Global CIO: Six Lessons CIOs Must Learn From Coke's Dazzling Innovation

Jun 16, 2009 (04:06 AM EDT)

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Juicing its entire demand-to-supply chain from factory to consumer, Coca-Cola is rolling out a dazzling new product that's hard to define but nevertheless does all of the following: It lets the company test more new products more quickly with more accuracy, it lets restaurants manage inventory more effectively at lower cost, and it lets consumers select from 100 different drink choices.

As my colleague Mary Hayes Weier described recently in a superb analysis, Coca-Cola's new Freestyle dispenser should also give Coke the ability to sell more product, provide greater value to its middlemen restaurants, and discover breakthrough products more quickly; give restaurants a drink dispenser that's not only massively more flexible than its current lineup but also hip and jammed with intelligence; and give consumers the freedom to experiment with a huge range of potential drink combinations.

I've called it a "dispenser" but that's like calling Tiger Woods "a golfer": while true, it barely begins to tell the story. Hayes Weier got at the essence of their capabilities when she referred to them as "Coke's front-line robotic army for business intelligence." But they're also much more than that, with implications for everything in the end-to-end spectrum from the Coke product development teams to new-flavor kitchens to bottlers and distributors and restaurants to the intensely valued throats, hearts, and minds of consumers.

In addition to being BI robots, Coke's new ultrahigh-tech Freestyle dispensers are also new-product labs, customer-experience workshops, wireless repositories, data warehouse gateways, merchandising machines, inventory managers, and, perhaps above all else, truly transformative devices that shift more and more choice, options, and freedom from the seller to the buyer.

And that is precisely why CIOs from all industries need to sit down with their C-level peers and use Freestyle as a case study for how their companies can imagine fresh new approaches and processes that give customers more choices while simultaneously driving more actionable, customer-based knowledge back to headquarters. Here are six indispensable lessons from Coca-Cola's stunning piece of breakthrough thinking that CIOs of all stripes need to dig into immediately:

1. Until Freestyle, Coke -- like all other soft-drink companies -- plodded along with the same-old, same-old mechanical dispensers that trapped the company into a stifling box defined by the physical limitations of the machine itself. It didn't matter how many great ideas Coke had upstream, or how many breakthrough combinations its product teams believed customers would probably like: Drink choice was limited by how many 5-gallon bags of syrup could be loaded into the machines.

LESSON 1: Across your demand chain, where are the chokepoints that are regarded as immutable obstacles to greater success? What do you need to do to turn the immutable into the flexible? How do you rethink your accepted approaches, delivery mechanisms, assumptions, and no-other-way-possible processes? Do you believe it's part of your job as CIO to be concerned with such questions?

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2. While Freestyle was born of close collaboration between Coke's R&D engineering team and its IT organization, the dirty little secret is that the Freestyle project marked the first time those two internal teams had ever worked together closely on a project. When you consider that the Coca-Cola company has been around for about a century, that is a shocking revelation. I've been around about a century myself, and it verges on the unbelievable that in these turbulent times, a company that's as successful and market-driven as Coca-Cola would never have locked the leaders of those two teams in a room and said, "You're all real smart, and whatever the reasons are that have prevented you from working together closely in the past, those days are over. Working together, you two can come up with and achieve things that neither of you could accomplish individually. Now get after it."

LESSON 2: How would you rate your collaborative performance with key internal colleagues like R&D or engineering or marketing or customer service? More important, how would your CEO rate that performance? You know that staying rooted in your comfortable silos and sticking with standard practices will *never* give you and your colleagues the collective oomph to conceive and execute true innovation, so be a leader and start making new connections that lead to new insights, new experiments, and new opportunities.

3. Via Freestyle, Coca-Cola's IT team is now directly and deeply engaged with the consumers who drive decisions on what products fly and what products fail. It's comfortable and easy to reinforce the old bromide that IT's one and only job is to support/align with the business, but that type of thinking is probably one of the key factors that kept Coke's IT team its R&D engineering team from working together closely for decades. And I will submit to you that a CIO and an IT team that let themselves stay detached from direct connections with customers are going to become increasingly irrelevant. By sticking with the passive outlook of 'I'm here to support the business, not BE the business,' those backward-looking CIOs and their IT teams will inevitably come to be regarded as part of the problem that's blocking innovation, that's stifling breakthrough thinking, that's letting entrenched processes and thinking overwhelm new ideas and consumer-driven innovation.

LESSON 3: Put together a list of all the ways you and your IT team directly touch the people who pay your company money. Sit back and take a look -- are you proud of that list? In your next compensation meeting with the CEO, would you produce it as Exhibit A, or would you hope the conversation doesn't come up? Are you and your team aligned with where your business has been, or are you connecting forcefully with where your business is headed via your customers?

