Crocs - Investing in Innovation

Hey, welcome to another episode of Fashion Made. Today I've got the pleasure to be joined by Stefano Ferniani. He's the Senior Director of Innovation over at Crocs. Pretty tough job at such an innovative company in itself.

Yeah, it's quite a challenge. The company is very young. 16, 17 years old, so pretty young. And there's a lot to innovate for a standard company, but being so young, I think it's also a good opportunity because we don't have those restrictions that a lot of established corporates have in terms of procedures and especially mindset. So this is a good opportunity. For us to lead the innovation.

You still are able to sort of allocate resources in the same way that a sort of smaller company does?

Well, a lot of things have changed. Sometimes I say that I've been at Crocs for more than 11 years, and I think I've been in 4 different companies because it's, you know, a lot of things have changed, especially, you know, With this last top management, the company has been able to steer and now we're very successful. In the last year, our stock price has tripled. So this really tells a lot of the changes that happened. So yes, the resource allocation has changed also. So the way we run the business is definitely different. A lot of departments, different departments that you need to interact when you work, especially in innovation. And this is really the, I think, the main difference if we want to compare an established corporate like, you know, we basically are, and a startup. When you work in a startup, basically the team of the founders decides, 3 or 4 people, whatever, They decide by themselves what is the strategy, what you need to do, and also the resources allocation. And that is basically a quick discussion. When you talk about an established corporate, you need to get a lot of departments involved, and this is a quite different type of conversation. But it doesn't mean that you cannot have a similar approach also with a big company.

Yeah, because that's one of the hard things, you know, you've got all of these people and all of these money, all of this money, but when it comes to maybe taking a bit of a risk, which I think is necessary for innovation sometimes, right?

It is absolutely necessary. I mean, it's, if you look at the expected, the life expectation for big companies in the Standard Poor's 500, for example, Life expectation has shrunk to 15 years today, and it used to be 75 or whatever years a few decades ago. So this has urged the big companies to find a different approach to the problems. A lot of companies have been disrupted by startups. And this, I think, in my opinion, this is a fact. Fascinating. It's still hard to believe because if you think that a startup was basically set up for failure, because if you think about it, the startups that today are very successful and one of the 10 biggest companies, but they used to be small, which means they had less knowledge of the market, less resources, less credibility. However, in a short time, they have been able to take over big pieces of the market or take over even big companies.

Are you guys still tolerant to failure there? Because, you know, with risk comes inherent failure sometimes. Are you still able to be tolerant of that?

Yeah, yeah, you have to. I mean, I think today big companies have realized that they have no options than to innovate and to Innovate means making experiments. So I wouldn't call failures because if you make an experiment, you see it's always valuable because even if you don't succeed in the market, you still learn something. So running experiments needs to be embedded into the culture and the operating strategy of a big company. I think Jeff Bezos said that in order to be more innovative, you just need to do more experiments. This is just a simple way to do the business. This is very different from running, for example, a product line. If you go to the market with a product line of 100 styles, for example, and you think that doubling that number of styles will make you more successful, it actually doesn't. Because especially if those styles address the same market and the same consumer, then you will just reduce your profitability. These, for example, had almost put LEGO bankrupt. A few years ago, and now the company has, of course, turned around and is doing great. But this is an approach that some companies had in the past, and clearly it doesn't work. But for innovation, it's quite different. The more you test, the more you experiment, the more you succeed also with innovation, the bigger revenue, the bigger return on investment you have, which might be a revenue increase, more profitability, you know, speed to market, and these things.

I guess you're right. You know, we talk about innovation in terms of products a lot of the time, whereas I think a lot of other people maybe consider innovation to be related to business model strategy. For Crocs, where do you see your focus? Is it more on the product or the strategy?

We started from the product, but then we transitioned to processes a lot. And now we serve the whole company pretty much. We are mainly focused on product and for the product services, for the product team and for the supply chain team. But we also have some other projects with other departments, with within the company, sales department and so on. So I think that innovation cannot be thought as it used to be. It's not like a silo, a team of people that are locked in a room and that runs their experiments alone. And then you put a bunch of money in this department and then see you in 3 years. 'Give me 3 to 5 years and let's see what you come up with.' I think this is an old way. It doesn't work like that. Not anymore, at least. Innovations need to be— I see my role really as a facilitator of ideas within the whole organization.

How does that work, Stefano? Because in the past, maybe before you had a Director of Innovation working with all of your departments, you would have just had those departments and you would have expected those people to kind of be innovative anyway, or at least creative and always thinking about new ideas. So how does it work when you kind of take maybe that responsibility a little bit away from them and they have you and your team sort of supplementing that? Is there ever crossed wires?

