An article from the Economist Intelligence Unit

Transcription

1 An article from the Economist Intelligence Unit Consumer-products companies see digital transformation as an opportunity to reinvent the customer experience, but their approach is fractured and has so far been less effective than the initiatives of other industries D igital technology has a proven ability to reshape the way individuals and organisations share information and, in doing so, alter the structure of markets. Consumer-products companies, for example, used to be beholden to intermediaries, such as retail outlets, in order to reach new consumers. However, the Internet has given many their first opportunity to interact directly with the market. The impact of this on the industry is still unfolding, but it has allowed a number of small companies to reach global markets in a way that would have been impossible in the pre-internet era, at least without the assistance of a global distributor or retailer. Now, there is a new digital frontier that promises to upturn the dynamics of the consumer-products industry. Widespread connectivity and falling component costs allow companies to embed digital function into their products, providing unprecedented insight into how they are used and acting as a platform for new, enhanced services built around the product. Although a recent research project by Accenture, a consultancy, found that consumer adoption of Internet-of-Things (IoT) products is not growing as fast as some had anticipated, it is early days yet in the technology s evolution, and it still has the potential to wreak havoc in the consumer-products industry by necessitating new business models and partner ecosystems. 1 The Economist Intelligence Unit Limited 2016

2 A multinational, cross-industry survey of senior executives, conducted by The Economist Intelligence Unit (EIU) and sponsored by SAP, reveals that business leaders in the consumer-products industry see digital technology as a means to reinvent the terms of engagement with consumers. The survey of 812 senior IT and non-it executives included 101 respondents from consumer-products companies. Of these, 44% cite improving the experience we offer customers and partners as a primary objective of their organisation s digital initiatives, compared with 35% of respondents from other sectors. This is their most common response, followed closely by improving our products and services with digital technology, chosen by 39% of respondents from the industry. In order to take real advantage of the opportunities that digital technology provides to reinvent the customer proposition, however, consumer-products companies must adopt new processes and practices that give them the agility to experiment. In particular, IT departments must adopt new roles to support that digital transformation. The EIU survey reveals that, as in many other industries, the IT functions of consumerproducts companies have yet to find the role that their executives would like them to fulfil. A fractured approach Organisations are still learning how best to structure, lead and manage their digital initiatives. Our survey reveals that companies in the consumer-goods sector tend to have a fractured approach. For example, 35% of respondents from the industry say that, rather than having a single, organisation-wide digital transformation strategy, individual departments have defined or implemented their own strategies. This is the most common approach cited by respondents in the sector, compared with 21% of respondents from other industries who say the same. This departmental autonomy is also reflected in the implementation of digital initiatives. In the survey, the majority of executives in the consumer-goods industry report that their organisation s digital initiatives are led by individual departments separately, with support from either the IT department (40%) or from a dedicated digital unit (15%). Respondents from other sectors are more likely to report that their digital initiatives are led by IT or digital specialists. Consumer-products companies are also slightly more likely than the cross-industry average to report that their digital initiatives are not owned by a single C-suite executive (19% versus 15%). The fact that digital initiatives in the consumer-products industry are typically directed and led by non-technical departments is by no means a bad thing. Indeed, as digital functionality is increasingly incorporated into products and digital services are designed 2 The Economist Intelligence Unit Limited 2016

3 to augment products, it makes sense for digital strategy to be a function of product strategy. At US-based headphones manufacturer Skullcandy, digital initiatives are led by a specialist department that owns the customer experience, with IT supporting the backend process that makes transactions happen. Digital is responsible for engaging the consumer and driving the consumer to the website, getting the purchase transaction completed, explains head of IT Mark Hopkins. At that point there s a handshake between digital and IT, where the order then goes into fulfilment and the IT systems get that order fulfilled in the most efficient, quickest, accurate way possible. This clear division of labour makes for a really tight liaison between my IT team and the digital team, says Mr Hopkins. We work very closely together. However, for other firms in the industry, the absence of cross-organisational co-ordination may be damaging their digital initiatives. The EIU survey reveals that respondents from organisations with a cross-departmental transformation strategy are more likely to describe their digital initiatives as highly effective than those that do not. This helps to explain why just 12% of respondents from the consumer-goods industry describe their organisation s digital initiatives as highly effective, a smaller proportion that in any other sector included in the study, and less than the 25% average across other industries (see chart 1). Chart 1 How would you describe the effectiveness of your organisation s digital initiatives in the past three years? (% of respondent who replay 'highly effective') 32% 29% 28% 25% 23% 21% 12% Retail Technology/ Software Energy & natural resources Public sector/ government Healthcare Financial services Consumer products Source: The Economist Intelligence Unit. Interestingly, the sector with the highest score on this measure is retail, on which the consumer-products sector is still highly reliant. Perhaps because they felt the disruptive impact of digitisation sooner than most industries, retail companies appear to have done a better job of capitalising on digital technology than the companies whose products they sell. 3 The Economist Intelligence Unit Limited 2016

