Host Intro (Gene Kim)

All right. So about the next speaker: four years ago, the team from adidas attended this conference in London and they left inspired, specifically by the presentation that Jason Cox from Disney gave. And I've been blown away by what the adidas team has done since then.

So Fernando Cornago is now VP of Digital Tech at adidas, and he's presented at DevOps Enterprise three times, describing the progression of the journey. So last year Fernando presented on the pandemic response at adidas, which included both cost control and a focus on improving their e-commerce capabilities, which suddenly became one of the most important channels for generating revenue.

This year, he will present on how top business leadership has chosen e-commerce to be a critical part of the strategy, where they will be choosing to not just compete, but, as I say, to dominate.

So this is a story with some challenges and some setbacks. They told last year about some of those challenges. In 2021, he presented with his team describing the growing pains that they had as they geared up to deliver against a strategic goal of having 50% of all revenue come through e-commerce within five years.

So at this time adidas has thousands of engineers working on creating these capabilities. He just shared with me that, due to their efforts and the support of people across the adidas enterprise, adidas e-commerce sales outgrew Nike's for the first time in years.

So I saw two days ago Fernando sitting with Courtney Kistler, who used to be at Nike. And to me it's just an amazing example how in this community, friendships and collaborations are made, and yet they still compete fiercely in the marketplace.

So I am so excited that Fernando flew here to share the story. Here's Fernando.

[Video plays.]

Fernando Cornago

And I cannot see the notes, by the way. I cannot see the lights, but this is okay. Again, I can look back.

So hello everyone. Thanks a lot, Gene and Margaret, for bringing me again. It's a blast to be here in person with all of you.

My name is Fernando Cornago. And sorry, Jason: I have the best job in the world. Seven years changing people's lives through sports.

And the first five and a half years, I was very into the foundations, growing the foundations of software engineering in our cloud strategy, our platform strategy, and operating model, our engineering expansion. But I'm a company man, and I was missing a little bit the action, so a year and a half ago I moved closer to our markets, to our business. And I could not use a different channel than our most growing channel and the most technical lead of the company, that is our e-commerce.

And it's very, very important, very transformational, because we are moving a big ship of 73 years of history into a 50% direct-to-consumer into 2025.

So I'm going to talk today a little bit about business transformation, and applying architecture and ways of working into business transformation.

And for this, I bring in virtually my colleague and responsible of half of our 3,000 users, Margarita.

We are already the top five, six mono-brand e-commerce in the world. Our e-commerce business is the size, more or less, of Puma or Lululemon entirely. And we are in that list with the likes of Apple, Nike, Zara, or H&M.

But we are more complex than them in three things, or as I would say, we are more fun in three dimensions. One is our regional expansion. We operate in 62 markets right now and are targeting 88. And you can imagine that the consumer expectations, as well as our capabilities in the U.S., are a little bit different than what we have in Pakistan or Peru.

Our scale is, I think, the most challenging in the industry. While we operate typically at a hundred-times lower order of magnitude than Nike and then Amazon, on the first two, three minutes of every of our hype drops, when we launch a limited set of our most hyped products to our members, we have a scale of 1,000 times bigger than Amazon during these two to five minutes. So imagine the load that is put in our systems.

This scale is making that every hour that our ecosystem is down, we lose on average, on a daily basis, one million euros per hour. Last year, we know that Nike in December, bad luck, when the east coast of Amazon went down, they lost more money than we in the whole last year.

And the third dimension of complexity or fun is the number of products that we merchandise. We have double, more or less, than Nike on some of our markets, but 13 times more than Zara or H&M. And not only that, we have this across 25 key sports and for every consumer: super-premium buyers and also super-value buyers, family shoppers, runners. And we need to be the best brand for each one of them.

For doing this, we deploy to production, not counting hot fixes, 4,000 times a year, with more than a thousand product and technology people, which is basically almost half of the engineering team of adidas.

Some non-negotiables to go there. One is our tech hub strategy and our hybrid location strategy. We make each one of our hubs own a technical capability globally. This increased absolutely our power of attraction in Spain, in India, in Colombia, anywhere, and removed this first- and second-class citizenship of headquarters versus tech hub.

If you go to any of these hybrid locations, because we have a hybrid remote-working policy, you don't differentiate which product, which tech hub is data, who is nothing.

Of course, we heard yesterday, we had a lot of talks about OKRs and how to distribute work. Our five-year strategy, Own the Game, that will take us to 50% direct-to-consumer has clear business KPIs on a yearly basis. We land this in the yearly planning, we land this into quarterly OKRs, and even into daily backlogs of the teams, so we are able to follow a strategy and also to pivot quickly.

