ross Page 3 CISR Working Paper No. 378

later acknowledged that they had underesti- Customer Alignment:
mated the impact of the change: Centralizing to Meet Customer Needs
We didn’t realize how much work it Over time, senior leaders came to believe that
would create from an IT and a business the firm needed to reorganize to accommodate
process standpoint, how much change the firm’s national customers:
was associated with the innovation. We were organized around ourselves ver-
—Rich Frey sus around our customers and the way we
VP, Sales Operations should be going to market. —Mike Durkin
Because PepsiAmericas was formed from merg- EVP, U.S. Operations
ers of small businesses, the company had a strong The power of national retailers was growing and
entrepreneurial culture. Thus, despite the poten- the inconsistencies in PepsiAmericas’ business
tial for pre-sell to eliminate the guesswork about processes and duplication of effort from region
what products to load onto a truck, management to region limited the company’s ability to serve
was reluctant to dictate a change that would those retailers consistently:
diminish the autonomy of the regional heads.
Eventually, management agreed to the single We would have multiple people calling
call center, but regional leaders retained a great customers who said, “You know what? I
deal of discretion on how to implement Next want one call. I want one person to come
Gen systems and processes: to my headquarters, not to the division
offices or the store.” The retailers had
We had a lot of deviation between the di- started to consolidate, but we hadn’t
visions on when they would send the adapted. —Ken Johnsen
orders, when their cutoffs would be, how SVP and CIO
their processes would work. —John Kreul
VP, Applications and Customer Service PepsiAmericas’ Customer Alignment initiative
reorganized the firm around centralized func-
When Next Gen was completed, PepsiAmericas tions. Regional sales and distribution structures
had a common technology platform. This plat- were abandoned in favor of an organization
form enabled the rapid integration of an inde- based on customer segmentation. One segment
pendent bottler, Central Investment Corporation, addressed the needs of large customers who
which the company acquired in 2005. However, mandated shipments to company warehouses. A
deviations in local processes limited both effi- second segment served the needs of large cus-
ciency gains and the ability to meet customer tomers accepting direct store delivery (DSD),
needs. Most of PepsiAmericas’ managers con- while a third segment focused on smaller DSD
sidered Next Gen’s success to be mixed and the customers. A fourth segment focused on the
experience to be painful: unique needs of foodservice customers, such as
But Next Gen was still a great thing for restaurants and facilities with vending machines.
our company, because there was no way Customer Alignment triggered very little IT
we could have kept up with the increasing work. For the most part, the people in the newly
number of SKUs or the demands of the centralized functions had been using, and con-
customers. We had to do it. It’s just that tinued to use, the technology platform devel-
our process maturity was growing and oped for Next Gen. However, Customer Align-
the technology maturity was growing at ment drove considerable process centralization.
the same time, so we were all kind of Eleven hundred account sales managers went to
going through it together. —John Kreul large and small format stores to take pre-sell
orders. Another 225 call center workers cap-
tured orders for 60,000 small customers. This
process rationalization improved control and en-
hanced decision making data:
Beath and Ross Page 4 CISR Working Paper No. 378
 With Customer Alignment, we really want didn’t know what we didn’t know, right?
more of a command and control environ- Then we said, “Holy Cow, thank God we
ment. Decisions are made at the top and did what we did!” And that led to a whole
they’re executed locally. Before, you could set of projects that we’ve embarked on.
have two customers one block apart and —Mike Durkin
their pricing might be different, depending EVP, U.S. Operations
on who interacted with that customer.
Customer Alignment means more stand- Building an IT-Business Partnership
ardized pricing, more standardized activ- The Next Gen initiative convinced senior execu-
ities with the customers. —Tim Gorman tives that they needed to drive value from tech-
SVP and Controller nology initiatives. They agreed that the diffi-
Pricing was a particularly important process for culties associated with implementing Next Gen
PepsiAmericas because of its impact on the firm’s had stemmed, in part, from a misunderstanding
bottom line. While PepsiAmericas attempted to of the capabilities and limitations of IT:
closely manage both volume and price, the bot- I have emphasized that IT initiatives are
tom line impact of a 1% increase in prices equally about people, process, and tech-
equaled the impact of a 3% change in volume. nology. But if anything goes wrong, it
In redesigning the firm around customers, usually looks like a technology problem.
PepsiAmericas empowered account sales man- —Ken Johnsen
agers to address the needs of their most powerful SVP and CIO
customers. One executive recounted a meeting At one point during Next Gen, IT managers
with Wal-Mart and representatives from other fielded complaints that the new handhelds were
PepsiCo companies. Wal-Mart proposed a pro- making pricing mistakes. Subsequent analysis
motion offering a discount on a basket of revealed that the equipment was fine, but new
PepsiCo products. prices were often submitted after the scheduled
We were the only one at the table that time for downloading prices onto the handhelds.
said. “Yeah, we like that idea and we're Early on, when PepsiAmericas was managed as
in.” Everybody else said, “That's interest- 13 distinct regions, the IT unit had served as an
ing but I'm going to have to go back and order taker from the 13 regional heads. As tech-
check.” At PepsiAmericas, the person at nology provided a common platform for stand-
that meeting owned that account; he had ardized business processes, IT began to take on
full accountability. And he oversaw all of more of a leadership role. Between 2001 and
large format accounts, so he understood 2004, CIO Johnsen had initiated a number of
how this program was going to fit within management changes to enhance the leadership
the context of all his other customers.” capabilities of the IT unit. (See Figure 3 for a
—Alex Ware timeline of the firm’s major business initiatives
EVP and CFO and related IT capabilities.)
By 2007, Customer Alignment had created Johnsen’s first initiative created an IT gover-
savings of US$15–17 million through increased nance board that included the CEO Robert
sales and distribution efficiencies. More impor- Pohlad, the COO Ken Keiser, and most mem-
tantly, by aggregating data and realigning respon- bers of the senior executive team. Members of
sibilities, PepsiAmericas had begun to expose the the board regularly attended meetings, but, in
opportunities that improved data could create deference to the firm’s entrepreneurial culture,
for the business. were reluctant to centralize decision rights.
[Customer Alignment] opened our eyes, Thus, they shied away from allocating IT funds
particularly on the data management side, based on enterprise priorities. As a result, until
to how many opportunities there were. We