4 Understanding consumer needs Despite a relatively low level of satisfaction with their organisation s digital initiatives, consumer-products companies are generally satisfied with their IT department s contribution. Half of survey respondents from the sector say they are happy with their IT department s contribution to their organisation s digital initiatives, slightly above the average across other industries (47%). A further 42% are indifferent, and just 7% are frustrated. Nevertheless, as in all industries, there are some functions to which executives in the consumer-products industry would like to see the IT department make a more proactive contribution. For example, only 4% of respondents in the industry report that their IT department plays a leadership role in identifying opportunities to innovate, but 30% believe that it should. And only 8% say IT has a leadership role in improving organisational agility, but again 30% believe that it should. One characteristic that sets consumer-products companies apart from their peers in other industries is a focus on customer needs. Over four in ten (43%) executives from the sector identify understanding and responding quickly to customer needs as the most important capability for the success of their organisation s digital initiatives more than any other capability, and cited by a higher proportion than in any other sector. Unsurprisingly, given the significance they place on it, executives from the sector look for leadership from the IT department in supporting this capability. Just over one-fifth of consumer-products executives surveyed (21%) say their IT department currently has a leadership role in understanding and responding quickly to customer needs, the highest proportion of any sector. And 38% say that in an ideal world it would assume this role. So how can IT departments at consumer-products companies help their organisation identify consumers needs more effectively? At Vax, a UK-based manufacturer of vacuum cleaners, IT director Nigel Aitchison has been working closely with the company s head of customer experience, Carole Edwards, as the company s business has become increasingly digital. Our e-commerce operation has grown by 1,000% in just four years, so we have had to respond quickly to how people choose to interact with us, explains Mr Aitchison. According to Ms Edwards, the key to providing an online experience that consumers enjoy and engage with is to let them make the decisions. We have to recognise that the digital channels are defined by our customers, she says. For instance, they get to pick which social media platform they want to employ. While Ms Edwards team took ownership of the project to create an omnichannel customer experience that allows consumers to switch between digital channels without re-entering their information, the IT function provided direct support. IT took the time to 4 The Economist Intelligence Unit Limited 2016

5 sit down with the customer-facing departments and ask them where they wanted to get to, Mr Aitchison recalls. Mr Aitchison is not a fan of the term digital transformation, which for him implies rapid and therefore expensive change. For us at Vax, it is all about allowing the business to evolve, he explains. You have to break digital change down into small pieces and not try and tackle it all at once. In particular, he says, any advancement in the use of digital technology should be a response to a customer need. Whatever comes next will be defined by our customer. Consumer-products companies, by their own executives testimony, are not seeing the level of effectiveness from the digital initiatives as companies in other sectors. To address this, IT executives in the sector should be focused on getting as close to the consumerfacing operations of the business as possible, from the boardroom to the shop floor, in order to understand what they need and how the IT platform they provide can support it most effectively. About this article: Digitising IT is a research programme by The Economist Intelligence Unit, sponsored by SAP. This article draws on a multinational survey of 812 senior executives, conducted in March Just under half of respondents (49%) are senior IT executives, while the remainder represent a range of other functions, including marketing, HR, finance and operations. Respondents are drawn from a range of industries, including 101 from consumer-products companies, and from countries in Europe, Asia, North America and Latin America. 5 The Economist Intelligence Unit Limited 2016