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Anne Carullo

SVP, Corporate Product Innovation Estée Lauder

the innovator’s interview May 2009

The Innovator’s Interview highlights unique innovations from a wide range of industries, and is an opportunity for futurethink and some of today’s leading innovations to share insights and ideas.

Turn innovation into action Future Think LLC © 2005–09 Reproduction prohibited New York NY www.getfuturethink.com

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the innovator’s interview

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Anne Carullo the background

This Innovator Interview series highlights leading innovators at Fortune 500 companies. In contrast to past interviews, focusing on a single innovation, this series examines the state of innovation at global organizations. We spoke with both innovation leaders and practitioners, within varying business units and organizational structures, across a broad range of industries both for–profit and not–for–profit. The interviews offer a unique insider’s view into the world of innovation—what makes it work, what holds organizations back, and what critical advice new innovators need to know to be more successful with innovation overall.

the interview futurethink recently tapped the mind of Anne Carullo, SVP–Corporate Product Innovation at Estée Lauder to learn how the cosmetics giant innovates. Read on to learn why the customer isn’t always right, how hiring the Top 2% isn’t necessarily good for innovation, and the importance of looking backward for new ideas.

You said that innovation at Estée Lauder is different than how other leading innovators do it. Can you elaborate? Innovation is a central theme to the corporate mission of Estée Lauder Companies and much of that stems from the Product Development department, which differs from other organizations in that Product Development is not part of R&D or Marketing. We’re a very specific group of people that work on development with R&D and Strategy with Marketing. The senior heads report directly into the Chief Innovation Officer as well as the President of the brands that we’re assigned to. Our overall responsibility from a branded standpoint is to work with the brands to develop innovation strategies and design these strategies so that we can support their business initiatives. In addition, we are also responsible for developing and conceptualizing – that is, investigating new disruptive concepts and ideas outside the industry and applying them to our business. These are things that are not necessarily requested by any specific brand. So, I function as a creative developer to conceptualize and formulate while supporting the brand strategies. You work across multiple brands, then? Yes. My official title at Estée Lauder is Senior Vice President of Corporate Product Innovation. I’m corporate head, but I am brandassigned as well. I have three brands that I’m currently responsible for: the Estée Lauder brand, the Re-Nutriv brand, and Tom Ford Beauty. I’ve been here for 17 years, always in the capacity of product development. And I’ve been in the industry for even longer, always in a product development role. Before Estée Lauder Companies I was with Max Factor for eight years, which was acquired by P&G. And prior to that, I was with Revlon. So, my entire career has been specifically in the cosmetic industry..

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Anne Carullo

What would you say is the single biggest challenge to making innovation happen? In my opinion, the two biggest challenges to making innovation happen are: building an infrastructure that supports and sustains innovation and maintaining the speed and flexibility to drive it on a timeline that’s going to make an impact in the marketplace. Speed matters! How you have overcome some of these challenges? People and resources. If the message from the top down is that innovation and creativity are singularly the most important elements for sustainable and continued growth, you need to build an infrastructure that supports that. What I mean is that you need to have the capabilities within your organization for people to have the freedom and time to think creatively, to have the resources, (meaning dollars) to flesh out concepts that may or may not come to fruition. Additionally, there has to be a genuine recruiting effort to draw in new talent of a very specific mold, perhaps not focusing solely on the top 2% of the best colleges in the country, but candidates who possess a different kind of edge. And I think that you need to be open to receive these people so that you can build an organization with a great diversity of minds. Having a Product Development team that is sort of a hybrid between Marketing and R&D is building an infrastructure for innovation.

“There has to be a genuine recruiting effort to draw in new talent of a very specific mold, perhaps not focusing solely on the top 2% of the best colleges in the country, but candidates who possess a different kind of edge. And I think that you need to be open to receive these people so that you can build an organization with a great diversity of minds.”

