How to Drive CPG Growth from the Inside Using the Decision-Making Approach
The consumer packaged goods (CPG) industry is experiencing unprecedented change. CPG executives were already struggling to navigate a more volatile, uncertain, complex and ambiguous environment (VUCA) with fewer resources while leading an increasingly mobile workforce. Covid-19 has only accelerated these changes.
Decisions are made to respond to change or to make change happen. That’s why this increased rate of change places CPG companies under unprecedented decision-making pressure.
To adapt to this new normal, CPG organizations need to rethink their decision-making processes. The need to respond more quickly to consumers requires an accelerated decision time. Under budget pressures, managers will need to develop high-quality recommendations using existing tools and resources. Organizations will need to capture actionable insights along the way to learn from short-term results and improve long-term performance.
Map the most critical decisions
Leaders align their strategies, initiatives and resources around fundamental business objectives; chief among them for CPG leaders is the endless pursuit of growth. This drive for CPG growth translates into goals for increasing market share, incremental sales/volume, and profitability, and each goal defines a set of levers that decision makers can use to achieve growth.
For example, suppose increased profitability is the goal. In this case, managers can reduce packaging or other input costs or increase prices to improve gross margin. These levers highlight critical decisions that drive growth.
The decision-making approach maps these decisions as a central coordinating framework of the people involved and the data needed to inform analyzes and generate better decisions. Let’s explore an example of how this works. Note: A full whitepaper explaining the approach is available for Download PDF).
Use the decision-making approach to map critical decisions to increase profitability involves these steps:
- Identify the levers: Intuitively, CPG managers know that to increase profits, they must increase sales and maintain or improve margins and decrease costs and reduce unproductive products while improving gross and operating margins. The specific levers involved include product/packaging, pricing, SKU rationalization, consumer/commercial advertising and promotion, and cost management.
- List the decisions: For each lever, list the critical decisions to be made. For example, for product and packaging, ask, “Can we reduce product formulation and/or packaging without alienating customers?” Similarly, for pricing, the business must decide, “Can we increase the price of the product without losing too much volume?”
- Describe the business issues: Break down each decision into a decision tree of key business issues requiring analysis-based information, key performance indicators (KPIs) to inform that information, and data sources to provide metrics for those KPIs.
CPG leaders can use these comprehensive decision maps to know what decisions to make, what information is needed, and which teams need to be involved.
Creation of decision trees
Once you have mapped out the critical decisions, start creating trees for each one. This process has four key steps.
1. Frame the critical decision to be made.
Write the decision in the form of questions. Does the question get to the heart of a problem or is it part of a larger problem we are trying to solve? Is it usable? It is good practice to first write down the context of the choice. What is the problem, complication or change we are facing? Then write the question with an open framing, such as “How should we [solve the problem]?” or “What should we do about [the problem]?”
When we take a problem-focused view of decisions, we often find that what appears to be an overall decision is a system of interdependent choices. For example, when it comes to cost management leverage, many CPG companies are faced with the overall decision, “How should we react to increases in the cost of raw materials? » This is a large and complex challenge, and it is essential to consider all the important factors involved. Breaking down such decisions into their fundamental elements helps avoid the mistake of jumping to the wrong conclusions and ensures that decision-makers consider a full set of ideas and choices.
To do this, develop a frame. Dealing with rising raw material costs includes “Top Line” choices such as “How much should we absorb?” or “What should we do to pass the costs on to customers?” Cost inputs also require COGS choices such as “How should we reduce commodity exposure?” and “How should we increase procurement efficiency?” These four critical decisions holistically address all of the key elements that drive the overarching problem of rising commodity costs.
2. Create the decision tree.
Once you’ve framed each decision, break it down into the key business issues driving it to create more digestible questions that individuals and teams can address. For example, the decision “How should we increase procurement efficiency?” is addressed by answering, “Can we negotiate prices?”, “Can we reduce costs via hedging/futures?” and “Are there other strategic options to consider?”
We can also break these business issues down into sub-questions if needed. More detailed sub-questions reduce gray areas and guide team members to gather relevant insights and insights to answer those questions.
An important note: By “decision tree” I mean a logical visual representation of the decision factors (i.e. the business issues and related sub-issues) and not a statistical model.
3. Connect the data sources necessary to generate relevant information.
Start connecting only required data after Create a comprehensive decision tree that outlines all major business issues and sub-issues. This clarity makes data collection, research and analysis activities much more efficient. More importantly, once decision trees are in the hands of decision makers, this comprehensive set of business problems ensures that the insights generated by the team support recommendations that directly address the critical decisions facing brands and businesses. .
4. Facilitate cross-functional collaboration to provide informed recommendations.
The first three steps are about structuring and gathering information in a decision tree to help make a recommendation that considers all key factors. Then, cross-functional team members are assigned specific “legs” to complete. Then the team works together to synthesize the information, draw conclusions, and recommend the solution to the decision. Finally, the decision maker uses the recommendation to make the best possible decision.
Don’t make small plans, start small
Transforming your organization’s decision-making is a laudable goal, and it’s also likely to trigger some resistance at first. Creating a comprehensive decision map will help bring the overall problem under control and build intellectual buy-in. However, the most common denial I hear is, “It makes sense, but we can’t forget the politics and the emotions that go into the decisions.”
People are people, and corporate politics is nothing new – many decision makers approach critical decisions with what is best for them and for the organization in mind. However, it is still up to the decision maker to deliver results consistent with business objectives. So to start, focus on a single critical decision to create a case study that shows how valuable decision feedback can be. The resulting transparent decision-making process will speak for itself with more buy-in, stronger execution and better results.