By opening up product development and smoothing supply chain processes, Coke’s technology group is helping the company deal with a fickle consumer market Collaboration And The New Product Imperative

By Mary Hayes Weier

HE EXECUTIVE WING OF services to as many bottlers as it can. Coke hopes the Coca-Cola Co.’s Atlanta that fostering a standardized business platform headquarters proves ma- will streamline its supply chain, as well as hogany row still exists in smooth its sometimes strained relationships with this era of Aeron chairs those bottlers, some of them partly owned by and office Guitar Hero Coke, most independent franchises. contests. A step off the elevator sinks you into And Coke’s trying to cozy up to the kids through plush carpet, and Ming vases scattered across pe- its www.mycokerewards.com Web site, which has Triod furniture speak of Coke’s appreciation of tra- 40 offshoot sites worldwide geared toward spe- dition, and pride in its 122-year-old ownership of cific interests. The result is a social network built one of the world’s most valuable brands. around Coke’s that pulls people While the stately atmosphere works as decor, in by tapping their tastes in sports, music, and en- it belies the mad scramble going on in the bever- tertainment. Oh, and beverages (see story, p. 30). age market, where fickle customers constantly Still, Coke has problems. A new CEO, Muhtar switch drinks, fad tastes soar and die, and com- Kent, took over earlier this month from Neville modity price spikes clobber producers. Coke sees Isdell, who was brought out of retirement in 2004 collaboration—among employees, with bottlers, as Coke struggled with declining profits and soda with consumers—as vital to remaking its busi- sales. Kent, former chief operating officer, worked ness to chase fragmented and fast-moving global closely with Isdell, who will remain as chairman. markets, and new business technology initiatives While Coke showed markedly improved financial play a make-or-break role. results the past few years—in May, it issued a For internal collaboration, Coke has imple- statement declaring “continued confidence” in its mented what it calls its Common Innovation financial outlook for the year—profits have been Framework, a system that combines project man- particularly tough in the United States, and the agement and business intelligence capabilities to company’s been by rising prices on raw goods, give operating units in 50 countries the ability to including fruit juices and sugar. Based largely on search for and reapply concepts used in develop- international business, Coke’s second-quarter fi- ing and marketing what is now an astonishing nancial report last week was mostly positive— 2,800 beverages produced by Coke. revenue up 17%—but described North America As for working with its extended family of bot- as “a difficult operating environment.” tlers, Coke this month began offering software Improved communication and collaboration, services—representing hundreds of business particularly between Coke and its bottlers, is vital

processes, all based on SAP’s ERP software, de- to continuing the rebound, says Jack Russo, an r e g r e

livered via Coke’s IBM-hosted data centers—to Edward Jones analyst. “Bottlers are so important B a c i r

a select test group, with plans to extend those to what Coke does, and the two weren’t on the E Copyright 2008 United Business Media LLC. Important Note: This PDF is provided solely as a reader service. It is not intended for reproduction or public distribution. For article reprints, e-prints and permissions please contact: PARS International Corp., 102 West 38th Street, Sixth Floor, New York, NY 10018; (212) 221-9595 www.magreprints.com/quickquote.asp CIO Arès primes the innovation pipeline IN DEPTH / COLLABORATION

same page,” he says. The rising costs of raw materials management application from CA called Clarity for only make that close collaboration more important. New Product Development. Coke uses it to develop new beverages, design equipment such as vending TECH WHIZ KID machines and fountain dispensers that it leases or In 2002, Coke executives saw in Jean-Michel Arès, a sells, and create packaging concepts for new and al- 38-year-old French Canadian with degrees in electri- ready established products.The software manages the cal engineering and an MBA, a combination of IT workflow of what’s commonly known as the stage-gate wunderkind and management wonk. They recruited process in product development, chronicling the him away from GE Power Systems, where he’d been stages in each development project and the “gate” named CIO at age 36, four years after joining the com- points at which decisions need to be made. Employees pany from a consulting gig at McKinsey & Co. access the Web-based application, which runs on an As the CIO, Arès spearheaded an effort to Oracle database, from their desktops. transform Coke’s three disconnected IT groups—one Now Coke is moving the application, dubbed the in North America and two in Latin America—into IT Common Innovation Framework, beyond its stage- organizations aligned with the company’s six strategic gate roots. Miriam McLemore, global IT director and business units around the world. New talent was hired, Coke’s team lead on the Innovation Framework, de- some staffers cut, and some support work outsourced scribes it as a global view into the product pipeline, to India. And he set about delivering tools aimed at let- which lets, for example, one business unit mine for ting creative people make new products faster. product ideas by searching beverage or brand con- About two years ago, Arès implemented a project cepts that worked well in other countries. The Inno-

