Investing in IT, agile methods & startups can help iconic CPG companies innovate

By Elizabeth Crawford

- Last updated on GMT

Investing in IT, agile methods & startups can prompt innovation
The knee-jerk response by large CPG companies to cut IT costs in response to revenues and market share lost to smaller companies could make them more vulnerable than if they invested more in digital technology to develop, market and sell products, according to a report commissioned by the Grocery Manufacturers Association.

“For many years, chief information officers at consumer packaged goods companies have primarily focused on ensuring that their IT systems ran smoothly,”​ and “generating revenue, directly or indirectly, was not the responsibility of CIOs at CPGs,”​ The Boston Consulting Group reports in GMA’s 2017 IT Benchmarketing report released late last month.

However, it warns, “times have changed,”​ and mature brands are losing market share in part “because they don’t use digital technologies to develop, market, and sell products as nimbly as younger CPG companies do.”

But, rather than investing more heavily in their IT departments to get up to speed on how new technology can advance their brand and capture market share, many large CPGs have cut IT budgets and staff – expecting those remaining to do more with less.

Based on a survey of 37 prominent CPG companies, The Boston Consulting Group found roughly half of respondents spend 1.4% or less on IT operations, compared to only a third four years ago. Similarly, it found CPG companies on average employed about 32 full-time IT staff members in 2016, down from 36 in 2014. As a result, each FTE supported on average 69 employees in 2016 compared to only 58 in 2014.

While these measures may have seemed necessary “given the slowing growth among mature CPG companies,”​ The Boston Consulting Group tempered that “so, too, is prioritizing IT innovation.”

Adopting agile methods

In particular, it advocates, CPG companies should embrace agile development methods that have helped Amazon, Google and other digital leaders capture and maintain significant market share.

“Using agile methods, these companies have been able to release software updates much more quickly than they could using a waterfall model: often dozens of times, rather than once or twice, per year. The rapid cycling and the responsiveness enabled by agile development’s small-team approach have given its most faithful practitioners a huge productivity advantage,”​ according to the report.

Despite these benefits, few large CPG companies have adopted agile methods, in part because they don’t think it fits with their “foundational systems”​ in which all components are tied together, they fear outsourcing will hinder evolving business objectives and they worry it will increase IT costs, according to The Boston Consulting Group.

To put these fears to rest, the report notes that agile methods can help outsourcing vendors make quality improvements and reduce errors more quickly while also speeding implementation.

It also notes that rather than raising IT costs, agile methods in general lower it by 15% to 20%.

Additional strategies for long term success

While agile methods can help companies get ahead by speeding their internal innovation strategies, true “leaders”​ in innovation, as identified the The Boston Consulting Group’s survey, also are more engaged with the broader outside community.

The survey revealed that most leading companies are avid users of innovation accelerators or have an internal innovation lab, and encourage their staff to participate in hackathons, which bring programmers together. In addition, using augmented and virtual reality can help staff test and inspect potential CPGs without fully investing in large scale production.

Participating on the boards of startups and attending investment firm’s demo days also are ways that large companies can get ahead.

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