How Indra Nooyi Brought Design Thinking to PepsiCo

HANNAH BATES: Welcome to HBR On Strategy, case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business. As the CEO of PepsiCo , Indra Nooyi played an important role in shaping the company’s global strategy – like a stronger focus on  healthier products and improved sustainability. But just as notable, she made a sweeping impact on how the company operated across the globe. In this episode, HBR editor-in-chief Adi Ignatius sits down with Nooyi to discuss one important aspect of her strategy: incorporating design thinking into Pepsi’s innovation process. You’ll learn how Nooyi thinks about the relationship between innovation and design, and why she says that quote-un-quote  design is about more than just creating eye-catching packaging. You’ll also learn how design thinking shifted the culture at Pepsi to both embrace failure and ultimately make Pepsi’s operations more centralized and coordinated. This episode originally aired on HBR IdeaCast in August 2015. Here it is.

SARAH GREEN CARMICHAEL: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green Carmichael. This week we have a conversation between Editor-In-Chief Adi Ignatius and PepsiCo CEO Indra Nooyi. Adi went to their headquarters in New York to talk about design thinking, which Nooyi has increasingly brought into the company to improve the user experience, and help differentiate all of PepsiCo’s offerings, from soda to chips, and beyond. But it’s not always been easy. It’s been a big culture change for Pepsi, and she talks a little bit about that, too. I hope you enjoy.

ADI IGNATIUS: So, what problem were you trying to solve when you created chief design officer a few years ago?

INDRA NOOYI: So, literally the journey started when I became CEO. And every time I walk the stores– and I do a market tour every week, and look at what we look like on the shelves. And I found that the shelf was getting more, and more, and more cluttered. And forget me as the CEO of the company. As a mom who shops, who does grocery shopping, it was getting harder and harder to really differentiate what were the great products, what were the products that really spoke to me. And it occurred to me that we had to rethink our whole innovation process. And we had to design experiences for our consumers from conception to what’s on the shelf. And the first thing I did is, I went to my direct reports, and gave them each an empty photo album, and a camera. And I said, I want you to take a picture of anything that you think is good design. I waited for six weeks, maybe a couple of them sent the albums back. Many of them didn’t. Some of them had their wives take pictures. They didn’t do it. Others didn’t even do it. They didn’t even know what design was. And every time I talked about it within the company, people talked about design as package. What colors to put on the package? Should we change the yellow to a brighter yellow? Should we go to a different blue? So they were thinking about it strictly from a lipstick on a pig, if you want to call it, as opposed to redesigning the pig itself. That’s when I realized we needed to bring in a designer into the company. So we started the search. And Mauro Porcini showed up on the radar as somebody who’d done this at 3M. So we brought Mauro here, and talked to him about what our vision was. He wanted resources. He wanted a design studio. He wanted a seat at the table. We give him all of that. More, and more, and more you’re going to start seeing product design itself influenced by design, as opposed to just a package, or just labeling, or colors on the end of line. In my mind, a product that has great design is something that you fall in love with. Or you hate– it could be polarizing, but you have a real reaction to it. Not just say, eh, it’s another product. It’s a product you want to engage with in the future as opposed to, yeah, I bought it , and I ate it.

ADI IGNATIUS: So, let me ask you a little bit more on what design thinking means for a company like Pepsi. Because I hear you say it’s not just about packaging, but the examples I’m hearing essentially do seem to be about packaging. So tell me more about what design thinking means for Pepsi.

