PepsiCo is being heavily criticized for its plans to spend $2.5 billion to restructure the company and pursue automation in certain procedures, resulting in a large, undisclosed number of layoffs among its 250,000-plus employees.
PepsiCo’s PEP, +0.46% layoffs would be better perceived if they were “justified” in some way — if the company were operating at a loss, for example, and needed to decrease its workforce to compensate. Not only is that the wrong way to look at businesses as they grow and evolve, but this mode of thinking perpetuates the false notion that layoffs and innovation are inherently bad.
That may sound harsh, but we must accept that appropriate levels of innovation create opportunity, for both companies and workers alike. Here’s what the public might not understand about PepsiCo’s decision to innovate.
1. Automation can create more jobs in the long term
The layoffs at PepsiCo are being sparked by automation. The company has laid off corporate employees and is planning on closing factories as it leverages new technologies to perform certain tasks more efficiently. The company is expected to pay millions of dollars in severance to laid-off workers, many of whom will be seeking new employment or potentially moved to other branches within the company.
PepsiCo’s decision also reflects the growing need for knowledge workers — individuals with a high dependency on information to do their work, whose jobs are non-routine and non-repetitive, and who are comfortable leveraging structured and unstructured data to achieve success.
It’s possible that some of the laid-off PepsiCo workers could obtain the skills to become the knowledge workers that the company is seeking, but the truth is that not every laid-off employee will make this transition. Still, history shows us that whenever we replace people with automated solutions, we end up creating more jobs in the long term for the larger workforce.
2. PepsiCo may be laying off workers, but it is becoming more efficient
When companies develop ways to become more agile, resilient, and flexible from a supply chain perspective, they find they can move only as fast and freely as their current technology infrastructures allow. Companies like PepsiCo have purchased and used numerous systems over the decades that don’t effectively integrate.
PepsiCo has two choices; It can continue to seek out different vendors to address each particular need or issue, or it can enact a wide-sweeping change of its supply chain operations to address current conflicts and reduce the number of potential issues that may arise in the future.
The latter option allows PepsiCo to become more efficient. Additionally, the company reduces its chances of requiring similar mass layoffs in the future. It won’t have to constantly overhaul and replace individual systems and procedures; in turn, it won’t have to replace the workers who use or manage those systems.
3. PepsiCo is being honest about its true intentions, and that’s a good thing
When reporting on the PepsiCo announcement, many news publications highlighted the phrase “relentless automation.” Some of these outlets and readers criticized the company’s seemingly callous approach to laying off workers.
But compare PepsiCo’s announcement with The Walt Disney Co.’s DIS, +11.54% recent acquisition of 21st Century Fox. Even though the two parties have publicly discussed this deal for more than a year now, workers at both companies, from assistants to C-suite executives, are still unsure of their futures.
It’s impossible to deny that these layoffs will negatively affect thousands of PepsiCo workers’ lives, but honesty was the best approach the company could take. These workers have no false expectations about keeping their jobs. One could argue they were thrust into this news too quickly, but that’s still better than being kept in the dark.
4. The public could realize there can be a human element to PepsiCo’s automation
Talks about automation can often spiral into dystopian, science-fiction horror stories in which workers no longer exist because robots have eliminated the need for human labor. In actuality, however, any application of automation or artificial intelligence often requires a human element;these devices don’t exist to replace workers but to help them.
The future workforce will consist of people working alongside automated solutions and intelligent appliances. If PepsiCo takes this approach, in which both its workforce and technology are working in harmony and being used efficiently, the company can be extremely successful and its benefits will extend to workers as well.
It’s doubtful, though, that PepsiCo will achieve this level of success during its four-year restructuring. During this period, the company must address a large cultural change and shift in procedures. Beyond those four years, however, PepsiCo can certainly achieve harmony between man and machine.
5. PepsiCo is realizing both the best way to innovate and when not to innovate at all
Managers and executives often think that innovation is inherently good, but innovation is making a change to a common procedure, regardless of how good that change may be.
PepsiCo comprises several food and drink brands, many of which have been making the same product for decades. A bottle of Diet Pepsi in 2019 tastes the same as one fresh on the shelves in 2009. PepsiCo is cognizant that the best opportunity for innovation lies not in altering the product but in altering the production and processes around the product.
The fact that PepsiCo brands have mostly refrained from altering their products reflects the company’s strong discipline regarding innovation. If PepsiCo were to alter the taste of one of its Frito-Lay products, that would be innovative, but it wouldn’t necessarily be good innovation. Its foresight to innovate where and when necessary, just as it is by automating its current supply chain operations, emphasizes that PepsiCo made the right call.
Randy V. Bradley is an assistant professor of information systems and supply chain management at the University of Tennessee Haslam College of Business’s Supply Chain Management program. He previously was an IT consultant in both government and commercial sectors where he focused on IT outsourcing transitions, large-scale systems integration projects, and supply chain transformation initiatives.