Individual Report: PepsiCo's Innovation Strategy and Design Thinking

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MGMT20132: Innovation and Sustainable Business Development
Assessment 1: Individual report: innovation strategy
Application of Design Thinking in Business Operations of PEPSICO
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Contents
Introduction................................................................................................................................3
PEPSICO Overview...................................................................................................................3
Understanding Design Thinking................................................................................................3
Important Concepts....................................................................................................................4
Organisational environment...................................................................................................4
Innovation Trend....................................................................................................................4
Innovation strategy.................................................................................................................5
Innovation capabilities............................................................................................................5
Innovation value creation and capture....................................................................................5
Significance of Innovation Strategy for PEPSICO....................................................................5
Impact of Design Thinking on PepsiCo.....................................................................................6
Recommendations for Innovation Strategy................................................................................7
Recommendations for Strategic Alignment...............................................................................8
Conclusion..................................................................................................................................8
References..................................................................................................................................9
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Introduction
As time passes, businesses across the world are making efforts to thrive in their respective
field. There are coming up with different approaches to succeed and beat their competition.
The modern business trends suggest that the majority of the businesses are either making use
of ‘Lean project management' or ‘design thinking' to improve their business performance.
This report talks about the innovation strategy implemented in an organisation. For this
assessment, PEPSICO has been selected and the business trend selected here is “Design
Thinking.” The report talks about various important concepts such as innovation strategy and
trend, value creation and capture. In addition to this, it also elaborates on the significance of
design thinking for Pepsico. The business canvas model of Pepsico in regards to design
thinking strategy is illustrated. Some recommendations are also provided at the end of the
report.
PEPSICO Overview
PepsiCo Inc. is one of the leading food and beverage firm that deals in manufacturing and
distributing products in over 200 nations. The products of PepsiCo comprise chips, pasta,
rice, cereals, aerated drinks, snacks, coffee, bottled water, sports drinks, and much more. The
company is headquartered in New York and currently employs 274, 000 people all around the
world. At present, PepsiCo has 40 largest trademarks in the food and beverage industry,
namely Pepsi, Lays, Gatorade, etc. Each of its trademarks generates a revenue of over $1
billion.
Understanding Design Thinking
Talking about the design thinking approach, according to Geissdoerfer, et.al (2016), it is one
of the significant non-linear and iterative process that focuses on understanding users, testing
assumptions, and redefining issues, and providing innovative and out-of-box solutions.
Design thinking comprises 5 phases, namely “Empathy, Define, Ideate, Prototype, and Test.
The approach is very useful in tackling problems that are unknown or ill-defined. In today’s
day and age, it is very important for the business to develop new and refine the existing skills
which allow them to act and understand the transforming environment and behaviour
(Camisón & Villar-López, 2014). Design thinking helps the business to deal with the
complex and interconnected business environment in a human-centric manner. This process
helps the designers to emphasise more on exploring more options and dig deeper into solving
the problem.
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Figure 1: Five stages in the Design Thinking Process
Source: (Liedtka, 2015).
Important Concepts
There are certain important concepts that are important to understand in the context of
business and design thinking and their relationships. These are discussed below:-
Organisational environment
The organisational environment comprises various forces and factors affecting the
performance of a business, operations, processes, and resources. Different organisations
operate in a different organisational environment. There are two types of the business
environment, namely internal and external. The former comprises conditions, entities, and
events that affect the activities and choices (Kupp, et.al, 2017). These comprise the strengths
and weaknesses of the company. The external environment is characterised by the factors
surrounding the environment. It is often called the operating environment. These can be
economic conditions, public opinion, government laws, competition, etc. PepsiCo
manufactures beverages and food product and deals in a very dynamic business environment
that changes very rapidly with a change in technology and has high competition. All these
factors affect the working of PepsiCo (Liedtka, 2015).
Innovation Trend
According to Liedtka, 2015 innovation in the modern world is not only about implementing
or introducing new ideas or methods but also about involving multiple ways to get the task
done. The new innovation is directly linked to creativity and it is required for people to think
outside the box and develop incremental enhancement. PepsiCo has a very holistic approach
to innovation. It started with a business of beverages but did not restrict itself in that domain
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only. It is currently employing the principles of design thinking in its operations. For
instance, it has innovated packaging technology.
