Twenty things I learnt from Coca-Cola

After having read “Inside Coca-Cola: A CEO’s life story of building the world’s most popular brand” by Neville Isdell  (Amazon link), Coca-Cola’s 12th CEO and Chairman,- I wanted to share twenty things I learnt about Coca-Cola which may be useful to you. Coke has always been a fascinating entity which has transcended cultural, political and religious ideologies. An example of this was when Tom Mattia decided to track a case of Coke in Kenya from start to finish. The last transaction in the entire cycle was a goat! As Mattia explains “They traded a baby goat for a case of Coke.”

#1 – Jack Welch turned down the CEO post at Coca Cola

Jack Welch – business titan who raised General Electric’s market capital from US$14 to US$410 in a span of two decades, was offered the top job at CEO. Welch gave it serious thought for three days before declining it. Neville Isdell, long-term Coca Cola man, was offered the job, he accepted, and the rest as they say was history!

#2 – How Coca-Cola’s secret formula is distributed around the world. 

Coca-Cola manufactures the secret formula in a few locations around the world. Even then-CEO, Neville Isdell, did not know the recipe! The formula is then mixed with other ingredients to form a concentrate which is then processed into syrup form and delivered to bottling plants and restaurants around the world.

#3 – Coke’s relationship with independent bottlers and its evolution

In the past, Coca-Cola used to make the bulk of its profit from concentrate sales to independent bottlers. However, in recent times, Coca-Cola purchased a significant proportion of the bottlers and as a result now own 90% of the bottling operations in the United States and Canada.

In the mid-80s, Isdell undertook a campaign to consolidate the 116 bottlers into one single bottler. The idea was that this will improve cost efficiency, more streamlined operational delivery and chart a clearer course towards growth. However, political differences reared their ugly heads and they were unable to do so (mainly as a result of wealthy independent bottlers refusing to give up control) and instead, the bottlers were consolidated to 30 bottlers. However, Isdell revisited this issue when he became CEO and now Germany operates under a single bottler.

Coca-Cola now has significant interests in primary bottlers in the Coca-Cola system, which it calls “anchor bottlers” around the world.

#4 – The terrible condition of South Africa during the apartheid era

An example of the atrocious conditions under apartheid South Africa. During apartheid, black and mixed-race South Africans were able to leave their townships to work in other parts of Johannesburg but had to be back by curfew at nightfall and had to carry a pass. Blacks were also only allowed to drink one alcoholic beverage under apartheid laws. This was the condition under which people were living in during the rule of apartheid.

#5 – Coke’s success in the Philippines 

In 1981, Pepsi had a 2 to 1 lead in the Philippines (Pepsi was outselling Coke 4-1 in some parts of the country, including Manila at the time), the 10th largest soft-drink market in the world. (The Philippines had a per capital annual soft drink consumption of 134 bottles per year, compared to 39 for Thailand and 10 for Indonesia. India’s was only 3!).

Interestingly enough, Mindanao (despite being torn apart as a result of two insurgencies – one religious and the other communist) was the strongest market for Coke in the market.

Pepsi chose to ignore Mindanao which remained Coke’s biggest profit centre in the Philippines and coupled with upgrades at Coke plants in the country, terrific motivational techniques for sales teams (including sales rallies with good music, good food, beer and theatre during weekends), and an increased attention to customers’ needs, Coke ended up leading 2 to 1 over Pepsi in the Philippines.

 #6 – Importance of cultural fit in an organisation (and how Coke dealt with expats in emerging markets)

Another example is how you provide incentives to workforce in the Philippines. Isdell thought that giving the staff a product worth $400 was better than giving them cash of $200 (since they can get the product at cost due to their bulk purchasing power) but that in the Philippines a salesman would rather keep the $200 as ‘play money’ as opposed to the tradition whereby he will give his salary to his wife who will then in turn give him an allowance!

It is vital for any global organisation to understand the culture of the country in which it is operating in. For instance in the Philippines, you need to understand the concept of ‘utang na loob’ or the role of obligation – where you return a favour done to you at some point in the future; or ‘pakikisama’ or the idea of getting along and avoiding confrontation when meeting someone for the first time no matter how divergent your initial views and opinions.

Isdell also made it a point to ensure that expats and locals were truly blended as one team as opposed to Pepsi’s cardinal sin of allowing for expats to live a completely separate life to the locals. This led to a disconnect between the expat management and the society they were supposed to serve and led to alienation all around.

