Design Thinking in Action: PepsiCo’s Path to Customer-Centricity

Indra Nooyi, CEO of PepsiCo, has faced criticism for her design thinking shift to a broader product portfolio and a stronger emphasis on health. Despite these challenges, Nooyi has consistently increased sales and the company’s stock price is rising. She appointed Mauro Porcini as Pepsi’s first-ever chief design officer in 2012, and design is now a factor in almost all important business decisions. Nooyi’s goal is to redefine the innovation process and build experiences for customers, from product conception to retail placement. The transition began with a camera and an empty photo album, where direct reports were given examples of design.

Indra Nooyi’s future as CEO of PepsiCo was in doubt a few years ago. Many investors saw Pepsi as an obese monster losing market share to rival brands. They also criticized Nooyi’s shift to a broader product portfolio with a stronger emphasis on health. A well-known activist investor named Nelson Peltz battled hard to split the company in half.

Nooyi, 59, exudes confidence now. In her nine years as CEO, the business has consistently increased its sales, and after several years of stagnation, Pepsi’s stock price is rising once more. Peltz agreed to a cease-fire in return for one of his cronies being given a board seat.

All of this enables Nooyi to focus on design thinking, which in her opinion is now fostering creativity inside the firm. She appointed Mauro Porcini as Pepsi’s first-ever chief design officer in 2012. Currently, “design” is a factor in almost all important business decisions, according to Nooyi. Read our newest interview in Return of Design.

What problem were you trying to solve by giving PepsiCo a stronger design focus?

Every week, I go to a market as the CEO to evaluate our shelf presence. I frequently ask myself, “What products really appeal to me?” not as a CEO but as a mother. I came to the conclusion that we needed to redefine our innovation process and build experiences for our customers, from product conception through retail placement.

How did this transition begin for you?

I first gave each of my direct reports a camera and an empty photo album and asked them to take pictures of anything they thought was a good example of design.

What did you get in return for it?

Few people had returned the albums after six weeks; some had their spouses take pictures; many did nothing; they had no idea what design was. Every time I tried to bring up design within the company, someone would bring up packaging: “Should we use a different shade of blue?It was the equivalent of rebuilding a pig instead of just putting cosmetics to it. I came to the conclusion that our company needed to employ a designer.

How hard was it to track down Mauro Porcini?

We did a search and found that he had accomplished this level of success at 3M. We thus invited him to talk about our vision with us. In addition to having access to resources, he expressed a desire for a design studio and a seat at the table. All of it was given to him. Our teams are now incorporating design into every aspect of the system, from product development to packaging and labeling, to a product’s shelf appeal and user experience.

What do you think constitutes outstanding design?

I fall in love with products that are nicely designed. or you dislike. It may cause division, but a sincere reaction is required. Instead of saying, “Yeah, I bought it, and I ate it,” the ideal product is one that you want to interact with in the future.

You claim it’s not only about packing, yet it seems like a lot of what you’re talking about has to do with packaging.

Packaging is only one aspect of it. From conceptualization to the product on the shelf to the experience following the purchase, the entire experience has to be reimagined. Consider our recently installed touchscreen fountain dispenser, Pepsi Spire. Other producers of dispensing devices have concentrated on including more controls and taste combinations. The relationship between a customer and a machine is fundamentally different, according to our design team. We have a futuristic device that looks like a giant iPad and asks you to interact with it. It keeps track of your purchases so that the next time you swipe your ID, it will both remind you of the flavor combinations you’ve tried before and suggest some new ones. Instead of just clicking a button to get the completed product, it shows magnificent visuals of the product so that when you add citrus or cranberry, you can really see those tastes being infused.

Do you have any further notable design-driven innovations?

We are creating innovative women’s products. Previously, we would promote Doritos to women by packaging them in pink Susan G. Komen containers and using the slogan “shrink it or pink it.” That’s excellent, but women’s tastes for snacks go beyond that.

What then do ladies like to nibble on?

Males finish a box of snacks by shoving the rest of it into their lips. This is not how women behave. Women also worry about how much the product could stain; unlike many males, women won’t smear it on a chair. In China, we have introduced stacked chips that are housed in canisters made of plastic. A woman can reach her tray by opening her compartment whenever she feels like a refresher. She can re-insert it when she’s done. Women like to eat their chips quietly since they don’t want other people to hear them nibbling.

In essence, you are emphasizing user experience far more.

