Motley Fool Money - 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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If you're 45 or older and at average risk, ask your health care provider about the Coligard test. Coligard is available by prescription only. Learn more or request a prescription today at colagard.com slash screen. Multiple people exactly 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. I'm Chris Hill and that's Morrow 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,

he'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 their 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 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, they 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 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 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 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 are 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, 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. I'm just picking a company, like, you know, I may take any company,

but let's say Apple was deciding years ago they had an average portfolio products. Let's assume they were not leveraging design and design thinking. And they decide, all of a sudden, 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.

They wouldn't touch the service. Let's say that everything else would 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 double 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 touchpoint 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, exactly 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 law for the brand in the core product that 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 the impact you have in your customer relation, not the consumers, the customer, being for a company at PepsiCo, the hotel chains, the restaurants, the retailers, so the distribution essentially. By changing the conversation with them by offering them 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 people that they serve, you change completely the relationship and the partnership that for. 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 go 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. It's the way they talk about your brands online in their conversations. And it's obvious to everybody.

When you go on your LinkedIn, you're going in Instagram and you are an employee of the company, whatever, you know, whatever position you have, the CEO or an entry-level employee, employee and everything in between, you observe the way the people talk about your brands, the excitement. If you think about the content that we create as 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, people out there feel that we have 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 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 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 the 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 too. 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 probably, 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 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. There 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 2002 well 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're 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,

mentioned in the book, and I think it's very important, what changed the game was not just the gap in the agenda of the year, was the fact that the person, a marketer, a human being with a name and the last name, decided to find a gap and leverage the gap because you 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 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, It was exactly the time Marty McFly went to his future and landed in the future. We dropped it in Amazon.com and in Walmart.com and we sold out in seconds. We sold a lot of licensing in the week in caps and shirts, record sales of licensing just in one week. And there was a ha-ha 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 have 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 too, then it creates a, 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 quantities like Pepsi Perfect. 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 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 designed 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 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 DeSquare, with Puma, with Nike and 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 why we do it, why we do all of this, it makes sense today. Eventually it 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 cola, the potato chips, and really creating that connection with the brand. 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.

itself, 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 his also is in some ways helping help design touch screens 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 Phillips in the 90s. For anybody that studied the industrial design in those years around

the world, especially in Europe, Stefan was a little bit of an icon and meets somebody that every young designer wanted to meet and know. And Stefano, what he did in Phillips, 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 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 our technologies will play a role in that society. The theory of Phillips was that technologies will be embedded, hidden, inside our way of living, but aesthetically our society would look really similar to the one of today. It's just that the products surrounding us would 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, the picture of these people playing, in 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 any cloud. Your collection of CDs was in the cloud. 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.

Think about PepsiCo today. A company at PepsiCo is like, well, you're the chief design officer of Pepsico. What do you do? You design pretty packaging 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 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 Aurora Ring, or as we were imagining, the world of Phillips, 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, Maro, I know you didn't sleep very well. And I would be like, what are you talking about, Alexa? I thought I slept so well. No, I analyze your sleeping patterns and they were not really good and check this and that. Then Alexa obviously knows my health history.

Alexa knows also my agenda of the day. I'm going to have a very, very busy day. And so Alexa is going to tell the machine that I have in the kitchen to come. 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, turmeric, 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. Invision 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, what we do in PepsiCo, your quick cycle innovation strategy. So the products that you want to launch quickly in market, eventually leveraging the digital channel to test ideas, to make prototypes of products, business models, or test different ideas of communication and branding, and then learn out of it, and then feed with those insights the breakthrough projects that are 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 is so strong. sustainable in time and is 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 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 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 we start to compete, they will apply the 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 these, to build value for people and society,

to push technology to the next frontier, you need companies that embrace the kind of culture of innovation, then embrace the 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 sound 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 Full 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 yourself stocks based solely on what you hear. I'm Chris Hill. Thanks for listening.

We'll see you tomorrow.