How Indra Nooyi Turned Design Thinking into Strategy
An interview with Indra Nooyi. by Adi Ignatius
JUST A FEW YEARS AGO, it wasn’t clear whether Indra Nooyi would survive as PepsiCo’s CEO. Many investors saw Pepsi as a bloated giant whose top brands were losing market share. And they were critical of Nooyi’s shift toward a more health-oriented overall product line. Prominent activist investor Nelson Peltz fought hard to split the company in two.
These days Nooyi, 59, exudes confidence. The company has enjoyed steady revenue growth during her nine years in the top job, and Pepsi’s stock price is rising again after several flat years. Peltz even agreed to a truce in return for a board seat for one of his allies.
All of this frees Nooyi to focus on what she says is now driving innovation in the company: design thinking. In 2012 she brought in Mauro Porcini as Pepsi’s first-ever chief design officer. Now, Nooyi says, “design” has a voice in nearly every important decision that the company makes.
To understand Pepsi’s transformation, I spoke with Nooyi at the company’s temporary headquarters in White Plains, New York (the real one, in Purchase, is being renovated). She talked about what design means to her, the challenges in changing a culture, and her proudest achievement.
—Adi Ignatius
HBR: What problem were you trying to solve by making PepsiCo more design-driven?
Nooyi: As CEO, I visit a market every week to see what we look like on the shelves. I always ask myself—not as a CEO but as a mom—“What products really speak to me?” The shelves just seem more and more cluttered, so I thought we had to rethink our innovation process and design experiences for our consumers—from conception to what’s on the shelf.
How did you begin to drive that change?
First, I gave each of my direct reports an empty photo album and a camera. I asked them to take pictures of anything they thought represented good design.
What did you get back from them?
After six weeks, only a few people returned the albums. Some had their wives take pictures. Many did nothing at all. They didn’t know what design was. Every time I tried to talk about design within the company, people would refer to packaging: “Should we go to a different blue?” It was like putting lipstick on a pig, as opposed to redesigning the pig itself. I realized we needed to bring a designer into the company.
How easy was it to find Mauro Porcini?
We did a search, and we saw that he’d achieved this kind of success at 3M. So we brought him in to talk about our vision. He said he wanted resources, a design studio, and a seat at the table. We gave him all of that. Now our teams are pushing design through the entire system, from product creation, to packaging and labeling, to how a product looks on the shelf, to how consumers interact with it.
What’s your definition of good design?
For me, a well-designed product is one you fall in love with. Or you hate. It may be polarizing, but it has to provoke a real reaction. Ideally, it’s a product you want to engage with in the future, rather than just “Yeah, I bought it, and I ate it.”
You say it’s not just about packaging, but a lot of what you’re talking about seems to be that.
It’s much more than packaging. We had to rethink the entire experience, from conception to what’s on the shelf to the postproduct experience. Let’s take Pepsi Spire, our new touchscreen fountain machine. Other companies with dispensing machines have focused on adding a few more buttons and combinations of flavors. Our design guys essentially said that we’re talking about a fundamentally different interaction between consumer and machine. We basically have a gigantic iPad on a futuristic machine that talks to you and invites you to interact with it. It tracks what you buy so that in the future, when you swipe your ID, it reminds you of the flavor combinations you tried last time and suggests new ones. It displays beautiful shots of the product, so when you add lime or cranberry, it actually shows those flavors being added—you experience the infusion of the flavor, as opposed to merely hitting a button and out comes the finished product.
Have you developed other notable design-led innovations?
We’re working on new products for women. Our old approach was “shrink it or pink it.” We’d put Doritos, say, in a pink Susan G. Komen bag and say it’s for women. That’s fine, but there’s more to how women like to snack.
OK, how do women like to snack?
When men finish a snack bag, they pour what’s left into their mouths. Women don’t do that. And they worry about how much the product may stain—they won’t rub it on a chair, which a lot of guys do. In China, we’ve introduced a stacked chip that comes in a plastic tray inside a canister. When a woman wants to snack, she can open her drawer and eat from the tray. When she’s done, she can push it back in. The chip is also less noisy to eat: Women don’t want people to hear them crunching away.
Basically, you’re paying a lot more attention to user experience.
Definitely. In the past, user experience wasn’t part of our lexicon. Focusing on crunch, taste, and everything else now pushes us to rethink shape, packaging, form, and function. All of that has consequences for what machinery we put in place—to produce, say, a plastic tray instead of a flex bag. We’re forcing the design thinking way back in the supply chain.
To what extent do you listen to consumers? Do they even know what they want?
