Leaders of consumer companies are navigating a spate of shocks: economic uncertainty, a tough labor market, and intensifying geopolitical conflicts—all while consumers continue to change their habits and preferences. Amid these disruptions, business leaders face harder choices. They can no longer focus on either growth or profitability—shareholders demand both. Digital technologies, including AI and advanced analytics, are becoming essential to every part of the business, heightening the importance of embedding digital capabilities enterprise-wide, not just in certain functions. With competition stiffening, companies can’t opt for localization at the expense of global scale; they should be both local and global. In short, consumer companies are operating in a world of ands, not ors.
In such a world, agility and adaptability are crucial. Most consumer leaders recognize that their traditional operating model—made up of a company’s capabilities, organizational structure, ways of working, technology, talent, and culture—isn’t nimble enough to anticipate and respond to these ands. Most leaders also know that there’s no single winning operating model; the right one depends on a company’s strategy, portfolio, and geographic reach. At the same time, they don’t want an operating model that’s complicated and unwieldy.
How, then, can a company develop an agile yet simple and clear model that both responds to today’s business realities and creates competitive advantage? Our latest research reveals some answers.
Building a high-performing operating model
Our colleagues, as part of their research on the “rewired enterprise,” have identified six hallmarks of high-performing operating models. Rewired consumer enterprises are enabling superior growth and margin while innovating at scale (Exhibit 1).
All six of these practices are critical—and consumer companies have room to improve on each (see sidebar, “More on the rewired enterprise”). But three of the six—rigorously prioritizing around the consumer/customer, creating a team-based operating model, and instilling a culture of ownership and accountability—present particularly tricky and nuanced challenges for consumer companies. In this article, we dig deeper into those three.
Rewiring your enterprise is undoubtedly daunting. Executive bandwidth is limited, resources are scarce, and operating-model changes risk disruption to business momentum. But the prize can be substantial: faster and more profitable growth, innovation at speed and scale, and reduced operating expenditures.
Success stories from consumer companies
In our work with companies in the consumer sector around the world, we’ve come across inspiring examples of retailers and consumer-packaged-goods (CPG) companies that have successfully designed—and redesigned—their operating models. This article draws on those experiences, as well as on our proprietary survey research.
Let’s examine how consumer companies can act on the three imperatives while paying attention to industry-specific nuances and pitfalls.
Rigorously prioritize around the consumer/customer
The first imperative of a high-performing consumer enterprise is to drive focus, ruthlessly streamlining priorities to do fewer things better. The organizational structure should reflect and advance the key priorities of the business, with the consumer (and the customer, in the case of CPG companies) at the center.
Focus on a few consumer-centric priorities and link them to individual and team goals
Our Voice of Consumer Organizations Survey found that 90 percent of respondents at high-performing companies have a solid understanding of their organizations’ North Star strategic priorities; that share drops to 78 percent at low-performing companies (Exhibit 2). Even leaders who feel confident in their strategy often admit feeling uncertain about how they will execute it. Furthermore, 28 percent of managers report that their company does not cascade objectives and key results down to the team or individual level.
Many consumer companies fall into the trap of either setting too many priorities or shifting priorities too rapidly, thereby spreading resources too thin and diluting the organization’s focus. Furthermore, the priorities they set aren’t always consumer oriented; sometimes they’re investor oriented or, worse, vanity projects for one or two executives. Rewired consumer enterprises, on the other hand, align on only a handful of clear goals grounded in consumer/customer needs. They communicate these strategic priorities to establish a common understanding of the company’s value agenda. They also translate their North Star into quantifiable objectives and clearly link individual and team goals to business priorities, ensuring that the entire organization is focused on the same outcomes.
One company undertook a thorough review of its initiatives and, finding that only half of them were truly consumer focused, discontinued the other half. It then made explicit connections between its North Star—which centered on providing a more convenient and higher-value experience to customers—and the goals of every department. For example, recognizing that the company could execute on its North Star only if it retained exceptional talent, “excel at talent retention” became a strategic priority for the HR function. That strategic priority translated into an objective of “improve employee engagement,” with a key metric being an “average weekly satisfaction score of at least 4” on a 5-point scale.
Eliminate low-value-add work
Companies often give employees new tasks and responsibilities but fail to identify and stop work that may no longer be important. This failure compromises organizational efficiency and employee engagement.
