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Pepsi, 1890s-1990s
Introduction
For decades, Competition between Coca-Cola and Pepsi Cola has been labeled “the Cola
Wars” the most intense battles were fought over the $56 billion industry in the United
States, Where the average American consumed 55 gallons of soft drinks per year. As the
U.S. soft drink industry matured, however, the cola wars were moving increasingly to
international markets. Coke, the world’s largest soft drink company with a 51% share of
the world wide soft drink market, earned 75% of its 1998 profits outside the United
States. Pepsi, with only 15% of its beverage operating profits coming from overseas,
continued to challenge coke in international markets. According to Roger Enrico, CEO of
Pepsi-Cola:
The warfare must be perceived as a continuing battle without blood. Without Coke, Pepsi
would have a though time being original and lively competitor. The more successful they
are, the sharper we have to be. If the Coca-Cola Company didn’t exist, we’d pray for
someone to invent them. I’m sure the folks at Coke would say that nothing contributes as
much to the present-day success of the coca-cola company as Pepsi.
As the cola wars continued into a second century, Coke and Pepsi faced such perennial
question as: how could they maintain their growth at home? How would the industry’s
changing landscape affect their profitability? How should they redesign their strategies in
response to diverse and constantly evolving market condition abroad?
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Case Analysis
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Europe and Latin America, While Pepsi has market presence in the Middle East and
South East Asia.
Coke and Pepsi approached international market differently. Coke built brand presence in
developing markets where soft drink consumption was low but potential was large, such
as Indonesia: With 200million inhabitants, a median age of 18, and per capita
consumption of 9 eight-ounce cans of soda a year, one Coke executive noted that “they
sit squarely on the equator and everybody’s young. It’s soft drink heaven. In order to
penetrate Coke strongholds Pepsi utilized a niche strategy with well-executive blitzes,
targeting big cities in latin America and other countries. At the same time, Pepsi moved
badly into markets where Coke had little or no Presence.
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country of 800 million souls. Pepsi was permitted to return in 1988 only upon agreeing to
export $5 of Indian made products for every $1 of materials it’s imported. Coke returned
two year later, agreeing to channel its investment through local joint venture partner parle
exports. Coke invested 470 million in India’s largest bottler, acquiring parle’s own brand
as well as immediate access to Parle’s 54 bottling plants. Parle, however, continue to
bottle and sell its own brands, including local market leader “Thumbs Up” after having
sold the right to do so to Coke. In protest, Coke concatenated marketing support on its
own, rather than Parle’s former brands. Even so, in 1996, coca-cola owned brand held
just a 20% share, trailing both Thumbs Up’s 401% share and Pepsi’s 30% share of the
Indian market.
In the last few years Coke’s market share has steadily declined, though it spent nearly
$2 billion advertising its brands last year. On top of that PepsiCo snatched some of
Coke’s long-held sponsorships. The cola fight is heating up again and Pepsi is landing
most of the punches.
In India, 1998, this fight escalated the last time. PepsiCo took Coke to court. PepsiCo
claimed that Coke had snatched employees, bottlers and agents, which were bound to
Pepsi by a contract. Coke was claimed to induce key employees and associates to break
existing contracts illegally. Pepsi wanted a permanent injunction against Coke and the
right to seek financial damages from Coke if necessary. But the judge refused to grant
this injunction. By the way, in the first three months in 1998 Pepsi swept Coke away in
India. It reported a growth of 27 percent, while Coke’s market share increased only by 21
percent.
In the U.S. carbonated soft-drink market Pepsi’s share increased by 0.2 percent to
31.6 percent last year, but Coke leads easily with 43.7 percent share. Both companies’
colas, which together make up one third of the sodas sold in the U.S., lost share last year.
But Coke lost more share, while Pepsi was very successful by launching new flavours
Code Red and Lemon Twist. The majority of Coke’s sales make up the international
operations and only 38 percent were coming from the U.S. last year. Pepsi is not as big
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globally, but currency fluctuations are still an important factor, as the international sales
made up 29 percent of its sales in 2001.
PepsiCo landed a painful punch by snatching Coke the National Football League
sponsorship away. This sponsorship had been Coke’s for 22 years. But Coke declared the
setback for null and void, because it still retained two thirds of the individual
sponsorships of the league’s teams. Though Coke showed itself calm, executives were
mourning the National Football League sponsorship. The last thing the company wanted
was seeing Pepsi gaining share.