I don’t know if consumers know what they want. But we can learn from them. Let’s take SunChips. The original size was one inch by one inch. When you’d bite into a chip, it would break into pieces. In focus groups consumers told us they went to another product because it was bite-size. We had to conclude that SunChips were too damn big. I don’t care if our mold can only cut one inch by one inch. We don’t sell products based on the manufacturing we have, but on how our target consumers can fall in love with them.
Launch and Failure
When I picture design thinking, I think about rapid prototyping and testing. Is that part of what you’re trying to do?
Not so much in the U.S., but China and Japan are lead horses for that process—test, prove, launch. If you launch quickly, you have more failures, but that’s OK because the cost of failure in those markets is low. In the U.S., we tend to follow very organized processes and then launch. The China-Japan model may have to come to the United States at some point.
Isn’t this model already established in the U.S., or at least in Silicon Valley?
Lots of small companies take this approach, and for them the cost of failure is acceptable. We’re more cautious, especially when playing with big brands. Line extensions are fine: If you launch a flavor of Doritos that doesn’t work, you just pull it. But if you launch a new product, you want to make sure you’ve tested it enough. In Japan, we launch a new version of Pepsi every three months—green, pink, blue. We just launched cucumber-flavored Pepsi. In three months it either works or we pull it and go to the next product.
Is your design approach giving Pepsi competitive advantage?
We have to do two things as a company: Keep our top line growing in the mid single digits, and grow our bottom line faster than the top. Line extensions keep the base growing. And then we’re always looking for hero products—the two or three big products that will drive the top line significantly in a particular country or segment. Mountain Dew Kickstart is one of those. It’s a completely different product: higher juice content, fewer calories, new flavors. We thought about this innovation differently. In the past we just would have created new flavors of Mountain Dew. But Kickstart comes in a slim can and doesn’t look or taste like the old Mountain Dew. It’s bringing new users into the franchise: women who say, “Hey, this is an 80-calorie product with juice in a package I can walk around with.” It has generated more than $200 million in two years, which in our business is hard to do.
Is this an example of design thinking, or just part of the innovation process?
There’s a fine line between innovation and design. Ideally, design leads to innovation and innovation demands design. We’re just getting started. Innovation accounted for 9% of our net revenue last year. I’d like to raise that to the mid teens, because I think the marketplace is getting more creative. To get there, we’ll have to be willing to tolerate more failure and shorter cycles of adaptation.
Do you feel that companies have to reinvent themselves every few years, that competitive advantage is fleeting?
No question about it. It’s been a long time since you could talk about sustainable competitive advantage. The cycles are shortened. The rule used to be that you’d reinvent yourself once every seven to 10 years. Now it’s every two to three years. There’s constant reinvention: how you do business, how you deal with the customer.
Managing Change
How do you bring everyone in the company along with what sounds like a dramatic change in approach?
The most important thing was finding the right person in Mauro. Our beverage people immediately embraced how he could help us think about product design and development. Then retailers fell in love with him and started inviting him to their shops to talk about how to reset their shelves. Mauro’s team grew from about 10 people to almost 50, and we set him up in SoHo in New York City. Now our products look like they’re tailored to the right cohort groups, and our packaging looks pretty damn good, too.
How do you push the culture change throughout the company?
In the past, being decentralized was our strength, but also our weakness. It’s a fine approach when the whole world is growing and life is peachy. But it doesn’t work when things are volatile globally and you need coordination. We’ve given our people 24 to 36 months to adapt. I told everyone that if they don’t change, I’d be happy to attend their retirement parties.
How do you measure whether or not people are making it?
We watch how they act in our global meetings and whether they include design early in the process. We see how much innovation, influenced by design, is being put into the market. We maintain an aggressive productivity program to take costs out and free up resources. You have to squeeze as much as you can out of every dollar, and we watch how many costs are coming out.
Purpose and the Portfolio
You often use the term “purpose” in talking about your business. What does that mean to you?
When I became CEO in 2006, I did a series of town hall meetings with employees. Few said they came to work for a paycheck. Most wanted to build a life, not simply gain a livelihood. And they were well aware that consumers cared about health and wellness. We realized we needed to engage our people’s heads, hearts, and hands. We had to produce more products that are good for you. We had to embrace sustainability. Purpose is not about giving money away for social responsibility. It’s about fundamentally changing how to make money in order to deliver performance—to help ensure that PepsiCo is a “good” company where young people want to work.
Would you be willing to accept lower profit margins to “do the right thing”? Surely, there have to be trade-offs.