That's a very good question. This is one of the biggest challenges that not only Crocs but also other companies are facing. This requires basically a change of culture, and culture is really the key enabler, I think, for innovation. Culture is hard to change, of course. We're lucky because our company was based on an innovative idea, but still there's a lot of work to do in terms of innovation culture implementation. And if you have the right culture, then you have support from all the team. They are aligned with your goal. But changing the culture means, for example, finding also the time for to dedicate to innovation. So if your job is, let's say, to work in a development department, and you're measured basically only on the results of your development that you succeed, then how much time are you willing to dedicate to innovation? Not really that much. So you need to invest in innovation. You need to create the right culture so people know that they are expected also to deliver in innovation. And they are there. Think about, for example, the Adobe Kickbox. That is, that of course is a great way to push people, the whole organization, to think about innovation. Because maybe not every one of us will come up with a great idea, even if I think everyone has the chance, but Everyone of us should strive to do that. And if you have the right mindset, then you can even support innovations.

So how do you then go to these departments and work with them in a better way, obviously managing this culture change?

Yes, yes, managing the culture is critical. This is a path that we have started with many practical things, you know, starting to have more innovation open days, supplier summits, Try to have a day-to-day also conversation with people, build tools also for sharing the technology. A lot of people have concerns on sharing because of course in the past IP was very important. But sharing, the more you share, I think the more you get people engaged. This is the main goal. I think also the role of intellectual property protection has changed quite a bit from the past. Today, IP protection is one of the tools that you get, that you use for protecting your idea, but not the only one. So, you know, sharing with these people, get them engaged. Get them excited, inspire them, show them the vision of what you're trying to achieve and share also the success. This is also key. Don't just take the success and talk about what your team has done, but what other teams have done. Put your team actually behind. That's totally fine because the goal is really what really matters.

Yeah. So you kind of, um, yeah, sharing that success and building that sort of positive mindset around everything.

Right, right. And, um, you know, the, the other important thing is also to get them engaged from the beginning. So, uh, if you, uh, if you try to, if you come up with an idea and you'd start to develop the idea and then, uh, after a little while you go to another department and you say, hey, I've been working on this new idea and we have done this, this, and that. So would you be willing to implement in your business unit? It's a natural response that people say, well, let me see. And you're not creating enthusiasm, what I meant before, right? But if you get them engaged right up front and you start to work together, you have two benefits. The first one is, of course, engaging them and get them excited. But the other one is that you get also valuable insight because you think maybe that you know their needs, but in reality you don't until you talk to them. So get them engaged right at the beginning will also help you to understand what are the business unit, that specific business unit priorities. Or needs or tools also that they might already have. Maybe they have already started to work on something similar. So it's always, you know, try to engage from the, on a project and share the resources.

Yeah. Yeah. I mean, you can get some free easy wins as well from them as well, I guess.

Yeah, absolutely. I mean, it's, I'm thinking about One project that we did recently, and it was about creating basically a digital platform for reducing the physical sales samples. And we were thinking about how to do that and talking to people, we found out that there was already a solution in place that we might just tweak a little bit and implement basically for our project. This is as simple as that. We basically created, used existing assets that the company already have, but it's important to know that you have it. And there are many tools to do it, but also talking, I think, is a very valuable tool.

Yeah. Yeah. Is that a lot of innovation? Just kind of more iteration, just looking at something and putting a new spin on it?

Yes, absolutely. This is part This project actually was part of the Lean Startup approach that we had. So we introduced this methodology recently at Crocs. And we had the goal, as I mentioned, to reduce the physical samples. We tried already in the past with some result, but that we weren't satisfied with. Therefore, we restarted the project. In only 5 months, we were able to deploy a minimum viable product, which means basically we were able to test a solution already with the customer. 5 months included also design thinking at the very beginning of the project. So interviews, trying to understand the customer needs, talking to the customer and the users. Try to understand what the possible, what other competitors were doing, trying to understand also parallel businesses, what they were doing, and then building some assets and then deploying basically this minimum viable product, which is a prototype, a functional prototype with a monetary transaction, pretty much. Okay. And I cannot tell about the results because the project is still young, but it's in terms of speed, and customer focus, which is really what it means to be agile today. I think we have been very successful so far.

Yeah. You talk about agility. It's absolutely a huge priority for a lot of companies, rightly so. Do you find that you can maybe incentivize agility or reward agility? Is there a system in place for that?

Yes, I think so. But agility, I'm always scared about using the word agility because it has become a hype.

Much like innovation.

