What It Takes To Rewire A CPG Company To Outcompete in Digital and Ai
What It Takes To Rewire A CPG Company To Outcompete in Digital and Ai
What It Takes To Rewire A CPG Company To Outcompete in Digital and Ai
company to outcompete in
digital and AI
Answering six specific questions holds the key to successful digital and AI
transformations for CPG companies.
© Getty Images
June 2024
There’s a race on to capture value from digital Our analysis of digital and AI maturity has shown
and AI, and consumer packaged goods (CPG) that CPG companies are among the poorest
companies are in danger of falling behind both performers, while retailers are near the top
retailers and consumers. It’s not for lack of trying. (Exhibit 1).1
Like most sectors, CPG companies have been on
some form of digital and AI transformation journey. This halting progress is all the more frustrating
But most of them are stuck in the pilot purgatory and worrisome in view of the huge value at
stage characterized by plenty of subscale activity stake. We analyzed the potential of digital and
and little at-scale value. AI transformations to drive top- and bottom-line
1
The scores are based on Digital Quotient (DQ) and AI Quotient (AIQ) assessments that measure digital and AI maturity across core
capabilities and management practices essential to capturing value. The DQ and AIQ gap between leaders and laggards was 10.3 percentage
points in the period from 2016–19; the gap increased to 16.3 percentage points in the period from 2020–22.
Exhibit 1
Digital and
Digital andAIAI maturity
maturityscores
scoresforfor individual
individual companies
companies show
show significant
significant spread
spread within each
within each sector. sector.
80
60
40 40 41
35 37 37 37
31 32 34
30 30
25
20
0
Public Indus- PMP² CPG³ Energy Health- Trans- Banking Insur- Media Retail High
sector trials and care port ance tech
materials
1
Digital Quotient (DQ) and AI Quotient (AIQ) assessments measure digital and AI maturity across core capabilities and management practices that are essential
to capturing value.
2
Pharmaceuticals and medical products.
3
Consumer packaged goods.
2
Analysis based on McKinsey’s CPG digital and AI impact calculator tool (latest version June 2023), which consists of a repository of more
than 60 digital and AI use cases across 11 domains in front (precision revenue growth management; data-driven marketing; sales and in-store
excellence; portfolio innovation and design; e-commerce and direct to consumer), middle (autonomous planning; plant of the future; digital
logistics; digital procurement and supply management and supplier collaboration), and back (talent analytics; general and administrative
services).
3
“The economic potential of generative AI: The next productivity frontier,” McKinsey, June 14, 2023.
4
Eric Lamarre, Kate Smaje, and Rodney Zemmel, “Rewired to outcompete,” McKinsey, June 20, 2023.
Transformational value comes from careful and coordinated execution across all areas of focus
management. In general, these are the domains the marketing function, with a value between 5 and
CPG companies should prioritize for their 15 percent of total marketing spending.6
transformation programs.
One consumer company, for example, implemented
As CPG companies assess the value, they will a gen AI large language model (LLM) to improve the
need to be thoughtful about understanding gen manual process of financial planning and analysis
AI’s impact. McKinsey analysis identified just (FP&A) research. An initial proof of concept
four areas—customer operations, marketing showed a reduction of up to 30 percent in time
and sales, software engineering, and research spent on research.
and development—that could account for
approximately 75 percent of the total annual Some companies are already actively educating
value from gen AI use cases. 5 The majority of their organizations, especially leadership,
that value comes from increased productivity in about gen AI, the capabilities it unlocks, and its
the form of, for example, better and faster issue applications in business. In fact, since the second
resolution in customer service, more personalized quarter of 2023, almost all CPGs we analyzed
communications, and more-effective product have had an immersion session on AI for C-level
discovery. Gen AI could increase the productivity of executives.
5
“The economic potential of generative AI,” June 14, 2023.
6
Ibid.
Direct-to-consumer 11 18 30
Core 2 1 2
1
Figures may not sum to 100%, because of rounding.
2. Are leaders from the business side actively The core operational unit is the agile “squad.”
part of the transformation? Comprised generally of five to eight people across
CPG companies often underestimate the role business, data, technology, and design functions,
of business functions in a successful digital and these teams are responsible for building the
AI transformation, relegating the initiative to IT. solutions on the road map (Exhibit 4). They are
Case in point: At a large food manufacturer, the crucial for scaling. Acting autonomously based
supply chain domain was one of the company’s on clear guidelines, these agile squads are the
most successful domains, in part because the only way companies can enable hundreds or even
leadership, including the COO and CFO, made thousands of teams to deliver transformational
supply chain a priority. The business dedicated change.
a senior director as product owner for not only
the build but also rollout and adoption, and these 3. Are you an attractive long-term employer for
business leaders joined biweekly sprint reviews, digital talent?
engaging with the supply chain digital leader and Without top in-house technical talent, CPG
the working team in designing a completely new companies will struggle with their transformation.
way to optimize customer service. Having a hiring strategy and competitive
compensation will only get you so far in attracting
Top business talent should act as product owners and retaining digital talent, especially when you
of the transformation for their given product, are competing with digital natives. The core issue
working closely with technology leaders to define is that work at CPG companies often doesn’t
the road map of solutions, managing the pipeline attract top tech talent. Companies will need to
of use cases to build the solution, influencing offer meaningful missions, learning opportunities,
technology infrastructure decisions, governing and an environment where tech talent can thrive.
data, and being the voice of the transformation to
their wider teams.
