Chapter 16. Empowering Change from the Top Down

• How can CEOs manage the transformation of the marketing function?

• How does the CEO defy growth boundaries?

• How does the CEO encourage organizational skill sets for developing and applying insights?

• How can you apply positive risk management to convert insights into innovations quickly?

Now you can see that marketing is the holistic single-threaded system for driving growth from the starting point of insights through to the marketplace execution of new ideas, new products, new messages, and new customer experiences. Clearly, this definition of marketing is not limited to a department, a function, or a group of specialists. It’s a core capability of the enterprise that must be designed, built, and deployed. The magnitude of change required cannot bubble up from the bottom; the sustained change in processes, methods, culture, and thinking requires leadership from the very top.

The words “marketing” and “CEO” are often not closely associated. Most CEOs did not get to their position through the marketing department. Their experiences and skill sets usually are based in finance or operations. Many CEOs may be suspicious or skeptical of marketing because, in their historical experience, marketing’s promises have not been fulfilled, risks and rewards have not been adequately balanced, or process and measurement have not been balanced. Many CEOs are not comfortable enough to manage marketing, in contrast to their total command of the rest of the management tools available to them.

How, then, can the CEO bridge this gap? He or she must lead the marketing transformation through the craft of leadership. We talked to Tom Falk, CEO of Kimberly-Clark Corporation, about how he leads the marketing transformation to drive organic growth.

Tom Falk

In many ways, Tom fits the CEO mold we describe. After joining Kimberly-Clark in 1983, he spent most of his first ten years with the company in corporate finance. He was identified as a senior management candidate early in his career, which led to his attending Stanford University Graduate School of Business as a Sloan Fellow in 1988. Developmental assignments followed in manufacturing and supply-chain management.

He ascended quickly to a general-manager position leading the largest and most profitable group in the company. Subsequently he led the integration of the Scott Paper Company following the Kimberly-Clark/Scott merger in late 1995. He added geographic scope when charged with turning around the company’s business in Europe. He was promoted to President and Chief Operating Officer and was elected to the company’s board of directors in 1999. He became Chief Executive Officer in 2002 and Chairman in 2003. His rise to CEO involved a variety of experiences and achievements but did not include a stint in the marketing department.

Today, Tom successfully drives marketing transformation through four principles:

• Push growth boundaries beyond traditional limits.

• Create the ability to develop and apply insights.

• Apply positive risk management.

• Get the insights to market quickly.

Let’s explore each of these so that you can see how to apply them to your organization.

Push Growth Boundaries Beyond Traditional Limits

Jack Welch, former CEO of GE, was famously quoted as instructing his managers that, whenever their businesses achieved a high share of their market, they should redefine that share to 10% or less by expanding the size of the market they were competing in. Similarly, Tom Falk and his team at Kimberly-Clark are working to expand the boundaries of their brands by creating new spaces in which they can compete.

Kimberly-Clark has some of the world’s most trusted and recognized brands, including Kleenex and Huggies. For decades, the company has strived to make the best possible tissues and diapers and to persuade consumers worldwide to choose these brands over the competition. The company has worked with retail customers to maximize the effectiveness of shelf layouts and merchandizing schemes. Surely there must be a limit to the added growth that can be achieved over time with this focus.

Often, when such a barrier is reached, suboptimal decisions can be made. The consequences can erode the very brand equity that was accumulated over decades of brand building. Perhaps managers will drive the brand into increasingly marginal line extensions. Beverage brands, for example, often add flavors, each one with a narrower consumer appeal than the flavors that made the brand loved. These peripheral line extensions steal space on the delivery truck and space on the shelf from the established flavors. Because the purchase frequency and velocity on the store shelves are slower, the retailer becomes disillusioned with the brand’s contribution to store revenues. The stocking clerk fills gaps in the established flavor shelf inventory with cans from the still-full case of the slow-moving flavor, exacerbating the deceleration in volume. It’s a vicious cycle that’s hard to break.

Pricing decisions often have similar consequences. Brand Managers will lower the price in an attempt to drive more volume. Yet, the value proposition to the consumer includes the prestige and reassurance that are built in to the premium price. Continuous price promotions confuse the consumer as to what the product is really worth. Cutting product costs and quality can have a similar effect. The cost reductions can increase the margin and bottom-line profit on a spreadsheet, but they may destroy the long-term value proposition built and reinforced in the consumer’s mind by keeping a product quality promise.

Managers often make these decisions because they believe that there are boundaries to the growth of their current mature businesses. This leaves them with few options for “which levers to pull” to achieve revenue increases. Tom and his Kimberly-Clark leadership team set clear direction for where growth will come from, and then they remove or push out boundaries to growth.