Innovation strategy
It is a growth plan that is formulated by the business entity to thrive in the market by beating
the competition and increases its profits and market share. It is usually focused on job
execution and job segment to target the growth by getting the job done in a better way. When
it comes to PepsiCo, it is formulating innovation strategy to gain a competitive advantage and
unification and fulfilling the needs of the customers (Volkova & Jākobsone, 2016). The
research and development have been strengthening for market research that would help in
identifying the needs of the customers. This information would help in developing the
products as per the demands of the customers.
Innovation capabilities
These are the abilities of an enterprise to make values out of an idea which is creative and
viable, thereby increasing the net profitability of the company. It all depends on the
company's abilities to identify and match the external opportunities for delivering new and
innovative products that are advanced and superior to those offered by the competitors in the
market (Liedtka, 2015).
Innovation value creation and capture
This is all about creating value from innovation and capturing it for a longer duration. The
company's profitability increases in this process and goodwill also increase in the due course.
Significance of Innovation Strategy for PEPSICO
In the past 10 years, PepsiCo redesigns its innovation process and designing experience for its
patrons. Design thinking as an innovation strategy is helping the company to improve its majority of
business operations, especially the packaging. PepsiCo is making use of design thinking to connect
with its patrons and potential customers at an emotional level and in the process, it increases the
growth of the company. Design thinking approach is a human-centric approach and therefore, it is not
only focused on the customers only but also considering the interest of the employees working at
PepsiCo. The senior management is working with design thinkers to put the focus on employees' need
and motivates them to carry out innovation at their personal level. This resulted in many outcomes
benefitting the company. The first and foremost is it resulted in new and innovative human-centred
communication tools for customers and employees. This helps in attending to the complaints and
suggestions given by the patrons. In addition to this, PepsiCo started a new GBS service which is end-
to-end based on journey mapping and user insight. Furthermore, design thinking improved the
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ultimate user experience and internal digitalised resources. On a high note, design thinking toolkit
helped the company in reinventing and building services and scenarios based on an in-depth
understanding of customers and the employees of the company.
Impact of Design Thinking on PepsiCo
According to the PepsiCo's CEO, in the world of rapid reinvention, design thinking can be
comprehended to involve creativity and systematic way to problem-solving by placing the
users at the pivotal point. Majority of the employees in the organization were resisting the
changes brought by design thinking but the company was aiming at beating the competition
by bringing design changes in the internal environment of the company (Wattanasupachoke,
2012). Design at PepsiCo is playing two key roles: 1) working across the existing brand
portfolio that comprises Doritos, Pepsi, Lays, and Quaker for developing consistent
experience across all the brands 2) bringing or initiating innovation. The second role is
helping the company to explore new opportunities for its brands and products in the futuristic
society that is more dependent on digital technology and social media (Kupp, et.al, 2017).
As a result of design thinking, the company came up with a unique product called ‘Pepsi
Spire' which is a digital fountain that provides control to the customers to personalise their
drink. This device is said to be as intuitive as possible and PepsiCo could be able to find the
right balance between customer engagement and efficiency.
To understand the impact of design thinking on PepsiCo, a SWOT analysis is provided
below:-
Strengths
 PepsiCo is able to build an innovative
and differentiating product of high
quality and at a reasonable price.
 Creativity and innovation in operations
 Good reputation in the market and
development in the market.
Weaknesses
 Lack of expertise and skills to undertake
a design thinking process at all levels.
 It is not budget friendly and thus,
receives criticism from various
stakeholders.
 PepsiCo is not able to implement design
thinking for all brands.
Opportunities
 It helps in exploring new markets and
grabbing new market opportunities
 Governments are also promoting design
Threats
 Competitors are also making use of the
same approach, thereby reducing the
differentiation impact.
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thinking approach in businesses.
 Employees can be able to improve their
skills and efficiency.
 Resistance form 270,000 employees for
implementing design thinking in
business operations.
For better understanding, the business model canvas is presented below:-
Key Partners
 Media
companies
 National
Football League
 Environmental
Advocates
 Manufacturer
worldwide
Key Activities
 Providing a
high supply of
beverages and
snacks across
the world.
Value Proposition
 To be a major
human-centric
company
 To be a number
one in the health
and nutrition
domain.
 Forming a
strategic
partnership with
local leaders in
the same field to
ensure
worldwide
growth.
