Innovation Insiders: Diageo's James Thompson

Rafe Ring: Like the story of six blind men and the elephant, every company has a different take on innovation. How do you see innovation, and how critical it is from a strategic point of view for Diageo’s future growth?

James Thompson: Innovation has been a core part of Diageo’s strategy now for a good eight years. In North America we set up an innovation unit in 2002, and innovation is a core part of our growth there. Now we have equally strong units in every region.

Rafe Ring: Can you tell us about innovation in Asia-Pacific?

James Thompson: In Asia-Pacific new products have driven more than 40 per cent of our growth over the last 5 years. When I got here in 2007 we had been trying some innovation, but not that much was really sticking. So we have focused on getting closer to our markets to innovate, particularly in the last two or three years and this is paying off and innovation is now firmly in our blood stream. We have evolved from fairly simple line extensions and special editions to innovation becoming more of a strategic thrust focusing on getting into new consumer groups and categories.

Rafe Ring: When you say more of a ‘strategic thrust’ what do you mean specifically?

James Thompson: Well, our strategy looks really at two things. The first is to premiumise. In this part of the world, the market for luxury goods is inexhaustible; I think it is virtually recession proof actually. A typical high-end luxury beverage alcohol product at the moment costs at the most around $300, which sounds a lot but is actually inexpensive when you consider the years of craft and understanding that go to make up a Scotch whisky as rare as, for example, Johnnie Walker Blue Label. Premiumisation in an everyday sense in beverage alcohol comes down to the idea that while not everyone will stay for a few nights in the Four Seasons, the amount of new wealth around means that many people can afford to have a drink or two in their bar. And what we are also beginning to do now is take Scotch whisky into even higher-end, high-craft, almost bespoke opportunities.

Rafe Ring: So how does this idea come alive or manifest itself in the market?

James Thompson: We set up a space in Shanghai called the Johnnie Walker House – we call it the world’s first Scotch Whisky Embassy - which is an innovation in and of itself. It is located in Sinan Mansions, an up and coming area based around architecturally important 1920s villas. This is a four-storey building, some of which is open to the public, but the rest is by invitation only. There we host what we call whisky mentoring over conversations with some of the most influential people in Chinese society, and we also make available high value editions of Johnnie Walker that you can’t buy anywhere else in the world. At our grand opening in May we introduced the Johnnie Walker 1910 edition (Johnnie Walker’s existence in China can be traced back to 1910) selling for about $2,000 and we’ve almost sold out. It’s gone so well that we’ve decided to hold some back to sell again sometime in the future. We are also able to tailor make whisky blends in quantities of a cask (about 300 bottles), and we already have customers who are having their own blend of Johnnie Walker designed for them by our Master Distiller when he visits Shanghai.

That is a very personalised and special kind of innovation but we are also premiumising at a more regular level with products, like Johnnie Walker XR 21, which we launched earlier this year. It’s the first 21-year-old whisky from Johnnie Walker, it’s presented in a luxury decanter, gift offerings are occasionally available together with glassware specially designed by Chinese artisans - and it is taking a number of our markets by storm.

This idea of collaboration is also part of our approach to premiumising. For example Johnnie Walker Blue Label collaborated with Porsche Design to produce a beautiful bar and gift set, which is coming out later this year.  

Rafe Ring: Where do the ideas for the new products come from? Is it internally? Externally?

James Thompson: Internally historically, but that is starting to change...

Rafe Ring: In what way?

James Thompson: Well, if you look at one or two things we have done around the world, some of our most powerful ideas have come through collaboration with other people. Since we collaborated with Sean Combs (the rap artist and music producer P. Diddy) on marketing and innovation for our Ultra Premium vodka, Ciroc, sales in the US have increased more than 10 times. We have collaboration with an entrepreneur on a brand called Nuvo, a pink sparkling vodka from France, which is also a huge success. In Asia, we work closely with our technical suppliers to access their ideas, for example, around packaging development, so I expect we will see more and more of our innovation thinking sourced externally in the future.

Rafe Ring: You said your innovation approach involved two areas. If premiumisation is the first, what is the second?

