A Blog by Jonathan Low


Mar 7, 2017

Can A Positive Impact Be Profitable: Pepsi's Performance With Purpose

You can reduce emissions and costs, but if your end product is an unhealthy product like soda, what do such metrics really prove in the long run? JL

Yale Insights interviews Pepsi CEO Indra Nooyi:

Because every one of our purpose goals has tangible metrics and outcomes, we can incorporate that into our financial compensation schemes. If you make progress on reducing the environmental footprint, it results in productivity savings and it drives performance. We’ve reduced our environmental footprint, saved $600 million in costs, and our people are much happier.
A decade ago, shortly after becoming CEO of PepsiCo, Indra Nooyi introduced Performance with Purpose, declaring the company’s intention to improve its impact on consumers’ health, on the environment, and on the communities where it operates—while remaining financially strong.
In an essay published on LinkedIn recently, Nooyi writes that when launching the initiative, she and her colleagues anticipated a world in which it wasn’t possible to separate such issues from the bottom line.
 “People were increasingly looking for healthier foods,” she writes. “Environmental issues like water scarcity and climate change were threatening ecosystems, livelihoods, and economies around the world. And the competition for the next generation of talent was becoming more intense than ever.”
This year, PepsiCo announced a new set of goals for 2025, including targets to reduce sugar, salt, and saturated fat in its products, a reduction in greenhouse gas emissions, and an improvement in water efficiency.
Q: It’s been a decade since you debuted Performance with Purpose. What result have you seen from the strategy? 
Let me just start with what Performance with Purpose is. Performance with Purpose is about how you deliver great performance, but do it in a way that is very sustainable and very sensitive to all the communities in which we operate around the world.
What we’re really doing is transforming our portfolio to more healthy products. We are making sure that our environmental footprint in every community in which we operate is minimized, and we treat our people exceedingly well, both within the company and in the communities that we are in. And our belief is, if you do those things, you’ll deliver great performance. So the purpose is the product, the planet, the people—and the outcome is performance.
Performance with Purpose is creating a new way to make money. Over the last 10 years, we’ve been working to transform the portfolio. It’s worked. We’ve reduced our environmental footprint, saved $600 million in costs, and our people are much happier.
Performance with Purpose is the core direction of the company. It’s what’s allowed us to deliver the kind of performance we’ve had, and we’ve redoubled our efforts by announcing goals for the next 10 years.
Q: Has it gotten easier to convince people of the viability of this approach? And do you think the world has come toward you a little bit on this issue?
When we first articulated it, it wasn’t as much accepted that sustainability is something that we have to worry about. People viewed sustainability as a corporate social responsibility project, something you do after you make money. I think in the last five years it’s become mainstream. People realize that all sustainability initiatives drive performance, and are required to sustain performance, rather than a social responsibility project.
Q: How do you encourage leaders within your company to take a broad view of the responsibilities of the corporation? Can you reward values and purpose as easily as financial returns?
Because every one of our purpose goals has tangible metrics and outcomes, we can very easily incorporate that into our financial compensation schemes. If you make progress on reducing the environmental footprint, it results in productivity savings and it drives performance.
We can track the in-process metrics or the tailpipe metrics—the tailpipe metric being financials, in-process being all the sustainability goals. So we have scorecards with delivery dates on every one of these and we just execute on those.
Q: Is there a tradeoff between performance and purpose? Why do so many businesses maintain a singular focus on shareholder returns?
There is no tradeoff between performance and purpose. The way we’ve stated it is that our purpose drives performance. If we didn’t have our purpose objectives, we wouldn’t be able to drive performance. We look at these two as completely hand in hand.
There are some companies that focus on just performance. But I think more and more companies today are actually focusing on performance and purpose. And it’s very heartening to see that more companies are realizing, in their own way and through their own unique projects, that if you don’t focus on sustainability issues, you’re not really managing the company for the next generation. So I’m seeing many of my fellow CEOs focused on these issues today.
Q: You’ve spoken about the challenges of short-termism. How do you balance short-term and long-term objectives? How big a role does your board play in that balancing act?
I think the duty of every CEO is to manage the company for the duration of the company—intergenerational management of the company. And our board in particular really focuses on the strategy of the company. They’re focused on how we make sure this company remains successful into the future, while delivering the right performance in the short term.
The real question is the level of performance and the duration of performance. You can drive a company to very high levels of performance in the short term but then you collapse after a while. Our board is judicious, managing the level and duration of returns, working with us, the management team. So I think having a strong board helps make the right tradeoffs between level and duration of returns.
Q: Is there also education of shareholders?
All the time. Because in today’s world in particular, it’s very hard to get returns and the shareholders would like to see more short-term returns. And understandably—many of us want it in our personal portfolios too. But I think it requires constant communication with the shareholders, and when we communicate, shareholders listen.
Q: How important, when you’re deciding which markets to go in, is the political situation?
Where there are consumers and mouths to feed we want to be there. And in every market we’re local. So we work with the governments, with the countries locally, to make sure we tailor a business model that’s sensitive to the needs of the country.
We want to build the bottom of the pyramid by giving people jobs. We don’t necessarily get into the political aspects. We do worry about things like integrity and ethics and compliance and human rights in the supply chain. We worry about those things that big, multinational companies should worry about from a sustainability perspective. But beyond that we work with governments in a locally sensitive way everywhere in the world.
Q: How has the role of CEO evolved over the years? Are you the same CEO you were 10 years ago?
The world has changed. It’s gotten more complex, partly because of technological advances. I’ve learned how difficult culture change is. I’ve learned the importance of people. But I’m still learning. I don’t think I’ll ever be caught up, let’s put it that way.


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