One global retailer reassessed the work that should—and shouldn’t—be done across every function at each level of the enterprise. Leaders of the various functions, working closely with a dedicated strategy team, conducted on-the-ground research (for example, interviewing stakeholders and analyzing how employees spent their time) to identify activities that added little to no value. The finance team found that it could free up at least ten full-time-equivalent hours a month—which could then be reinvested in higher-value tasks—by centralizing most financial planning and analysis activities and by discontinuing certain business unit (BU)–specific reports. The effort yielded substantial resource efficiencies, including a dramatic reduction in general and administrative costs; enabled material improvements in employee engagement and productivity; and allowed for a more streamlined organizational structure.
To stop redundant tasks from creeping back in, it’s important that leadership aligns on new working norms, giving employees the confidence to stop doing deprioritized work. Each BU and market should commit to not setting up parallel processes and to providing consistent data inputs through standardized frameworks and templates. One company, for example, mandated the use of a ten-page template for a cross-functional process that had previously triggered countless preparation meetings and extremely long submissions from each BU.
At-scale automation and AI, too, are changing the game when it comes to eliminating manual and transactional work activities. The opportunities vary by task and by role, but in general, operations and support functions could benefit greatly from automation. Commercial functions, meanwhile, are already starting to see meaningful impact from the use of applied AI and generative AI. Marketing teams, for instance, are using gen AI assistants to accelerate content development and to tailor campaigns to consumer segments in real time. Recent McKinsey research estimates that gen AI alone could yield an additional $400 billion to $660 billion in the retail and CPG sector through increased productivity. When exploring use cases for gen AI, leading companies start with activities that involve burdensome paperwork, reporting, correspondence, aggregation, or synthesis.
Reallocate resources frequently and dynamically
Whereas most companies refresh their strategic objectives regularly as consumer/customer needs change, they don’t necessarily do the same with the capital required to finance such objectives. Capital is typically reallocated only on an annual basis—and, often, very little is actually reallocated. On average, companies reallocate only 8 percent of their capital from year to year.
A global consumer goods company had previously organized its brands by geographic market, which meant that if several high-growth brands were in the same market, only one or two of those brands got the resources and attention they deserved. Conversely, weaker brands in markets that had bigger budgets were granted resources disproportionate to their growth potential. During the company’s annual resource-allocation process, each brand typically received a budget that either was little changed from the prior year’s or reflected an executive’s skills at corporate maneuvering.
To better support the growth of all of the most promising brands in its portfolio, the company adopted a new structure: it segmented its brands according to growth, strategic importance, and margin profile—regardless of geography—and then allocated resources (including marketing spend; R&D budgets; capital expenditure; sales, general, and administrative expenses; and executive mindshare) based on these segments. The company then reevaluated these allocations on a quarterly basis. The finance organization created a new framework and algorithms that informed the allocation process so that resources were allocated to brands, categories, and markets in a way that aligned with the company’s strategic goals.
Create a team-based operating model
Another characteristic of a rewired consumer operating model is that it overcomes the customary frictions of “lines and boxes,” such as duplicative work, siloed decision making, and a lack of cross-functional collaboration. It optimizes where activities get done while establishing seamless, cross-functional ways of working, thus allowing for greater speed and better use of scale.
Optimize what work gets done—and where
Global consumer players often wrestle with how to create local intimacy while capturing the benefits of global scale. Organizational layers slow decision making and add cost, so the most effective consumer companies typically concentrate resources in two enterprise-wide operating layers: a global center and a BU/market layer. Any additional layers (such as at the regional or category level) are only for managerial oversight and aren’t given P&L responsibilities or dedicated resources.
In a rewired consumer enterprise, the global center acts as a network facilitator for customers or consumers—allocating resources to functions or markets, prioritizing capabilities for investment, and creating greater transparency with and across functions and markets. This represents a culture shift: whereas the global center has historically been something of an “ivory tower,” directing activities but remaining distant from markets and consumers, the modern global center instead serves as a “customer or consumer support center.” Some companies have renamed their global centers accordingly.
One global food and beverage player made global roles more responsive to market needs by locating them in key markets. The company also gave functional leaders in key markets global roles overseeing special projects—for instance, the chief marketing officer of a key market served as the global lead for a major brand campaign. Another company, a global retailer, established a robust infrastructure of semiformal communications to provide two-way visibility into global and local priorities. For example, the chief marketing officer hosts biweekly “fireside chats” to preview global campaigns and address local market questions. At the local level, functional leaders from similar markets convene on a regular basis to share best practices. This networked approach has led to greater resource efficiency and improved outcomes at the customer and consumer level.
