Coke CEO: Why we have an award for projects that fail

James Quincey, the CEO of The Coca-Cola Company
Photo courtesy The Coca-Cola Company

Coca-Cola was invented in 1886 by Dr. John S. Pemberton in Atlanta, Georgia. That year, sales of the drink totaled $50. In fiscal year 2018, The Coca-Cola Company reported $31.9 billion in sales.

Today, the company has more than 700,000 employees and over 500 beverage brands — from Fanta and Minute Maid to Honest Tea and Odwalla to SmartWater and Dasani — sold in 200 countries.

When a company becomes to be so massive, it can be hard to keep the creativity and innovation that helped it grow in the first place. And that's largely because with so much success people begin to fear failure, according to Coca-Cola Co. CEO James Quincey.

"Fear of failure is often the biggest hurdle for innovation in large organizations," Quincey said in a recent Harvard Business Review Analytic Services (HBRAS) report commissioned by Mastercard.

When people and businesses are afraid to try something new, Quincey calls it "the New Coke syndrome," referring to the product Coca-Cola Co. rolled out in 1985. New Coke was a revamped formulation of the classic beverage, and consumers hated it so much it was only available for 79 days before being pulled. (It was briefly revived and sold as a limited run this year, when as a marketing program, New Coke was integrated into season 3 of Netflix's "Stranger Things," which was set in '85.)

"We must learn to celebrate failure" to prevent stasis, Quincey said. "The only true failures are situations in which we fail to learn. Learning is never a failure and makes our innovation muscle stronger and sharper."

TWEET: On this day in 1886 we served the first Coca-Cola. Today we offer more than 500 brands and 4,300 products in 200+ countries worldwide.

To that end, Coca-Cola Co.'s senior leadership "is very open about discussing personal experiences with failure," according to Quincey. And the company also has an innovation award "that celebrates projects that fail," he said.

Ali Akbar, the director of sparkling beverages for the Middle East and North Africa business unit, received the Celebrate Failure Award in 2017. He won it for a failed effort to to launch energy drink Sprite3G in Pakistan, after which Akbar and his team went on to use what they learned to launch a more successful product in Pakistan, according to Coca-Cola Co.

(Coca-Cola did not make public its 2018 innovation award winners because the lessons learned "are being applied in a proprietary manner at the moment," Max Davis, communications manager for the company, tells CNBC Make It. It is still reviewing submissions for the 2019 innovation awards.)

Of course, failure still must be managed. So when Coca-Cola products fail, they are discontinued quickly, a process Quincey calls killing the "zombies."

"Killing zombies means getting rid of stuff that's not working," Quincey said. "We analyzed about 2,000 of our beverage product launches over five years and found that 30% contributed only 1% in volume. In 2018, we killed more than 700 zombie products, which allows us to redeploy resources in areas where we see more growth opportunities."

Indeed, consumer preferences are evolving. Soda consumption has declined in the U.S. as people become more health conscious, and consumers are also thinking more about how environmentally friendly products are.

Coca-Cola and other brands have to be innovative to thrive. This year the company introduced Coke Energy, "an energy drink that tastes more like Coca-Cola than a traditional energy drink," according to brand director Janki Gambhir. The drink is coming to the U.S. in 2020.

And to address a weaker performance with its water brands in the third quarter of 2019, the company said plans to sell Dasani in aluminum cans and bottles as opposed to just plastic bottles.

Keeping up with changing consumer preferences is important to Coca-Cola's bottom line, according to Quincey.

"Ultimately, we must stay curious about the consumer and put them at the center of everything we do," the CEO said. "When innovation starts with the consumer, we see the best results. Almost 25% of our revenue is now from new or reformulated products, up from around 15% two years ago."

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