In the last six years, PepsiCo has undergone a transformation, keeping its storied name but re-carbonating a business that had gone flat. It bought Tropicana, spun off its restaurant and bottling divisions and merged with Quaker Foods in a deal valued at $13 billion. These days, it owns not only such household brands as Pepsi and Frito-Lay but also Gatorade and Cracker Jack.


Like a runner in training, the company has come away from that tough regimen slimmer but fitter. Its sales dropped from $31 billion in 1995 to $25 billion last year. But its operating cash flow rose from $1.4 billion in 1995 to $3.3 billion last year. “In a perfect world, I’d be able to tell you we executed this restructuring flawlessly,” said Indra Nooyi, PepsiCo’s president and chief financial officer. “Naturally, that’s not the case. The process was neither smooth nor seamless. Many times it felt like baptism by fire.”


Nooyi, one of the architects of Pepsi’s transformation, came to Wharton on Sept. 25 to give the school’s leadership lecture. In addition to her position as second-in-command at PepsiCo, she is this country’s highest-ranking India-born female executive. For the last two years, Fortune has named her the fourth most powerful woman in American business.


PepsiCo began the process of remaking itself reluctantly, she said. In 1996, while then-CEO Wayne Calloway was fighting cancer, he asked Roger Enrico, a longtime Pepsi executive, to take over. At first, Enrico resisted; he had been considering other options such as leaving Pepsi to teach. Eventually, out of allegiance to the company where he had spent his career, Enrico relented. Little could he – or Nooyi – have imagined what would happen next.


“Some very dark clouds moved in,” Nooyi recalls. “After years of investing aggressively, too aggressively in retrospect, our international beverage businesses suffered dramatic losses. At the same time, our U.S. restaurant business – Taco Bell, Pizza Hut and KFC – faced volume declines, lower sales and lower profits. By year’s end, we had taken writeoffs of more than $800 million. And to cap it off – this was the worst of it – Roger was pictured on the cover of Fortune magazine inside a Coke bottle.


“But Roger kept coming back to one essential truth. The opportunity was still there – the cash flow, the great people. None of that had changed. We just had to work smarter.”


Top managers began to reassess every line of business, from products and prospects to customers and competitors. They concluded that beverages still held great promise, as did packaged foods. But the restaurants and the bottling division had to go because they were sapping profits. The spin-offs created two new companies – Yum Brands and Pepsi Bottling Group, which are both now publicly traded. (Pepsi still owns a large stake in the bottling company.)


The deals reinforced one of the lessons that Nooyi had learned over her career. “You have to think of a business like any investment. You have to know when to get in, but more important, when to get out. Getting out can be a lot tougher, especially if you develop an emotional tie to the business. But the world changes, and so should the models we apply to our businesses.”


Just as important as rigorous analysis when restructuring a company is a compelling vision of the future, she said. “For a leader looking to initiate big changes, the challenge is to state the objective in a way that grabs people. You have to establish what I call True North, that point on the horizon that everyone’s working toward.”


Enrico, who stepped down two years ago, told employees he wanted to turn PepsiCo into one of the defining companies of the 21st century. “Most people didn’t know what he meant, but it sounded so good that they wanted to be part of it,” Nooyi said.


Ploughing Through Snow

That sense of shared mission in a worthwhile undertaking led PepsiCo’s employees to log hundreds of extra hours to make the restructuring a success. “People don’t break their backs because you tell them to or you pay them well. They do it because they see a path to a bigger, brighter future,” Nooyi noted.


Consider the team of Pepsi managers working on the Quaker merger in 2001. One of the team’s first meetings after the deal’s announcement was slated for 8 a.m. on a Saturday in January. But a storm blanketed the New York area with more than a foot of snow the day before. Nooyi lives near the company’s headquarters and headed into the office. Before she left, she told her daughter to expect her home by about 8:30 a.m. because she doubted her team members, many of them spread around the country, would show up. At 8, her phone rang. It was a guard at the front desk announcing that 20 employees were downstairs asking for her. “They knew the blizzard was coming, so they arrived a day earlier and checked into the hotel across the street.” Another staffer, John Compton of Frito-Lay, was in the air, circling a nearby airport in a company plane. He had left Dallas, where he was based, at about 4 that morning, and had instructed his pilot to keep circling until the airport opened. “John’s was the only plane that was allowed to land in White Plains that day,” Nooyi said.


But big demands can lead to big payoffs, as has been the case for PepsiCo. “I’m happy to tell you that in July we reported our 15th consecutive quarter of 13% or better earnings-per-share growth,” she added.


At that time, the company said its sales for the 12 weeks that ended June 14 were $6.5 billion, compared with $6.1 billion for the comparable period a year earlier. Its earnings were $1 billion, or 58 cents a share, compared with $875 million, or 48 cents a share, a year earlier. PepsiCo’s stock has gained 11.8% this year, compared with 16% for the Standard & Poor’s 500 Index. It has gained nearly 50% over the last five years.


Chocolates and Cricket

Nooyi grew up in India with a mother who expected her to excel. “It was no fun sometimes, really awful,” she recalled. “If you came home with 95 in geography, you had to study geography for the next two weeks. My mother would cry if you didn’t get 100 in math.


“Every night at dinner, my mother had my sister and me debate. We had to speak about something like, ‘If you were prime minister of India, what would you do if …” Nooyi’s mother made up different scenarios for the girls to debate, then decided who had presented the better argument. The winner received half of a square from a Cadbury chocolate bar.


Nooyi came to the United States to attend graduate school at Yale.  Early on, she realized she would have to adapt to her new country because it wasn’t going to adapt to her. She noticed that people often used baseball as a subject of small talk. “I didn’t understand what they were talking about. I grew up with cricket. But was I going to spend my life changing this culture’s ideas about cricket? I’d be dead before that happened. I decided to join the gang. So I went to school on the N.Y. Yankees. I studied every statistic. I became an expert on everything about the [team].”


After graduation, she became a management consultant with the Boston Consulting Group. From there, her career took her to Asea Brown Boveri, a Norwegian energy company with operations around the world, and Motorola, an Illinois maker of mobile phones, radios and electronic equipment. She still serves on Motorola’s board and has been mentioned in the press as a possible successor to the company’s CEO, who announced his resignation in September.


She was asked about that possibility during the question-and-answer session that followed her speech. Her response: “I’m extremely happy at PepsiCo, and I intend to stay there.” That would seem an ironclad statement. But as she pointed out in her speech, businesses – and business people – are constantly changing. “Like a rollercoaster, it can be scary. It can be unnerving. It can sometimes leave you very queasy. But when you come out alive and well at the other end, it sometimes can be very gratifying.”