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An open letter from a Headhunter... Dear PepsiCo

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Tips And Advice

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A few years ago, whilst recruiting digital leadership talent for PepsiCo, I was asked how other large companies approached their digital transformation.  Flattered to be asked, I sat down and wrote the following letter.  Having just come across it in an old docs folder, I thought it may be worth publishing - the advice is as good today as it was then.

Patrick Tame

Dear PepsiCo,

I have a unique position in what is still a relatively small market watching firms from all sorts of different verticals approach their own digital transition. In some cases, I watch from the sidelines, hearing the village gossip from the people who are working in the company, in other cases, I am working within the organisation, helping them shape their strategy. 

One of the most interesting angles is meeting the people who choose to move on from a company and listening to their story - their frustrations and triumphs and their ultimate reasons for leaving. Over the past 10 years, I’ve seen brands and teams evolve, rise, fall and rise again. I have seen brands churn talented digital teams quickly and others retain their talent and grow market share as a result. I’ve watched other businesses fold, simply because they failed to accept what was patently obvious. 

There are some behaviours that are consistent with success and some that are consistent with failure. I have attempted to provide these to you as you go through your own transition in the hope this might be of use. 

 

Approach 

“...my first observation then, is that successful companies usually don’t have ‘the answer’, they have inquisitive and open minded CEO’s and leadership teams. The drive for digital must come from the top” 

Whoever you are, whatever market you work in, the first step is accepting that digital technology has the potential to fundamentally change the way your market operates. Companies who take the trouble to truly engage will evolve with the market and survive, those who do not possess the ability to change, or delude themselves, will fail. 

The appetite must permeate the entire business, the threat/opportunity matrix does not just apply to marketing. In order to permeate, the appetite for evolution must come from the top. 

I quote Rupert Murdoch in a speech he made in 2005: 

“..as an industry, many of us have been remarkably, unaccountably complacent. Certainly, I didn't do as much as I should have after all the excitement of the late 1990’s. I suspect many of you in this room did the same, quietly hoping that this thing called the digital revolution would just limp along. 

Well it hasn't... it won't... and it's a fast developing reality we should grasp as a huge opportunity to improve our journalism and expand our reach. 

I come to this discussion not as an expert with all the answers, but as someone searching for answers to an emerging medium” 

What this demonstrates is not a business that has answers, but one that recognises the future will not be the same as the past. So my first observation then, is that successful companies usually don’t have ‘the answer’, they have inquisitive and open minded CEO’s and leadership teams. The drive for digital must come from the top. 

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Being Entrepreneurial in the Corporate World 

“...my second observation is that corporations need to find away of being entrepreneurial with digital” 

Why do incredibly well resourced, well financed companies with customer data, brand equity, the best brains in their sector, access to consultants and advice from all quarters lose to start ups working above a garage? 

Corporate Psychology: 

Corporate entities get very good at doing the thing they already do better. HMV is a good example here, they won the battle of high street DVD, Music and Games retail, just as the customers stopped buying on the high street. They deluded themselves that they were transitioning to digital but this was non-sense. Another great example of ‘this is the way we’ve always done it’ logic was the Morrisons/Kiddicare case study. Morrisons were the great late entrant into online grocery and they started their journey with a strategically smart move in the purchase of Kiddicare. However, rather than stand back and learn from the youthful Kiddicare team, they behaved with condescending arrogance and re-formated Kiddiecare into a disaster - they bought Kiddicare for £70m and sold it 3 years later for £3m.

Corporate thinking & Confirmation Bias: 

Corporations become very good at hiring people who act the way everyone else in that corporate entity acts. Anyone who cuts against the grain will either leave, get passed over for promotion or not get a job in the first place. Those who emulate the behaviour of their superiors will promote and so we have an ever more concentrated, self re-enforcing corporate culture. 

This isn’t a bad thing for the business as a whole, in fact, it’s this ability to replicate that allows the business to be so strong, but the side effect to that is the limit the ability of that organisation to think differently (or point out that the emperor has no clothes). We can use any institution as an example, from the NHS to IBM; those businesses that become institutionalised became so good at hiring people in their own image that they completely lose the ability to innovate and create and are unable to hire innovators as a result of that closed culture. 

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Applying the wrong methods 

Digital is not a destination, it’s a journey and this doesn’t always mirror the way the ‘old’ business approaches the market. Take M&S as an example. The way a retailer works is by making a heavy investment into a high value real estate property, fitting it out a huge expense then raking in sales over the next 20 years or so. When M&S decided to spend £150 million on a new website, they were displaying that same board room logic. They should be commended in their willingness to invest into e-commerce, but they made a crude error in investing all that money into a one off build at the beginning of their journey. 

