Digital transformation exercise apart from reimaging organization is mostly designed to drive customer satisfaction and retention by providing customers with products and services they require, whenever and wherever they need them. The tools consumer goods companies use include – mobile apps, location-based services, big data, and analytics to bring in a significant change in the way they do business and create a differentiated value proposition. When it comes to consumer goods, standards are exactingly high across the industry, and processes are often complex. Digital transformation across multiple vectors – from logistics to packaging to quality control – can both revolutionize efficiency and ensure that the highest standards are met. [1] The digital transformation strategies always have certain elements in common that can be attributed to four dimensions: the use of technologies, changes in value creation, structural changes, and financial aspects. These elements must be aligned with each other, to have a successful Digital Transformation that fully exploits its expected benefits. [2]
It is widely believed that the consumer goods industry is highly competitive, and companies must constantly innovate, invest in new technologies, and at times renovate organizational culture to improve the customer experience and stay ahead of the competition. The journey of digital transformation is almost all the time is challenging, especially in the consumer goods industry. The consumer goods industry is characterized by never ending product line, complex supply chain and distribution processes and integrating new technologies can be difficult and time-consuming. It is observed that digital transformation offers organization the opportunity to reimagine the way business is run through the effective use of digital processes, and technologies. However, there are challenges organizations face throughout every stage of the digital transformation journey. Some of the key challenges organizations face in the digital transformation journey includes – siloed decision making, legacy systems, risk-averse organizational culture, insufficient budget for technological change, looming digital skill gap, shortage of technological resources, and increased security risks. [3]
The road to digital transformation, however, is laden with challenges. The digital transformation challenges are not always directly related to technological concerns or emerging technical barriers. They also include people-centric issues, organizational structures, and other non-tech factors. At times non technological concerns are the biggest challenge.
Evaluate the current digital technology landscape and complexity around it. The journey of digital transformation involves legacy application modernization and the integration of various technologies, processes, and strategies, which can be intricate and challenging to implement and manage. Hence, it is important to understand that before exploring into new technologies, it’s crucial to take a comprehensive look at the existing digital setup of the organization including – recognize the systems and technology in place, exploring functionalities of the current technologies, and highlighting existing inefficiencies in the technology landscape. The digital transformation is too critical and complex exercise in a consumer durable industry and that makes the vendor selection an important activity. The consumer durable brand must choose their partners carefully.
Commitment to the journey of digital transformation. Commitment to the journey of digital transformation is the first thing where organization go wrong. Company leaders must understand and agree to the vision for the digital transformation of the company. Lack of agreement causes friction and delay in the smooth implementation of the plan.[4] It is important to understand that everyone in the organization across the board must be clear of the priorities and the measures to be taken while executing the plan.
In 2018, Revlon, an American cosmetics and personal care giant, initiated the rollout of a new ERP system. However, the migration was spoiled by inadequate planning, severely disrupting their production line, and hampering their ability to fulfill customer orders promptly. This ill-prepared ERP rollout wasn’t an isolated issue; it had been prematurely introduced across operations in 22 countries. The aftermath of this ERP implementation at Revlon was financially catastrophic. The company grappled with a staggering $64 million loss due to unshipped orders. In tandem with operational disruptions, investor confidence wavered, leading to a 6.9% plunge in Revlon’s stock price. This operational debacle culminated in a lawsuit, with investors seeking redress for the significant financial damages they endured due to the company’s underperformance. [5] This is not just one of the many cases that had hard luck with the digital transformation journey. The success of the journey is function of the commitment of the organization across ranks to truly bring digital transformation holds the key to the success of any digital transformation journey. Moreover, it also requires leadership level focus, an assurance of budget and resources, and an ability to pursue the initiative with conviction.
Being clear about digital technology implementation. Identifying right technologies for the business is one of the most crucial steps while drafting the digital transformation strategy. The range of digital technology solutions in the consumer goods industry is diverse. The organization needs to identify right technology from ideation to planning, production to inventory management to logistics, to customer engagement, the list of digital technologies used across all areas of a company is endless. In addition, there is also the challenge of choosing the right technologies that can really add value and matches the financial requirements. Moreover, it is important to understand that technology expenditure is an operational expense and must be planned as a strategic investment. The consumer durable industry has many instances that talks of poor technology implementation stories, but the Hershey’s is one of the classic stories of wrong technology implementation decision.