Right, much like innovation. Totally, totally. So what does it really mean to be agile? Agile means really to be quicker and more customer-focused. But how this translates into your everyday work, that is a totally different discussion. So implementing, for example, these methodologies that we talked about is one way. But going back to what we discussed before, if you don't have the right culture, you won't be able to implement these methodologies. You can train people. You can have these people take courses about these methodologies and explain. How they work and everything, and then start from the leadership team and then cascade it down. And then you will fail because if you don't have the right culture behind, people won't understand the need of it. And they will see that just as losing time or wasting resources, or they won't see the value or they won't even try because they're just used to the same type of approach. So I don't think that these types of methodologies are the answer to every project, of course. I think they're extremely viable when you have a high level of uncertainty. So I think this is— a lot of people, they jump on the hype and they say, okay, now everything needs to be managed through these type of methodologies. I don't think that's true. The right approach simply because different problems must have different answers. And today these technologies, these methodologies are very successful. Who knows tomorrow? But what is important is what these methodologies can provide. If you have a high level of uncertainties, they help you to really filter all the possibilities, understand the customer more, be fast to deploy, to test an idea and to iterate on that idea and to pivot on that idea.

Yeah. Yeah, because I guess, I mean, not everything needs to be agile. And I guess in the same way for innovation, not everything needs to be innovated or changed or iterated, you know, I think of Crocs, well, I would assume it's your biggest selling product, the classic shoe. You know, you're not going to change the structure of that anytime soon, are you? You know, it was so successful.

Yeah, of course, you don't want to destroy your own icon.

Yeah, if it's not broke, don't fix it.

Exactly, exactly. Especially in footwear, because in other industries, the situation might be different. Think about the car industry, for example. But for footwear, the icon remains your icon, and you want to expand it, not change it. So this is really where you want to innovate. Find ways to, for example, customize your icon or embellish your icon. In a customer-relevant way. So which means, and when I say customer, by the way, I don't mean just the end customer there, but it could be also wholesale channel. Those are also your customers. So think always broadly in terms of who's your customer and who's your user. And there are many ways you can innovate, embedding, implementing, for example, Industry 4.0 for being quicker for your market and respond faster to the market needs. That to me is keeping your icon intact, but then expand it and provide innovation around your icon.

Yeah, iconicity is really important. And I guess once you've got it like you guys do, you want to use it to its full capability.

Yes, absolutely. So this has been the strategy for us in the, In the past 3 years, we have expanded, you know, our, our icon. We have reinforced our icon. And then we expanded also to other silhouettes. You know, some people, a lot of people know the classic clog, but they don't know the other offerings that we have, which are actually the majority of our style offering. Sandals especially are a huge market for us, and we are really focusing our attention on, on, on sandals, flips, slides. And so on.

Yeah, yeah. Now I've seen the product range is huge, um, and you can kind of always see that Crocs style in there, um, but it, you know, it's obviously huge product development, huge new product ranges that you guys have got. Um, it's quite interesting to see actually.

Yeah, yeah, absolutely. And the, you know, this is, uh, when people know the, the offering that we have, they, they also understand more what the, what we do in the, in innovation. I mean, the, uh, recently we, we we launched a successful collection, which is called Light Ride, that is based on a project that we worked on, which is the Light Ride material. This was also quite a good example. We were asked to develop a new material that was supposed to be more comfortable than the existing one, which we all know is super comfortable. So that was quite a big challenge. Here you have a lot of uncertainties. The approach that you can have can vary dramatically. And the approach that we have was really customer-centric because we didn't want to tell the customer what they really wanted, but we wanted the customer to tell us what they wanted. And the result was actually surprising. It was so surprising that a lot of people didn't think that was the right solution. Because that was not the way that we always made materials. That was not the way we always made shoes and that other companies are doing shoes. So there was quite a pushback, and this comes back to the culture. And we were able, through the implementation of this project, to show that the right mindset and the right innovative mindset can be very successful. And this Collection has been the biggest, the most successful launch actually since the launch of the Classic Clock for the company.

I guess you must get through so many ideas from all of the people that come up with sort of new product development ideas. There must be so many. Do you reward the idea or do you reward the outcome?

Yes, we reward the idea. Well, we talked for a long time about also monetary rewards. And believe it or not, this is not the most important factor for rewarding an idea. Giving visibility, getting people excited about something they're really passionate about, that is more rewarding, to be honest. And this is also shown and explained by several others, several studies around these how to reward good ideas and how to reward innovative mindset. So yes, we need to innovate also the way to reward ideas.

