Motley Fool Hidden Gems Investing - The ROI of Design

Episode Date: December 11, 2022

Great design can reward a company’s shareholders, but “good enough” doesn’t do much. Mauro Porcini is the Chief Design Officer of PepsiCo and the author of “The Human Side of Innovation: The Power of People in Love with People.” Ricky Mulvey caught up with Porcini to discuss: - Why investors should watch companies with great design thinkers - The strategy behind limited-edition releases - How wearables could change what we eat and drink   Companies mentioned: PEP, MMM, AAPL   Host: Ricky Mulvey Guest: Mauro Porcini Engineer: Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

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How do you quantify the value that you create for the company? And so, I was still at 3M. We started to work on defining this ROI. And obviously, the most powerful form of ROI is if you grow the business. It's the impact on top line, bottom line, market share. But you can't quantify that just on a project. I'm Chris Hill, and that's Mauro Porcini. He's the Chief Design Officer at Pepsi and author of the book, The Human Side of Innovation. Ricky Mulvey caught up with Porcini

to talk about how top-tier design can lead to return on investment, why more companies are offering products with limited edition releases, and one designer's vision of the future with tattoos that read your health patterns and 3d printed cookies you say that a lot of companies kind of half step towards design why do you think you see that that let's say distance between talk and action well because forget even the word design and this is one of the key points of the book it's not even about design but to change culture to change approach to do something different than what you're used to you're familiar with something that worked for you for a long time all of this is risky by definition and so in this specific case of design to embrace it

in the right way if you are not doing it already if it's not part of your culture if it's not part of your way of working and thinking then by definition is a risk and to take that kind of risk you need to have the right people within the organization comfortable with taking the risk so a culture of innovation and risk taking and then you need to have the right know-how the right knowledge and it's not it's not something that you buy from the next design agency that you can hire to help you but it's something that you need to build within the dna the genetic code of the company over time. This is true for design, it's true for anything else. Any radical transformation requires an evolution of the genetic code of the company, especially the ones, like in the case of

design, that require some form of higher perceived risk. By the way, I call it perceived risk because actually not changing is eventually the bigger risk that companies take often, you know, in these kind of situations. It's also an interesting, so you've brought this up in other interviews, which is it's essentially when you need to convince the investors to, investment people to invest in high quality design. And you've brought up this study from McKinsey, it's called the McKinsey Design Index. And one of the things I noticed in the study is the asymmetric returns in it. And I think it goes back to your point of you need to be fully committed to a design culture. and what these researchers at McKinsey found or consultants or people who put together the

interview or the paper, excuse me, is there's asymmetric returns. So if you're in the top quartile of design for pretty much any industry, there's a measure of outperformance you gain from that. However, if you're in even this, there's no difference between the second quartile and the bottom quartile. So if you're in the top 50% or the bottom 25%, there's not a huge difference. Why do you think design carries that kind of asymmetric return for those companies where only the top winners are rewarded? Because you need to do it right and you need to do it holistically across the entire portfolio that you have, the entire operations of the company the entire culture of the organization let me make a very very practical simple example

coming i'm just picking a company like you know like i may take any company but let's say apple was deciding years ago they had an average portfolio products you know let's assume they were not leveraging design and design thinking and they decide all of a sudden to re to design the iphone and they will design the iphone exactly as they did design the iphone but they wouldn't touch the packaging they wouldn't touch the experience in retail and they wouldn't touch the service let's say that everything else will be average like the rest of the industry but they would just design an amazing amazing product that operation would have failed you know it wouldn't be the Apple that we all know, obviously. You can't invest in design and be like, well, I can't

change the company from night to day, so I need to start from somewhere. Let's start with this specific product, this specific brand. Let's do one project. Let's see how it goes. Tell me what is the return on investment on that project, how design helps changing the product. When you do that, you're not understanding what design with a capital D can really do for your company. You may be lucky and just redesigning the aesthetic not even the functionality the aesthetic of a product you can increase the sales of the product it happened to me 20 years ago when i entered 3m the tech company from minnesota and we redesigned a line of multimedia projectors the very first project that we did and just by redesigning the aesthetic and a little bit of the ergonomic of

the product we doubled the sales of that product line so it can happen here and there but the truth is that for sustainable business growth and to really build sustainable financial value for the company, you need to impact every single touch point of the business. And therefore, many years ago, even before PepsiCo, then in PepsiCo,

so when I was at 3M and then in PepsiCo, multiple people, executives of these companies, were asking me, what is the ROI of design? How do you quantify the value that you create for the company? And so I was still at 3M. We started to work on defining this ROI. And obviously, the most powerful form of ROI is if you grow the business.

