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What’s Next for Consumer Products Companies? Navigating Uncertainty in 2017

 



​Executive Summary

As consumer products (CP) companies face changing consumer needs and evolving paths to market, one thing is clear—the future is uncertain; however, the right leadership and strategy will focus on key areas that remain controllable. Based on in-depth discussions with executives across CP companies, as well as our experience as advisors on leadership and succession, we have identified key areas of focus and provided guidelines for tackling them. As the competitive stage resets, it’s time to invest strategically, maximize competitiveness and recognize that talent comes in new forms.

INVEST FOR IMPACT

The Consumer
CP companies need to improve their understanding of consumers by investing in consumer insights, strengthen their emotional connections to consumers through a wide range of touchpoints and optimize the customer experience by digitalizing the enterprise.

Data and Technology
New technology should be a critical investment focus over the coming year, including the digitalization of internal processes, the linkage of marketing and information technology, programmatic buying and data-driven production.

Innovation and Research and Development (R&D)
CP companies need to make innovation more strategic and R&D more consumer-centric and commercially oriented.

REGAIN COMPETITIVENESS

Increase Agility
With ever-changing economic, political and business trends, CP companies need to simplify strategy, speed up decision-making, reward risk-taking and execute their plans as flawlessly as possible.

Improve Margins
In an environment of sluggish growth and economic uncertainty, CP companies should think like activist investors, with an unrelenting focus on cost and lean execution.

Focus on Growth
CP companies should continue to focus on growth via the breakdown of functional silos, increased coordination and the build-out of mergers and acquisitions (M&A) and venture capital (VC) capabilities.

SECURE TOP TALENT

Redefine Leadership Needs, Roles and Talent Acquisition
New talent requirements mean CP companies need to redefine key leadership experiences and competencies, think creatively and inclusively about where they look for talent and, where necessary, create new roles for that talent.

Reshape Cultures and Careers
The best CP companies will not only attract but also engage and develop great talent through strong retention strategies. These efforts will include reshaping a culture of legacy brands and creating compelling career paths for “outsiders.”

    

Invest for Impact

INVEST IN THE CONSUMER
Without a doubt, consumers play an ever-powerful role in the fate of brands. CP companies need to invest in improving their understanding of – and their connections to – those consumers. Winning companies:

  • Invest in consumer insights. Getting and staying in front of the consumer is key to demand generation. Companies need a very strong external orientation and the ability to leverage data and analytics, converting them into actionable consumer insights.

  • Invest in digital to optimize customer experience. CP companies are digitalizing functions across their enterprise to optimize customer experience – be it channel (e-commerce), marketing, sales or supply chain. Additionally, they are using media in a fundamentally different way.

  • Invest in building emotional connections with consumers. With the deluge of information available to consumers (some true, some false), the task of winning their hearts and minds is more challenging than ever. Successful companies recognize this, and invest in a wide range of touchpoints that enable them to build emotional connections with their consumers.

“How consumers consume media fundamentally impacts our brand building model and is shifting significantly. Television and traditional media are no longer effective; mobile and digital are the new reality. We’ve moved from 5% of our media spending on digital five years ago to over 40% today.”

INVEST IN DATA AND TECHNOLOGY

Most CP companies are looking hard at all of their investments in technology, including the digitalization of internal processes, the linkage of marketing and information technology (IT), programmatic buying and data-driven production. It appears that new technology will be a critical investment focus over the coming year. Winning companies look to:

  • Invest in increasing data and analytics capabilities. Companies now have affordable access to extensive consumer data and should use that data to target customers more efficiently and effectively via actionable insights, because, as one executive said, “If you don’t properly leverage data, you will lose control of the consumer.” These capabilities are not limited to external insights, as many CP companies are also working on major transformations in their internal systems, such as data-driven production, programmatic buying and improving the link between marketing and IT.

  • Invest in underlying technology. CP chief information officers (CIOs) are charged with managing costs while trying to enable the innovation emanating from the explosion of data, e-commerce, insights, social media and digital technologies. Investment in practical and integrated technologies will allow companies to move quickly, experiment boldly and execute on big ideas. Unfortunately, CP is an industry laggard when it comes to adopting and investing in updated technology.

  • Invest in e-commerce. In most CP companies, e-commerce is still a wildcard. However, there is no doubt that it is becoming the new reality for many. As a result, we believe e-commerce will be a game-changer, particularly in the US.

  • Invest in data security. With more data, constantly expanding consumer touchpoints and interconnected supply chains, CP companies need to ensure that data security is a top priority.

“Digital and data… are absolutely central. We have been investing heavily for almost four years in digital and big data, and today we have capabilities that are important and that are changing our way of doing business, both in traditional sales through a sales consultancy and in direct sales to the consumer.”

