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Peter: Welcome to Unpacking the Digital Shelf. Where we explore brand manufacturing in the digital age.
Peter: Peter Crosby coming to you from the Digital Shelf Institute Studio in Boston with our weekly episode of trend and takes on the industry news you just might want to pay attention to in this holiday season.
Peter: Rob's here with me. Hey Rob.
Peter: You know, let's start off with a... I saw an article in Vogue Business recently on the topic of innovation. And it was talking specifically obviously about the fashion category. But I think, executives across categories are thinking about how to find that innovative mindset and a way of working with their teams. So Maghan McDowell at Vogue Business asks the question was, "Can innovation be taught?"
Peter: And Rob last summer Moncler ran its first company-wide hackathon to uncover ideas. Tell me a little bit about that and what did you think of how that worked? I know they ran it across the whole brand, didn't they?
Rob: Yeah. And it was multiphase, which is the interesting part. So Moncler, high-end apparel brand, makes those really warm jackets that you're seeing people-
Peter: Oh my god, I love them.
Rob: ... (laughing) Wearing around Boston all the time right now. The brand's 450 employees, broken into 37 teams, were asked to brainstorm and develop new ideas across nine categories, including products, information, technology, supply chain, sustainability, and Moncler's internal learning academy within 24 hours. And the winning projects, the people who came up with the best ideas that were judged to be the most aligned with where Moncler wanted to go in the future, were sent to Silicon Valley Singularity University. Which was a co-founded by Peter Diamandis, who's the guy who started the X Prize, and Ray Kurzweil. So it's-
Peter: That's the prize, right? Because I think this week they're supposed to announce the winner, and then the winners of the project go to that Singularity University. Which just sounds really cool.
Rob: Really cool. And so here actually, I think it's always tempting to look at the tactics a company uses, and try to mimic the tactics. And so in this case, it's Moncler is sitting there. It's a relatively new brand in terms of its appearance on the broad stage here. It's a relatively small company, 450 employees. And they're running a hackathon internally. And so it's easy-
Peter: It's the practices of tech, right? They're trying to apply the innovation practices of technology companies to developing new brand, thinking of new products, that list that you read off of.
Rob: Yeah. And you know, you see companies instituting Scrum, and calling themselves agile, and you know blah blah blah. All this type of stuff. And they tend to be the larger, Fortune 1000 companies that are trying to appeal to more youthful employees and that type of stuff.
Rob: In this case though, the reason that this is interesting, the reason the tactic works, doesn't have to do with the tactic. It has to do with the fact that the whole company participated for a couple of days. Right? That's a huge investment in time and human capital to foster innovation. And it means that the c-suite all the way down isn't just paying lip service to some tactic, they're actually trying to embrace a way of operating. This is, to me, it's more of a cultural statement. They're using the hackathon to really foster-
Peter: To change mindsets. Yeah.
Rob: ... The culture of innovation, rather than the hackathon being sort of an end in and of itself. And so I love that. I love that they're embracing that type of mindset.
Peter: Yeah. When you think of the array of employees, when you think of every employee in the company doing it, just the perspectives that are involved. I think it's an absolutely great idea to not restrict it to, "Oh, this product team's going to go off and do it." No, it's everybody with a view on their area, bringing it to the topics that they're interested in. I think it's brilliant.
Rob: It's brilliant. And I'd love to get more detail on how they broke into the teams. Because one of the key challenges that, especially larger organizations, but really this could happen to organizations of any size with different cultures, is if the teams are cross-functional, then it gives permission for somebody to come up with an idea relating to a different department without sounding like it's being an attack. Right?
Rob: So if I am in supply chain and I think, "Man, our e-commerce website could be a little bit cooler. I saw this idea, I've got this thought." By having hackathons like this, it gives that person in supply chain permission to then go to the e-commerce team and say, "Guys, what do you think about this thing? I had this idea." And instead of the e-commerce team saying, "Wait, e-commerce is our deal. Well, who are you? You're a supply chain guy." Instead of that reaction, they'll say, "Wow, that's a cool idea! I didn't think about that. Good job." You know?
