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06/22/06
Leadership
and Transforming an Organization
CIES
- The Food Business Forum
World Food Business Summit: Flying High in
the Face of Competition
Paris,
France
E.
Neville Isdell, Chairman and CEO, The Coca-Cola Company
As prepared for delivery
Thanks for that introduction, Alex [Thomson], and good morning. It has
been great to renew acquaintances with so many old friends this week,
and of course it's always inspiring to be in Paris.
It has been a little over two years since I left my last job, as chairman
of CIES' Summit Committee, and moved back to Atlanta. If you joined us
at the 2004 Summit in Rome, you may recall that I made my very first public
appearance as chairman and CEO of The Coca-Cola Company at
that meeting, just two weeks into my new job. I was here to fulfill my
predecessor's commitment, but also breaking my own 120-day, listen-before-speaking
promise.
The themes of that 2004 Summit were the meaning of value and our
sector's responsibility for the health and nutrition of society. As
I think about how much time and energy my colleagues and I have invested
in re-engineering the Coca-Cola value-creation process these
last two years... and also of the progress we've made on health, wellness
and nutrition... that 2004 program almost seems prophetic.
I hope that's the case for this year's theme, too -- Flying High in the
Face of Competition. To be sure, The Coca-Cola Company is
in no way flying high, yet. However, we are beginning to gain altitude.
The title of this panel -- Leadership and Transforming an Organization
-- resonates deeply with me. It's the reason I decided to return to The
Coca-Cola Company, and it's what I've dedicated the last
two years of my life to doing. So I think I have some timely and very
personal experience with the topic.
No organization as large as The Coca-Cola Company changes
over-night, and our transformation is by no means complete.
I can tell you this, however: This is a different company than it was
when I spoke to you last. Because of the transition we've made
since then, we are extremely well-positioned for sustainable growth...
to continue to evolve and change... and to continue to capture the opportunities
in our industry.
Let me start at the beginning. When I joined you two years ago, I had
just begun a 120-day, round-the-world assessment of the Company. Let's
just say it was an interesting time to re-join the Company.
The transition out of that era has taken two years and occurred in two
stages.
The first stage -- what I now think of as the "stabilization"
phase -- had to do with resolving a number of long-standing issues that
were negatively affecting the day-to-day operation of our business: from
legal investigations by the U.S. Department of Justice, the SEC and European
Union... to changes in marketing and operating leadership... to morale
problems throughout the Company, particularly in our head office and in
North America. We hadn't met Wall Street expectations in quite a while,
either. The Company still had fundamental strengths: the world's best
brands... a very strong balance sheet and strong cash flows... and an
unrivalled global distribution system -- but we had forgotten what it
was like to win.
So step one was to stabilize the Company, and to align our people around
a common vision of success around the world.
The second step of the transition, which we've focused on these last
twelve months, was to strengthen the structure of the business -- to build
an organization and an executive team capable of re-asserting industry
leadership for our Company... and to increase our investment in the
marketing and innovation infrastructure required for our Company to win
in the marketplace.
We've done that, too. Of my 15-member Executive Committee, five have
joined in the last 24 months from outside The Coca-Cola Company,
and three are internal promotions. In 2005, I assembled the Company's
first Marketing, Strategy and Innovation group and permanently
increased the level of investment in marketing by $400 million, with a
consequent impact on 2005 earnings.
Both steps of the transition -- the stabilization and strengthening phases -- took place as part of a process that we refer to as the Manifesto for
Growth, a program that is designed to ensure long-term quality growth,
no short-term fixes.
I've been involved in a number of turnarounds in my four decades with
the Coca-Cola system, and I've always believed that the people
who run the business day-to-day know better than anyone else what needs
to be done. They know what the solutions really are; consultants don't
always know which cupboard to look in. I also believe that a plan built
from the ground up is much more likely to succeed than anything imposed
from the top down -- because the people who contributed to the plan have
a personal stake in making it succeed. It is their plan. It is
not an edict from the managerial mountain.
That's how the Manifesto was created: By our top 150 leaders, with additional
input from another 400 employees. Still, it's not quite right to call
the Manifesto a plan -- because it's much more than that. The Manifesto
for Growth also includes mission, vision, values, capabilities, incentives,
goals, metrics, growth paths and all the rest. Ultimately, the Manifesto
was what we had to create first... in order to create the conditions
for the transformation of The Coca-Cola Company.
I could say a lot more about the individual components of the Manifesto...
the work streams... and the way we rolled it out to employees and bottlers
around the world last year. Remember, we are a franchisor, and not a fully
integrated business; this increases the complexity of our business (when, for example, we want to introduce something like the Manifesto)
but it benefits our entire system over the long run.