INDRA NOOYI: So, let’s take Pepsi Spire. The real question with Pepsi Spire is– there’s a fountain machine, a fountain dispenser– and other companies who’d done food service dispensing machines had really created a old-line fountain machine with a few more buttons, and more combinations of flavors. Our design guys came back and said, that’s not the way you should look at it. We’re not talking about making a more advanced food service machine. We’re talking about a fundamentally different interaction of the consumer to the machine. So, if you look at the Pepsi Spire, think of this gigantic iPad sitting on this most futuristic machine, which actually talks to you and invites you to that machine to want to interact with it. It attracts what you do, so that in future when you come back and you swipe your ID, it will tell you what flavor combinations you did the last time. It will actually suggest other new flavors to you. The products that show up on the machine make you want to drink right off the screen. So it’s beautiful shots of the product. And when you add a lime, and a cranberry, it actually shows how the lime and cranberry are adding, so you actually experience that addition of the flavors, as opposed to two buttons you hit, and out comes your beverage. Let me give you another one. We are working on design of products for women right now. In the past in snacks, we’d just say, hey, Doritos, we’d put it in a pink Susan G. Komen bag and say, that’s for women. That’s OK. Women interact with products that are for Susan G. Komen. But men, when the bag is depleted, you pour the snack into your mouth. A typical guy does that. Women don’t do that. Women worry a lot about how much stain you have on the product, because you can’t rub it on a chair, which a lot of guys do. So in China what they’ve got is, they have a stack chip that’s on a tray. It’s in the drawer. So when women want to eat it, they open the drawer, and they pull the little tray out of the container. And when you eat it, it doesn’t give a loud crunch, because women don’t like other people to know they’re crunching away. And it’s very delicate. Because it’s in a tray, when you finish with it, you push it back in, and it’s done. It’s put away very neatly.

ADI IGNATIUS: So it sounds like you’re paying more attention to the user experience than you did in the past.

INDRA NOOYI: User experience was not something that ever was part of our lexicon. User experience in terms of crunch and taste was part of our lexicon in the past, not in terms of rethink the shape, rethink the packaging form function itself. Remember, all this has got consequences for what machinery you put in place. Right? Because we’re now moving from a flex bag to a tray inside a container. It’s a whole different technology, and a carton design. So we’re actually forcing the thinking way back in the supply chain, and telling people, think about this completely differently.

ADI IGNATIUS: Yeah. And to what extent do you listen to the consumer? Or to what extent does the consumer know what he or she wants?

INDRA NOOYI: I don’t know if it’s the consumer knowing what he or she wants. So a consumer may not know that SunChips can be made much smaller. For example, original SunChips was 1 inch by 1 inch. By the time you bite it, it broke into multiple pieces. And when you do focus groups, they might just say, I went to this product because it was in bite-size pieces. We have to extract from that to say, maybe our SunChips was too damn big. I don’t care if our mold can only cut 1 and 1/2 inch by 1 and 1/2 inch. We don’t sell products based on what manufacturing we have. We sell products on how can a target consumer actually fall in love with it?

ADI IGNATIUS: So, when I think of design thinking, I think of kind of rapid prototyping and testing. Is that part of what you’re trying to do?

INDRA NOOYI: Interestingly, in the US, it’s less so rapid prototyping and testing. But China and Japan are classic lead horses for rapid prototyping and testing. Test, prove, and launch. When you launch quickly, you’ll have more failures. But that’s OK, because the cost of failure is low. Here we tend to follow very organized, Stage-Gate processes, and then launch. That China model may have to come to the US, too, at some point.

ADI IGNATIUS: But isn’t that sort of a Silicon Valley model, or at least–

INDRA NOOYI: Lots of small companies do it all the time. But they fail often. And the cost of failure is OK. But for us, especially when playing with big brands, we’re a little bit more cautious in what we launch. See, line extensions is OK, Adi. If you launch a flavor of Doritos that doesn’t work, or a flavor of Lay’s that doesn’t work, you just pull it. The cost of failure is very low. But if you’re going to launch a new product, you want to make sure that you’ve tested it enough. And Japan, in our business, Pepsi, we have a new flavor of Pepsi every three months. Maybe green Pepsi, pink Pepsi, blue Pepsi, they just launched cucumber-flavored Pepsi. It’s blue. It’s not even a Pepsi. Three months it works well, they pull it, they go to the next product.

ADI IGNATIUS: So, obviously, this approach is meant to give you a competitive advantage. Walk me through that a little bit.

