8 minute read 30 Jul 2021
Skydiver flying in a wingsuit

5 ways consumer products companies can let go to grow

Authors
Steve Basili

EY Global Consumer Products Operating Model Transformation Solution Leader

Corporate strategy and innovation leader, with a passion for helping clients reimagine and reinvent themselves for a future that will look different from today. Two-time Grammy winner.

Kristina Rogers

EY Global Consumer Leader

Global leader for consumer industries. Marketing strategist. Worked in 20 countries. Harvard MBA. Photographer. Scuba diver. Canadian fiction reader. Mother of two.

Jim Doucette

Global and Americas EY-Parthenon Consumer Products and Retail Leader

Business strategist. Consumer behavior professional. Passionate about helping clients, developing people and building teams.

Mona Bitar

UK&I Consumer Leader, Ernst & Young LLP

Experienced business advisor for over 25 years. Amateur poet and historian. Brings multi-cultural perspectives as a proud Palestinian Brit.

Cherie Posada

Partner, People Advisory Services, Ernst & Young LLC

Solution leader-seasoned professional in organization & workforce transformation. Dedicated to building future problem solvers and leaders. Mother, Wife, Daughter, Friend. Lover of all things wild.

8 minute read 30 Jul 2021

Most consumer products companies built their operating models for efficiency. Can they grow faster by controlling less and trusting more?

In brief
  • Companies that try to control everything will find it harder to satisfy the changing consumer.
  • An operating model built on a foundation of control won’t respond or scale fast enough.
  • There are five areas where a pivot toward trust will help consumer products companies grow.

Consumer products (CP) companies have responded well to the pandemic by quickly adopting new ways of working and thinking. As we emerge into a transformed world, agility at this level needs to become a core capability.

Companies will need the ability to adapt – without relying on sustained “emergency-mode” tactics – in order to stay relevant to rapidly changing market expectations. But to do that – and to do it in a way that’s profitable – they need to fundamentally rethink their operating models.

According to the EY-Parthenon Capital Allocation Strategy Survey, 2021

68%

of consumer products companies’ CEOs believe “changing customer expectations and experiences” is having the greatest impact on their company.

A core design assumption needs to change. The central idea that has shaped operating models in this sector for decades can be summed up in one word: control. Traditionally, consumer products companies have owned and controlled large portfolios of brands, and they’ve owned and controlled most of the capabilities needed to make those brands a success.

This used to make perfect sense. Consumer products companies are multinational concerns with complex supply chains. The largest companies have hundreds of thousands of employees around the world. Much of their success has depended on their ability to shape how the consumer perceives their brands. And they’ve operated in a highly competitive marketplace where margins can be razor-thin. When you can’t afford any mistakes, you want to control as much as possible.

But the desire for control will only make it more difficult for organizations to stay relevant to the changing consumer.

Future success needs more trust

People increasingly want more convenience, transparency, quality and brands with a greater sense of purpose. Sustainability, at an affordable price, is becoming central to their consumption choices. They buy from brands that demonstrate they are living up to their espoused values. Competition for their attention and wallet is more intense than ever. Disruptive startups, traditional rivals and players from other sectors are reshaping markets by rapidly deploying new value propositions, capabilities and technologies. To increase agility, consumer products companies need to let go of some of the things they’ve always tried to control. An operating model built on a foundation of control won’t respond fast enough and won’t scale fast enough. It will create problems, not opportunities. The 2021 Global Capital Allocation Survey found 42% of CP CFOs agree the main challenge in reacting quickly to either market threats or growth opportunities is due to ineffective models and systems vs. for 36% of CFOs globally.

Sustained success requires an operating model shaped around a different idea. We need to move from control to trust.

Here are five reasons why that pivot is so important:

1. Trust powers ecosystems; control kills them

The way organizations create value is changing. This process has typically been linear. It took place in chains of participants – from sourcing of raw materials to the delivery of a finished product. Now we’re in an era of value created by ecosystems, because ecosystems provide the fluidity and flexibility needed to meet changing consumer demands.

In an ecosystem, trust is essential. All the participants are connected to and dependent upon each other for their combined and continued success. It takes high levels of data sharing between ecosystem players to meet evolving consumer demands in a timely manner while managing supply and demand efficiently. Otherwise, each addition to the ecosystem just adds more nodes and increased complexity, without increasing the ability to capture value effectively.

In response to the pandemic, trust became a key driver of value for company ecosystems. Some consumer products companies such as Unilever supported supplier networks with early payment and relief funds to keep liquidity in their supply chain. Others such as AB InBev pivoted their manufacturing to make and distribute hand sanitizers. Demand spikes through online channels forged new direct to consumer alliances between CP companies and agile distribution platforms to ensure they could fulfill and deliver to their customers.

2. Trust accelerates digital transformation; control creates siloes

Often new technologies are designed to meet the needs of a particular business function – such as finance or marketing – rather than the needs of the business as a whole. This can cause a proliferation of conflicting or redundant technologies and priorities, which undermines business performance and speed, making it harder to adapt to change.

