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Levi's CEO: 'The best innovation happens when you've got constraints'

Key Points
  • The best way to create innovation is to put constraints around it, says Levi Strauss & Co. CEO Chip Bergh.
  • "Completely unconstrained, an innovation organization can just get lost in the weeds," Bergh says on "Mad Money."
  • The 166-year-old denim maker wants "to focus on driving innovation in sustainability," Bergh explains.
VIDEO2:4602:46
Driving innovation to appeal to next generation: Levi's CEO Chip Bergh

As the old saying goes, constraint is the mother of innovation.

Actually, that's not quite what it says. But that is the essence of what Levi Strauss & Co. CEO Chip Bergh told CNBC's Jim Cramer on Monday.

"I personally believe that the best innovation happens when you've got constraints," Bergh said on "Mad Money." "Completely unconstrained, an innovation organization can just get lost in the weeds."

Instead, as the iconic 166-year-old American company looks to thrive in an era of shifting consumer preference and environmental consciousness, Bergh said, it has certain goals it wants to accomplish.

Then, it deploys its modernization teams around those goals, Bergh said.

"We want to focus on driving innovation in sustainability," Bergh said. "We want to get rid of hazardous chemicals. We want to reduce the amount of hard physical labor that goes into making a pair of jeans. We want to use less water, the most precious resource in the world today, and this industry uses a lot of water."

Levi's had its IPO in March following 34 years of being a private company. It first went public in 1971, at which point its stock issuance was one of the largest ever.

Shares of Levi's closed just above $17 on Monday, down from their peak of $24.50 in mid-April. They have mostly been trading in the $16 to $17 range for about the last month.

One important step Levi's took to grow its new offerings was opening in 2013 its Eureka Innovation Lab, which is located "a couple blocks" from its San Francisco headquarters, Bergh said.

The denim maker previously had a smaller facility focused on innovation in Turkey.

"I used to say, 'We're at the northern tip of Silicon Valley. How do we attract all the Silicon Valley talent and innovation to work with Levi's?'" Bergh said. "They're not going to do it if they have to go all the way to Turkey."

The Eureka Innovation Lab has been responsible for a number of Levi's newest developments, including its Water<Less technology and its project F.L.X.

The introduction of Water<Less technology allows Levi's to "significantly reduce the amount of water we use in finishing a pair of jeans. We've saved over 3 billion liters of water," Bergh said.

Unveiled last year, project F.L.X. is Levi's process of using lasers to finish a pair of jeans, which is to say give the pants the distressed look that consumers associate with them.

It reduces the time it takes to make jeans, as well as the physical labor and chemicals needed to complete the process.

The company says the typical process uses a few thousand chemical formulations, which project F.L.X. reduces to just a few dozen.

Bergh also said the laser technology allows consumers to customize the finish on their jeans, potentially appealing to a younger audience.

"It is informational, revolutionary, and it will change the supply chain over time because we can postpone the finishing of a pair of jeans closer to market," Bergh said.

VIDEO9:0609:06
Levi's CEO talks innovation, strategies to reach the next generation of consumers

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