The organizational agenda in consumer packaged goods
To
continue to compete, CPG companies must increase agility, reskill the C-suite,
and leverage millennial talent.
The pace of change has quickened in the
consumer-packaged-goods (CPG) sector. Consumer preferences and behaviors are
evolving at an ever-faster rate, e-commerce is producing new channels, nimble
competitors are emerging each year, and disruptors such as Amazon are growing.
Continuous and increasing change is the new normal for consumer-facing
businesses of all kinds.
To compete
successfully, leaders of CPG companies have started to think anew about
elements of their businesses—including organizational implications, such as
what kinds of structures, processes, and skills are needed to win.
This shaped the focus
of a 2017 research survey conducted by McKinsey’s Consumer Packaged Goods
Practice, in partnership with the Grocery Manufacturers Association (GMA). The
survey explored organizational topics, those that CPG chief human resources
officers (CHROs) say are top of mind. The research sought to understand current
and emerging best practices for high-performing organizations, and it focused
on three priorities:
·
Becoming
a more agile organization. How
agile are CPG companies today, what is the importance of agility, what are
the key tactics agile companies employ, where have CPG companies made progress, and where is
there room for improvement?
·
Evolving
the roles and skills of top teams. What are the changing profiles of top-team (C-suite)
leaders, what new skills are needed, and how do high-performing companies
ensure top teams have those skills?
·
Attracting
and retaining millennials. What are the recruiting and retention challenges, and
how should CPG companies rethink talent management to meet them?
The survey findings
suggest that most CPG companies have made progress in identifying and adopting
proven practices in each of these three areas—but more work needs to be done.
As progress is dynamic, not static, companies need to step up to next-tier
tactics to stay competitive.
Becoming a more agile organization
Seventy-three percent
of respondents said that increasing organizational agility was a top three priority. They want to enable
faster and smarter decision making at every level of their business.
It’s no wonder agility
is a top priority. As change in the sector continues to speed up—triggering
greater volatility and making the business environment more complex—CPG leaders
have concluded that traditional organizational models are a liability. The slow
flow of information in a hierarchy impedes responsiveness, change renders
budgets outdated sometimes even before they are completed, and front lines
can’t adequately source market signals or act on them quickly enough.
To surmount these
constraints, some CPG companies are delayering hierarchies, automating business
capabilities, rethinking market strategies, and making other structural and
process changes to improve their responsiveness—to become, in other words,
agile at scale.
Agile companies are
both stable and dynamic at the same time, according to McKinsey research on
agile organizations across multiple sectors. Stable practices provide a
backbone of structural elements—consistent and reliable—that do not need to change
frequently. Dynamic practices enable responsiveness, nimbleness, and an ability
to sense and seize opportunities quickly. They might include rapid iteration,
or the quick adaption of new ways of working in response to market changes.
Many companies are
transforming to gain the ability to reconfigure strategy, structure, processes,
people, and technology toward value-creating and value-protecting
opportunities—McKinsey’s definition of organizational agility. But few companies are
there yet. In an online survey exploring agility in organizations conducted by
McKinsey in 2017, 37 percent of the more than 2,500 respondents reported
company-wide agility transformations in progress, but only 4 percent said they
had completed them.
Agile companies embrace
changes to structure, process, people, and strategy, according to McKinsey
research. Respondents to the survey said CPG companies have made some progress
toward agility along each of these dimensions—but, more important, the CPG
industry still has a way to go.
More than
three-quarters of the surveyed companies, for instance, have implemented
moderate to highly developed programs that define the organizational matrix and
articulate the roles of business units, functions, and geographies. (This is an
important stabilizing element in any company’s transformation program.) Forty
percent of the surveyed CPG companies have in place well-developed programs to
delayer decision making, and another 47 percent have moderately developed
programs in place. (This is a critical dynamic practice.) CPG companies are
standardizing processes for further clarity and autonomy, establishing standard
operating procedures for key processes, tying role definitions for managers and
employees to the company’s strategies, and dynamically reallocating resources
(talent and capital) to high-priority projects on a regular basis.