#7 – A unique way of undertaking competitive analysis

Isdell was keen to ensure that Coca-Cola’s senior management looked at their business through the lens of their competitors. In Manila, he took the upper management team to a strategy session in a room decorated with Pepsi posters, where they lived and drank Pepsi and spent a whole day trying to understand and detect the weaknesses of the Coca-Cola system and develop a strategy to retain leadership over Pepsi. It allowed an open and honest space for people to be frank about Coca-Cola’s flaws and strengths and in the process come up with relevant strategies to outdo the competition.

#8 – How Pepsi and Coke undertook bottle stealing!

Back in the 80s, both companies were stealing each other’s bottles in an attempt to drain the competitor’s assets by forcing them to purchase more glass. They had fields of their opponent’s glasses stacked! Isdell put a stop to this ‘poaching’ of bottles and soon Pepsi followed suit too. It just goes to show how competition without a ‘moral’ strand can lead to insanity!

#9 – Importance of rallying the troops/team towards a defined objective

Philippines was a clear example of how if one is unable to motivate the sales team in an organisation, then success is unlikely to come by. Leadership, an unwavering commitment to defined aims and a personal connection with key stakeholders is what leads to success in difficult markets.

Rally the troops and the men and women who work for you and win the war.

#10 – The fiasco that was New Coke!

Coca-Cola came up with a new, sweeter formula called New Coke in 1985 which provoked a furious consumer backlash! Coca-Cola pretended that all was well and kept attempting to push New Coke onto consumers who hated it and wanted no part of it. The lesson here is – don’t push to customers what they hate and always test rigorously and above all, listen to your customers! Failing to do so only leads to painful mistakes like New Coke!

#11 – The value of a good lieutenant and the importance of succession planning.

It is always important to ensure that you have a good understudy or support manager who you groom to take over your reins when the time is right. In Isdell’s case, it was a young regional manager by the name of Mukhtar Kent who took over Isdell’s position when he retired. Kent was instrumental in Coca-Cola’s success across Eastern Europe during the Communist era.

The importance of also having a sound succession plan cannot be understated. The retirement of Goizueta and Keough as CEOs of Coca-Cola after many years of sterling leadership led to a vacuum of effective guidance and direction and the company languished in corporate purgatory for a number of years. In 1999, Coke also laid off over five thousand people (and this in a company where mass layoffs were unheard of and a job almost always meant a job for life) which damaged the organisations’s momentum and morale.

An outgoing CEO’s performance must be strongly hinged to the outcomes and successes of an incoming CEO.

#12 – Never shy away from conflict that is necessary

“a business leader should never be frightened by conflict, and should always find a good, honest solution that is pragmatic, not bullheaded.” – Neville Isdell

#13 – How Coke dealt in Soviet Union – and delivered capitalism in the Communist block (and the economy anomaly that was ‘counter-trade’)

Due to foreign currency restrictions and the prohibitions in bringing currency out of the USSR, a system allowing for foreign companies to operate emerged. This system was known as the ‘counter trade’. What this meant is that Coke will ship concentrate to the USSR and in exchange will receive Soviet-made goods that Coke will then need to sell elsewhere (like in the UK) to obtain hard currency. So for instance, Coke used to sell concentrate, and get Soviet Lada cars which they sold in the UK. Pepsi used to sell their concentrate and in exchange get Stolichnaya vodka!

Coke also invested in Romania even before a foreign investment law had been written and leased land from a Church in Poland because there was no concept of private ownership of land! The ambiguities of operating in emerging markets! Coke even had to help Russia create a land registry on behalf of the privatisation committee in Moscow just so they could own land to manage a bottling factory. Isdell acknowledges that time, effort and resources to do basic business transactions in a number of countries was huge but this was offset by the equally huge opportunity.

One of Coca-Cola’s greatest achievements was to provide an example as to how a successful company works in previously Communist nations and to allow them to learn best practices from them.

#14 – A fantastic example of cultural diversity.

When Coke ended up leasing land from a church in Poland, they were required to attend mass at the historic St Brigid’s Church. When it was time to collect the church offerings, money was first collected from Donald Keough, CEO Coca Cola, an American Catholic, and then Neville Isdell, an Irish Protestant, and then Georg Fleischer,  a German Lutheran, and then Andrew David (a Coke bottler) who was Greek Orthodox, and then on to Mukhtar Kent (future Coke CEO), a Muslim, before finally passing it to Danny Moskovitz (who worked at Coke) and who was Jewish.