Beath and Ross Page 5 CISR Working Paper No. 378

around 2006, IT projects mostly supported func- or ex-warehouse people or ex-ASMs that
tional and tactical business goals. wanted to learn something new, how to do
change management. So they come into
When management defined the Customer Align-
the PMO and they go deploy all these new
ment initiative, senior executives started to rec-
solutions. —John Kreul
ognize the need to establish IT investment prior-
VP, Applications and Customer Service
ities. Eventually, Ken Keiser assigned a subset
of his world-wide leadership team to a council Gradually, the more disciplined project life-
that made decisions on project prioritization: cycle, the increased role of senior executives in
IT governance, and the involvement of business
Every request for IT resources—and
sponsors and execution teams led to a stronger
there could be hundreds of them—goes
IT-business partnership:
through this council. —Ken Keiser
President and COO Our partnership with IT has probably
been the biggest change for us as an
Projects were evaluated based on their internal
organization. We truly are partnering in a
rate of return (IRR), and expected cost cuts were
proactive, not reactive, way. There is an
baked into the next year’s expense budget. But IT representative at my staff meetings, and
the council was particularly guided by the firm’s our people go to the IT staff meetings, to
strategic priorities: make sure that we’re in sync and working
Revenue management, pricing projects together… I think we recognize that as
are going to be the highest priority. business leads, we are dependent on this
Margin improvement is going to be the collaboration. IT is not just this support
next highest priority project for us. Cus- department off to the side. They have to be
tomer requirements, customer flexibility, part of our strategy as we move forward.
and customer wants and needs will be —Rich Frey
the next priority. Volume would be the VP, Sales Operations
next priority... So we take all the projects Rich Frey’s IT partner, John Kreul, noted that
and assign these different value drivers the partnership was a two-way street:
to the projects. Then from that grouping
we can go back and say, all right now, We’re partners. And we work very well
how do we deploy our limited resources together. I think you need that type of
against these projects to get them done. partnership for success. So, they’re work-
—Alex Ware ing on the processes and we’re working
EVP and CFO on the technologies, but we flip back and
forth. I mean, we’re constantly recom-
Another IT management change was the forma- mending process changes, and if the tech-
tion of a project management organization nology is not working the way it needs to
(PMO). The PMO helped to implement a more work, they’re constantly collaborating
disciplined project management and systems on that. —John Kreul
development methodology. To support the new
methodology, PepsiAmericas assigned executive Competitive Edge: Building IT
business sponsors to each project. These spon- Infrastructure for Business Agility
sors took high-level responsibility for implemen- In 2006 PepsiAmericas’ IT unit worked with an
tation and business benefits. In addition, busi- outside consulting firm to develop an IT strategy.
ness leads were paired with IT leads to manage They identified eight critical future business ca-
projects on a day to day basis. For major pabilities: customer and partner connectivity; ac-
projects, PepsiAmericas created execution teams: curate planning and forecasting; metrics driven
[Execution teams] are all people that came execution; workforce mobilization; flexible dis-
out of the business. None of them have IT tribution; selling/revenue management; and asset
backgrounds. They are all ex-dispatchers
Beath and Ross Page 6 CISR Working Paper No. 378
management. These capabilities aligned with the stored, any application that needed the customer
firm’s stated strategic planks (See Figure 4): data would interface directly with the CDR
Once we defined the future business ca- rather than its own customer records. This
pabilities, we looked at our IT systems. allowed data sharing across applications, which
They were all already on a common reduced data redundancy and increased data
platform, but we needed to better central- integrity (see Figures 7 and 8). The CDR also
ize our data... And we needed to build a allowed PepsiAmericas to rapidly develop their
mobile platform where we could plug in eCommerce capability and to interact with ex-
different devices, a handheld or a cell ternal customers. It also reduced development
phone or something else [to capture and time, because developers were writing to stan-
access operating data]. —Irina Raff dard data interfaces rather than creating new
VP, Architecture and Infrastructure data sources or linking multiple existing data
sources:
The Competitive Edge initiative developed the IT
infrastructure needed to support PepsiAmericas’ We got our [new] pre-sell application up
critical business capabilities. Competitive Edge in months, and that was a year project
had two major components: (a) an information before. If it’s a CDR enabled applica-
backbone; and (b) a mobile platform. tion, I think the time to deliver is cut in
half. —John Kreul
Information Backbone VP, Applications and Customer Service
The Customer Alignment initiative improved The CDR permanently stored master data, like
performance through reorganization and busi- customer records. Transaction data, like orders
ness process standardization. However, the new and invoices, were stored in the CDR only until
processes exposed inconsistencies in data defi- they were processed. Long-term they were
