No company can afford to rest on its laurels in a changing world, and Coca-Cola, the world's largest beverage maker, is no exception.

"Nothing is more disruptive to the effectiveness of today's global organizations than the role technology plays," said John Murphy, President and CFO of The Coca-Cola Company. "If we don't use technology to adapt our operations and ways of working, we'll soon be obsolete. I think that's where digitalization as a disruptor should come in."

On November 28, local time, the veteran "Coke man" attended the 2023 CEO Conference held by renowned investment firm Redburn Atlantic, where he spoke at length about the company's understanding and actions regarding digitalization, as well as its latest progress and ideas in product innovation and the bottling system.

Left: John Murphy, President and CFO of The Coca-Cola Company

Here are the highlights from the event.

Three Roles

"Digitalization is probably the most frequently used word in today's business lexicon, and there are many different ways to understand and describe it. I think about digitalization in three ways: 1) as a capability; 2) as a medium; and 3) as a disruptor. Breaking it down into these three aspects might help our discussion," Murphy said.

First, he noted that Coca-Cola's digital spending in 2022 reached $1 billion, which corresponds to building the first capability. "For example, over the past three or four years, we've migrated our entire business to the cloud, and we've standardized our technology platforms."

"In today's world, only by integrating and connecting these essential capabilities in the right way can we improve efficiency," Murphy believes. The next phase is to build increasingly advanced capabilities. "For example, in marketing, we need to collect relevant data and use the right tools to actually leverage the investments we've made at the foundational level."

Murphy described that for every company today, "the use of data is like bread and butter (a basic necessity)." For Coca-Cola, this requires synthesizing data from markets, internal research, external third parties, and many other sources to deepen insights and translate them into action.

Second, as a medium, the degree to which Coca-Cola can interact with consumers and customers around the world through digital media today has changed dramatically compared to recently. "When I was in Asia in 2016 and 2017, seeing China's situation and the early stages of India's digital revolution, I already foresaw this coming. Interestingly, I think developed countries have been slower in understanding this and in creating action," he said.

In Murphy's view, digitalization is an extremely important medium, and companies like Coca-Cola must be at the forefront. "When we consider spending shifts, making the transition is one thing, but ensuring the transition is effective is another," he pointed out. "Moving from one bad medium to another bad medium and calling it digital media makes no sense. On the media front, we are becoming a more capable digital company."

It was revealed that digital media now accounts for 50% of Coca-Cola's marketing spending. "By next year, that number will exceed 50%," Murphy said. "I'm confident that within the next three to four years, it will reach 65%, 75%."

AI Alliances

Finally, discussing digitalization's disruptive role, Murphy said Coca-Cola has traditionally been a very decentralized company, which to some extent fragmented the business into many "silos," and technological advances have made this model quickly outdated. "If we don't use technology to adapt our operations and ways of working, we'll soon be obsolete."

Nevertheless, the beverage company known for selling "happiness" does not intend to transform into a tech company.

"My idea is to leverage our partnerships. There was a time when we developed our own software, but it's crazy for a beverage company to think it can do software better than software companies. But at some point, that's how people thought," Murphy said with dark humor.

He said that today, Coca-Cola is fortunate to have established broad partnerships with some well-known companies, allowing it to benefit from what they are doing. "Without a partnership model, it would be difficult for Coca-Cola to acquire these digital capabilities."

As previously reported, in February of this year, Bain & Company announced a global services alliance with OpenAI, the company behind the AI system ChatGPT, to embed AI into its clients' operations and support the necessary changes to improve technology, processes, operating models, and data assets. Coca-Cola became the first company to join the alliance. Coca-Cola has said it is excited to unlock the next generation of creativity through this rapidly emerging technology.

John Murphy, President and CFO of The Coca-Cola Company (file photo)

"(On the disruptor front,) the most important thing is the next generation of technology we're about to face, such as generative AI. This enables us to create a whole new level of interaction with people of different generations around the world," Murphy said.

"I apologize for rambling on, but I think digitalization is a very important and rich topic that deserves more detailed and in-depth discussion. More importantly, it's a topic that deserves the time and effort of companies like ours to find the right approach," he said, because if Coca-Cola doesn't do this, it will be "left behind" by others.

Innovation Failure Rate 'Alarmingly High'

In addition to digital innovation, Coca-Cola, which aims to be a "total beverage company," continues to step up product innovation.

When asked about new categories like alcoholic beverages, Murphy said Coca-Cola continues to develop its portfolio, with the overall goal of building a product matrix that gives it confidence to reach the higher end of its growth targets.

"If you look back at the past few years, one of our main goals has been to capture as much as possible the opportunities created by consumer needs, habits, and trends we see. So whether it's alcoholic or non-alcoholic beverages, it's a dynamic iterative process to build a stronger portfolio to support growth," he said.

