Job Uncertainty
Consumer goods (CG) companies are by nature very stable, right? So their executive leaders should also be quite stable. Wrong! In May of 2006, Booz Allen Hamilton published a report on CEO turnover for the year 2005. It showed that the "consumer staples" and "consumer discretionary" sectors placed first and second among all other industries in CEO turnover. The report also specified that CEO performance was a factor while seniority of CEO and merger and acquisition (M&A) activity were not.
CAUSE AND EFFECT
Consider for a moment that consumer staples companies were a safe haven for many investors during the recession earlier in this decade. The discretionary CG businesses were down for a time, but by 2005, the market had improved to pre-downturn levels.
Consider for a moment that consumer staples companies were a safe haven for many investors during the recession earlier in this decade. The discretionary CG businesses were down for a time, but by 2005, the market had improved to pre-downturn levels.
It is interesting that despite both sectors reviving at different times they have taken the top two spots in CEO turnover.
Both sectors apparently fought for share of wallet during the year. Both were apparently disappointed with the results -- enough to cause them to seek new leadership.
Consider also that the primary levers a CG company can use to improve financial results are:
- Reduce cost
- Innovate at the product level with new products and categories
- Customer and consumer focus -- steal share from competitors by being more customer and consumer-centric. Enhance the consumer experience as a competitive advantage.
It is safe to say that during the lengthy economic downturn there was a great deal of focus placed on cost control. Many efforts were made to cut cost -- efforts that were in addition to those already taken in previous decades.
Some opportunities may still exist, but we don't believe that CEOs were fired because of their inability to control cost. Also, the financial markets favor growth over cost cutting so this lever doesn't seem to be a primary cause.
On the other hand there is innovation. We don't believe that this has been a dramatic factor. Innovation has not been substantial in CG for decades.
When it does happen, it is in the form of adding flanker products. Some sectors such as consumer electronics have seen some recent innovations but it isn't as though the winners and losers in 2005 were decided by having or not having the latest thing.
FOCUS IS KEY
This leaves customer and consumer focus standing as the primary explanations for CEO churn. If investors intentionally sought out consumer staples companies during the economic downturn, then as the market turned around, they would logically migrate out of those stocks as the market rebounded and other more attractive options emerged.
This leaves customer and consumer focus standing as the primary explanations for CEO churn. If investors intentionally sought out consumer staples companies during the economic downturn, then as the market turned around, they would logically migrate out of those stocks as the market rebounded and other more attractive options emerged.
The opposite holds true for the consumer discretionary sector. Investors fled those stocks during the downturn and have much higher expectations now that consumers are once again opening their wallets.
The issue is that in a good economy the "consumer pie" hasn't expanded enough to keep all the investors in all the CG companies achieving suitable results. Therefore, they must invest in capabilities that will capture a bigger piece of the pie from their competition. Only then will the growth occur that investors seek and which will take the pressure from the CEO.
As it is, however, CEOs had a bad year in 2005 because they continue to engage in the same behaviors while expecting different results. We expect that 2006 will yield the same results.
ACHIEVING JOB SECURITY
Here are some thoughts on how consumer goods CEOs need to get more involved with activities that will drive growth, steal share, increase consumer loyalty and execute better with retailers:
Here are some thoughts on how consumer goods CEOs need to get more involved with activities that will drive growth, steal share, increase consumer loyalty and execute better with retailers:
- Create a better linkage between demand creation and demand fulfillment. This will improve product availability, enhance promotions, and improve retailer loyalty. The linkage improves execution and enables thinking in scenarios across the entire chain. In a joint CGT/Gartner survey we conducted almost a year ago, 95 percent of respondents said that category management and customer planning should be linked, but we estimate that fewer than 10 percent actually have done so.
- Improve customer analytics such as category management. All of your competitors are also using spreadsheets to manage the top three or so customers. A whole new automated paradigm is needed in order to create better and more actionable insights and do so much deeper into the customer base.
- Improve retail execution by linking customer plans to retail activities and giving the retail force better tools to understand retail opportunities, execute them and capture insights at retail for a broader sharing of information.
- Move beyond transactional approaches to advanced modeling. Brand managers as well as retail account managers need better tools to simulate cause and effect relationships between their promotional activities.
In the end, CEOs need to champion new approaches. Making an acquisition or two can hide the lack of organic growth -- for a while -- but the consistent thread is automation and deeper analytical capabilities. Otherwise the churn goes on. CG