Conglomerates like Kellogg’s, B&G Foods and Unilever continue to separate into specialty category companies to focus on key growth areas and become more agile. But digital capabilities are one part of the business that can benefit from staying together.

“These companies are about to add a new business complexity, and rightfully so, because specializing will be more profitable,” said Dan Liebermann, Managing Director at Publicis Sapient. “But if they want to maintain a digital experience that’s cost-effective and maintains some level of consistency to their customers, they can’t split into multiple digital models. It won’t work.”

So, what will? Many CP firms are looking into core digital hubs that house capabilities like data and marketing under one roof. According to Liebermann, while it’s a really tricky thing to pull off—especially for newly separated companies—it can help achieve consumer engagement and get results from new technology.

A digital-first operating model is different for every company, but it revolves around one thing: making digital capabilities a priority.

Many CP firms have little alignment on digital strategy, data and technology across departments, brands and regions. Switching to a digital-first operating model prioritizes a digital investment. One way to create a digitally enabled company is by putting digital at the center.

“It means having some sort of core, ideally a digital core, where all digital capabilities sit in one group and have full control of digital investments and budgets,” said Sabrina McPherson, Senior Managing Director at Publicis Sapient. “So, marketing and data are handled centrally across all brands under one umbrella.”

In a less mature digital operating model, all of these services might be handled regionally or on a brand-by-brand basis. With a more mature digital-first operating model, they could be handled by a central entity.

“Many CP firms have limited digital resource dedication or alignment on digital standards,” McPherson said. “There are digital initiatives embedded in every different brand or business, but they're not leveraging across the business to do digital in an efficient way, nor are there core standards or excellence around it.”

A digital strategy might not be a new idea for consumer products brands, but investing in completely new organizational models to support digital strategy is just beginning to gain traction.

Two main factors are motivating CP firms to make a change: reducing costs due to inflation and remaining relevant against the competition. These issues are also driving the various specialty spin-offs within the industry.

Reducing post-COVID-19 inflation costs for consumer products brands

Many consumer products brands are also looking for innovative ways to cut costs because of sustained inflation.

While companies anticipated an eventual recovery after COVID-19 lockdowns, a massive rise in costs for key raw materials is straining the return to “normal.” CP brands are facing smaller-than-expected margins, and they have to make tough decisions on what to invest in and where they can cut costs.

At first glance, the costs of building out a new digital-first operating model are daunting for many firms. But in the long term, having a central data hub can save CP brands money and time across brands, especially when utilizing first-party (1P) data.

Remaining relevant in a digital environment for legacy brands

In the past, traditional, siloed marketing methods and regional retailer relationships were enough to sustain business operations for legacy CP brands. Today, almost all companies within the industry are looking to build direct and deeper relationships with consumers, which is directly enabled through digital channels and capabilities.

“Standards of how brands engage with consumers are set by digital natives that often are outside of the CP industry. Consumers increasingly expect any brand to know them almost better than they know themselves,” McPherson said. “Delivering on this ever-rising bar of expectations requires digital content that is always evolving, timely and personal, which is why you need this hub in the center to be able to have those insights on a more frequent basis.”

Research has shown that consumers are no longer as loyal to specific brands as they once were, and they are more willing to seek out new brand options after negative experiences. Inflation and rising costs are also pushing consumers to pull back on spending and seek brands with lower costs.

This creates a key opportunity to tap into new digital channels to consumer relationships and collect 1P data. Even if it doesn't make sense for a CP brand to invest in a direct-to-consumer (D2C) commerce channel, D2C digital marketing is a must.

To serve personalized ads for multiple brands to the same customer profile through Pinterest, Spotify and email, for example, business units from different brands and regions will need a centralized structure to share information and work together.

Optimizing consumer products organizations to handle digital tools

Some consumer product companies have even decided on a digital-first operating model after trial and error with new technology.

CP firms often invest in a D2C channel, digital marketing, cloud migration or another data-heavy initiative to modernize the organization and achieve growth.

Then, after purchasing technology platforms, consulting work and training, they will discover they aren’t reaping the expected benefits. This is because while the technology improved, the organizational model did not.

“Migrating to Amazon Web Services (AWS) might turn a lot of heads, get various press releases, and by all accounts is a good thing to have,” Liebermann said. “But how do you actually use it? You can build a Bugatti that can go 200 mph, but you give it to someone and they might drive it 20 mph and crash into a tree. It’s about preparing people to use new tools at their maximum capacity.”

Whether companies have already invested in digital or are just starting their digital journey, the operating model is an often overlooked yet significant factor in success.

Generally, most CP firms that have invested in digital capabilities start with a decentralized operating model that is not truly “digital-first.” Then, step-by-step, firms can begin to consolidate their digital capabilities—from being decentralized to a digital core.

While the goal of transitioning to a more digital-first operating model is to create more speed and agility, successfully switching to putting digital at the center of a company takes longer than expected.

This is something that CP firms often struggle with, as it can take over a year to see results. With other business model changes, it’s quite easy to employ a “test-and-learn” strategy to try new ways of working or new technology. But with true organizational changes, results are slower to take root.

“Lots of companies want to know if we can try this new operating model within a month just to see what it looks like,” Liebermann said. “But you need to build out the foundation first. You can’t build a new house without the foundation.” 

The first piece of advice companies can lean into is building a DCoE before creating a true digital core.

This center of excellence requires not only a team and, ideally, a chief digital officer, but also talent that can build out standards for key digital capabilities, such as digital marketing, data and analytics, digital product management, and consumer insights.

Focusing on developing a high level of knowledge around these key capabilities will help integrate a digital hub into your organization—and better achieve buy-in throughout different business units. And the ultimate goal for a digital hub? Budget and decision-making power.

“If you're just a center of excellence and you don't have budget or decision-making control right, you only can indirectly influence what each market is doing as far as how much they want to spend on digital marketing and how much they want to spend on digital experience building,” McPherson said.

A key component to the initial success of a DCoE is the culture around digital strategy and change, which can often be looked upon as a secondary factor, or the “softer side” of digital compared to technology. “Solving not just the operating component, but also the cultural component, is the hardest part, and it takes time,” Liebermann said.

CP firms can stand up a solid DCoE or hub, but if business units aren’t motivated to utilize that center of excellence through projects and budgets, they’re not going to be able to contribute at maximum capacity.

“Companies experience a version of buyer’s remorse. The investments have been made, and the return isn’t there. And they realize it’s more about the people and process components and not about the data, the tool or the luminary behind it. When the culture is there, a centralized digital operating model creates a powerful synergy. The people, processes and technology can work together, and the return becomes incredibly clear,” Liebermann said.