What made Pepsi more successful than Coke wasn’t just money, but an aggressive
promotional plan. Surprised and outsmarted by Pepsi’s advertisement Coke didn’t have
enough time to develop a package to counter Pepsi’s. Coke is said to be upset that Pepsi
outmanoeuvred its management. A marketing brawl later this year is the logical
consequence, also because both, Coke and Pepsi, want to get as much sponsorships as
possible in the National Football League.
Some analysts think that Pepsi has more fizz left in its stock than Coke. Both
launched new products. Coke launched Vanilla Coke in April, which seems a bit
nostalgic, because John Travolta orders a Vanilla Coke in “Pulp Fiction” in a 50’s styled
restaurant, for example. And Pepsi started selling a berry flavoured cola, Pepsi Blue, in
August. Pepsi wants to reach the younger generation and they reached them. Pepsi is
going after the right market and it increased its market share by 1.3 percent last year,
while Coke’s declined by 0.2 percent.
Another reason for Pepsi’s recent success is its diversity. Many are attracted to Pepsi
because they have more faith in their ability to grow earnings. Pepsi isn’t only successful
on the beverage side but also with snack foods. In fact, the carbonated beverages don’t
even make up the largest part of Pepsi’s earnings. Its soft-drinks made up 19 percent of
the sales, while its snack foods made up 61.2 percent.
Coke was languishing a nearly six-year low, but despite its troubles, its stock
increased by 19 percent since January 31. Pepsi shares are almost on an all-time high and
have nearly doubled during Coke’s long period of losing market share. There’s nothing
great going on at Coke, but Pepsi reinforced its image that it’s for the young generation.
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Pepsi has a great promotion using celebrities like Britney Spears or Shakira. And for
companies that sell very similar sugar waters, image is everything.
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SWOT Analysis of Coke vs. Pepsi
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Analysis of the Profitability of Soft Drinks (Coke &
Pepsi)
As analysis using Porter’s five forces shows why the soft drink industry has been so
profitable. Suppliers and buyers have not had more power over the industry than it has
had over them. Internal rivalry, while seeming intense, has not eroded the profitability of
the industry because of its concentration and the fact that the two major players have
primarily competed on the basis of advertising and promotion and not price. Entry is
difficult both for reasons of scale and the strong brand identity of the current major
players. Substitutes have not been close enough to take away significant market share,
although the emergence of new substitutes may pose the largest threat to the industry’s
profitability.
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chains increasingly consolidate and as discount outlets continue to grow, buyer power on
the part of retailers is likely to increase.
Substitutes
While the U.S. soft drink market was growing, substitutes did little to interfere. Soft
drinks are sufficiently unique that when a consumer wants a soft drink another product is
not likely to satisfy. Other cold drinks such as water, juices and iced tea offer similar
refreshing qualities, yet they do not have the same taste or properties. Hot beverages and
alcoholic beverages are not desirable or appropriate for many of the occasions when one
would want a soft drink. The one category which threatens soft drink producers is the
“new age” product which offers (or implies) more natural ingredients and/or health
benefits. The soft drink industry’s initial answers to these beverages, in the form of Tab
Clear and Crystal Pepsi, are not going to compete effectively with the new age products.
Entry
Significant barriers exist to entering the soft drink industry. Bottling operations have a
fairly high minimum efficient scale and require fixed assets which are specific not only to
the process of bottling but also to a specific type of packaging. Exit costs are thus also
high. Bottling operations do exist which in theory could be contracted out, but they are
tied up in long-term contracts with the major players and thus can only contract with
other producers in a limited way. Perhaps the most significant barrier to entry, however,
is the strong brand identity associated with the best-selling soft drinks. Placing another
cola on the market is not an attractive value proposition.
Internal rivalry
The concentration in the industry (Coke and Pepsi have 73% in 1994) would suggest that
internal rivalry is somewhat less than if there were many players of equal size. Although
the competition between Coke and Pepsi has become more fierce over time, they
traditionally competed primarily on advertising, promotion and new products rather than
price (although the explosion of new brands did eventually lead to some price
competition). The products are similar but not homogeneous and buyers are fairly brand
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loyal. Retail buyers have significant costs for switching from the major brands since
those are responsible for bringing people into the store.
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Conclusion
Through their competitive battle, Coca-Cola and PepsiCo have created a stable and
highly profitable duopoly in the U.S. soft drink industry. As the domestic industry
matured and the cola wars moved to international markets, Coke and Pepsi tried to
redesign their competitive strategies as well as the vertical structure of their corporations.
