Multisourcing — a Type of Diversity
Several years ago Pepsi evaluated some of the leading global IT service providers and rejected them, sources say, determining that none of them was able to perform an “end-to-end” job. This time around PepsiCo changed its sourcing strategy, adopting a “best-of-breed” practice known as multisourcing — spreading work across multiple service providers rather than striking a giant deal with one.
In effect, multisourcing is tougher for organizations to manage, but it has the business advantages of spreading risk and creating lower prices through competition between service providers. Once approved, a service provider in a multisourcing relationship typically has the okay to bid for additional projects.
Under the terms of PepsiCo International’s contract with BT, the U.K. service provider will manage its local and wide-area network infrastructure across more than 900 locations in more than 60 countries. The contract is designed to ensure compliance to policy, regulatory and security standards and maximize PepsiCo’s use of global assets across its broad portfolio of brands.
Pepsi is said to be evaluating an applications, development and maintenance relationship with several large global service providers based in India.
The company’s largest outsourcing engagement entails a wide spectrum of Human Resources Outsourcing (HRO) — a $600 million, 10-year contract signed with Hewitt Associates in June 2005. The contract, one of the largest known HRO deals, reportedly includes workforce and benefits administration, payroll and contact-center support in 68 countries. The maker of popular soft drinks, Frito-Lays snacks and other foods said the outsourcing deal enabled it to improve HR service delivery to all of its employees across the world. Cost savings was the main driver of the relationship.
While much about Pepsi’s penchant for diversity and aspects of its global resource strategy are well known, the company has relationships with consultants in capacities such as HR, sourcing and workforce diversity that it prefers to keep under wraps, for reasons it also considers proprietary.
In April of this year the company announced a more modest extension of a business process outsourcing agreement with ACS for its PepsiAmericas unit, a deal which includes back office processing of images, inventory management, document preparation, scanning and indexing, data collection and interim file management.
It remains to be seen whether PepsiCo’s leadership innovation will be copied by other multinational companies. One of the subtler advantages of highlighting diversity in a global enterprise is found in its value in recruiting. Notes Crispin, “If you are a talented, diverse individual you target Pepsi.”
The business world is watching closely to see whether Nooyi develops into a visionary leader capable of engineering steady innovation or a caretaker who steers an already successful global enterprise in a low-risk way.
A RAINBOW OF EXPECTATIONS
In a fiercely competitive marketplace, no achievement is ever by chance. When Pepsi outpaced Coke in market capitalization in December 2005 for the very first time in its 108-year rivalry, it reflected the company’s long term strategic planning. A large element of that strategy involved a steadfast focus on developing its human resources.
The three pillars of Pepsi’s HR strategy were to focus on recruiting more women, develop a diverse workforce at every level and put in place a succession plan to smoothly handle transition.
When Indra Nooyi took over as the first woman CEO of PepsiCo, it was the culmination of a long process at Pepsi to groom women for the top position. The impact of the Pepsi culture was not limited to the company, as several other powerful women spent much of their careers at PepsiCo, including Brenda Barnes, CEO of Sara Lee, and Irene Rosenfeld, CEO at Kraft Foods.
Reinemund’s hand-over to Nooyi was as smooth as the transition to Reinemund from his predecessor, Roger Enrico. This is against the current market trend where boards are under pressure to dismiss chief executives abruptly and forced hire from outside.
Nooyi has been groomed for the top job, along with her main rival, Michael White, Head of PepsiCo’s international operations, after joining from ABB, an engineering firm, in 1994.
That PepsiCo has appointed a woman to its top job is an even bigger anomaly. According to Catalyst, which conducts employment research, only 16% of the corporate officers of Fortune 500 firms are women, although women comprise half of the managers and other professionals in the American workforce.
Since 2001, then CEO Reinemund established an aggressive hiring and promotion plan that required half of Pepsi’s workforce to be women or minorities. The company’s bonus structure also rewarded managers on their ability to hire and retain such talent. Today 25% of Pepsi’s managers are women, up from 22% four years ago and six out of Pepsi’s top 12 executives are women or minorities. One reason given for this aggressive push to diversify Pepsi’s leadership is to better understand the tastes of new consumers as the business continues to expand globally. Also women control much of the household expenditure.
PepsiCo’s executives demonstrate their commitment to diversity by holding themselves accountable. Each of the CEO’s direct reports is responsible for the growth and development of a different group of employees. For instance, one executive partners with black employees and another one with women and so on. These executives hold themselves accountable for understanding the workplace issues the diverse employee populations face. They work to identify the key talented individuals in the groups and often serve as their “voice” to the rest of the executive committee.
