The Pepsi Challenge (pg. 3)

Nooyi sells her ideas with a famous intensity. Her colleagues say she "brings her whole self" to the office. She insists that everybody's birthday is celebrated with a cake ... and everyone is forever 35. Her karaoke machine is the ubiquitous party game at every PepsiCo gathering. She talks about being a mother. In December one executive recalls how Nooyi described to her whole team what it felt like to be a soccer mom whose week it was to bring the treats. You get a very specific list. You can't have nuts. You can't have wheat. The situation confounds the CEO mom, she confesses, urging them to "make it easy for me so I don't have to think. We can do this. We already have the products."

Just as she was held to very high standards in her youth, she expects everyone around her to measure up. She has red, green, and purple pens and uses them liberally to mark up everything that crosses her desk. "My scribbles are legendary - legendary," she says with a twinkle. Like "I have never seen such gross incompetence." Or "'This is unacceptable,' and I underline 'unacceptable' three times," she says. She's joking, but she gets her point across. One of her so-called love letters once scared some secretaries so badly that she had to go assure them that their bosses were not about to lose their jobs.

"She challenges you," says Tim Minges, president of the Asia Pacific region. When his team couldn't find an inexpensive alternative to palm oil for its products in Thailand last year, she kept pushing and pushing, saying, "I hear you, I hear you, so what's the right solution?" until they came up with one: rice bran oil. "But don't try to delegate up, because she will bounce it right back in your face," he says.

She is decisive, sometimes in ways that appear capricious, and impervious to the effect it can have. In December she ducked out of giving a keynote speech at a major soft-drink industry conference at the last minute, sending what many considered a lame excuse and dispatching a subordinate to give the speech instead. Nooyi sent word she wanted to yield the spotlight to Coke CEO Neville Isdell, who had recently announced his successor, Muhtar Kent. This drew a statement from Coke: "Neville came here this morning to hear Indra's presentation, so it's unfortunate that she decided not to attend. It would seem to us that if Indra really wanted to pay her respects to Neville, she could have done it in a very classy way from the podium." Her absence contributed to the impression that she can sometimes be temperamental, if not "brittle," as an industry analyst called her.

And she has sometimes been slow to alter her position in the face of changing facts. Nooyi says she wishes she had reacted differently to allegations in India five years ago that traces of pesticide had been found in both Pepsi and Coke. The company denied the claims and did scientific analysis to support its position. At the time it was not her direct responsibility (she was president, and White ran international), "but I was the face of India. I should have hopped on a plane right away and said, 'Guys, I assure you, these products are the safest," she says now. "At that point it didn't occur to me. That's the thing I regret. Now if it happened - man, I would be there in an instant."

With her team, there's nothing remote about Nooyi. She is part schoolmarm, part mother hen. She once told Hugh Johnston, who worked for her in corporate strategy, that he was dressed like a bum. At the time he was helping roll out the company's IT program, and he replied, "Indra, these are IT people; this is what we do. We don't go out of the building." When he moved to headquarters, she told him where to shop, and he has acquired a whole new wardrobe. She knows she is demanding, and she worries about it. She throws dinners for members of her team and their spouses, including Q&A sessions in which she insists on getting questions from the spouses and won't sit down until she does.

She appreciates the support from families, she says, because her career has been tough on her own family. For a long time, Nooyi says, she woke up each morning feeling "guilty about everything." Her career caused her husband, Raj, a University of Chicago MBA with degrees in electrical and industrial engineering, to leave a career at Hewlett-Packard (HPQ, Fortune 500) that he loved; he's now a consultant. "He helps me. He supports me. He's a man with a big heart," she says. Her incessant travel took a toll on her oldest daughter, and Nooyi regrets it. So she was overjoyed when she heard Preetha, now 24 and "my biggest critic," tell a friend recently, "Well, big companies are bad, but I beg to differ about PepsiCo." Nooyi has worked hard to be around for 15-year-old Tara. On long trips, Nooyi calls frequently to keep in touch. On domestic trips she'll do practically anything to get home at night to be there for breakfast. During an especially tough week last month she received the following e-mail at work from Tara: "You need to sleep Mom! This is ridiculous! If you plan to do well in Davos then you need to sleep!"

