Digital Transformation at Philip Morris International (CXOTalk #714)

🎥 Jul 23, 2021 📺 CXOTalk ⏱ 43m

#DigitalTransformation #CIO #ChiefDigitalOfficer Philip Morris International is going through a digital transformation and wants to become a digital leader. The large tobacco company, with over $76 billion in revenue, believes the industry cannot continue with its current business model. Instead, the company has embraced technology to drive efficiency and change how it develops and markets new products. Subscribe to the CXOTalk newsletter: https://www.cxotalk.com/subscribe Read the complete transcript: https://www.cxotalk.com/episode/digit... We speak with Michael Voegele, the company's Chi...

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About Michael Voegele

Michael Voegele, Chief Digital and Information Officer at Philip Morris International, discussed the company's digital transformation in a July 2021 interview. He stated that the company aims to replace cigarettes with science-based, smoke-free products, having invested roughly $8 billion in their development and commercialization. Voegele described his role as having three strategic pillars: simplifying the legacy application footprint, introducing state-of-the-art technology such as APIs, cloud, and AI/ML, and ensuring that transformation creates better products and experiences for customers and consumers. Voegele emphasized that culture change requires a horizontal view from the executive team and heavy investment in training. He said he would not present "digital transformation" to the board, but rather explain how technology can accelerate business strategy. He noted that a large portion of the organization was shifted from the legacy smoking business toward building consumer-direct awareness of the smoke-free category. Voegele also stated that the company relies on technology for age verification and device-locking to prevent youth access to smoke-free products, and that data work must start from real business problems with proper anonymization and compliance.

Source: AI-verified profile updated from Michael Voegele's recent appearances. Browse all interviews →

Transcript (25 segments)

Host0:16

Philip Morris International. We're speaking with Michael Voegele, Chief Digital and Information Officer of Philip Morris International. PMI is one of the world's leading international tobacco companies. We have a workforce of over 70,000 people. We are operating in more than 180 markets across the world. We also have a bold ambition. Our ambition is really we want cigarettes to be replaced by science-based, smoke-free products as soon as possible in the manufacturing capabilities but also commercialization capabilities for our smoke-free products, which are a less harmful alternative to cigarettes. Michael, you are both chief information officer and chief digital officer. I'm very interested to explore those roles with you. Why don't you start with the chief information officer? I think that's a title that's a little bit more common than the CDO role.

Michael Voegele1:43

As a CIO, I think I have three distinct things that I really want to drive and change for PMI and for the IT organization as well. There are three pillars. Now, they're a little bit in the way of changing and transforming the organization. So, there's a core aspect of looking into how we innovate, how we simplify, how we reduce that footprint of legacy applications. The second pillar is, how do we bring state-of-the-art technology into the organization? How do we utilize the advancements and those fast advancements of technology in our organization? We talk about APIs. We talk about different ways of integrating. We talk about cloud computing, AI, ML as just some examples that are not new but that have been very difficult to bring into an organization for the sake of creating products and better experiences for our customers and consumers, so we also have to change the way how we lead, how we behave, how we think, how we make decisions, and how we organize ourselves around those structures and processes. These are three distinct things that I think are very important in my role as a CIO. Those are, I would say, my strategic pillars in that role. The CDO role, I think, has also changed over the last couple of years. If you look at the CDO role, for me, the foundation lies in a key topic. I don't know where I picked this slogan up or whether I came to it myself. There is a people-centric part that looks across the entire organization, all the functions, and all the markets and affiliates, and we have to address adjusting both sides equally and in sync to yield the benefits of technology investments to the better of our customers and consumers.

