The Problem
With the recent sway towards more customer-centricity and broader organisational purpose, the definition and focus of value and performance management practices for a typical fast-moving consumer goods (FMCG) company changes. From being dedicated to building mass-brands, exploiting their scale and expand though the developing markets, focus moves to appeal a broad spectrum of consumers demanding companies to be more agile and pivot more often in their response to the quickly changing environment.
This change in value creates an enormous challenge which is especially visible for FMCG companies. Most of them are now struggling to balance the extra demand for flexibility and agility with their core competencies built over the years for efficiency and cost reduction.
Why it happens
There are high market expectations from FMCG companies to spend transparency and redeployment of resources for growth. In their pursuit of performance to satisfy shareholders, many FMCG companies have turned to outsource providers, have created Shared Service Centres (SSCs) internally or did a combination of both to reduce costs and remove inefficiency through greater standardisation (Sako, 2010). By placing these centres in the off-shore or near-shore locations, companies were able to rip benefit from the labour arbitrage practices. With the increasing demand for more cost reduction, many FMCG companies responded with all their energy by moving further away to cheaper locations or by increasing the scope of relocated functions. While this approach is effective at increasing short-term profit, its ability to generate longer-term growth, is unproven. In fact, more and more companies starting to reverse this trend by relocating functions back (Deloitte, 2019).
The Solution
FMCG companies have enjoyed their success for many decades of double-digit growth. But to win in the coming decades, they need to reduce their reliance on mass brands and developing markets. To do that these companies will require a new operating model that abandons the historic synergy focus for a truly agile approach that focuses relentlessly on consumer relevance (Kelly, et al., 2018).
To be more agile without losing ground on the core capabilities of efficiency, SSCs should embark on a journey to unravel their silo architectures and practices. Organisations must transform SSCs into the mesh of interconnected business microservices, orchestrated with the help of the common technology platforms into the various solutions aimed to solve the acute business problems at hands.
About this blog series
Over the last few months, I have made a research on this subject – read a lot of articles and collected my own experience of leading and being part of various transformation programmes. The resulting summary should, in my opinion, help companies question their status quo and start shaping their own transformation programmes in the right direction.
Part 1 – Dynamic vs Ordinary capabilities
Part 2 – Becoming a performance leader - 3 steps framework
Part 3 – Journey from Projects to Products. Nurture the ownership mindset.
Part 4 - From Automation to Orchestration. The new role of traditional corporate functions
Part 5 – Dreaming about going viral? Beware of organisational immune systems