Choice of a New Generation? PepsiCo Contemplates Layoffs as Strategy Falters

Yes, Pepsi's old advertising slogan has an ironic ring these days.

Layoffs have been the choice of every generation's leaders since Roman times - and probably before. When in doubt, a little human sacrifice usually keeps the angry gods sated (whether they be ancient deities or sell-side analysts), at least for a proverbial minute or two.

Despite the overwhelming research evidence that such tactics are disruptive and frequently counterproductive, layoffs still occupy Page 1, Chapter 1 in the CEO's handbook of crisis management. Why? The heartlessness of the decision conveys a flinty toughness which is supposed to be a prerequisite for leading. And the sad human interest stories create a diversion from other, messier issues like unproductive investments, poor decisions, failed marketing concepts and the other big picture moves for which senior managers are paid but rarely punished.

PepsiCo has been famous, along with IBM, GE, P&G and a few other corporations as a source of well-trained, experienced managers. It is not that this news necessarily makes them worse than their global competitors. It is just that the world has come to expect more imagination from companies like them. JL

Dale Buss reports in Brand Channel:

Embattled PepsiCo CEO Indra Nooyi is beginning to dig deeper to find ways to satisfy circling investors and analysts, including some who'd like to see the company split up into traditional and growth-business segments the way that Kraft has been.

The New York Post hears the word on the Street is that Nooyi is considering laying off about 4,000 workers and ending the company's 401(k) matching program in order to boost earnings. Bloomberg, doing some more digging, also hears that layoffs are indeed under consideration
although "less" than the 4,000 figure reported by the Post.

Job eliminations of that magnitude would amount to a little more than 1 percent of PepsiCo's payroll, including some workers at the company's Purchase, N.Y., headquarters. So it wouldn't contribute all that much to PepsiCo's bottom line. But trimming head count could send an important signal to frustrated investors that Nooyi not only recognizes significant problems at PepsiCo but also is entertaining ways to solve them.

The problems include a series of marketing missteps, according to the Post, as well as the "lack of a clear heir apparent" to Nooyi and a stock price that has risen only about 2 percent in the five years and three months since Nooyi took PepsiCo's helm.

Most obvious among Nooyi's mistakes has been the fall of the Pepsi brand to the No. 3 U.S. soft drink, behind both Coke and Diet Coke. She's attempting to correct that problem with much heavier traditional advertising spending behind Pepsi this year, after funneling significant Pepsi marketing outlays into the online-oriented Pepsi Refresh project beginning in 2010.

Other challenges for Nooyi include uneven results from PepsiCo's better-for-you push within existing brands such as Frito-Lay, and new brands. On the other hand, PepsiCo has fared increasingly well with sales in emerging markets, including winning Effie awards in India for its local marketing, by contrast with sluggishness in traditional Western markets.

Layoffs might be enough to keep Nooyi's critics at bay for a while. Or they could be just a first step.