Many of the business models that will be relevant to the future consumer create value by sharing data and co-operation, between the consumer and the business and between businesses in the ecosystem. Is it helpful to treat back-office operations as separate from a front-office that takes care of the consumer experience, when functions like logistics are so critical to enabling that experience? This kind of parochial divide makes it much more difficult to execute new models.

The key here is balance. The risks around uncontrolled data sharing and technology implementation are very real. As we move toward greater degrees of data integration across functions and ecosystem partners, it’s possible - and essential – to create data controls that allow for and enable a higher degree of trust among all stakeholders.

3. Trust attracts and motivates talent; control repels it

People are changing the way they work, and how they want to work in the future. This has challenged many old assumptions about how much control an organization needs to exert over its talent. More managers have come around to the idea that people can become more productive, engaged and valuable when they work in a climate of trust.

There’s more to this than trusting people to work away from the office. A talent model designed around the principle of control leads to a rigid workforce where people are salaried or contracted to deliver fixed outcomes. This limits any sense of personal responsibility and narrows the scope for creativity.

Huge areas of untapped potential lie dormant. Companies struggle to put people at the center of their business or to get the best from them. They can’t pivot their operations to meet or shape new market needs because their legacy workforces and cultures make them slow to move.

Trust creates flexibility and speed. People are empowered to make the decisions they need to, when they need to. They are encouraged to use all their talents to achieve the right outcome, and not be limited to the box created by a job title. They are not recruited for their ability to execute yesterday’s tasks, but for their ability to help the company become what it needs to become, in a rapidly evolving environment.

This is a profound change. It takes a different mindset and skillset to manage people in an environment built on trust, rather than control. It requires an ability to adapt to uncertainty. And it challenges deep assumptions about who is ‘talented’ and what value they can add.

4. Trust enables innovation to flourish; control stifles it

Organizations often control their innovation portfolio by keeping ideas in a safe box or sandpit, before the good ones are ready to scale. As a result, it is common for "innovation" to be a discrete function that sits outside other areas of the business.

Sometimes this is the right approach. If a particularly disruptive idea might cannibalize the wider organization, it’s best to keep it in a protective cocoon. Then it has space and time to evolve. But the separation of innovation from the business can make it more difficult to embed or scale good ideas that are needed now. It makes it more likely that creativity is limited to the ideas and experiences of only a small number of specialists, not a large and diverse pool of talent.

Trust democratizes innovation. It creates a culture in which ideas can bubble up from anywhere. People on the front line, dealing with consumers and ecosystem partners daily, are often the best sources of ideas. In a culture of trust, it’s easier to listen to your people and to your consumers; to quickly vet ideas and pilot, test, and scale the winners. That kind of possibility-focused culture is predicated on trust, not on compliance.

5. Trust builds common purpose; control limits long term value

A quarter-by-quarter focus causes management to double down on the things they know they can control, so they can report earnings that meet expectations. This has led to short-term thinking and incrementalism. Financial performance becomes the bottom line that everything is judged against and non-financial imperatives have secondary importance at best.

In a world where brand purpose and sustainability are increasingly important, this is a big problem. A growing number of consumers, across all categories, want to buy from companies they can trust to reflect their values. They expect them to meet those values over the long term, in everything they do – 68% of consumers, globally, agree that companies or organizations need to act as leaders in driving positive social and environmental outcomes. Investors and regulators have growing sustainability expectations too, and they are becoming more interested in sustainability in its broadest sense – not just climate change but wider concerns such as social and economic inequality, diversity and inclusion.

Companies won’t meet these expectations unless they truly embed non-financial priorities into every business decision. That means measuring and managing long-term value across a full range or metrics.

A future-fit model

To make their organizations future fit, leaders need to make deep and transformational changes to their operating models. The five areas we’ve talked about here – ecosystems, digital, talent, innovation, purpose – touch every part of the business.

Summary

How will you create the space for a new operating model to emerge? And how will you reimagine a future-fit way of setting up and managing your operations? Control was the solution to yesterday’s problems, but it’s now becoming the barrier to achieving tomorrow’s aspirations.

About this article

Authors
Steve Basili

EY Global Consumer Products Operating Model Transformation Solution Leader

Corporate strategy and innovation leader, with a passion for helping clients reimagine and reinvent themselves for a future that will look different from today. Two-time Grammy winner.

Kristina Rogers

EY Global Consumer Leader

Global leader for consumer industries. Marketing strategist. Worked in 20 countries. Harvard MBA. Photographer. Scuba diver. Canadian fiction reader. Mother of two.

Jim Doucette

Global and Americas EY-Parthenon Consumer Products and Retail Leader

Business strategist. Consumer behavior professional. Passionate about helping clients, developing people and building teams.

Mona Bitar

UK&I Consumer Leader, Ernst & Young LLP

Experienced business advisor for over 25 years. Amateur poet and historian. Brings multi-cultural perspectives as a proud Palestinian Brit.

Cherie Posada

Partner, People Advisory Services, Ernst & Young LLC

Solution leader-seasoned professional in organization & workforce transformation. Dedicated to building future problem solvers and leaders. Mother, Wife, Daughter, Friend. Lover of all things wild.