Environmental Scan Paper

Environmental Scan Paper

The Assignment requires selecting two – three companies; herein PepsiCo (Pepsi) and Coca-Cola (Coke); and doing the following:

• Evaluate the internal and external environments of each company using an environmental scan.

• Analyze the competitive advantage of each company

• Evaluate the strategies each company uses to create value and gain competitive advantage.

• Examine the measurement guidelines each company uses to verify its strategic effectiveness.

• Evaluate the effectiveness of the measurement guidelines that each company uses.

Internal and External Environments Evaluation

Wheelen, Hunger, Hoffman, and Bamford (2015), define environmental scanning as the monitoring, evaluating and disseminating of information regarding external and internal environments to key people to assist in strategic decision making. As Coke and Pepsi are the dominant competitors in the beverage industry, there are some similarities in both external and internal environmental factors.; as well as some differences. Coke is primarily a soft drink company, whereas Pepsi has sought a niche in the snack foods industry amid a decreasing market share of the soft drink industry.

Internal Environment Factors

Internal environment forces affecting both Coke and Pepsi include pressure for investors to maximize shareholder value (share prices). With Pepsi, according to NASDAQ (2015), 70.41% of stock is held by institutional investments funds; whereas with Coke, institutional holdings are 65.23%; with Berkshire Hathaway as the single largest shareholder with a 14.73% ownership stake.

Whereas as Coke has enjoyed strong support from its institutional shareholder bases, led by Berkshire Hathaway, Pepsi is facing increasing pressure from activist investor groups within its institutional shareholders to split the snack and beverage divisions into separate entities. The Financial Times (2015) reported that to placate these investors, Pepsi added a representative of these groups to its board of directors and announced special dividends and share buybacks.

Both Coke and Pepsi have strong global distribution systems for their beverage products; and apparent strong employee support with few labor troubles. Additionally, in their global expansion efforts they have sought strong local partners.

Where they diverge is an internal mindset. Coke management believes in taking small, incremental steps toward expanding its product lines; whereas Pepsi CEO Nooyi has led an aggressive approach toward expanding its snack food groups including a strong move into healthy foods and beverages.

External Environmental Forces

Both Coke and Pepsi face similar external environmental forces shaping their strategic planning. Among these are:

• Political – changes in rules and regulations in the volatile global political system

• Social – an increased emphasis on nutrition and healthy lifestyles

• Economic – global recessions, disparate income levels and increasing demand for “American” products

• Technology – increasing access to “smartphones by more of the world’s population, and a tendency to use these devices for purchase and point of sale payment

• Environmental – a challenge to adopt sustainability measures and become more environmentally sensitive in product manufacture and packaging

• Governmental – changing tax structures in both domestic and foreign operations as well as changing nutritional disclosure requirements in packaging.

There appears to be little discernible difference in how both companies address these factors.

Competitive Advantages

It has been said that nothing drives competition like a well matched rivalry. This is particularly true in the world of business. In a rivalry that has existed for more than 100 years, Coke and Pepsi have rewarded investors with solid returns. According to NASDAQ’s Street Authority columnists (2015), it is clear than Coke has won the cola wars as its market share continues to increase, while Pepsi’s continues to decline. Despite this, a number of analysts feel that Pepsi, based on CEO Nooyi’s leadership, with its continued diverging of its product base into snack food, and healthier food and drink offerings will be the clear long term victor.

Some analysts have posited that Coke will continue on its somewhat narrowly focused vision of expansion until the passing of Berkshire Hathaway's Buffett and Munger; and/or the naming of a successor to Coke CEO Kent whereupon a younger generation of executives might take Coke in a different direction, akin to Pepsi (Sozzi (2015).

Coke appears to have a distinct advantage in the fast food market segments both domestically and globally, due to its continued partnership with major players including McDonald’s. Pepsi enjoys a clear advantage in snack foods where Coke does not compete, and in the healthier beverage market; as well as its global expansion positioning. A caution here – supply chain quality controls become critical in the global markets as regards food products.

Strategic Positioning for Value Creation and Competitive Advantage

Pepsi continues to make strategic acquisitions both domestically and globally in order to expand its product offerings. Pepsi’s Frito Lay product line continues to return significant profits as the American male’s demand for Slim Jims and Doritos has taken hold in overseas markets. Additionally, Pepsi continues to acquire a portfolio of products as it pursues international expansion with a particular emphasis on a product line of healthier food alternatives, as well as incorporating its Tropicana and related beverage lines into local products. This is also driving market gains globally.

In the alternative, Coke has thrived by increasing its share of the soft drink carbonated beverage market amid a belief that international consumers will drive this growth as they continue to seek authentic American experience such as Coke, Big Macs and fries. Its product expansion efforts would be best described as tentative.

Internal Measurement Guidelines

According to Scheier, Shaw, Beatty,