“The company operates in an ecosystem and you cannot ignore any part: employees, customers, suppliers, non-governmental organizations, multilateral organizations, governments, and shareholders.”
Indra Nooyi, the CEO of PepsiCo since 2006, was ranked by Fortune in 2014 at No. 3 on the list of the most powerful women in global business (just behind the CEOs of GM and IBM).
More importantly, she has led the company through the most socially-critical changes in its history. Founded to promote its cola in 1902 and then turned into a snack food conglomerate with a merger in 1965, PepsiCo is transforming itself under Nooyi’s leadership into a major source of healthier nutrition.
She wasn’t destined to be a business leader. Born in 1955 to a traditional family in what is now Chennai in southern India, her mother was a housewife and her father a bank manager.
But she wasn’t an ordinary Indian girl: she was the guitarist in an all-female rock band (she still sometimes sings at corporate events) and played a mean game of cricket.
Like most middle class Indian families, her parents insisted she get top grades in high school. An academic whiz kid, at 18 she earned a degree at a Christian college in physics, chemistry, and math.
But enticed by the prospect of being a business executive (despite her parents’ protest that this would ruin her prospects for marriage), she received her MBA from the Indian Institute of Management in Calcutta in 1976.
Nooyi is the highest-ranked Indian American female in business and PepsiCo is No. 93 on Forbes’ list of world’s largest public companies, with 2013 sales of $66.4 billion, net income of $6.7 billion, and 274,000 employees.
Changing the Formula
Nooyi has boldly tampered with a company that already had a solid formula for success (and I understand the resistance she faced, since I worked in the Dark Ages of the natural food industry in the 1970s). Forbes now rates it, seven years after she took the helm, at No. 25 on the list of the most valuable global brands.
Her first real job was with a local office of the British textile firm Tootal. She then served as a product manager for Johnson & Johnson with a very tough assignment: promoting the Stayfree line of sanitary pads. They were not even allowed to be advertised in India at the time and many retailers refused to stock them. Nooyi marketed by going to schools and talking directly with young women.
Nooyi had always wanted to live in the United States and when she saw an ad for the Yale School of Management, she applied and was given a scholarship in 1978.
She interviewed for internships wearing her sari, for lack of money to buy a suit, and won a position with consultant Booz Allen Hamilton. To make ends meet, she also acted as the dorm receptionist on the graveyard shift because it paid an extra 50 cents an hour.
After graduating, she was hired by the Boston Consulting Group, where she stayed for six years, then joined Motorola as a strategic planner. In 1990, she became a top executive at the engineering firm Asea Brown Bovari.
Four years later, the ambitious Nooyi received two impressive offers. One came from General Electric, the more prestigious company, but the CEO of PepsiCo, Wayne Calloway, convinced her that she could make a bigger difference there and he would create a new position for her, chief strategist.
PepsiCo had been running second to Coca-Cola in the caffeinated soda war forever, but had become a diversified food and beverage conglomerate. Over the next couple of years, Nooyi did intensive research and came up with a shocking recommendation to jump the company to the next level: spin off its profitable fast food restaurant division, which consisted of Pizza Hut, Taco Bell, and KFC (formerly Kentucky Fried Chicken). By then, Calloway had died and the new CEO, Roger Enrico, resisted, but Nooyi prevailed in 1997.
The divestitures brought in $35 billion. Then she convinced the board to back her new vision of the company as a major source of healthier food. She advocated some fresh acquisitions with this in mind and oversaw buying Tropicana, with its juices, for $3 billion in 1998 and Quaker Oats, for whole grain cereals, for $14 billion in 2001.
Nooyi was promoted to chief financial officer and president in 2001, while the chief operating officer, Steve Reinemund, became CEO. A former Marine and seven years her senior, he came across as the archetypal buttoned-down executive, while her more spontaneous personality and analytical skills were complementary, as they explained their new direction to Wall Street. BusinessWeek called them “one of the most unusual management teams in Corporate America.” Within a year of their ascension, the stock had risen 30%.
Still, the favorite to succeed Reinemund was Mike White, who had turned around the international business, while Nooyi had never been a line manager, the standard background for running the entire global operation of the corporation headquartered in Purchase, N.Y. But as CFO, she had also been in charge of IT systems and supply chain management, very complex challenges, and a CEO didn’t really require hands-on operational experience.
When she was finally tapped, her first call was to White, persuading him to stay on as her most senior advisor. She also courted other managers, but if they didn’t buy into her long-term plans, they had to find a more compatible home elsewhere.
There were plenty of skeptics in and outside the company, including shareholders who protested the strategy. It was always assumed that corporate efforts to do good were in conflict with making money, while the Great Recession put a lot of pressure on PepsiCo’s bottom line.
But Nooyi, 50, a lifelong vegetarian and Baby Boomer who grew up in an emerging market, knew that expanding the line of products that were better nutritionally would appeal to two important groups. Boomers everywhere were increasingly concerned about improving their diets, while consumers in developing economies needed affordable and healthy foods and drinks.