Host4:37

What I find most interesting is it seems that by having these two roles, you're ensuring that internal technology (namely IT in your CIO role) is fully aligned to the business strategy and where the business is wanting to go. Then ultimately, and not so much into value and impact for the entire organization. For me, there's one company strategy and there is consumer centricity, there is financial shareholders and stakeholders, so there are a lot of things that we have to weave into those business strategies. Today, technology has to be an integral part of it. I think, when we look at those two distinct roles, that is where I can make the biggest impact by combining a view on the business, by understanding our business and our processes (including the nuances that we might see from one market to the other) and have the right answer how technology can help us to overcome issues, to solve business problems, or even to accelerate the strategy execution. I think the CDO part gives me (on the one side) a formal role in the organization. Now, this might be sounding minor, but there is somebody who is accountable and in charge, defining with the senior management team in how we drive our strategy forward, and has the ability to link and synchronize it with the technology investments into the organization. Now, Michael, if I give you an example – very classic but very simple example – the way IT investments and budgets have been distributed across the business in the past was very easy because we said, 'Okay, what happened a year ago? Let's take the part and just slice it at what is the priority, and what supports (in the best possible way) the strategy execution. That's where you allocate people, money, and resources to drive the strategy execution. That might mean that one function gets a little bit less money than last year, but we have a balance in the strategy embedded into the strategic execution plan, embedded allocation of money and resources. I think that's a pretty simple example, but you have to take this view from a company perspective and not from a function and leader point of view to make those changes in the organization. We do have a very interesting question from Arsalan Khan on Twitter. Arsalan says, 'If you're moving towards smokeless products, how have you that culture change question. What is the role of the CIO, and what is the role of the chief digital officer, in culture change? Number one, I don't think that (in an organization) just by title, you are accountable for a certain piece, you are the only one that has to take care, and all the rest can lean back and say, 'Okay, maybe Michael will fix the culture issue,' or 'Michael will change the entire structure.' I don't think that's the reality. I think what is the reality is with how we have changed our executive team, bringing external experiences in, outside perspectives into the organization. jointly drive the decision-making around changes. Our chief HR officer, of course, is an important ally in this for me because we talk about, on the first hand, how we create confidence across the 70,000 people in PMI that the target that we have set ourselves can be achieved. On the other side, how we bring the people the competence to be part of that journey because we have significantly changed from an indirect business to a direct business, from a simple one product line to a multicategory, from basically a simple product to electronics. confidence (we can achieve what we have set) and how we give the people confidence. Sorry. The other way around. How do we create the confidence, and then help (through heavy investment into training, learning, and people initiatives) to also create the competence across the entire organization to move to this new way of doing our business, but also into the new way of our product portfolio and the different set of products we're offering today?

Do you consider yourself to be a change agent? How important a part of your role is driving organizational change?

Michael Voegele10:50

If you look at the senior executive suite boundaries for the competition to enter, and we are sitting there and celebrating success. Today, all those influences—social influences, technology change influences, consumer behavior influences, competition that we have never been thinking about—entering into our field of business, all those forces require us to constantly adapt, change plans, to be still relevant in five to ten years from now. I think a key role for everybody in the senior executive team is to focus not so much on your KPIs. I think they are important. Everybody needs OKRs or OGSMs to have clarity around target and measure how you do but, at the end of the day, it's about creating a culture of change, of being comfortable with ambiguity, and of letting go of past successes. As I've spoken with the best CIOs and with virtually all CDOs, it does seem that that change dimension, driving change, is a really fundamental part of the role. I mean if you look around you, we have to acknowledge the last three, four, five years. Everybody has been talking about one thing. It's the digital transformation. What is transformation? It's changing, so it's about changing a lot of things. Actually, even more important, it's about letting go of things that have made us successful in the past and acknowledging that you can't just lean back of working, but also new business opportunities. I think that is an important aspect. I remember still the days (ten years ago) where I was at that point in time with my former employer where people said, 'Okay, what's the North Star? When are we done?' I still recall. I said, 'Okay, let's define what done means,' and then we figure out this will change every three months, so you can't define something done in today's world. It's too much change, and acceleration of that change means you have to create this comfortness of feeling uncomfortable. Discomfort or, rather, comfort with ambiguity. What he meant is really, 'I think we will never go back to times where we have constant environments, but we will always have changing environments and we need always to adjust.

Host14:21

We have an interesting question on Twitter from Anna Wilgan who asks, 'What are the most important or the key skills for an innovative, future-focused chief information officer?' More broadly, she goes on to ask, 'What is the relationship for the CIO or how important are these change, organizational transformation skills for a chief information officer?'

