Course Description InNOVATION MANAGEMENT (MANM115)

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INNOVATION MANAGEMENT (MANM115)
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Date of Submission 11/06/18 Word Count 2755
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Name Eve Cotton
Programme MSc Entrepreneurship
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TABLE OF CONTENT
EXECUTIVE SUMMARY 3
MAIN BODY 4
1 INTRODUCTION 4
2 EXTERNAL ENVIRONMENT 4
3 ORGANISATION FOR INNOVATION MANAGEMENT 6
3.1 DIAGEO STRUCTURE 6
3.2 DIAGEO LEADERSHIP 7
3.3 DIAGEO CULTURE 7
3.4 KNOWLEDGE MANAGEMENT 9
4 STRATEGY FOR INNOVATION MANAGEMENT 9
4.1 INNOVATION PROCESS 9
4.2 SEARCH STRATEGIES 10
4.3 DIAGEO SUPPLY CHAIN 12
4.4 MAPPING DIAGEO INNOVATION SPACE 13
5 RECOMMENDATIONS ON INNOVATION PROCESS 15
5.1 EXPLOIT STRATEGIES 15
5.2 REFRAMING 15
6 CONCLUSIONS 16
REFERENCES 17
APPENDIX A - DIAGEO STAKEHOLDER COMMUNICATION 19

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Executive Summary
This report analyses Diageo PLC’s organisation and strategy for innovation management
based on the company’s internal and external environment. Based on this analysis we
elaborate recommendations for improvements.
The premium and spirits industry is a highly concentrated and competitive industry in which
Diageo competitive advantage is its extensive portfolio of brands and widespread production
facilities. These allow Diageo to respond to customer demand with local solutions.
In recent years, Diageo PLC has engaged in a global transformation of its organisation and
streamlining of its innovation process through a restructuring of business units, a
transformation of its supply chain and a cultural shift toward open communication and
collaboration amongst teams.
In term of innovation strategies, the company actively engage in search strategies for
innovation, particularly working with active users and its venturing program. These have
mostly resulted largely successful incremental innovations.
To improve its innovation process, we recommend the company continues to exploit their
searching space for incremental innovations through partnerships but to also explore for
radical innovations through open innovation.

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Main Body
1 Introduction
Diageo is a UK-Based alcoholic beverage and distilled spirits producers born as a result of a
merger between Guinness and GrandMet in 1997 (Diageo, 2017). Diageo’s wide product
portfolio enables the company to cater to a large customer base and lessens the adverse
impact of product demand fluctuations on the company's revenues. (ibid). In recent years, the
company has engaged in the global transformation of its organisation and strategy for
innovation management in order to increase productivity and increase profits. We will first
review the external environment Diageo operates in, then its organisational and strategy for
innovation, before finally making recommendations on its innovation process improvement.
2 External Environment
Michael Porter in Competitive Strategy outlined five forces ‘that shapes an industry rivalry,
defines the rules of competitions and the root of profit within the industry’ (Porter, 2008). This
framework (fig.1) is particularly useful to understand the environment an organisation operates
in.
Figure 1 - Five Forces of Alcoholic beverage industry

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Based on this external analysis at a macro level, we identified a certain number of powerful
forces within the premium spirits and beer industry. The alcoholic beverage industry is a highly
concentrated and competitive industry. At a global level, Diageo main competition are
Anheuser-Busch InBev (InBev), a Belgian-Brazilian transnational company, and Heineken,
the Dutch Brewer. Although both companies have larger financial resources (fig.2), Diageo
widespread network of operations and production across 180 companies represent its main
competitive advantage (Diageo, 2017).
Usually perceived as a mature, low tech industry, the spirits and beers industry still offer a
potential for opportunities as alcoholic beverages are an integral part of socialization and
levels of disposable incomes remain high (Bayona-Saez, 2017; Diageo, 2017). In emerging
market, the population growth and subsequent growth in the number of people of legal
purchasing age represent largely untapped market opportunities (Mintel, 2018). The growing
wealthy middle class is also an opportunity. There has been an increasing demand for alcohol
producers to take part in promoting moderation in alcohol consumption and as a positive role
for alcohol in society (Diageo, 2017). However, this has also led to ‘many consumers are
cutting back on how much they drink and adopting a quality over quantity approach. This has
underpinned the growth of segments like craft beer and bodes well for recent NPD centred on
flavoured variants and premiumisation.’ (Mintel, 2018)
Figure 2- Leading beverage companies worldwide in 2016, based on net sales (in million U.S. dollars) (Source:
Statista)