Purpose doesn’t hurt margins. Purpose is how you drive transformation. If you don’t transform the portfolio, you’re going to stop top-line growth, and margins will decline anyway. So we don’t really invest in “purpose,” but in a strategy to keep the company successful in the future. If we hadn’t tackled certain environmental issues, especially with water, we would have lost our licenses in some countries. Now, sometimes when you’re changing the culture radically, you run into problems. Transformations sometimes hit your margins or top line because things don’t always go in a straight line. But if you think in terms of the life span of the company, these are just small blips.
But aren’t you still selling a lot of unhealthy products?
We make a portfolio of products, some of which are “fun for you” and some of which are “good for you.” We sell sugary beverages and chips, but we also have Quaker Oats, Tropicana, Naked Juice, and Izze. We’re reducing the salt, sugar, and fat in the core products. And we’ve dialed up the good-for-you offerings because societal needs have changed.
Would you consider stopping a popular product line because it doesn’t meet the good-for-you standard?
That wouldn’t make sense, because none of our products is bad or unsafe. We give consumers choices that reflect their lifestyles. If you want to consume Pepsi, we’ll give you Pepsi in every size possible so that on one occasion you can consume 12 ounces and on another only seven and a half. We want to make sure that both the good-for-you and the fun-for-you products are readily available, affordably priced, and great tasting. And we make sure that good-for-you tastes as good as fun-for-you. We want you to love our Quaker Oats Real Medleys as much as you love Doritos Loaded.
Do you try to push sales of the healthier products?
Yes, but we also want to preserve choice. We’ve taken lessons from Richard Thaler and Cass Sunstein’s book Nudge. We try to put portion-control packages out front on the shelves. We make sure our diet products are merchandised as aspirationally as our full-sugar products are. We advertise Gatorade only with athletes in mind because it’s not intended to be a recreational beverage.
Consumers seem very demanding these days. How do you keep up with that?
We have to make sure we’re engineering our portfolio for the consumer of the future. There’s nothing wrong, for example, with aspartame. But if consumers say they don’t like it, we have to give them a choice. We’ll offer a diet product that’s aspartame-free. Similarly, there’s nothing wrong with high-fructose corn syrup, but if consumers say they like real sugar, we have to offer that, too.
What’s your proudest accomplishment since becoming CEO?
I took over PepsiCo just after it had a string of successful years. Then everything changed. We faced new regulatory pressures on our fun-for-you categories, and our good-for-you business wasn’t fully developed. The North American market slowed down, and we weren’t big enough internationally. Sales through some major U.S. customers slowed down massively. Our key beverage competitor had done a big reset of its own, and it bounced back. We looked at ourselves and saw a decentralized, far-flung company that had to be knitted together. The culture needed to change. We had to eliminate redundancies. We had to slim down to reinvest in R&D, advertising and marketing, and new capabilities. I had a choice. I could have gone pedal to the metal, stripped out costs, delivered strong profit for a few years, and then said adios. But that wouldn’t have yielded long-term success. So I articulated a strategy to the board focusing on the portfolio we needed to build, the muscles we needed to strengthen, the capabilities to develop. The board said, “We know there will be hiccups along the way, but you have our support, so go make it happen.” We started to implement that strategy, and we’ve delivered great shareholder value while strengthening the company for the long term.
| PepsiCo’s billion-dollar brands | |
| Beverages | Food |
| Pepsi | Lay’s |
| Mountain Dew | Doritos |
| Gatorade | Quaker |
| Tropicana | Cheetos |
| Diet Pepsi | Ruffles |
| 7UP | Tostitos |
| Mirinda | Fritos |
| Lipton | Walkers Crisps |
| Aquafina | |
| Pepsi Max | |
| Brisk | |
| Sierra Mist | |
| Diet Mountain Dew | |
| Starbucks ready-to-drink beverages | |
| Source: PepsiCo FY14 annual report | |
Growing up in Madras, you seem to have broken every possible stereotypical expectation of a young girl in India. Are you still that person?
To a certain extent. When you’re a CEO, you can’t break too many stereotypical expectations. I wish you could, but you can’t. In those days, there was a well-defined conservative stereotype, so everything I did was breaking the framework. I played in a rock band. I climbed trees. I did stuff that made my parents wonder, “What the hell is she doing?” But I also was a good student and a good daughter, so I never brought shame on the family. And I was lucky that the men in my family thought the women should have an equal shot at everything. I’m still a bit of a rebel, always saying that we cannot sit still. Every morning you’ve got to wake up with a healthy fear that the world is changing, and a conviction that, to win, you have to change faster and be more agile than anyone else.