Do you think that innovation and Product Development teams necessarily go hand-in-hand? Yes. Any product developer strives to be inventive. Say the CEO or the Chief Innovation Officer, in your case, wanted a progress report on the state of innovation in your group or on your brands. What are the three metrics that you would choose to report on and why? It would not be my specific role to measure the success of innovation from a market standpoint. Clearly, a metric you use is sales. How is the product performing? How is the product outperforming? Is it doing better than expected? Is it performing as you expected and were the appropriate resources allocated to support it? Those are all key elements to determining how innovation is doing. Also, I think that the attention the programs are receiving: Through media, blogs, even word of mouth; the ‘buzz’ if you will, is a metric. If people are talking about you, those are indicators that you have truly hit on an innovation. An example of a product we recently launched that is a good measure of innovation is TurboLash Mascara, the vibrating mascara. At the same time, a competitor launched a similar product. We launched first, but their sales outranked ours initially because they had more units available. We use metrics that say we were successful because of our position of being first to market. Now we’re in a position of getting the volume out there and our ranking are improving, from 10 to 9 to 8 to 7. We know that the formula and the product are performing. All those measures matter. Anticipate. Innovate. Future Think LLC © 2005–09 Reproduction prohibited New York NY www.getfuturethink.com

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Is there anything else that you look at internally in order to gauge the health of your overall innovation program and your product development efforts? Absolutely. We do consumer insight studies, concept testing, and positioning testing to get a consumer gauge as to whether or not we’re in the right direction. In your experience, what would be the biggest indicator of a healthy innovation program or effort? I think that an innovation program should have at least five to eight balls in the air. If you can launch two out of those five or eight, you have a very healthy innovation strategy. How do you maintain that? How do you make sure that you constantly have this pipeline of ideas? Build an infrastructure that supports innovation while inspiring and motivating your team. You must also give your team the time, freedom and resources to be innovative. You can end up with more than 8 concepts to choose from. But, it is my role in our team to ensure that we always have at least five feasible or non-calendarized programs going on at any given time.

“Let’s say I wanted to develop a new [make-up]applicator. I may look to the tire industry and find new ways that they’re approaching adhesion to the roads, slicking, waterproof, antifreeze…and see how that might apply to our industry. Looking in odd places for insights is about being inspired.”

How do you choose new ideas to move forward with and start investing in and exploring? What are the basic criteria that you use in evaluating ideas? Well, I essentially use three fundamental areas. The first is what is going on in the marketplace, clearly, and not just my industry. It’s really other industries, and how are those inclinations affecting consumer habits or buying concerns, etc. The other is technology platforms, what in fact is available to us to innovate against. And third, and probably most importantly, inspired thinking. For example, let’s say I wanted to develop a new applicator. I may look to the tire industry and find new ways that they’re approaching adhesion to the roads, slicking, waterproof, antifreeze…and see how that might apply to our industry. Looking in odd places for insights is about being inspired. Is the customer, then, the biggest judge of what ideas move forward? Yes and no. I would say that, yes, they have to be because they ultimately drive sales. With that said, I believe that it’s our responsibility to surprise and delight and inspire the customer. Sometimes I do feel that consumers can only give you what they know and what they feel comfortable with. I have, myself, been responsible for concepts that have tested very poorly, but decided to launch regardless because I thought that the concept was what we call a high concept. High concepts tend to test poorly compared to more recognizable concepts. And that instinct to push ahead despite poor consumer testing proved correct because the concept hit very big.

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Anne Carullo

And in making those decisions, are you just basing them on instinct, or are you using any kind of scorecard or screening tool? Historically, I think that this organization has always leveraged its incredible intuitive thought process. I mean, Estée Lauder herself was the quintessential product developer and drove her business based on her instincts. So, I do think that instinct plays a huge, huge part in what we do here. Recently, and more so moving forward, we’re going to fuse that with even more consumer insights and vetting processes, but it will never serve as the only thing we do. What should the role of an innovation team or an innovation office be? What should or shouldn’t they do in terms of how they operate within the context of the larger organization? What they should be is cross-functional; meaning you need to have cross-functional groups of different expertise on a team. They need to be focused in their mission. I think they need to have the support of the most senior level of the organization. I think they need to have flexibility, freedom and visibility. They need to be supported with adequate resources to invent. And they should really operate on the belief that anything is possible. What they should not be is subjective or egotistical — falling in love with their thoughts and ideas.

“The way our organization works, the Innovation group does [two things]. They work on exploratory concepts. But because we’re also brandassigned, they are also responsible for driving the day-to-day development of the concepts. We live with a concept from the moment it’s conceived to the moment you give birth.”