Setting the Growth Strategy

“Our disciplined approach to growth is to look first at the organic growth that’s possible from the businesses that we’re already in and the brands we already own, and to get as much growth from those as we can. Organic growth is the highest return on investment available to any company. It is difficult, expensive, and risky to make acquisitions, and many never deliver the growth that’s expected. So my approach is to focus on ‘better is better’ rather than ‘bigger is better.’ We should be clear about what we’re trying to do with the business we’re currently in, and that we’re mining the growth that’s there.”

So how do you push out the growth boundaries that others perceive?

Moving the Boundaries

Tom explains the kind of thinking that moves boundaries for such long-established Kimberly-Clark brands as Kleenex and Huggies.

“There have been a lot of ideas suggested for products that could carry the Kleenex brand name. If we were to take a product-based view, we’d limit those ideas only to paper products. Yet, we know our consumers trust the Kleenex brand to care for their families across a wide variety of need states. Our challenge is to select the right insights to drive into the marketplace.”

So what is the right formula for finding the new growth space for established brands? Kimberly-Clark uses the term “domain” to signify a new kind of brand footprint and emphasizes that the domain is defined by the consumer, not the manufacturer.

“What are the consumer’s needs, and how do those growth spaces relate or connect to the brand idea? For example, looking at the diaper category, you can think about it as diapering, or maybe extend it to include toilet training, or even wiping. But if you really think about it from the consumer standpoint, it’s about helping mom care for her baby. Her world includes shopping for clothing, baby formula, and other baby products. You may not want your brand to have entries in all those product areas, but how your products and brands relate to the overarching ‘baby care’ category is an important part of defining the domain.”

Just opening up the organization’s thinking in this way creates new breadth—a broader field in which to apply innovative ideas. Typically, these broader fields are multidimensional. For Huggies, for example, Kimberly-Clark created a new growth direction with a solution for moms whose babies were growing out of diapers:

“We’ve extended beyond diapers into products like Huggies Pull Ups training pants. It’s another benefit our brand can provide moms as their children start toilet training. We’ve penetrated only about one-third of the U.S. market with this product. In other words, there are still big opportunities to take our brands, find new consumer solutions, and grow even in a well-developed market such as the U.S.”

Similarly, the Huggies brand now offers a new range of toiletries and bath-time solutions for moms and their babies. This also demonstrates to Kimberly-Clark’s retail customers how much new growth, revenue, profit, and shopper interest a brand like Huggies can bring them.

The leadership action of removing constraints has been the key to unleashing new growth from established brands.

Create the Ability to Develop and Apply Insights

Growth transformation does not require a massive and comprehensive management intervention. Usually, such interventions focus on changing the organizational structure and can cause major disruptions and a lot of turbulence before the new organization settles down. Tom Falk describes an approach that may be far less disruptive and more effective in providing the catalyst to drive growth.

The key to the transformation is the focus on insights. Insight generation is the beginning of the marketing value chain and, in fact, of the entire business value chain. If the leader focuses the entire organization on generating new insights into the needs of consumers and customers, a whole set of dominoes begins to fall in a virtuous sequence.

The first domino to fall is the realization that a new insight calls for a new set of solutions and that those solutions may come wholly or partially from outside the company.

“In the past, we tended to look to ourselves first for the solution and for the best practices. Today, we look outside as much as inside. We say to outside partners, ‘Tell us your ideas on how you can deliver against this new consumer need state.’

We have the insight, we own the brand, we have the distribution access, we have the vision for where we want to take our business, and we use outside partners to help us deliver on the total solution. This doesn’t mean we outsource all our solutions. There are some areas in the process where we clearly add unique value. But unbundling those activities, instead of saying we have to do them all ourselves, saves time. Some activities can happen in parallel, and some third parties are already well down the road to where we want to go. Let’s partner with them and take advantage of their learning.”

Another domino to fall is the realization that, with new insights, new kinds of talent are required to turn the insights into solutions, and new ways of tapping into that talent are required.

“There are many clever innovations at smaller companies where so much R&D is happening today. When I speak with young college graduates, including those with advanced degrees, fewer and fewer are going to work for big companies. They instead are going to work in start-ups and smaller companies. So how do you cast your net and find those smart people with great ideas and build relationships with them?

We’re putting a lot of effort into building partnerships. We want to be a company that those talented people like to work with—a company that is easy to do business with, flexible enough to accommodate different styles and approaches. It’s a good source of diversity and a great means of incorporating new ideas into our processes.”

