When Sanjay Khosla became president of Kraft Foods International in 2007, Kraft was ready to pull its Oreo cookies out of China. “For 95 years, Oreos were spectacularly unsuccessful outside the U.S.,” he told CMO.com.
Once named a “marketing superstar” by Advertising Age, Khosla’s reputation would be put to the test by a cookie. He passed with flying colors. Under Khosla, the Oreo turnaround in China—where Kraft was “mindlessly global, hopelessly local”—was dramatic, as was the resurgence of Kraft’s global brands.
“The thing was to demolish corporate. We got six people from around the world who ran the Oreo business, referred to as the ‘Oreo family,’ on the phone—a supply-chain guy, a marketing guy, someone from corporate, and people close to the consumer and market,” said Khosla, who retired from Kraft in 2013 and is now a consultant. “The Chinese people had a big say.”
Khosla also visited customers in their homes. “I asked a mother, ‘Why aren’t you having Oreos?’ She said, ‘Western guests come like you, and we give them Oreos, but it’s too sweet, too sweet!’ It’s as simple as that. There’s nothing of rocket science in this. Our Oreos were for a Western taste. Our Oreo family now had this data, and they did something with it. It had nothing to do with me. They decided they would have wafers and green tea Oreos.”
|Cream in the middle? Turns out consumers in China preferred a different kind of Oreo.|
After grilling the Oreo business executives on details, “We gave the approval in five minutes,” Khosla said. China also wanted elongated cookies—so the iconic Oreo shape was gone. “Because why would somebody in Kraft’s East Hanover, N.J., biscuit office, who’s never been to China, ever decide Oreos should not be round?” he said.
Within two years, Kraft’s China business was on the upswing, and Oreo revenues alone doubled.
Reinvention, Marketing, And Trust
Love is not a word used often when marketing or fixing a business, but it’s a key factor in reinvention. Khosla said success requires a family culture and the trust that grows from one. A comeback is built on a framework for change that enables a leader to nurture a team to put their potential to work.
In addition, a resurgence must be market-focused, said Greg Carpenter, director of the Center for Market Leadership at the Kellogg School of Management, Northwestern University, in an interview with CMO.com. He pointed to four necessary steps:
- Recognizing the need for change.
- Reinvention in collaboration with customers and employees.
- Formalizing change to weave it into company culture.
- A maintenance program that prevents failure in the long run.
Skipping these steps has led to epic failures of corporate reinvention. As you’re about to read, JCPenney and Motorola are two examples of reinvention gone wrong, while mastering each step helps explain the successes of Harley-Davidson and Fonterra.
Big Change, No Reinvention
In 2011, after JCPenney booked the worst returns in its field, the board hired Apple’s retail chief, Ron Johnson, as its new CEO. Johnson recognized the need for change, but didn’t collaborate with his internal team or with customers. The changes seemed to be all about marketing on a superficial level.
By early 2013, sales at JCPenney stores famously tanked 31 percent after Johnson tried to bring Apple’s price-is-no-object culture to JCPenney’s discount-store customers. During his 17-month mission to create classy mini-boutiques and to turn “JCP” customers into upscale fanboys, the company’s stock lost half of its value, and change led to an epic disaster.
What went wrong? Carpenter narrowed it down to Johnson’s failure to understand Penney’s customer culture and to collaborate with his employees. Johnson had no coalition to make change successful—and he never earned the respect necessary to turn the retailer around. There was certainly no need for a maintenance plan.
“A coalition is like a balancing act,” Carpenter explained to CMO.com. “There have to be inside perspectives and outside perspectives,” he said, referring to employees and customers. “And to succeed at reinvention, there has to be trust and respect inside and out.” Carpenter suggested the necessary customer focus stems from this alliance.
Motorola: No Love For Customers
When Nokia started eating Motorola’s lunch in the personal communications sector, the company ignored the intrusion. By 1998, Motorola was No. 2, and although efforts to recover market share were implemented, a not-so-funny thing happened on the way to reinvention. In 2004, the customer-oriented strategies put in motion by CEO Mike Zafirovski took a bad turn when Ed Zander came aboard and brought a different tone to Motorola.
Underlining the lack of an internal-external Motorola coalition, The Wall Street Journal put this caption on a 2007 story about Zander: “I love my job. I hate my customers.”
During a 10-year research project detailed in “Resurgence: The Four Stages Of Market-Focused Reinvention,” Carpenter discovered Motorola’s problem with its customers seemed to be a reflection of the lack of respect among management and employees. This was exemplified by an unwritten team tactic that undermined management—and any coalition for change.
“A higher-level boss would tell a team to drop an initiative, so they would exercise a ‘pocket veto’ and continue the project anyway,” Carpenter explained. “How can you have respect for customers when you have no respect for your boss? It really comes down to culture. There has to be a lot of trust to get an organization to move from the familiar to where it’s never been before.”
Harley-Davidson’s Family Cure
Carpenter offered Harley-Davidson as an iconic reinvention success. A successful coalition among management, labor, and customers was forged from a newfound sense of family that was driven from the top.
Vaughn Beals, a member of the investment team who took over the failing Harley-Davidson in 1981, was “the archetypal American hard-driving manager,” Carpenter recounted in his book. Yet he championed the balance of the internal-external focus and led the effort to change.