Murphy said that regarding the company's work in the ready-to-drink alcohol space, it is still in the early stages. "We're excited about the long-term opportunities. But one thing I've learned over the years is that building scale in new categories takes time, and you need to maintain what I call 'impatient patience.' We're satisfied with the foundation we've laid so far."

As previously reported, since 2018, Coca-Cola has been exploring alcoholic and low-alcohol beverage categories. For example, last year it announced a partnership with Jack Daniel's, the whiskey brand owned by Brown-Forman, to launch Jack & Coke, a ready-to-drink cocktail. In the Chinese market, Coca-Cola has tried introducing hard seltzer Topo-Chico and Japanese lemon sparkling wine Lemon-Dou.

Regarding partnerships with brewers, Murphy said Coca-Cola is excited about them. "We believe it's possible to build a (alcoholic beverage) portfolio through partnerships, as long as they are rooted in propositions that consumers find attractive and can grow over time."

Beyond the co-branded ready-to-drink cocktail, the beverage giant has also made product innovations with high buzz, such as the limited-edition Coca-Cola Zero Sugar co-created with AI. Now, the company has a deeper understanding of innovation.

"First, when I consider innovation, I elevate my perspective and don't focus on a specific theme, such as product-centric, packaging-centric, or equipment-centric. In my simple terms, innovation is anything new that creates value," Murphy said.

Therefore, he believes that by adopting this mindset, there are opportunities to find innovation in every aspect of the business. And when it comes to the portfolio, it's crucial to be clear about what you want to achieve: "What role do you want innovation to play?"

"Now in the product world, we play different roles. For example, new products launched on the 'Coca-Cola Creations' platform (like the AI co-created Coke) are not meant to drive massive sales; they are meant to generate news and buzz, attract new users, and introduce them to the world of Coca-Cola. We've seen many good results from various iterations over the past few years," Murphy cited.

He also noted that while it may sound contradictory, to succeed in innovation, companies must be super disciplined. "I think over the past few years, we've had stricter innovation discipline, including what goes into the new product pipeline and why, and how to incubate, launch, and go to market. We have stronger metrics to continuously evaluate the performance of the various innovations we're driving."

Additionally, it's important to learn from failures and scale successes. "For a company like Coca-Cola, it's crucial to leverage the experiments we've been conducting in different markets, allowing us to share experiences and scale successful practices across markets," Murphy said.

"But you're not always right; in fact, the failure rate of innovation is alarmingly high. When I was working in Asia, we thought kombucha was the next big category and made some investments. Now, five years later, that trend hasn't developed as we expected," he said. For Coca-Cola, the most important thing is to achieve a success rate "well above the industry average."

Murphy emphasized that while it's impossible to always "bet right," you can't let failures stop you from trying. "I think our entire company and our bottling partners share this spirit: to innovate smartly with discipline, be ready to take risks, know that sometimes you'll fail, but still incorporate that into the way forward."

"The Smallest Bottler"

While driving its own transformation, Coca-Cola's relationship with bottling partners is also evolving.

"There was a period in history when, for various reasons, we acquired many bottling operations around the world. We always intended to refranchise because we strongly believe in the power of the franchise model. I think we add the most value when we focus on building brands and orchestrating the system from the center," Murphy said.

Asia and Africa are the last two regions where the company has completed refranchising. "We've thought deeply about how to build a better model. I don't want to hand over 'territories' to those who will just follow the status quo; I want them to make it better after they take over," he said. That's exactly what happened after refranchising in North America, Europe, and China, and now that playbook is being executed in Southeast Asia.

Murphy said Coca-Cola looks for bottling partners who: "believe before they see; have a shared ambition to achieve above-market growth; have the capital to do so long-term; have the resilience to operate through ups and downs; and have the right culture to develop talent and work with us locally. We observe and evaluate many of these factors."

This partnership model also allows Coca-Cola to operate asset-light, focusing on what it does best, sharing risks while growing the pie.

Murphy said that today, describing the relationship between Coca-Cola and bottling partners as "alignment" is outdated; it's more accurately "harmonization." "We are more synchronized, more cohesive, and more aligned on common goals. These common goals are actually centered around how we can grow the pie together."

"When you achieve this harmonization, it allows you to focus on what really matters, understand what's happening outside our four walls, invest in potential growth, and take risks more easily," he said. In the coming years, Coca-Cola will continue to move toward the ultimate goal mentioned earlier: to be the "smallest bottler" in the global Coca-Cola system.

It was revealed that Coca-Cola is currently building several new concentrate production facilities worldwide. "Our concentrate plant business rarely gets publicity, but it's the core that allows us to deliver a quality beverage portfolio around the world, and we need to invest in that," Murphy said.