But for most CPG
companies, the greater part of their agility transformation lies ahead. For
instance, only 11 percent of survey respondents said their companies have
digitized core processes, and a third of them said digitization was not a
priority. CPG companies could also establish processes to regularly evaluate
ways of working and do more to empower their front lines to react to cues in
the environment. They need to embrace nontraditional structural approaches,
such as deploying cross-functional squads. And they need to be open to failing
faster—rapid iteration is a competitively advantaged process in more agile sectors—and to
rotating talent within the company, even developing career paths that foster
rotation.
Becoming an agile
organization isn’t about picking and choosing where and how to be stable and
dynamic. Rather, companies must embrace all practices to unlock the power of
agility. To advance agility within the sector, CPG leaders could study the
evolution of companies in other sectors to draw inspiration. Some technology
companies, such as Amazon and Google, and retailers, such as Zara, are
recognized as quick moving, agile organizations. But even companies in
financial services, advanced industries, and oil and gas have successfully
adopted more agile ways of organizing and working. These include Banco Bilbao
Vizcaya Argentaria (BBVA), BMW, Boeing, Haier, HSBC Group, ING, Shell, and
Statoil, to name a few.
Finally, it may be
useful for CPG leaders to view the changes they need to make as essentially
falling into three themes. A thematic filter allows leaders to more clearly
focus actions and achieve results quickly:
·
Agile
structure. Consider the
change agenda as one of moving from organizing as a hierarchy—with rigid
systems, talent defined by roles, and internal functions operating as silos—to
organizing with organic structures that allow teams to collaborate quickly and
effectively around tasks and projects and on core value-added work. These
teams, or tribes, would rely on support from a stable core backbone of traditional
functions, such as finance and HR, and internal “center of excellence”
services.
·
Agile
working principles. Moving
from a hierarchy to more fluid structures will require different working
principles to maximize the productivity of teams. Agile working principles
include team accountability, a focus on self-organizing and a shared (and
urgent) sense of ownership, colocation and constant communication, a relentless
focus on prioritization and scope definition, and rapid prototyping.
·
Agile
leadership mind-sets and behaviors. The way leaders lead in agile organizations also
changes. For instance, they might directly review the work of teams rather than
get presentations filtered by layers of management. Agile leaders also could
motive the speed of learning over performance, and they should ask teams to
“swarm” high priorities rather than multitask across a number of initiatives.
Piloting change
initiatives in functions that already operate with some traits of agility
allows companies to leverage what’s in place, and to build from there. For
instance, in many companies, the product-development function already has
cross-functional-team capabilities, along with a culture of collaboration and
creativity, an ability to react faster to trends, and a higher tolerance for
risk. Alternatively, the marketing function might offer a better opportunity to
pilot an agility transformation if it already has the ability to allocate
resources responsively and to execute projects quickly. Or, the sales function
might be the place to start, if the function is steeped in an end-to-end
accountability to the customer. Sales organizations also frequently have
structures and processes that are highly scalable—a plus for piloting agility.
Understanding how
companies effectively achieve agility at scale is a topic McKinsey is committed
to pursuing in depth, and we are committed to publishing our findings regularly.
The evolving roles and skills of top teams
Changes sweeping
through the CPG sector require new capabilities within the top team. The shift
in how consumers interact with brands and companies and in how they purchase
requires new digital skills and channel experience. With growing consolidation
in the industry, merger-and-acquisition skills are a plus. CHROs throughout the
sector consider this issue to be one of their top concerns. To that end, CPG
companies are investing more attention in developing, or acquiring, leadership
and technical skills in the C-suite.
What’s the problem?
Survey respondents overwhelmingly said that the most critical skills needed by
the top teams of CPG companies are the ability to collaborate together as a
C-suite (79 percent of respondents rated this as a high concern) and the
ability to inspire others to act toward a shared vision (71 percent of
respondents rated this a high concern). But 86 percent of respondents said that
maintaining a collaborative environment across functions was their top
challenge to C-suite performance.