4. Renowned management consultant C.K. Prahalad talks about three steps in the development of seller-buyer relationships: In the first, companies make stuff and sell it and hope customers buy it; in the second phase, they listen to feedback from customers and go back and retool and reintroduce and hope customers are still interested; and in the third and most-enlightened stage, companies innovate and lead, moving in lockstep with their customers because they have brought their customers into the intimate relationship of co-creating products and experiences along with the seller. Coca-Cola has achieved that with Freestyle: Instead of saying, "Take your pick of the very same stuff we have sold across the world for the past 15 years: Coke, Diet Coke, Sprite, Diet Sprite, Orange, etc.," the company can now offer a totally new and unprecedented value proposition to its consumers: "Hey, c'mon in and take your pick from 100 different options of soda, team sports drinks, flavors, sizes and more -- after all, you're the one paying for it, and you should be able to pick exactly what you want."

LESSON 4: Within reason, how good is your company at not just allowing but indeed encouraging customers to enter the product-development lab with you and co-create products as well as experiences around those products? In thinking this through, it could be perfectly understandable if your first reaction is to say something like, "No way! If we let customers in the kitchen, there's no telling what crazy ideas they'll come up with -- it'll throw all of our planning and processes into complete chaos! That's nuts -- our systems just aren't set up to handle that level of unpredictability!" Yes, it's an understandable reaction, but is it the right reaction? Is it forward-looking and growth-oriented, or does it reflect an outdated emphasis on traditional ways of doing things as opposed to moving at the speed of your customers? (And if you say, "That stuff's not the CIO's job," well, good luck with that outlook.)

5. Hayes Weier's news-analysis story about Coke's Freestyle breakthrough goes into considerable detail about the rich and diverse software stew the company needed to put together to turn the vision into reality. Ingredients include Windows CE, wireless networks, Microsoft System Center Configuration Manager for Mobile Devices, Verizon VPN, Verizon wireless cards, SAP point-of-sale management software, Tibco middleware, SAP Business Warehouse, SAP CRM system/portal, and RFID readers and sensors.

LESSON 5: Could you and your team put all those pieces together? Or do you look at this and believe your company wouldn't support it, or you don't have the budget, or somebody's too worried about security issues with wireless, or what other types of rationale and excuses? How, then, do you need to reframe your arguments to overcome those objections? If you can't get the budget on your own, could you do so in close collaboration with the other teams that would be heavily involved? Are all these objections really just manifestations of siloed operations and processes? How do you want to be known: as an outward-looking, deeply collaborative and revenue-focused CIO, or as the former CIO who always worked hard but just stayed too focused on the technology without proposing ways it can help us transform to what we need to become?

6. Coca-Cola said Freestyle was in development for four years. Granted, Coca-Cola is a very big company, but still, four years is a long time, and it shows the innovation horizon that companies have to be willing to recognize these days. If you review your project list, do you have some gems in there that could turn into Freestyle-type breakthroughs for your company and your customers? Or is your to-do list a collection of mostly tactical, iterative steps that will sustain the status quo but do little to let your engage more intimately and in higher-value ways with customers?

LESSON 6: The CIO-as-caretaker has a pretty grim future, and if you're not an intimate player in your company's ongoing, long-term explorations for breakthrough products and ideas and processes, then you'd better eagerly and aggressively make it your business to become such a player. (See steps 1 through 5 above.) While no one's going to accept straight IT projects that last four years, it's almost impossible to imagine a significant R&D effort in any industry that's not keenly dependent on IT capabilities and expertise -- so, are you on the inside in those projects, or do you let yourself be positioned as a mostly tactical back-bencher who will align after the fact and support when asked?

As you mull over those questions, consider these points about the Freestyle project from Hayes Weier's story:

  • It lets Coke test more new products more quickly and for a lower cost; can your company do that?
  • It dispenses flavorings from printer-like cartridges instead of 5-gallon bags of syrup; how can your company rethink its core ingredients?
  • It sends consumption data each night to the master data warehouse; does your team deliver daily updates?
  • It give middlemen restaurants consumption data to let them order just in time; do you do that?
  • It receives instructions for new drink combos almost instantly via wireless; how's your speed?
  • It lets restaurants order via an online portal instead of phone or fax; are you there yet?
  • It lets Coca-Cola evaluate whether a new combo has achieved critical mass to shift over to bottled distribution; do you have that new-product acceleration capability?

The Coca-Cola team calls Freestyle its "first software-driven dispenser." Hayes Weier calls it "Coke's front-line robotic army for business intelligence." I call it a dazzling breakthrough in product co-creation. The important thing is, what will you call your first meeting with your peers to discuss pursuing similar breakthroughs at your company?

GlobalCIO Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

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