Originally published in September 2015. Reprint R1509F
Spotlight
PepsiCo’s Chief Design Officer on Creating an Organization Where Design Can Thrive
by James de Vries
Mauro Porcini is PepsiCo’s chief design officer—the first to hold the position—where he oversees design-led innovation across all the company’s brands under CEO Indra Nooyi. Below is an edited version of my conversation with Porcini on a variety of topics, from prototyping to the essential qualities of a great design organization.
How do you define design?
Design can mean many different things. At PepsiCo, we’re leveraging design to create meaningful and relevant brand experiences for our customers any time they interact with our portfolio of products. Our work covers each brand’s visual identity, from the product itself all the way to the marketing and merchandising activities that bring a brand to life across different platforms—music, sports, fashion, and so forth.
This applies not only to the current portfolio of products, but also to PepsiCo’s future portfolio. That’s where our work is really about innovation. I strongly believe that design and innovation are exactly the same thing. Design is more than the aesthetics and artifacts associated with products; it’s a strategic function that focuses on what people want and need and dream of, then crafts experiences across the full brand ecosystem that are meaningful and relevant for customers.
What does this look like on a day-to-day basis, at PepsiCo or elsewhere?
Design in this context relies on the prototyping process, which can create a lot of value inside organizations because it aligns the full organization around one idea. For instance, if I say “knife,” you are going to visualize a kind of knife. I’m going to visualize another knife, and if there were other people in the room, they would visualize many different kinds of knives. But if I design a knife right now, I align everybody around that knife. Let’s say that in the room there is a marketer who tells me the brand is not visible enough. There is an ergonomist who tells me the handle is not comfortable enough. There is a scientist who tells me the blade is not sharp enough. These are not mistakes. They’re not failures in the process. They’re how prototyping surfaces issues that don’t emerge in the abstract. That’s the power of design and prototyping.
When you put a prototype, something that is new and that nobody has ever seen before, in front of people, they get excited, right? There is the sparkle in the eye. I’ve seen it so many times in so many meetings. People talk and talk about things until somebody arrives with an object, a prototype, and then everybody gets excited. That’s how you unlock resources. You unlock sponsorship engagement. That’s extremely powerful and lets you move really fast. It’s how you speed up your innovation process and make the outcome more relevant to customers.
What do you need in order to make design thrive inside an organization?
Certain circumstances are necessary for design to thrive in enterprises. First of all, you need to bring in the right kind of design leaders. That’s where many organizations make mistakes.
If design is really about deeply understanding people and then strategizing around that, we need design leaders with broad skills. Corporate executives often don’t understand that there are different kinds of design: There is brand design. There is industrial design. There is interior design. There is UX and experience design. And there is innovation in strategy. So, you need a leader who can manage all the different phases of design in a very smart way—someone with a holistic vision.
Second, you need the right sponsorship from the top. The new design function and the new culture need to be protected by the CEO or by somebody at the executive level. Because any entity, any organization, tends to reject new culture.
Once you have that, then you need endorsements from a variety of different entities. It could be from other designers outside your organization. It could be from design magazines. It could be through awards. But you need that kind of external endorsement to validate for those inside the organization that you’re moving in the right direction.
Then you need to identify quick wins: those projects where you can show the value of design very quickly inside the organization. On the basis of this early success, you start to build processes that can enable the new culture and approach to be integrated inside the organization.
The process is really an evolution. I see it as five often-overlapping phases. The first one is denial: the organization sees no need for a new approach or new culture. But somebody with influence and power inside the organization—often it’s the CEO or somebody at executive level—understands that actually there is a need, so they hire a design leader who tries to introduce a new culture.
Then comes the second phase: hidden rejection. There may be acceptance at the top that the organization needs to embrace a new approach, but the full organization isn’t there yet. The design leader is moving forward in alignment with leadership and thinks that things are working well, but in reality they are not. In this phase, it’s easy to fail, and it’s easy for the company to reject the new approach.
The third phase is what I call the occasional leap of faith. As the design leader, you find a coconspirator inside the organization who understands the value of what you’re doing. He may or may not understand deeply what design is about, but he understands that there is value there and decides to build something with you, to bet on you. That’s when you start to get your quick wins. The quick wins are so important because they exponentially build understanding about the value of design.
The fourth one is what I like to call the quest for confidence. This is when the company understands that there is value in this new design culture and tries to integrate it throughout the organization. The problem is that when you try to do something different, there is always inefficiency and risk. This is especially true if you do design in innovation: There is risk not just in a process but in the market, in the brand and product you’re going to launch. That’s when you need to build confidence in the organization.
