Tech Trends 2018: Relevant Responses to Radical Changes

At Smithfield Foods, transforming the business has meant adding budget and additional staff in areas including cloud support and monitoring, program management and analytics, according to Julia Anderson, the packaged goods manufacturer's global CIO. Elsewhere, Conair's single-digit budget increase was also focused on new digital initiatives.

Increasingly, the ratio of budget to sales isn't a predetermined target but is built from the ground up, as zero-based budgeting has taken hold in many industries. “Nowhere has the interest been greater than in the consumer goods sector, where industry leaders are delivering savings that would have seemed impossible a few years ago,” according to McKinsey.

Analytics Leads Investment Areas
Like many other industries, consumer goods companies view analytics as the key to responding to rising customer expectations. That belief is reflected in their IT spending patterns (Figure 2). In 2018, almost half (46%) increased their investment in tools for insights and analytics, followed by supply chain (34%), marketing (31%) and sales (29%).

The source of those funds, however, is shifting. Earlier hand-wringing over “rogue” tech spending by the business units has become commonplace as more business applications became available via software as a service. Without the need to run software on internal infrastructure, it's been easier for business units to attain required applications without the need for IT services — or “permission.”

Last year’s Tech Trends survey reflected this, with 43% of respondents reporting that spending was migrating to the business units and an equal amount stating that IT still held the purse strings. A small but significant number (15%) even reported that the BUs completely managed their own spending.

Companies responding to this year's survey, however, offered a more traditional view: Fully 63% of respondents say IT still manages most of the spending, with just 23% reporting any migration toward the BUs — although, interestingly, 14% still reporting a full shift (Figure 3).

According to Edward Kenney, SAP's senior vice president-global head of consumer products, agribusiness, one outcome of the trend toward business units acquiring cloud services on their own has been decentralized decision-making and the increasing availability of cloud-based solutions. Companies now are beginning to combine "best of cloud" and enterprise-level solutions to enable integrated, end-to-end business processes, which changes the role of IT with respect to budgets and decision-making, he says.

“I don't think that is ever going to go back to where it was,” Kenney says. “I definitely see the business taking a more active role going forward.”

The Impact of E-Commerce
Ongoing changes in consumer shopping behavior have finally drawn CGs from all product categories into e-commerce, in support of retailer customers as well as for their own nascent direct-to-consumer efforts.

Sixty three percent of survey respondents reported an increase in IT spending directly related to e-commerce, 46% at "conservative" levels and 17% with more substantial boosts (Figure 4). The remaining 37% of respondents say the adoption of e-commerce tools hasn't affected overall spending levels.

Nevertheless, a solid e-commerce infrastructure will be essential for CG companies looking to keep pace with market trends. According to Kantar Worldpanel, while the overall fast-moving consumer goods (or consumer packaged goods) market grew 1.9% globally and 0.5% in the U.S. in 2017, online-only sales rose 15% globally and 29% domestically. About 30% of the global population now makes at least some purchases online.

Regardless of the effect on spending totals, e-commerce is clearly altering the way companies operate, with three areas experiencing the greatest impact, according to the survey (Figure 5):

• The need to develop and deepen relationships with consumers via marketing (81%), which involves such tech-heavy practices as digital marketing, content personalization, product information management and search engine optimization.
• A corresponding reworking of sales practices (61%) including customer management, account planning, retail execution and trade promotion management.
• An overhaul of supply chain capabilities (47%) covering such needs as single-product logistics, accelerated speed to market and direct-to-consumer delivery.

“This is all new territory,” says Tony Bender, former CIO and vice president of global business services at Edgewell Personal Care. “A lot of what we're doing is through partnerships, particularly in terms of pick-pack fulfillment. We're partnering with third parties that can provide that capability because it wasn't a core competence of our business.”

Going All the Way Home
While 33% of respondents identify direct-to-consumer sales as a critical component of their future go-to-market strategy (Figure 6), only 18% called it critical today — although 6% said it's already core to the business.

One word of caution to the 27% of respondents who say direct-to-consumer is not, nor will be, critical to their business: A lot of packaged goods companies used to say that about e-commerce.