Rob: And so I think there's a lot that goes into giving employees space and permission to participate in innovation. Participate in the future. It's all cultural, and I just love what Moncler is doing here.
Peter: Yeah. And it's not even happening just in fashion. I mean over the years, Unilever, Kraft, I know Tesco, Home Depot, they've all done this hackathon thing. But to your point, the interesting thing is here is in the scope of it. And then also, the prize being about, "Go and learn more how to do this, and bring that back to us." I think that's really cool.
Rob: Absolutely, yeah. It's-
Peter: It's an ongoing commitment.
Rob: They're empowering innovation throughout the organization. It's very easy to say, "Cool companies do hackathons, we're going to do a hackathon." It's very difficult to understand that the hackathon isn't about coming up with the ideas. I mean all of these 37 teams, 37 ideas, Moncler doesn't have to implement any of them. They have to implement zero ideas. Right? The goal isn't the ideas. The goal is the practice of the ideas.
Peter: Yes. I see what you're saying. But I know when I've participated in hackathons, here and then at other companies that I've worked at, it really does matter that you see that there's a visibility. Something came out of this beyond... Because after a while you're like, "Well why did we do all that? Nothing happened." I think there needs to be some sort of commitment to... Unless nothing turns out to be a good idea.
Rob: I actually disagree. So my daughter is into Pete the Cat. And there's a Pete the Cat episode where they go to the beach and they make sandcastles, and Sally the Squirrel is really stressed out because the beach... Her sand castle is going to get washed away by the water, right? As the tide comes in. And the point isn't to build a sandcastle that lasts for eternity. The point is the act of building the sand castle. And that's what hackathons are. Hackathons, the spirit is one of creativity. The spirit is one of, "I'm going to build this Lego tower, even though I know it's not going to stand up on its own very long." And you learn a lot from it, right? And honestly-
Peter: I agree with you there. I mean, I'm not saying that it's all about the outcome, but I do think it's nice to see that that work paid off. I mean, it will if it's worthwhile. You shouldn't make something-
Rob: I got to tell you, man, this is the tension right in the heart of this stuff. If you're trying to operate an innovative company, you've got to take risks that won't pay off. The second that you start having the expectation that what we do in this hackathon is going to become reality, you're restricting creativity, and you're changing the game of what it is, and you're also making people a lot more protective about what's going to be real and what's not real. The whole point is to play. The whole point is to be creative. The whole point is to dream. And if you happen to get something out of the hackathon that people say, "Geez, I didn't think about that. How do we rush that into production?" Then awesome.
Rob: But if that's the goal, you're missing the point. The goal is one of fostering creativity. One is fostering a culture of innovation. And that seems to be what Moncler is doing. And I fully embrace that. So it's a very difficult line. I mean, good for you saying, it's like, "I'm going to take the whole company, I'm going to spend two days of their time. We better get something out of this." That's a natural thought. But I really think it's actually that opinion fights against the spirit of what you're actually trying to achieve.
Peter: Yeah. All right, podcast listeners. Remember at 9:18 on Friday the 20th, Rob was right. (laughing) This is a singular moment in podcast history. I give, I give. You're absolutely right.
Peter: So in addition to kind of creating innovation through a program like this, some companies are trying to sort of hire for innovation. Right? To bring executives who come from a different background. Genevieve Wheeler, again at Vogue Business, wrote about this. That Ian Rogers is their first chief digital officer, he started in 2015 there, but he came from Apple Beats, Music, and Yahoo. Do you feel like that's an important thing? Bringing in leadership that has experience in this is important, as well? Do you think that helps get the mindset into these larger brands that may not have the same kind of... I mean, Moncler's not a startup, but they're certainly different than a giant LVMH or whatever.
Rob: Yeah. It's so team dependent, and it's so personality dependent, right? So if you're building any team, especially in this case you're building an executive team, you have to think about where your strengths are, where your weaknesses are, where are you actually need a lot of alignment, and where there's room to bring in a little bit of special sauce. Right? The risk is you bring in somebody whose got a totally different mindset and a totally different playbook, and they're too far away from the business that you are and the culture that you're driving. And there's irreconcilable conflict that that goes south.