What better example of diversity than this!

#15 – Coca-Cola and India – and how they chose not to sponsor Sachin Tendulkar and allowed him to go to Pepsi instead!

Coca-Cola left India because the Indian government at the time demanded that secret formula be revealed to them. Coke walked away from the second most populous country in the world over an important matter of principle and this is an important lesson: always stick to your principles!

However, after Coke came back to India, an individual based in Atlanta decided to block Coke’s local Indian staff’s (Jay Raja) efforts to sign of Sachin Tendulkar saying that it would be a waste of money! Pepsi signed Tenduklar instead!

Another lesson here is – always listen to your local man on the ground.

#16 – Always plan for growth.

Isdell gathered 150 of Coke’s top executives and embarked on the “Manifesto for Growth.”

The manifesto has five core principles around: People; Portfolio; Partners; Planet and Profit. It provided an honest assessment as to where Coke was as a company and where it needed to go. The manifesto allowed for a framework as to who Coke was a company, provided them with a clarity of vision and tactics.

This clarity in direction is critical when you seek to revive an organisation that sometimes loses its way. Go back to basics, find out what made you great, think about what will make you great and work on the differences.

#17 – Corporate loyalty 

In 2004, the Securities and Exchange Commission (SEC) in the US launched an investigation into the practice of channel stuffing (where you artificially push up concentrate sales to bottlers to boost corporate earnings in a quarter). The SEC was targeting the CFO, Gary Fayard, and though Fayard’s lawyers were confident they could win the case, they also highlighted it could take five years. Fayard offered to resign as CFO. Isdell refused the resignation and said, “Gary, you’re innocent and we are going to fight this with you.”

Loyalty tends to be, for the most part, reciprocal. Show loyalty to your team and they will show loyalty to you.

In the end, the SEC investigations were resolved; Coca-Cola’s accounting disclosures were found to be accurate (though the SEC did find that the company failed to disclose the impact of channel stuffing on future earnings and made misleading statements in a public filing) and the CFO was not sanctioned and remains the CFO to this day.

#18 – The perils of arrogance

A quote from Mukhtar Kent: “Coca-Cola in the late 1990s had lost its way. We became arrogant. We lost touch with the details of what makes this business works well. Neville (Isdell) and I were able to bring back the belief that Coca-Cola is great and that we can grow again. When you believe that, when you have a growth model, no one quibbles over trying to split something that is shrinking.”

#19 – Connected Capitalism

The idea that business, government and non-profits should work in a three-way effort to build a better world, towards a cleaner planet, with viable solutions to poverty and disease.

An interesting tale to be shared. When Martin Luther King (MLK) was awarded the Nobel Peace Prize in 1964, a celebratory dinner was planned for him in Atlanta. However, a significant number of the business community had plans to snub MLK. It took the persuasion of Robert Woodruff, ex CEO and Chairman of Coca-Cola to ‘persuade’ the senior members of the business community to attend. This resulted in more than 1000 of the business and civil society leaders of Atlanta attending the dinner where MLK delivered one of his most famous quotes: “If the people of good will of the white South fail to act now, history will have to record that the greatest tragedy of this period of social transition was not the vitriolic words and the violent actions of the bad people but the appalling silence of and indifference of the good people.”

It will also be important to note that through the tripartite relationship between business, nonprofits and governments, each party brings different strengths to the table. Business brings efficiency and profit. An example of how this worked was when CARE, the international relief organisation worked with UPS. UPS used to donate only cash to CARE previously but in 2007, UPS and CARE decided to examine how else they can work closely together and they realised that UPS could improve CARE’s logistics operations and help improve the efficiency and supply chain management and in the process, CARE benefited from the expertise which UPS could share and UPS managed to provide support to CARE in a much more meaningful manner. Both organisations benefited through this significant partnership.

Businesses must learn to operate sustainably in order to last. Profits lead to progress, not just for the company but the wider society in which it operates.

#20 – “In the complex economy of the future, business interest and society’s interests will become more closely aligned. Capitalism will have to be connected or it will not survive.”

 

If you enjoyed this, I would strong suggest you get this book and also Donald Keough’s excellent book, The Ten Commandments for Business Failure.