But at the very base of innovation and entrepreneurship is risk. Methodologies like Six Sigma are all about reducing risk, but they are not effective for innovation because innovation by definition is risky. Design, on the other hand, can build confidence inside the organization in a variety of ways. It comes down to building innovation know-how within the organization, and gaining input and buy-in from across the organization and from your customer through the prototyping process. The more you prototype, the more you build confidence in the organization, and the more you know that what you’re doing is the right thing. This quest for confidence is extremely important because so many corporations today are paralyzed by their fear of making mistakes or failing.
The last phase is what I like to call holistic awareness, when everybody understands that the new culture, in this case design, makes sense for the organization. This is when design is not about designers anymore. It becomes universal, and it prompts everybody to modify their own approach to work—whether it’s marketing, manufacturing, or any other function—to embrace it.
What does a design team look like at PepsiCo?
You need the design function—senior leaders with teams under them—embedded inside the business organization. Or integrated into it, I should say, because we don’t want design to report to another function. We want design to be a peer of marketing and to drive innovation.
At the center, we have been developing the key pillars of the design functions. We have a very senior leader running industrial design, another one running brand design, another one running innovation and strategy. And we are building digital as well. They are the ones who are nurturing the design capability.
Our hiring process is tough because we’re not just looking for good designers. When you’re creating a new design organization, a new culture, you need to hire change agents and people who understand how to change the culture of design. This makes things extremely difficult because you have many, many designers who may be amazing at what they do, but they have no idea how to explain what they are doing to a business organization. Those kinds of designers are a luxury we can’t afford in this phase of the organization’s evolution. If you have designers who can’t influence change, you get that familiar situation with designers whining that the business organization doesn’t understand them and the business organizations saying the design community has no clue what we’re trying to do.
You need the shared language, the structure, and most of all the right people to create a true design culture. I’m really against those design or innovation firms that claim they can come in and teach you design thinking. The result of their expensive workshops is people who are not design experts will start to think that now they get design and can do it by themselves. That’s a disaster because you do need skills and experience.
How do you convince others that investing in design is worth it?
For many, many years I’ve been asked in my corporate life to define the return on investment of design. The objective variables obviously are at project level and then at brand level—top-line and bottom-line growth. That’s a no-brainer.
Then there are subjective variables that we really want to take into consideration. One is consumer engagement. You can measure it in a formal way or you can measure it in the way consumers talk about your products, which is easy to do today via social media. Another variable is brand equity, meaning the impact on the brand. It’s customer engagement, the way your customers interact with you, the way they talk to you.
The truth is, once you embed design across your organization and people start to experience it, they stop asking you what its ROI is because they start to see the impact across all those variables.
Can you talk about a key business outcome from your time at PepsiCo so far?
When I joined the company a little less than three years ago, I was able to build a very strong partnership with our business organization and with R&D. We’ve been leveraging design to understand what our customers need and want from fountains, coolers, and vending machines. Then we’ve been crafting—prototyping, really—to create the ideal portfolio as fast as possible and take it to market.
The Spire family of equipment, launched about one year ago, is the first output of Pepsi’s design-thinking approach. Spire is a series of fountains and vending machines that let you customize your drink: you choose the beverage and add flavors. It’s been well received by the market, and it’s helped us as a design organization to show what design is about. We launched a new series of products this year and there is much more in the pipeline, but Spire is probably the project I love the most.
What makes Spire significant is that it’s such a change for the industry. Usually it’s external partners and suppliers that do a lot of the work on equipment, but with Spire, we said, let’s reset and let’s try to understand what makes up the portfolio of products we really want to offer. We rethought the architecture of the existing machines, but we also reimagined how we might build beverage, and eventually food, experiences in restaurants in the future.
We actually projected further out, to the fountain and the vending machine of 20 years from now. We wanted to understand where we could go and then step back pragmatically to deliver innovation in the short term, the middle term, and then the longer term as well.
You need to prove the point of design through activity, actions, and projects—it’s not just top-line and bottom-line returns. That will come. But it could be speed to market. It could be efficiency in the process. It could be employee engagement.
Are there any final thoughts you want to leave our readers with?
As designers—industrial designers, product designers, innovation designers—we are trained to understand all the different worlds of brand and business, R&D and technology, and especially people. We become experts of everything and experts of nothing. What we’re really good at is speaking the languages of all the different worlds, then connecting those worlds to our design tools and to our ability to prototype and visualize ideas. When done well, design becomes a cultural interpreter and facilitator across the entire organization.
Originally published on hbr.org on August 11, 2015. Reprint H029VL