A Change Agenda At Coke’s Largest Bottler

OCA-COLA ENTER- management, Live Meeting for Web con- do you mobilize those 30,000 people in the prises, Coke’s largest bot- ferencing, and Office Communications same direction you’re taking everything tling company, has faced Server Online for unified communications. else?” he asks. “That takes a lot of com- C seesawing fortunes in recent Up till now, CCE’s collaboration strat- munication and collaboration.” Mobile years, from a $1.1 billion loss in 2006 to egy has used nonintegrated tools. There workers will get video training, home in- a $711 million gain last year to lowered was an IBM-based extranet managed tranet access, and corporate collaboration profit forecasts for this year, forcing partially by a service provider, Lotus capabilities through mobile devices. changes across the business. In IT, one Notes for e-mail, a legacy intranet, and a Still, collaboration is only one reason for of the most visible is the company be- separate Web conferencing tool. “We CCE choosing Microsoft. The other piece coming Microsoft’s largest software-as-a- were missing the mark,” says John Key, is the services dimension, which CCE saw service customer to date, contracting for CCE’s senior manager for collaboration. as a way to accelerate deployment, cut en- 35,000 employees to get their e-mail and When the new system’s in place, exec- ergy costs, and free up IT staff for more other collaboration capabilities via a sub- utives will be able to broadcast live video strategic projects. “This is not a head- scription service. to all of the company’s knowledge work- count reduction,” Sezer says. “We love By later this year, most of the 35,000 ers. Employees will be able to schedule having these resources to do further sim- knowledge workers at Coca-Cola Enter- Live Meeting Web conferences through plification, further virtualization, and to work prises, known as CCE, will have moved Outlook, or take a chat session in the Of- on strategic IT initiatives.” Anthony Nuzzo, from IBM Lotus Notes to Microsoft Out- fice Communicator instant messaging CCE’s VP of global development and de- look with Exchange Online, the SaaS ver- tool and turn it into a phone call. A new ployment, sees a recruiting advantage, be- sion of Microsoft’s e-mail server. It’s the intranet based on SharePoint will include ing able to target talent who wouldn’t first piece of a larger move to Microsoft industry news, video and audio content, come if part of their days was spent on collaboration tools that CCE hopes will executive blogs, and employee polls. maintenance work. “Those people are go- bring the company the ease of manage- CIO Esat Sezer eventually wants to in- ing to be able to be innovative,” he says. ment and the consistent user experience of clude CCE’s mobile workers—30,000 em- an integrated suite. The switch to a hosted ployees stock 25,000 trucks and replenish IT SELF INTEREST model, which will take place over the next 600,000 vending machines a day, reaching CCE is 35% owned by the Coca-Cola year, also will include SharePoint Online a million distinct locations—in the com- Co., and Sezer and his counterpart at for ad hoc team collaboration and content pany’s collaboration plans as well. “How Coke, Jean-Michel Arès, talk regularly

