Hershey’s Exec on Metrics, Learning, and Focusing Innovation

January 16, 2015

How My Role is Defined, and What the Advanced Innovation Center of Excellence Does

We have four different innovation teams in the company at moment. We have three global business units focused on different categories. Each one of those business units has a product innovation team that keeps our brands healthy.

The fourth innovation team is the one that I lead, which is our Advanced Innovation Center of Excellence. We have three primary roles in the organization. The first one, which you would expect of a center of excellence, is driving enterprise capabilities for innovation.

The second accountability is to lead the work on technology-based innovations “Beyond Product,” or beyond that product innovation work. If any of you are familiar with our joint development agreement with 3D Systems, for example, our team is the one that’s doing the experimentation work and the technical development work on what a 3D printer for chocolate might look like and how we might come up with the right business model for that.

The third capability on the team is around strategic foresight. How do we monitor what’s going on in the world, convert that into foresight scenarios that will influence both our corporate strategy, as well as the pipelines of our products.

I report to our chief growth and marketing officer, who in turn reports to our CEO. The three product innovation teams that I referenced that are embedded within our three strategic business units, they also report in to our chief growth and marketing officer.

I view [the product innovation teams] as partners in crime, so to speak, as well as key clients for us. I really view our Advanced Innovations COE as an internal consultancy, an internal center of excellence, an internal service provider.

The product innovation teams, as well as non-product innovation teams all over the company are the core clients that we serve.

Building Organizational Capability for Innovation

We started this organizational unit in January last year. I have five roles on the team at the moment. We have a relatively small team.

We spent most of 2014 laying the foundation. We spent some time doing a very thorough systemic assessment of our innovation ecosystem in the company.

We got a report card back that said, “Here’s where we’re doing well and here’s where we have room for improvement.” That really gave us the business case and the burning platform to go to our senior leaders and say, “Here’s the agenda for the Innovation Center of Excellence, not just because we say so, but because the organization said so, and we’ve got data supporting everything that we feel needs to change and everything that we want to do.”

That really sets us up for what we’re going to do in 2015 to deliver. We have an innovation ambition and strategy for the company. Our role is to now help activate that and bring it to life. Innovation capability-building is a core plank in how we’re going to do that.

We’ve developed an approach to doing innovation — both developing new products as well as all other kinds of innovation that would drive business benefit for the company. That could be redesigning processes, looking for new consumer targets, looking for new usage occasion, developing new experiences, new channels of distribution, leveraging technology and digital marketing in new ways.

All of that is under the umbrella of how we would define innovation. We have an approach to doing the work. We have toolkits that are fit for purpose. I would say 80 percent of our tools work across all scopes of innovation. Some of the tools are specific to different types of innovation work we might be doing.

We’re going to be launching an enterprise learning and development program for that approach and for those tools — that will be very much tailored to different audiences and different types of innovators in the company.

Learning and Development Experiences for the Whole Organization

If you can visualize a pyramid that’s different levels in the company, you’ve got your senior executives at the top and then you’ve got twelve or thirteen thousand people that flesh out the rest of that pyramid.

We’ve been doing a lot of thinking about, “What is it that people at the lower levels of the organization need? What’s the right way to deliver learning and development experiences to them in a way that’s cost effective and scalable?”

E-learning and locally led lunch-and-learns are some of the tactics we’re thinking about. We’re going to focus first, because we think there’s more leverage and more impact, on people that are leading and participating on innovation teams — making sure that they, first and foremost, are equipped with training on the approach, training on the tools, and access to coaching and mentoring from my team, so that we can start to accelerate the impact from the innovation work that’s already going on.

We’re not going to ignore the rest of the organization. That will come, as well, this year.

Question and Answer

Question: Can you elaborate on the toolkits? What are the most important pieces of the toolkit and what do you recommend for others?

We’ve spent a lot of time thinking about tools. As I’m sure anybody on the call knows, there are more tools out there than you could possibly learn, understand, and use.

