Why CPGs Are Struggling to Keep Up with Consumers
Consumer goods companies are facing a tough new reality where owning and selling big, global brands is no longer the guaranteed formula for success that it once was. Changing consumer behavior and an avalanche of new, disruptive competitors have led to falling sales and reduced market share.
Over the last few years, many consumer goods companies have undertaken robust cost-saving programs in a bid to improve margins. While zero-based initiatives are well adopted, they can only create the funds for growth – not growth itself. Instead, consumer goods leaders need to re-examine growth strategies and build capabilities into their operating models that will enable them to deliver on these opportunities.
Reinvention is critical, but it’s not happening at the pace or scale that’s required. Forty-one percent of S&P 500 companies operating in consumer industries have either been acquired or gone out of business since 2000. Furthermore, half of current S&P 500 companies are predicted to face a similar fate in the next 10 years.
The challenge is that growth in the consumer industry is increasingly coming from more distinctive products sold by smaller players, often supplemented by experiences and shaped by increasingly strong, direct customer relationships and data-driven understanding. These are “muscles” many CG leaders have not flexed in the past, but which will be critical in the future.
The capabilities required to succeed include:
Enabling a broader range of products and services. Companies will leverage extensive ecosystems to create new propositions at speed. “Co-opetition” will multiply as companies that previously were competitors work together to deliver value they can’t achieve alone. As consumer needs shift, companies will meet demand by developing and scaling new opportunities that disrupt existing businesses — so getting comfortable with change will be key.
Using data to rapidly identify and execute insights. One of the largest changes is the broad use of analytics to achieve competitive advantage. Analytics increasingly will be required for workers to remain “relevant” and to decentralize decision-making. Large organizations will have fewer layers and use contingent workers as needs change. Small management teams at the center will use data to direct the activities of front-line employees more precisely than ever before.
Empowering the workforce. In an era of accelerated change, organizations will need to ensure that the workforces they access are able to consistently identify, learn and apply leading-edge capabilities.
Future operating models: The 7 Characteristics of Change
According to a study from Accenture Strategy (which leveraged insights from 80 leading organizations and 25,000 consumers around the world — incremental change will not suffice as a means to evolve over the next 10 years. Companies must become consumer-centric and embrace seven transformative characteristics that can deliver new mindsets and structures, ensuring economic viability in a disrupted world. They are:
1. Human organizations have a non-financial “purpose” that becomes a deeply embedded, authentic goal driving employees to double down on their commitment to the company and invest discretionary time in its success. This does not have to be a traditional sustainability or similar target, but a goal that engages employees in the societal contribution the company is making. Being human is also about empowering workers to become lifelong learners and enabling them to make the highest possible contribution to the success of the company, becoming truly “intrapreneurial.”
2. Living companies fully embrace the concept of agile working. This includes the broad use of self-organizing teams and a culture of experimentation, quickly scaling success and productively learning from failure. Living organizations have an externally aware workforce that seek to assimilate relevant ideas regardless of the source. They are places that attract talent because they become sites of industry innovation, where people can learn techniques that are useful wherever they decide to work.
3. Enhanced organizations embrace analytics and a broad use of technology to drive workforce productivity. These organizations embody an “ironman” rather than a “terminator” philosophy about the opportunities that technology offers. Vitally, they see productivity released through analytics and technology as an opportunity to create new sources of value rather than reducing employment, supporting workforce members to build new, more value-added skills.
4. An Ecosystem philosophy delivers the total value to orchestrate or participate in, rather than solely delivering from in-house capabilities. A network of relationships will enable any participating company to accomplish far more than it can alone. Ecosystems will form to deliver customer solutions, capabilities or data sharing, with each company having a clear understanding of its core capabilities and relying on others for the rest. In the future, far more value will be delivered through assembled business models rather than traditional single entities.
5. A Modular operating model allows companies to provide specific capabilities to support new business models. Modular thinking solves the “big-small problem” — namely, how do larger organizations easily accelerate the development and integration of new business ideas, start-ups and acquisitions — by leveraging internal capabilities to fill in the gaps of those teams.
6. Liquid organizations have made the move from assuming that they need to “own” their workforce as traditional employees, to thinking about using the right type of talent depending purely on the job to be done. Companies will source and manage their workforces by accessing the best talent, at the right time, to meet demand with the best type of resources
7. An Enduring operating model is vital in an era of shortened corporate lifespans. Accenture Strategy research suggests two vital foundations:
- Security of supply: Companies must be able to reliably source the materials need to make their products.
- Consumer intimacy: Companies must have robust customer understanding that allows them to continue to adapt offerings to meet emerging needs.
Companies must shift their strategies and change the way they operate or risk obsolescence. Disruptive technologies will continue to accelerate the pace of change. The future is dependent on the ability of leaders to quickly respond to change, lead and transform their enterprises while ensuring growth for the workers they employ and the consumers they serve.
About the Author
Oliver Wright is managing director and global consumer goods lead for Accenture Strategy
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