“I was like a missionary with everyone and the transformation was rough against some headwinds, and many times I questioned whether I should abandon this path,” she said. “Then suddenly, people were saying, ‘It’s so logical.’”
She knew the transition needed to be gradual, but aligned her “Performance with Purpose” program with global campaigns to reduce obesity and prevent disease. With 22 of the brands bringing in over $1 billion in sales each year, she divided products into three groups:
“Fun for You” included traditional refreshments, like regular cola and potato chips.
“Better for You” included snacks that were given more nutritional value, while maintaining good taste, with diet beverages and baked chips with reduced fat, sodium, sugar, and calories.
“Good for You” was “where the tailwinds were, constituting 20% of net revenue in 2013,” she said, with yogurt, high-fiber cereals and snacks, fresh dips like hummus, and the premium line of Naked Juice.
“Trends such as a desire for more convenient, functional nutrition, local and natural ingredients, and better-for-you snack and beverage options have firmly taken hold and will continue to accelerate around the world,” PepsiCo’s 2013 annual report noted. “We anticipated these trends early on and have taken significant actions to balance our portfolio of offerings to capture this growth opportunity.”
In 2013, the company had nine of the top 50 new food and beverage product introductions across all U.S. retail channels.
The stronger push into developing markets has meant that overseas executive
assignments were more likely to mean Beijing or New Delhi, rather than London or Paris, so some managers left when given the choices.
Emerging markets in 2013 for PepsiCo produced an impressive average 10% organic growth (which excludes acquisitions). This included very strong performances by China, Mexico, Brazil, Saudi Arabia, Pakistan, and Turkey. With an acquisition finalized in 2011, the company became the largest food and beverage maker in Russia.
“By 2030, an additional three billion people may join the middle class in developing and emerging markets,” the annual report projected. “We will continue to invest in building our capabilities there.”
But Nooyi recognized that the company by itself is limited in what it can do to improve public health. She chairs the Healthy Weight Commitment Foundation, a coalition of 150 U.S. retailers, manufacturers, restaurants, sporting goods makers, insurance companies, trade associations, professional sports and non-governmental organizations. It has funded a wide variety of school, community, and nonprofit efforts to provide meals to underprivileged children, educate students on good nutrition, sponsor exercise programs, and create public fruit and vegetable gardens.
As if all this progress were not enough, Nooyi has pushed to reduce PepsiCo’s impact on the environment worldwide as part of “Performance with Purpose.”
Both in the United States and in other countries, the company uses a tremendous amount of clean water, which is often scarce in the communities where it operates, especially where there are droughts. In response, PepsiCo has done a variety of innovative things, including integrating conservation efforts into its systems, using purified air to clean bottles, and capturing water that is naturally contained in potatoes before turning them into chips. By 2009, it was saving 12 billion liters of water a year, compared with 2006.
The company has been recognized for such efforts. It has been included for six years in a row on the Dow Jones World Sustainability Index and Newsweek ranked it third on its Green Rankings for its industry in the U.S. PepsiCo has also encouraged employees to conserve resources, eat better and exercise more.
In ranking Nooyi at No. 13 on the 2014 list of “World’s Most Powerful Women,” Forbes noted that she is among just a handful who have been on since its inauguration in 2004. “She once again exceeded analysts’ expectations and dour forecasts: despite a global decline in the consumption of sugary drinks, the company’s earnings have increased 3.1% while the S&P 500 Index added less than 1%. How did she do it? Thinking outside the soda can, with innovations such as smaller sizes.”
Wall Street tends to reward short-term corporate performance, which is why most CEOs have a primary focus on improving quarterly results, no matter the sacrifice of long-term goals that this requires.
But Nooyi has pleased investors as a contrarian with a vision of doing good to work towards global dominance.
When she joined PepsiCo two decades ago, its stock was $19 and declining. After she guided dramatic improvements for a dozen years, it had reached $64 by the time she was named CEO. As of mid-2014, it is $84. In 2013, investors also received their 41st consecutive dividend increase.
Not bad for a girl who wasn’t supposed to become an executive. And she did get married and has two daughters, one of whom is attending the Yale School of Management.
Real Life Lessons
. You can get to bold long-term goals if you are a pragmatist in the short-run.
. Give persuading your internal opponents your best shot, then move obstructionists out of the way.
.The ceiling that has prevented more women from corporate advancement is a powerful barrier that is nonetheless made of glass.
. Indian families are role models for cultivating high achievement.
. Good nutrition is one of the secret keys to having the energy to do great things.
Scott Smith is the author of The Soul of Your Pet: Evidence for the Survival of Animals After Death. This is an excerpt from Extraordinary People: Real Life Lessons on What It Takes to Achieve Success:www.ExtraordinaryPeopleBook.com.