nitions. For example, there were idiosyncrasies stored in the DW, where all the transactions
in customer naming conventions that made it associated with a single customer (for example)
impossible to roll up data from the individual could be matched for purposes of reporting,
regions and provide consolidated data for a analysis, or history:
national chain: In the data warehouse, we’re building a
Customer Alignment threw the rug back 360-degree view of our business. So for
and all the dirt was there. And so now each customer, now you’ll be able to see
we’re sweeping it up. —Tim Gorman what was ordered, what was delivered,
SVP and Controller what was forecasted, what was paid,
what were the CDAs [customer develop-
PepsiAmericas wanted accessible data for both
ment agreements], the special discounts,
operational decision making and business analy-
what was accrued, what’s going to be
sis. Based on these business needs, the IT unit
paid, what types of displays and ads
created two important data assets (see Figure 5):
from the syndicated data, the demo-
1. A central data repository (CDR), that is, a graphics of the customer’s market, fore-
set of master files and transaction files from casts of sales, and demand forecasts. By
which core applications could obtain or store centralizing that, you can start analyzing,
data; and well, are we giving the right price to our
2. A data warehouse (DW), which extracted and customers for us? —Irina Raff
organized historical—and some external— The IT unit designed the CDR and DW based
data for subsequent analysis (see Figure 6). on its strategy work. The idea was to create data
The CDR served as a gateway to shared trans- that would be used across the enterprise, rather
action data, isolating data from existing and new than ask individual business leaders what data
applications. Thus, once a customer record was they wanted. The IT unit formatted the data to
meet PepsiAmericas-specific enterprise data needs:
Beath and Ross Page 7 CISR Working Paper No. 378
 The format defines how we want to use through Enterprise Data Management. He fo-
that data throughout our enterprise. cused on workflow, to ensure that data was in
That way, we become vendor-independ- the right place at the right time and that it was
ent, which was very important in our entered and maintained by the right person:
concepts. So it’s not the PeopleSoft
With Customer Alignment, we changed
design, it’s what we think is the best way
the organization, but the information
to design our data stores. That took a
doesn’t necessarily track with the new
long time to figure out. —John Kreul
organization. We need to redesign the
VP, Applications and Customer Service
information so that it actually flows the
Following initial design of core master and way the organization is set up, so that if
transaction data and selection of tools to access we set up a new customer, they go into
the data, the information backbone was intro- the correct customer group, the correct
duced to business users to stimulate thinking market area, and they’re under the sales
about how to use the new data: person that they’re supposed to be under.
—Tim Gorman
We built a showcase that I took on a
SVP and Controller
marketing tour, to different functional staff
meetings. To do that, we needed to Tim Gorman established a cross-functional gov-
anticipate the information that no one was ernance council to oversee data standardization
receiving, but would like to have, and a and to be the permanent owner of the data dic-
few business people helped us with that. tionary. People rotated into the council from the
From our strategy work, we knew they functions, so that many people would have the
were starved for the right information. experience of making decisions about data:
When we knocked on some doors to get
The governance council decides, do we
help developing our showcase, we said,
move data attributes directly into the
“We’re really close to finishing, and this
CDR and then feed them to all the appli-
is what we think we can offer you. What
cations so that you know it’s consistent
do you think? Let’s build something jointly
within all the applications, or not? These
to see.” Their responses were like, “Wow!
should be the critical data attributes that
How far along are you? When can I get
we’re really going to maintain, define,
it? My team can help!” —Irina Raff
measure, and ensure that they’re accurate.
VP, Architecture and Infrastructure
—Tim Gorman
IT was able to build the core of the CDR and
Gorman’s team was not only looking at data,
DW capability with $2.5 million in seed fund-
they were also looking at the processes that
ing. Going forward, the IT unit would build out
created and maintained the data. They were also
the information backbone on an as-needed basis.
identifying data owners who defined their data
For example, in 2008, neither merchandising
and determine how it should be captured and
nor field service were connected to the CDR.
processed. The team started with pricing data.
Both were old systems that would connect when
The process of cleaning the pricing data revealed
they were eventually replaced.
instances where a deal was not entered or was
Business Leadership of Value Extraction entered twice. This kind of error caused prices
from the CDR to default to full wholesale:
Competitive Edge, an IT-owned project, led to Before, the number of cases a week that
two initiatives focused on driving value from went out at full wholesale was in the
the information backbone. Both initiatives were 70,000 range. After putting in this proc-
headed by business leaders in Finance. Tim ess, we’re now down to around 11,000
Gorman, SVP and Controller, was responsible cases a week. —Tim Gorman
for driving value from the central data repository