Once it has established the right enterprise layers, a company should determine what work needs to happen and where, to advance toward its North Star effectively and efficiently. Which activities truly require a local presence and local expertise? What transactional work can be elevated above market level? Going through such an exercise, function by function, often surfaces many opportunities for simplification, as well as task- and job-level opportunities to increase productivity through automation and AI.
Build agile, cross-functional teams around value creation—and reconfigure them as needed
Sometimes the best thing to do is bypass the org chart. Rewired companies recognize that adhering too strictly to the formal organizational structure can create bureaucratic silos and hinder innovation. So instead of being bound by reporting lines, rewired companies create dynamic teams across different functions and levels of the organization that can work horizontally to deliver defined outcomes. Cross-disciplinary activities—such as developing breakthrough innovation or nurturing direct-to-consumer businesses—lend themselves to this way of working.
Drawing skills and talent from different functions has downstream implications on the talent ecosystem. For example, companies may need to create new staffing models and new incentive systems for these teams.
In our survey of retail and consumer goods employees, 65 percent say they have recently begun to pilot agile ways of working, but only 10 percent have rolled them out across their organization. Companies that have established agile-team-based operating models have been amply rewarded. For example, as detailed in a recent McKinsey interview, a Walmart subsidiary in Mexico formed entrepreneurial “squads”—multidisciplinary teams whose members came from various parts of the previously siloed organization. The company has since opened more than 400 new omnichannel stores, generated revenues in excess of $40 billion, and expanded margins annually.
Instill a culture of ownership and accountability
Successful consumer companies solve for simplicity at scale. They create a streamlined organizational structure with well-defined decision rights. They also build a culture of empowered leaders and make solutions easy to reuse and improve.
Create a simple organizational structure with clear decision rights
Consumer organizations tend to become more complex as they get bigger, resulting in greater distance between “doers” and decision makers, and thus slowing decision making. Across the CPG sector, managers report that the critical decisions for approximately 30 percent of activities are made at a higher level of the organization than where the work is done. In such a context, it can be hard for employees to feel ownership over the outcomes of their work.
Rewired consumer companies achieve clarity and speed by defining accountabilities for each role at every level of the organization. A critical enabler is to push decision rights as close to the action as possible while explicitly giving leaders the autonomy to deliver.
A beverage company, for example, found that leaders for some of its key customer accounts, which collectively represented over 60 percent of the company’s revenue, were four levels down from the CEO. The company restructured its commercial organization, making two key moves. First, it removed layers in the organization by elevating the account leads to be one level down from the top team, allowing accountable business leaders to more directly understand and drive the growth agenda. Second, it established an empowered “chief commercial officer” role, whose responsibility, in part, is to help the enterprise build world-class sales capabilities (such as revenue growth management and shopper analytics).
Another company, a global food player, recently restructured by establishing end-to-end BUs and organizing based on consumer-centric categories, going so far as to embed significant components of the sales, supply chain, and finance organizations within the BUs (while selectively maintaining a few central teams to leverage scale). Across all functions, most reporting lines were shifted to the BU leader. For instance, each BU now has its own analytics team, which means they get immediate access to tailored insights, instead of having to “compete” and wait for insights from a central analytics team. The results? A more streamlined business with clearer decision rights, faster response time, stronger alignment around strategic priorities, and higher employee engagement.
Facilitate learning and knowledge sharing
Successful consumer companies develop “learning leaders”—executives who strive to learn from one another and innovate through rapid testing and continuous improvement. This requires accountable executives to have sufficient visibility into the business.
In addition, rewired consumer companies accelerate decision making by “solving a problem only once”—that is, they establish processes and forums to make it easy for everyone in the organization to learn about and reuse solutions to common problems across similar markets, customer segments, or BUs. They prioritize visibility and transparency, fostering an enterprise-wide mindset.
A multinational food retailer found that one of its European markets had commissioned a study on how to make its store locations carbon neutral—just months after another of its European markets had done exactly the same thing. The company has since sought to establish a cultural norm of “shameless stealing,” encouraging business leaders to commit to using and improving existing solutions instead of creating them from scratch.
Consumer leaders seeking to rewire their enterprises should start with a thorough, unvarnished assessment of how their company fares against each of the imperatives outlined above. In our experience, most companies perform relatively well in certain aspects but lag in others. Rather than tackle every imperative simultaneously, consumer leaders should take a phased approach, prioritizing the areas where they currently fall short. But whatever your starting point may be, now is the time to act.