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Case-2: The Forestry Commission: cultural
change to deliver a new strategy
1. Introduction
This case describes the Forestry Commission (FC) of Great Britain’s strategic response to
society’s changing expectations about what forestry should deliver. The case is primarily
concerned with how the strategic change processes were managed during the period from
1995–2003. It contains detailed descriptions of some of the change programmes that were
implemented and accounts by the people involved describing the challenges they faced.
The case provides a context in which to consider the extent to which these change
programmes succeeded in effecting strategic change.
2. Position of the case
The Forestry Commission case relates to the tasks and processes involved in managing
strategic change. It should be positioned towards the end of a strategy course.
3. Learning objectives
The case can be used to help to explore and debate the various elements of the ECS
framework for managing strategic change. It also provides an opportunity to consider the
importance of context in managing change, and develop an understanding of the dynamic
relationship between the context, process and content of organizational change, which
Pettigrew and Whippy (1991) describe as the three components of change. The case can
be used to help to develop an understanding of the following:
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3.2 Importance of context
The case can be used to think about the importance of the change context and the need
for managers to adopt different approaches to change depending on specific factors in
their change situation. Everyone should realize that there is no “one right way” to manage
change and that different approaches will be more or less effective in different situations.
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3.7 Change Levers
The case can be used to consider what is meant by the term “change lever” and provide
an opportunity to identify and consider how to make use of certain levers to effect
change.
4. Case analysis
4.1 Imperative for strategic change
A combination of factors in the external environment created the imperative for strategic
change within the FC.
Economic factors – collapse in world timber prices meant that the organization
urgently needed alternative sources of income.
Environmental issues – as a result of the world environmental summits,
governments were under pressure to meet targets to improve the environment,
which resulted in legislation and funding to undertake environmental projects.
Social agenda – the politics of New Labor’s social inclusion agenda meant that
funding was available to develop social forestry.
All of these factors gradually began to make an impact and change the role of forestry
and what it was expected to deliver into society.
4.2 Diagnosing the change situation
When an organization decides to embark on strategic change it is very important that
those involved understand the nature and magnitude of the challenges that lie ahead.
Their framework for managing strategic change highlights the importance of effective
diagnosis of the change situation and suggests a number of diagnostic models.
(a) Types of strategic change
The scope of strategic change is generally adaptive in that it can be accommodated within
the current cultural paradigm by building on existing skills, beliefs and familiar routines.
However, occasionally transformational change is required and this involves a paradigm
shift, which requires a fundamental change in shared beliefs and assumptions within the
organization. It could be argued that over time three different types of change can be
discerned in FC:
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Adaptation – Balogun and Hope Hailey (2004) describe adaptation as change which is
not transformational and which is implemented slowly through staged initiatives. ECS
states that adaptation is change that occurs incrementally, which can be accommodated
within the current culture and paradigm. During the period from the 1980s to 1993 the
changes imposed on the FC by government were incremental and gave the organization a
reasonable time to realign systems and processes to meet various change targets that were
set through a series of staged initiatives. These changes were about “doing more of the
same, but doing it more efficiently” and as such did not involve a fundamental challenge
to the taken-for granted assumptions and beliefs about the role of forestry and what it
delivered into society.
Reconstruction – Balogun and Hope Hailey (2004) state that reconstruction often
involves significant change such as business re-engineering in order to ensure the long-
term survival of an organization. However, whilst these changes are fairly urgent and fall
into the category of “big bang”, they are not transformational as they are still aimed
primarily at making the organization more efficient and do not attempt to significantly
change the organizational culture. Johnson and Scholes (2002) describe reconstruction as
rapid change that involves a significant amount of upheaval, but which does not
fundamentally change the cultural paradigm. The Forestry Devolution Review in 1994
reflected the political concerns of the time and recommended significant changes to the
way the FC operated. These changes could be described as “big bang” as they were much
more immediate and involved a considerable amount of internal restructuring and
resulted in significant job losses.
However, although these changes were wide ranging the scope of the change could be
described as re-alignment as it still did not involve any fundamental challenge to the
taken-for-granted assumptions and beliefs about the role of forestry and what it delivered
into society.
Evolution – Balogun and Hope Hailey (2004) describe evolution as transformational
change implemented gradually through different stages and interrelated activities.