Customer Relationships
 Personal
assistance
 Customer Service
Customer
Segments
Private
individuals
Businesses
Athletes
Children
Travellers
Key Resources
 40 Brands
 Interest Rates
 Government
Support
 Employees
 Big investors
 Goodwill
Channels
 Worldwide Sales
through distributors
 Arranging events
and sponsoring fests.
Cost Structure
 Government fees
 Salaries
 licensing fees
 Operating cost
 Research and Development
 Taxes
 Marketing and sales
Revenue Streams
 Long-term interest
 Revenues from sales
 Loan protection insurance
Recommendations for Innovation Strategy
 For organising innovation activities, it is recommended to PepsiCo to carry out some
changes in its organisational structure in order to make it a bit dynamic. This would help
in dealing with activities of the project along with carrying out innovation. In addition to
this, the company should create a team and train them to carry out operations by
employing design thinking approach. The team should be able to make a road map prior
to getting along with any project (Zawislak, et.al, 2012).
 Talking about the innovation capabilities that an organisation should have, it is suggested
that PepsiCo should have the capabilities for carrying out technological innovation. This
would assist in adopting the innovation and modified design operation. Along with this, it
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should be able to get along with new changes implemented in the organisation (Kupp,
et.al, 2017).
 The senior management of PepsiCo should be able to formulate strategy and vision to
bring changes in their production and operations along with major investment in
technological infrastructure. The competition is high in the market and technological
innovation can help in beating it. A recent innovation in the field of packaging and
distribution network helped the company to grow its market share (Zawislak, et.al, 2012).
 In order to ensure that PepsiCo creates and captures value out of its innovation, it is
recommended that it should first carry out cost-benefit analysis followed by measuring
the return on investment. In addition to this, it can also measure customer rating and
market share (Volkova & Jākobsone, 2016).
Recommendations for Strategic Alignment
For the strategic alignment, PepsiCo is recommended the following suggestion:-
 Developing a learning environment which is also full of support from senior
management. Design thinking approach is resisted by the employees. Therefore, the
company should first train them in order to bring confidence in them (Camisón &
Villar-López, 2014).
 Developing an effective channel of communication can help the company in dealing
with the issue of strategic alignment
 Bringing some relevant changes in the organisational structure and making it a bit
flexible for employees to carry out innovation at their levels (Liedtka, 2015).
 Carrying out a through monitoring and evaluation of each innovation result and
option.
Conclusion
This report illustrated the innovation strategy implemented in an organisation. For this
assessment, PEPSICO was selected and the impact of “Design Thinking” was tested. The
report talked about various important concepts such as innovation strategy and trend, value
creation and capture. In addition to this, it also elaborated the significance of design thinking
for Pepsico. The business canvas model of Pepsico in regards to design thinking strategy was
illustrated. Some recommendations were also provided in here.
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References
Camisón, C., & Villar-López, A. (2014). Organizational innovation as an enabler of
technological innovation capabilities and firm performance. Journal of business
research, 67(1), 2891-2902
Geissdoerfer, Bocken, & Hultink. (2016). Design thinking to enhance the sustainable
business modelling process – A workshop based on a value mapping
process. Journal of Cleaner Production, 135, 1218-1232
Kupp, M., Anderson, J., & Reckhenrich, J. (2017). Why Design Thinking in Business
Needs a Rethink. MIT Sloan Management Review, 59(1), 42-44.
Liedtka, J. (2015). Perspective: Linking Design Thinking with Innovation Outcomes
through Cognitive Bias Reduction. 32(6), 925-938.
Parida, V., Westerberg, M., & Frishammar, J. (2012). Inbound open innovation activities
in high‐tech SMEs: the impact on innovation performance. Journal of small
business management, 50(2), 283-309.
Volkova, T., & Jākobsone, I. (2016). Design thinking as a business tool to ensure
continuous value generation. Intelektine Ekonomika, 10(1), Intelektine
Ekonomika, 2016, Vol.10(1).
Wattanasupachoke, T. (2012). Design Thinking, Innovativeness and Performance: An
Empirical Examination. International Journal of Management and
Innovation, 4(1), 1-14.
Zawislak, P. A., Cherubini Alves, A., Tello-Gamarra, J., Barbieux, D., & Reichert, F. M.
(2012). Innovation capability: From technology development to transaction
capability. Journal of technology management & innovation, 7(2), 14-27.
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