PepsiCo's Chief Design Officer Talks About the Human Side of Innovation

Mauro Porcini is the chief design officer at PepsiCo and the author of The Human Side of Innovation: The Power of People in Love with People.

Motley Fool producer 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.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Dec. 11, 2022.

Mauro Porcini: Multiple people, the 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? So I was still at 3M, we started to work on defining this ROI. Obviously, the most powerful form of ROI is if you grow the business, it's impact on top line, bottom line, market share. But you can't quantify that just on a project.

Chris Hill: 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.

Ricky Mulvey: You say that a lot of companies have stepped toward design. Why do you think you see that let's say, distance between talk and action?

Mauro Porcini: 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. So in this specific case of design, to embrace it in the right way, if you're 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, it's a risk and to take that kind of risk, you need to have the right people within the organization comfortable with taking that risk.

So a culture of innovation and risk-taking. Then you need to have the right know-how, the right knowledge. 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.

Ricky Mulvey: It's also interesting, you've brought this up in other interviews, which it's essentially when you need to convince investment people to invest in high-quality design and you've brought up this study from McKinsey, it's called the McKinsey Design Index. One of the things I noticed in the study is the asymmetric returns in it. I think it goes back to your point of; you need to be fully committed to a design culture. 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 out performance you gain from that. However, there's no difference between the second quartile in the bottom quartile so if you're in the top 50 percent or the bottom 25 percent, there's not a huge difference. Why do you think design carries that kind of asymmetric return for those companies were only the top winners are rewarded?

Mauro Porcini: 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, I may take any company, but let's say Apple was deciding years ago, they had an average portfolio products. Let's assume that we're not leveraging design and design thinking. They decide all of a sudden to design the iPhone. They will design the iPhone exactly as they did design the iPhone. But they wouldn't touch the packaging, they wouldn't touch 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 will just design an amazing product.

That operation would have failed. 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 the specific product, the specific brand. Let's do one project, let's see how it goes. Tell me what is the return on investment on that project. I'll design help changing the product. When you do that, you're not understanding what design with the capital 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 or multimedia projectors, the very first project that we did and just by redesigning the aesthetic and the 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 touchpoint of the business. Therefore, many years ago, even before I got 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? So I was still at 3M, and we started to work on defining this ROI. 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 the impact with its effect, your overall brand and therefore increase sales and a law for the brand. In the core product they 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. 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 their ROI in the company. The first one is the impact you have in your customer relation, not the consumers, the customer being for a company like PepsiCo, the hotel chains, the restaurants, the retailers, 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 the people that they serve, you change completely the relationship and the partnership therefore you build a partnership with these customers. Is not anymore, I'm coming to you to sell you stuff, I'm coming to you to co-create the future together. It's the impact on the consumer a word that I don't like to match but let's go the consumer, so everybody understands what we're talking about. 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. This is obvious to everybody.

When you go in your LinkedIn, you're going 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 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 percent positive sentiment. This is unique, 100 percent positive sentiment. When we post outdoor PepsiCo design Instagram account or when I post out on my social media content related to PepsiCo design, the sentiment is positive because people understand. The people out there feel, they were driven by really creating value, by really, that human centricity, you see that they're sincere, that these 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 center organization is to deliver value. Then yes, of course, we know how to build business value as well through that human value. This is the second dimension, I could go on and on, but very quickly it's impact on your innovation pace and the ability to generate innovative ideas that you can quantify multiple ways patterns, for instance, trademarks and many other things. It's the impact on corporate reputation, it's the impact on cost of the product, it's the impact on cost of the process and so on, so forth.

Ricky Mulvey: Yeah, 100 percent 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. You touched 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, 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 200 bucks on eBay, is because there was a gap in the schedule, promotional schedules. If you didn't have that gap then you may have not been able to have that product go to market.

Mauro Porcini: Yeah. Look, it was something that happened at the beginning of a journey of culture creation. As I describe in the book, it was the beginning of my PepsiCo journey. We knew that, Back to the Future, the anniversary was about to arrive. There was somebody in my team, his name is Martin Broen, he was a big fan of that movie. He came to me one day and was like, "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. We started to create it and prototype it, then we started to put these prototypes on the desks 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 are the typical one that you find in a company.

First of all, those marketing agendas are decided by marketing, not by designers. They own those agendas, and they follow specific deadlines, specific moments in the season, there is a Halloween, there is back-to-school, there is super bowl, there are a variety of different things. 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 had not invented your syndrome. It is not my idea, it is your idea. It is interesting, but I'm not really interested. Long story short, and this is what I mentioned 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 the person, a marketer, a human being with a name and the last name, decided to find that gap and leverage the gap because you could have had the gap and not do anything anyway with us. It's always about people. It was the collision between myself, people in my team with a passion that were resilience, didn't give up and kept pushing.