If you consider just how much research and thought that goes into launching an FMCG brand, there’s a clear similarity. The cost of launching a brand is astronomical so it is done slowly. Digital, however, is agile, we can test quickly with relatively small amounts of money and too much thought and time invested into ‘planning’ can result in a missed opportunity - consider that AOL bought Bebo for 850m dollars and sold it 2 years later for 1m. No doubt they’d done their research but completely missed the curve. If we look now at grocery shopping online, do we see a business designed for the digital age? Or grocers trying to shoe horn their supermarket offering into a website? If we set out to sell groceries online, would we create the current Tesco’s website? Somehow, I doubt it. 

So who has countered these issues successfully? 

I was fortunate enough to work with John Lewis throughout their early evolution and whilst they are far from perfect, I would like to point to some of the better decisions they made. Firstly, they recognised that they were not culturally engineered to be a ‘dotcom’ retailer, so they don’t try to be. They created a hub in a separate building where the culture and business approach could be very different. They kicked this off with a purchase of buy.com - not just for their technology, but for their leadership team. 

Secondly, they kept their digital team separate from the main business to allow it to prosper and didn’t crush it. Thirdly, they put someone on the board with responsibility for multi-channel. Finally, when the online business was strong enough, they integrated it back into the business with the MD acting as an advocate. 

Online sales now represent 1/3 or all John Lewis sales - a global leader in their market. My second observation then, is that corporations need to find a way of being entrepreneurial with digital. Whilst you ‘SHOULD’ integrate digital from day 1 - the reality is that this simply means digital wont appear on the agenda. 

 

The Human Element - Investing in Leadership and People 

“...my third observation, boards should invest first in people, and true leadership is in short supply” 

It is quite rare to find a business in total denial, however, as we have already seen with the M&S example, the investment usually goes to the wrong places and the lack of coherent leadership is my major concern for most brands. 

Too often, boards congratulate themselves that they are bravely facing the future by signing cheques. Of particular note is the willingness to invest in technology over people, when it should be the other way around. The need to ‘do something’ about digital combined with a lack of leadership within the business opens a gap for big brand technology consulting firms to sell a ‘solution to the problem’. Big brand consultants are able to access boards and tell them what they want to hear in a language that they understand - the message that they can buy their way into digital transformation is far more appealing than the truthful alternative which is more complex and harder to deal with (and that message is probably being delivered by a less impressive more junior person). 

The truth is there is no single solution and large technology consulting firms are amongst the last people I would approach for advice - they are simply a reflection of the corporations that they serve - they themselves are corporate entities who have not transitioned. If you go to the same old suppliers, you get the same old advice. The best way forward is to recognise that digital transformation starts and ends with the people in your business and they need to be INSIDE your business - transformation through people not technology. They need to be hired and allowed the freedom to fail and the freedom to be successful. 

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It’s important that you have coherent and respected leaders. They will attract talent to your organisation and protect the entrepreneurial culture from being crushed, they will also get digital on the corporate agenda. However, be wary of false profits - I am regularly asked for ‘people from Amazon, eBay, ASOS or Apple’. This foolish, almost childlike, approach to digital talent acquisition demonstrates either the naivety of the organisation or an equally disastrous risk averse culture ‘I hired someone from Amazon so it’s not my fault if it goes wrong’. 

Two common mistakes here are either not appointing a senior enough leader, thus relegating the digital agenda the lower echelons of the business, or, appointing a very highly paid, but ultimately pointless ineffective senior exec who will flounder and fail to move the digital agenda forwards because they don’t really understand their job, or worse, think they do understand their job... 

I cite as an example a well known FMCG company (name redacted for obvious reasons) who made the sensible strategic decision to put a very senior leader into the top e-commerce role. Their chosen leader was very highly paid and seemed impressive to the board, but was actually totally unqualified, risk averse and applied ‘old’ thinking to what should have been an innovative hub. He commissioned research from his old friends at highly respected but totally unoriginal consulting firms, none of whom really understood what they were doing either. He also hired like minded MBA grads who thought the same way he did - they said ‘yes’ a lot. Any opportunity to evolve the business was lost because the wrong leader was hired. 

I can also point to another well known ecommerce & mail order fashion retailer as an example of not putting in a senior enough leadership structure. This household name had an aim of transitioning from a ‘Catalogue business that does online to an online business supported by catalogue’. They had good ambitions but despite having a talented digital team and a solid leader, were unwilling to put their digital leader onto the board and would not grow their digital team - the vast majority of their employees remain focussed on producing and distributing catalogues. As a result, their ambitions were not realised. As Einstein said, “Madness is doing the same thing you and expecting different results”. 

In a recent ‘future leaders’ breakfast event my firm held, we asked some of the best up and coming digital team managers, all currently working on the coal face, what they would do with unlimited budget. The answer was unanimous and revealing - ‘hire people’. 

