This episode of the Inside the Strategy Room podcast explores innovation in the agriculture sector. Erik Roth, leader of McKinsey’s innovation work globally, talks with Neal Gutterson, who recently retired as CTO of agricultural chemical and seed company Corteva. Gutterson explains the transformation he led following a spinoff from DowDuPont to bring together disparate R&D organizations into one cohesive engine of innovation. This is the sixth episode in our ongoing series, The Committed Innovator. It is an edited transcript of the podcast, which was originally recorded in December 2020 prior to Neal’s retirement. For more conversations on the strategy issues that matter, subscribe to the series on Apple Podcasts or Google Play.
Erik Roth: Neal, you have had a long career as both an entrepreneur and a senior executive in large companies. Can you give us a little of your background?
Neal Gutterson: Sure. I am a scientist by training. It has been a while since I was a practicing scientist but I still think like one. When I finished grad school in the early 1980s, biotech was just starting in agriculture and I gravitated to that. Until six and a half years ago my career was in small, largely tech-oriented, entrepreneurial companies trying to make a difference in agriculture. From 2007 to 2014, I was CEO of Mendel Biotechnology, where we also worked on biofuels. Then I came to one of Corteva’s legacy businesses, the seed company Pioneer Hi-Bred, and later helped create Corteva from three different R&D organizations. It has been fun to go from thinking about attacking incumbents to defending an incumbent from attackers.
We are the only public company dedicated to agriculture, a pure-play ag company. We wake up every day thinking about farmers and the consumers they serve. We sell seed and crop protection products to farmers and try to make a farmer’s life better, more profitable, and more sustainable.
Erik Roth: What has been the major difference between leading a small organization and working in a big one that’s trying to innovate like a small organization?
Neal Gutterson: I think units of 100 people are the ideal size to work as a group; get much above that and it gets tough. One of the interesting things about being in a small company is that you wear a lot of hats. You are very close to fundamental strategic choices.
Another key difference is the nature of risk. When you are a large incumbent, you have so much to protect that the risk appetite is much lower than at a start-up, which does not have much downside risk. That creates a different mindset.
Erik Roth: Small companies tend to dynamically reallocate resources because they have to, while large companies struggle with that, as you alluded, because they feel they need them to protect the core business. Is it hard to get the best people to the right places in a large company?
Neal Gutterson: Yeah, and to get the capital to the right places, too. At a small company, the first CEO, who may be the founder, is probably not the right leader after a few years. Everyone around the boardroom table knows that at the start so, in a way, a small company is always thinking about the pivot, the change that has to come. This is the opposite of a large company, where efficiency and getting better at what you do are the goals.
Being adaptive is another challenge. At a big company, you think you know what the market wants and you focus on development stages and delivery. Small companies inherently strive to figure out what the market wants and so are much more open to the cycle of adapting and learning.
Big companies think they know what the market wants and focus on development. Small companies inherently strive to figure out what the market wants and so are much more open to adapting.
Erik Roth: Can you give us some context around agriculture today?
Neal Gutterson: Well, we all eat so we all have a vested interested in the food system. I believe our food system is the safest that it has ever been. It is very affordable, even in a global context. But interestingly, the average consumer is more risk-averse than 100 years ago, when you had to worry much more about where your food came from. People today have incredibly high expectations of how their food is produced. They care a lot about the agricultural system and its sustainability.
In some ways, conventional agriculture is under attack. Huge farms with thousands of animals, if they produce beef, seem wrong to people; small seems more appealing. But agriculture, even in the US, is mostly pursued on family farms. Consequently, there is a tension between what you need to do to serve a growing population and the myths some people have about how food should be produced.
Another aspect is the evolution in farmers’ expectations of companies like Corteva. Digital tools help absorb some of the complexity and assist in the decisions they make. Market demands are fundamentally changing, which is why I think a disruption may be in the offing.
Erik Roth: The core of disruption is business-model change. New economic models, usually enabled by technological advancement, allow different entrants to monetize a market in new ways. Where do you see that playing out in agriculture today?
Neal Gutterson: Thinking about new business models is critical but it is not the easiest thing for us. We think of ourselves as farmers’ trusted partner, and the direction we are going in is to help farmers make better choices—a more integrated business model that allows for more solution-based delivery.
