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  • Lou Killeffer

Imagining the Future at PepsiCo

An "Innovation Conversation" with Manoj Fenelon, Director of Foresight, Global Beverage, PepsiCo

Manoj Fenelon is the Director of Foresight for the Global Beverage Group at PepsiCo Inc. He

grew up in the south of India and holds degrees in Management Studies and Communication Science. He has survived both teaching persuasion theory to undergraduates and writing advertising copy, and has spent the last decade being professionally curious about consumers and consumption.

PepsiCo is the food and beverage multinational formed through the merger of the Pepsi-Cola Company and Frito-Lay in 1965. Today, PepsiCo’s array of iconic, world-class brands are distributed in over 200 countries generating net revenues of more than $43 billion a year. I met Manoj from a distance at the Beyond the Buzzword, the MBA Innovation Summit held in New York last April. As Director of Foresight, Manoj helps imagine alternate futures for PepsiCo’s beverage businesses and brands. The way he sees it, the future of business will be about value(s) created through sharing more than ownership, and about ideals and advocacy more than advertising and the bottom-line.

As we spoke Manoj had a great deal to say about a great many things, including; his colleagues at Jump Associates; the need for belief and conviction in successful innovation; the need for seeds and soil; the strength and weaknesses of the systems we’ve built; the power of the status quo; the lack of empathy in some corporate circles; the strength of the soul of a brand; and where he sees the world headed and how he spends his very fascinating days.

We met on a brisk fall morning on a bench above the Hudson River in Fort Tryon Park, the sixty-six acres of beautiful gardens and grounds in northern Manhattan designed by Frederick Law Olmsted, Jr. in 1935.

Lou Killeffer: Manoj, thanks for agreeing to sit down with me.

Manoj Fenelon: Thank you, I’ve enjoyed reading your other interviews.

LK: Well, I’ve been fortunate, we’ve covered some pretty interesting ground…

MF: I thought so; particularly with the guy from Red Associates.

LK: Jun Lee.

MF: Right.

LK: Everyone has a different take on things, and seeing how they approach innovation for their clients is intriguing. You’re perspective’s intriguing to me, of course, particularly as someone in a corporate role who might consider hiring I hope to interview Jump Associates who I know you’ve worked with before.

MF: Yes, you should talk to Jump. They’ve a very different and productive approach.

LK: Well, let’s start there. What makes Jump different in your view?

MF: Okay, in a way this prefigures some of the conversation I want to have about Pepsi and other companies who’re in the same boat.

At Pepsi we’re constantly reminded by senior management that we haven’t been as innovative as they’d like us to be. So Indra looks out at the shelf and sees we haven’t launched anything that’s exciting or considered innovative by a large number of people, which incidentally is quite true.

LK: Manoj, what does “innovative” mean here, to you or to Pepsi?

MF: Okay. Let’s take an explosive new category like energy drinks. That’s innovative, and that category kind of caught us and Coke both by surprise. The two kings in the beverage industry and they’d no idea this was coming! (Smiles) And you could say the same thing for Vitamin Water, right? So there’s a fair amount of angst to go around and I think it’s justified.

Look, I’m a part of the senior management that’s not being as innovative as all the little guys out there are. And all the people who work at Pepsi, at lower levels, they all know that all these ideas have been researched by us before at some point. That we came up with ideas for an energy type drink or how to design a healthier water product by adding nutrients…

This is a very interesting thing for someone like me to observe slightly dispassionately (Smiles) without getting involved emotionally. To stand back and see and say, “Okay, we have tons of ideas and yet nothing gets on the shelf. Why is that?” And very frequently the internal response to a good idea is, “No, no, no. Go out and get some more ideas.”

So you hire another Red Associates or another agency and you come up with another round of ideas that never gets on shelf…(Smiles)

In my experience Jump was the first agency that pointed out there are two sides to innovation and they’ve a wonderful metaphor for talking about it. They say it’s about seeds and soil. So many companies think that innovation is simply all about the seeds, all about having good ideas. And of course it is about good ideas. But if you don’t have good soil for those ideas to grow in, nothing ever gets beyond the seedling.

LK: It’s a brilliant metaphor.

MF: So they brought us a surprisingly sane approach that made us think very differently. About how to sustain an innovative culture that innovation can grow in. And this really turned our focus to very different sorts of things.

