On the surface, Oreos and tires have very little in common…beyond their shape. But, according to Marcelo De Santis, both consumer packaged goods and the automotive world have been confronted with a common challenge: transforming themselves to fit the ways consumers want to shop and purchase things in the digital era.

De Santis formerly worked as Chief Information Officer for North America at Mondelez International — the food and beverage company that owns brands like Oreo, Ritz, and Toblerone. He then moved to Pirelli, an Italian tire manufacturing company that dates back to 1872, where he served as Group Chief Information Officer. Currently, De Santis advises startups at 1871, a global business incubator in the Chicago area.

According to De Santis, digital transformation requires buy-in from employees throughout the organization — from the CEO to the business units. “Digital transformation…is a team sport. It’s a cross-functional effort” that affects every part of the company, De Santis says. But the crucial first step is to get everyone to agree on what digital transformation means — and why it’s important, he says.

In a recent interview, De Santis discussed his experiences with digital transformation at Pirelli and Mondelez; the importance of new metrics and incentives; and creating a space for experimentation at large companies.

Marcelo De Santis

Marcelo De Santis

Defining Digital Transformation

[Digital transformation is] an overused term that has become actually meaningless at this point. The first challenge for corporations is to define the why [it’s important]. … What is the meaning? What is the scope?

Second, would be [getting] the CEO to support [transformation]. Make sure that digital transformation…[is seen as a] business strategy enabled by digital capabilities.

How do you do that? … What we did, for example, in Mondelez was to really understand how we were intersecting technology trends with consumer trends with product trends. … We looked at how consumers were connecting with brands and with products and also, what technologies they were using in order to get into that kind of engagement.

[A]s a result of that, we said we need to build a one billion dollar business on digital commerce by 2020. That was, to me, extremely helpful because that clarified the business outcome for the digital transformation. Once that was clear, then you start to actually reverse engineering that.

Embracing Unknown Business Models

[It’s] one thing is to sell a pallet of Oreos to Walmart and another thing to create a consumer experience…to gift a chocolate…[via a] mobile phone, and [to deliver] that chocolate to [someone’s] home.

That’s a completely new business model. That business model requires new skills, new talent. … [T]he ongoing and sustaining of that business model requires completely new ways of working.

What does it mean for a company like Mondelez to get into a new business model? What capabilities do we need to build? … What talent do we need to acquire?

Case Study: Personalizing Products

Mondelez typically sells through retailers. We are very good at selling a pallet of Oreos. What we did is we analyzed the consumer trends. We analyzed the technology trends. We analyzed what kind of products people consume and when…

We [thought], how many of our products could be customized and be sold for gifting purposes? For example, gifting a chocolate with your name on it for your birthday. Gifting a chocolate with the name of your husband for Saint Valentine’s Day.

We said, how do we build this gifting platform that gives Mondelez the ability to gift any of the products that we have in our current portfolio with a layer of customization on top…in a way that is direct-to-consumer?

We [ran] the experiment within a window of six months with a very limited budget. [We had] cross-functional teams sitting in Seattle…with a startup based in Israel. …

At the end of the day, we commercialized the product on the West Coast. We sold 45,000 customized tins of Oreos. It was a success from the consumer acceptance of the product. … No doubt [the experiment] was not [profit and loss] positive, specifically for that [low] volume.

To fast forward the picture…after I left, [they] moved that business model to China, and in a partnership with Alibaba became a large business in China. What that proves is with 90 days, three months of work, 70 people, and one startup, we…could do something. … [W]e found another market where the conditions help[ed] us to scale up the business and become a very interesting source of revenue for the company.

Deconstruct the Back Office Processes

[At Pirelli, it was a] challenge…going from selling tires to selling APIs [application programming interfaces] and data. … What we learned [was] how to…deconstruct the back office processes…

For example, I was iterating with the team in windows of two or three weeks. [W]e were testing the tires, and the sensors, and the communication with the computer in the vehicle. It’s a pretty difficult technical product — smart tires. It’s pretty difficult to configure.

Every time I [had] to go to procurement, [I sat] down with [experts], and they [went] through all this paperwork. That [took] maybe three, four, five weeks.

I was telling them, “I can not go through a process as long as this. It’s something that I need in a week, because in two weeks I have to have a new iteration of the product.”

What we learned [is that] we have to deconstruct and adapt [the procurement process] to a startup way of working.

That was the biggest learning [difference] to … Mondelez. Obviously, we setup a startup within Pirelli. It was a completely different location with different ways of working.

Confronting Unknown Territory at Pirelli

[Additionally,] processes, like getting to know how to deal with…intellectual property in the case of selling software and selling data, [were] new for us. It was new even for me as a professional.

The APIs mainly are being sold to car manufacturers, because what the product does is to connect the tires to the computer in the car. Even though the product is the same, if I [did] it for Lamborghini, I have to create an API for Lamborghini. If I [did] it for Porsche, the API is different. Maybe the amount of information that Porsche requires from the tire is different. … Each of those APIs are products in itself.

We [had] the intellectual property on the Pirelli side. Somehow, we needed to find a way to find the price. We [had] never done that before in a company that’s selling tires.

We had to get help from outside. We work[ed] with BCG Ventures to really understand which were the different models, not only for fixing the intellectual property challenge…but [also] how to price the APIs, how to write the contract with Porsche, saying, “I’m going to sell you this API. This is the cost and we’re gonna monetize it in this way.”

Creating Incentives for Leadership

The clock is ticking for large corporations. … I think people are aware of these things happening. They are clear about their risk. …

[But] the people that are leading large corporations are incentivized by retiring in two, three, four years. They are not looking at this as an opportunity. … Hopefully, you have new leadership coming soon that is going to be looking at these companies with a different perspective, actually making that progression sooner than later.

[For example], we set up a startup within Pirelli… We [called] it Pirelli Digital Ventures, and the product [was] called Conesso. Conesso in Italian means connected, because it’s a connected tire.

It was a completely different location with different ways of working. It was truly cross-functional. We were lucky that the results of the startup were included in the objectives of the [senior officers] of the traditional business. … That helps a lot. Twenty percent of the bonus of our leadership team for 2018…[was] attached to the success of the startup.

Separate Space, Different Metrics

[F]or disruptive innovation, you need a specific place outside an organization.

[W]e’re also conscious that in order to innovate in an area that…no one in the company [has] knowledge to innovate about, we need to create that little bubble in where the rules are different, in where the metrics are different, where the talent is different, and be able to learn how to actually lead a team like that.

For the launch of our bicycle tires, [a marketing person from a startup] created a small team on the traditional side of the business and [ran a] campaign… That is a real example of how you can actually retrofit these new ways of working, running a startup into a traditional business.

Digital Transformation will Affect Every Single Function

Remember that [digital] transformation will affect every single…function in the company. It is important that [different business units] have skin in the game. The only way of doing that…is you make it part of the real objectives of those executives, so they contribute.

[M]ake sure that people understand that innovation requires experimentation. Some cultures — specifically industrial companies — are very proud of saying, “We are perfect. We are high-quality, and failure is not an option here.”

Be aware that it’s not about changing the culture of a company. It’s about enriching the culture of a company, bringing in an additional mind