As a result -- and it's not very visible in the last image -- more than 95% of our engineering workforce feel top value and top mission of what they do. That's incredible coming from an engineering workforce that used to work in the minus-one floor, aside from the business. What they are asking us, with only a 75%, they are asking us to remove dependencies to be faster and to even be closer to the consumer.

So very proud of the results of the last year. We are premiumizing our complete ecosystem for Originals with also partnership with Balenciaga, with Gucci, etc. And we have relaunched in a month the complete loyalty program for adidas adiclub, where you can now redeem your points not only by discounts, but also by access to exclusive products, by experiences with our top athletes, or even by sustainability moments with the brand.

Very proud of the green number on the bottom, where you can see that in Q1, our toughest quarter with regards to inventory due to lockdowns in Vietnam last year, we were able to react better than any other brand with a task force changing completely experience of all our channels in the lowest availability of product ever.

So this is the digital momentum, and what incremented is for the first time in years, according, we are outgrowing Nike in the last quarter, in their Q1 that is a little bit shifted than our time, and outgrowing by far our competition.

But these numbers are far away from our expectations. We are not growing as we wanted, and it's due to the perfect storm that we live in our macroeconomic, macro-political situation. Not only our inventory issues, but also data privacy restrictions everywhere, especially in APAC. When the west part of the world recovered from COVID, there are lockdowns in China all over the place. It's our biggest market, by the way.

We are the stupid -- we are the most stupid race in the world. And after the two toughest years, we start killing each other by a piece of land or for a little bit of gas in Russia. And this creates the economical situation that we have right now.

And if you zoom in, this is creating that now we are in a channel, in a situation in the company, where we are set for a bigger growth than we have. So we need to control our operating overheads, especially on the business side.

So what is technology strategy? What should we be optimized for, as Jon Smart said yesterday? For me, clearly for speed. So we need to be fast. Sometimes for us, being the second is being already late.

And staying fast. The perfect example is TikTok in China. For us, it was a channel. Livestream sales didn't exist a year ago. We were the first one in the market. It's now 30% of our China sales, which basically is 10% of our sales all over the globe. So more than 400 million euros that we would not be getting if our architecture would not have been ready to sell in TikTok in a week.

So how in this situation are we going to double our revenue without more people working on that?

And it's what our chief digital officer said: what brought us here will not bring us to the next level. And I always use Fosbury, not only because he was jumping with adidas shoes. It's because he was not an athlete; he was, for me, an innovator.

In 1968, he was the first athlete using technology. And it was a new technology. It was the first year where the people were landing on foam instead of concrete. To think and work differently. And this is what we as technology need to do: be aware of what is there and be ready to use them.

He was not the fittest, but he won the gold medal in Mexico '68. And the proof that he was not the fittest is that he never competed again.

And this is what I tell my team, and the thinking that I put my team, and this is the slide that every one of my team members is having below the pillow.

We need to stop thinking about technology and start thinking about game-changing business capabilities that allow us to grow, to engage with our consumers, without effort from our business users.

And each capability needs to be data-driven and smarter than us. It cannot be that manual slotting of content or manual taxonomy is working better than an automatic one. It cannot be that our search is not learning about the next clicks of the user.

Then, operating in 100 markets, the time where we put a capability in the market and we spend nine months to put it globally are over. So if something is working, tomorrow it needs to be everywhere.

And the last one is capability adoption or automation. We need to stop thinking about what the user only wants, and ask how can we automate this with our user so they don't need to do any manual action anymore.

And which capabilities are we talking about? I'm talking about five of them in the consumer steps of the journey.

Seventy percent is communications. So we target to automate 70% of our newsletter and behavior-driven communications to bring more users to our ecosystem.

Second, with future of content and personalization: only 40% of the content that we create global is used in the markets. And the average time of a campaign being live in a market is four days. Why a family shopper cannot see the back-to-school campaign for a month? Why a running shopper, only a running shopper, should see the campaign about adidas about bras and size and feet? That doesn't make any sense. So this is going to be the biggest disruption.

Improving search and recommendations. Our customized recommendations for our most frequent and premium users are converting 900% more than the normal recommendations for our users.

Last but not least is the checkout experience. So it looks commodity: you buy and you click. We are only converting 20% of the people that create the basket. So imagine in a physical store you go with your stuff and only one out of five is buying. If we convert 35% of them, our targets for 2025 are done. Are done.

So basically we see that now with one-click payments, with Apple Pay, with Google, and buy now, pay later payments, we can reach up to 50% conversion in the lower funnel.

And last but not least, our internal capability for buying and trading. We saw the Target team on Monday. It's very important. We cannot afford to have a product -- our digital ecosystem is our biggest, most important, and our most expensive store in the world. We cannot afford to have problems without inventory, in products not converting, or campaigns not converting.