According to ECS evolution requires change to the culture over time. From 1997
onwards the New Labor government’s social inclusion agenda placed a much greater
emphasis on social forestry. Environmental issues also began to be higher on the political
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agenda as a result of the agreements reached at the environmental summits in Rio and
Kyoto. This meant that society’s expectations about the role of forestry were changing
significantly, which required transformational change. During the same period world
timber prices collapsed and this created an urgent financial crisis within the FC. If the FC
had been a purely commercial organization, the change would probably have been
revolutionary, as the nature of the change would have been “big bang” and the scope
would have been transformational. However, the government agreed to fund the shortfall
in return for commitments to deliver various social and environmental agendas and this
meant that the nature of the change could be more incremental, which meant evolution
rather than revolution.
(b) Importance of context
The case helps to develop an understanding that the task of managing strategic change is
context specific. Some commentators offer prescribed formulae for managing change.
Kotter’s steps are described in the key debate. Burnes’ (1992) nine-step model of change
is also typical of some of the more formulaic literature on change management, whereas
ECS states that “there is no one right ‘formula’ for the management of change” and
emphasizes the need to adopt completely different approaches, depending on the
organizational context.
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Past Cultural Web
• Forest stewardship is about the sustainability and protection of woodlands and the
way of life associated with them. Forests are important because they support a “forestry”
way of life that is connected to the natural environment, whilst being economically viable
through efficient timber production. Foresters think of themselves as the forestry experts,
which translated into an attitude of “FC knows best” about forestry related issues. The FC
is the largest land owner in Great Britain, which means that the forests belong to the
British public, but foresters tended to see the forests as “theirs” and the public as a
“nuisance”, getting in the way of efficient timber production.
• Public sector ethos – a sense of contributing to society rather than working for purely
commercial gain. This altruism is tempered by a practical streak: foresters realize they
have to produce timber to generate revenue, which they can then use to re-invest in future
forests.
• Top down hierarchy – FC’s military background established a command and control
style of management that developed into a well-established tradition of deference to those
in senior positions.
• Bureaucratic – bureaucracy is something the FC has to live with in return for being a
government department. The bureaucracy had become self-perpetuating and people felt
constrained and overburdened by it.
• Task rather than people oriented – foresters relied on their technical knowledge and
expertise to get the job done, rather than develop people skills. Staff was very critical of
the lack of people management skills.
• Delivers results – there was a hard work ethic with a “can do” approach to getting the
job done, where people took great pride in their ability to deliver results.
• Male dominated/homogenous – forestry is a “man’s world”. The FC was a male
dominated, macho organization that aimed to deliver at all costs.
• Conservative/risk averse – forestry has a long life cycle: it takes at least 50 years to
grow trees. There is a deep sense of tradition and this ethos is deeply embedded, which
made the organization conservative and slow to change.
• Insular/inward looking – FC management had ignored the changes taking place in the
traditional role of forestry because they were so consumed with the process of delivery
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that they forgot to look around them at the relevance of forestry to modern society.
Delivery was such a deeply ingrained distinctive competence that it had become a
weakness: there was more focus on what had to be delivered, rather than questioning the
purpose or rationale of what they were doing. Senior management were perceived to be at
the “whim of political masters”, saying “yes” to anything the government asked them to
do, which created the problem of “initiative overload” and led to workload pressures
caused by a lack of clear priorities. This combination of factors created an ongoing
vicious cycle, and there was evidence of stress and low morale amongst staff.
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• Focused on outcomes/celebrate success – FC would have to become focused on the
outcomes it was delivering into society rather than measuring efficiencies. These
outcomes were often intangible or very difficult to measure (increase in people enjoying
healthy pursuits in the forest, improvement in quality of the environment), therefore the
FC recognized that it would have to find new ways to record, publicize and celebrate its
achievements.
• Flexible/adaptive/responsive – becoming “facilitators” rather than “doers” represents
an enormous change in behavior for a “can do” organization that has always taken pride
in delivering results through its own efforts.
• Valuing diversity – moving away from male dominated ethos of “foresters know best”
and actively recruiting people with different skills and knowledge to contribute.
• Learning culture – the traditional culture was very risk averse and people were used
to being blamed when things went wrong. Therefore it would be an enormous change to
develop a culture that was comfortable letting people try our new things, make mistakes
and learn from them. The information contained in the webs can be used as the basis for
producing a force field analysis.
(d) Force field analysis
A force field analysis can be used to provide an initial view of the change problems that
need to be tackled by identifying forces within the organizational culture that may be
Blocking or facilitating change.