Product
owner
Software
engineer
Data
engineer
Agile
coach
Data
scientist
Design
lead Platform
squads
Subject-
matter
experts
Product owner Software Data engineer Agile coach Data scientist Design lead Subject-matter
defines and engineer builds data supports and mines business creates experts
prioritizes develops code, pipelines to coaches the data to identify customer- bring expertise
product road writes unit drive analytics squad team patterns and centric design, and knowledge
map and tests, and solutions from on agile build predictive develops user of business,
backlog drives different data development models engagement functions,
integrations sources practices plan, and operations, legal,
conducts user risk, and
testing compliance
A good place to start is upskilling leaders to better It’s important to focus on hiring talent with
understand how tech creates value. P&G instituted some proficiency in relevant areas. Competent
a reverse-mentoring program in which junior tech developers are significantly more productive than
people worked with senior leaders to help them inexperienced ones, and that trend carries over
understand how to use tech.7 Leaders also went to into gen AI as well. 8 To find the right talent, CPGs
leading digital businesses to observe operations should look to suppliers or retailers that are already
and speak with leaders to understand what skills progressing on their digital journey. Adjacent
are important to bring into an organization. sectors such as hospitality and telecom can also
be sources of expert talent with broader skills that
7
“How P&G’s 4D culture helps with successful digital transformation,” Human Resources Online, May 12, 2020.
8
“The economic potential of generative AI,” June 14, 2023.
Illustrative components
Market layer
Tool kit
configuration 25% standard
for markets Integration of RGM¹ to User interface workflow Customized for individual market by
TPM/ERP² system integrating price/promo delivery teams
modules
Use-case layer
Modules built
to solve specific 50% standard
use case Pricing Promotion Assortment Trade User-centric design-based user interface;
customized by product and deployment
teams based on channel/market
95% standard
Base layer
Infrastructure
and software Cloud GitLab Terraform Postgres Docker Customized by product team depending
tooling platform DevOps infra- database container- on infrastructure development choices
structure ization
as code
1
RGM = revenue growth management.
2
TPM = trade promotion management; ERP = enterprise resource planning.
to each function’s use cases. Out-of-stock — Put in place a strong data product owner.
data, for example, was important for sales The dedicated data product owner should
and planning functions, while the promotions be from the business, not the IT, side of the
calendar, promotions ROI, and volume uplift company. One of the key roles of the data
data were important for RGM (Exhibit 6). product owner is to establish and closely
monitor meaningful KPIs to track the most
— Standardize APIs and invest in data important determinants of value to the
pipelines. It’s important to create standard business, such as fulfillment, on-time delivery
APIs and systems (with the right access to warehouses or shelves, or data-product
privileges) that developers can use to access usage rates.
data sources. Invest in data pipelines to deliver
data to the right data products. Because the A global CPG was able to rapidly transform its
company often doesn’t own all the data from RGM domain end-to-end in just two years by
retailers or manufacturers, for example, that building modular technology components that
data needs to be constantly monitored for enabled it to scale solutions across its more than
changes. 30 category/market combinations. Instead of
building pricing and promotions analytics around
Digital picture
of success
Core Data
processing warehouse
systems Personalized
marketing
Perfect order
recommendation
External Raw data
data lake
Promo pattern
recognition
Customer
Unstructured Operational performance
data data store
Order tracking
Data for each domain, such as the customer, is inefficiently reworked for every use case.
Digital picture
Customer 360 Digital applications
of success
Core Data
processing warehouse Personalized
systems Product 360 marketing
AI
Perfect order
recommendation
Financial budget
External Raw data and actuals Promo pattern
Reporting
data lake recognition
Customer
Salesforce performance
External data
sharing
Unstructured Operational Order tracking
data data store Fleet
Discovery sandbox New use cases
the data available for a particular region/category, underlying analytics engine. Because the data
for example, the company built a standardized product was modular, specific local factors, such
RGM data product that teams could easily use. as currencies and units of measure, could easily be
Each market category only had to input its own swapped in.
data into the product to take advantage of the
Abdul Wahab Shaikh is a partner in McKinsey’s Atlanta office, Shruti Lal is a partner in the Chicago office, Hannah Mayer is
an associate partner in the Bay Area office, and Spurthi Gummadala is a consultant in the Seattle office.
Scan • Download • Personalize The authors wish to thank Roger Roberts for his contributions to this article.