Rob: So two of the biggest examples here are in 2000, The Home Depot brought in Robert Nardelli from GE. And GE, for those who remember in the '80s and '90s under Jack Welch, was known to have the best managers, period. They had a management culture and they had management training. And I remember there was an article in The Economist that said, "Having trouble finding a good CEO? Hire somebody out of GE." It was that type of mindset.
Rob: So Nardelli was one of the top four guys at GE. Didn't get the nod to succeed Jack Welch, that went to Jeff Immelt. And so Nardelli went to Home Depot. And that ended up being a fairly poor move for Home Depot. Right? Because Nardelli was a finance guy, and was looking to drive down costs for Home Depot. And so Home Depot cut the experts that were in the aisles, because there were guys that were legit carpenters and legit electricians, and so they cost a lot to have in The Home Depot. And when The Home Depot lost those people, of course, Lowe's hired a bunch of them. And people that were going to Home Depot for expertise, no longer found the expertise. And so that ended up hurting the brand. And ultimately Home Depot parted ways with Nardelli.
Rob: Same thing happened with JCPenney, with Ron Johnson. You know Ron Johnson, this is very similar to what you're talking about here. Ron also came from Apple. He was the guy who ran Apple stores. And Apple stores obviously were hugely successful, and still are hugely successful. It's one of the great retail stories of the last 20 years. And so Ron goes to JCPenny. JCPenny, of course, is a company that targets the middle-class. And Ron wanted to go upmarket. He wanted to do more expensive goods, higher margin, more fashionable. And so was changing the inventory. And all of a sudden, somebody who's been shopping at JCPenny for 20 years goes in there and says, "I can't spend-"
Peter: "This is not my store anymore."
Rob: Yeah. Like, "What is this thing? I can't spend $1,000 on this thing." And so JCPenney tanks, and they of course get rid of Ron Johnson. And he's having a comeback story now, but that was...
Rob: The transplant of innovation from industry to industry doesn't always work. It just depends on what the hole is that you think that you're plugging, and where the gap is that you think that you're filling, and how the person's view of the future aligns with what you are, and who you are, and who you would like to become.
Peter: So who your customer is, and who you want your customer, what you want their experience to be with your company.
Rob: Yeah. I mean, you see this all the time. It's really tempting to take somebody who's had a tremendous amount of success in one field and then have them opine on things that are not related to the thing that they actually have expertise in. And so-
Peter: It's kind of like where do you want your learning curve? In an executive that you bring on? Deciding what it is that you really need to get to that next level. And that when you're hiring a CEO, that's has to be board-driven. And they hired for what they thought they wanted to achieve, but their needs were actually different.
Rob: Yeah. This stuff is really hard. Right? And so I think that when you're bringing in talent from the outside, it's not like, "Oh, this person came from tech, and they're really smart, and they've got innovative ideas on how I can grow my company." There's a lot of soft skill aspect to it, which is, "Will they thoughtfully integrate? Can they thoughtfully integrate? Is my team capable of thoughtfully integrating somebody with opinions that are different than mine? Are the opinions so different that it's just not going to work? Or are they close enough that..." You know what I mean?
Peter: And sort of along these lines, we saw this week the CMO role getting re-instated at Coca-Cola. And there was a great article by Kathryn Lundstrom at Adweek covering this, and a bunch of other Forbes and others covered it. They had gotten rid of the CMO, in 2017 they moved to a chief growth officer role with Francisco Crespo. But he's retiring next year. And so they have now made this decision to bring back the CMO.
Rob: Yeah. I just want to first say that Francisco Crespo-
Peter: Crespo (laughs). I know!
Rob: ... Is just a wonderful name.
Peter: Isn't it?
Rob: I'm jealous of that name. Francisco.
Peter: I'm jealous of him being able to retire. But I guess they're splitting the chief growth officer back into three roles. The CMO is Manuel Arroyo, he's overseeing global marketing, but continuing to run Asia Pacific. Which I think is super interesting. Because to me that says, "Yeah. We are creating a CMO role, but they still have a responsibility for growth at the company." And it keeps your eye on the prize. I'm sure that will inform how a new CMO role will take shape. And then the others are a CFO is now set up. And Brian Smith taking over customer and commercial operations as COO.