An unnamed Harley-Davidson employee tells about running into Beals during the company’s tumultuous period of reinvention. When the boss buttonholed him in a hallway, the employee worried he was in trouble. “I heard your dad’s sick,” Beals said to him. “Take whatever time you need to straighten your family stuff out. Nothing is more important.”
Khosla might say that Beals’ nurturing way with employees revealed his ability to bring stakeholders together. Carpenter put it another way: “At a time when the company was really struggling, Beals said, ‘I’m really going to care about you and trust you and give you the opportunity. It’s not capricious. There’s logic behind it, and we’ll all be better off.’”
Harley’s employees also started visiting dealerships to buy their personal motorcycles. Production workers joined managers and customers for demo rides. And in the trust department, Beals opened the company’s books to the union. Everyone developed a “shared market understanding” of what’s important to customers, and the company’s market-focused culture rode into high gear.
|Through crowdsourcing, Harley-Davidson can "reach out to people in real time," said global CMO Mark-Hans Richer.|
More than 30 years later, it’s clear the motorcycle company’s resurgence has been successfully maintained. Demo rides evolved into rallies where the focus is on customers—and now customers are driving Harley-Davidson’s advertising, too. In a recent CMO.com interview, global CMO Mark-Hans Richer explained the company’s split with its ad agency was “to get as close to your customers as you can.” Through crowdsourcing, Harley can “reach out to people in real time. It’s usually a very specific challenge that we had, much as we would give to an agency: ‘Here’s what we’re trying to help people understand. How do you think that could work?’. . .Your customers built your brand. You have to respect that, and you have to enable that.”
An Investment Of Trust
How does a company leader get his team to deliver results when reinvention is such a risky proposition? Khosla shared the story of how he cultivated another turnaround through one manager.
At the time, 2004, Khosla was hired as managing director of global brands at New Zealand-based Fonterra, one of the world’s biggest dairy companies. It was 5 p.m. and a manager he inherited, George Zoghbi, launched a PowerPoint deck in Khosla’s office about his distressed food service business, which supplied customers such as McDonald’s.
“I wanted to test his capability, to see how far he could push the boundaries of performance,” Khosla said. “So I told him, ‘Just stop all this stuff. Come with me,’” and he took Zoghbi to a bar. “We had some nice Belgian beers and I said, ‘No papers, nothing, just tell me about what you want to do to fix food service.’”
Within an hour, Khosla plumbed the manager’s grasp of what it would take to reinvent his operation, and then gave him a blank check.
“The decision to trust him came. . . because of the way he handled questions I gave him that he did not expect,” Khosla said. “It sounds almost superficial, but we were, of course, talking in detail. ...Ultimately, I was making a bet on an individual and a team.”
Khosla doesn’t throw around blank checks. “The whole game is 1-3-5: one year, three years, five years. But the most important is one year. You’ve got to deliver quickly. You agree on numbers. So George discussed how he’d do this, do that. That’s how you test a person’s thinking,” he said. “You stop him, interrupt him, and see how he reacts. I said, ‘What happens if a competitor drops the price by half and murders you? What would you do?’”
That’s how Khosla makes seemingly instinctive judgments, then goes all in. “I said, George, this is the number. Go and get it. Here’s your staff, unlimited resources,” he said.“When I went later to visit McDonald’s in Australia, the word that kept coming out in that discussion was trust. It had to do with collaboration.” It turned out Zoghbi had paid it forward and given McDonald’s “almost the equivalent of a blank check” to support new initiatives.
What if Zoghbi hadn’t hit his numbers? “You keep helping people,” Khosla said. “You never have the answer; there are never any answers. If they’re going around in circles, then you show love by pulling the plug. Sometimes you fail. But we delivered our numbers, and George delivered his numbers tremendously.”
Khosla affirms Kellogg’s Carpenter’s finding that an internal-external coalition is key to reinvention: “George built a winning team, the feeling of family. Half of these people were inside the company, half outside.” Later, Khosla brought Zoghbi to Kraft, where Zoghbi is now president of Kraft Cheese & Dairy.
“Most companies focus on growth through more—more products, categories, brands,” Khosla said. “Winning through focus involves growth through less. A business can be energized by making fewer but larger bets.” These days, Khosla has family dinners with his clients. He teaches them to be customer focused—and to risk a blank check. His new book, “Fewer, Bigger, Bolder: From Mindless Expansion to Focused Growth” (Penguin Group), is due out in July.
There are no big data secrets or marketing strategies du jour behind Khosla’s turnaround methods, and only fundamental ideas exist in Carpenter’s four steps to reinvention. What does all this have to do with marketing?
“Marketing is really culture,” Carpenter responded. “If people are struggling, it’s because the culture inside is not conducive to creating the same sort of relationships outside. Marketing is not just advertising, promotion, and pricing. It’s really about a philosophy of how you adapt and relate to customers.”
JCPenney’s and Motorola’s efforts at change weren’t about their customers, while Harley-Davidson collaborated with customers and employees to reinvent itself. And what about Khosla’s blank checks and the trust that changed the shape of an iconic cookie?
“It turns out there’s a surprising connection,” Carpenter said. “Trust turns out to be central to being customer-focused. An organization’s culture influences all behavior, internal and external. Creating strong relationships with customers requires empathy, building trust, demonstrating respect, open communication, and a sprit of collaboration. If you aren’t going to behave that way with the people that work with you, you can’t behave that way with customers. There can’t be an artificial boundary.”