What you need to know, however, is that the Manifesto defines sustainable
growth in terms of profit, people, partners, portfolio and planet -- what
we call the "Five Ps" -- and that it provides 10-year objectives
for each. (Details of the Five Ps are available on the plasma screens
in the Innovation Zone.)
No, we're not close to meeting any of our goals yet; eight-and-a-half
years to go. The important thing is that we have resolved what we want
to accomplish over the long term. The Five Ps -- and the Manifesto process
that brought them about -- are the inspiration for our people to change
the culture of the Company. They're what we mean by sustainable growth.
So the transition is complete. The transformation, however,
has only just begun. Transformation is what sustainable growth
companies do -- they change -- continuously -- to anticipate, lead and
meet marketplace change.
One early indicator of the transformation we've begun -- and it's a very
early indicator -- is The Innovation Zone we're presenting here at CIES.
When I returned to The Coca-Cola Company two years ago, the
Innovation Zone simply would not have been possible. Notwithstanding the
more than 400 brands we offer around the world, we hadn't fundamentally
made the commitment required to truly become a total beverage company.
We didn't understand the full universe of consumer need states. We certainly
didn't have the research and development capabilities. The innovation
pipeline was still -- to put it mildly -- in the first stages of construction.
We've made enormous progress in all of those areas these last two years -- but it's still early. The transformation is just beginning.
Without the transition we've just completed, the transformation
wouldn't be possible.
There would be no Innovation Zone... no Godiva Blends... no Aquarius
Citrus... no Daizu no Susune... certainly no carbonated fusion beverage,
and most definitely not one called Coke Blak.
We wouldn't have "Make Every Drop Count," The Coca-Cola Company's
first corporate identity campaign. We wouldn't have our first fully integrated,
cross-media marketing campaign for brand Coke, which we're calling "Coke
Side of Life." Let me show you two spots from those campaigns.
This panel is about transforming an organization. When that organization
has been around for 120 years... when people who work for it... or previously
worked for it... or who work with it... or who otherwise form such profound
emotional connections with the organization as our employees and customers
and consumers.... Well, transforming that organization is no small
task. We are not just an organization... we are a human organism.
For me, these last two years have been about bringing the Coke side
of life back to the people of The Coca-Cola Company ...
helping them believe that they can make a difference... that every
drop counts.
That's why we've invested so much time and energy in defining sustainable
growth: Because you have to give people something to aspire to... a
reason for them to want to change. Again -- that's why we have the 5 Ps.
The products I just mentioned -- the Innovation Zone we've
brought to CIES -- are what we want to do in the marketplace... they're
what we want to become to consumers. They also make possible what
we aspire to become over the long term.
David Packard, the founder of Hewlett-Packard, once observed, "Profit
is not the proper end and aim of management -- it is what makes all of
the proper ends and aims possible." The Portfolio of
brands that we make available to consumers through our Partners
will allow us to generate the Profits we need to reach our
goals for People and Planet.
The truth, of course, is that all five elements -- all 5 Ps -- must be
equals, and that we need to be ratcheting down our energy consumption
and water use ratios (just to take one Planet example) even as we develop
our portfolio of teas and coffees and sports drinks.
The 5 Ps are not discrete, they're not disconnected. The Coca-Cola system
should be a virtuous circle, with each component -- the Company, our bottling
partners, customers and consumers -- realizing value throughout our business
model.
There's a German word -- gestalt -- that begins to get at the
transformation we have in mind: A collection of elements -- a business
system, if you prefer -- so unified as a whole that its properties cannot
be derived from a simple summation of its parts. That's what we aspire
for the Coca-Cola system to be. I think it's incredibly exciting...
empowering... and motivating for our people.
They're beginning to change, too -- they're beginning to believe.
Around the world there is discernible improvement in morale among Coca-Cola
people. We're quantifying it right now: our most recent Company-wide engagement
survey -- which we completed last month -- had a response rate of more
than 85 percent, versus an average response rate of around 65 percent
for other multinationals, and showed measurable strong improvement around
the world.
There still remains the essential question of what the people of The
Coca-Cola Company are going to do day-to-day... exactly how
the Coca-Cola system is going to create value for its customers
and consumers.
So let me take a moment to share with you our strategic growth paths.
Number one: Grow Core Global CSD Brands: We will capture the full
potential of Trademark Coca-Cola and accelerate growth of
core brands in each market through immediate consumption opportunities
to improve margin, consumer recruitment, and revenue.
From day one of my tenure as chairman, the peanut gallery has said that
The Coca-Cola Company cannot succeed solely as a nonalcoholic
ready-to-drink company.
As we expand our beverage portfolio, we will show that we will, and we
can.
First, however, we must demonstrate that we can grow carbonated soft
drinks. We are The Coca-Cola Company. We have to grow
carbonated soft drinks first. If we can't, why would anyone believe we
could grow anything else?