This is really interesting, actually. I'd love to find out a little bit more, if you can, about how you reward creativity.

Yeah, I think, you know, the For example, during the innovation open day, we always have some of the key partners that have contributed to some innovations to speak. That's a very good way to reward people. But also providing time to these people so they can pursue their own idea if they're passionate about it. That's also a big reward. It's very linked also to the way you— to the talent retention that you have in your own company or your own team. I'm sure your people will have good opportunities also outside of your company. It cannot be just money that makes you decide you go away from the company. Most of the times, the reason why you leave the company is other aspects of your work, including finding something that— working on something that you're really passionate about, getting the possibility to put your creativity in place, getting possibility to be flexible, many, many different aspects. So money is one of the aspects, not just the, not the only one.

Okay. I also made a note here before when we're talking about large companies, small companies, how do you have that small mindset? And it came to my mind that the scale of the company could be equal to the speed of product creation. In terms of if you're a very small company and someone says, oh, you should make a product that looks like this, and you think, well, that's a good idea, you could do it tomorrow. When you're in a large company like Crocs, you probably have— I don't know how long your development cycle is. Maybe 6 months, maybe a couple of years, I don't know. How long is it?

Right now it's 14 months. We're shrinking that down, but it's very long. However, we have introduced— you're totally right, I see where you're going.

Isn't that strange? Because surely you have more people, you have better relationships with your external partners, you have all of this resource and money, yet it takes you longer to do something. I just found it quite a strange thing, really.

It is, it is. But not all the companies are like that. Think about Zara, for example. They can deploy a product in a matter of 5 weeks. Thinking about actually these different type of business models, we have introduced a new channel for launching product quicker and faster because some products, you might even take a longer time because the risk basically for those products is low. Forecastability of that product is pretty high. But for some others, you absolutely need to shorten your calendar. So we are approaching these in two ways. First, we are reducing the overall calendar for all the projects, because 14 months is definitely too long. And it used to be longer, actually. We're reducing that, deploying new technologies, but really changing the way we work. That's how we're doing it. The other way is also we have introduced a separate channel for short deployment, and we have been able to launch very successful products in a matter of 2 months. Think about Post Malone's "Clock," for example. That has been a project that from ideation to deployment was less than 2 months. So it was, it was really, really short. So we need to better respond to the market. Otherwise, you will miss opportunities for growth and for profitability.

Yeah. Is it threatening to the core business to pursue game-changing innovation?

I would say it is threatening not to pursue game-changing innovation. I think it's the other way around. It's always difficult to pursue game-changing innovations, to be honest, because you're putting a lot of money for something that has very high chances to fail. But if you don't do that, if you don't try to explore and to disrupt your own business, then someone else will do it. And by the time you realize it, that the change is happening, you're probably out of the game or you have lost part of your business. Yeah. So think about, I mean, there are many, many big examples. In the history, but in the past years, even more. So you need to dedicate the right time. And usually, you know, it's specific programs for doing that. You cannot just say, okay, yes, we will try, we'll do it. And in our spare time, we'll try to disrupt our industry. You need to have a very big focus dedicated resources and so on. So this is quite challenging and not always easy to do when you need to deliver basically on a quarterly base to your investor.

Yeah, not easy, not easy. I guess you're doing a pretty good job though there at the moment. I mean, what's next for you, Stefano, and what's next for Crocs? And what can you tell me?

Some people told me once, but what What can you do in footwear that hasn't been invented yet? And this is a— I mean, there's a lot of things have already been invented, but nonetheless, you always find something new. So it's just that you don't know yet what it is. It hasn't been invented yet. So there's a— of course, we'll keep focusing on the product, but what we are really trying to change is the way to serve our customer better. So customer comes always first. They drive basically our priority list. And the customer now has changed quite a bit. Think about the Z-Gen. Think about also the way the fast fashion industry is disrupting the fashion industry. And this will happen also, in my opinion, for the footwear industry. So we need to fast our customer with more tailored products and quicker. So provide, build also on our strengths. Comfort, for example, is definitely one of our key strengths. So build on our strengths, but also provide extra value to our product and our services. Uh, and there's, uh, there are many, many, many ways to do it.

Yeah. Yeah. I think we could do a whole nother podcast on sort of how do you listen to your customer and, and utilize that feedback and all that kind of stuff. Um, maybe we could.

Yeah, that is definitely a good idea. Yes, absolutely. Absolutely.

Let's see that next time. Well, Stefano, um, thank you very much for coming on the show. It's been really, really interesting to talk to you.

You're very welcome. Thank you. Thanks for, uh, for this opportunity. It's great talking to you. Woo!