Rob: Yeah. I think this is ultimately the right move that all of these companies that are going through digital transformation are going to end up at. Right? So in my mind, the path of digital maturity for a company within a market that's going through digital transformation, it starts with, "All right, I've got a little tiger team out somewhere in an office, and they're driving low volume, and whatever. Do what you want." And that was Amazon in 2010 for CPGs, very low volume. Just put a couple sales reps on it. High growth, but on tiny little-
Rob: ... Absolute numbers. So who cares, right? Then digital gets to a point where it's, "Wow, this is starting to become big. And if these growth numbers keep up, at some point, it'll be a really big deal."
Rob: And it's going to impact other parts of the business. And there's side effects on digital. So the Walmart digital team pushing on the Walmart sales trade team in Bentonville to give them better images and stuff like that. And then so you create digital centers of excellence. So that there's more corporate control on what happens on digital.
Rob: Then things keep going at a high rate of change, and they realize, "Well, the executives that we had that understood how to run the business and the pre-digital era, don't have the same skills to run it in digital." Digital is much more of a numbers game, it's much more analytical. It's much more volatile, so there's a much more Test and Learn approach. You've got to be able to fail fast, and you've got to be able to fail more often, you've got to be able to run a lot of different varied smaller experiments. There's a shift from brand to performance marketing. There's all of this stuff. It requires a different background, a different skillset.
Rob: And so they say, "Well, our CMO's great. Great guy, been with the business 30 years. We're going to compliment this CMO with a CDO." Right? Or, "Man, the way that marketing is going just isn't working anymore. I don't really have somebody to replace the CMO with. I'm not even sure what the CMO of the future looks like. So I'm going to cut the CMO role entirely. I'm going to create a chief digital officer. I'm going to bring in new blood that's maybe over-correcting for the lack of skills." And they organize that way.
Rob: And then the final step is, everyone sort of gets this digital thing. And you get an idea of what the CMO, who's got both skillsets can look like, and then you hire that person. And then it goes back to business as usual.
Peter: Yeah. Well Keith Johnston at Forrester wrote a predictions 2020 report that came out in October. The title: CMOs must establish a span of control before their purpose and the CMO title itself are dissolved. But underneath that dramatic title, where he was kind of representing was that there are two directions that the CMO role seems to be going.
Peter: Some are customer-focused roles, like the CMO takes over the entire customer journey. He was saying like Birchbox, direct-to-consumer startups, they have a chief customer officer instead of the CMO. Forrester talks a lot about customer obsession and things like that, but that there's a person that owns the entire journey, and is thinking about from that point of view. And the brand stuff gets expressed through all of those touch points throughout the company.
Peter: And then there's the growth-focused one. Like Mars replaced it's CMO with a chief growth officer. And the woman, Berta de Pablos, who took on the role in 2019 said, "It forced the brand to think differently from both marketing and recruitment." And now they're using the brand as a tool for growth. So I think you can sort of take two paths.
Rob: I think there's probably even more paths than that. Right? So Trader Joe's, for example, I think their head of marketing isn't... I'm going to get this wrong, because I don't remember what it is off the top of my head. But it's not the CMO, it's somebody like the chief of commas and grammar. Or something like that.
Rob: You know, Trader Joe's whole thing is they target the overeducated and underpaid. And so they take brown sugar and they call it turbinado sugar. You know, so you go into Trader Joe's-
Peter: That's how they express their brand. (laughs).
Rob: ... And you're exploring the world, right? And so Trader Joe's, they have significantly more margin per square foot than any grocer. It's not even close. Because they're basically gussying up regular products with really, really clever descriptions. Right? Their whole superpower is words and grammar. And so they titled that guy, it's the chief of words and grammar and stuff.
Rob: So I think if you're a subscription business, obviously subscription business depends really on renewal. Your churn rate is the whole game on a subscription business. Right? So having the CMO focus through renewal is really, really important. If you're not worried about renewal and churn in that way, then the skill set of the CMO is going to be different. Right? So I think it's just obviously-
Peter: It's the needs of the business. Yeah. I mean, Spencer Stuart, their executive search firm, came out: the average CMO tenure at 100 of the top U.S. ad spenders, slipped to 43 months last year from 44 months in 2017. So the tenure of CMOs just keeps drop... You're a CMO, Rob. (laughing).
