John Hodgson, direct of Innovation Pipeline Management at The Coca-Cola Company, shared his views on balancing multiple innovation needs at the Portfolio Optimization Summit at the Front End of Innovation today in Orlando. “You’re listening to someone who has works for a company that has made the same product for 120 years, and you’re turning to me for portfolio optimization advice?” he joked. While best known for its iconic product, John pointed out that the company has:
- 15 “billion dollar” brands
- 500 brands worldwide
- 3,500 products in 206 countries – more countries than are in the United Nations
So, yes, The Coca-Cola Company does have a product portfolio that needs to be optimized. The strategic goal for the portfolio is to increase consumption from 1.7 billion servings per day in 2010 to 3 billion servings per day in 2020.
Coca Cola and its bottlers have a long history of innovation: the company invented the six pack, coupons and corporate sponsorship of the Olympics. Recently, it unveiled the Plantbottle (30% plant based, with a goal of producing a 100% plant-based bottle) and the Freestyle dispenser. Innovation is fueling the company’s growth: from incremental innovation like Coke Zero, which went from $0 to $1 billion in 5 years to market-driven innovation like MinuteMaid Pulp Ade, a Japanese product that may be the company’s next “billion dollar” brand.
Coca-Cola did not have a common innovation process but over the past 5 years has been developing a global standard stage-gate process across the company and its 300 bottling partners. The resulting “common innovation framework” has 5 key stages:
- Idea Scoping
- Preliminary Business Case
- Full Development
- Launch Preparation
- Market Execution
This is not a project management system but a decision-making system. “It’s about learning at each stage and choosing your next option, not about going from point A to point Z at any cost. Its about learning and asking the question: will I take the next level of investment?”
Now, with a common framework, true portfolio management could begin. The company has since begun tracking initiatives using a dashboarding system developed with Computer Associates Clarity.
Portfolio optimization is not about optimizing to one dimension, but balancing the portfolio of innovation initiatives across multiple dimensions:
- Optimized across stages – With a common language for stages, Coca-Cola was able to identify that it had too many products that had been greenlit for Full Development.
- Optimized across time horizons – The company analyzes its portfolio across delivery times: 0-12 months, 12-24 months and 24+ months. Less developed markets spend less time on longer horizons, instead reapplying what has been learnt in other markets. The company follows the 70/20/10 Model of allocating 70% of effort to core activities, 20% to “near core” and 10% to game-changers.
- Optimized by geography – Is the company investing sufficiently to support growth targets in different regions of the world?
- Optimized by category – Is the company investing appropriately within categories (carbonated beverages, energy drinks, juices, etc.)?
- Optimized by risk – Obviously incremental initiatives are the least risky. “Flavoritis – the simple line extension – is something you can do because it is easy, but it doesn’t necessarily create value.” When evaluating risk, consumer acceptance is the #1 driver, and lack of it is the #1 risk, followed by other risks including market risk, technical risk, supply chain risk.
- Optimized by innovation type – The company looks for a balance of incremental (Coca-Cola Cherry Zero) vs. transformational (Freestyle).
- Optimized by core brands – As Coca-Cola implemented pipeline management, it learnt – for instance – that it was developing 28 brands in the energy category – far too small a category to justify the investment. The company has now consolidated to one international brand and a few North American brands. Before implementing pipeline management, the company didn’t have visibility across the global organization. The company works hard to balance local needs and global brands, but there are often tradeoffs. “What is permissible – can India put caffeine in Sprite? NO!” It does depend on brand: “Don’t mess with Coca-Cola, you can do a little with Sprite, a lot with Fanta, after that anything—though we are trying to rein this in a bit.”
- Optimized by consumer need states – What are unmet consumer needs in specific categories or geographies that should be addressed with innovation initiatives?
- Optimized by strategy – This is the toughest one to measure and is an important area of focus. When it comes to trading off strategy and geography, or strategy and stage, always choose strategy, John counseled.
The Coca-Cola Company is still looking to expand its portfolio management. Missing are measurements of capability to execute strategy, the investment needed and efficiency, for instance.
John said, “John Pemberton experimenting in his backyard to perfect the secret formula – we are still making that product despite a little brief interruption in the 1980s! Why? It was the perfect product. Perfumists have told us that Coca-Cola is perfectly balanced. It fascinates me that we have 1 Coca Cola around the world but 30 Fantas?!” As the company implements pipeline management, it will always balance local execution and responsiveness and speed to market against scale and global standards—as well as balancing the portfolio across multiple other dimensions.