Consumer packaged goods (CPG) companies often operate on long held implicit orthodoxies—certain “truths” that dictate how they approach consumers, and how they make decisions. Now, in an increasingly volatile age, there are a number of new truths.
1. The region as a center of gravity is dead, or dying.
Classically, CPG companies have a number of large regions, with a full organization reporting to the CEO. In the new world, this is neither effective nor is it efficient – particularly in times where companies are driving cost control to fuel growth.
While certain activities need to be managed at a regional level, many CEOs believe that success requires staying as close to the consumer as humanly possible. Deciding which markets should report to the CEO may in the future depend more on a Pareto 80/20 analysis of their importance, rather than their simple geographic proximity. The implication being that this list will regularly change, as the facts on the ground change.
2. Instead of an emerging versus developed market approach, companies should define “archetypes”
Clustering markets by type aims to help CPG companies solve the age old problem—that developing unique approaches to every market is too expensive and complex; while developing one-size-fits-all might be cost effective, but averages out to a value proposition that is compelling to neither customer nor consumer. The potential rewards? Expanding reach in new markets and segments, reducing the cost of implementing new capabilities, accelerating speed to market, and enabling margin improvement.
3. Three’s a crowd—agility means being confident of two layer decision making.
In a world where new markets and services are created seemingly overnight, agility is the characteristic that separates winning companies from laggards. Now companies have to learn to fail fast. So why two layers instead of one or three? Because one layer recommends and one approves and no more is required.
CPG companies also need to be much more prescriptive about which decisions get made at each layer of the organization. In a fast-moving environment, clarity is crucial for reacting quickly.
4. Outcome-based, cross-functional integration is key.
Today the consumer experience that creates value is heavily dependent on interactions that weave in and out of functions. Thanks to digital, consumers are no longer entering offers through the old paths. Now they want to buy products when they first see an ad. So every marketing effort is converted into a point of sale. Keeping these two commercial functions separate therefore only slows down growth opportunities. And creates frustrations for consumers.
It’s important to examine each step of the consumer experience from their point of view instead of an internal one; effectively reverse engineering the business outcome from its underlying capabilities and inputs regardless of where they originate.
5. What’s important about digital is execution.
The focus of digital investment for many organizations has been the rush to design those products and services that make up the consumer experience, led by marketing, and, to a lesser extent, sales. Operations is sometimes the third wheel, brought in after the fact to execute whatever experience the commercial functions believes will help them win in the marketplace.
What marks those ecosystem and consumer experiences that are successful and scalable, is that they work. Which means ensuring that the operations side of the business moves hand-in- hand with the commercial side. To ensure this integration, some have gone down the Chief Digital Officer (CDO) route while others focus on the role of the digital CEO in driving collaboration around key platforms like mobile, or analytics. Either way, digital execution matters.
CPG companies face a seemingly impossible task: constructing an operating model that enables them to effectively target well over seven billion individual consumers with strong local identities within a world that continues to rapidly globalize. All while facing shareholders demanding year-on-year cost efficiencies. To tackle this challenge, companies need to re-examine some of the untrue truths that they currently hold so dear. The end result: operating models that are truly agile.