On the question of effective leadership, one piece of advice I have given boards is rather than hire a highly paid but unqualified digital leader, simply put their best digital market or e-commerce person into board meetings. They don’t always need to be very senior, on the board, or highly paid, they DO, however, need a voice. This leads me to my third observation, rather than focus on big answers and technology, boards should invest first in people, and true leadership is in short supply. Hire good leaders, populate your org chart with digital people and let them do their job. 

 

Silos and Integration - Ideal vs Reality 

In an ideal world, there would be no need for a separate ‘digital’ marketing function. Our marketing teams should transgress all mediums open to them and should be able to happily incorporate digital into whatever it is they are doing - from deciding how a TV spot can add value to a social media and search strategy to how NFC should be considered with a packaging decision. 

However, the reality is that most existing marketing people see digital as outside or separate to their job. The only way to really transition is to hire digital-specific people and teams. If you integrate too soon, the business will crush the ‘digital’ spirit. However, if you integrate too late, you will have silos that become mutually destructive. There is no alternative than to begin with a silo approach but always work towards integration - all new junior marketing hires should have an element of digital in their job. Talented digital hires should also be given elements of ‘traditional’ marketing in their role so we can work towards a unified function in future. 

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Modern dotcoms such as graze.com should be held as an example here. They have never had to transition because they are a product of the current market - they have some marketers who are better at brand marketing, others better at performance/direct marketing. Some are stronger with digital, others are more analogue but they are all relatively comfortable with the full marketing mix - separating digital from non-digital isn’t a natural split to post digital marketing teams. 

Having digital specialists implanted into marketing teams with dual reporting lines is a sensible start point. 

 

The International Dimension 

As international brands look to digital transformation, the question of how to develop the structure across boarders is one with no clear answers. Some firms evolve each country independently, others have a very centralised approach. Best practice is probably somewhere in the middle. 

Companies who over centralise will fail to hire or hold talent in local markets - I can give countless examples of excellent digital marketing people who have left a company because ‘everything was done from the US’. This becomes a vicious circle; over-centralisation leads to weak local teams which means functions have to stay centralised. Unless you have empowered, motivated people in country who really have the ability to make an impact, you are missing out. Whilst there are economies of scale to centralise, it is perhaps better to accept replication in order to achieve focus on local markets. 

It is important, however, to recognise that the internet has no boarders and most initiatives should be cross boarder. Also, to recognsise that the level of ability in local markets will often be limited. To this end, a balance must be struck to achieve the best blend of local vs central. 

An example to cite here is McDonalds. They are currently at the early stages of a digital transition and I have observed that they have an international digital team from the offset. Most of the key players are based in the UK or France but they don’t seem to have a clear hierarchy of ‘central’ and ‘local’. They empower all digital people across Europe to run an international project if they are good enough. Allowing local operators to move between local and international projects appears to be a good way of achieving balance of strong local focus and good central strategy. 

 

A Look To The Future - Beyond Marketing 

Right now, we can see ‘digital’ as something that really sits as another communication channel between products and customers. It’s currently either a marketing opportunity or a purchase opportunity. However, in future, we can expect to see digital technology become central to business processes and even the products themselves. 

Recognise early that digital may currently be a ‘bolt on’ to marketing, but it could soon change supply chain, product design and distribution models. It is also key to understand how digital will impact your customers businesses - notably grocers. Mobile wallets for example are not obviously a direct question for an FMCG brand, but it’s really very important because it is going to impact your customers massively, so recognising, and perhaps influencing, how digital is impacting your customers business models is as important as recognising how it is impacting your own. 

 

Recommendations 

1. Get senior commitment


Not just lip service but actual commitment, from the top. Without this, you’re playing a losing hand 

2. Get senior leadership as high up the company as possible but look outside of the usual people


Don't just re-badge one of your senior execs ‘digital’ - putting a Tesla badge on a the bonnet of a Porsche does not make the Porsche an electric car. 

3. Look at your org charts and where you want to see change, hire people


You can’t effect change without them. Do this first, before spending a fortune on tech. 

4. Allow your digital teams to have a different way or working 

The culture will be different from core business. Failing quickly without spending a lot of money is okay. 

5. Once you have established a culture of digital marketing 

Integrate but do so with caution, don’t crush the spirit. Those in the core business who see digital as a threat to their own fiefdom and undermine it, are dinosaurs and have no place within a transitioning business. 

6. Be realistic 

Digital must not become too silo’d into focussing purely on ‘digital’ in their thinking - transformation is a two way street where we achieve a synergy. Digital teams that think they alone hold the future and ‘know best’ will fail. Combined with the core business functions, digital will add value, rarely replace. The fundamental principles of marketing the business still apply, we simply have the ability to be cleverer. 

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