Michael Voegele14:48

Yeah, look. I don't think everybody shares that view. First, you need to understand your business and your industry deeply. Second, you need to reflect on how technology can support that industry, that business, those challenges that you have. You need to basically be able to abstract to see the things, not just the ones that are there but the things that are coming, to be a little bit proactive and start combining them with regard to the relevance to the business and the industry you're operating in. I think these are two elements that we have to think more and more about. It's not just about technology skills. It's not just being connected to startups. And it's not just talking about great things that happen in supercomputing and the convergence of it. because that's where you create impact, that's where you can achieve results, and that is where we also need to focus our work on.

Host16:15

We have a question on LinkedIn from Christopher J. Blackwell who asks, 'How would you explain the value of digital transformation to the board?'

Michael Voegele16:35

Look. The question is, would I actually explain the value of digital transformation? I think that's the first question we should ask ourselves. I would never go into the room with my board colleagues and start explaining the value of digital transformation. across the functions together. That's a great advantage of IT. You see everything. You know all the initiatives. You know what's happening in all the functions and areas of the business. Your role also is to bring those things together and make sure that they are in synchronization. I would never go into a meeting and say, 'I need $500 million to make a great digital transformation.' I would go in and say, 'How do we invest our resources and our money on driving our business strategy forward?' If technology can help us to accelerate or to even achieve better results, that's fantastic, but that's not what technology is about. It's not Sapient who just wrote a book a few months back. He says, 'We have to go back to renaming digital transformation to digital business transformation because we're not talking about technology change. We're talking about how we change our businesses and the way we work with the help of technology.'

Host18:30

I will say thank you for that answer because far too often digital transformation has become this kind of black box buzzword that doesn't have a lot of meaning. You're forcing a kind of mental rigor and discipline on the term to open it up and say, 'Okay. What are we actually trying to do here?' Then they ask, 'Okay. Have you been successful?' Then 84% said, 'No, we failed.' Now, what does it mean? If the digital business transformation failed, it means your company is potentially going to be out of business in the next couple of years because it's not about bringing technology into the organization. It's about fundamentally changing the way an organization is structured, how an organization thinks and behaves, and puts the consumer into the center of the decision-making. That is, I think, clearly something where we need to differentiate the two things. We also have to differentiate that digitalizing in making those minor but distinct differences in the way we talk about digital transformation. Can you relate this back to PMI and to your work at PMI in terms of how you think about transformation and the connection back to customers and to the changes going on in society around you?

Michael Voegele20:35

The more internal classic things of looking at this, so how do we simplify our legacy world? How do we standardize around the processes and maybe adjust or change the way we have been doing things for many, many years? Then you talk about digitizing certain aspects of the business. When we talk about, for instance, a very simple example in our manufacturing environments, the manufacturing of our products is very sensitive to climate change within the manufacturing environment. How do we use AI and ML to optimize the quality of our products by providing the right conditions via the HVAC in those factories? Very simple examples how technology can help us to produce better products in a way that we have never been able to do it before because we have been monitoring more manually and adjusting the air conditions and the air humidity. On the other side, with our smoke-free products, have now a little bit more freedom in the context to show them the scientific substantiation behind it that our 500 scientists have created in our Neuchatel research facility. We can show them how it impacts their personal health. We can actually go into a one-to-one engagement personalized engagement with our consumers, to help them to do what is really difficult because it's actually a behavioral change in switching away and stopping to smoke. We can help them much better in a one-to-one way with the digital capabilities that we have today to go through that change with them.

Host22:49

How do you can convert or how do you think about threats in the environment and convert those into opportunities? Threats can come benefits of the product that are promoting. There are multiple ways of looking at this. I think, when you look into this, what is extremely important is what the organization has learned pretty quickly; You have to look at your consumer journey. You have to understand those touchpoints and those distinct, decisive moments in that consumer journey. You have to not just then use this from a marketing perspective, but you have to close the feedback loop back into your science, back into your product development teams so that you have that closed feedback cycle that you get from the consumer but then influences the way you design, improve, or create new products. I think that is a very important way because when you have that, the prices that happened in the U.S. when we talk about JUUL and how the market developed there. We have this firm belief that the use of access prevention is extremely important. None that is not a legal adult smoker should have access to our products. Second, we also have a firm belief that this is not about growing the market, but it is for a distinct consumer segment which are legal adult smokers. We would never sell a product of ours in the smoke-free category to somebody who is not a smoker. I think, when you look at those two things, how do you do this at a global scale with currently almost 20 million users? You have to rely on technology. You have to rely on age How do we create technology solutions that only unlock the device when we an age-verified person is picking it up? We start to think really a long way ahead of bringing technology in to solve imminent problems of the category and want to be the ones that set the standard and set the real industry standard when it comes to also be compliant and only addressing the people that can benefit from the new product category.