Not only is there a need to tap into new talent externally, there is also the need to rethink internal talent as soon as the new stream of insights starts to flow.

“We are certainly on the verge of radical changes in the way marketing career paths evolve. In the future, the talents and skills of people who choose marketing will be different and more diverse. The old approach to marketing is probably already dead: hire an MBA from one of the best schools; put them on a brand team; give them a big advertising budget.

“I think you will find more anthropologists, who really understand human behavior and how people connect with the world around them. You will find people with strong technology backgrounds who are adept at using interactive communication in their messages.

“The ways we apply marketing also will be different. If you think about a marketing team all working in the same building on a marketing project, that will change. Marketing will occur at customer locations and in retail environments. Those activities will be just as important as strategic brand building or traditional big-budget TV advertising.

“In short, we’re going to see greater diversity of backgrounds coming into marketing and greater diversity of marketing work. There’s still plenty of room for creativity and innovation within that space, but there’ll be more science, more technology, and more measurement focused on the quality of the outputs, and not just the creativity of the inputs.”

As soon as this insight-driven transformation starts to build, it influences all aspects of the organization and its activities and how they are connected and integrated.

“A consequence of becoming insights-driven is that everybody at Kimberly-Clark is now thinking about different and better ways to do things. We may not be able to do all of them, but our people are constantly thinking about ways to innovate. It becomes part of the DNA of a truly innovative company.

“Still, we can have a great insight, and we can turn it into an interesting product, but what good is it if we haven’t prepared the ground from a customer standpoint? That is, if we don’t know how to fit it on a shelf, or how to get it through a customer’s supply chain. We are now building greater multifunctional capability to serve our customers. The work design connects our customer development organization with our product development organization for a seamless flow of ideas. The ‘last mile’ to the customer and then to the consumer is critical. That is a capability that you can’t take for granted; it has to be right there at the start of the innovation process.”

When you focus on insights, a transformation is set in motion that can change the entire organization and how it approaches all aspects of innovation. This includes how the organization translates insights into innovation, to how it delivers innovation to the marketplace, to the diversity of skills the organization assembles and the processes, to tools and technology it employs. Tom is convinced that the focus on insights and new ways of understanding consumer and customer needs and motivations is the right stimulus for transformational change.

“I believe that the insights-led transformation is evergreen; we are continually building our understanding of the consumer, building new insights and moving day by day into new opportunity areas. That’s where the power of the insights process lies.”

He maintains that conviction in spite of the “transformational idea of the day” mentality that sometimes pervades the management literature. Just as managing a brand requires a consistent message with innovative change in features and benefits, so does the building of the corporate transformation of the brand.

“An important element of transformation is consistency. You can’t just read something in the Harvard Business Review or talk to a new consultant and change the agenda. You have to be consistent, and you have to reinforce the same message at every opportunity. Sometimes you can fall victim to saying, ‘I shared my vision once; they know what I want, so they are going to deliver.’ My experience reinforces how important it is to keep repeating the same, consistent message. It’s much like building a brand. The act of transformation requires building an emotional connection with people in the organization. A CEO has to get people to believe in the transformation that there’s an identified need; that there’s reason to believe in the importance of meeting the need; that there’s confidence in the organization’s ability to deliver the solution; and that when it does, there will be a big win for everyone. If management can consistently communicate all those things, then people in the organization will embrace the transformation, they will want to pursue the mission, and they will adopt the new processes. The act of transformation uses our marketing skills as well.”

Apply Positive Risk Management

Innovation is an inherently risky process. A financially astute CEO can look at risk in an operational and impersonal fashion without emotion. Risk can be quantified as a mathematical function and managed proactively, thereby reducing the fear factor.

Another way to proactively manage risk is to roll it up into a portfolio. A risk portfolio is simply a distributed set of possible returns. Some risks will be ranked high, low, or negative. If the portfolio is properly balanced, the manager can classify the “bets” with an optimum balance between big bets with higher returns and small bets with lower returns, along with high levels of opportunity for repetition and continuity. It’s the proactive application of the risk model—analyzing past results to forecast future risk—that tames the beast.

Tom describes the risk portfolio as part science and part judgment.

“Part of senior management’s role is to look at the funnel of ideas in the innovation pipeline and to select which of those ideas to fund. There are tools we can use such as real options pricing to help us determine which ones have the greatest potential for success. But the results from models like this are mostly directional. In the end, it comes down to management judgment about which ideas offer the most opportunity and then making the organization comfortable stretching to make those ideas a success.”