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3 Organisation for Innovation Management
Diageo has an extensive product portfolio across categories, price points and widespread
production facilities with widely recognised premium spirits such as Johnnie Walker, Jose
Cuervo Tequila or Tanqueray Gin and local market only such as Bundaberg Diageo, 2017).
Diageo’s business model focuses on leveraging their wide portfolio of brands and the in-
market teams that are able to capture consumer insights to deliver locally, relevant solutions
to the market demand. The company current strategy is ‘to support premiumisation in
developed markets and increase spirits participation in emerging markets’ (Diageo, 2017). In
order to achieve this, Diageo selectively participates in spirits and beers in markets where the
company can achieve organisational scale and distribution reach whilst offering affordable
price and shape responsible drinking in emerging markets (ibid.). To measure their successes
the company uses financial and non-financial KPIs. The results hoped for is efficient growth,
consistent value creation, credibility and trust and motivating people. Diageo recently engaged
in a transformation of its organisation in order to consolidate the multinational and set direction
for all business units.
3.1 Diageo structure
Diageo operates as a market-based business split into 5 markets with over 30,400 employees
across 180 countries (fig.3). To improve response time to customer demand and allocate more
resource to faster-growing markets, Diageo initiated a decentralisation and downscoping of
its organisational structure (Trebilcock, 2015). At the head of each market is a regional
director reporting to the corporate headquarter in London. Each market is held accountable
for its own performance and for driving growth (Diageo, 2017).
Figure 3- Diageo 5 regions (Source: Diageo website)

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Each market is then divided into individual different units, giving more autonomy to units in
each of these markets to respond to local demand and work different projects (Lucas, 2011).
Although, the organisation has relatively centralized power and hierarchical structure with a
narrow scope of control at the top, its bottom organisational structure is to some extent
entrepreneurial, fostering collaboration amongst the team to promote innovation. This hybrid
organisational structure allows for agility and faster response time to customer demand
(Zegler, 2010).
Diageo’s innovation team, the liquid innovation team, spans across marketing and product
development which enables them to be involved with the development function. For example,
during the development of Rokk’s vodka, the technical team brought freeze filtration to the
development table as new technology/crafting processes available to the company. Cross-
functional teams allow Diageo to foster collaborations and emergence of innovative ideas
(Zegler, 2010).
3.2 Diageo leadership
Current CEO of Diageo Ivan Menezes was appointed in July 2013 after having held multiple
positions within the company since 1997. Prior to Diageo, he held positions in Marketing and
Strategy roles at Nestle, Booz Allen Hamilton Inc. and Whirlpool (Diageo, 2017). Leadership
is concerned with setting direction, communicating and motivating and stem from authority
and expertise (Burns, 2013). Leadership and Entrepreneurial literature varies in term of traits
to be an effective leader but agree that it requires emotional intelligence, self-awareness, and
self-management. Diageo CEO has shown numerous effort to lead by example, notably
accepting to cut down is variable salary by 35% when the company experienced particularly
low performance (Morreale and Hellier, 2017). ‘For Diageo, leadership is not limited to the top
echelons of the organisation but is a responsibility for those leading people, initiatives and
brands at all levels of the company (Quirke, 2010)
3.3 Diageo culture
Culture, as a social construct, relates to the collective programming of the mind distinguish
one group of people from another, based on the pattern of assumptions and beliefs shared by
individuals about who they are (Hofstede, 1980; Burns, 2013). Culture defines the dominant
logic of the group and co-evolve as the individuals who identify with this culture evolve under
multiples influences. In the corporate environment, in theory, culture emerges from the shared
values and company's mission leadership communicates to their stakeholders. However, in
practice what constitutes company culture is the combined basic beliefs, assumptions and