It's the impact on top line, bottom line, market share. But you can't quantify that just on a project. Let me give you an example. If I work on Pepsi, and they do a series of operations on the pack, on experiences that don't generate a real relevant return for a brand of that size for a brand that is multi-billion dollar worth but impact with its halo effect the overall brand and therefore increase sales and brand for the law a lot for the brand in the core product eventually didn't touch yet that's still roi of what i'm doing with design but if your approach to that roi is very myopic and you're

just calculating the return of investment on that specific project you go nowhere obviously once again it needs to be an holistic approach where you touch all the different dimensions of the brand and so the result of the work that i did many years ago define a series of areas of value creation that you can identify when you do design in the right way in the company the first one is impact you have in your customer relation not the consumers the customer being for a company pepsico the hotel chains the restaurants the retailers so the distribution essentially by changing the conversation with them by offering them a serious the ability to envision how you can leverage your technologies your brands your products to increase their business to help

their relation with their guests or their the people that they serve you change completely the relationship and the partnership therefore you build a partnership with these customers it's not anymore i'm coming to you to sell you stuff i'm coming to you to co-create the future together is the impact on the consumer a word that i don't like too much but let's call the consumer so everybody understand what we're talking about so and again you can measure it But it's easy to see it, especially today in the world of social media, is the way they talk about your brands online, in their conversations. And it's obvious to everybody. When you go on your LinkedIn, you go on Instagram, and you are an employee of the company, whatever position you have, the CEO or an entry-level employee and everything in between, you observe the way people talk about your brands, the excitement.

If you think about the content that we create as a design organization of PepsiCo, we have 100% positive sentiment. This is unique. 100% positive sentiment. When we post out of PepsiCo Design Instagram account or when I post out of my social media content related to PepsiCo Design, the sentiment is positive. Because people understand, the people out there feel that we are driven by really creating value, by really, you know, that human centricity. You see that it's sincere, that this bunch of designers and this design-driven approach is human-centered for real. We're not here to just generate profit for the company and financial value for the company, eventually not caring about the quality of what we're offering you. People feel that what excites us as designers and human-centered organization is to deliver value.

And then, yes, of course, we know how to build business value as well through that human value. So this is the second dimension. I could go on and on, but, you know, very quickly is impact on your innovation pace and the ability to generate innovative ideas that you can quantify in multiple ways. Patents, for instance, trademarks and many other things is the impact on corporate reputation, is the impact on cost of the product, is the impact on cost of the process and so on and so forth. Yeah, 100% positive sentiment. Boy, does that sound like a lot. One thing I think is a part of this conversation is not just having businesses that understand the importance of design, but rather that designers understand business realities. And you touch on this in your book when you were designing a Pepsi Perfect bottle to celebrate the 30th anniversary of Back to the Future 2.

And the only reason it was possible for you to come up with this, or I would say not the only reason, but one of the key reasons it was possible for that product to happen, which is now a collectible that sells for like 200 bucks on eBay, is because there was a gap in the schedule, promotional schedules. And if you didn't have that gap, then you may have not been able to have that product go to market. Yeah. And look, it was something that happened at the beginning of a journey of culture creation. So as I describe in the book, it was the beginning of my PepsiCo journey. And we knew that back to the future, the anniversary was about to arrive. And so there was somebody in my team, his name is Martin Broin, that was a big fan of that movie. And he came to me one day and was like, oh, we need to do the Pepsi perfect bottle that you see in the movie.

And we need to be ready for the anniversary that is in 2015. We're talking about the end of 2012 when we started this conversation. And so we started to create it and prototype it. And we started to put these prototypes on the desk of people. We tried to convince people. And there was a general excitement about that idea. But for a variety of different reasons, it was not part of the marketing agenda. What are the reasons?

Well, they're the typical one that you find in a company. First of all, those marketing agendas are decided by marketing, not by designers. So they own those agendas and they follow specific deadlines, specific moments in the season. There is Halloween, there is back to school, there is Super Bowl. There are a variety of different things. And so you used to work in a certain way. There was not initially the gap. There is also, if you want, this is very human, they not invented your syndrome.

It's not my idea. It's your idea. It's interesting, but I'm not really interested. So long story short, and this is what I mention in the book and I think is very important. What changed the game was not just the gap in the agenda of the year. was the fact that a person, a marketer, a human being with a name and a last name decided to find that gap and leverage that gap because he could have had the gap and not do anything anyway with us.

