For investors, consumer products were a safe bet: a shelter in bad times, a reliable source of growth in better times. The good news for companies is that this dynamic lasted for a very long time. The bad news is that it ended a decade ago — and the reality of the current COVID-19 pandemic has only exacerbated that.
In the previous blog, I discussed three phases related to COVID-19:
- Now, when you must focus on resilience, triaging short-term needs to ensure business continuity and address rapidly changing shopper, consumer and customer expectations. Which enhanced commercial capabilities are needed to contain the impact on relationships with these stakeholders?
- Next, when you should focus on readiness, accelerating your transformation agenda to prepare for the new normal. Which enhanced commercial capabilities will shoppers, consumers and customers value most as recovery begins?
- Beyond, when you will focus on resurgence, repositioning for marketplace recovery. Which enhanced commercial capabilities will help ensure long-term value creation and enterprise resiliency in the face of potential future crises?
Before, businesses had access to capital to make mistakes, draw in talent through profit-sharing and predictably increase volume quarterly through promotions. The COVID-19 crisis has highlighted how “slow and steady” is old and busted: the market demands “agile and transformative,” while many companies in the sector are still trying to operate within a framework that doesn’t work.
Three questions to ask yourself
Responding to the COVID-19 pandemic has shown that one new hire, one new technology or one new process won’t cut it. Executives I talk to know that they need to simultaneously respond to the now while positioning the organization and working capital to prepare for next and beyond. Yet many don’t do it.
No matter how smart or innovative you are, that doesn't count for much if you are not devoting the time, money and discipline toward transforming intentions into reality.
Ask yourself three questions each day:
1. How are you spending your time?
In this quarter, there are 714 working hours. While a majority of your organization is allocating time to respond to the challenges of now, how much time are you putting toward transformation and innovation that will define your organization’s success during next and beyond?
A day? A week?
Unless you’re empowering your organization to spend at least a day each week on next and beyond topics, how can you say that you’re paying attention to what will happen beyond now?
In annual planning working sessions this year, multiple clients showed their obsession with speed, their primary takeaway from their digitally native competitors, even after the COVID-19 crisis changed everything. In addressing the challenges of now, speed should be paramount; however, as you lead your organization through next and beyond, speed will likely narrow your vision if you don’t know where you’re going.
Winning in the market during next and beyond takes time. You need to structure your time differently to think about the questions to be addressed in order to continue to grow in uncertain times.
2. Are you looking forward or backward?
You’re likely thinking about how to grow in uncertain times through a lens of what happened, not what might happen. The COVID-19 crisis makes it clear that you can’t prepare for next and beyond except by extrapolating shopper, consumer and customer reactions during now.
While moving forward by looking backward may have worked before, COVID-19 has changed that. Three new consumer shifts have become the primary focus for commercial organizations:
- Consumers don't have the emotional energy to engage with or recommend brands as they have before. With more coveted brands being out of stock, consumers are trying new items, which may impact future loyalty.
- Media consumption habits are changing, with consumers watching the news more than other programming and leveraging digital platforms to livestream education, training, cooking and other content.
- Health concerns and shortages have prodded consumers to buy in bulk and leverage non-brick-and-mortar channels and other solutions for shopping.
While it is important to look backward and learn from history, if you are going to succeed during next and beyond, you must look forward.
3. How are you allocating your budgets?
Despite the continued introduction of next-generation technology, you’re likely allocating the majority of your IT budget to what was needed, instead of investing in capabilities that will be needed. More than 70% of consumer products’ IT budgets are spent on operations and maintenance, leaving only about 30% for development to enable new capabilities.
This is a simple math equation. You have to find a way to shave 40% out of your running costs during now if you want to construct something different for next and beyond.
Whether it is brand equity investment, online grocery, direct to consumer, collaboration with retailers or many other commercial-related marketplace changes, technology-enabled change will play an important role during next and beyond. Changing shopper, consumer and customer expectations will surely require increased technology investment.
To prepare for next and beyond, you need to study where you want the money to go and move it there in advance, guided by data. Companies that have a “zero-based budgeting” perspective — in which every year is fresh — are often focused too narrowly on costs. While the total available FY21 budget will matter, what will matter more during next and beyond is looking at the variables of cost structure and shifting available resources to support technology-enabled change.
Facing a tight budget, you should take a hard, data-driven look at your portfolio of initiatives and simplify. Examine where you are devoting time and money compared with changing commercial capabilities that the response to COVID-19 demands, and funnel them into three budget categories: now, next and beyond.
This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Member firms of the global EY organization cannot accept responsibility for loss to any person relying on this article.