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responses to behaviours in the company and how it defines itself towards its external
environment (Burns, 2013; Cornwall & Perlman, 1990).
At the heart of the entrepreneurial organisation is an organisation that promotes a culture of
learning. Pedler (1991) defines a learning organisation as one that ‘facilitates the learning of
all its members and continuously transforms itself’. Tidd and Bessant (2013) identified several
features that support learning and these were reconciled in figure 4 with Diageo recent
transformation strategies.
Figure 4 - Diageo's transformation strategies
Diageo has put great emphasis on open communication and collaboration amongst the team
to foster innovation.
Finally, Diageo has put an emphasis on being perceived as an inclusive, diverse and
promoting gender equality company by the successive release of multiple campaigns such as
Schein's Learning Organisation Features Diageo's case
Balancing interests of all stakeholders Ivan Menezes, Diageo’s CEO repeatedly states that the company’s ambition is to be
one of the best performing, most trusted and respected consumer products companie
in the world (Diageo, 2017). To achieve this, the organisation has recently put a great
emphasis on communicating with their stakeholders, finding new ways to reach them
and engage in conversations with them (Appendix 1)
Focuses on people rather than systems Internally, Diageo also regularly updates its employees’ codes of conduct to entrust
employees with the responsibility to demonstrate the highest standards of integrity
(Diageo, 2017) This make employees feel valuable, but it also empowers them by
transferring responsibility and accountability across all levels of management. Diageo
also emphasis on its employees by releasing video series ‘We are Diageo’ which focus
on the employees of Diageo and their roles.
Empowers people and makes them
believe they can change things
Diageo has adopted more of a task culture, ‘where power is delegated to individuals a
teams to perform given tasks and they are judged by how well they perform them’
(Handy, 1985; Burns, 2013). Individuals and teams are given the freedom to explore
new territories and adopt creative approaches to problems whilst also being held
accountable. For example, Zero-based budgeting has been implemented for new
projects to allow Marketers to not be creatively limited by financial resource allocation
but rather let their creativity guide the process whilst justifying costs decision (Diageo
2017)
Makes time for learning Diageo is committed to its employees and leaders, Leadership Competency Model
Diageo runs a 12 months Leadership Performance Programme (DLPP) aimed at
inducting and training newly appointed leaders into Diageo's ethos of purpose-driven
and inspirational leadership, through executive coaching, peer learning’ (Diageo, 2015
This program also allows for an accelerating individual and collective performance
through enhance leadership throughout the organisation
Encourages open communication Diageo follows a top to bottom role-model positive communication workshops. Senior
leaders have to attend leadership communication workshops to help them evaluate
themselves critically, improve communication style and behaviours and how these
impacts the engagement of their team (Diageo, 2017).
Believes in Teamwork Diageo increasingly relies on technology to promote collaboration across markets such
as internal social media platform, Yammer, for employees to share their successes or
favouring video conferencing and use of WhatsApp. These tools not only allow the
company to cut cost, they also promote collaborations amongst units and department
through open communication (Diageo, 2017).
Has approachable leaders Chief Executive weekly blog, regular global leadership broadcasts, and yearly employe
s satisfaction surveys (Diageo, 2017).

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Free to Be by Smirnoff (Diageo, 2017). This campaign aimed at promoting and supporting the
LGBT+ community was achieved in partnership with the LGBT Foundation. Diageo has also
initiated a shift in the organisation recruitment process. Hence, Diageo was mainly relying on
an unchanged hiring process, favouring similarly skilled and background new hire. Too much
conformity and similarity can hinder companies’ innovation process and development, as
people with same experience and similar knowledge are bound to remain within dominant
logic, overlooking potential innovations outside of the main frame. To counter this, Diageo
engaged in a re-evaluation of their hiring process in order to value diversity to reflect their
customer base but also as a source of innovation (Schultz, 2016)
3.4 Knowledge Management
Diageo uses a single instance of SAP to make sure the business processes are the same
around the world, the company works with a handful of key service companies which rim 70%
of the IT operations. ‘Once we start to share our knowledge of know-why and/or know-how
with others, organisational learning takes place’ (Burns, 2013).
4 Strategy for Innovation Management
4.1 Innovation process
Diageo implemented a Design to Value approach to their innovation process: Whereas in
traditional new product development R&D would design requirements and supply chain actors
act on these, Diageo actually involves suppliers and other teams early in their new product
development process. Supply chain, marketing, sales, R&D, and other functional areas work
together towards the company’s goals to enhance margins and enable growth. Diageo follows
a 6 step route (fig. 5) to deliver new products and innovation to the market:

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Figure 5 - Diageo Design to Value Process
This approach to design to Value allows Diageo team members to not only focus on cost
cutting reduction but rather to design for the product that will generate the highest margin
whilst still delivering value to the customer.
4.2 Search Strategies
To be able to source radical and incremental innovations, Diageo has put in place multiple
search strategies to be able to exploit and explore its external environment.

