Whats' Wrong with the Consumer Goods Organization?

Consumer packaged goods companies have traditionally been organizational role models for other industries. The brand or product management system - the heart of many consumer goods organizations - not only led to leading-edge marketing skills but also produced exceptional general managers. Recent events, however, have conspired to topple them off their pedestal. A potent combination of low inflation, competition from cut-price, high-quality private label and generic products, shifts in consumer tastes, the emergence of new retail formats, and runaway growth in promotion and merchandising costs has undermined the profitability of consumer products companies and raised doubts about their once-envied organizational structures. Formerly well-oiled marketing machines are beginning to suffer stress and schizophrenia at levels. Marketers are trying to stimulate category growth while at the same time slashing their advertising budgets for the nth year in a row. Operations managers are struggling to reduce distribution costs, yet trying to find ways to respond to customers jumping on the ECR bandwagon. Each and every function within consumer packaged goods companies is being asked to collaborate more closely with the rest - but is too often plagued by an inability to break free from a long tradition of independence. Business units that have operated autonomously for years in the interest of entrepreneurialism are wondering if - and how - they could be better leveraging corporate scale. Corporate portfolios are changing at a pace not seen for many years, with every addition of a business unit requiring considerable integration efforts over and above the daily challenges of competing in the marketplace. Given these pressures, can consumer packaged goods companies regain their status as an organizational paradigm? The answer is yes - but first, they must begin to take the science of management a great deal more seriously. They must recognize that not only is organization important, it is hard to get right, and demands the best thinking from the best people in a company over an extended period. There is no once and for all fix. Second, organizational management must be approached through factual analysis and tangible actions. Companies that have made real progress recognize that regarding organization as a soft topic is an anachronism. Third, consumer products manufacturers must understand that how a company is organized is not a mere exercise in moving boxes on a chart or seeing who is where on an overhead, but rather a major driver of shareholder value. The new mindset is built on a handful of basic ideas -about how the consumer products company of the future will differ from that of today. It must shift from a brand- and function-based approach to a strategy focused on categories and one or two core processes, such as new product development, supply chain management, or customer management (see boxed insert Core processes in consumer packaged goods). Companies must decide which process they will excel at and build a structure to exploit it fully. While no form of organization is right for every business, several structural and nonstructural mechanisms are vital in any attempt to leverage process-based organization to boost shareholder value. A tale of two organizations Perhaps the best way to explore the nature of the new consumer products organization is to compare the approaches of two hypothetical food companies. At first glance, each appears equally committed to organizing around core processes and managing horizontally through crossfunctional teams. Company A has a category team whose members come from the key functions: manufacturing, sales, R&D, and marketing. Each of these members in turn chairs a crossfunctional team for the major core processes: manufacturing for the supply chain, sales for customer management, R&D for new products, and marketing for consumer equity. …