Her entire life has been an intricate web of tradeoffs and self-deprivation. Growing up, she was dying for an electric guitar; eventually her father bought her an acoustic "with a pickup." It wasn't until three years ago that she indulged herself. "I went out and bought Fenders, a Gibson acoustic, a Martin acoustic, a Yamaha 12-string," she says proudly. Does she get to play much? For a rare moment, she's wistful. "I play the guitar when I want to relax. But to play the guitar, you cut the nails," she says, looking at her manicure. "So one day I'll cut the nails off. Now, when I bite my nails, I play the guitar."

There will be more tradeoffs to come. Good deeds are expensive. Healthier ingredients can be too. "I'll be honest with you. We did have the wind at our backs, and it's much harder to sustain great performance [in a slumping economy]," she said recently. But "you give the team of people a set of objectives and goals and get them all to buy into it, and they can move mountains." The company wowed the market with its recent year-end earnings results by boosting volume in the face of a second year of rising commodity costs. PepsiCo did it through a combination of new products, productivity improvements, higher prices, and packaging tweaks. (It calls that "weight-outs" - charging more for less.) Analysts expect this year to be even more challenging. Healthier new products are pricier than Pepsi and Lays. And PepsiCo, with snacks and all that Gatorade, is way more exposed to inflation than Coke, which peddles mostly concentrate to bottlers who sweeten the soda. PepsiCo expects a 6% increase in raw material costs next year, says Morgan Stanley's Pecoriello, while Coke expects none. Commodity costs make up about 25% of PepsiCo's total revenue, compared with 11% of Coke's, says Beverage Digest's John Sicher.

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At a time when she'd like to be focusing on foods of the future, suddenly she's back in the cola wars, a resurgent Coke on her flank. With lower costs and its newly acquired Vitaminwater, Coke could be a real problem again. (PepsiCo hopes to counter with a new, lower-calorie Gatorade called G2.) Revived talk of the corporate rivalry makes Nooyi touchy: PepsiCo's revenues now come more from food than from beverages. "From my perspective, we are a different company ... different from a business makeup, different culturally, in the way we think, the way we act. We are different every which way," she says. "So if people want to compare us, go right ahead. Is Coke going to have some tailwinds because of [the weak dollar] and the beverage business? Sure. But more power to them. The point is, we are in businesses that give you more good-for-you products, and that means closer to crops. When you're closer to crops, you're going to have some inflation. Am I going to regret it? No, I'm proud of the fact we made the transition."

She has told Wall Street she expects the company to continue to meet growth targets. She acknowledged to analysts earlier this month that "this level of price increase is uncharted territory, because for many, many years both snacks and beverages were in a deflationary environment. So we have to navigate through this thing carefully." For now she knows she'll have to adjust the pace at which she makes PepsiCo the "defining corporation." She's toned down the rhetoric. "The fact of the matter is we operate within the stock market, which has a certain psyche, which has a certain approach to everything, and we can't ignore that."

Yet the tactical fight for market share is not likely to engage her for long. At some point, that role in government will beckon. Asked about the prospect in January, she brightened immediately. Ever the strategist, she has more than just thought about it. "After PepsiCo, I do want to go to Washington," she said. "I want to give back - to work for no money for four or five years." Not now, she says firmly, but after the next presidential term sounds like a possibility. For now her job is to run PepsiCo. You can bet she'll be looking for an acquisition if the opportunity presents itself. That would keep her challenged. Nooyi said last year that part of her plan was to grow PepsiCo by M&A. PepsiCo reportedly approached Nestlé last year about a merger with the larger Swiss company, which would have created a behemoth with a market value of more than $250 billion. Nooyi won't comment except to say that anything like that is out of the question right now. It's safe to say, though, she'll be focused on the future. Her biggest test may be how well she's able to calibrate her visionary thinking to a tougher climate, when resources cost more, customers are cautious, and the long-running cola wars are far from settled.

Research associate Patricia A. Neering contributed to this article. 

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