Definitely. In the past, we did not have a vocabulary word for user experience. We are forced to reevaluate structure, packaging, and function when we concentrate on texture, flavor, and everything else. All of this has an impact on the machinery we install, for instance, to create a plastic tray rather than a flexible bag. Design thinking is being implemented right at the start of the supply chain.

How quickly do you reply to customer comments? Do they even realize what they want?

I’m not sure if customers are aware of their wants. We may, however, take note of their errors. Grab a bag of SunChips. The first measurements were one inch by one inch. A chip would break into pieces when it was nibbled into. Consumers reportedly selected an alternate product because it was easier to consume, according to focus groups. SunChips were simply too big, we had to decide. I don’t care if our mold can only cut things that are one inch by one inch. We don’t sell items based on how well we can manufacture them; instead, we sell products based on how easily our target customers can fall in love with them.

Launching and failing

I think of quick prototyping and testing when I think about design thinking. Is this something you’re trying to do, in some way?

China and Japan, more so than the United States, are pioneers in this test, verify, and launch procedure. Rapid launching will result in more failures, but since these markets have cheap failure costs, this is acceptable. Before launching, we usually follow very planned processes in the United States. It could be necessary to ultimately use the China-Japan paradigm in the US.

Isn’t this paradigm already widely used in the US, or at the very least in Silicon Valley?

This approach is used by many small enterprises, for whom the risk of failure is acceptable. Particularly when working with well-known businesses, we are more cautious. Line extensions are permitted, and if a new Doritos flavor is a failure, it may simply be dropped. However, you must make sure that a new product has been sufficiently tested before releasing it. We introduce new flavors of Pepsi in Japan every three months: green, pink, and blue. We recently introduced a cucumber-flavored Pepsi. It will either be a success in three months or we will give up on it and move on to the next project.

How does your design approach provide Pepsi a competitive edge?

In order to succeed as a business, we must sustain top-line growth in the mid-single digits and accelerate bottom-line growth. Line extensions sustain base growth. Then, we are constantly searching for champion products—two or three sizable items that can significantly affect the top line in a certain nation or market sector. The product Mountain Dew Kickstart fits this description. It’s a brand-new product with more fluid, less calories, and fresh tastes. With regard to this invention, we had different ideas. We just created new Mountain Dew flavors in the past. But Kickstart comes in a small can and doesn’t taste or look anything like the original Mountain Dew. Women who join the franchise say, “Hey, this is an 80-calorie product with juice in a package I can walk around with.” In our sector, it’s challenging to earn more than $200 million in two years.

Is this a design thinking application or just a step in the innovation process?

Innovation and design can be distinguished by a fine line. Innovation should ideally follow design, and design is necessary for innovation. We’ve only just begun. Nine percent of our net revenue last year came from innovation. Because I think the market is growing more inventive, I’d want to raise it to the mid-teens. We need to be ready to embrace greater failure and accelerated adaptation cycles in order to get there.

Our teams are currently promoting design across the board.

Do you think that because competitive advantage is fleeting, firms need to reinvent themselves every few years?

Without a question. Sustainable competitive advantage hasn’t been a hot subject for a very long time. The cycles shrink in length. Every seven to ten years, it used to be customary to reinvent oneself. Currently, every two to three years. Business practices and consumer interactions are always changing.

How do you persuade the entire organization to support what seems like a drastic change in strategy?

The most important element was the recognition of Mauro as the ideal candidate. The beverage team welcomed him right away and saw how he might help us with product development. Retailers started to fall in love with him at that point and started asking him to visit their stores to talk about resetting their displays. The size of Mauro’s crew increased from about 10 to about 50 people, and we tracked him down in Soho, New York City. Now, it seems as though our items are catered to the relevant cohort groups, and their packaging is also extremely appealing.

How do you affect a change in the company’s culture?

Our decentralized structure served as both a strength and a weakness in the past. It is a suitable tactic when everything is developing and life is wonderful. But when cooperation is necessary and there are turbulent global events, it fails. It will take our folks between 24 and 36 months to adjust. I informed everyone that if they did not change, I would happily attend their retirement festivities.

How can you tell whether or not someone is succeeding?

In our international meetings, we see how they behave and whether or not they start the process with design. We track the amount of innovation that is impacted by design and released onto the market. To cut costs and free up resources, we continue to pursue an aggressive productivity effort. We track how many costs are spent, and you must get the most value out of every dollar.

Goals and Portfolio

You regularly refer to your company’s “purpose” while speaking about it. For you, what does this mean?

