<p>Because every CPG organization is unique, digital transformation can be achieved through multiple pathways..</p>
Every CPG organization is in the race to transform digitally. This did not happen by chance, but rather as a consequence of two forces that trace their beginnings to the advent of digital in the early 2000s: the rise of the digital consumer and, by extension, the mass adoption of the digital marketplace. In many ways, CPG was at the forefront of this revolution as the industry hurried to meet its consumers through e-commerce and digital advertising while monitoring social media engagement and online reviews.
Fast forward to today and it’s often thought that continuing to transform digitally must be achieved in sprints: modernizing every workload, grasping for every piece of data, or enlisting the latest point solutions.
In a recent article, Dr. Venkat Venkatraman, Professor of Management at Boston University, argues that digital transformation is such an overused term that it “loses its power to be the glue that drives organizations forward.”In fact, the marathon is a better metaphor: a series of strategic investments and actions that combine to help drive a unique organizational vision. It’s a long-distance race that includes reinventing the business and reallocating key resources. Importantly, it “starts with steps to recognize and respond to inherent traps that prevent change.”1
Digitization and digitalization are enormous initiatives, and there is no one-size-fits-all solution. Because every CPG organization is unique, achieving digital transformation can be reached by multiple routes or pathways.
Research has found that while these pathways represent a critical pursuit, it’s not easy—only 33 percent of organizations successfully meet the challenge. But those that do tend to make big strategic bets and are rewarded with significant revenue growth and 14 extra points of total shareholder return, on average.2
1.“How to Make Digital Transformation More Than a Catchphrase in Your Organization,” Venkatraman, 2022.2.BCG, Digital Strategy Roadmap.
In the early stages of digital transformation, sales and marketing organizations within CPG took the lead, driven by the need to adapt to a disruptive change in consumer behavior. Meanwhile, teams that were focused on product Quality, Regulatory, and Safety—all hugely important to the consumer trust of the brand—remained at the back of the pack. These areas were traditionally viewed as back-office, risk-averse cost centers. The way CPGs were conventionally structured, and because of insufficient technology investments, they became siloed.
Today, Quality, Regulatory, and Safety are moving to the forefront of product development efforts. They’ve grown more substantive to the core of what a CPG company is and the value proposition the brand presents to customers. Consequently, they are now an essential part of CPG digital transformation. There is almost nothing that Quality, Regulatory, and Safety do not touch in the CPG industry: consumer experience, brand trust, product differentiation, innovation speed, and cost of quality (COQ).
Quality, Regulatory, and Safety are critical for differentiation, especially in an industry like CPG where the barriers to entry for new competition are lower than in the past. They also need to be connected.
In CPG, speed is paramount. Given the rapid pace of digital, cloud, and decision-making—along with ESG initiatives and demands for sustainability and transparency—these disciplines can no longer remain fragmented. It’s become a necessity for CPG organizations to bring Quality, Regulatory, and Safety closer together as they assess the next stage in the digital transformation race. For example, product advertising claims drive product differentiation and consumer value, but claims typically demand specific product and raw material requirements. This then requires transparency, not just through R&D and manufacturing, but all the way along the supply chain. Similarly, changes to regulatory rules, like the New York State dioxane restriction, require transparency and collaboration throughout the organization and supply chain.
As on any journey, obstacles and hazards are common features of digital transformation in the CPG industry. Having an awareness of these while keeping an open mind allows CPG leaders to better navigate the twists and turns so that transformation efforts don’t run off the track.
Another trap is overarching: CPG leaders often continue along a digital transformation pathway with the right intention but either bite off more than they can chew or don’t invest in the resources required to make a measurable difference. It’s important to find the balance between starting too narrow, where the effects are negligible, and going too broad, where any adverse effects can turn into a major setback.
While speed is essential, true north for every CPG organization is striving for consumer- centricity. This provides a valuable lens for any pilot that leaders undertake and prompts questions like “Does this digitalization pilot help us be more consumer-focused and provide a better consumer experience?”
As an example, for any CPG organization, manufacturing represents the lion’s share of the company infrastructure. Chief supply chain officers have many competing investment priorities. Yet, when considered from a true north perspective, product quality rises to the top as the only direct impact on consumer experience. Investing in a pilot that helps the manufacturing organization make product quality a top priority could have an enormous benefit for the brand.
For a pilot to be meaningful, you will want to aim for critical mass, where results from testing will be compelling enough to indicate success or failure—a pilot with a handful of people in a $50B organization will not be as effective as a 250-person pilot in multiple geographies across a meaningful percentage of the business.
We will now show you three examples to demonstrate how you can launch a successful pilot that starts with a portion of the business that can bring together the disciplines of Quality, Regulatory, and Safety in a consumer-centric way.