Of course, more traditional support for the e-commerce efforts of retailer partners is a pretty significant adjustment in itself. At Kimberly-Clark, "We're helping our retailers build that extended shelf so that, if they don't have an item in-store, they have the capacity to deliver it or have it available for [pick up],” says Denny Belcastro, the CPG's vice president of industry and customer collaboration. “That has added another level of complexity [in order to have] the right product at the right place at the right time.”

Obstacles to Progress
Despite the acknowledged need for change, there still are a significant number of barriers slowing the adoption of new tools and technologies. While 11% of survey respondents say they've eliminated all significant obstacles (Figure 7), an array of issues challenge many others — led not unexpectedly by lack of budget and other resources (26%) and the existence of entrenched legacy infrastructure and systems (20%).

More surprising are the number of respondents who say their companies are still hampered by the lack of a strategic plan (17%) or a lack of urgency among senior management (14%).

Executives interviewed by CGT concur that changing the culture overall represents another significant hurdle.

“Many people will assume that, once we have the technology, all of our problems are solved,” says Joel Warady, chief sales & marketing officer at Enjoy Life Foods, a division of Mondelēz International. “Technology is a tool, and unless you change your processes to maximize the efficiency of the technology, it can’t do any good.”

"You are talking about significantly disrupting well-established business models," agrees SAP's Kenney. "In this environment, it may be talent and culture that emerge as some of the biggest challenges that companies must address."

The vast majority of business-transforming projects (86%) fail because of people-process issues, according to A.T. Kearney. And this stage, the ramifications from heel-dragging are high.

Modernizing the Enterprise
There are a number of common steps that companies are taking to meet these new market demands (Figure 8). They're modernizing legacy systems and adopting new technologies in equal measure (both 53%), steadily moving toward cloud-based platforms (34%) and integrating third-party apps and services (29%).

For many companies, these efforts are aimed at making the organization more agile and responsive to change. According to A.T. Kearney, retailers and consumer companies leave more than $345 billion dollars a year on the table due to their lack of agility.

Edgewell has spent the last few years consolidating multiple enterprise resource planning systems amassed through acquisitions. The company now has embarked on "Project Fuel," an IT enablement phase that takes a close look at meta-processes that drive the business.

“We are simplifying and streamlining to allow us to effectively leverage technology,” Bender explains. “Where possible, we're using more partnerships [and] leveraging cloud-based solutions. We're partnering with third parties to assist us in helping manage the overall infrastructure so that we can focus more on value-added activities.”

The scope of these efforts is wide, with sales, marketing, insights/analytics and supply chain all targets for a large portion of CG companies (Figure 9).

Kimberly-Clark is leveraging a SaaS-based cloud solution to support the sales organization by providing critical data much faster.

“Enhancements or revisions to … consumer promotion, trade promotion, pricing action, and things like that are all driven to the cloud,” explains Belcastro. “Every Friday, I can download the latest and greatest information, which is probably three days old at that point. I used to have to wait a month or six weeks.”

Priorities for Change
The wide range of modernization needs is also echoed in the enterprise areas that CG companies have identified as priorities for change (Figure 10). In keeping with the analytics focus, business intelligence is the most-cited area by a significant margin (59%). Next comes supply chain and consumer marketing/engagement (both at 44%), followed by new product development (41%), and sales & operations planning and ERP at equal levels (35%).

At Smithfield Foods, the high priorities include becoming more data-focused and analytics-driven, leveraging robotics to automate more pieces of the supply chain, and adding product lifecycle management solutions to support innovation in packaged and fresh goods.

“We're also building out collaboration so that many can innovate and learn, and then have the structure to come back and share” their experiences, Anderson says. “We could have people picking out 20 different devices to do scanning, or video monitoring, or analytics, [but] we don't want that. We want one or two solutions that really work for us and make it easy to consume for our business.”

Conair's analytics efforts have covered social media and digital marketing. "We've been doing that for over two years," says Jon Harding, the company's global CIO. "The next stage of modernizing our consumer engagement is when a consumer has a problem and reaches out to us. We're looking to modernize all those interactions."

Tools of Change
There is no shortage of IT buzzwords in consumer goods, and they're often accompanied by generous allotments of hype. But many of these buzzy tools are delivering real value to help CG companies transform (Figure 11).