In 1996, Hershey’s, a multinational chocolates, and desserts brand, embarked on a mission to modernize its patchwork of legacy IT systems. The chosen solutions for this transformation were SAP’s R/3 ERP, Oracle Seibel’s CRM, and Manugistics’ supply chain management system. With a budget of $112 million, the initial rollout of these new systems was projected to span 48 months. However, in a bid to pre-empt the Y2K dilemma, Hershey’s leadership accelerated the timeline, cutting it down to 30 months. This meant that crucial testing stages were curtailed. Aggravating the situation, the final implementation was scheduled for July 1999, coinciding with one of Hershey’s peak business periods. The result was catastrophic – systemic issues with the newly implemented ERP led to a failure to fulfill orders worth over $100 million, even though the required inventory was available. This debacle had huge financial repercussions, leading to a 19% decline in quarterly revenues and an 8% dip in the company’s stock value. [6] The demand of right technology opens-up opportunities for organizations to make processes more effective, efficient, and transparent.
Change resistance, resource constraints and skills gap are the key challengers. The commitment of digital transformation requires significant investment in people, process, and technology. This invest brings in a movement of change in the organization. Most of the times these changes are uncomfortable, and organizations face resistance from employees who are accustomed to traditional ways of working and are not ready to embrace new technologies and processes. At times educating people on the value that the digital transformation offers and inspiring them to walk through the journey of digital transformation is a difficult task. It is also observed that most of the resources are not on the same page of the digital transformation growth path.
This change management is one of the biggest challenges that brings down the success rate of any digital transformation effort. Moreover, there is often a shortage of skilled professionals with the expertise required to drive digital transformation efforts. This digital talent gap adds-up to the existing whammy that organizations must address.
Coca-Cola is a global consumer goods company and has established a digital academy to upskill managers and frontline team leaders across its business operations. In its first year, the academy trained more than 500 people in digital skills using a combination of go-and-see visits, immersive boot camps, and e-learning modules. Graduates of the academy have implemented about 20 digital, automation, and analytics approaches at ten-plus sites in the company’s manufacturing network. This has resulted in a boost in productivity and throughput by more than 20 percent. Digital skills training is now being rolled out to about 4,000 employees, resulting in targeted product development and personalized marketing campaigns. [7]
Legacy systems, strategy and evolving digital landscape. The digital landscape is continuously changing, making it difficult for organizations to keep pace with new technologies, trends, and customer expectations. Moreover, the outdated technology infrastructure and systems can hamper the adoption of contemporary digital technologies, leading to transitioning to new digital technology solutions. This makes important for business to develop a clear digital transformation strategy that aligns with an organization’s overall business goals.
The process of identifying the best technology roadmap is a challenging task, and inadequate vision or inefficient tech-leadership can hinder the overall digital transformation progress. The tech-leadership needs to acknowledge that digital transformation journey in consumer goods organization must include the need to improve the customer experience, optimizing the complex supply chain and distribution processes, and adapt to the changing consumer behaviors and preferences.
The challenges of integrating, managing, and maintaining new technologies to ensure data protection and compliance with ever growing privacy regulations is a critical aspect of digital transformation success.
AB InBev had the challenge of turning itself from an amalgamation of dozens of independent breweries into a single, unified entity using data to enhance business processes and improve the consumer experience. One of the ways AB InBev has done this is improving the supply chain by changing how stores are able to replenish their orders, developing a mobile application, creating opportunities for sales staff to talk about new brands and products with store owners. AB InBev has even created a tech innovation lab, Beer Garage, to explore ways that artificial intelligence (AI), machine learning (ML) and the internet of things (IoT), among other technologies can be used to improve experiences for consumers and retailers alike. Applications for this include “connected breweries”, where the quantity, quality, temperature, and a range of other relevant factors can be monitored across batches. The company is also looking into software to monitor social media and gain insight into what consumers think of its brands. Through this approach, AB InBev will be able to create evermore relevant and meaningful content for their consumers and improve its digital marketing. [8]
Measuring success is mostly not easy task in the digital transformation journey. The successful business across the world is known for identifying and optimizing on the return on investment (ROI) but the measuring the ROI of any digital transformation projects is a challenging task as the success of digital transformation projects may not be immediately apparent or easily quantifiable.