Beath and Ross Page 8 CISR Working Paper No. 378

Sandy Mathias was responsible for the Enterprise them to take orders for our large format
Reporting and Analytics project. This project and retail accounts. —John Kreul
leveraged the data warehouse and took advan- VP, Applications and Customer Service
tage of a new business intelligence tool from IT managers could not find a reputable software
Cognos. Its goal was to encourage a more ana- vendor able to meet the firm’s needs, so
lytical approach to the business: PepsiAmericas did much of the work in-house:
…getting away from the analysis hap- To be tied to a vendor that has 20 em-
pening in a small group of brainiac peo- ployees and is on the verge of going
ple, to everybody knowing what they are under at any given time is not a good
doing, being smart enough to look at idea. So we made a strategic decision to
what’s happening and having some ideas bring mobile custom development in-
about what’s wrong or what needs to be house. Mobile is so important to our busi-
fixed. —Sandy Mathias ness that we’ve invested. —John Kreul
VP, U.S. Finance
The decision to bring the handheld in-house
Sandy Mathias emphasized that this was not just meant that PepsiAmericas’ IT unit needed
a data management or business intelligence en- strong technology capabilities at a time when
deavor, it was a major change management effort: many cost-conscious firms were outsourcing IT.
For these initiatives to affect the entire PepsiAmericas expected to drive benefits from
organization or big pieces of it, you need its technology expertise by reusing technology,
to have a serious change management data, and business process components:
element to the project team. And that We upgraded the handhelds in such a
involves communication and education way that we can reuse parts for invent-
and training, and training after the fact. tory handhelds, for merchandising, for
—Sandy Mathias replacing our delivery handhelds. Build-
Senior executives felt that change management ing it so that you can reuse it takes
related to business intelligence would be well longer, but then once you build it, you
worth the effort. As reliable data and metrics can leverage it quickly. —Irina Raff
became available, executives envisioned a more VP, Architecture and Infrastructure
informed workforce responding quickly to valu- Reuse was expected to reduce the cost of
able information: developing and maintaining IT systems, while
In our low growth domestic business, to enhancing business agility. The IT unit intro-
me the perfect state would be where we duced a new “design” stage (between plan and
would have performance measures such build) into the system development life cycle.
that a person could look at their score During this stage, IT architects had an oppor-
card at the end of every day and see how tunity to identify opportunities for reuse or to
they've done. That would be nirvana for recognize opportunities to create new—or alter
me. —Alex Ware existing—reusable components.
EVP and CFO
Customer Optimization3: Reaping the Benefits
Mobile Platform The Competitive Edge initiative had provided a
To build a foundation for mobile applications, technology foundation for a more informed and
PepsiAmericas focused on handheld devices: responsive business. But management found
that it took time and experience to learn how to
We use handhelds in three processes, apply the capabilities provided by the infor-
and we have a thousand people that use mation backbone and mobile platform. Initiated