INDRA NOOYI: So, we have to do two things as a company. We have to keep the top line of this company growing in the mid-single digit, and we have to grow our bottom line faster than the top line. A lot of line extension keeps the base going. So we’re always looking for hero products. What will be the two or three big products that will drive the top line significantly in a particular country, or a particular segment? I’ll give you an example, Mountain Dew Kickstart. It’s a completely different product. It’s got higher juice content, lower calories, comes in very different flavors than Mountain Dew ever did. In the past, we would do Mountain Dew Code Red, Mountain Dew Baja Blast. We would just do flavors of Mountain Dew. If you look at Kickstart, it doesn’t look like Mountain Dew. It doesn’t taste like Mountain Dew. In the past it would be neon orange. We would never do Mountain Dew in a slim can. Never. But now this is opening up new users into this Mountain Dew franchise. Women who were saying, “hey, this is an 80 calorie product with juice, in a package that I can hold and walk around. I like it.” And so all of sudden, it’s over $200 million in two years. Which in our business is very hard to come to.

ADI IGNATIUS: Is this your definition of design thinking, or is this just part of the innovative process?

INDRA NOOYI: It’s a fine line between innovation and design. Hopefully design leads to innovation, and innovation demands design. I think, honestly, we’re just getting starting, Adi. I think I’d like to get innovation up to mid-teens for our company. Because I think the marketplace is getting more and more creative. So for us to be there, we’re going to have to be willing to tolerate more failure, and have shorter cycles of adaptation.

ADI IGNATIUS: So, how do you bring the company along? And I guess I mean both your top executive team, but also sort of everyone else, to kind of buy into this pretty dramatic change in approach?

INDRA NOOYI: First the right person, hiring Mauro is an interesting guy. And our beverage people embraced him massively. And they knew that they could use more help in thinking about product design, product development. On top of that, retail fell in love with Mauro. They started to invite Mauro to their own shops, to start talking to them about how should they use design to reset shelves. So all of a sudden, Mauro’s team grew from like 10 people to 40 people. I think we have now 49. And nobody complained when we located in SoHo, which is more expensive than locating it in Stamford and Norwalk. And now our products look like they’re tailored to the right cohort groups. Our packaging looks pretty damn good, too.

ADI IGNATIUS: So your top team, are you finding that some kind of adapt and some don’t? These sound like new skill sets, new ways of looking at the world.

INDRA NOOYI: Perhaps that was the single biggest change in the company. The culture changed to say, the strength of the company was our decentralized company. The weakness of the company was a decentralized company. The extremely decentralized company worked when the whole world was just growing, and life was peachy keen. It doesn’t work when digital media makes news from one place, transfers to another. So you’ve got to make sure the company does everything in a coordinated way. And the way we’ve approached it is, we gave people 24 to 36 months to change. And then, I think it was late last year, I appeared in front of them and said, if by middle of this year people haven’t made the full change, I’d be happy to attend their retirement parties.

ADI IGNATIUS: How do you measure that? How do you determine if people are making that happen?

INDRA NOOYI: We watch how they act in the global g meetings. We look to see how much innovation is being put into the market. We look to see if they’re building shadow organizations. So we’ve developed whole new score cards. We’re managing the company tighter. We’ve got a productivity program which makes sure people don’t say, “yes, I’ll do it, Indra.” And then go back and set up their own organizations to do it. So we’re watching every one of the head count, the costs. You’ve got to squeeze as much as you can out of every dollar.

HANNAH BATES: That was former PepsiCo CEO Indra Nooyi in conversation with Adi Ignatius on the HBR IdeaCast. We’ll be back next Wednesday with another hand-picked conversation about business strategy from the Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review. We’re a production of the Harvard Business Review – if you want more articles, case studies, books, and videos like this, find it all at HBR dot org. This episode was produced by Anne Saini, and me, Hannah Bates. Ian Fox is our editor. Special thanks to Maureen Hoch, Adi Ignatius, Karen Player, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and you – our listener. See you next week.