Moreover, the difficulty in accurately determining ROI can lead to skepticism and reluctance to invest in digital transformation initiatives. It is important to know that the value derived from digital transformation initiatives often extends beyond financial metrics and includes improvements in customer experience, employee productivity, business agility, business model reinvention, and cultural transformation. It is also observed that most business functions or departments act on their own accord, defining and managing their touchpoints and adhering to different metrics and standards.
The consumer goods companies may run the risk of resistance to digital transformation initiatives without a strong commercial model and well-defined measurement metric and clear roadmap that demonstrate return on investment. It is important for business to get internal buy-in for the digital transformation. It is also observed that in many digital transformation initiatives did not get pass the pilot stage as there were no CXO level sponsorship or value data to support the business plan. Furthermore, efficiency savings is often overlooked as a means of funding innovation in their strategy.
The Future of the Consumer Goods Industry
Many consumer goods companies have been contemplating digital transformation. However, with changing consumer behavior, emerging technologies, altering work environment, and evolving market conditions, there’s a new urgency around digital transformation adoption. This changing business landscape has led to a significant industry-wide investment in innovative, game-changing digital technologies. The consumer goods companies have been grappling with faster product development cycles, supply chain disruptions, widespread skills shortages as well as increasingly complex consumer demands. Plus, there’s now growing and unavoidable pressure to deliver on sustainability and environmental interests. Despite all these pressures changing the pace of transformation, it’s clear that many companies still have some way to go before realizing the true extent of their digital vision. At present, 88% of consumer goods companies are capturing data about their assets and operations.[9]
We are living in the times when recognizing what’s holding your organization’s growth allows you to address the roadblocks in your digital transformation strategy. According to A digital future for consumer goods – How to kickstart your digital transformation journey, roadblocks to digital transformation in consumer goods industry includes – lack of skills and concerns over job security, getting internal buy-in for your transformation, meeting the expectations of conscious consumers, building trust between IT and operational technology teams, poor supply chain visibility creates lost opportunities, Tackling the cybersecurity risks that come with digitalization, and capturing data. The challenges and roadblocks will remain part of the growth journey, but the future of the consumer goods industry is likely to be influenced by a number of factors, including changes in the global economy, advancements in technology, and shifts in consumer preferences. Some potential trends in the industry include the continued growth of e-commerce and the increasing use of digital platforms to reach consumers, the use of data and analytics to improve and personalize the customer experience, and the development of new, sustainable and eco-friendly products.
[1] Digital Transformation in the Consumer Goods Industry, Waliuollah Ali, March 2023, cxomag | https://cxomag.com/article/digital-transformation-in-the-consumer-goods-industry/
[2] Digital Transformation Strategies, Christian Matt, Thomas Hess, Alexander Benlian, August 2015, Springer Fachmedien Wiesbaden
[3] Digital Transformation Challenges You Need to Overcome in 2023, kissflow; https://kissflow.com/digital-transformation/digital-transformation-challenges/
[4] Why Digital Transformation Projects Fail: 7 Pitfalls to Avoid, treehousetechgroup ; https://treehousetechgroup.com/why-digital-transformation-projects-fail/
[5] 6 High-Profile Digital Transformation Failures, September 2023, Samantha Rohn; https://whatfix.com/blog/digital-transformation-failures/
[6] 6 High-Profile Digital Transformation Failures, September 2023, Samantha Rohn; https://whatfix.com/blog/digital-transformation-failures/
[7] Unlocking Customer Insights: How Digital Transformation Overcomes Challenges in the FMCG Industry, June 2023, Amihan | https://amihan.net/digital-transformation-fmcg/
[8] Digital Transformation: What is it? 10 Successful Big Brand Examples; September 2021; | https://acquire.io/blog/digital-transformation-examples
[9] A digital future for consumer goods – How to kickstart your digital transformation journey