LK: Manoj, when Pepsi or any corporation says yes, we’ve these ideas but let’s go get some more, is it because they’ve no faith in what they’ve already determined or is it rather the gating process that’s broken? And I don’t mean Pepsi particularly.

MF: I understand, and having attended a lot of innovation conferences, I don’t think Pepsi’s unique in the sort of challenges we face.

LK: Apparently they’re universal.

MF: Yeah, and you’ve seen this. Some of it is a question of share. Some of it’s cultural. And some of it’s size…

If you’re an entrepreneur with a singular idea and it’s likely the only idea you have, well, that means the shirt off your back in most cases. There’s a belief and a conviction and a persistence that comes with that, a belief that companies like Pepsi just can’t replicate.

It’s kind of sobering to say, but I don’t think we believe in our ideas as much. So the slightest obstacle in feasibility or testing or staging, the first sign of trouble, and we’re very comfortable abandoning it because we know there are other ideas in the pipeline.

So what if this thing didn’t work out? We’ve always got some more…

LK: Is it simply risk aversion?

MF: Yes but I think it goes deeper than that. It’s the absence of conviction and belief as I said but it’s also an intuitive sense of what works. And my friends from Jump talk about this a lot.

Empathy as a quality in corporate circles, in innovation particularly, is scarce. Which is why I think you see the success rate of innovation, is so limited, it’s like 30%. If you can get to a 50% success rate, well, you’re a god in the innovation sphere. And I think a lot of that has to do with the fact that the people in large corporations charged with innovating for the world are just so disconnected from what the world really needs.

LK: When you cite an intuitive understanding of what works and what doesn’t, do you mean within the corporate culture or in the market place at large?

MF: I mean the culture.

LK: Right, and when you cite the lack of empathy, you mean a lack of understanding within the organization…

MF: Absolutely. Absolutely. I think a lot of the people in corporate circles, especially at key decision-making levels, are simply divorced from so much of what’s going on in the real world.They don’t live like most people to your point before. They don’t live in neighborhoods that are mixed. They live in a more gated world or community. And they don’t have an immediate sense for the broad swath of people buying sodas and chips. I mean, we’re not selling Mercedes here. We’re selling things that people buy for $2.00. And if you don’t move with people who are in the $2.00 world it can take you a long time to get to that world through research and such…

Clearly some companies do a better job of this than others. Didn’t P&G have a mandate of sorts during Lafley’s tenure where every senior executive reporting to him had to have been in a consumer’s house and seen how people actually live and use their products in a very human sense? It’s hard for any amount of research to replace what comes with that clear intuitive sense of how real people live and what they need as a result.

LK: So does the foresight team at Pepsi address the kinds of cultural learning and knowledge you’re speaking of?

MF: No, we don’t address it directly, it’s tangential.

The origins of the foresight team must be credited to the previous chief of the beverage unit Massimo D’Amore. He constantly reminded us that our research and development process for innovation typically takes from twelve to twenty-four months. So in a world of rapid change, whatever you’re designing is already obsolete by the time you get around to doing it. (Smiles) So you have to develop the capability of seeing ahead. He was very keen on foresight and pushed the people reporting to him in that direction and now it’s finally happened.

It’s a team of one for beverages. You’re looking at it. (Smiles)

LK: Just as an aside, what’s Pepsi’s beverage revenue, broadly speaking?

MF: A little over $60 billion, globally … we have about twenty brands each at a billion dollars plus, and at least five or six of them are beverages.

LK: So Pepsi beverages has one executive doing what you’re charged with doing?

MF: Yes, one person doing foresight. I do have extensions and I work very closely with the innovation departments so you could say I’m adding color to an innovation process previously very focused on the needs of today. I’m adding this color, not replacing their agenda in any way with a new agenda but sort of bending the curve a bit.

LK: How do you bend the curve, in what way?

MF: Right, so what do you do all day Manoj? (Smiles)

My role divides roughly a third, a third, and a third.

A third of it’s working with other Pepsi foresight people, who are also teams of one, making sure that whenever the company makes decisions about investing in the future, we’re all working from a common context. So whether it’s snacks or nutrition or beverages all of our decision-making proceeds from a common appreciation of the macro forces shaping the world.