28 July 21, 2008 informationweek.com vation Framework also helps Coke recognize dupli- States in 2005, it’s a low-calorie beverage without the cate product ideas, Arès says, so the company can bitter aftertaste typical of diet colas, and Coke’s most combine efforts. “Once you’ve aggregated that successful product launch in years. Coke wants it sold pipeline of innovation, the object is to assess and pri- in 100 countries (it’s up to 93), and it’s been using the oritize the best allocation of our resources in the or- Innovation Framework to let managers and personnel ganization,” he says. in finance, legal, marketing, or R&D in various regions That pipeline view is a must for Coke, which has 450 view workflows and practices that worked in the brands, including , water, United States and elsewhere to launch and market it. juices, and brands honed for international markets “It’s not so much about redesigning product, it’s de- that most in the United States haven’t heard of, such ploying it to the market,” Arès says. as the teas and coffees popular in Japan. Japan, for example, is an “innovation machine,” Arès Many brands come through acquisition, including two says, because its hyper-fickle consumers bore so notable ones last year: the $4.1 billion acquisition of quickly that there’s pressure on Coke to Glacéau, the maker of Vitaminwater and Fruitwater, churn out new tastes. The Innovation Framework and the acquisition (sum not disclosed) of tea and helps capture the product development insights juice maker Fuze. Others come through brand exten- Japanese teams come up with, and share them with sions, like one of the latest additions to the Coke line, regions struggling to be as nimble and quick. Coke Zero. Coke sees Japan as the future: Mainstays like Coke, Coke Zero’s expansion is an example of the Innova- , and won’t go away, but ultrafast product tion Framework in action. Introduced in the United intros, and willingness to quickly kill products that

about business goals. CCE provides Coke with some consolidated demand data, and the companies have federated some of their systems. But Sezer’s IT agenda is driven by his company’s needs, not the Coca-Cola Co.’s. Like Coke, CCE has been under pres- sure as people seek out healthier drinks creased the number of products it han- Sezer says, and the company was able over soda, and commodity costs dles by 30%, thanks to a partnership to get rid of “checkers,” employees squeeze profits. CCE lost $4.8 billion in with V8 and Coke buying Glacéau, whose sole purpose was to make sure the second quarter, due mostly to a one- maker of Vitaminwater. That increases trucks were loaded with the right drinks. time asset write-down based on an ex- pressure on everyone, from salespeople Coca-Cola Enterprises is pushing a pected decline in North American operat- to warehouse workers. green effort, with projects to conserve wa- ing income, and North American sales Business intelligence tools from SAP ter, use less plastic in bottles, and roll out fell 1.5% as steep gas prices hurt con- should help CCE’s salespeople in the a fleet of hydrogen-electric trucks. That’s venience store business in 20-ounce bot- field target pitches effectively, instead of sparking a slate of green IT projects: con- tles of soda and Dasani water. just taking orders. Customers want dif- solidating data centers, virtualizing storage A change agenda across the $21 bil- ferent drinks from a tony grocery store and servers (and eventually desktops and lion-a-year company has goals of keeping and a roadside gas station, and Web- apps), eliminating unnecessary printers, it No. 1 or 2 in every market it’s in, over- published BI reports can help salespeo- measuring IT’s electricity usage, and set- hauling its distribution, and acquiring tal- ple focus on the most profitable mix. ting targets for the future. ent to drive growth. The communication In the warehouses, CCE worked with To count Sezer’s change efforts, from tools are a starting point. “It became Cisco, Microsoft, SAP, and startup Da- consolidating data centers to buying clear that we had to communicate these tria Systems on a voice-guided system hosted collaboration software by sub- changes quickly,” says Key. “The quick called Voice Pick that tells employees scription, as a success, that green will shift is the competitive differentiation, be- where in the building to pick up stock for have to show up in CCE’s quarterly re- cause the market is changing.” delivery. Shipping accuracy increased sults, not just energy efficiency. In the last 18 months, CCE has in- from “well below 90%” to 99.78%, —J. NICHOLAS HOOVER

