The Battle Of The Bags

Issue:

The struggle for control over the snack food industry began in the mid 1980's, when Frito Ð'-Lay began finding it difficult to keep up with smaller regional competitors. Michael Jordan, chairman of Frito-Lay at this time, realized that in order to remain the leader in the snack food industry, the focus had to change from broad area markets, to much more specific areas. This would prove to be difficult to achieve from the bureaucracy oriented management standpoint the company had at this time. In order for the specific markets to be recognized, the decisions had to be made closer to the customer.

Discussion:

In 1930, Herman Lay, the original founder of what is now Frito-Lay, had his hand on all steps of manufacturing, packaging, sales and delivery of his potato chips. He knew every detail of the business, and knew what people in the market wanted. As his market grew, and Mr. Lay took on partners, he began to lose touch with the individual regional markets as his customers became too numerous.

Mr. Michael Jordan, former chairman of Frito-Lay, understood that in order to stay in competition with smaller regional competition, decision making power and responsibility would have to be delegated further down within the organization. This would have to be achieved by changing the overall company from bureaucracy, to that resembling an entrepreneurship. A major obstacle with changing from this highly centralized organization was to make the newly empowered regions look at things from a broader perspective, and to take accountability for profits and losses in their perspective regions.

In 1989, the decision was made to decentralize and reorganize the decision making power of Frito-Lay along regional lines. In the following years, Frito-Lay began conducting extensive consumer testing in key markets to determine flavors and textures with the strongest appeal for independent regional markets. For example, in 2002, when the firm tested products in Miami, New York, Los Angeles, and Houston, to determine which developmental products had the strongest appeal among Hispanics. Market tests concluded that the greatest interest was in snack foods flavored with chili, citrus, and cheese seasonings.

With these findings, Frito-Lay teamed with Sabritas, a Mexico-based sister company, to design new products specifically aimed at the Hispanic community. With further input from Sabritas, Frito-Lay introduced its first line of snack foods aimed at a specific community. In 2002, Frito-Lay launched ten new products, including the popular Doritos Salsa Verde tortilla chips, in urban markets in key southwest cities, including Tucson, Austin, Houston, Albuquerque, and San Antonio. Soon after these products hit the market, Frito-Lay saw an increase in its total holdings on the salty-food market from 51% to 59%.

Findings:

1. What was the Business goal? Maintain market leadership. To achieve this goal, the company realized it would have to be more flexible in it's management strategies, making changes to individual instead of broad market areas.

2. What was the business strategy? Grow in volume in the already existing market areas, as well as creating entirely new markets.

3. What leadership strategies were employed? Forming strategy from the top of the firm, and building teamwork from the bottom up. Placing more control in the hands of managers for each regional market. The strategies were successful. The decentralized profit-center people have a large say on products in their regions, controlling the introduction of new products and even advertising.

4. What were the Information Systems functions? The main information system function for Frito-Lay was the implementation of flexible internal databases, used by middle and upper management, to assist in understanding company profitability and accountability. These databases allows management to monitor customer needs, and make changes based upon them.

5. What tools or techniques were used? A major tool used was coaching. The management had to teach the newly empowered the "finer levels of detail" and make them take responsibility for their actions, which could result in profits or losses. Another technique was the proper allocation of resources. Through the use of the internal