James Thompson: Our second thrust is about convenience, making spirits accessible in formats, which made them suitable for occasions where people normally drink wine or beer. Two great examples of this recently have come from Australia. One is Smirnoff Signature Serves, in part a collaboration with Ocean Spray, which targets bag-in-box wine sales. Consumers put their wine box in the fridge, ready for their first drink of the evening. We compete now with that occasion by having delicious ready-made Smirnoff mixed drinks (such as Smirnoff with Ocean Spray Cranberry Juice or Smirnoff and Blood Orange) in the same format. This has been incredibly successful and has really changed Australian drinking behaviours. And then we also have Smirnoff pre-mixed cocktails in collaboration with Schweppes - bottles of perfectly mixed Smirnoff or Gordon’s and Tonic, that sort of thing. We collaborated with Schweppes to do the R & D and, to some extent, the marketing as well, so costs are down and reach has increased.  Again you can see our external focus coming through in how these innovations were developed.

Rafe Ring: Interesting, P & G are also heavily involved in collaboration, not so much involving other companies but involving different communities, either professional, academic, or consumer communities.

James Thompson: Yes – and related to that communities thought, let’s go back to Johnnie Walker House. One of the things we are doing is we are working at engaging different communities. Communities of artists, communities of business people, communities of musicians, and so on. So we are not segmenting by wealth only, we are segmenting by people that are at the forefront of their field, whatever that field happens to be – it could be journalism, could be marketing, could be investment banking, could be the arts - and we are hosting private evenings with very influential people in these communities.

Rafe Ring: And that blends the two areas of accessibility and premiumisation...

James Thompson: Exactly. By inviting leaders to the House, and then publicising some of these conversations, dripping some of them out online, we are making these “whisky conversations” with the most influential people in the society accessible, letting others listen in.

Rafe Ring: You talked about innovating internally. Does Diageo have any prescribed process for innovation – is it viewed as a discipline within the organisation - or is it more organic and spontaneous?

James Thompson: It is a discipline – but one where we encourage creativity. The disciplines are about commercialisation, aligning our organisation, making fast decisions, getting things done. We have a simple gate process, and as we have got used to this we have significantly reduced our time to market and see opportunities for improving that still further. But within this simple process people have a lot of freedom in terms of where they get ideas from and how they develop them. In fact we are constantly trying to stimulate new types of thinking and sourcing.

Rafe Ring: How do you measure your success related to innovation?

James Thompson: We set markets a stretch financial target as a way of exceeding their goals and we set our category teams challenges to build their businesses through innovation. Like any business activity, we track and monitor how well we are doing, but we have found that the stretch inspires creativity from people.

Rafe Ring: how do you measure the innovation target versus the company target?

James Thompson: First we measure new business every year from new products, and then to make sure we don’t just throw things out into the market and let them die, we also track how all innovations perform over a period of time.

Rafe Ring: Is the innovation team separate from the rest of the company?

James Thompson: Yes the innovation team is separate, but they are experts in service of the market and category strategies. Each country Managing Director has an innovation target.

Rafe Ring: And he or she has to task the innovation team to help achieve that target?

James Thompson: Exactly, so they partner, so they develop approaches together, they manage the pipeline together and they are accountable for clear deliverables.

Rafe Ring: Let’s jump from product Innovation to client/agency models and marketing innovation. In July last year, Campaign quoted you as saying “traditional client-agency models need to change”. Do you believe that today?

James Thompson: Yes I do. We’ve talked about how product innovation is something we have had a lot of success with. Equally in Asia, as elsewhere, Diageo is doing a lot of innovative work in marketing itself.  Like everyone else we know that engaging with consumers is better than talking at them, and like everyone else we operate in a fragmented media digital world. In our high image but highly-regulated industry consumer engagement is especially important to build brand loyalty, and to do that you need consumers to take part in what your brand stands for and its marketing.

So conversations with consumers – whether real or virtual – are just as important as advertising for us and when you start having conversations you need to be there when consumers want you to be, not just when it suits you. That’s a massive challenge to the traditional agency model. No single agency seems to have the whole answer, specialist “best in breed” agencies are springing up all the time, it puts a lot more pressure on us as a client to own the platforms and every expression of the brand idea.