29 July 21, 2008 informationweek.com IN DEPTH / COLLABORATION

lose their buzz, are a vital DIG DEEPER using common, prede- strategy for Europe, and THE CIO CAN MAKE A DIFFERENCE. See what makes for fined business processes. increasingly even for the a highly effective tech leader, from multiple points of view. Coke owns controlling United States. As products Purchase this InformationWeek Analytics Report at: interests in only a small die in Japan, other regions informationweek.com/1168/analytic_cio.htm percentage of the more are grabbing them, tanta- See all our Analytics at informationweekanalytics.com than 300 bottlers that dis- lizing their markets with a tribute its products. The new taste and benefiting from a formula, brand, and remaining are franchisees; they purchase beverage packaging already developed for Japan. concentrate from Coke, bottle or can it, and sell it to retailers.There’s a “healthy tension” between Coke and BEYOND BABY STEPS its bottlers, explains Tom Miller, general manager of All great ideas—and none of them matters a bit if Program Scale, Coke’s bottler-collaboration effort. the drinks don’t get into a bottle, onto a truck, then While they both want to sell lots of product, there are onto a shelf. And therein lies an even more ambitious differing objectives: Coke’s job is to grab greater bev- and difficult collaboration plan by Coke, aimed at erage market share by dreaming up and marketing bringing the company closer than ever to its bottlers. It products to consumers, while bottlers must make effi- started several years ago with baby steps, such as stan- cient use of huge capital investments in bottling facto- dardizing desktop configurations. Now Coke’s launch- ries, warehouses, and trucks, and also maintain ing a sweeping hosted computing effort, years in the friendly relationships with retailers.The bottlers range making, designed with the hope of getting Coke- from mom-and-pops to mammoths, and use a range owned bottlers and eventually its franchised bottlers of supply chain software that includes homegrown

Coke’s Web Site Effort Draws A Crowd

OKE NEEDED A HIT from magazine subscriptions to beauty idea is to bring consumers into the Coke with its customer-loyalty products to electronics. Coke partners loyalty program from many avenues, in- Web site, at www.mycoke with many brands—including American cluding promotions at soccer games and C rewards.com, and it got Idol and the NCAA—to bring consumers auto races. The development kit ensures one. “We wanted to reclaim consumer to the site, and also with hundreds of consistent standards for common func- leadership, to really connect with our companies on prizes. Coke tions, such as the registration pro- consumers again,” explains Jun Ying, uses a Fair Isaac service to cess, but Coke looks to the head of Web development at Coke. track what prize areas agencies that develop the Just two years after its launch, the site registered users visit. sites to create the graph- is one of the most popular consumer That intelligence is built ics, features, and lan- packaged-goods sites on the Web. In the back into the site so guage support. Coke third quarter of last year, unique visits to that when users sign hosts all the sites from its My Coke Rewards jumped to 8.6 million on, the site triggers pro- data centers. from 66,000 in the same quarter a year motions of redeemable In Europe, Coca-Cola has earlier, a 13,000% increase, according to products targeting their inter- a record label that signs bands, a ComScore study. The jump put it in ests. Coke has distributed more primarily rock and electronica. Coke second place behind www.kraftfoods. than 5 million prizes through the site. also created a Coca-Cola-branded com, beating out www.millsberry.com, Ying and his team put together a soft- Flash-based music player. Through a re- General Mills’ virtual world and game site ware development kit that ad agencies lationship with Apple, Coke-labeled for kids, and recipe-oriented www.betty around the world can use to create Coke records are available at iTunes. The goal crocker.com. Visits to My Coke Rewards customer loyalty sites focused on various is to build a positive impression of Coca- have roughly tripled since the ComScore demographics. There are 40 Coke Web Cola by connecting the brand with a study, with the site attracting some sites in all, ranging from broad-audience consumer’s favorite music, Ying says. 285,000 visitors a day, says Coke. sites similar to the original, such as the Coke has made a positive impression

The site uses prizes as the proverbial United Kingdom’s Coke Zone, to those with its My Coke Rewards site, which will r e g r e B

dangling carrot. Consumers redeem targeted at specific users like one for serve it well with Web-savvy consumers a c i r

codes on beverage bottles for booty, World Cup Soccer fans in Europe. The going forward. —MARY HAYES WEIER E

