Frito-Lay, Inc.

A Strategic Transition
(1980 - 1986)
 Why the Frito-Lay Case?

• Learning the company’s efforts between 1978

and 1992 to transform to meet the challenges of
operating in a more complex, faster-paced, and
intensely competitive environment.
• The case provides a comprehensive, longitudinal
view of changes in context, strategy, structure,
systems, processes, people, and information
infrastructure and evolutionary process by which
they were implemented.
Dr. Chen, Frito-Lay Case (1980 - 1986) TM -2
 Case Summary
• Description: Describes the environmental, organizational,
and information technology context in the late 1970s that led
to the development of the initial vision for change and the
actions taken to implement that vision. The case ends with
the abrupt departure of the CEO as profits plunge. Students
have an opportunity to explore what went wrong and to
define an action plan that addresses both the short-term and
long-term challenges faced by the incoming CEO.
• Subjects Covered: Food, Information systems, Information
technology, Organizational change, Strategy implementation.
• Setting: United States; Consumer products; Fortune 500; $3
billion revenues; 1980-1986

Dr. Chen, Frito-Lay Case (1980 - 1986) TM -3

 Case Scenario
• A Strategic Transition, 1980-1986 details the competitive
challenges that faced the company in the early 1980s and
company president Willard Korn's vision for transforming
the organization. Information technology, in the form of a
handheld computer (HHC), was a key element of his vision.
• The case ends with Korn's abrupt departure as profits
plummet. Students have an opportunity to explore what went
wrong and to define an action plan that addresses both the
short- and long-term challenges faced by the incoming CEO.
• Central to that action plan is the development of the
information infrastructure that will be needed to support
organization change initiatives in the future.

Dr. Chen, Frito-Lay Case (1980 - 1986) TM -4

 Analysis of Environment
and Strategy
• Frito-Lay was highly profitable in the 1960s and
1970s (50%)
• Growth rate of 15-20% per year
– geographic expansion and product/market initiatives
– promotions, well planned, and product mix
• Late 1970s, its growth began to evaporate
• Change is inevitable
• Micromarketing strategy

Dr. Chen, Frito-Lay Case (1980 - 1986) TM -5

 Balance of Triangle

1. Growth
2. Market Share increase
Business 3. Revenue Increase
Strategy
1. Idea sales organization 1. Investment on IT
2. Decentralized org. Infrastructure
3. Segmentation 2. Mobile Device (HHC)
4. Streamline the process 3. Data processing
5. Reengineering 4. EIS

Organization
IT Strategy
Strategy

Dr. Chen, Frito-Lay Case (1980 - 1986) TM -6

 Value Management
Framework

Frito Lay
IT Enablers Business Processes Business outcome

Hand-held
computer Product pricing
and mix for Market share
Network
route sales increase
EIS

Dr. Chen, Frito-Lay Case (1980 - 1986) TM -7

 Implications for
Organization
• People
– skills
– expertise
– knowledge
– 80/20 rule
 create a new position, the key account manager
 limit the micromarketing strategy to key accounts
– Segmentation
 route and supermarket (sales and merchandising activities)

Dr. Chen, Frito-Lay Case (1980 - 1986) TM -8

 What is Organization
Transformation?
• Organization transformation is a comprehensive
organization-wide change initiative that results in
change in the “deep structure” of the firm, radically
altering strategy, structure, systems, processes,
human resource requirements, and core values and
beliefs.
• With the overall change initiative resulted in radical
change, the implementation process proceeded
through overlapping episodes of incremental and
radical change consistent with the change process.
Dr. Chen, Frito-Lay Case (1980 - 1986) TM -9
 A Framework for Organization Design:
Assessing Organization Effectiveness

Defining Direction
Creating and
and building Executing and Adapting
Sustaining Value
infrastructure
Environmental
Partner Society and
Context and Authority
loyalty government
Resources loyalty

Decisions Employee Customer

Purpose Core Value
& Actions loyalty
Values, & Creation loyalty
Core Strategy Values
Competencies Control and
Behavior

Information
Organizational and communication Shareholder
capabilities, resources, infrastructure loyalty
and leadership

Figure A-1
Dr. Chen, Frito-Lay Case (1980 - 1986) TM -10
 A Framework for Organization Design:
Assessing Organization Effectiveness
Defining Direction
Creating and
and building Executing and Adapting
Sustaining Value
infrastructure
Environmental Units,
groupings Partner Society and
Context and
loyalty government
Resources Incentives Authority Coordinating loyalty
mechanisms
Formal and
informal
power
Purpose, Core Decisions Employee Customer
Value
Values, & Boundary People & Actions loyalty loyalty
Creation
Core Strategy systems
Competencies Operating, Values
and
processes Control Work Behavior
Management
processes Technology
Organizational Shareholder
Information
capabilities, resources, loyalty
and Communication
and leadership Infrastructure

Figure A-1 (b)

Dr. Chen, Frito-Lay Case (1980 - 1986) TM -11
 A Framework for Analyzing
Organization Design

Defining
Executing and Adapting Sustaining Value
Direction
Environmental Units, Process Performance
•Time
Context and groupings
•Quality
Resources Coordinating •Cost
Incentives Authority
mechanisms •Flexibility
Formal and •Innovation Potential
informal Stakeholder Satisfaction
power Employee/Partners
Purpose Core •Customers
Values, & Boundary •Shareholders
Core systems People •Society
Strategy
Competencies Benchmarks
Values •Best of class
operation, Control and
processes Work Behavior •Best of bread
•Reputation
Management Technology Other
Information processes Sustainability
Information
Policy and Communication
Infrastructure

Exhibit TN-2
Dr. Chen, Frito-Lay Case (1980 - 1986) TM -12
 Vision vs. Strategy

Ideal Sales Organization

- 6% sales growth Vision Micromarketing
- double-digit profit growth Strategy

Implication of Infrastructure
Organization
Design
•People
•Core Operating
•Capital
Processes
•Physical
•People
•Information
•Structure (changes)
•Systems
•Systems
Dr. Chen, Frito-Lay Case (1980 - 1986) TM -13
 Streamlining
Streamlining the
the Business
Business Cycle
Cycle
1. The business cycle is composed of two types of related processes:
Core Operating Processes: The primary activities through which an organization
designs, produces, markets, delivers, and supports its products or services.
Management Processes: Set of activities through which an organization manages
the design production, marketing, delivery, and support of its products or services .

M
G
M
T
CORE PROCESS
OPERATING P
R
O
C
E
S
S
Exhibit TN-9
Dr. Chen, Frito-Lay Case (1980 - 1986) TM -14
 Streamlining
Streamlining the
the Business
Business Cycle
Cycle
2. Many companies attempts to streamline the business cycle by streamlining
operating processes without a corresponding streamlining of management
processes

M
G
M
T
CORE PROCESS
OPERATING P
R Organizational
O Dysfunction
C
E
S
S

Exhibit TN-9
Dr. Chen, Frito-Lay Case (1980 - 1986) TM -15
 Streamlining
Streamlining the
the Business
Business Cycle
Cycle
3. The key is to streamline, integrate and “time synchronize” both operating
and management processes.

M
G
M
T
CORE PROCESS
OPERATING P
R
O
C
E
S
S

Exhibit TN-9
Dr. Chen, Frito-Lay Case (1980 - 1986) TM -16