Rob: Yeah. 42 months seems like a long time. (laughs).
Peter: Can you say that? One of the big closing bells out of the 2020 predictions report from Forester, was 2020 marks at the beginnings of a final desperate fight for survival.
Rob: Yeah. I don't know. I'd like to see whether the rate has to deal with voluntary versus involuntary attrition. (laughing).
Peter: Exactly! I am out of here. This job is crazy (laughs). It's a tough role. It's a really tough role because there are all of these levers on which you can be evaluated. And a lot of them you don't really have a lot of control over.
Rob: I mean in technology, the old... I mean, this is not really a joke, but it's kind of a joke. Is that if sales aren't going well, first you shoot the marketing guy. If sales continue not to go well, then you shoot the sales guy. If sales continue not to go, well then you shoot the CEO. Right? There's a path here.
Rob: Part of that probably plays out in every single company that's out there, where a lot of-
Peter: Especially in a time of change, like this is.
Rob: A time of change! Right? We talk about this all the time. More business is moving online. When the business moves online, there's more competition. Which means that for every single company out there, your share of category goes down. That's the pattern. And when that happens, that means that growth, even if growth digitally is going really, really well for you, in an absolute sense you're trading better dollars for worse dollars. And that's just the way that consumers are shopping, and you almost have no control over it.
Rob: So how do you, how do you protect margin and protect growth in that world? It's hard. So nobody has this exactly figured out. And they try a bunch of stuff, and when it doesn't work, they shoot the marketing guy. (laugh) And then they're going to shoot the sales guy. And then they're going to try somebody else.
Peter: But then you see Coke coming back around. I mean the CEO's said that the reason why they... I mean one, obviously is the guy's retiring. Francisco Crespo. But now that they say the growth strategy is firmly in place, the role of the CGO is no longer necessary. And then James Quincey went on to say that Manolo's, the gentleman running is becoming the CMO, the dual leadership over operations and marketing is a new structure and it will evolve. It's going to keep changing.
Rob: It's going to keep changing.
Peter: They're going to get it figured out.
Rob: Yeah. I mean, this is not going to be the last move that they make. I admire James Quincey. Since he stepped into that seat, he has done a tremendous amount for Coca-Cola. I think he's a great CEO. I don't think this is the last move's going to make.
Rob: The world is changing too fast to have the same person with the same skillset and the same org structure last for that long. The new CMO could be the smartest, greatest guy in the universe, and the world is still going to shift under his feet over the next few years.
Peter: I don't have the data here, but you tell me if you share this. That's a big shift for manufacturing.
Rob: Yeah. Oh, huge.
Rob: Yeah. I mean, this is really relevant to the whole conversation today. Where manufacturing, in my mind, 1962 when Walmart was founded... In the '50s you had the Eisenhower highway system and the standardization and the shipping container. And Walmart, and Target, and Best Buy, and others were founded in '62. That, until 2008, is the big box era of manufacturing. And it was all about scale, and operational effectiveness, and sales reach, and trade optimization.
Rob: And so you could grow up in a manufacturer, get a job in '62 or '64, and get promoted and get promoted and get promoted, and eventually get to the c-suite. Right? And the structure of the business and the operations of the business, they changed a lot during that time, but they were all sort of the same theme. And a lot of the same skills that served you last year are going to serve you next year.
Rob: And in the last 10 years, that's just hasn't been true. And so they're looking for a lot of ways to shake things up. They run hackathons, they pretend to be agile companies, they switch out executives, they bring executives in from other industries. They're looking to shake things up themselves. And it's all natural and it's all healthy, but it's painful. And that's the world that they're in right now.
Peter: Yeah. And I have a lot of respect for what we see manufacturers stepping up to that challenge and really taking it on. It's super impressive.
Peter: And it's not the last of these innovations to come along and mix things up. And as we close, we're running up against time, but I did see that this week, or recently I guess, it was at a show. One of my favorite sites is, of course, 3Dprintingindustry.com. (laughs) Not one of my-
Rob: Is that really one of your favorite sites of all time?