I had a number of staff town hall meetings when I took over as CEO in 2006. Few people admitted that they came to work for the pay. The majority wanted to create an existence rather than just make a livelihood. Additionally, they understood that customers were interested in their health and wellbeing. We came to the conclusion that we needed to include our people’s thoughts, emotions, and hands. We have to manufacture more wholesome goods in bigger numbers. We have to put sustainability first. Giving money away for charitable purposes is not a goal. It is essential to fundamentally restructure how money is earned in order to provide success if PepsiCo is to remain a “good” firm that young people want to work for.

Would you be willing to accept lower profit margins in exchange for “doing the right thing”? There must be trade-offs, without a doubt.

Margins are not harmed by purpose. The driving force for transformation is purpose. Top-line growth will stop if the portfolio is not changed, and margins will still decrease. As a result, we do not invest in “purpose,” but rather in a company plan that is future-proof. If some environmental concerns, particularly those affecting water, hadn’t been solved, we may have lost our licenses in some nations. Now, you occasionally encounter challenges when you fundamentally modify a culture. Because things aren’t always linear, transformations might have an impact on your margins or top line. However, if you take into account the company’s history, these are only small setbacks.

But don’t you still market a lot of dangerous goods?

We sell sweetened beverages and snacks, as well as Quaker Oats, Tropicana, Naked Juice, and Izze. We develop a range of goods, some of which are “fun for you” and others of which are “good for you.” We are reducing the salt, sugar, and fat content of our everyday goods. Our range of healthy goods has grown as a result of a change in social needs.

Would you consider ending a popular product line if it didn’t meet the health requirements?

That is illogical because none of our goods are dangerous or damaging. We give customers choices that are appropriate for their lives. If you want to drink Pepsi, we’ll provide it to you in whatever size you can imagine, so you may have 12 ounces one time and 7.5 ounces the next. Both healthy and unhealthy items should be simple to find, reasonably priced, and delectable, according to our policy. And we make sure that wholesome food tastes just as good as savory cuisine. You should like Quaker Oats Real Medleys as much as you do Doritos Loaded, is what we’re trying to say.

Do you make an effort to promote the purchase of healthy goods?

Yes, but we also want to keep the option. We have gained knowledge from Richard Thaler and Cass Sunstein’s book Nudge. We make an effort to put goods that help you reduce your portion size up front. We make sure that the marketing of our goods without added sugar and those on a diet is equally ambitious. Because Gatorade is not meant to be a beverage for enjoyment, we exclusively promote it to athletes.

Present-day consumers seem to be highly picky. How do you keep that up?

We must make sure that our portfolio is created with future consumers in mind. For instance, aspartame is completely safe. But if customers object, we need to provide alternatives. We’ll provide a diet product devoid of aspartame. The same goes for high-fructose corn syrup; nevertheless, if consumers want real sugar, we must also provide it.

What success are you most proud of since taking the CEO position?

Following a string of successful years for the firm, I took over PepsiCo. Then, everything underwent a radical transformation. Our good-for-you business was undeveloped, and our fun-for-you categories were susceptible to increasing regulatory demands. Our global footprint was insufficient, and the North American market was stagnant. Sales were considerably delayed by a few key U.S. clients. It had recovered after undergoing a considerable restructure, as had our main beverage rival. We perceived ourselves as a distributed, decentralized organization that needed integration. A change in culture was necessary. We had to eliminate redundant positions. In order to reinvest in R&D, marketing, and new capabilities, we had to decrease our personnel. I had choices. I had the option to go all-out, cut costs, make a sizable profit for a few years, and then give up. Long-term success, nevertheless, would not have come from it. As a result, I gave the board a plan that was focused on the portfolio we needed to build, the muscles we needed to train, and the skills we needed to acquire. We started executing this approach, and we’ve enhanced shareholder value while reinforcing the firm for the long run. The board said, “We recognize that there will be hiccups along the way, but you have our support, so go make it happen.”

You seem to have defied every possible cliché of a young Indian woman growing up in Madras. Are you still that person?”

in a specific way. You cannot depart from too many stereotypes when you are a CEO. Although I wish it were, it is not feasible. In those days, there was a clearly defined conservative stereotype, and everything I did was against it. I belonged to a musical group. I cut down trees. I was a good student and a kind daughter, so I never brought shame to the family, but my behaviors made my parents wonder, “What the devil is she doing?” I was also lucky that my family’s male members supported the idea that women should have equal access to all options. I keep saying that we can’t stay seated because I still have a little rebellious streak. You must have a healthy sense of dread every morning that the world is changing and that you must be more adaptable and nimble than your rivals if you want to succeed.

For further information

Indra Nooyi’s LindkedIn profile

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