We’re putting some criteria in place to create a really tight filter. We’re looking for tools that are, first and foremost, simple, easy to understand, and easy to use. We’ve learned from the last four years of experience that while we may have tools that are really awesome and those of us that are more expert in innovation find them very understandable and user-friendly, they may not show up that way to somebody who’s working on an innovation project for the first time.

I would say we’ve hand-picked and curated tools that fit within each of the four phases of our innovation approach. We hand picked them for simplicity, breadth of application, and really high value and high impact. We’ve got a lot of good user reviews over the years on different tools that we’ve been using. We’ve added to the toolkits some newer things like lean startup approach, for example, that we think are going to be important going forward.

Question: What’s one example of a tool that you find to be pretty user-friendly to someone who maybe hasn’t done lean startup or business model canvas or something?

In the early stages of planning a new innovation initiative, one of the tools that I know everybody who uses it loves, it works very effectively, is Rope of Scope. That is sitting down with the team as well as the senior sponsor or the folks that are going to be ultimately making go/no go decisions on your team’s output. You throw some fliers out there. “What if the team came back with this recommendation? What if the team came forward with this kind of idea? Would that be in scope? Would that be out of scope?” And more importantly, “Why or why not?”

It’s a very effective tool for a number of reasons. You’ve got a very early sense of where your sponsor’s head is and whether they’re thinking too narrowly or too broadly about what the team’s work is going to consist of. Boy, it’s helpful to know that up front.

It allows you to help push their thinking. If they’re thinking too narrowly you can help open up different lines of inquiry that you think are going to be important. If they’re thinking too broadly, you can rein them in and get a scope that’s more manageable for the team. It gets everybody on the team on the same page with the sponsor or the decision maker. It’s a very useful tool, then, at the end of the process when you’ve got hundreds of ideas that you need to sort through and prioritize. You can go back to your Rope of Scope and use that as your very first filter.

Question: How did the idea for forming your group come about? How did you build organizational support for it? Of the five people you mentioned, are they totally focused on innovation or do they have other jobs as well?

I’ll answer the second question first. The people on my team, as well as the people that are on the product innovation teams are 100 percent fully-dedicated to innovation. There’s nothing else that they do. This is their day job. This is their 100 percent accountability.

How the team came about…We’ve actually taken a couple of different runs at creating an innovation center of excellence over the last five or six years. The first time we tried it we did not have the CEO and global leadership team alignment that we should have had. We had huge support from our growth officer at the time. So we had one executive backing it and supporting it, but it wasn’t across the enterprise. It had about a one-year life and it very quickly fizzled out.

It really came about when our VP last year said, “We really, really need to do this. We keep talking about how important innovation is to the company. We talk about how important it is to have a culture of innovation. We have a set of global leader behaviors that we’re all now accountable for. One of them is novel and adaptive thinking. So, we’ve put a stake in the ground that we want novel and adaptive thinking from everybody in the company, but yet there’s nobody really accountable for helping make all that happen.”

I think our growth officer totally got on board with it. Our chief strategy officer, our chief human resources officer, our chief R&D officer — the four of them really aligned on the need for this Center of Excellence in Innovation. We were off and running in January 2014 with that support.

Question: What metrics do you use to measure the success and measure the progress of the innovation program? What sort of timeframe do you think about?

It’s different based on what part of the innovation program you’re referring to. Like most consumer packaged goods companies, we’ve had product innovation and lots of metrics around that for decades. I would say we’ve got a very well-developed set of metrics for the product innovation portfolio.

We track by stage, by region, by brand the level of innovation in our pipeline, the net sales that it’s likely to yield, and the profits that it’s likely to yield. There are hurdles, obviously, for those kinds of projects to move through, all the stages and gates.

Honestly, when you talk about innovation beyond product, and certainly when you talk about culture, behavior, organizational capabilities — we are going to be building those metrics starting this year. We have not had those metrics in the past.

Historically, the way we’ve thought about innovation is our core product and service offering to our customers. For us, that was chocolate and sugar confections and some non-confection snacking items. That was our core business. That was the robust set of metrics and the measures that we had in place and that we tracked.