You made a point that I think is very interesting. You said that it's important to close the loop from the feedback you receive from consumers back into product development. but you're talking about customer experience in a much more deep and profound way. Many of the listeners have applied this. We talk about NPS scores, customer NPS, employee NPS. These are nice indicators, whether you're delivering something to the consumer, but it doesn't help you to really understand how you can improve. When you look at us, the category that we are creating, and the ambition that we have, it is really about you can only create impact not just by creating nice experiences or services. You can only create impact when you fully convert a smoker to the smoke-free category. by the best way of the product experience but also by the service experience. Otherwise, we will not create the impact that we have set ourselves out for to create by 2025.

We have another question, a really interesting question, from Twitter, from Lisbeth Shaw who says, 'How do you move a large legacy business (like your smoking business at PMI) to create or add a digital business?'

Michael Voegele27:33

I joined PMI in the beginning of 2019, and that was a point in time where the organization already had gone through a massive journey. But I think I mentioned a little bit the investments and the numbers in the beginning about our smoke-free category. I think, when you look into the reallocated towards the consumer direct awareness of the category and making sure that our products deliver against the promises that we have made, and focused really on developing those categories. If you think about it, it's almost like putting the old on auto-pilot while you move your crew in the plane over to fly a different plane. This is the key to the success is the seriousness, the dedication from the entire board (with the support of the non-executive board) to actually say, 'This has to happen. If this has to happen, we shift our full attention towards that category and towards the new way of doing business and put the stuff that we real substance of becoming consumer-centric because you can say, 'I'm consumer-centric,' but you're still spending your marketing money and all the other things and nice things you have been doing in the past on the old things. If you want to be consumer-centric, you have to say, 'Okay, what's the problem of the consumer? How can I listen to the consumer? How can I fix problems the consumer has and might not even know? How can I create products and services around this so that I can make a change?' That is about consumer centricity. It's really about reallocation of resources (people and money) towards that piece of the business. I think that is a fundamental piece. You can't really go in and say plan B or plan C their consumers. Yet, customer experience is so hard. Where do companies tend to fall down and why is what you just described so elusive, so difficult?

The key piece is you have to let go of things that make you or your organization successful in the past. Now, how do you do this? It's actually understanding, okay, just because it was successful in the past doesn't mean it's going to be successful in the future. there is not the one answer. I think it shows also that, more and more, while we talk about data and AI and fact-based decision-making, intuition of senior leaders of the organization are also still important in guiding the organization towards the future and potentially towards a completely different future of the past where those things that have been successful are not going to help anymore into the future.

Host31:40

We have a very interesting question from Arsalan Khan again. Arsalan asks great questions. He said, 'Do you provide data sandboxes for your employees transformation and feed becoming and being customer-centric?'

Michael Voegele32:17

No, we are not providing data sandboxes. I sometimes think a sandbox is something for kids to play in. We're not in the playing business; we're in the real world and a real business. There are a lot of issues in doing that. You have to anonymize the data. You have different data protection regulations. You have to potentially even think about who has access to which part of the data because of segregation of duty environment. Just providing data for people to play with, I don't think it makes a lot of sense because what is the problem you are trying to solve? The problem is not, I don't have the data, where do I get the data? But it's really serious and has to start with a business problem, with a business challenge, and not with people playing around with anonymized, meaningless data (at the end of the day) because do you do with it afterward? Now, the other question is really about collecting data, right? I think, with IT systems, we have always been collecting data and mostly internal transactional data that we could use to analyze our performance. Most of that was backward-looking. Now in today's world, you can really think about it. I think we talk about edge devices. We talk about the IoT element. We are talking about how this influences my supply chain. We talk thing that every company is doing that is in the business of CPG or FMCG that has a relationship, a direct relationship with consumers. But the same applies, of course, also in the indirect channel when we talk about our customers and partners in the distribution network where we can analyze and digitalize a lot of the business and, by that, gain more and more insight into data that we can use to make better decisions or even to automate certain aspects of the process.

