CIO interview: David Schwartz, vice-president, PepsiCo Labs
David Schwartz has a passion for innovation. As vice-president of PepsiCo Labs, a specialist team that aims to exploit digital technology, he is charged with accelerating growth and identifying new opportunities for creativity.
At the food and drinks giant, Schwartz has the opportunity to put his broad experiences in corporate strategy, product innovation and finance into practice. Before joining PepsiCo, he worked for Home Depot, completed an MBA at Harvard Business School, and spent a couple of years at consulting firm McKinsey. He joined PepsiCo in its strategy function in 2011, becoming vice-president in 2017.
Schwartz says his time at Home Depot provided a great education about how IT works on the shop floor and business. While he learnt key concepts at Harvard, his time with McKinsey taught him how to use these tactics to solve business challenges. His role at PepsiCo gives him the opportunity to drive technology-enabled change at a global business.
“It’s been a phenomenal experience,” he says. His work at the company has ranged from thinking about how to help the business grow to pursuing market-leading innovations in drinks and snacks, and on to explorations of new opportunities in eastern Europe. He looks back on his transition to PepsiCo Labs and explains how one of the company’s senior executives in Europe asked him to take the vice-president role.
“He said, ‘David, you’re one of those few people who has the strategy background and the business understanding to know what the problems are’,” he says. “They wanted me to understand the challenges, find technologies that solve them, and bring a strategic lens on how we could use that technology to help PepsiCo grow.”
Bringing structure to innovation
Schwartz says he takes a four-step approach to exploiting creativity in his role. First, he and his team spend a couple of months understanding the problems in the business. That process involves going “really deep” into the challenges people across the organisation face.
“What is the problem that you see today that you can’t solve?” he says. “And what’s that magic wand – if you could change anything in the future, what would it be?”
As his team begins to understand those business-led briefs, they reach out to hundreds of venture capital firms to find the best startups. Each time they go out to market, they work with another batch of innovative companies. That plethora of emerging ideas are filtered down to 20 interesting solutions that might solve key business challenges.
“My working day starts with understanding a problem,” he says. “And then you see all these technologies that could solve that challenge. And there’s almost this micro-euphoria you get each time you find a technology that could potentially solve the problem for PepsiCo.”
Schwartz’s team takes those 20 interesting solutions and works with the business to focus on 10 specific ideas. PepsiCo then pilots these startup solutions. As part of this process, his team might even speak with competing firms with similar ideas. Schwartz says this transparent approach is all about working towards one aim.
“We want to find the best solutions for PepsiCo,” he says. “We bring some key performance indicators and everyone knows what we’re measuring them against. And then, at the end of the pilot stage, we choose which are the best ideas to scale up.”
Boosting enterprise capability
Schwartz says this four-step process – which centres on understanding business requirements, finding the best solutions, piloting them and, if they’re successful, scaling them up – has produced some great results. It’s also a process that continues to excite him.
“Of the 10 we pilot, we usually have one or two at least that scale globally across PepsiCo and integrate into the business,” he says. “What’s so fun about the job is that it’s a combination of conceptual thinking, the analytical process of thinking about how these solutions might work in the real world, and then seeing the fruits of your labour come to fruition.”
“We want to find the best solutions for PepsiCo. We bring some key performance indicators and everyone knows what we’re measuring them against. And then, at the end of the pilot stage, we choose which are the best ideas to scale up”
David Schwartz, PepsiCo Labs
Schwartz says PepsiCo is always looking to build out its innovation programme. The company will run six startup programmes in 2023, and one of the big themes is sustainability, which covers key business areas, such as fleet management, human resources and front-line services.
The innovation programme is best seen as a boost to enterprise capability. While PepsiCo can draw on strong talent internally, the company also wants to scour the best ideas from outside the enterprise, says Schwartz.
“We do innovation and we can pull the lever of investing for strategic reasons. But we’re a food and beverage company. We have a clear objective, which is to put more smiles on faces every day and to get the bottles and cans in the stores to our consumers,” he says.