How do you assess the financial value of something like 3D printing, which is a technology in its infancy? Its application in food and beverage is still very much evolving. The way in which a company like ours might monetize that, and the business model that would support it — there’s a whole range of options that we’re in the middle of testing and learning.

I think in the very top of our “Beyond Product” funnel, it’s really about, “What’s the reason to believe? What’s the business case for what this idea could be?”

Assuming everybody says, “Yes, there’s something there. There’s at least enough there to give us a sense of stake,” we should put a little bit of money into funding some early learning experiments. That’s what we’re doing with 3D Systems.

We start learning more, and if we start de-risking the application of that technology we’ll invest a little bit more and then a little bit more. The key there is not to let the investment get too far out ahead of your learning — because that’s when you really start amping up risk.

We have a little formula around risk that I actually learned from Strategos that I think is really helpful. It’s very simple. Risk is a function of how much is unknown in the area in which you’re innovating, and how much do you have invested.

If the amount of what you don’t know is very, very high, which it often is, then you want to make sure your investment is really, really low. As you conduct learning experiments, the amount that you know goes up, so the amount that you don’t know goes down. Then you feel more comfortable starting to invest a little bit more and a little bit more.

You just keep that in sync, so that if things fall off the table, which they often do in innovation — no harm, no foul. Not a lot was invested. The worst thing you can do is overspend on something that has a lot of assumptions and a lot of hypotheses that are untested.

Question: Are there certain traits that you think employees have to embrace and develop to be able to successfully execute your innovation approach, like empathy, curiosity, collaboration, risk-taking?

I think there are. The good news is I don’t think they’re unlearnable. I think intellectual curiosity and having a wide range of interests, or just wondering about stuff in the world is a very, very important mindset to bring to innovation. I think people that are really good at [innovation] have an ability to connect disparate dots from disparate domains or areas of study.

We’ve got lots of people in our company who are very, very deep experts at consumer insights, and that’s terrific, but sometimes the consumer insight, combined with knowledge about a technology, combined with knowledge about shopper psychology, combined with something about a material or an ingredient or a nutritional thing — it’s the combination of things that I think creates innovation.

I’m not saying anything that I’m sure most folks on the phone don’t already know. People that are really good at integrative thinking and connecting dots, I think, do really well at innovation.

Certainly, in a large company, I would be remiss if I didn’t point out people that are very, very skilled, influential communicators, people that really understand organizational dynamics, they understand stakeholder management, and they can their ideas across in a way that other people can get excited about and get behind — [those people are] really, really important. It’s a soft skill, but it’s really important.

Question: Are you using an innovation management system?

We do have one. We don’t use it. It was started in R&D, and it was primarily a platform for R&D folks to get technical ideas and technical help on projects they were working on. I think the intent was to make it enterprise-wide, and it just never took off.

I will admit to a personal bias here. I have some bumps and bruises from having done an enterprise-wide employee idea management system in a previous company. I think they can work in some organizations. It’s not something that’s high on our priority list right now at Hershey.

I think we’ve got some other ways in which we believe we will get better-quality and higher potential impact ideas into our “Beyond Product” portfolio. Think more of like a “Shark Tank” process, versus an online software tool that might collect thousand of ideas and then requires a lot of resources to sort through them, prioritize them.

Very often, you have to very gently say to someone why their idea is not going to be pursued. In my experience, those systems can be very valuable for generating ideas around efficiency, effectiveness, doing things with less cost in the organization. They’re not going to be the tool that gets you the big blockbuster idea that’s going to drive growth for the company. It’s that, right now, that we’re focused on. I’m not saying we might not do it at some point in the future, it’s just not a priority right now for us.

Question: Is your team allowed to come up with ideas or expected to come up with ideas? Is it more about employees throughout the company? Do you do any outside crowdsourcing from customers or suppliers or partners?

I would say all of our ideas really need to be anchored in predefined opportunity spaces. That’s true for both our product portfolio and our “Beyond Product” portfolio. We’ve created focus for the company based on a lot of work with corporate strategy and with our business units.

We’ve got predefined opportunity spaces, if you want to call them hunting grounds or dig sites, drill sites. There’s lots of language. We’ve determined this is where growth is going to come from for us, and these are ideas or platforms or initiatives that fall within these opportunity spaces.

