April 07, 2018

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 (Exhibit 1).

1

Agile companies are both stable and dynamic at the same time, according to McKinsey research on agile organizations across multiple sectors.1 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.2 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.3

Agile companies embrace changes to structure, process, people, and strategy, according to McKinsey research (Exhibit 2). 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.