Pepsi 2012 Annual Report Download - page 9

2012 PEPSICO ANNUAL REPORT 7
An example of a market where we
truly leverage the cost, capability and
commercial benets from our broad
portfolio is Russia. Our business is
operated as an integrated whole,
with shared oces, infrastructure,
talent, supply chain and go-to-mar-
ket systems. We are an extremely
ecient and eective leader in the
food and beverage business in that
country—lowering our costs signi-
cantly and expanding the reach of
our products several fold.
We believe our whole is worth more
than the sum of our parts. It is our
Power of One.
4. We Are Aggressively Building
New Capabilities
PepsiCo has historically been man-
aged as a loose federation of coun-
tries and regions. This organizational
structure fostered an entrepreneur-
ial culture in the company, not nec-
essarily a culture of global eciency.
Starting in 2010 and accelerating
in 2012, we began to modify our
global operating model, balancing
independence and scale, to become
a globally networked company. Our
in-country and regional teams are
empowered to serve their markets,
but through global groups and func-
tions, we are harmonizing our eorts
across the world around brand build-
ing, innovation and the management
of our supply chain.
Our new model already has begun
to yield results. Our global cat-
egory groups are guiding regions
to rationalize their brand portfolios
and focus the bulk of our spending
behind 12 global brands. We are
continuing to increase the caliber
of our global marketing talent and
implementing global campaigns for
our iconic global brands, beginning
with “Live for Now,” the rst-ever
global positioning campaign for
brand Pepsi. In 2012, “Live for
Now” engaged millions of consum-
ers through music, sports, social
media and other consumer touch
points. In December, we announced
a unique creative collaboration
with 17-time Grammy Award win-
ning singer Beyoncé to work with
us on creating content to engage
Pepsi consumers around the
world. Our brand equity scores are
steadily improving, and we are just
getting started.
Our innovation eorts also have im-
proved substantially. Back in 2007,
we invested to rebuild our R&D ca-
pability in the company. We brought
in outstanding talent and created
new long-term research capabilities.
We increased our investment be-
hind natural sweeteners, disruptive
processes, packaging and nutrition
platforms. We are also teaching
our people how to leverage R&D in
intelligent ways to create platforms
for growth rather than just one-o
line extensions.
We also have taken other major
actions to drive innovation. In 2012,
for the rst time in PepsiCo, we
created a design capability in the
company. Our goal is to use design
in the early stages of innovation ef-
forts to create memorable products
and experiences for our consumers.
We also have put in place a com-
mon stage-gate process to facilitate
data-driven decision making. We
created the capability to lift and shift
ideas across the various countries
within PepsiCo. Examples include
the launch of Lay’s “Do Us A Flavor
Campaign” in the U.S. after its suc-
cess in Europe, Asia, South America
and Africa; our continued expansion
in the cookie and biscuits category
in Brazil, Argentina, the Middle East
and the Philippines, building on the
strengths of our Gamesa-Quaker
business in Mexico; and the success
of Quaker Yogurt Bars in the U.S.
after their development in Canada.
Thanks to all these initiatives, at the
end of 2012, innovation from prod-
ucts launched in the past three years
accounted for approximately eight
percent of our net revenue.
Going forward, we intend to con-
tinue to leverage R&D to help us
develop more breakthrough innova-
tion that delivers true incremental
growth and is sustainable. To draw
from creative expertise in every
corner of the world, in 2012 we
opened new R&D centers in Shang-
hai, China; Hamburg, Germany; and
Monterrey, Mexico.
Our global supply chain group has
been working on best practice trans-
fer across our enterprise, bringing in
breakthrough thinking from external
sources to lower our costs and cre-
ate more capacity and exibility in
our supply chain. We are rigorously
analyzing, auditing and benchmarking
the performance of our facilities and
using what we learn to strengthen
our manufacturing, distribution and
go-to-market capabilities around the
globe. Our environmental sustain-
ability agenda, which includes water,
energy and packaging reductions, has
helped us decrease our costs while
conserving natural resources.
All of these actions, plus scores of
others, have enabled us to double
our historic productivity run rate
starting in 2012, leading to a $3 bil-
lion cost take-out over three years.
We have reduced our cash conver-