The British-based multinational company Diageo is built on a foundation of venerable brands such as Guinness and Johnnie Walker, but its leaders, including chief innovation officer Mark Sandys, appreciate that future growth will require relentless, companywide innovation. In recent years, Diageo has applied state-of-the-art data gathering to customize products and established a subcompany, Breakthrough Innovation Department, to institutionalize innovation.
As part of McKinsey’s C-Suite Growth Talks series, Sandys met with senior partner Lareina Yee to describe how Diageo is putting the consumer at the heart of the business, using innovation to drive growth, and employing gen AI in support of human creativity. An edited transcript of their discussion follows.
Making predictions for the future consumer
Lareina Yee: To get us started, tell us about innovation in marketing and how you’re pushing the boundaries forward at Diageo.
Mark Sandys: My belief and Diageo’s belief is that we have to start from a sense of where the consumer is going to be in the future and what big macro trends will influence the decisions they make. If we have an understanding of that, we can work future back to make sure that we’re pointing ourselves in the right direction. The CMO has a critical role to play in making sure that consumer understanding is at the heart of the boardroom, rather than thinking purely from a data analysis, AI, technology, or capability perspective.
Lareina Yee: The data is so critical as a tool to understand the consumer. As a forward-looking chief innovation officer, you have to understand the heart of the consumer. How are they changing. What’s the pulse?
Mark Sandys: We see incredible changes happening at a quicker pace than ever before. One of the biggest growth areas we are seeing is what we call “betterment brands” that can deliver a way of making people’s lives and the planet a better place, either through sustainability or in service of communities. Another big space we’re watching is what we call “expanded reality”—how digital transformation is changing not just the way we work but the way consumers interact and experience our brands. One way we’re applying this at Diageo is by partnering with, and ultimately acquiring, a spin-off of the spice company McCormick & Company to better understand flavor preferences.
This sort of adjacency has opened up a vast pool of knowledge for how different flavor preferences work and which spices pair well together. That has, in turn, amplified our understanding of whiskey preferences. Not only does this allow us to better personalize our offerings to consumers but also predict the flavor focus throughout the seasons of the year. This summer, for instance, is going to be about umami and sea salt. It all feeds back into our first-party data that fuels the whole process. We understand the demographics of our consumers as well as their flavor preferences and the occasions in which they express those flavor preferences. It’s just an incredible competitive advantage.
Expanding from products to platforms
Lareina Yee: This is much more than the typical kind of idea of brand forward. It actually goes all the way back into the business and that gives you a different seat at the table, I would think.
Mark Sandys: We’ve got a mantra that we’ve started to talk about: innovation is about platforms, not products. We make good products, and we’ve being doing that for a long time. What we find more powerful, though, is when you can get these kinds of magnifier effects from having platforms that boost the whole portfolio and take it into new spaces. It’s not easy to do because it requires building new capabilities, new things for us to think about.
There is a lot at Diageo that runs well as a big, efficient machine, and we’re now having to break the machine a little bit. We’ve created a sub-company called the Breakthrough Innovation Department to lead this charge. This group is not just innovators; we have an IP lawyer, a finance director, people who can work with outside companies to think about how to scale this for the future. This is all expanding the way that we think about growth—driven from the future back and where those future consumer spaces will be.
Lareina Yee: From products to platforms, that’s actually a different way that you partner. That’s a different way that you bring value. When we think about the value forward in areas like marketing, sales, and customer care, generative AI is top-of-mind. How are you thinking about using AI and data to drive future value?
Mark Sandys: We have so many different use cases at the moment. I think it’s important to resist feeling like we’ve got the answer to it right now. This time next year, we might look back and think, “Oh, yeah, we didn’t know anything back then.” I would divide our biggest use cases for AI into two big buckets: making our current business more efficient and ensuring we are at the forefront of doing so. One example of how we’re doing this now is how we use AI to optimize our programmatic media buying, which is a big area of spend for us—[and] how we can test and generate content more quickly. Frankly, everyone’s going to be doing that.
Lareina Yee: It will be like commodities soon.
Mark Sandys: Exactly. It’s going to raise the standards of others. We feel we’re really good at making content, but so many other people are also going to be much better at it.
What AI will highlight is the criticality of brands being distinct and creating emotional connections to people. If a brand is really clear about what it stands for, those tools can be massive enablers of doing that more and more. For example, we’ve seen with Guinness in the last few years the way different online influencers, advocates, and fans have started to engage with the brand and create their own content, which has really helped revitalize Guinness in new and unexpected ways.
Finding distinctiveness in the generative AI era
Lareina Yee: Looking back at your 27 years at Diageo, could you have imagined the type of brand identity it has today and the way in which you would gather information?
Mark Sandys: No, it’s turned completely on its head. I have a memory from 1999 when Guinness launched a TV ad called “Surfer” that was voted best of all time. I was the assistant brand manager on the team, and the day it launched was the day most of the company saw it. We weren’t allowed to show it to anyone before it aired on TV, during the biggest-rated program of the year, the Champion’s League semifinal. Nobody had seen it ever before then. I think now about how we were able to keep it under wraps all that time. The CMO had made the decision to keep it that way.
Now, fast forward to last year when we did a campaign for Guinness that was the complete opposite process of this. We started by seeing the way that people were talking about Guinness online and then thinking, “OK, there’s something in this.” In response, we made content around it that we teased back to people, initially online. And eventually, after it built up, it progressed to broadcast media. This is going to happen more and more. The brands that learn to harness what they’re seeing in data and then amplify it and bring creative magic to it—that’s where future growth is going to be.
Lareina Yee: Part of that is expected: we’re going to be more efficient, we’re going to cut down time, we’re going to have these different types of tools to better understand consumers—like social listening. I think the piece that is both scary and exciting with generative AI is what happens to the creative element, the thing that feels most quintessentially human in marketing. How are you thinking about that?
Mark Sandys: This next era of creativity is going to be more effective and more exciting as a result of these tools. What we’re not going to do, though, is sit back and say, “All right, OK, gen AI is going to do this.”
Lareina Yee: There’s no remote-control gen AI button.
Mark Sandys: No, there isn’t. The value of creative judgment is going to be much higher with these tools. You need to understand how to differentiate yourself and be distinctive. The criticality will be in identifying the unique advantage that you have in your business and how you can use AI to amplify that—while also knowing how to use AI to do the stuff that everyone else is going to be doing. That’s where our understanding of flavor preferences—or, indeed, our understanding of the ten million barrels of whisky that we have maturing at the moment—is so important: how we best use those barrels based on what we understand about those flavor preferences. Nobody else has the potential to do that. And that’s why this is such an exciting era. We will be able to create new competitive advantage and new eras of distinctiveness.
Lareina Yee: These are all very human concepts you’ve talked about—customers, people’s experiences, creativity. How are you thinking about humanity and AI?
Mark Sandys: That’s a really underestimated piece of this. It’s important that everybody in the organization has a learning mindset and is comfortable operating without knowing the right answer necessarily, and learning your way to get there. Equally important is not locking in on the answer too early.
I can remember, 15 to 20 years ago, seeing the rise of social media, taking time to understand it and then thinking, “Oh, I understand how this works. It’s all about getting likes on Facebook.” And of course, a couple of years later, it wasn’t. It was completely different. That will be the same with these tools as well. They will evolve. We can’t allow ourselves to think we understand it and stop learning.
That’s a really different way of thinking for leaders—to not just be about acquiring expertise and knowledge so people come to you and say, “O wise one, tell me the answer to this.” But instead, it’s creating the conditions for everybody to be able to make the right decisions at the right time.