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Figure 6 - Diageo's search strategies
Searching for innovation and being able to recognize opportunities is a skill that organisation
can foster amongst their employees by fostering creativity. The spectrum of innovation varies
along an incremental, ‘do what we do but better', to radical innovation, ‘do something different'.
Both types of innovations are detrimental to organisations successes, but radical innovations
are innovations that carry higher risks but can lead to bigger gains (Tidd & Bessant, 2015).
Tidd and Bessant (2015) also used the idea of zones (fig.7) to define the spaces in which
firms search for new idea alongside a incremental/radical vertical axis in the context of
shallow/deep searches; and a horizontal axis depicts the breadth of the search effort in nature
of the cognitive frame, close or distant to the organisation core competencies (Nicholas,
Ledwith and Bessant, 2013).
Search Strategies Diageo's case
Sending out scouts No references
Exploring multiple futures No references
Using the web No references
Working with active users - Diageo host regular Bartenders competition, for
example Open Doors at the innovation lab for
bartenders to create a new bitters using new scents
Deep diving No references
Probe and Learm - Design to Value : Diageo brings suppliers and other
functional teams to the design table to elaborate a
commercially viable product.
Mobilize the mainstream - Bartenders Competitions
- Supplier innovation programme; part of Diageo
SRM programme; best suppliers are the one with
most creative and innovative ideas
Corporate Venturing - Diageo Technology Ventures, a program designed
to solve existing business challenges and unlock
new opportunities for future growth by working with
emerging tech companies and entrepreneurs
Corporate entrepreneurship and
intrapreneuring
- Diageo Internal competitions, Enployes are
encouraged to participate in various internal
competitions such as Diageo's version of Bake off to
promote creatitivity & corporate intrapreneurship.
Also stimulates collaboration
Use brokers and bridges - Development of 'Smart Bottle' with Thin Film
Electronics ASA, leader in the development of
printed electronics and smart systems
Deliberate diversity - Emphasis put on recruiting diverse gender, ethnies
and backgrounds to ensure teams reflect customer
base
Idea Generators No references

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Figure 7 - Innovation search space (Nicholas, Ledwith and Bessant, 2013)
From figure 6, Diageo mostly engage in search strategies within the exploitative zone,
sourcing for incremental innovation within the existing frame (low-risk innovations). However,
Diageo venturing has potential for co-evolving with radical innovation in new frames
4.3 Diageo Supply Chain
In recent years Diageo initiated a number of change within the organisation in order to drive
innovation. This global transformation of the company allowed them to release about 250 new
product innovations in 2015 which accounted for over £500 million in sales a year. At the heart
of the company's innovation is the end-to-end transformation initiated which saw a shift in
cultural mindset around supply chain management and design to value approach to innovation
(Trebilcock, 2015).
In order to maximise potential revenues and increasing productivity, Diageo invested $250
millions in plants and IT infrastructure to support a differentiated supply chain and
standardizing on SAP’s APO SmartOps for inventory planning by SKU (Trebilcock, 2015).
Diageo broad portfolio of products can actually be a challenge in term of producing as products
have different requirements with some having no selling forecast. By redesigning in their
supply chain allows Diageo to operate highly-automated lines for high volume brands such as
Smirnoff and innovation lines for smaller production such as small batch of aged whiskies or
temporary promotions. These dedicated lines offer flexibility, faster reaction time and less
need for stock for Diageo.
Diageo also implemented differentiated Sales & Operations (S&OP) for its innovation,
in order to respond to market volatility. Innovation S&OP at Diageo regularly involves and

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communicate with supply chain actors during their monthly meetings to discuss changes in
new products to be launched, depletion rates to increase or decrease procurement review the
innovation products that have already been launched. (Trebilcock, 2015)
Diageo segmented approach to supply chain management delivers cost savings and
supports innovation and growth whilst offering mass scale production or custom made. Diageo
North America also received the 2017 Green Supply Chain Award recognizes companies
making green or sustainability a core part of their supply chain strategy and are working to
achieve measurable sustainability goals within their own operations and supply chains
(Diageo, 2017)
4.4 Mapping Diageo Innovation space
The food and beverage industry is usually considered a mature, conservative and low tech
industry and as such mostly produce incremental innovation ‘geared towards sustainability, a
bio-based economy, health, biotechnology and the effects of climate change’ (Bayona-Saez,
2017). Diageo’s recent cultural shift and supply chain transformation allowed them to release
innovative product at incredible pace in regard to other beverage multinational, yet these
innovations mostly seem to stem from alteration to their existing portfolio, acquiring external
brands or using their Diageo Accelerator (Rogers, 2018). Using Francis and Bessant, the 4P
framework we were able to draw Diageo's map of innovation (fig.8) : a representation of
Diageo's effort to pursue innovation within product, process, position and paradigm
dimensions, each ranging from incremental through to radical change.
Figure 8 - Diageo's Map of innovation