“That’s a sophisticated challenge. Technologies are evolving so quickly, such as machine learning and image recognition. And as that evolution continues, we want to be at the tip of the innovation spear.”
Piloting emerging technologies
Schwartz says PepsiCo Labs has helped to scale up more than 30 startups so far. One of the startups is WINT, which uses artificial intelligence (AI) and machine learning algorithms to prevent water leaks in PepsiCo factories.
Water flow data is collected through digital monitors and analysed via pattern matching and machine learning. Estimates suggest PepsiCo can cut annual water consumption by up to 25% using WINT’s technology.
“We can see anomalies in the water flow. We use can use the technology to detect anything from a pipe that isn’t turned off all the way to using too much or too little pressure at different stages of the process. Now, by doing that, we can see double-digit reductions in water usage in our factories,” says Schwartz.
Other examples of technologies that have emerged through the programme include: a digital tracking system for sorting and recycling waste, built by Security Matters; a technology created by UBQ Materials that converts household waste such as unrecyclable plastic into a bio-based material; and an AI-based failure-detection technology for production factories from Pulse Industrial.
The innovation-filtering process undertaken by Schwartz and his team continues at pace. PepsiCo Labs announced recently that six startups have been selected through its outreach programme to pilot ground-breaking technologies that aim to provide sustainability solutions to the environmental challenges the business faces.
He says PepsiCo plans to foster further collaborations as part of the ongoing project during the next 12 months: “The aim of this work is to create results that really impact the business and its sustainability goals.”
Creating a charter for success
The startup programme wants to make it as easy as possible to pilot great ideas, says Schwartz – and one of the keys to success for this approach is the establishment of a charter.
“What that means is we’re doing it professionally,” he says. “The charter includes the scope, the cost, what’s included, what’s not included, who’s involved, and who’s accountable. That way, everyone involved is crystal clear on what we’re trying to do.”
Another key element to the piloting process is what happens behind the scenes, Schwartz says. These support mechanisms draw on the internal expertise a big enterprise such as PepsiCo possesses. The ambition here is to reduce distractions and to help startups focus on generating innovative results.
“Those supports include data, security, IT procurement and legal. We always have fit-for-purpose support from those teams. So, for example, we do the right amount of data security checks at the right stage of working with a startup,” he says.
“We say, ‘Look, we’re just working with you right now to see if the technology works. Here are a few questions. So we know we’re protecting you and that we’re also protecting us.’ Then, as we move beyond the concept stage and get more engaged – and we get more confident, and they become more confident they want to work with us – we go deeper.”
Schwartz says his team also undertakes a detailed assessment of the startup solution. This process helps ensure key performance indicators are met and that the technology is likely to deliver in practice what it promises in theory. His team considers scalability, evaluating whether the solution will integrate seamlessly into PepsiCo’s existing IT infrastructure.
Last, they focus on economics and whether the proposed relationship works for the startup and PepsiCo. “We need to ensure our products continue to be affordable for the end consumer. We’re a large company and we want to make sure that they’re set up for success long term, and that they’re going to continue to succeed,” he says.
Reaching new goals
Schwartz is particularly proud of his team’s ability to bring various internal and external parties together to achieve a common goal: “When they all come together, there’s a magic that happens.”
He’s also proud that his team is not just incubating great ideas, but is continuing to help bring increasing numbers of useful innovations to the business every year: “When our leader first put our programme in place a few years ago, we did one programme. Then we did two the following year, and now we’re up to six – and I hope to expand next year.”
When it comes to long-term aims, Schwartz says the objective is to keep finding creative solutions to the business’s challenges.
“The goal is that we continue to evolve at the right pace to meet consumers’ needs. If we can continue building great technologies that make us faster, stronger and better, then I think that’s a great success,” he says.
“The more successes we have in the near and medium term, the more we can experiment and really push the boundaries to further-out solutions. So 24 months from now, I hope we have more successes and programmes, but that we can also talk about lives we’ve changed.”