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Indra Nooyi, chief executive, PepsiCo. Photo: Getty Images
Indra Nooyi, chief executive, PepsiCo. Photo: Getty Images

Indra Nooyi on design thinking

The PepsiCo CEO talks about what design means to her, the challenges in changing a culture and her proudest achievement

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 towards 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. To understand Pepsi’s transformation, Adi Ignatius, editor-in-chief, 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.

What problem were you trying to solve by making PepsiCo more design-driven?

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.

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.

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 (in 2012, Nooyi brought in Mauro Porcini as Pepsi’s first-ever chief design officer). 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 programme 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.

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 licences 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 (355ml) 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 US 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.

Growing up in Madras (now Chennai), 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.

Excerpted from an interview that appeared in Harvard Business Review (September 2015). Adi Ignatius is the editor-in-chief of Harvard Business Review.

©2015 Harvard Business Review. All rights reserved.

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