Porter’s 5 forces – a model taught to every business student across the world. A feature worth noting here is that not all businesses, big or small, seem to incorporate the essence of this really basic framework in their business development strategies.
The world today is driven by data. Companies are pumping in a major chunk of their revenue into advanced analytics and machine learning that help them personalize their products for the customers. Cost leadership and first mover advantage are often seen being trumped by replacing intuition with statistical insights. Computer applications and internet based e-commerce companies have traditionally been using analytics to increase their profits manyfold, however, the consumer goods industry which seemed distant from the buzz that machine learning and analytics created is now seen to be embracing the construct.
Therefore, it would really be interesting to study the strategic and transformative nature of information and data science in general based on how these consumer goods companies incorporated and leveraged this domain to create a competitive advantage; when one talks about consumer goods, the name that is always a forerunner in terms of innovation is the Proctor and Gamble company.
Business Domain
The Proctor and Gamble Company (P&G) is an American multi-national consumer goods corporation. It is a top ranked company in its business domain of fast-moving consumer goods (FMCG). Founded in 1837, it specializes in a wide range of personal, healthcare and hygiene products. In the medieval age of its existence the company portfolio also included food, snacks and beverages. The company now operates through five segments: Beauty, Grooming, Health Care, Fabric and Home Care and Baby, Feminine and Family Care.
Performance Drivers
The Fast-Moving Consumer Goods market is an extremely competitive market wherein the companies use many key drivers of performance to gain a competitive advantage. These strategies can be summarized as:
- Cost Leadership: Offering standardized products at a very competitive price. However, in mature industries cost leadership may not lead to sustainable strategic competitive advantage.
- Differentiation Strategy: Creating competitive advantage by offering products or services that are different to those existing on the market.
- Focus: Focussing on a certain customer segment, product collection or geographical market. However, this strategy can be too focussed or too broad causing the company to appear as having chosen no strategy at all
- Innovation: Can lead to the company redefining the company’s actual market and focussed customer segment.
IT – A Strategy and Transformation Driver
“P&G uses Big Data to turn diapers into insights”
P&G is on a pursuit of becoming the most technologically enabled CPG business in the world. In mid 2000’s P&G went on record saying, “Digital technology is enabling P&G to expand creativity with an unprecedented delivery machine that is constantly evolving”. P&G is shifting to a digital-first approach to building brands which in turn is luring shareholders by showing potential of an above-average returns on investment. P&G has dynamically amalgamated an IT driven approach to their erstwhile core competency – using medium of creativity enabled by emerging technology and turning it into an art and business model to build its brands.[4]
P&G’s key IT-driven strategies:
- Reinforcing the decision to move focus from product/brand management to customer management – P&G is using Big Data Analytics to create customer-centric marketing campaigns. They have created a conceptual framework that monitors every touch point of the customers from online, in-store or on television.
- In its manufacturing facilities P&G has installed an envisioning system for its employees wherein they can download data off the production line in real time.
- Although integrating technology into operations appears to jeopardize the competitiveness of the cost of product, P&G has struck a perfect balance by integrating its operational system with the financial system.
- In its transport and logistics, it uses a program called Control Tower which helps P&G to see all the consignments being hauled. Through another interface called the Distributor Connect, the company connects to its distributors to improve service and reducing inventory.
- P&G also digitally connects to retailers through GDSN (Global Data Synchronization Network); a standardized data warehouse that allows P&G to engage in commerce with its retail partners in a totally automated way with no human intervention. This initiative helps save millions of dollars that are otherwise lost in erroneous engagements between retailers and suppliers.
- ‘Virtual Wall’ a concept in its beta stages, uses multiple projectors to simulate store shelves for faster consumer testing.
Impact
The results of such a widespread adoption of IT and Information Systems across departments are evident. P&G effectively used big data to find the business insights to optimize data models for analytics and data visualization. Overcoming daunting tasks in the initial deployment phases pertaining to failed data lakes or ‘data swamps’ to harnessing data to create value, P&G has mastered this art in the CPG industry.
“The result has been making believers out of analysts and managers who might otherwise regard data analytics as a fad, “or who would chant ‘obsolete before plateau.’ “
– Terry McFadden (Associate Director – Decision Support System)
In the year 2000 only 15% of its innovation efforts met profit and revenue targets , today the figure is 50%, all because of P&G’s analytics initiatives.
“A wealth of information creates poverty of attention”
A quote from the book “Information Rules” by Carl Shapiro and Han Varian perfectly summarizes todays information and business dynamics where companies need to focus and harness this wealth to ensure sustainability and market leadership, thus realizing the Strategic and Transformative Nature of IT.
References
- https://www.reuters.com/finance/stocks/companyProfile/PG
- https://en.wikipedia.org/wiki/Procter_%26_Gamble
- http://ideasmakemarket.com/2013/09/aug-entry9-analysis-of-fmcg-sector.html
- https://www.forbes.com/sites/avidan/2015/03/12/why-pg-is-quickly-shifting-to-a-digital-first-approach-to-building-brands/#f08b8f9434ac
- http://panmore.com/procter-gamble-five-forces-analysis-porters-recommendations
- https://www.wcpo.com/news/insider/friendly-rivals-how-kroger-and-procter-gamble-collaborate-while-competing
- https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/consumer-business/deloitte-nl-cip-fmcg-analytics-framework.pdf
- https://hbr.org/2006/03/connect-and-develop-inside-procter-gambles-new-model-for-innovation
- https://hbr.org/2011/06/how-pg-tripled-its-innovation-success-rate
- https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/unlocking-the-power-of-data-in-sales
- https://www.jstor.org/stable/27750802seq=2#metadata_info_tab_contents
- “Information Rules” – Shapiro & Varian
Data Vizardry 