Peter: Yes. I'm checking every day, just to see what's going on. But they did report on: Xerox has a new liquid metal 3D printer prototype. They bought a company early in the year that sort of specializes in that. And they announced that they're going to be using that technology to play in making high volume, end use parts. Because they're looking to expand beyond the company's core business of toners, and copiers, and things like that.
Peter: And that made me think of Kevin Lewis, who runs additive manufacturing at Xerox. He's been there 30 years, and he's the guy doing this, which I think is really impressive. But his, his quote was, "We want to make manufacturing as easy as we did for print." A, what do you think about this? And how impactful do you feel like that could be on how products are manufactured? And at what scale?
Rob: My view on 3D printing is this is what's going to bring manufacturing back from abroad, back into the United States.
Peter: Wow. Okay.
Rob: And for a lot of different reasons. So one of my favorite shoe brands, is a relatively new shoe brand, they're called Atoms. A-T-O-M-S. And they're 3D printed shoes. And there's a bunch of examples of 3D printed shoes out there. Here in Boston, Ric Fulop has a company that's raised a ton of money, well over a hundred million dollars, called Desktop Metal that does 3D printing in metal as well, for industrial uses. Right?
Rob: The Xerox take is an interesting one, because they're specifically saying, "I'm going to use metal to do high volume goods." Right now, 3D printing for industrial usage is much more effective at low volume goods. So the cost of rapid prototyping, and industrial iteration, and things like that, is dramatically lower when you've got a CAD program hooked up to a metal 3D printer that you can prototype quickly. If Xerox can actually put the last step on that for industrial supply, where not only do you get the prototyping much more expensively, but then you can start shooting off high volume-
Peter: Much more inexpensively.
Rob: ... High reliable goods, much more inexpensively. Why would you do this abroad, right? You just start stamping them out here.
Rob: And then just like with the steel production mini mill revolutions of the '60s and '70s, with Nucor and those guys, you might start putting these 3D printing facilities... You might start attaching them as almost like mini production facilities to any other large manufacturing plant. So if you're Tesla, or you're Ford, or you're GM, or you're Caterpillar, you're anyone who's doing heavy, large industrial manufacturing, why would you order the parts? Just slap on a Xerox to the side of this building and just start stamping stuff out.
Rob: And so I really think there's a ton of potential here in apparel and industrial supply. I have actually a bet with a friend of mine that we're going to be able to 3D print a burrito by January 1st, 2021. I made this bet seven years ago. And right now, it doesn't look good for me. I thought for sure we'd be 3D printing burritos by this point.
Peter: (laughing) I so look forward to the next year's podcast when we find out whether that prediction comes true.
Rob: Yeah. But I love that story. We're not even remotely close to the beginning of the 3D printing revolution.
Peter: Well, I'm looking forward to seeing what happens... In my era, the way that kids would use a Xerox machine is they'd pull their pants down, and sit down, and Xerox their butts. And I'm wondering what will the 3D printer revolution do to that trend?
Rob: I guess a metal butt that could last forever.
Peter: (laughing) Yes!
Rob: The future society, 1000 years from now, is going to be digging up what used to be the American Empire, and finding metal butts-
Peter: Metal butts everywhere.
Peter: And with that view of the future, we'll close out here. You know, we're going to be on hiatus through the holidays. So many manufacturers give their teams a rest and relaxation after the holiday selling season, and we're going to steal a little bit of that ourselves. I can hear the howls of desperation from you, but don't worry, we'll be back on January 7th to start a new decade of Digital Shelf goodness.
Peter: I also wanted to say goodbye and thank you to our production assistant Huy Dinh, who spent his co-op time with us for the last six months, and is heading back to the real world at Northeastern University. But one, if you are in Boston area, Northeastern University co-ops are fantastic.
Peter: Across the company, we've had just amazing contributors, and many of them come back to start their careers here. We've been super lucky with that. So I would say that, but I really, in particularly, wanted to thank Huy because we just could not have started this thing without him.
Peter: So with that, Happy Holidays everyone. We will talk to you in the new year. Thanks for being part of our community.