So it's always about people. It was the collision between people, you know, myself, people in my team with a passion, that with resilience didn't give up and kept pushing. and then the kindness the vision the empathy the ability to open his mind and listen to people different than than him of this marketing leader they decided to embrace that idea we made it happen and we launched pepsi perfect in the middle of the night i don't remember it was 4 a.m something like this you know in the 21st of october of 2015 was exactly the time marty McFly went to his future and landed in the future. We drop it in amazon.com and in walmart.com

and we sold out in seconds. We sold a lot of licensing that we can, with caps and shirts, record sales of licensing just in one week. And that was a moment for the company. The company realized that in this kind of operations, there was value. So it was the first of many that we did in a variety of different ways over the years. And these operations have been very powerful because they've been generating very authentic content for us, transforming people, embracing these ideas in the best ambassadors for our brands, our products, the moment they take that idea, that experience, and they share it with the rest of the world. Well, and it also creates scarcity around a product that is not scarce at all. I can go to the 7-Eleven a block away from

me and grab a Pepsi bottle. However, if it's in this different packaging that I remember from watching Back to the Future 2, then it creates, there's different levels of connection with it. Yeah. And look, it's not easy to do. There is a full strategy because you go from, when we do limited edition packaging or limited edition products in general, you go from the ones that are almost impossible to find they go just to influencers and in some cases we don't even sell them to the ones that are sold in limited limited quantities like pepsi perfect and all the way to the ones that you can find in any walmart in the united states in any target in any kroger in any store and and and each of them has a different kind of design and

characteristic because it's important when you are in every shelf of the united states or the world because we design for the entire world that you have easy navigation for instance of flavors that the brand and the product is recognizable you want the excitement you want people to go crazy about the beauty of the pack but you also want people to find it on shelf easily so and these are problems that eventually you don't have when the number of products that you create is very very limited so it's very interesting not just with packaging the same with any kind of licensing the collaborations we do in the world of fashion with this square with puma with nike and many many other brands are h&m you know from super high hand all the way to mass fashion depending

on the channel depending on the kind of operation the design changed completely even though we're still talking about pepsi cheetos lace the same brand with the same identity it's fascinating and there's been a journey also for all of us to understand the nuances of what works and what doesn't and and why we do it why we do all of this it makes sense today eventually didn't make sense too much 20 years ago 30 years ago all of these activations across every touch point of the brand excite people build a new bond between these people and the brand transcending eventually the product itself you know the color the potato chips and really creating that the connection with a brand and and and then once again when you build a connection people feel the pride

feel the desire have the instinct to share that experience with others and they become once again the best possible ambassadors for these brands because it's not a brand anymore bragging about himself but is your consumer or the people buying your product that are promoting the wonderful experience that they had with your brand and the products. I really enjoyed learning about great designers in your book and your brushes with them, especially these people who have shaped our worlds in ways we may not expect. One of those is Stefano Marzano, who I know you've had interactions with, but he's also in some ways helping help design touchscreens and virtual reality headsets and the cloud. Hoping you can

tell us a little bit about him and how he shaped our world in ways we may not expect or may not know. Well, Stefano Marzano used to be the head of design of Philips in the 90s. For anybody that studied the industrial design in those years around the world, especially in Europe, Stefano was a little bit of an icon and meet somebody that every young designer wanted to meet and know. and and stefano with what he did in philips he literally shaped my approach to design in the 90s they were working on understanding how society would look like 20 years later 30 years later essentially if you think about the 90s they were thinking about how society would look like today in the in the age we live in today and what they were doing well they were

connecting designers, sociologists, marketers, people of business together to envision, first of all, how society will change, how we will move, we will work, we will play, we will take care of our health, and how technologies will play a role in that society. The theory of Philips was that technologies will be embedded, hidden inside our way of living but aesthetically our society will look really similar to the one of today it's just that the products surrounding us will be smarter your eyewear will be smarter and will help you entering virtual reality what we call today the metaverse i remember working on vision of the future and the picture of these people playing ping pong in virtual reality in front of a physical

digital table but with somebody in one place and somebody else in another place the idea of cloud was already there even though they were not calling it cloud your collection of cds was in the cloud you you didn't have a physical device anymore we're talking about the 90s where we still had cds where we're talking about an age where bluetooth didn't exist wi-fi didn't exist just to give you an idea and so that was fascinating and this is what i've been trying to do since then and think about pepsico today a company pepsico like well you're the chief design officer of pepsico what do you do you design pretty packaging of of the products of the company the brands of the company well we do also that we try to build value financial value through that but we also