Beath and Ross Page 9 CISR Working Paper No. 378

in 2007, Customer Optimization3 (CO3)3 was a data, and retail price points. The suggested order
series of projects focused on driving business was automatically downloaded to the handheld.
value from the business capabilities the com- Although account sales managers could override
pany had been building. In particular, CO3 the suggested order during a sales call, they
intended to use data to improve the performance were unlikely to do so:
of cross-functional processes linking sales and sup- One of our more experienced Account
ply chain activities. CO3 had three components. Sales Managers said, “You know, I was
really skeptical at first and then I just
Demand Planning
kept finding that the handheld was doing
In PepsiAmericas’ traditional regional model, a better job than I was generating an
demand planning had been based on field-based accurate order.” —Rich Frey
forecasts of demand for each SKU. Following VP, Sales Operations
Customer Alignment, PepsiAmericas decided to
centralize demand planning. CO3 used sophisti- Using cell-phone technology, the handheld imme-
cated algorithms to calculate demand, drawing diately transferred final orders to the warehouse.
on historical sales and expected retail prices. While demand planning reduced out of stocks in
Management anticipated that centralized de- the warehouses, Power Pre-sell and the sug-
mand planning would increase the accuracy of gested order it generated reduced out of stocks
sales forecasts and improve warehouse inven- in the stores. By mid-2009, out of stocks in
tory management: stores had decreased from 14% to 3.7%. These
So we’ve gone from 40–50% accuracy improvements were realized while back room
on a one-week-out basis to now we’re at inventory in stores dropped 52%.
71% accuracy two weeks out. We have
that deployed across the whole company. Perfect Pallet
And we are definitely seeing drops in Traditionally, PepsiAmericas had hundreds of
out-of-stock percentages at the ware- loaders using load sheets to pick products, put
house, which had been 3–5%. We are at them on a pallet, and load the trucks. For Direct
2.48% and our target was to get ware- Store Delivery (DSD) customers, drivers were
house out-of-stocks down to 2.5%. responsible for the accuracy of the loads, but the
—John Kreul loads were checked at the gate each morning as
VP, Applications and Customer Service the trucks departed. At large warehouse loca-
tions, checking out 100+ trucks in the morning
With demand planning, PepsiAmericas could
could take hours. To eliminate the bottleneck,
avoid under-producing (leading to out of stocks)
the initial CO3 plan would have inserted quality
without over-producing (leading to excess
assurance staff to check pallets and verify accu-
inventory).
racy at the point of the pick. However, this plan
Power Pre-sell would increase headcount by about 200 people.
Expanding on the capability provided by the IT leaders became convinced that technology
Next Gen handheld device, Power Pre-sell intro- support could eliminate the need for additional
duced a new handheld device for the firm’s 1100 quality assurance staff. The Perfect Pallet ini-
frontline selling people. A statistical forecasting tiative called for a standard warehouse layout
algorithm was used to produce a “suggested with loaders wearing “Voicepick” headsets that
order,” that took into account current inventory, prompted them as they made their way through
two years of sales history, seasonality, external the warehouse. With the help of voice recog-
nition technology, the Voicepick automatically
3
CO3 stood for “Customer Optimization to the 3rd power identified any out of stock items and adjusted
– Planning + Selling + Delivery.” CO3 was a program the customer invoice. This process also trig-
intended to reduce out-of-stocks, increase productivity, gered replenishment of the SKU.
and improve customer service.