Do you view the role of the team as someone that is developing new products and really incubating them, or do you view them as a group that should facilitate innovation across all different levels and silos of the organization? The way our organization works, the Innovation group does both. They work on exploratory concepts. But because we’re also brand-assigned, we are also responsible for driving the day-to-day development of the concepts. We live with a concept from the moment it’s conceived to the moment you give birth. Let me tell you why I think that works. I have been part of innovation teams in the past that were solely responsible for creating innovations and then knocking on brands’ doors to sell them. “Here’s a great idea. Look at it. Don’t you love it,” and they’re not accountable for the development. I think that when you have both the ability to conceptualize and realize, you also have the opportunity to see it through. I believe that people have vested interests in the projects that they work on, and also have the passion to overcome challenges and obstacles that others may throw in its way. What are some “quick-win” tactics that you think people can use to really build energy and sort of show success with innovation? The first thing you need to do is identify what you mean by innovation, because everybody has a different idea about it. People think innovation always has to be disruptive, but innovation could be a clever new position. So, let me just say that the first thing they should do is they should decide what kind of innovation they really want to drive. Is it high-tech? Soft-tech? Is it emotional innovation? What do they want to do? From there, I would take a look at the company’s history, and perhaps there are things that they have abandoned that were quite successful that they can easily bring back. A lot of times, companies just keep moving forward and they lose some of the things or they

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Anne Carullo

abandon things that were very successful. What have you abandoned, and what can you re-adapt? The next thing I would do is look at what your current portfolio of product is and what added value you can provide to the customer for it. Let’s say some company has a detergent that they over-fill because of manufacturing reasons. There might be opportunity for them to add that added value, two more ounces for the same price. In your experience, have you found success in looking back at your old portfolio of abandoned ideas and resurrected some of those? Estée Lauder has just re-launched EyZone. It was a phenomenal product that was previously launched in 1990 with huge success and hoopla. Over the course of time, there have obviously been other innovations that have taken its place. But, because it was so spectacular in its presentation, we felt that a whole generation of people that never knew it would love it as much as those people 20 years ago loved it.

“The first thing you need to do is identify what you mean by innovation, because everybody has a different idea about it. People think innovation always has to be disruptive, but innovation could be a clever new position.”

What characteristics would you say or what qualities make an individual good at innovation? I would say that a person or an individual who wants to pursue innovation needs to be the kind of person that is open and has receptors sort of 24/7 moving, someone who is a good observer of things, someone who is interested in things, someone who likes to be inspired, somebody who may like to daydream, somebody who is imaginative, and somebody who is really excited about doing something that’s never been done before. I think you need to be a little ADD, quite honestly. And I guess I might ask the converse. Have you ever encountered a particular skill set or mindset that has made someone handicapped when it comes to innovation? Every day. I think that a person who is extremely process-oriented or extremely rigid and very much in need of formality would probably have a very difficult time being in an innovation role. I’m not saying they couldn’t fundamentally execute or help, but I don’t think they can drive it. What would be the biggest piece of advice you might give to another individual who’s tasked with innovation in their company and who’s really trying to get started and move it forward? My advice would be to prioritize where you want to focus inventing. What are the big volume potentials? What is the low-hanging fruit? I would start there. You need to start with a successful roadmap and not try to do the impossible too quickly. Get your feet wet first and get a little experience. Then you could try to tackle some more difficult things.

Anticipate. Innovate. Future Think LLC © 2005–09 Reproduction prohibited New York NY www.getfuturethink.com

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Anne Carullo

Who do you look to as an innovation role model, either within your company or your industry, or just other organizations in general? I have wonderful people here that I get incredible tutelage from. My colleagues, the people that do what I do on other brands, are a constant flow of inspiration and debate and conversation. But, largely, I go outside my industry to be inspired by what other industries are doing. I tend to look at materials: textiles, paint, glass, furniture design, and the automotive industry. I go to the tech world-like the luggage industry, believe it or not, sportswear, sports gear, things like that. I know that to innovate, you need to look far beyond what you are familiar with.

What can you learn from Estée Lauder’s approach to innovation? • Getting to customer needs: How much time do you spend understanding your customer and their needs? What methods are you using to uncover not just their blatant but their latent needs related to your offerings? • Hiring the right people: Do you have the right mix of people, with diverse skills sets, working on innovation-related projects? Have you defined what skills or characteristics you’re looking for in your people to be more ‘innovative’? • Having a common language around innovation: Does everyone have a consistent definition of what innovation means in your organization? Is there a published set of language that’s used an understood to make innovate happen more quickly?

To learn more about the research, tools and training you need to better anticipate change and move innovation forward, visit us at getfuturethink.com. Anticipate. Innovate. Future Think LLC © 2005–09 Reproduction prohibited New York NY www.getfuturethink.com

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Innovator Interview: Anne Carullo, Estee Lauder