try to imagine where the world is going. We know that in the future, people will wake up in the morning and they will have some form of device on their skin. It could be an Apple Watch or it could be one of those patches that we launched almost two years ago with the Gatorade brand, the Gatorade GX patch. They monitor your skin, your sweating, the composition of your sweat. So let's say that you're going to have a smarter version of that patch or you're going to have an Apple Watch or maybe an aura ring, or as we were imagining the world of Philips, you're going to have a tattoo. You're going to have something in your skin that will monitor the way you sleep in this specific case. So I wake up in the morning and Alexa or Google Home will tell me, Mauro, I know you didn't

sleep very well. And I will be like, what are you talking about, Alexa? I thought I slept so well. No, I analyzed your, you know, sleeping patterns and they were not really good and check this and deborah then alexa obviously knows my health history alexa knows also my agenda of the day i'm gonna have a very very busy day and so alexa is gonna tell the machine that i have in the kitchen to customize a drink exactly on the base of what i love they know that i love a lemon flavor and a hot drink in the morning but adding a series of ingredients vitamins you know magnesium whatever is right for me that day on the base of what i need exactly in the moment what mauro needs in that moment so an analysis real time of my body and then an analysis of my full life and

health history now in the future on top of the drink we will have the possibility also to 3d print a snack or maybe a cookie then i still want to go to the restaurant and have a good farm to table salad or a pasta with lobster or whatever I love. But I will have a series of snacks and drinks that will help me integrating my, you know, the way I feed myself during the day in the most ideal possible way. Now, if you do this in your company, imagine your company, whatever is the industry of your company, you need to do this. You need to leverage design thinkers together with your scientists engineers business leaders all together sociologists human scientists with designers envision what is the future design it create it make prototypes and

then the strategy should inform your acquisition strategy your new venture strategy and partnerships you do with companies today your what we do in pepsico your quick cycle innovation strategy so the products that you want to launch quickly market eventually leveraging the digital channel to test ideas to make prototypes of products business models so test different ideas of communication and branding and then learn out of it and then feed with those insights the breakthrough projects that you're going to drive from within and then the first stream of work is the real breakthrough projects that have some form of technological advantage that's the ideal breakthrough project because it's defendable in time and it's sustainable in time and it's

something worth investing years and resources and taking the risk as well because those projects obviously have a higher level of risk. Well, and I also imagine building trust is huge with that. I looked at the GX sweat patch, which is a, it's like a one-time essentially, I don't want to call it a sticker, but a patch that looks at your sweat and then tells you what optimal blend of Gatorade you should drink to recover. And I saw that and I thought like, well, I would feel a little distrustful using that because maybe this would tell me I need to drink Gatorade when the actual answer is water or a cup of coffee, that sort of thing. So I imagine that's got to be a huge hurdle, that trust barrier for designers at companies to build that vision of the wearable

future that you're talking about, in addition to battery and privacy issues. Well, look, the reality is that we'll have a series of technologies that are a platform and that will enable us having a better life. Then there are pioneers, companies, and brands that are starting to experiment with those technologies before other products and brands. And, you know, obviously there is always the business goal of these products and brands and companies, but also the idea of advancing society and advancing the way people interact with products, categories in entire industries.

So the more a company, because you need companies, you know, you can't have this technological platform just grow like mushrooms like this in society. So you need companies to drive it. The more they do something that is relevant to people and the people start to use, the more you will build an ecosystem where other companies will arrive, that will start to compete, that will apply that technology to other fields. And that technology will start to be used in a variety of different ways, in the most possible democratic way.

But to accelerate all of this, to build value for people and society, to push technology to the next frontier, you need companies that embrace that kind of culture of innovation, that embrace that kind of cultural love for people, that embrace the idea that You're not there just to generate profit for yourself, for your shareholders, but you're there to generate value for society, for the world, for the planet first. That's your role as a company together, together in line with generating business value and financial value for your shareholders and for your company. And again, while this 20, 30 years ago may have sounded like a little bit naive to some, the reality is that today the world is so different. The competitive landscape is so different, it's so extreme that either you build a culture in your company of excellence, you build a culture of innovation, you build a culture of love for the people you serve, and that culture is going to drive productivity, efficiency, effectiveness, and quality, or somebody else will do it in your behalf, in your industry, because that is what is going to happen. Appreciate it.

Mario Puccini, he's the chief design officer at PepsiCo. His book is The Human Side of Innovation, The Power of People in Love with People. Appreciate your time, and thanks for joining us on Motley Fool Money. Thank you. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.

Bye.