Risk Strategy Scenario
Scenario Background
Company
• Pepsi
Pepsi’s Product Portfolio
• Fun for you
• Better for you
• Good for you
Pepsi’s Target Markets
• Millennial
• Generation X
• Baby Boomer
Internal Environment
• Board of directors
o Risk management director at board level
• Multiple levels of corporate management
o Chief risk officer at corporate management level
• Multiple divisions
• Multiple management levels within divisions
o Executive risk manager at divisional level
• Wholly-owned subsidiaries
• Multiple divisions within subsidiaries
• Multiple management levels within divisions
External environment
• Bottling companies
• Distributers
• Point of sale locations
• Community relations
• Strategic alliances
• Competitors
Risk Environment
• Appetite
o High degree of risk acceptance for marketing programs
o High degree of risk acceptance related to return on investment timeline
o Moderate degree of risk acceptance for distinction between lines on product portfolio
o Low degree of risk acceptance regarding company reputation
• Tolerance
o High tolerance for risks related to relations with bottlers and distributers
o Moderate tolerance for community relations
o Low tolerance for risks related to brand image
• Threshold
o Defined by risk policies and procedures at the corporate and division levels
Scenario
It is the year 2010, and Pepsi has completed the Pepsi Refresh Program that it kicked off on New Year’s Eve in 2009. Pepsi’s program has achieved considerable success using social media platforms to reach out and energize activity from individuals of every age. Millions see Pepsi’s movement to “refresh the world” as a positive statement, which is evidenced in surveys that show a majority of Millennials (Pepsi’s target market) would purchase Pepsi products because of the “refresh the world” program.
The Pepsi Refresh Program was successful in generating over 50 million votes for more than 180,000 community refresh ideas. It increased Facebook fans from 300,000 to 3 million and achieved over 50,000 Twitter followers. Pepsi also reached out to traditional media through networks, morning shows, and professional athletes. In the end, however, this social media success did not appear to turn around Pepsi’s sales numbers. On the contrary, sales slumped during the period of the Pepsi Refresh Program.
The Pepsi Refresh Program has captured the interest of their board of directors, who are now considering redesigning and venturing forward with the Pepsi Refresh Program. The board has approved funding to analyze the results from the first 2 years of the program’s existence and develop a strategy to either redesign or halt the program. The goal set forth by the board is to drive increases in sales and market share across the entire Pepsi product portfolio—including increasing sales to the Generation X, Baby Boomer, and Millennial markets.
The board has created a project team to investigate and develop a plan to continue the Pepsi Refresh Program. As a member of that project team, the risk management director (RMD) must contribute to the strategic plan outlining the company’s risk appetite and tolerance—related to the key factors faced with implementing a redesigned program along with risk thresholds the company must consider. The strategic plan is to include the risk management framework and how it will apply to external factors (community relations, bottlers, and competitors) as well as internal factors (ongoing operations and Pepsi’s product portfolio).
The board has requested that the RMD detail the risk management framework and policies (at the corporate and division level) and outline how they will contribute to reducing the overall risk to the organization if they proceed with continuing the program. As with the strategic plan, the risk policies and procedures must address external and internal factors as well as oversight activities, expected from corporate and divisional leadership, to ensure effectiveness of the policies.
Sample Solution