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Although Diageo has recently introduced new brands associated with celebrities, most of its
innovations stem from alterations to their existing portfolio such as Baileys Almond, a gluten
free, dairy free version of Baileys or Gordon’s Pink Gin. Both new products capitalising on the
holistic nutrition, lower calories and Millennial Pink trends in developing markets. Diageo most
adventurous products in recent years has probably been their release of premix spirits cans
(Gordon’s Gin & Tonic) and cocktail slushies (Smirnoff Frozen Berries).
Diageo other innovations have been in regard to their position and process targeting
millennials in developed countries and the middle class in emerging country. Thus, through
Electronic Dance Music and Festivals, Diageo has hoped to target millennials and support
premiumisation with a Johnnie Walker Truck, bar & mentoring mobile experience (Diageo,
2017). Following the Guiness Storehouse, Diageo rencently announced it will launch further
Johnnie Walker tourist attraction to attract new consumers and familiarise them with the brand
(Diageo, 2017).
Figure 9 - Johnnie Walker Mobile Bar Experience (Source: Diageo)
In emerging markets, Diageo initiated a transformation of outlets (fig.) in emerging markets to
meet specific criteria for quality, distribution, visibility, pricing and promotion to deliver higher
sales and to cater to middle class in emerging countries (Diageo, 2017)

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Figure 10 - Before & After transformation of Diageo Outlet in India (Source: Diageo)
Hence, Diageo product, position and process innovations remain largely incremental
innovations. In emerging countries, Diageo can capitalise on its already extensive portfolio of
brands to remain competitive. However, the company will need to find source of radical
innovations to remain competitive.
5 Recommendations on Innovation Process
5.1 Exploit Strategies
Diageo mostly engage in exploitative search strategies within the established frames and as
a large organisation with a portfolio of product at different stages in their life cycle they can
subsist with incremental innovations. Thus, in developed markets, Diageo could leverage on
the growing online delivery app industry by partnering with UberEats or Deliveroo to reach
new customers. Diageo premix and cocktail slushies could be offered and distributed on the
delivery platforms to cater for private events.
Additionally, to leverage their widespread productions facilities, Diageo could introduce new
beverages based on their emerging market supplies. Hence, although very popular in
emerging markets such as Africa, sorghum beers are almost non-existent in Europe & US.
Introducing a range of sorghum-based beers could be particularly successful as it would also
capitalise on the gluten-free trend (Diageo, 2017).
5.2 Reframing
However, to remain competitive, Diageo should engage in search for radical innovation
outside of their frame. Coined by Henry Chesbrough, in 2006, open Innovation is ‘the model

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of innovation which allows for much more emphasis on knowledge flows rather than on
knowledge production’ (Tidd & Bessant, 2015). Actively participating in Open Innovation with
actors from other industry could lead Diageo to radical innovations such as the development
of a new business model or product radically innovative.
6 Conclusions
Thanks to its wide portfolio of brands and products, Diageo has been able to remain
competitive in the premium spirits and beers industry. The recent cultural shift initiated by their
CEO Ivan Menezes is partly to thank for this position. Hence, although the transformation
focused on improving productivity and response time to customer demand, it allowed Diageo
to streamline their innovation process in regard to incremental innovations. The company does
need to look toward the future and find ways to source radical innovations or it risks losing its
competitive advantage.

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Appendix A - Diageo Stakeholder communication
Stakeholder group Communication programme
Annual Report
Formal annual general meetings
Meetings between investors, senior leadership, and
investor relations teamConversations between investors, sustainability and
responsibility team, and investor relations teamAnnual investor audit
Online communications
Investor conferences
Investor road shows
Annual CDP (formerly Carbon Disclosure Project)
submissionsIndices such as the Dow Jones Sustainability Index
Employees' Values Survey
Team meetings
Employee intranet/newsletters
Forums
#proudofwhatwedo
Special society/environmental events, e.g. Earth Day
Consumer carelines
Formal market research
Brand and corporate websites
Social media
Product information on packaging
Briefings and direct meetings
Multi-stakeholder forums
One-to-one meetings or conversations
Multi-stakeholder forums
Annual reviews
Ongoing partnerships
One-to-one meetings or conversations
Open days
Field and factory visits
Workshops with value-chain partners
Connecting farmers with finance and agri-business
partnersRadio and television programmes in Africa
Annual customer survey
Top-to-Top' meetings between senior executives from
Diageo and our customersThird-party supplier audits
SpeakUp helpline
Responses to customer requests for sustainability
information
Farmers
Other commercial partners
Investors
Employees
Consumers
Government/regulators
Local community organisations and
NGOs