One example is a pilot that addresses an underserved market in pasture and land management for rearing cattle. If you control weeds on your pasture, you can get a higher return on the beef or dairy, but if you have a 10,000-acre pasture, it’s hard to figure out where the problems are. Using satellite imaging, we can now analyze where the weeds are and the right time to treat them with weed-control solutions. So rather than selling a rancher a herbicide to treat the field, we are offering a service, a decision-support tool. To your earlier point, it is a business-model change based on new artificial intelligence tools that translate images of a farm into an understanding of how to improve the value of pasture.
Erik Roth: It’s a pretty phenomenal shift for an R&D-centric organization to adopt a digital-centric solution. How do you get a science-driven organization to start looking from the market back to come up with these disruptive offerings?
Neal Gutterson: Even more than being science-driven, the challenge is that we are a product-driven company. Pioneer, the legacy company I joined, will have its 95th birthday this year. Its initial business model was about farmers selling to other farmers. That model has lasted 95 years. There are companies that change their business models every two or five years. That is not something we do well. Whether it’s the next-generation product for crop protection or the next-generation seed product, it is mostly product-focused thinking, so focusing more on solutions and services is not easy. And it has to happen not just in R&D—we have to work with the commercial side of the business.
Erik Roth: So how do you get the commercial side, which may identify a need, to talk to the technical side that may have a solution, or a technology at least, and marry those in a way that creates something valuable?
Neal Gutterson: When you form a strategy, part of it is very concrete and part is long-term thinking. When our three legacy organizations came together as Corteva, we spent time working on our R&D strategy, based on the emerging business strategy for Corteva. We had direct dialogues with the portfolio teams and people in commercial, and we engaged with the teams doing customer and product reviews to understand the persona of the customer. Part of that was to get the R&D organization to understand that they needed a farmer mindset instead of, or in addition to, a product mindset.
Some people in the R&D organization may have never been on a farm. Getting them to think through the lens of a farmer is not so easy. So we now meet periodically with the commercial, customer-focused group and we encourage all our teams to be fanatically focused on the farmer.
Erik Roth: It’s fascinating that people who may have dedicated their lives to improving farmers’ livelihoods may have never been on a farm. Does everyone have to visit a farm now?
Neal Gutterson: Given the changes we experienced in the past year, we have started to engage with farmers in different ways. In the past, a couple of scientists might accompany a commercial representative to a farmer’s field, but now why not have 100 R&D folks participate in a visit through a video channel, walking through the field and conversing? It really brings the farmer’s experience to life. My boss told me about a conversation with one of his friends who is a farmer, where the friend used an iPad to show the view out the front of the harvester cab. That is really powerful.
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Erik Roth: We cannot ignore the reality that the pandemic has created a humanitarian and economic crisis. How has Corteva changed to accommodate this reality?
Neal Gutterson: Certain trends that had been underway have accelerated. One is virtual engagement. Our global science symposium last year, which usually has 500 people attending in person, we had 2,000 people engaged in discussing the science and the strategy virtually. We also use various sensors—water sensors, nitrogen sensors, little robots running through a field and measuring things—that give us the ability to get information remotely instead of sending 20 people into the field. And we have become more open to change, to the fact that disruption is real. Three years ago, one could argue that our business model was robust and we could ride it for some time. But when you live through a disruption like this, it changes your mindset.
Erik Roth: What specifically have you done to change the organization’s mindset?
Neal Gutterson: We needed to unify from disparate legacy companies into one R&D organization, and to do that, we needed a common aspiration and mission. So we launched our new strategy about a year and a half ago and then invested in tools to communicate and generate ownership of that strategy. Giving people the opportunity to immerse themselves in a new way of thinking has been really important. I have gone to sessions where people share the strategy and how it translates to the next level of the organization. Everyone has their own aspiration and their own way of measuring progress.
Of course, the R&D strategy is meant to enable the strategy of the business, and so we shared our strategy with everyone from the legal team to our government affairs team to the commercial organization and made sure they understood why we are doing things differently. In discussing company strategy, ten years ahead is the most various leaders could conceive of, but in R&D, ten years is less than the development cycle for some products. Connecting those views and timing between commercial and R&D was part of the permeation of this change.
Erik Roth: So it all started with a clear aspiration of where you wanted to be and then you translated that throughout the organization and assigned metrics so everyone knew what was expected and was held accountable for delivery?
Neal Gutterson: Absolutely. We talked earlier about products versus solutions and services. The aspiration says nothing about being the best at developing products. It is about being the best at creating value for farmers and delivering consumer benefits in planet-friendly ways. The aspiration is at a higher level and helps frame the basic purpose. Everyone then points back to that: How does my little piece of R&D serve that purpose?
