Saturday, January 4, 2014

Are CPG Companies Missing IT Opportunities?

A large proportion of consumer packaged goods (CPG) companies are following a less-than-optimal approach in their information technology (IT) strategies, according to a new report by the Grocery Manufacturers Association (GMA) and The Boston Consulting Group (BCG).

Based on extensive surveys of 27 leading CPG companies, the report looks at how much money companies are spending on IT and how aggressively they are adopting new technologies, such as social media, software as a service, and advanced analytics.

As expected, companies with low IT spending tend to limit themselves to deploying mature technologies, taking a cautious approach to new and less proven technologies. But 42 percent of the companies surveyed, despite spending significant sums on IT, were not quick adopters of new technologies, either. Another 8 percent of participants had constrained IT spending, yet managed to invest in new technologies — a strategy that may not be sustainable in the long term.

"Many CPG chief information officers today are at an inflection point. They would be well served by having a frank conversation with their executive leadership about the tradeoff between IT spending and new technology adoption," said Ashwin Bhave, a BCG partner and coauthor of the report.

"For the first time in the history of the GMA IT Benchmarking report, we are seeing many CPG CIOs look at IT through more than just a cost lens. Companies whose IT and business leaders have a clear, agreed-upon vision for the role of IT in their business model can take concrete steps to transform their growth position," said Elise Fennig, GMA's Vice President of Industry Affairs.

Growth Is the New IT Priority
Significantly, the opportunity for shifting IT strategy in consumer goods comes as the pressure to bolster growth intensifies. According to the survey, nearly 75 percent of CPG CIOs cite supporting business growth as a top IT objective, up from fewer than 20 percent who identified growth as a primary IT goal in 2010.

New technologies increasingly make IT — long seen as an overhead cost — a potential engine for growth. Consumer-oriented technologies, such as digital media and smartphones, create new ways to connect with consumers and build brand loyalty. Analytics and big data also offer new tools for harnessing information to yield valuable insights into consumer behavior.

All of this means that the role of IT is increasingly moving closer to the front and center. CPG CIOs can play an anchoring role in delivering these new capabilities to the business. That said, IT leaders who do not step up to the new demands of their executive leadership teams may find themselves being sidelined as other functions, such as marketing, take the lead in exploiting new technologies.

The report, entitled "GMA Information Technology Benchmarking 2013: The New Mission for IT in Consumer Packaged Goods," identifies a number of other key IT trends in the CPG industry:
  • Most CPG companies are in the early stages of implementing new technologies, with none of the survey participants, for example, having fully deployed big data solutions.
  • IT funding remains tight, with growth in IT operating expenditures in 2013 trailing revenue growth.
  • Most CPG companies outsource a relatively low proportion of their IT services, with the median company outsourcing only 32 percent of IT. In fact, the survey found no evidence that outsourcing leads to lower IT costs. On the contrary, median IT operating expense as a percentage of revenue was higher for significantly outsourced companies than for minimally outsourced companies.
  • Companies looking to free up IT funds can often find savings opportunities in their IT infrastructure. The survey found that rapid adopters of new technologies spend proportionally less on IT infrastructure versus IT applications than those that take a more conservative approach to new-technology adoption.


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