PepsiCo is working with startups to tap new sources of innovation. Here’s how it does it

Blue-chip firms with thousands of employees have access to great professional talent but even executives at these big businesses recognise that smaller firms have the potential to generate some creative ideas of their own.

That’s certainly the case at PepsiCo, where experienced executive David Schwartz is helping the food and drinks giant to tap into talent that lies outside the enterprise firewall and inside some of the most innovative small firms across the globe. 

Schwartz is VP of PepsiCo Labs, which is a specialist team within the business tasked with harnessing the power of technological innovation. 

While PepsiCo employs about 250,000 people globally, Schwartz recognises no company can be expected to generate all of its best ideas internally. 

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Consultant McKinsey says it’s easy to see why corporate partnerships with startups make sense: startups can benefit from corporate funding, resources, and customer access, while corporations need to innovate to stay ahead of competitors and disruptors.

By working with smaller firms around the globe, Schwartz says his company can generate a competitive advantage by bolstering its internal capabilities with external innovation.

From machine learning to artificial intelligence and onto bio-based thermoplastics, PepsiCo Labs identifies and then collaborates with breakthrough startups to create digital solutions to key business challenges.

“We have phenomenal talent at PepsiCo. But we also understand that some areas of deep tech have so much backing from the venture capital world. We recognised we could tap into that innovation and bring those solutions into PepsiCo,” Schwartz tells ZDNET.

“The market is changing rapidly and technologies are evolving quickly. As that evolution takes place, we want to be touching the best technologies that will help us get the right product to the right place at the right time.”

Schwartz, who previously worked as a consultant at McKinsey, says most startups are looking for one of three things: funding, expertise, and scale.

He describes the relationships that have been created through PepsiCo Labs as “a win win” for both parties – startups get the backing and expertise they require and his company gains access to leading-edge technology.

“We provide expertise because we know the challenge that we’re trying to solve. And we also provide scale because we have such a large footprint across the world,” he says.

PepsiCo decides on its startup partners through a careful selection process. Its lab reaches out to hundreds of startups and then whittles potential candidates down to a list for piloting and then scale-up production.

To date, the company has scaled more than 30 startups in over 200 countries.

One of these partnerships is with technology firm WINT, which uses artificial intelligence to prevent water leaks in PepsiCo factories. 

Digital monitors collect water flow data, which is then analysed through pattern matching and machine learning. PepsiCo estimates it can cut annual water consumption by as much as 25% by using WINT’s technology. 

“It’s taking machine learning and adding that smart element to processes that we already have and it’s creating new efficiencies,” says Schwartz.

Another pioneering partnership is taking place in Turkey, where PepsiCo is working with Pulse Industrial and BrenPower to monitor and detect failures in steam traps in the company’s plants through an AI system. The aim is to reduce steam loss and improve efficiency.

“It’s a fascinating technology that’s leveraging IoT and this helps us reduce our carbon impact through manufacturing efficiency. It also brings automation and reduces the amount of wastewater,” says Schwartz.

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PepsiCo is also using a patented conversion process developed in combination with UBQ Materials to turn unsorted household waste, including organics and unrecyclable plastics, into a bio-based thermoplastic. PepsiCo is trialling this new material in Lay’s display stands across Turkey.

“It’s real-world circularity coming to life,” says Schwartz. “UBQ takes garbage and makes thermoplastic in a process that is equivalent to a significant reduction in CO2 emissions.”

PepsiCo Labs continues to seek great ideas from the startup community. Schwartz says the aim of the programme is to make it as easy as possible for smaller firms to pilot their innovations and to then scale those ideas into useful products.

For entrepreneurs and business owners who are looking to work with blue-chip business, Schwartz offers three main pieces of advice:

1. Maintain openness and transparency 

“If the startup knows what they’re getting into, and the PepsiCo leaders know what they’re getting into, and they build a culture of open discussion, I think that sets us up for success. Making the most of the talent in startups is all about our agility to adjust and adapt their technology to the business’ needs. People in our business know what the problem is because they’re living with the pain point every day. So, if they can have the right open dialogue – and we’re not expecting the silver bullet on day one – they know that they’re going to be able to evolve the solution and really solve the business need.” 

2. Work at a parallel speed 

“Startups need to understand that PepsiCo has to maintain the highest standard of integrity. Following the right standards means that we know we will always have the highest quality products and, therefore, we’re going to go at the right pace to test the solution rigorously. At the end of the day, our work is all about providing great products to our consumers. So if it’s something in machine learning, we want to know that it fits our standards. Also, we want to work at the pace of the startup ecosystem. I think it’s a great experience for us to work faster, stronger, and become even better at fulfilling our goals.” 

3. Bring two cultures together

“Startups are often characterised by the belief that they can change the world. We want to work with firms who bring their passion to deliver great things. We want to take the passions of both companies – a startup that wants to change the world allied to the scale and expertise of PepsiCo. It’s great when both sides come together and they land things. I think what works is that we celebrate the successes, and we operate like a team. What we’re doing behind the scenes is to facilitate a link between great innovation and execution. We’re bringing both of these elements together to build great solutions.”

Schwartz says PepsiCo Labs’ goal is to find more solutions from across the startup community that help the company solve its short-term challenges and generate long-term, sustainable growth.

“The more successes we have in the near and medium term, the more we can experiment and really push the boundaries to far-out solutions,” he says.