Leadership skills are paramount in the C-suite. Survey respondents said that for
most C-suite positions, leadership skills were more important for top-team
performance than technical skills. However, the weighted importance of the two
kinds of skills varied by position. For instance, respondents consider
leadership skills far more important for the CEO, the COO, and heads of
businesses. But they ranked technical skills for the CFO, the chief technology
officer, the chief supply chain officer, and the chief of innovation. In the
middle were the chief marketing officer (CMO) and the head of strategy.
What’s more, CHROs said
that gaps in select technical skills are widening, and they could soon become a
significant impediment to top-team effectiveness in CPG companies. The skills
CHROs identified as gaps mirror changes sweeping through the industry. For
instance, CHROs said the critical skill gaps for CMOs are having experience
with the evolving digital landscape, knowledge of advanced analytics, and an
understanding of e-commerce and direct-to-consumer strategies. The skill gaps
for CFOs include an ability to fund investments and experience with mergers and
acquisitions.
CHROs did not exempt
themselves from the technical skills-gap checklist. Survey respondents said
CHROs in the sector need a greater understanding of HR analytics and of
learning and development tools and methodologies.
Most of these skills
cannot be developed in-house; they must be acquired. An analysis of 76
CPG-company-leadership profiles indicated that nearly half of all top-team
positions are being filled through external hires. The highest percentage of
external hires are for roles with the highest skills gaps: CFO, CMO, and CHRO.
However, when consumer
companies hire top executives from outside the company, it is typically from
another company within the sector. For instance, Russell Reynolds Associates,
which tracks top-team hires, notes that 83 percent of external consumer chief
marketing officer appointments in Q3-Q4 2016 were of executives from companies
within the sector. Compared with other sectors, consumer had the highest number
of intrasector CMO appointments that year. Respondents to the survey
underscored this point: 77 percent said industry-based career paths have become
common for top teams, eclipsing career paths within the same company. Survey
respondents also noted that CPG companies rarely venture outside the sector to
make top-team hires.
At the same time,
turnover among top-team executives caught in the skills gap is increasing.
There were 177 marketing-leader appointments in the consumer sector during
2016, up 13 percent from 2015. Similarly, CFO turnover nearly doubled between
2009 and 2013, across all sectors. During this time, CFO turnover among
consumer companies (at 23 percent turnover) was second only to the industrial
sector (at 37 percent turnover).
To ensure that top
teams have the technical skills needed to perform effectively as consumer,
channel, and industry changes intensify in the years ahead, CPG companies may
need to explore new sources for top-team talent, or they may need to redefine
the skills needed for these roles. For instance, CPG companies could consider
the following:
·
Draw
talent from outside CPG. CPG
companies could more aggressively hire talented people with specific skills
from other industries. They could acquire leaders with digital skills from the
technology or media sectors, or leaders with M&A skills from the
private-equity sector.
·
Rewrite
roles. CPG companies could
consider whether traditional top roles still meet the needs of the business. As
presently defined, they might not. Companies could instead consider creating
new roles with new qualifications in the top team. For instance, companies such
as J.M. Smucker and Kellogg’s have created a new role, called chief growth
officer (CGO), to drive greater cross-functional collaboration, improve
processes to allocate resources to high-value initiatives, and sponsor
innovation. Typically, the CGO reports to the CEO and can take oversight for
functions such as marketing, innovation, consumer insights, and R&D. Other
CPG companies, such as L’Oreal and Coca-Cola introduced a role for a chief
digital officer (CDO), or chief e-commerce officer, tasked to introduce new
technologies, build digital business lines, and change mind-sets.
·
Delayer,
delayer, delayer. By delayering
hierarchies and adopting team structures, CPG companies could tap the technical
expertise of senior or mid-level managers.
Rethinking the skills
of select top-team members—even the roles and hiring profiles of these
executives—is a task long overdue in many CPG companies. To meet the
accelerated pace of change sweeping through the sector, CPG companies need to
make the effectiveness of the top team a top priority.
Attracting and retaining millennials
Millennials will become
the dominant group in the US workforce in just a few years. While there has
been a great deal of discussion about the values, expectations, and technology habits of millennials, or about their sense of the
nature of work, something else about this generation is of particular concern
to HR executives in CPG companies. That is, talented millennials are difficult
for companies to retain.