Pushing Resisting
• Devolved work programmes – working in • Traditional structure/ways of working
new ways with external partnerships • Bureaucracy
• Hard work ethic that delivers results • Departmental silos
• Less staff – increased pressure to work in • Workloads/pressure of work
new ways • Homogenous workforce
• Director General – noticeable • Conservative/risk averse/slow to change
encouragement/support of change • Blame culture
• Feedback from staff survey – staff want • Command and control management style
changes in how they are treated • Lack of ownership of the change – “not
• Unions making noises to reduce stress in invented here” syndrome
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the workplace • Lack of local leadership/communication
• Deference to senior staff
• Past experience of change
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consider how they might lead change in their own area. So collaboration and participation
were also in evidence.
(b) Roles in managing change
According to ECS a “change agent” is the individual or group that effects strategic
change in an organization; i.e. it may be a top manager, but could be others in a position
to have influence with a group or groups.
During Unification the change agents were David Bills and the Unification Working
Group who conducted a series of communication road shows and workshops. However,
David Bills was perceived by staff to have the ultimate power to make the change and the
consultation was viewed as an exercise in selling the idea to staff and taking them
towards a predetermined decision. The Connect workshops were a deliberate attempt to
involve a wider group of change agents. The consultants worked with members of the
Change Management Team to design an event that would engage and involve all of the
Senior Management Team, Regional Directors and local Line Managers in listening to
and responding to staff views about the required changes.
The Leadership and VSPC events were designed with the specific aim of creating
internal change agents who would engage in the strategic debate and take ownership for
leading change in their own area. David Bills displayed leadership throughout the process
by providing direction, encouragement and support at many levels inside and outside of
the organization, through articulating the emerging vision about changes in the role of
forestry. The consultants were change agents – they used their ability to influence
potential change agents through facilitating the ongoing strategic debate and providing
opportunities for managers at all levels to engage with the issues surrounding change.
The change management teams were also change agents as they worked with the senior
management, consultants and the steering groups to facilitate the decision making process
and gain approval and support for the decisions made. Line managers became change
agents as the process unfolded and the second staff survey provided considerable
evidence of a change in management behaviour and indicated that staff experienced
greater empowerment.
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6.4 Levers for managing change
If the change programmes at the FC are considered in terms of the levers for change
explained in ECS chapter 10 the following can be seen:
Political processes David Bills gradually built up a network of change agents who
were influencing change at many different levels within the FC.
This included the various change teams, steering groups, and
external consultants who all helped to influence the Senior
Management Team, and other management groupings.
Communication The past cultural web showed that staff perceived
communication to be poor, but they also reported that they
experienced information overload. It was evident to the
consultants that management were using general bulletins and e-
mails to try to communicate complex changes, and that the
communication medium was ineffective. Therefore, many of the
change programmes (specifically Connect,
Leadership events and VSPC) were designed to support and
encourage face-to-face communication, which was to prove
more effective at facilitating the complex type of change that FC
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was undergoing. This face-to-face communication gradually
began to make an impact and stories began to emerge from staff,
who then became advocates for changes that were taking place
around them. For example, “When I was talking to David Bills,
he said….”
Change tactics David Bills was able to take advantage of two significant events
in order to increase staff perceptions about the urgency of the
changes facing FC. These were
a) The financial shortfall in FC income caused by the drop in
world timber prices
b) Increased awareness about the impact of devolution and
signal that a Forestry Devolution Review might take place – the
clear message was “if we initiate change then it is less likely to
be imposed upon us and we will have more control and influence
over the direction of the change”.
5. Conclusion
In terms of the process, people initially had not truly conceptualized what exactly needed
to change, although they had an idea of where they wanted to get to. The consultant
noticed that in the course of the many discussion and debates with staff The director
General’s vision of the future became more clearly articulated and shared David Bills
states that:
Culture is about behavior. You cannot have one without the other. You can talk about
values, you can talk about culture but the ultimate thing is how you behave: how you
behave when there is a challenge, when there is a difficult issue, when there is an
opportunity. Run out and look for help or run away from it. Do you dial Head office for
direction or do you get on with it on a local level but with a willingness to share
experience and learn from others success and mistakes. So if we hadn’t achieved
behavior change we hadn’t achieved anything.
An outcome of the overall change process appears to be the acceptance amongst staff that
change is inevitable, as one line manager stated:
At last the change process has made employees aware that change is a part of life now. It
will carry on even if you don’t.
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