Erik Roth: That aspiration presumably reshaped how you choose initiatives to invest in. I can imagine those discussions were intense.
Neal Gutterson: They have been stressful. We all look at change and think, “What does it mean to me? Are my skills going to be relevant?” One thing we built at Corteva is a portfolio structure, with portfolios that serve the core and then a portfolio focused on change, new business models and disruption. It’s the equivalent of a venture capital firm’s portfolio of small companies. We structured that disruptive portfolio around strategic pillars on which we agreed across the entire organization, and we added a new pillar about integrated products, solutions and services. It was key to have both a business leader and an R&D leader for each disruptive pillar.
Then we thought about what capabilities we needed at the highest level across the organization. CTOs have hundreds of capabilities and technologies they deploy, but how many of those does the organization have to be merely good at and which ones do you need to excel at to deliver your aspiration? For us, of the hundreds of capabilities, we ended up with 11 at which we had to excel, and that was a very powerful process. The following year we assessed our capabilities to see where we are on the curve. We found in some we were superior to the industry but in others we needed to improve. That may involve partnering with small companies and maybe even testing ideas out through them.
Erik Roth: So you had an organization of thousands delivering hundreds of capabilities, and you came back with 11? How was that received?
Neal Gutterson: Strategy is all about choices, and choices are great if they are your choice, right? Everyone gets a little nervous when they do not see their specialty on that list of 11. But our subfunctions have additional sets of capabilities that are critical for them, so people, if they are open-minded, can always find themselves. I am a big believer in transparency. It allows people to migrate and that can be a positive outcome.
Erik Roth: The journey you have described may be frightening to some organizations. Any advice you can give them?
Neal Gutterson: I have found building a coalition fundamental to driving change. Coming from a small organization to a large one, that was one of the hardest things to learn and appreciate. Who are the right people and how do you bring them together? Sometimes you are behind the commercial team’s thinking and have to catch up, and sometimes you may be a little ahead and need to bring them along. Bringing a new business leader into our disruptive portfolio last year proved to be a great idea, for example, because of that person’s connections within other parts of the organization.
Another aspect is generating ownership. The job is not done just because you have a one-pager that outlines the key aspects of the strategy. There are many elements that take time to drive through the organization and my successor is now taking it to the next level. One of the jobs of R&D is to envision the future sometimes ahead of the commercial organization. By putting it down on paper, it allows people to react. “Why do you think solutions are so important, R&D?”
Erik Roth: It sounds like you had to challenge some orthodoxies along the way.
The great companies will be ambidextrous innovators, able to disrupt themselves in the future while serving the core business today.
Neal Gutterson: It’s about changing people’s frame of reference. People need to embrace thinking at a portfolio level and the tension between short-term delivery to the customer next year and the long product-development cycle. Our shortest product-development cycles are probably six years—setting aside digital, which is fairly new for us—but some are 15 years. Getting people to think about portfolios of short-term and long-term, core and disruptive, and getting senior leaders to shift from project-level thinking to portfolio-level thinking.
It’s a journey we are still on. If you have a disruptive portfolio with only four projects, you may as well kill it, because the chance of any succeeding is probably close to zero. But if you build a portfolio with 25 good projects, you have a decent chance, as a venture capital firm would, of delivering outsized returns for the company. It’s easy to say, “I don’t like this project, that one is too high risk.” But as a portfolio, it’s a different opportunity. We all know that if you judge every project the same way, all the high-risk ones will be set aside, and that’s a bad outcome.
Erik Roth: As an innovation leader, what would you say are the critical skills to spearhead the kind of changes you describe around portfolios and strategy and people? Is being dynamic in the way you allocate resources important, for example?
Neal Gutterson: Absolutely. When you get to stage three in a mature product life cycle, you don’t want it to fail, but when you are at early stages, you want to learn quickly and adapt. Frankly, one of the ways we measure the health of the disruptive portfolio is by the speed of project turnover and capital reallocation. So set a target, maybe a little aggressively, about the speed of change and reallocation to challenge yourself.
Another key skill is being able to hold two divergent thoughts and approaches in your brain and in your team at the same time. This is about being ambidextrous—ambidextrous as a person and ambidextrous as an R&D organization, as a company. The great companies will be ambidextrous innovators, able to disrupt themselves in the future while serving the core today. That is where big companies are vulnerable to the disruptive change that comes from small companies.