Forces like the fact that the population is aging all over the world. That women are coming into new roles as actors in the market place, not just in places like North America where that’s been in motion for quite a while but in places like Saudi Arabia where it’s a relatively new phenomenon. And of course the impending ecological crisis and the attempts to deal with that…

Urbanization is another example. You know 70% of the world will live in cities in ten years. And I don’t know if companies, much less institutions and governments, are well prepared forthis coming reality. So that kind of context setting is a third of my work.

A third of it is networking with an external facing focus. Talking to people like you, being at conferences like the one we attended together. And cultivating an image for Pepsi as a forward thinking organization.

The last third is the most important and that’s my work with the innovation and brand teams. I do two things in that role. One is as a team of one of course I can’t be engaged in every single project to any great depth. So I try to get involved in the beginning just to make sure the project is oriented the right way. That’s about half my work with the innovation teams and the rest are select projects where I go really deep or commission myself.

LK: Manoj, who do you report to at Pepsi?

MF: I report to the Senior Vice President of Beverage Strategy and Business Development.

LK: Where do you source the information you use to develop insights about where the world is headed?

MF: A lot of it’s simple desk research and a lot of it’s dialogue with some really great organizations. My favorite so far has been the Institute for the Future. They’re a really interesting spinoff of the Rand Corporation (which does a lot of foresight work for the military) based in Palo Alto. Some folks at the Rand group, this is going back thirty, forty years ago, felt this kind of information shouldn’t be the exclusive preserve of the military, that civil society should have access to it too. So they started a spinoff that’s evolved into the Institute for the Future. They’re more like a think tank than an innovation consultancy.

So I source from groups like that, assorted desk research, UN reports…

LK: Right, then, what’s success in your role? Is it a healthier innovation pipeline for beverage or something broader?

MF: Well, yes, it’s all about beverages from a seed perspective, and absolutely, a healthier innovation portfolio and pipeline. But more broadly, philosophically, my real challenge is initiating some change across a really big company. At Pepsi, we’re fond of saying we’re the world’s second largest food and beverage company (after Nestle) and I think I’d consider myself successful if I could force a simple but profound change in the way our executives think.

Which is to say, the future’s not something outside of our company, something in the gathering distance that we have to react to. Rather, as the world’s second largest food and beverage company, we should be actively shaping the future of food and beverages. So real success would be imparting a sense of confidence and unleashing the power of imagination across Pepsi. (Smiles)

People at work always ask me, what do you see happening in the future? And I turn it around and say “What do you see happening in the future? You control X millions of dollars and resources; you’re bigger than entire governments! What do you want the future of beverages to be?” The best way to predict the future is to create it, as some wise soul put it.

LK: That’s a fascinating perspective. It seems that many traditional management principles don’t necessarily account for the future, they’re focus is the here and now, peak efficiency, keeping the trains running on time. But you might expect that the people running the trains would be among the most capable of reinventing travel on either an incremental or even a revolutionary basis. But lo and behold, they’re a little bit busy 9-5 keeping the trains running on time. How do you invite the dynamic of change into such an environment?

MF: Yes, I’d rephrase the challenge as, how do you get their attention? Because obviously it can be worked through. I’m very inspired by examples like IBM. A stellar example of how to reconceptualize such a big business, one that’s been around for 100 years, and take it in a new a direction that’s fresh and inspiring but at the same time very tangible for the people who keep the trains running at IBM because they’re all bought in. They’ve bought in big time. It seems like the entire company, all of IBM, is moving forward together.

LK: I think your IBM example also shows a sense of obligation, of responsibility, and clearly exhibits the confidence that you mentioned previously. It’s not some inch deep marketing Band Aid. It seems apparent that they’re doing something that they’re all proud of and confident in; that’s having some impact beyond the P&L and the share price. Which seem to be doing just fine as a result…It would be intriguing to consider how to get that done in beverages. If you were to sit down with any senior executive at Pepsi, I’m sure they’d say you’re absolutely right. But how do you get them to go from the philosophy, even the front-end discussion of seeds to the tilling of soil part?

MF: Yeah, that’s a hard one. (Smiles) Some of it you’ve anticipated. Speaking to people who’re keeping the trains running, they’re interested but they just don’t have the time or attention to absorb this information. And I don’t mean that critically at all. It’s built into their jobs as you’d expect. They’re not supposed to pay attention to people like me! You’re wasting time if you do.