Then the kindness, division, the empathy, the ability to open his mind and listen to people different than him. Off 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 think it was 4:00 AM something like. In 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, the 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. It was the first of many that we did in a variety of different ways over the years. These operations had being 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.

Ricky Mulvey: 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 there's different levels of connection with it.

Mauro Porcini: Yeah, then 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 Walmarts in the United States, in any Target, in any Kroger, in any store. Each of them has a different 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. These are problems that eventually you don't have when the number of products that you create is very-very limited. 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 the [Block's] Square, with Puma, with Nike, and many other brands Zara, H&M. From supper high end all the way to mass fashion depending on the channel, depending on the kind of operation, the design change completely. Even though, we're still talking about Pepsi, Cheetos, Lay's the same brand with the same identity.

It's fascinating and it has 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, didn't make sense too much 30 years ago. All of these activations across every touch point of the brands, excite people, build a new bond between these people and the brand. Transcending eventually the product itself, the color, the potato chips, and really creating that connection with the brand. Then once again, when you build a connection, people feel the pride, feel the desire of the instinct to share that experience with others. Then become, once again, the best possible ambassadors for these brands. Because it's not a brand anymore bragging about itself but it's your consumer or the people buying your products that are promoting the wonderful experience that they had with your brands and the products.

Ricky Mulvey: 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 in some ways help design touchscreens and virtual reality headsets in 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.

Mauro Porcini: Well, Stefano Marzano used to be the Head of Design of Philips in the '90s. For anybody that started the industrial design in those years around the world, especially in Europe, Stefano was a little bit of an icon to meet somebody that every young designer wanted to meet and know. Stefano, what he did in Philips, he literally shaped my approach to design. In the '90s, they were working on understanding ho society will look like 20 years later, 30 years later. Essentially, if you think about the '90s, they were thinking about how our society will look like today, in the age we're living today. What they were doing well, they were connecting designer, sociologists, marketers, people of business, together to envision first of all how society will change. How we will move, we will walk, 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 leaving. But aesthetically, our society will look really similar to the one of today, is just that the product surrounding us would be smarter. Your eyewear would be smarter and will help you enter in virtual reality, what we call today the metaverse. I remember working on vision of the future. 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 didn't have a physical device anymore. We're talking about the '90s where we still add CDs. 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.

This is what they've been trying to do since then. Think about PepsiCo today. A company like PepsiCo, you're like, well, you are the Chief Business Officer of PepsiCo, what do you do? You design pretty packaging of the products of the company, the brands of the company. While we do also that, we try to build 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, that monitor your skin, your sweating, the composition of your sweat. 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 or as we were imagining the word of Philips, you're going to have a tattoo.

You're going to have something on your skin that will monitor the way you sleep in this specific case. I wake up in the morning and Alexa or Google Home will tell me, Mauro, I know you didn't sleep very well. I would be like, what are you talking about, Alexa, l thought I slept so well? No, I analyzed your sleeping patterns and they were not really good, and check this and that part. Then Alexa obviously knows my healthy history. Alexa knows also my agenda of the day. I'm going to have a very busy day, and so Alexa is going to 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, magnesium, turmeric, whatever is right for me that day, on the base of what I need exactly in that moment. What Mauro needs in that moment.

An analysis real-time on 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 to 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 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 company, you need to do this. You need to leverage design thinkers together with your scientists, engineers, business leaders altogether, sociologists, the human scientist. With designers, envision what is the future, design it, create it, make prototypes.

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, market, eventually leveraging the digital channel to test ideas, to make prototypes of products, business models, surpass 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. Then the first stream of work is the real breakthrough projects, that they have some form of technological advantage. That's the ideal breakthrough projects because it's defendable in time and is 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.

Ricky Mulvey: Well, and I also imagine building trust is huge with that. I looked at the Gx Sweat Patch, which it's 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. 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 thing. 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.

Mauro Porcini: Well, look, the reality is that we'll have a series of technologies that our platform, and they will enable us having a better life. Then there are pioneers, companies, and brands that are starting to experiment with those technologies before order products and brands. 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 these in society, so you need the 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.

They will start to compete, they will apply their technology to other fields, and the 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 in society, to push technology to the next frontier, you need companies that embrace that culture of innovation, that embrace the 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 in line with generating business value and financial value for your shareholders and for your company a. Again, while these 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, is so extreme, that either you build the culture in your company of excellence, you build the culture of innovation, you build a culture of love for the people you serve, and the culture is going to drive productivity, efficiency, effectiveness and quality, or somebody else will do it on your behalf in your industry, because that is what is going to happen.

Ricky Mulvey: Appreciate it. Mauro Porcini, 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.

Mauro Porcini: Thank you.

Chris Hill: 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.