Getting the organization to make that stretch requires culture change before behaviors change. Much has been written about culture change management, but Tom’s view is very simple: make the organization comfortable with the requirements of risk management, including rapid decision making with incomplete information, and make good use of the learnings from those decisions.

“CEOs must clearly communicate the business results they want from the innovation process and how much they are willing to invest, and then throw their full support behind the investment and all its risks. It is also necessary to change behavior, and a critical part of doing so is how you treat failure. If the consequences for failure are punishment of the individuals involved, you are going to have an organization that’s risk-averse. Yet innovation is an inherently risky process. So part of the transformation is building a process that forces decisions to be made in a timely manner. Thumbs up or thumbs down. This includes saying, ‘You don’t have permission to run another test, but you do have permission to make a decision based on the data in hand.’

“Similarly, there’s an element of happily learning from failure—we followed the process, and it didn’t yield the results that we wanted, so let’s take stock of what we learned, improve it, and move on to the next opportunity. I tell our teams time and time again, ‘If we don’t fail once in a while, we’re probably not trying enough new things.’ Our teams are still learning to accept that. Not everyone believes it. Still, it is hard to find examples in our company today where people have been punished for taking a risk that failed.”

Get the Insights to Market Quickly

The preceding discussion focused on the upstream components of the value chain—insights, innovation, development portfolios, and organizational capabilities. None of these are monetized until products and services are taken to market and consumers and channel customers pay for transactions. The growth-focused leader concentrates on the process to deliver innovation speedily into the marketplace. Tom Falk understands that insights can be unique and can create competitive advantage, but the advantage does not last forever and will eventually be diluted in a competitive market.

“You have to assume that your competitors understand the same or similar consumer insights. Once you have an insight, you can’t patent it or lock it away very easily. That means within months of launching an innovation based on an insight, competitors may launch their own versions in other global markets. The functional benefits may differ, but others want to occupy that same space in the mind of a consumer. Developing a meaningful insight is an important step, but being able to quickly transform it into an innovation and quickly drive it into the marketplace are key elements as well.”

How fast is fast enough?

“We are never satisfied with the speed we achieve. We’re always trying to improve. We’re more focused than ever on measuring cycle time consistently across the process, with a goal of continually reducing the time it takes from insights generation to marketplace launch.”

How is it possible to improve? As soon as the idea of “growth as a process” is applied—insight generation inevitably leads to innovation in products, services, and business models—metrics and continuous improvement can be applied for greater speed and efficiency.

“We continually ask, what are the key decision points, and how can we accelerate getting to those decision points? All processes can be speeded up once you’ve mapped the decision points. For example, the conventional model can be speeded up by using the Internet as a tool for market research to get answers much more rapidly. But we can go even faster by changing the model—by getting the organization comfortable with taking a bit more risk—for example, going ahead without new research in cases where we already have great understanding of the consumer and their interactions with our products and our categories.

“We often can accurately predict the likely result of an insight or innovation without the delay of exhaustive testing. A good example is our recent restaging of Huggies Supreme diapers. We are relaunching the brand in North America and Europe at the same time. In the past, we would have launched it in one market or the other and waited to get a read on the results, and then fine-tuned it before taking it to the next market. Nowadays, you must be willing to introduce simultaneously in multiple geographies, and that means taking a bit more risk.”

Leading the Way to Breakthrough Growth

Kimberly-Clark’s approach highlights one of the most powerful aspects of the single-threaded end-to-end approach to growth. It begins with the generation of insights that feed multiple development streams:

• An innovation stream that drives toward new products and new services that make your brand, solution, or offering different and better than your competitor’s

• A design stream that creates the consumer and customer experience that wins on relevance—“designed for me”—which is the second driver of marketplace effectiveness

• A branding and communications stream that builds the emotional bond with consumers and channel customers that makes them remain loyal to your offering

If you focus your organization on generating insights, the rest of the transformation will follow. Your teams will quickly realize that they need new solutions to deliver on the new insights. To generate the new solutions, they’ll look for new partners and new resources. To manage the new ecosystem, they’ll look for new skills, talents, and tools. They’ll talk to customers differently. They’ll organize processes differently and collaborate differently.

With this approach, the leader doesn’t have to intervene to “change everything” in some massive restructuring. The leader simply uses these tools of leadership: identify the direction, remove the boundaries to growth, initiate the insight generation processes, and give the organization permission to take the risks needed to innovate and deliver the new solutions to market.

It is not easy. Nevertheless, the challenge of bringing new growth to established businesses can be approached systematically. The payoff is clear—stronger, more relevant brands; a new dialogue with retailers; and a deeper relationship with consumers.