So there’s a little bit of that. Then there are structural issues as well but I think there’s a bit of a mindset change too. At a big company it’s very easy to get complacent that the things you’re doing are obviously working. So there’s a great resistance to reinventing something until it’s time to reinvent it, and then of course it’s too late.

I think the CMO of Coke had a great quip on this. He said that most people think the choice is between change and the status quo. So you’re executing on something and it’s working and someone’s asking you to change. “Well, why should I change when this is working so well?” But the proper frame for the choice should be change or irrelevance, because the world around you is constantly changing. In reality, change isn’t even an option. The right frame, the real choice, is what kind of change.

LK: Right, it’s the dynamic evolution of the status quo. In the end, the status quo always prevails but it’s going to be different. That’s the whole point.

MF: Exactly.

LK: So acknowledging some very high powered, very talented executives don’t have the time or bandwidth to investigate innovation in a meaningful way so multi-nationals like Pepsi have created their own innovation groups. How do the innovation groups interact with the rest of the organization and what is their role?

MF: Their roles are evolving too in fairness I should say.

There’s a growing realization that, for example at Pepsi, innovation has to come out of the brand soul, if you will. That’s not meant to say that consumer inputs are and market research and all of that aren’t important. But starting from the brand itself takes you out of a more reactive frame.

I mean the typical ways of doing research, you go and ask why someone isn’t doing something and then you try to address the barriers and such. Increasingly there’s a growing realization that that will only get you so far. It gets you removing obstacles to people liking something and it may get them to the point of being sort of okay with it. But it simply can’t get them to love things the way you see the fanaticism around Apple products for example.

So what gets you to that level of passion? People having passion for your products. As I say, there’s a growing realization that passion comes from a sense of being in the same movement as the people who are running the brand. You and the consumer are all part of one big force that’s pursuing some kind of ideal. I think, the ex-CMO of P&G, what’s his name?

LK: Yes, he became quite a super star, Jim Stengel.

MF: Yeah, Stengel. He’s written a book about brand ideals and I think it’s a very powerful concept to introduce into the innovation conversation. That brands that mine these sort of touchstones of human existence, like comfort, and nurturance, and imagination and the like. If you build a movement around your band, not only do you invite people into that movement but you create a kind of passionate loyal following that also makes your job as an innovator easier because you’re constantly inspired by the driving force of the movement.

LK: So you’re constantly reinterpreting something that’s been clearly adopted in the real world? Something that gives the brand an enduring point-of-view, and perhaps the internal confidence and inspiration that you’re doing something wonderful, not just pushing cans and counting the dollars.

MF: Exactly.

LK: And this is a new movement underway at Pepsi?

MF: Yeah. And those sorts of ideals tend to be timeless which helps with our foresight challenge, right? Because when you reconceptualize your business as saying “I’m in the business of bringing joy to people’s lives”. And I’m not saying joy like Beethoven’s Ode to Joy, but just that moment of respite within people’s otherwise pretty hard lives. Now if that’s the business you believe you’re in, then cans can come and go but you’re still in business because you’re constantly rethinking how do people want too see, feel, and express joy in their lives. And that can and will change over time because their circumstances will change, right? But you have a North Star to follow, which says I’m in the business of providing joy to people and as the world is changing, let me figure out what joy means to this changed world.

LK: So are there innovation groups attached to each of the Pepsi brands?

MF: Each of the brands and they’re starting to take more and more inspiration from what the brand really stands for and go in that direction.

Another thing, and a great source of learning is the global nature of the organization. Now that globalization as we knew it, as the spread and acceptance of western ideas and values are sort of stalling, we’re still seeing globalization but it’s very different. In fact, it’s more in tune with the spirit of the word. A truly international market place…

LK: As opposed to North American or European influences dominating…

MF: Yes, influences that are more spread out, coming from and colliding, from all over. So when I look around at my counterparts, not necessarily in foresight but just people I work with across the globe, and to see the kinds of things we’re doing in places like India, for example, are just tremendously inspiring. And I think they might even be ahead of the US division in some respects.