Beath and Ross Page 10 CISR Working Paper No. 378

By ensuring accuracy at the time of pick, up only one quarter of the total consumer popu-
PepsiAmericas avoided additional QA head- lation the firm served world-wide (see Figure 10):
count, while also eliminating the gate checks, These economies, while just emerging,
thus saving drivers’ time. Random audits en- are bringing unbelievable growth. The
sured that Voicepick processes were working. GDPs are growing 6%, 7%, 8%, so con-
PepsiAmericas’ target was for the invoice to be sumers are getting more income and
100% correct at delivery 99.8% of the time: more money to spend on beverages.
In terms of invoice accuracy, let’s say — Ken Keiser
that we were in the low 90s. That’s President and COO
probably generous. We are now 99.81% The structure of the European business reflected
accurate. We can measure it, and we can the series of acquisitions that had characterized
do picker productivity, we can tell each PepsiAmericas’ expansion. Poland, Slovakia,
picker how many cases per hour they’re Czech Republic, and Hungary became part of
doing, how many of their pallets have PepsiAmericas with the Whitman merger in
been QC’d, how many of their QC pallets
2000. A single management team led those four
were accurate. And now we’re putting
countries and some functions were centralized.
scorecards within the warehouses.
Subsequently, PepsiAmericas acquired Romania
—John Kreul
and the Ukraine, each of which had a separate
VP, Applications and Customer Service
management team.
All three CO3 initiatives used PepsiAmericas’ IT
CEE was the most profitable segment of
capabilities to continuously improve the firm’s
PepsiAmericas’ business. Labor and other costs
business processes. Business executives noted
were lower there. In addition, the dollar had been
that effective use of IT involved ongoing experi-
comparatively weak, and the CEE product mix
ments and assessment:
yielded higher margins. While PepsiAmericas
There’s this notion of, “Hey, let’s get it wanted to reuse some of the IT and business
out and get 80% of what we need.” We process capabilities it had developed in the
might think we know what the next 10% United States (e.g., the Central Data Repository),
should be, but we’d be guessing about it was clear that the structure and architecture of
that. I might think it’s one thing and you the CEE was different from the States. In fact,
might think it’s something different. So the businesses in the CEE were different from
let’s get it out and use it, and then we’ll one another.
have a better understanding of what we
need…. We need a sustained effort. We PepsiAmericas’ strategy for IT in Europe
have to keep making enhancements. reflected the fact that the CEE businesses were
That’s a core part of moving this thing focused on revenue growth while the U.S. busi-
forward. —Jay Hulbert ness was focused on securing efficiencies:
EVP, Worldwide Supply Chain The IT strategy for the European busi-
nesses, including Ukraine and Romania,
Pursuing Business Growth is to get them all on a common SAP
While PepsiAmericas was attempting to opti- backbone. And when I say backbone, it’s
mize business process efficiencies in the U.S., primarily accounting, inventory manage-
the firm’s goals in Central and Eastern Europe ment, HR, and finance. And then we’ll
focused on business growth. The economies of use a best of breed approach for things
their CEE countries were growing (See Figure like demand planning, selling, delivery,
9) and per capita consumption of beverages was those types of things. Ideally those “best
increasing. Moreover, the CEE populations of breed” solutions would be the same
were large—PepsiAmericas’ US market made across all of our geographies, but to the

Beath and Ross Page 11 CISR Working Paper No. 378

 extent that it isn’t beneficial, the solutions Bottling Group (PBG) and PepsiAmericas
could vary. —Ken Johnsen (PAS).4 In announcing the merger, PepsiCo
SVP and CIO Chairman and Chief Executive Officer Indra
Johnsen noted that the reasons for establishing Nooyi said:
centralized and standard services were different PepsiCo has had a constructive part-
for CEE than for the United States: nership with PBG and PAS over the past
Shared services might be to fill a 10 years. While the existing model has
capability void, not necessarily a cost served the system very well, it is clear
play; in fact, it may increase your costs that the changing dynamics of the North
because the labor is so cheap there, American liquid refreshment beverage
especially in the really developing coun- business demand that we create a more
tries. You create shared services not flexible, efficient and competitive system
because it’s going to be cheaper, but that can drive growth across the full
because you can’t do it otherwise. These range of PepsiCo beverage brands…
back-office capabilities aren’t a “nice to The fully integrated beverage business
have,” you have to have them because of will enable us to bring innovative prod-
Sarbanes-Oxley. —Ken Johnsen ucts and packages to market faster,
streamline our manufacturing and distri-
Management recognized that over time the bution systems and react more quickly to
European business could overtake the U.S. changes in the marketplace... Ultimately,
business: it will put us in a much better position to
When you have U.S. growing revenue at compete and to grow both now and in
2% or 3% and international growing at the years ahead.
three times that, eventually international PepsiAmericas Chairman and Chief Executive
could overtake the U.S. And then if we Officer Robert C. Pohlad said:
expand into other areas of the world, well,
one day we won’t be PepsiAmericas. Our Over the past nine years, PepsiAmericas
name will be something different. and each of our employees have helped
—Ken Keiser build a remarkable organization. The
President and COO success we have achieved is reflected in
the agreement reached with PepsiCo.
Given the opportunity, PepsiAmericas wanted to
get IT right in its CEE business. Management
was busy trying to determine what that meant.

Epilogue 4
This epilogue on the PepsiAmericas acquisition is based
In August, 2009, PepsiCo announced that it on material at: http://investors.pepsiamericas.com/release
would acquire its two largest bottlers, The Pepsi detail.cfm?ReleaseID=400925

Beath and Ross Page 12 CISR Working Paper No. 378

 Figure 1
PepsiAmericas’ Operations 2009

Central and
United States Eastern Europe Caribbean Total

Population (millions) 50 151 8 209

Per Capita Consumption 1,555 672 866 –

Percent of Total Company

Net Sales 2008 69 26 5 100

Employees 12,200 7,600 1,000 20,800

Production Facilities 17 13 3 33

Distribution Facilities 127 45 5 177

 