“In this aspect, data management, big data, digital, programming, etc. come into play as tools that allow us to be more logical, more accurate and less dispersed in our brand activation.”

INVEST IN INNOVATION AND RESEARCH & DEVELOPMENT

As demand for more sophisticated products and services grows, and competition intensifies, a focus on innovation and R&D is more important than ever. Winning companies look to:

  • Invest in innovation capability: Innovation is critical to success. Companies now realize the vital importance of putting top talent in their innovation group while also ensuring the group is inextricably linked to the company’s vision and long term strategy.

  • Align R&D strategy with the business. R&D in the past has often been focused on scientific advancements but must now focus on and respond to consumer trends. Winning companies are therefore shifting R&D from a science-led to an insights-led approach.

“It was a difficult transition for us to move from science leading the R&D approach to insights leading the science; it’s now more about elevating the process and working closer with the business on accelerating new products.”

Regain Competitiveness

INCREASE AGILITY
In the face of fast-changing consumer and customer needs as well as smaller, nimbler competitors, CP companies are recognizing the need to become increasingly agile. Winning companies:

  • Reward risk. As one leader noted, “To reinvent ourselves, we empowered our team to take more risks, use a ‘test-and-learn’ approach and challenge the status quo.”

  • Simplify. As winning companies work to disrupt themselves, they look to reframe their strategy, structure and to become nimbler and more connected. Additionally, companies look to increase the speed of decision-making and focus on logic and reasoning rather than getting bogged down in reams of data. Speeding up strategy development in this way “often involves restructuring to allow for collaboration and new business models,” one executive told us.

  • Execute flawlessly. The ability to drive change while executing strategies and programs flawlessly will be essential. Yet “this is tough to do in 100-year-old companies with established processes and business models,” another CP executive explained.

“From a strategic standpoint, we’re adopting a two-pronged approach to the business. We need to effectively and efficiently run our core business, as it’s our bread and butter. This is our big brands that need to generate reliable, continuous returns, and we can’t falter. At the same time, we need a bunch of ‘small engines’ that are going to deliver our future growth. To be successful with these businesses, we need to be agile and entrepreneurial, and disrupt both ourselves as well as the marketplace. These small engines need to operate at a different cadence with different business models and not be shackled or burdened by the ‘mother ship.’ In this way, larger consumer companies can emulate their smaller competitors’ success.”

IMPROVE MARGINS

In an age of economic uncertainty and sluggish growth, companies recognize that a focus on the bottom-line can make the difference between success and failure. Winning companies:

  • Think like an activist investor. There is no escaping the impact of 3G Capital on the industry. 3G has shown it can earn a 30% operating margin – while historically, CP companies have only delivered 15%. “As a result, 30% is the new bar we’re all striving for.”

  • Focus on cost. CP companies are now laser-focused on cutting costs to free up money for reinvestment while improving margins.

  • Practice lean execution. CP companies are streamlining processes and simplifying organization design. One leader shared, “It is vital in 2017 to work successfully on revenue management, portfolio optimization and promotional effectiveness, i.e., on all the factors associated with pricing, to minimize the impact on the consumer and also to maximize profitability.”

“Our focus is on cost efficiency and investments, being cautious with spending and obsessively seeking to reduce every penny in the whole business chain. With this, we have tried to prevent the macroeconomic scenario from really affecting our results. Every penny needs to go further than ever before.”

FOCUS ON GROWTH

As companies struggle to compete in volatile economic and political environments, with higher commodity prices, ever-changing consumer needs, and increasingly powerful retailers, the focus on growth is stronger than ever before. Winning companies need to:

  • Break down functional silos and increase coordination. Creating an integrated strategy is key to success, as it provides an end-to-end view of the business and a focus on long-term results rather than short-term targets. This requires “an important organizational change to work with the best talent in smaller teams, creating more agile, less hierarchical and more collaborative integrated organizations.”

  • Build out M&A and VC capabilities. As many companies struggle to drive organic growth, the acquisition of high-growth brands is a priority. As a result, companies are increasingly investing smaller, nimbler players, as well as creating their own VC arms.

“There is tremendous pressure to grow revenues. We’re under pressure from agile and scrappy start-up and e-commerce businesses who are stealing share.”

“Just because growth is elusive, that does not mean it’s impossible. All you have to do is look at the small, high-growth companies who are killing it. They are entrepreneurial, more innovative, and they’re winning the battle of agility.”

Secure Top Talent

REDEFINE LEADERSHIP NEEDS, ROLES AND TALENT ACQUISITION

As companies look to the future, those that are able to find fresh talent and infuse innovative thinking into their organizations will lead the pack. Winning companies must:

  • Tackle new challenges by creating new roles. A few roles in particular are in growing demand, including the chief revenue management officer, the chief growth officer, the data and analytics officer and the consumer insights leader. With “more access to data and advanced analytics than ever before,” the latter is especially important, as “companies risk being paralyzed by the deluge of data.” These transformational roles are responsible for applying judgment, critical thinking and reasoning to the surfeit of data, as “data alone won’t provide the answer.”

