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Consumer Packaged Goods Needs Performance Management

Advances in technology and use of information have had limited impact.
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Summary
The consumer packaged goods (CPG) industry has continued to expand globally without innovating in its use of information technology in finance and operations. But now, as consumers rapidly become savvy about demanding what they want, power is moving to them and away from retailers. Without leadership driving major changes in information systems and business processes, CPG manufacturers will find it difficult to maintain market share and reach their profitability and performance targets. Ventana Research has found that most CPG manufacturers are not using technology and information to innovate and address arising issues in their business. Ventana Research recommends that they re-evaluate existing IT strategies and use of technology and enable performance management processes to promote improvement in operations and their ability to achieve business goals.

View
The CPG industry in general still runs business with practices from decades past, when traditional channels of retailers and market activities in brand, category and product management held sway. Unfortunately for them, the influence of advertising in newspapers and television is losing ground to technologies like digital video recorders for watching TV, the Web for shopping and mobile technologies for finding locations to shop. This shift places new pressure on CPG companies that have not kept up with the Internet-based, consumer-centric world and learned how to use information technology for competitive advantage.

CPG manufacturers that are not achieving high enough margins from their existing products and strong enough revenue growth from new products face an uncertain future. Many companies routinely spawn new products without much planning (and perhaps with doubtful confidence of success). Currently only 1 percent of new products introduced into the market generate at least $100 million in revenue. With mass retail channels on one side and specialized retailers on the other, CPG companies cannot be sure whether their actions in areas like brand, category and product management across distribution channels can have a strong impact.

Ventana Research attributes a substantial part of the blame for the less-than-stellar business and financial results of the CPG industry to lack of integration between financial and operational processes. We believe that financial executives must integrate strategic and operational planning to instill rigor in managing the performance of the business. The absence of information systems and applications across the demand chain areas of marketing, sales and distribution has limited the business intelligence that managers can apply to make the right decisions. We believe that operational executives will have to reinvest in strategic decision support systems, now classified as part of performance management, to help their organizations plan and pursue their goals and objectives more efficiently.

IT management in CPG manufacturers must move beyond just supporting existing applications, networks and infrastructure that cannot address the new needs of operations or finance. While there has been some investment in business intelligence and centralization of the access and delivery of information, most are not ready to meet the next generation of requirements. Most organizations will require an infusion of new talent or significant education to support the requirements of performance management.

Assessment
The CPG industry has begun to recognize the changes that now impact consumer behavior in advanced societies like the United States and the growing populations of consumers in Brazil, Russia, India and China. To achieve the outcomes shareholders demand, executives of CPG manufacturers will have to replace their existing methods and technology for using information if they hope to achieve process and performance improvements. Ventana Research believes that CPG companies need to wake up and admit that business and process innovations require analytics from data and collaborative technology that can accelerate their ability to act on shifts in the consumer markets. Organizations that do not begin to address these new requirements will find themselves struggling to grow in a profitable manner.

Related Research Notes:
Performance Management: A Grand Opportunity to Improve
Managing performance is at the core of every organization's mission.

"Reinventing CPG Summit" Looks To The Future
Marketers, retailers, vendors join in chorus for change.

About Ventana Research
Ventana Research is the leading Performance Management research and advisory services firm. By providing expert insight and detailed guidance, Ventana Research helps clients operate their companies more efficiently and effectively. These business improvements are delivered through a top-down approach that connects people, process, information and technology. What makes Ventana Research different from other analyst firms is a focus on Performance Management for finance, operations and IT. This focus, plus research as a foundation and reach into a community of over two million corporate executives through extensive media partnerships, allows Ventana Research to deliver a high-value, low-risk method for achieving optimal business performance. To learn how Ventana Research Performance Management workshops, assessments and advisory services can impact your bottom line, visit www.ventanaresearch.com.
2006 Ventana Research