Figure 2
PepsiAmericas Partial Organization Chart

Robert Pohlad
CEO and
Chairman of the Board

Alex Ware Ken Keiser

EVP and CFO President and COO

Mike Durkin Jay Hulbert Ken Johnsen Jim Rogers

Tim Gorman Sandy Mathias EVP, U.S. EVP, Worldwide SVP and EVP, International
SVP and Controller VP, U.S. Finance Supply Chain
Operations CIO Operations

Rich Frey John Kreul Irina Raff

VP, Sales VP, Applications and VP, Architecture and
Operations Customer Service Infrastructure

Beath and Ross Page 13 CISR Working Paper No. 378

 Figure 3
Timeline of PepsiAmericas Business and IT Initiatives
Year Business Initiative IT Capability Initiated

2000 Merger of PepsiAmericas & Whitman

2001 NextGen: Common platform and move to Project Governance—Functional IT Steering
pre-sell Committee
2002
2003 • Succession Management
• Program Management Office
2004 • System Development Lifecycle (SDLC)
• Project Execution Team
2005 • Acquisition of independent bottler - Central
Investment Corporation (CIC)
• NextGen Platform Completed
• Customer Alignment
2006 • Competitive Edge: Information Hub, Data Enterprise Data Management
Warehouse, Reporting & Analytics, eCommerce,
Mobile Platform
• Acquisition of Pepsi bottler in Romania
2007 • CO3 • Business Relationship Management (BRM)
• Acquisition of Sandora juice company in Ukraine • Quality Assurance
2008 Global Growth Program (GGP) Project Governance—Global Steering Group
2009 PepsiCo Transaction
 

Figure 4
Business and IT Strategy 2006 to 2009

PAS Customer-centric,
Deliver & expand Consistent &
Win in growth cost-effective &
Strategic a portfolio of
channels
superior LRB
aligned supply
dynamic brands execution
Planks chain

Critical Metrics
Future Customer Accurate Flexible Selling &
Selling Driven Workforce Asset
& Partner Planning & Distribution Revenue
Business Capability Execution Mobilization Mgmt.
Connectivity Forecasting Network Mgmt.
Model
Capabilities

Required IT Enterprise Enterprise

Information Reporting &
eCommerce Mobile Data
Enablers Backbone Analytics
Platform Mgmt.

Continuity of Operations / Disaster Recovery

Business Architecture: Business and Technical Agreement
Foundation
Systems Architecture: Logical System Description
Technical Standards: Technology Delivery

Beath and Ross Page 14 CISR Working Paper No. 378

 Figure 5
Information Backbone

PeopleSoft
ERP

Pricing
System

Human
Resource
Master Data Master Data System
Delivery
Sales System Deals, Pricing
Invoices

People
Master Data Central Data
Pre-Sell
Repository
Order System Orders Enterprise
Data Reporting
Master Data
Warehouse

Call Center Orders

PCNA*

Order Warehouse
Management Demand
Management
System Planning
and Routing (VoicePick)

*PepsiCo North America

Figure 6
Contents of the Data Warehouse
Building a 360 Degree View of Our Business

Forecast

CDAs Orders

Ads Invoices

Displays Payments

Demographics
National Price Hours Worked

Retail Invoice Product

Price Training
Price Picked

Ad price Deal # Accidents

Delivered
Price

Order Orders Products

Wholesale Taken
Price Merchandized
Competition Invoices Created
Price

Enterprise Data Management Is a Key Enabler for This

 
 
Beath and Ross Page 15 CISR Working Paper No. 378
 Figure 7
Information Architecture before 2006
Legend
Functional
Integration Supplier/3rd
Party Service CSAB
Disjointed Finished Providers Raw Material Consumer Corporate
Communication Goods Suppliers Research
Suppliers Companies

Enterprise

Invoicing & AR

Field Service
Distribution
Large

Planning
Format

Sales
Non-DSD

Large
Format
DSD

Finance/HR
Small
Format

Analysis & Rptg.

Merchandising
Manufacturing
DSD

Order Mgmt.
Marketing
On
Premise

Corporate
Customers Bottler
PCNA
Network
Consumers Consumers

Corporate Consumer One Sync/

Consumers Consumers Research Transora
Companies  
 
Figure 8
Information Architecture after 2008
Legend
Organized
Communication Supplier/3rd
Party Service CSAB
Finished Providers Raw Material Consumer Corporate
Goods Suppliers Research
Suppliers Companies

Enterprise
Invoicing & AR

Field Service
Distribution

Large
Planning

Format
Sales

Non-DSD Market &

Competitor
Large Intelligence
Format
DSD
Information Backbone
Small
Format
Analysis & Rptg.
Merchandising
Manufacturing

DSD
Order Mgmt.