So I'm going to talk about what we are doing architecturally and ways of working.

Architecturally, and thanks to our architecture team to come with this idea, we have come with a very easy concept that is our capability diamond. So a business capability is composed of our consumer experience for our consumers, about a lot of back-end capabilities provided by different teams, and it's at the end creating an experience for a business user. Ideally automated.

Imagine green sneakers. You have the experience, you have back-end capabilities on our application, our dot-com ecosystem, our social ecosystem, on our own channels, our supply chain, and then a market can enable or disable it depending on the strategy.

So we are moving from an architecture of headless customer experiences and out-of-the-box admin based on toolset into an intelligent, what we call ecosystem. We need to put the name on it, and now we're creating a survey in the company to put the name.

Where we have an intelligent ecosystem, first of all it's global. Through DSL technology, same code with 88 different configurations in the markets that the markets can touch.

It is decentralized. So the team in charge of a business capability for a user is in charge of the business capability in the micro front-end admin environment.

It is evolutionary. The way that you create content right now is not how you create content in three years from now. So now you create content for the position one. Tomorrow you create content for the runners. The day after tomorrow, you create content for the women runners, and the content is going to be there until it's converting more than 2%.

So this is the mindset. This is how, through data flows and real-time data architecture, we can create smarter experiences.

And last but not least: how is this for our ways of working? Thanks to us moving into microservices and micro front-end from the last three years, we are now able to change our operating model for a business transformation.

So our tech transformation was enabled by asking in front-end and some back ends, while our business transformation is on us thinking consumer steps of the journey, so we have teams. And this is really optimizing for speed and getting closer to the consumer.

Every engineer is aligned, no matter if he's working on front end or back end, with a business metric, with a business goal, in reaching a consumer, converting a consumer, serving the consumer, etc.

And just for free, and just by chance, this alignment is also aligned with our business users. So we can really accelerate the transformation together with them.

To finish, I brought virtually my friend Margarita. She is responsible of all the business operations of e-commerce, as well as consumer service, and she's going to talk about this experience in our most complex sale of the year. It was in August. It was our Hype Day, and during 32 hours across 60 countries, we launched continuously drops and raffles of our most wanted products.

Reaching 5 million requests per second in our systems, 85% of them being bots for reselling afterwards. We want to allocate the products in a fair way to our most loyal members, with 50 dimensions around allocation and setting out of 2,000 nodes distributions and the retail stores, etc., in order to provide and deliver the first shoe in less than an hour to the first consumer.

All this in a complete new ecosystem, because there was not software in the world that is giving us the scale that we needed with these numbers. So let's hear Margarita.

Margarita

In essence, we are running our virtual store, which is also our number one store. And our ultimate goal is to make sure that we offer our consumers a full range of products that we have available in our business, and that we offer the best consumer experience before your order and after.

And of course, this is easier said than done, right? This is also where Fernando and tech teams are really our strong partners. And I will give you an example how.

This August, we executed Yeezy Day. It was our biggest one-day sale, which generated 210 million in under 30 hours, and it was executed.

Now, the biggest part of workload was operations teams. Used to be, imagine inventory. Inventory is replicated across several systems, which means that teams had to manually reconcile inventory snapshots, doing it sometimes in Excel.

And after the drop, they had to manage the backlog of orders. And unfortunately, we had to cancel quite a number of orders because we oversold. Which means that we showed the stock which we no longer have.

It's really a negative consumer experience. Imagine: there is a shoe that you really want. You sign up for the drop. You get selected. Your spirit is elevated. You pay. You wait for the shoe for a week, and after a week or ten days, you receive an email that, unfortunately, your order was cut. Imagine that.

So with a new technology and the new tooling, inventory replication is automatic. It's done once. There is no manual work involved, and there were zero discrepancies.

My team woke up the next day after the drop, after the Yeezy Day. They came to the command center, and they were like: look, we are looking strange. There is no backlog to manage. Are you sure things are right?

This is a great message to receive.

Fernando Cornago

Well, it's a pleasure to hear a business user talking about this.

Just to close, Gene asked me, what will you tell Fernando of 2017? So four things.

First of all, enjoy what you do and follow your passion, even if it's costing a lot of gray hair.

Second, in tech, for me focus on value and speed. The race is coming. So the biggest efficiencies you are creating if you focus on value and speed.

Impossible is nothing. So don't feel threatened about software vendors with ten times more engineers than you, because for your battles, for what you want to be the best, you have something that they don't have: passion and focus.

And last but not least, an improvement point. For me, be aware of everyone's culture and everyone's fear to change. Try to bring them into the journey. Do whatever it is so they feel that they are part of it.

But understand and accept that there is going to be one person wanting to be the last man standing in a data center with three machines.

So, thanks a lot.