July 21, 2008 30 IN DEPTH / COLLABORATION

code, ancient mainframe systems, and old versions of prises, which is 35% owned by Coke, opted out of Pro- SAP products. ject Scale and Coke One.That lets CCE create strategic In 2002, Coke created an IT council with its top six bot- partnerships with companies like Microsoft and Cisco tlers to discuss how the company could work more to fit its own needs, says a spokesman. “Some of the closely with the bottling community.Bottlers helped with larger bottlers don’t need to have the Coke company’s upgrading Basis, Coke’s legacy app for sales and distribu- IT benefits,” he says (see story,p. 28). tion. After three years of working on smaller collabora- Much of the Coke One system’s success hinges on tive efforts, the IT council got around to talking about the whether the services drive sales for bottlers. For ex- elephant in the room: how to move to common processes ample, Coke worked with bottlers to develop a “picture and data standards. From that, Program Scale was born. of success” at retail outlets, providing details on signs, In the summer of 2006, Miller and his team spent 56 banners, pricing materials, and other display elements. days on a road trip, traveling from continent to continent, Bottler reps can view the prototype displays on hand- meeting with 11 bottlers. The team looked at more than held devices—that’s the service delivered via Coke 400 business processes that bottlers used and discovered One—as they work with retailers to get displays right that about 90% of them were common among the bottlers it visited. It also learned most bottlers were planning soft- ware upgrades within the next few years.“So we had two compelling things in front of us: a bunch of bottlers that wanted to greatly improve, and the fact that most of what they were trying to improve was common,” Miller says. The result of all this is the Coke One bottler model, a system based on version 6.0 of SAP’s ERP platform. Coke One supports more than 650 business processes defined by Coke and its bottlers, things such as procur- ing raw materials, invoicing retailers, selecting and pric- ing products, managing retailer relationships, and pay- ing suppliers. Coke defined the processes down to Far-flung bottlers work significant details, such as how to configure the software more closely with Coke and what job roles are involved, piling up about 10,000 pages of documentation.The processes were developed in the stores. Arès hopes that, with continued input using SAP’s service-oriented architecture toolset, from bottlers, Coke can build new mobile apps that NetWeaver, which is why Coke describes the processes help even more with promotional efforts at the retail as “services” rather than applications; the SOA approach level, where sales are won and lost. lets each process run independently as a service, which There’s still a question how—and how much—fran- should provide more flexibility for developers, system chise bottlers will pay for these services. But Coke isn’t administrators, and bottlers to make changes than if it worried that the franchisees won’t see value in them. were a monolithic, sewn-up software application. Arès notes that both company-owned and franchise bot- Arès paints Coke One as a template that can be lo- tlers chipped in funds to develop the processes and in- calized by region.There are also “extended templates” frastructure for Coke One. And once they see all the in- for CRM, supply chain relationship management, and tellectual property encapsulated in the system,Arès says, call-center processes. It will be hosted in two U.S. data they’ll decide they get a better deal, faster implementa- centers managed by IBM. tion, and higher capability “than to start from scratch.” The first bottler going live with Coke One, this Coke knows tradition—traditional brands, tastes, rela- month, is CCCIL, a Coke-owned bottler in China. Next tionships, technology—isn’t enough to drive its business up are company-owned bottlers in the Philippines, In- forward. Collaboration is critical in a dynamic global dia, and Germany. “Our strategy is to demonstrate, marketplace, and Coke is looking to leverage its busi- conclusively, that the concept works within our own ness technology expertise to make that a key ingredient operations first,” Arès says.Then the company will of- in its new formula for success. Coke’s tech team has fer the services to franchisees, who can use the whole spawned some innovative efforts, but it will need strong template or just components. A franchise bottler in buy-in from both internal managers and bottler part-

Australia, Coca-Cola Amatil, has signed on for the ners to ensure that formula satisfies consumers. s e g a m I

Coke One-hosted system starting sometime this year. y t t e

However, Coke’s largest bottler, Coca-Cola Enter- Write to Mary Hayes Weier [email protected]. G

32 July 21, 2008 informationweek.com