Rafe Ring: So how has your agency/client relationship changed in this new environment?

James Thompson: In part it’s meant that our marketers don’t always delegate as much as they used to, as they have to be at the heart of the idea to orchestrate it across every expression – but generally our agencies are responding very well to the new environment. There is a lot more genuine collaboration and teamwork. The big idea is no longer the ad agency’s preserve; it can come from anywhere. In many ways it is quite refreshing.

Rafe Ring: …and the consumer is more important than they used to be as well…

James Thompson: Without a doubt, consumers are more involved in our marketing; they constantly give very public feedback as well as creative suggestions.

Rafe Ring: and the brand has to have an authenticity that it didn’t necessarily require to be evident previously.

James Thompson: Absolutely –authenticity and transparency. Brands that lie or put gloss on won’t have a future. Everything is discoverable.  Brands have to tell genuine stories. A challenge for agencies is to do this in a compelling way rather than focusing on hyperbole.

Rafe Ring:  Let’s move from agencies to Asia specifically. Five years ago all 25 of the world’s top most innovative companies were in the US. Today five of them are in China, India, and South Korea. Do you think a new world order is emerging?

James Thompson: I think it’s emerged already. America is still providing a lot of the leadership but you see a tremendous increase in creativity and innovation from emerging markets. The growth in these places helps companies take a longer-term view, which really aids innovation. A potential headache for companies based in established markets is that the very obvious short-term pressures we are all aware of lead to a decline in innovation and risk-taking more generally –because these are the things that feed the future of a business.

Rafe Ring:  You’ve been described as a risk taker by a number of people. Do you think there is a higher propensity to take risks in Asia as opposed to the more traditional markets?

James Thompson: I think people see returns more quickly than they do in other parts of the world. Somebody with courage can make money very quickly in India or China nowadays, whereas in other parts of the world it’s more of an effort, it takes longer to pay back, so I think risks are easier to take here. And taking risks is a lot easier when you have the confidence of already being successful, a luxury we obviously have at Diageo.

Rafe Ring:  What is the relationship between risk and innovation?

James Thompson: If is not a risk it is not an innovation. By definition innovating is doing something than no one has done before. It is creating a consumer behaviour that doesn’t exist or changing one that does exist. So we encourage risk, we try to encourage a culture where is better to do something and fail as long as you learn, than to do nothing. In communication terms we say shoot for 10 out of 10. If you get a three out of 10 that’s ok as long as you were trying for a 10, so take the risk and fail as long as you are shooting for excellence. In your new product development what I say is fail and fail often if you like, but fail small. So have a portfolio of ideas that you are constantly testing. We have also learned as part of this to kill things quicker. If it doesn’t work just get rid of it, and that is hard because innovation thrives on the passion of the people working on it. So we have to be passionately dispassionate, in other words be ready to kill something that you love very quickly and then move on to the next passion!

Rafe Ring: That mirrors exactly what Venky, your global head of marketing innovation, has said as well.

James Thompson: There is a phrase we use… “spin it or bin it”.  Spin or build and adopt an idea quickly that seems to be working, but if it’s not then working bin it just as fast. There’s a great quote from Leonardo da Vinci, which basically says that to stay ahead you have to “do something else”, you always have to be on the move. Constantly innovate.

Rafe Ring: What advice would you give other leaders who want to foster a culture of innovation inside their organisation?

James Thompson: It’s all about the people, find passionate mavericks because change depends on the people who are bloody-minded, tenacious and visionary because they love something. They may not be the perfectly polished corporate stereotype, you may have to tolerate some rough edges. But give them the space to succeed and to enjoy doing what they are doing, back their ideas, back them, promote them. So if you really want to innovate and get business results from innovation, find the mavericks, put them in the front line and give them organisational air cover. It also does mean walking the talk on failure - senior people in the organisation need to have big enough shoulders to own failure and let others own the successes. Finally, make sure innovation is not only a marketing owned area, it needs to be owned by the managing directors in the businesses, and it needs to be owned by the people making the products, it needs to be ingrained and celebrated in the whole culture, so the more senior leaders in the company need to champion it visibly. Innovation needs to be at the heart of the company or it is nowhere.

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