Survey respondents said
they expect newly hired millennials to stay, on average, just three to five
years in the company before moving elsewhere. A third of respondents said
millennials move on in just two to three years. And all respondents said
retaining millennial talent was a top priority for their company.
Attracting millennial
talent within the CPG sector is a challenge. Fifty percent of survey
respondents said that while their companies were successful at attracting
millennials, they could still be more effective. Another 43 percent of
respondents said they struggle to attract talent from this generation. The
biggest hurdle to attracting millennials to the CPG sector, respondents said,
is meeting the high bar for work–life balance. But nearly as important to
millennials are the comparisons in pay and role designations, and the brand
reputation of the employer within social media.
Retaining millennials is
an even bigger challenge, CHROs said. Why do millennials turn over so quickly?
The top three reasons, according to survey respondents, are ambitions for fast
advancement (79 percent of respondents), having stretch opportunities and a
variety of roles (71 percent), and flexible work arrangements and autonomy (64
percent).
Consumer-packaged-goods
companies today largely hire millennials through traditional approaches, such
as management-rotation programs for undergraduate students, current-employee
referrals, and internship programs. CPG companies have common strategies for
retaining millennials. These include deploying millennial-friendly
employer-brand propositions, such as offering an environment for advancement
opportunities and an attractive work–life balance, and
corporate-social-responsibility programs. Other common strategies for retention
include providing greater lateral movement and entrepreneurial opportunities
and giving regular feedback that is focused on development.
But companies can’t be
successful if their talent strategies are geared toward eking out a few more
months’ retention from millennials. Talent-management strategies need to be
reconsidered. The reality is that companies’ talent will churn every three to
five years—or less. HR executives need to lead efforts to develop talent
strategies that reflect this new reality:
·
Fire
up ongoing recruiting. CPG companies could optimize and tailor employer value
propositions to communicate to millennials through multiple channels, and do
more to reflect these propositions in external rankings and benchmarks (such as
“best places to work” lists). Companies could also plan for new cohorts to join
employee ranks annually. Or they could sculpt job titles to be in line with
talent competitors.
·
Make
the five years count. CPG companies
could provide flexible work options to millennials, such as job sharing. They
could also rethink short-term career tracks, boosting rotational cycles,
entrepreneurship opportunities, and lateral moves within the company. Companies
might institutionalize regular feedback processes for millennials, and ensure
positive transitions for departing employees.
·
Don’t
forget the other 50 percent. Companies should continue existing
talent-management practices to support non-millennial talent. They must be
careful not to alienate Gen Xers, who are motivated by values that are the
opposite of millennials—that is, Gen Xers value longevity and stability.
Finally, companies need
to begin to prepare plans to attract and retain the generation after the
millennials. The post-9/11 generation may prove to be more technologically
savvy than any preceding generation. Also, it may share some millennial values,
but diverge from them in other respects.
In any case, strategies
developed to secure—and get the most from—talent in previous generations fall
short of what CPG companies need to succeed today and tomorrow. New talent
strategies for a new era are required.
The only constant in
the CPG sector—to paraphrase the Greek philosopher, Heraclitus—is change.
Change is dynamic, and its pace is speeding up. Consumer behaviors and
preferences are quicksilver, channels to consumers morph and evolve in
importance, new competitors emerge, and disruptors thrive. To compete in a
fast-changing business environment, CPG companies need to rethink how their
organizations utilize their existing capabilities, and acquire new ones, to be
agile at scale—smart, fast, flexible, and innovative. This is the new
imperative for CPG companies.
By Rebecca Johnson, Lauren Ratner, and Kristi Weaver
https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-organizational-agenda-in-consumer-packaged-goods?cid=other-eml-alt-mip-mck-oth-1804&hlkid=194855b1f3704b6ab1b9165cef3a1302&hctky=1627601&hdpid=968c87ea-15e1-485d-87b8-4f361c26151a
No comments:
Post a Comment