How Dave Lewis Is Reshaping Diageo

"We are not buying. We are not selling. This is an organic turnaround. And basically, we have what we need to turn the business around."

That was Diageo CEO Dave Lewis at Diageo's Capital Markets Day Thursday (8/6). If it's successful, it will become a business school case study.

The company's disaster – our word, not his – has been North America. “It is fair to say our North American business has been underperforming for quite a while. The growth of tequila covered up some of that; We now need to face into some of the realities," he said. Details were to come later.

What Lewis wanted to explain was how he has taken Diageo apart and restructured it to organize its purpose, strategy and behavior to operate as a single entity and the culture that results. Unlike Guinness, which was developed as a single entity, the spirits side was created by piling one acquisition on top of another acquisition on top of another.

Crafting Diageo's Purpose

He began by looking at the company's purpose. For years, "celebrating life, every day, everywhere" has been not just a slogan but the company's definition of its purpose.

"We want a purpose that articulates why this business exists and allows everyone who works here to see how it is that they are making a contribution to that, " Lewis said.

The new purpose statement for Diageo: "Crafting iconic drinks chosen for life's moments."

In a good purpose statement, Lewis explained, every word needs to mean something. "If you are new to this industry, one of the things you appreciate massively just about everywhere is how much care and craft and skill there is. If I go to Scotland, it is quite mind-blowing where the craft exists inside Diageo, and if you look at the history of some of our brands, craft is very strong in our business."

The new purpose statement includes "iconic drinks chosen." Is the drink chosen by consumers, is it to be asked for in a bar – but also chosen as a business partner and customer and all other places for life and not just for celebration.

Clarity About Markets

"Total Beverage Alcohol is quite misleading for us," Lewis said. Going forward, Market No. 1 is "total spirits, full price ladder, including RTDs." Market No. 2 is Premium beer with Guinness.

How We Win

Here is Lewis' three-point plan for winning:

1. Relevant brands means brands across a price point, not just one part of a price point in competitive categories.
2. Engage with customers and channels in a way that hasn't been done before at Diageo in how we go to market, how we partner. This, he said, "is a really key capability we need to build."
3. Integrate the company's supply chain end-to-end. "There's a big disconnect between the supply side of our organization and the supply side. A lot of duplication, oi waste, of inefficiency, so we need to build these capabilities to be world-class inside Diageo."

His philosophy: "Complexity fails, simplicity scales."

Building an Organization That Works

1. 23 country or country-cluster go to market organizaations responsible for the sales and marketing of Diageo's brands in those geographies. The focus is on market share. How are results measured? Sales growth, operating profit, free cash flow.
2. Five regions – North America; Latin America and Caribbean; Europe, Middle East and Africa; India; Australia, Pacific, Asia and China.
3. The Executive – The five regional presidents, one chief marketing officer, all global business services and technology report to one executive.
4. It's a Glocal Model – On a Friday afternoon, Lewis and his chief marketing officer sat down with the four heads of categories – whisk(e)y; tequila and vodka; gin, rum & liqueurs; Guinness- and the five regional marketing chiefs. In just three hours, the 10 people in that room were able to lay out the brand innovation plan for all regionas for he next three years.
5. Lewis provided another example, this one dealing with marketing. "If I have a problem with whisky in Latin America, there are just two people I need to speak to. If I put the four caegory directors and the five regional heads in a room with the CMO, I have 10 people to run marketing for Diageo. We have designed it an a way that allows us to have real, direct accontability, responsibility but also leverage."
6. One Chief Supply Officer. "In the past, we had different things in different regions, local supply chain directors; local now is all about customer service, it is not about running the supply chain. That is with the chief supply officer, who has complete responsibility across the world. He basically has five regional heads so that matrix works for all of the functions: with five people representing each of the regions, he can deliver the globe.
7. Global Finance – Five finance directors, one big global business services, financial planning & analysis control. Massive simplification, massive reduction; we have taken out the duplication.

Lewis wrapped up his presentation by saying that when he arrived at Diageo, staffers told him the company was "very, very duplicative, very slow, there was no accountability. Now, when you walk through this with all the people invlved in designing it, it is really clear who is responsible for what."

Lewis said he expecs implementation of this framework to be 90% complete by Sept. 1.