  • Think broadly in the hunt for talent. Given the rise of new leadership needs and roles, CP companies are “shifting fundamentally what we look for in talent,” an executive said. Many emphasize their desire for more flexible talent. “We know that the most adaptable are the winners, because the only certainty that we have in this environment of uncertainty is that changes will keep coming.”

  • Redefine leadership needs. Existing consumer leaders “were groomed for over 20 years,” one executive explained; these individuals “make Wall Street comfortable.” However, the consumer industry today needs “a new leadership mindset.” It needs leaders who are ready “to respond to the future, innovate, take real risks and invest in new ideas.” New leaders therefore
    need to be hired into the top ranks who can focus on data and e-commerce, evolve the marketing and brand management organizations and challenge the CEO and status quo. Many of these will come from outside of CP.

  • Ensure they have a multi-year succession plan in place. Proactive, deliberate and ongoing succession planning allows companies to assess internal and external options, mitigate critical risks, improve CEO and Board effectiveness, and engage and develop top talent.

“It is tough to teach an old dog new tricks, so I expect many of these new leaders will come from outside the industry.”

“The odds are that the 30-year employees are not well-positioned to help usher in the future. They just can’t see the new realities around them. I often tell people, it’s like asking a fish to describe water. You need to bring species from outside the pond to bring a fresh perspective.”

“Our profile is changing. No longer am I focused on Northwestern or Harvard MBAs. Rather, I’m looking for talent that can roll up their sleeves, people with an entrepreneurial and creative flare, and importantly, people with critical thinking and reasoning skills. Tomorrow’s talent needs to be agile, hungry and focused on continuous learning, with a tireless work ethic.”

RESHAPE CULTURES AND CAREERS

Successful companies know that simply attracting great talent is not enough – it is equally important to ensure that this talent stays engaged via compelling career paths and has a sense of belonging due to an inclusive corporate culture. In addition to attracting top talent from diverse backgrounds, winning CP companies:

  • Create compelling career paths for “outsiders.” As CP companies become future-ready, they will hire more digital and data natives, as well as people from other industries, such as software or information technology. To engage these individuals, CP companies need to allow for flexible and non-linear career paths, while at the same time creating well-rounded experiences for their existing talent.

  • Have a strategy in place for new acquisitions. As CP companies ramp up M&A and VC activities, retention of the new talent they inherit will be key to preserving their acquisitions’ entrepreneurial and innovative spirit.

  • Reshape culture. For traditional CP companies, existing corporate culture slows down decision-making and makes it difficult to compete. Using an old playbook for new problems is not working. There is a powerful need for a change in both cultures and mindsets to support the industry’s evolution. Further, great talent increasingly comes from diverse industries and backgrounds, highlighting the need for an inclusive environment.

  • Develop and promote inclusive leaders. Forward thinking CP companies stand out because of leaders who see the value that diversity brings, foster inclusive cultures and exemplify behaviors that instill a sense of belonging among employees. Ultimately, they recognize that the factors that brought companies where they are today may not be the ones required to take them where they need to go. It will be essential to bring in inclusive leaders with culture-challenging mindsets, who will be key components of a successful, competitive and resilient company.

“From an organization standpoint, we need to change our culture. We can’t do what we’ve always done… The world is changing around us, and we need to change with it.”

RUSSELL REYNOLDS ASSOCIATES CONSUMER PRODUCTS PRACTICE

  • We have conducted more than 1,600 consumer products searches globally over the past five years across the full spectrum of functions spanning boards, CEOs and the C-suite.

  • We are trusted advisors to leaders of some of the most successful consumer products companies around the world.

  • Our work encompasses board of director searches, senior executive searches, succession planning and leadership advisory assessments.

AUTHORS

ANDREW HAYES co-leads the firm’s global Consumer Products Practice and is a member of the CEO & Board Practice and Leisure & Hospitality Practice. He is based in Houston.

SEEMA KATHURIA is a leader in the Consumer Products, Leisure and Hospitality, Board/CEO and Corporate Officers Practices. She is also a member of the Diversity and Inclusion practice. She is based in Chicago.

HARSONAL SACHAR is global knowledge lead for the firm’s Consumer Products Practice and Diversity & Inclusion Practice. She is based in Toronto.

MALLORY SAMSON is global knowledge lead for the firm’s Consumer Sector, inclusive of consumer products, retail, media, leisure & hospitality and chief marketing officers. She is based in Chicago.

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What’s Next for Consumer Products Companies? Navigating Uncertainty in 2017