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CPG companies must embrace IT, innovation despite cost pressures

Image credit: Boston Consulting Group

In order for Consumer Packaged Goods (CPG) companies to survive and thrive amidst the explosion of e-commerce, online advertising and digital technologies, they must comprehensively re-evaluate their use of technology, according to new research released by The Boston Consulting Group (BCG) and the Grocery Manufacturers Association (GMA).

Image credit: Boston Consulting Group

Image credit: Boston Consulting Group

The benchmarking survey, Navigating the New World of IT in Consumer Packaged Goods: GMA Information Technology Benchmarking 2015, shows that CPG companies vary widely in how much they spend on IT.

The report also reveals different patterns and strategic choices that distinguish the IT-spending approaches of CPG companies and delves into the adoption of Software as a Service (SaaS) and Agile methodologies.

“We were surprised by how few IT innovation practices are being used by CPG companies,” said Ashwin Bhave, a BCG partner and coauthor of the report. “There are a number of low-cost, no-regret moves that can be made by CPG CIOs to stay ahead of the curve and create enormous value for the business.”

The benchmarking survey identified best practices of IT innovation leaders. In particular, these include:

– Funding a wide variety of technology-enabled business capabilities. IT innovation leaders run broadly scoped IT budgets, investing in technology-enabled business capabilities such as consumer websites and mobile apps, e-commerce technology and content management, SaaS solutions, and analytics.

– Experimenting with cutting-edge technologies. IT innovation leaders experiment with a wide variety of new technologies such as responsive web design, non-relational databases, and micro-services.

– Embedding technology solutions across the entire business. IT innovation leaders invest across the full spectrum of business processes, such as supply chain, finance, marketing, information management, and manufacturing.

“The challenges for CIOs trying to manage IT costs while driving innovation are intensifying,” said Jim Flannery, Senior Executive Vice President of Operations and Industry Collaboration at GMA. “The CIO has the best vantage point from which to evaluate broad corporate needs in light of industry disruption and formulate a future-focused technology strategy. This study will provide a useful starting place for that work.”

The research also found that 41 percent of CPG companies surveyed were “suboptimal operators,” with high IT operating expenses and low levels of innovation. CIOs in this position need to pursue a two-pronged strategy: first, systematically review all IT costs to reduce core spending; second, collaborate with executive management to develop a pragmatic innovation agenda.

Further findings show that SaaS solutions are rapidly replacing PC-based software installations at many CPG companies—with an increase of up to 28 percentage points in the share of SaaS since 2013. However, the industry has been slow to adopt Agile methodologies. Just two in ten participating companies use Agile in more than 30 percent of their IT projects.

For the first time, CPG companies participating in the benchmarking study gain access to a dynamic application that allows users to directly compare their IT performance to the rest of the companies in the database. Each participant can run more than 250 custom, comparative charts across 27 different IT metrics.

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