Three technologies share the top tier of applications that CGs consider critical to future success: mobile applications (55%), cloud-based architecture (48%) and AI/machine learning tools (39%).

Mobile apps not only encompass marketing and social media use cases, but also consumer product enhancements. Colgate-Palmolive, for example, unveiled a smart electronic toothbrush that uses AI and a mobile app to provide real-time feedback about brushing activity.

"Everything's got to be mobile," says Conair's Harding. "E-commerce sites obviously have to be responsive-designed so they function well on mobile. We might have some products that can be controlled from phones. But, you have to be careful that you don't go over the top."

The second tier of critical technologies involves tools whose potential uses are still being determined: augmented/virtual reality and robotics (18% each), and blockchain and IoT applications (12%).

Samsung, as one example, uses VR to help consumers visualize TVs in their own homes. AR, meanwhile, has become a common sales tool in the cosmetics category, where it's used to let consumers virtually test products in stores and at home.

Robotics is beginning to spread beyond manufacturing and the supply chain. Edgewell is exploring the technology for process automation in areas such as customer service and accounts payable. 

“Certain steps in that process are very clearly defined in terms of the rule set,” says Bender. “When these conditions occur, those kinds of things can be automated. You don't need a human do them.” Edgewell already uses chatbot-style technology in service management to create a self-service experience for IT's internal customers.

Help (AI) or Hype (Blockchain)?
AI is already impacting many functions across the enterprise, but none more significantly than insights/analytics (Figure 12). Other areas of heavy application include marketing (43%), sales (30%) and supply chain (20%).

KitchenAid is among the companies enjoying material results from AI in marketing. One year after implementing AI-based social media management tools, the company reported 90% growth in its fan base and 143% growth in consumer interactions, it said recently.

Successful companies will use AI and machine learning to break down existing cross-functional teams and form new dynamic networks, leveraging insights from massive amounts of data that reside in distributed environments — sometimes in different languages, formats and platforms, according to Michael Forhez, global managing director for consumer markets at Oracle.

“In principle, we're far more capable of moving along this course expeditiously, efficiently and effectively through advanced technology than was scarcely possible only a few years ago,” says Forhez. "The question is, will we?"

These are much earlier days for blockchain, which might be why 33% of respondents called the technology “an overblown, over-hyped technology that probably has a few useful applications" (Figure 13). Still, 45% of executives said it was “a promising next-gen tool that will delivery significant business value.”

“There are a lot of initiatives underway,” says SAP’s Kenney. “I expect that, once we see early success with a few high-value applications, application and adoption will accelerate rapidly.”

Applications have varied widely, from Chinese e-commerce giant Alibaba tracking the details of production, logistics, customs, inspections and third-party verifications, to AB InBev preventing fraudulent ad campaign reporting.

Enjoy Life envisions blockchain aiding consumers with allergy concerns, the type of track-and-trace application that also appeals to Smithfield Foods to offer greater product transparency. But Smithfield’s Anderson also sees blockchain taking steps out of processes such as exporting; the company has joined several industry consortia with partners (like Walmart) exploring those possibilities.  

Shaping the Future
There is plenty of IT transformation occurring across the consumer goods industry. But many companies are finding their inspiration elsewhere.

Respondents provided a wide variety of answers when asked to complete the sentence,  "I wish my company had the IT expertise of ..." But several expressed a desire to be more like "a modern start-up" or something similar, and a number of respondents said they envied the capabilities of Google. Other tech-focused companies cited were Amazon and Apple.

Enjoy Life’s Warady admires Netflix and the algorithms it uses to determine not only what individual consumers will watch, but to deliver ads with images and keywords specifically for that viewer.

“Netflix is a cloud-based company that has built its whole infrastructure around technology," he says. "I think it has done probably one of the best jobs of delivering to the consumer.”

Delivering to that informed, demanding and technology-empowered consumer is challenging consumer goods companies to reorganize, retool and rethink almost every aspect of their traditional business. Fortunately, technology is also capable of enabling that change.

The challenge comes in crafting the best strategy to select, adopt and leverage the available solutions to become the agile, customer-centric organizations that will succeed in this vastly different marketplace.