Thursday, February 08, 2007
Bigger is not always better - Indra Nooyi, Pepsi CEO
Bigger is not always better - Indra Nooyi, Pepsi CEO
I read a recent discussion between Indra Nooyi of Pepsi Cola and Nandan Nilekani, the CEO of Infosys, the Indian software pioneer. This was reported in the Economic Times, an Indian business newspaper.
It was interesting to read the strategic perspectives that Indra and her team applied in the 90s to the existing Pepsi businesses. What interested me most was that she and her team demerged some key businesses from Pepsi, effectively reducing the revenues from 33 billion US$ to something like 20 billion. That's over 30% drop in revenues. It sure requires some courage to do that.
Essentially, what she and her team realised that was that the restaurant business, then directly under PepsiCo, was a completely different business from that of the beverages and packaged foods business which was Pepsi's core business. By forcefully having these different business units under one entity, they were burdening both businesses.
But what's more interesting is what Indra mentions. She says during the discussion that while because of these demerging of non-synergistic business revenues dropped dramatically, profits as a % of revenues increased equally dramatically. Cash flow on the original 30 billion $ business was about 1 billion $, but on the reduced 20 billion, it was over 3 billion $, and return on invested capital more than doubled!
Interesting! Just imagine how many businesses around the world could profit by being so common-sensical! If only...
I read a recent discussion between Indra Nooyi of Pepsi Cola and Nandan Nilekani, the CEO of Infosys, the Indian software pioneer. This was reported in the Economic Times, an Indian business newspaper.
It was interesting to read the strategic perspectives that Indra and her team applied in the 90s to the existing Pepsi businesses. What interested me most was that she and her team demerged some key businesses from Pepsi, effectively reducing the revenues from 33 billion US$ to something like 20 billion. That's over 30% drop in revenues. It sure requires some courage to do that.
Essentially, what she and her team realised that was that the restaurant business, then directly under PepsiCo, was a completely different business from that of the beverages and packaged foods business which was Pepsi's core business. By forcefully having these different business units under one entity, they were burdening both businesses.
But what's more interesting is what Indra mentions. She says during the discussion that while because of these demerging of non-synergistic business revenues dropped dramatically, profits as a % of revenues increased equally dramatically. Cash flow on the original 30 billion $ business was about 1 billion $, but on the reduced 20 billion, it was over 3 billion $, and return on invested capital more than doubled!
Interesting! Just imagine how many businesses around the world could profit by being so common-sensical! If only...
Labels: business-strategy, finance