We don’t just have an open net, if you will, for any and all ideas. They need to sit within those opportunity spaces.

We have teams dedicated to actively innovating within each of those opportunity spaces, so the ideas come from those teams which are highly cross-functional, working with our innovation approach and tools, and they come up with the ideas within those opportunity spaces.

Obviously, if anybody else has input, it’s always welcome, but we have focused teams working to develop ideas in predefined spaces.

Question:  You talked about four phases of innovation. How do you manage the front end, in terms of evaluating opportunities, prioritizing things, and then actually turning them into a project?

At the very top of the funnel, it really starts with our corporate strategy and our business unit strategy, and senior leader alignment on “Beyond Product” opportunity spaces. That’s at the very top of the funnel, and that creates these dig sites as I referenced.

The teams focused on those opportunity spaces now start exploring. Think of it as geological exploration. You have a whole continent. Where in that continent is there opportunity to play and win for the business?

We actually have gates in the front of funnels, so Gate B is, we’ve explored the territory, and here’s where we think there’s opportunity, and we’re looking for a go to keep going. They might come to gate B with platforms, of they might come to Gate B with individual projects. It just depends what they find in their explorations. Let’s assume, for argument’s sake, that they find a platform. The team gets a go to keep going and explore that platform based on its economics, its desirability, its feasibility.

They then repeat the innovation approach and the tools, but now instead of focusing on a large opportunity space, they’re more narrowly-focused on a platform. They iterate again.They come back down the funnel to the next gate, and they say, “OK, we’ve explored the platform. Here is the roadmap for how want to sequence different products and concepts that we could develop and launch, and ultimately have show up on the shelves of retailers.”

Question: What’s your assessment of how the culture at Hershey has embraced innovation so far?

I would say there are certain behaviors here that are very much attuned to what we need to do with respect to innovation. I think everybody in our company knows that product innovation is going to be the lifeblood of our brands. No brand remains healthy and grows without innovation, and that’s how we all get paid. [Laughs.] When our business is healthy and our brands are healthy, that floats all of our boats. From that perspective, I think there’s a lot of cultural support for innovation.

Beyond product innovation, our struggle — it’s probably very common in lots of other big companies — is we don’t have dedicated teams focused on “Beyond Product” innovation the way we do with products.

A lot of the “Beyond Product” work that’s going on now is going on in an extracurricular sort of way, where we’ve all agreed this is an important space. We want to innovate in this space. A team is put together. A steering committee is put together. But all of those folks are doing that work on top of their day jobs.

From a cultural perspective, it’s hard to keep the momentum going sometimes, and for people to keep focused on it. People work on and spend time on the things that are in their goals and objectives and the things that are going to drive their compensation at the end of the year.

I think that’s just a cultural norm that’s a reality, but it does impact, especially for “Beyond Product,” how quickly and how thoroughly we’re able to mine those opportunity spaces. I think the one opportunity area for Hershey, and we’ve called this out, is around risk-taking.

We are a big company, and we are probably more risk-averse than we should be or need to be. That’s definitely a focus for culture change in the coming years.

Question: How do you secure and ensure continued senior management commitment of an innovation initiative?

For product innovation, those teams and the executives in charge of those business units have financial goals in our strat plan against innovation.

Nobody can decide, “Well, I think we’re going to just kind of step aside and kind of not work on innovation for a little bit,” because there would be a huge financial gap in the start plan. People are accountable for delivering those numbers.

Product innovation has a very well built-in motivation for everybody to keep their eye focused on innovation. It’s core to how we’re going to grow the company. That’s relatively easy.

We have “Beyond Product” innovation opportunity spaces where leaders have already aligned. These are really, really important for our growth. We need to focus on these “Beyond Product” opportunity spaces as well.

Those will be built in people’s objectives. I think that, to me, is really key in a large organization. What gets measured gets done. What impacts people’s bonuses and goals and objectives gets done.

That’s the way to really maintain senior leadership support and alignment on the innovation strategy, and the projects that are going to go on to deliver that strategy.