Finance/HR
Marketing

On
Premise

Corporate
Customers Bottler
PCNA
Network
Consumers Consumers

Corporate Consumer One Sync/

Consumers Consumers Research Transora
Companies
 
 

Beath and Ross Page 16 CISR Working Paper No. 378

 Figure 9
Growing Economies with Growing Beverage Categories

GDP Growth Rate

(Est. 2007)
12%

10.3%
10%
8.8%
8.0%
8% 7.3%
6.9%
6.5%
5.9% 6.0% 6.1%
6% 5.7%

4%

2.2% 2.1%
2%

0%
US Hungary Czech Romania Moldova Bulgaria Poland Ukraine Estonia Lithuania Slovakia Latvia
Republic
 

 
Figure 10
Population in PepsiAmericas’ Markets

United States Central and Caribbean

Eastern Europe

50 151 8
million population million population million population

Beath and Ross Page 17 CISR Working Paper No. 378

 About the MIT Sloan Center for Information Systems Research

MIT SLOAN CISR MISSION CISR RESEARCH PATRONS

MIT CISR was founded in 1974 and has a strong track The Boston Consulting Group, Inc.
record of practice-based research on the management of Diamond Management & Technology Consultants
information technology. MIT CISR’s mission is to Gartner
perform practical empirical research on how firms IBM Corp.
generate business value from IT. MIT CISR dissem- Microsoft Corporation
inates this research via electronic research briefings, Tata Consultancy Services Limited
working papers, research workshops and executive
education. Our research portfolio includes but is not
limited to the following topics:
CISR SPONSORS
ƒ IT Governance
AECOM Mohegan Sun
ƒ Enterprise Architecture
Aetna, Inc. NASA
ƒ IT-Related Risk Management Allstate Insurance Company Nomura Research Institute,
ƒ IT Portfolios and IT Savvy ANZ Banking Group (Australia) Ltd.
ƒ Operating Model Australian Government, DIAC Origin Energy
ƒ IT Management Oversight Banco Bradesco S.A. (Brazil) Parsons Brinckerhoff
ƒ Business Models Banco Itaú S.A. (Brazil) PepsiAmericas, Inc.
ƒ IT-Enabled Change Bank of America PepsiCo International
Biogen Idec Pfizer, Inc.
ƒ IT Innovation Blue Cross Blue Shield PNC Global Investment
ƒ Business Agility of Massachusetts Servicing
ƒ The IT Engagement Models BP Procter & Gamble Co.
Campbell Soup Company Raytheon Company
In July of 2008, Jeanne W. Ross succeeded Peter Weill Canadian Imperial Bank of Renault (France)
as the director of CISR. Peter Weill became chairman Commerce Sears Holdings
of CISR, with a focus on globalizing MIT CISR re- CareFirst BlueCross BlueShield Management Corp.
search and delivery. Drs. George Westerman, Stephanie Caterpillar, Inc. Standard & Poor’s
L. Woerner, and Anne Quaadgras are full time CISR Celanese State Street Corporation
research scientists. MIT CISR is co-located with MIT Chevron Corporation Sunoco, Inc.
Sloan’s Center for Digital Business and Center for CHRISTUS Health TD Bank
Collective Intelligence to facilitate collaboration between Chubb & Son Telstra Corp. (Australia)
faculty and researchers. Commonwealth Bank of Australia Tetra Pak (Sweden)
MIT CISR is funded by Research Patrons and Sponsors Credit Suisse (Switzerland) Time Warner Cable
and we gratefully acknowledge the support and con- CVS Pharmacy, Inc. Trinity Health
tributions of its current Research Patrons and Sponsors. Det Norske Veritas (Norway) Unibanco S.A. (Brazil)
Direct Energy VF Corporation
Embraer – Empresa Brasileira de Wal-Mart, Inc.
CONTACT INFORMATION Aeronautica S.A. (Brazil) WellPoint, Inc.
Center for Information Systems Research EMC Corporation Westpac Banking
MIT Sloan School of Management ExxonMobil Global Services Co. Corporation
5 Cambridge Center, NE25, 7th Floor Fidelity Investments World Bank
Cambridge, MA 02142 Govt. of Australia, Dept. of
Telephone: 617-253-2348 Immigration & Citizenship
Facsimile: 617-253-4424 Grupo Santander Brasil
Email: cisr@mit.edu Guardian Life Insurance Company
http://cisr.mit.edu of America
Hartford Life, Inc.
HBOS Australia
Holcim Brasil S.A.
Intel Corporation
International Finance Corp.
JM Family Enterprises, Inc.
Johnson & Johnson
Liberty Mutual Group
Marathon Oil Corp.
Mission and Contact Information as of February 2010. MetLife