Even more to the point, there are still enormous opportunities in carbonated
soft drinks -- and not just in fast growing markets like Brazil,
Russia, Indian and China, but everywhere.
Strategic growth path number two: Grow Other Core Brands. This
is the profitable noncarbonated market and includes coffee, energy drinks
and sports drinks.
Strategic growth path number three: Develop Transformational Wellness
Platforms, with an initial focus on tea, juice, soy, and enhanced
hydration platforms.
Our work on these first three growth paths -- carbonated soft drinks,
noncarb core brands and transformational wellness platforms -- is being
guided by a proprietary piece of research called Consumer Beverage Landscape
(CBL). The CBL is charted on what our marketing people call a "need
state map" that is itself built on data derived from more than half
a million consumption events by 80,000 consumers in 20 countries. (Forty
by the end of 2006.)
The need state map works at a fundamental level, across diverse cultures,
by identifying and understanding the functional or emotional reason any
beverage -- from tap water to yoghurt drinks to beer -- is consumed in
a 24-hour period. Consumption events are then segmented into need states
based on underlying motivation.
From 19 foundational needs, we've identified 10 overarching global need
states, each one associated with a meaning, an occasion and a beverage.
Because each need state can also be quantified by volume and value, the
need state map allows us to make comparisons across categories, brands,
occasions and demographics in order to identify regional or global scalable
opportunities.
You'll find more information on CBL and need states at the Innovation
Zone. However, when people want to know why I'm optimistic about the future
of The Coca-Cola Company, the need state map is why: because
the opportunity is so enormous. When they want to know how -- by
the year 2015 -- we will pursue our goal of doubling the value of trademark
Coke and growing the rest of our portfolio to a commensurate size, this
map is one of the ways: because it's is going to help us find our way.
Strategic growth path number four: Nurture System Health. We are
implementing a market-by-market focus on System health, including bottler
revenue growth, by balancing volume, price, mix, costs, investments and
share, concentrate pricing, cost effectiveness and route-to-market efficiencies.
Strategic growth path number five: Create Customer Value. I will
close with a few thoughts on this one, since it's particularly relevant
to CIES, but for now I'll just note that these two growth paths -- on
system health and customer value -- are what allow us pursue the first
three. (Again: gestalt.)
Finally, the sixth strategic growth path -- create adjacent businesses.
The initial priority here is the freshly brewed tea and coffee pilot called
Far Coast, which we're launching this year in Toronto, Singapore and Olso.
Other opportunities include iCoke, retail concepts within retailers, and
technology and ingredient licensing. Again, you'll find more information
on all of these at the Innovation Zone.
I'd like to close with a few words about the theme of this year's Summit,
"Flying High in the Face of Competition." In most of the world,
as everyone here knows very well, the retail environment is fiercely competitive.
It's characterized by very low margins and very little pricing power.
It gets tougher every day, too, as customers continue to consolidate and
compete for advantage in markets... formats... categories...
and capabilities... as shopping habits change and consumer preferences
shift.
Retailers have responded mainly in three ways: by emphasizing their most
profitable categories... by maximizing efficiencies and cost-savings
in their supply-chain relationships... and by taking advantage of every
opportunity to distinguish themselves from their competitors.
What that means for the Coca-Cola system is that we're no
longer competing in just the beverage and food industries. Indeed, in
the emerging retail environment, the Coca-Cola system is
competing with every consumer product goods company that sells
to our customers. We're competing with them for selling space on
the basis of the three things I just mentioned: profitable categories...
supply-efficiencies... and differentiation.
This is a radically different competitive environment for the Coca-Cola
system, and it calls for a radically different approach to customer management.
It's going to require us to shift our focus from selling into customers'
back door... to helping them reach shoppers through the front
door...
It's going to require us to look beyond moving inventory and activating
merchandise... It's going to require us to partner with our customers
to create value at every point along the value chain.
This is the goal of our collaborative customer relationship model: to
move from activation to partnership. For the Coca-Cola
system, this is not incremental... it's transformational.
The transition we've completed will make this transformation possible.
Last month, The Coca-Cola Company celebrated its 120th anniversary. Twelve
decades is remarkable longevity by any standard, and all of us at The
Coca-Cola Company are proud of the achievement and grateful to everyone
who made it possible.
We also know this, however: What sustained us over the last 120 years
will not be sufficient for the future. Leadership is not an entitlement:
It must be earned -- and re-earned -- every day.
As CIES enters its 50th year, that is the enduring lesson I've
learned from this organization, and from the industry it represents.
My message to you today is that as the transformation of The Coca-Cola
Company continues, we will lead again.
And now -- in the spirit of World Cup season -- I'd like to leave you with
one final taste of the Coke Side of Life.
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