Frank van den Driest talks with Ramon Laguarta, chief executive of PepsiCo, about shifts in the company’s approach and what focusing on all stakeholders means in practice. The conversation covers the definition of growth, decentralization, and regenerative agriculture.
His starting position is that growth is essential, because wealth creation is linked to it and it is the only way to have a sustainable company that creates jobs and has societal impact. What the word humanizing adds, he says, is that growth can be created and distributed in many different ways.
Key findings
- He names his own associates as the most important stakeholder group, in an organization of almost 300,000 people whose wider ecosystem including bottlers reaches 600,000 to 700,000, before distributors or farmers.
- He is explicit that financial performance is the precondition rather than the goal: the corporate values are linked to broader societal impact, but the company only has the right to pursue that if it delivers very good financial returns.
- Consumers are not on his stakeholder list because he does not regard them as a stakeholder at all. They vote with their wallets on whether the company exists, so they are the reason for its existence.
- The top twenty markets are empowered to run the business end to end, take more risk locally and innovate, while data, systems investment, culture and compensation are held untouchable.
- The company committed to being net zero by 2040, and he frames the food system work as covering packaging, waste elimination and nutrition as well as farming.
Aggregating conflicting needs
His account of the stakeholder job is that it is an aggregation problem. You adjust your language for each group, try to understand what they are trying to do, and pull those needs, sometimes conflicting and sometimes merely diverging, into a single business strategy.
He is realistic about the outcome. You will never have everyone completely happy, the tensions exist and everybody pulls in a different direction, so the leader has to stay firm on the vision and pragmatic about adjusting. The journey is never a straight line, and anyone who thinks a straight line is the fastest route may never arrive.
His measure of success is unusually explicit. If everyone feels you are getting it about 85 percent right you are doing well, and 95 percent is extremely good. But if one group thinks you are entirely right and another thinks you are entirely wrong, the balance is off.
Beyond associates and shareholders he names communities, especially the farming community, along with suppliers, customers and governments, on the basis that the company is large enough in many markets to carry responsibility for improving society alongside them.
Staying close to the ground
The pandemic made the company more internally focused on the wellbeing of its people, which he describes as becoming a bit more human as companies, with leadership priorities changing accordingly. Communities were supported too, including providing meals to children who had lost their main school meal.
His personal practice for staying close to consumers is to visit households in every market he travels to, which he finds enlightening, and to experiment personally with new digital services and products, buying his own and competitors’ products and running his own sampling with family and friends.
He explains why headquarters is not enough. You get reports and the information system is good, so you can run the company, but you cannot feel it from headquarters: you have to visit factories, talk to the sales teams, and hear from customers where the service problems and quality problems are.
Remote working turned out to add rather than only subtract. A monthly forum with the top 200 senior managers replaced meeting twice a year, one-to-one meetings with general managers went from a few to roughly quarterly with everyone, and town halls now reach 30,000 people. He says the company has become closer than ever before and does not intend to give that up.
Local by design
The intent is a company that is extremely locally empowered and close to local consumers, activating locally from brand work through innovation to the way products are sold, which is hard across 200 markets but supported by a supply chain that is already local.
The split he uses is that what the company does should be as local and consumer centric as possible, while how it does things leverages global scale. The two structural moves behind it were building deep consumer understanding at a local level, and pivoting to a geographically based general management structure accountable for end-to-end value in that market.
His reasoning is that the next stage of growth and cost reduction comes from an end-to-end view, and that siloing the company too heavily was losing opportunities. Food, he notes, is cultural, so understanding the kitchen logic and the consumption occasions of each country is what produces good products.
He frames the wider problem as a management challenge of the century: the world is becoming more local, driven by politics and by consumers returning to their own cultures, so large companies have to leverage global scale while competing with far more flexible local firms.
Soil, brands and risk
His account of regenerative agriculture starts with the damage. The search for volume and output has cost the system diversity in species grown and degraded soil quality worldwide through farming practices, fertilizer use and land use, and the recovery of soil quality is what prevents the world eventually becoming desert.
The brand is the instrument. Lays is connected to farming through potatoes, and the plan is to connect it to the farming community in the way it talks about ingredients and celebrates the farmers who grow them. With around 500 million consumers a day, the brand has the power to raise awareness, though he distinguishes awareness from commitment.
He is direct that this is also risk management. The program addresses the potential risk the company faces if the world suddenly cannot grow potatoes because of climate change and degraded soil, and he describes it as integrated with how they think about driving growth.
Education is the other brand role. Recycling messages on beverage brands in Europe, where the product is fully recycled, and in the US teaching consumers that plastic is a high value material society needs to recover rather than throw away, an economic waste as well as an environmental one.
SodaStream is offered as the model of a different consumption pattern: personalized products made at home with no transportation of liquids and no plastic, and he says they are thinking about what the snack equivalent would be, eliminating movement of goods and packaging.
What he expects from marketing
His answer is short and demanding. Marketing is the intelligence that drives the growth, so marketers have to be the architects of growth for the company, which requires end-to-end understanding of what is behind the organization and not only of the consumer.
The consequence of not having that is stated plainly: without a good vision from the marketing team, covering the full architecture of growth rather than only consumer vision, there is a lot of movement but no traction.
On his own motivation he is blunt that authenticity is not optional in a job that runs constantly. The things he names as personal pillars are the development of associates, the environment and the nutritional profile of what the company sells, and what he wants to be able to say on leaving is that the company performed financially and also made a difference.
Scope and limitations
This is one leader’s account, given in conversation and, as the document notes, edited and condensed for easier reading. The commitments described were stated intentions at the time rather than reported outcomes.
Source
This page summarises Humanizing Growth Series: Ramon Laguarta & Frank van den Driest in conversation, by Ramon Laguarta, Frank van den Driest, June 2021.