LK: That strikes me as very wise and a smart business practice. There’s a great deal of talk in academic circles that the next wave of meaningful innovation won’t come from the US and the usual suspects but rather bounce back from the BRIC countries and others. A real world, time and space example of looking beyond the sweet spot to find real development on what might be called the edges…

MF: Yes, and there are brilliant examples of people virtually everywhere in the Pepsi-Co globe. Take India for example. One of the snacks groups in India has sort of anticipated the current US dynamic where snacks and beverage makers are being derided for providing products with empty calories; junk food. In India they’re going to be having this debate and we’re going to be attacked let’s say ten years from now. So they’ve brilliantly anticipated that and they’re trying to create a new paradigm in which snacks and beverages, the stuff of everyday consumption , are also vehicles for solving deficiencies; for addressing the nutritional needs of the base of the pyramid, as it’s called.

So we’ve actually made a snack in India that’s a very common snack that everyone eats but it’s been fortified with iron for a particular area in India where adolescent girls are having puberty-related problems because they lack iron. I hope I’m getting the facts right here. But they’ve created a brand of snacks that’s like the Indian version of corn chips that now comes with iron; iron fortified Tostitos, imagine!

LK: I’ve read about something similar, somewhere. That, instead of Mayor Bloomberg and the First Lady saying “No, no, no!” in their fight against obesity, that, in fact, that construct is wrong. Instead of an either/or choice let’s use the existing delivery system that everyone’s in love with and address its faults while using it to address a particular nutritional deficiency. It’s a remarkably – you’ll excuse the expression – innovative idea. Are they looking at similar ideas here in North America?

MF: Yes, we’re trying to, and doing it a bit differently I think. Here in North America it appears harder to convince people, just as a business, to really look at these masses of people and estimate their needs and go about seeking solutions. I think it’s fair to say that a large aspect of that is business model innovation. And of course that’s another thing that companies that are well grooved and are massively scaled up are very hesitant to take a look at. So ohh a new business model, that’s very frightening.

LK: Very challenging…you mentioned size a moment ago as one of the constraints I between seed and soil. Were you referring to the size of the organization or the size of the seed? I’ve worked with large clients and brought them strong ideas, and they’ve said, “Sure, these are great, but we need a $300 million revenue idea or we simply can’t be bothered” Is that the case with Pepsi?

MF: Yes, absolutely. It’s absolutely true for Pepsi, this big idea thing. And periodically we’ve thought a lot about this problem, we’ve asked for solutions. And there have been solutions on the table and then the organization’s attention span shifts and the solutions gets shelved only to come up as problems ten years later.

This is the problem of incubation and you’ve hit the nail on the head. For a system that will only accept a certain sized idea, and for us it can even be billions of dollars not just millions of dollars, how can an idea survive such requirements up front? How do you get an idea from that very critical $5 million stage to the point where it will be acceptable to a system of this complexity and scale? How do you nurture it and who’s going to do that and where? It’s a thorny issue for us.

LK: Isn’t Chobani, the Greek yogurt, an excellent example? I think a lot of people are scratching their heads about their somewhat spectacular rise.

MF: Yes, of course. And I think that journey from let’s say $5 million to $50 million operates on very different principles, very different, you know it’s a journey of learning so you don’t look at failure as some sort of end state. You look at it as a spur for further learning. And it’s a very different way from how much bigger revenue ideas operate. They can be refined around the edges but in effect, this is it. And there ‘s clearly no tolerance for failure so there are very different principles in play.

So in a way it makes more sense to have the smaller ones on the Outside, or outsource that completely to the acquisitions group and say let somebody else do that part of the journey and when they get there we’ll buy them. And as long as you have conviction around that, and everybody’s aligned towards operating like that, then I think it’s a beautiful innovation strategy. But then, companies tend to waffle. There’s a fair bit of attraction towards doing something like that, so they create incubation units and things like that. And then it becomes a question of how do you insulate them enough from all the pressures affecting the rest of the company and have those groups be almost like pirates on the inside.

LK: Does Pepsi have a pirate group?

MF: Yes, we have the beginnings of some … when business-as-usual is not working as usual, there’s always more openness to these sorts of things, but it’s still a massive challenge believe me.

LK: Manoj, thank you very much. It’s been wonderful talking with you, I’ve really enjoyed it.

MF: You’re quite welcome. I enjoyed it as well.

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