Host34:44

We have a lot of listeners on CXOTalk who are chief information officers. What advice do you have for CIOs who want to become closer? I think, historically, we would say closer to the business, before: Understand your business. Understand your industry. Understand your customers and consumers. That is really something that is specific to every company and is different to every company. That's why I truly believe there's no real blueprint of how you run a successful transformation or digital business transformation. I think, when I come back to what I said earlier, Michael, it is really about the nuance of saying, 'If I focus myself on technology only, if I focus myself only on finding startups and finding the latest technology, I will not make a significant impact to the organization. I will just create a more expensive, old organization.' journeys. That we have business conversations about what are those strategic challenges or problems that we are facing today or seeing coming, and only then start to talk about, 'Okay, which technology can help me to overcome this?' Now, this sounds very traditional and, of course, we are also (in PMI, and I am doing this a lot) challenging the status quo. What if we do things completely differently and use this and this technology? Wouldn't that be an advantage? I think you also have to have the boldness to go in and challenge those practices because, as I said before, it is mostly about letting things go that have been successful in the past. we are still successful but potentially not anymore two or three years from now. I think that is the right balance in supporting, in looking at humans and business aspects rather than technology aspects, but also have the foresight to see that certain competition moves and/or technology changes can help to fundamentally change the things we have been doing.

What about for CIOs who come from a strong technology background for whom this kind of business thinking is not where they were trained?

Michael Voegele37:44

Get yourself good buddies in your company and start learning. I think that's the only advice I can give. that most of the problems (and potentially even back then in my SAP days) customers had with SAP solutions were not actually a technology issue. Were issues of the process, were issues of the understanding of what the system can and cannot do, so you have to go out of this view of a box and saying technology will fix everything. I think this is not only advice I give to peers as CIOs, but it's a conversation that I have a lot with my IT teams where I say, 'Stay curious, and if you have created expertise in the technology field, that's perfect. That's super because it will help you a lot but start understanding the business and of the digital team, so your CDO hat? What does that team look like?

On that side of the team, we are not really talking about a team that is in a structure and you have five direct reports and they're organized. This team is really about senior people across the organization coming together on a project-based way of working and saying, 'Okay. How do we create competence? How do we create competence across the business in the context that the people understand what digital, what technology, what data is all about? How can we help people that talk about agility and agile ways of working that mean to be a product owner and how is it different to be a process owner? What are the advantages?' Now, the interesting part is a lot of people came back and said, 'Oh, I didn't know this is a much more disciplined and a much more rigorous process than all the things we have done in the past. I thought this is about not knowing and just going and doing stuff.' I think you can see that bringing this into the organization together with my peers and colleagues from other functions is, I think, the powerful element of doing that because what we want to avoid is that the rest of organizations sits there and says, 'Hey. Here's the CDO. He will transform the organization, so let's focus ourselves on the things we have been doing so far.'

Host40:51

Does digital transformation ever end?

Michael Voegele41:16

No. You can remove the digital and potentially, five years from now, we will put another word in front of it, but I don't think business transformation will ever change. If you are not acknowledging that there is no end to change, I think you have already lost. I don't know who said it, whether it was Amazon or Microsoft. 'I want people to come into the office every day as it would be their first day.' I think what was meant by this was really about curiosity, fostering curiosity every day, again.

Host42:11

Okay. Michael Voegele, Chief Information and Digital Officer of Philip Morris International, thank you so much for being with us today and taking time. Michael, thank you so much. It was a pleasure. Everybody, thank you for watching. Before you go, please subscribe to our YouTube channel. Hit the subscribe button at the top of our website so we can send you our great newsletter. We have amazing shows coming up. Check out CXOTalk.com, and we will see you again next time. Have a great day. Bye-bye.