CPG Innovation & Growth: Developing The Right Innovation & Product Lifecycle Management (PLM) Strategies for Today and Tomorrow

GMA INFORMATION SYSTEMS COMMITTEE
CPG Innovation & Growth:
Developing The Right Innovation
& Product Lifecycle Management
(PLM) Strategies for Today
and Tomorrow

---

---

TABLE OF
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CONTENTS
Part I: Tradition Bound
Conventional Scope of PLM may Limit Product Performance . . . . . . . . . . . . . . . . . . 6
Section Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Part II: The New Approach to PLM
Integrating Capabilities Across the Lifecycle Helps Top and Bottom Lines . . . . . . . 12
Manage Pre-Launch Aggressively to Get Better Products to Market Faster . . . . . . . 12
Support and Sustain the Products to Optimize Portfolios . . . . . . . . . . . . . . . . . . . . . 14
Apply Rigorous End-of-Life Analytics to time Product Phase Out Correctly . . . . . . . 14
Section Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Part III: Call to Action
Focus PLM Investments on Capabilities That Result in True
Competitive Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3

---

CPG INNOVATION & GROWTH
Consumers have adjusted their free-spending ways very quickly, so much so that item
price is now the most important buying criteria for 87% of consumers .
INTRODUCTION
The weak global economic environment is wreaking havoc upon many companies’
bottom lines, and consumer packaged goods (CPG) companies are no exception .
Consumers have adjusted their free-spending ways very quickly, so much so that item
price is now the most important buying criteria for 87 percent of consumers . The new
austerity has ushered in a host of new consuming behaviors, from changing eating rituals
and adoption of new value-focused diets to making more use of private label goods .
Another challenge: consumers are less likely to try new products, with recent research
revealing that 75 percent of consumers are choosing five or fewer new, entirely unique
items for their households .
% of Consumers Purchasing New Items
75%
2008 Saw
Shoppers Make
Fewer Purchases
of Unique Items
18%
5%
2%
5 or less
6 – 10
11 – 15
16 – 20+
Source: IRI Consumer Network Panel
All in all, it is a lot tougher to break through to and engage the consumer, despite the
continued proliferation of products and investment in innovation . Under such conditions,
it is equally difficult for CPG companies to meet performance goals . Consequently,
many companies need strategies, processes and capabilities that can accomplish two
things: deliver products enticing enough to have consumers open their pocketbooks, and
produce and distribute them efficiently to reduce company operating costs .
Given these dual goals, the Grocery Manufacturers Association (GMA) determined that
the time was right to investigate what CPG companies are doing in the product lifecycle
management (PLM) area, because it can both contribute to growth and cost reduction .
Our research with 45 respondents from 20 companies in surveys and interviews covered a
wide range of topics and processes that span the entire lifecycle, which for the purpose of
this study was defined as spanning five lifecycle stages, from ideation
to end-of-life .
4

---

The Five Product
Innovate
Design &
Commercialize
Manage
Renovate
& Ideate
Develop
& Launch
In-Market
& Retire
Lifecycle Stages
Our hypothesis, based upon discussions with retailers and manufacturers, was that
much is changing in how companies use PLM and tools related to it . Yet, neither the
reasons for this experimentation with tools and processes, nor its market outcomes, were
documented well .
The participants were also drawn from a range of functions and specialties, reflecting the
many areas that can influence product strategies and the product lifecycle .
Other
16%
Innovation
5%
IT
38%
PLM Capabilities
and Expertise
Cross Many
Functions
R&D
25%
Marketing
16%
Further, key capabilities that are inherently part of the product lifecycle—but often thought
of as outside the traditional boundaries of PLM—were explored . These include:
• Consumer, Customer, Shopper Insights—how insights are derived from information
and how they are shared and incorporated to increase product success
• Innovation—what companies are doing to ensure more success with new products,
from idea sources to innovation processes and metrics
• Collaboration and Governance—how cross-functional collaboration is being used and
what value it may have, and if the traditional stage-gate process, which is designed to
analyze a product idea, test it and, if worthy, launch it in the marketplace, is effective
• Portfolio Optimization—how companies measure and maintain the success of the
portfolio of products in market post launch and whether they have processes in place
to identify and eliminate underperforming SKUs
• IT Systems and Data—where CIOs are making IT investments and whether they
enhance PLM
5

---

Our research into managing product lifecycles yielded a number of insights, clarified what
steps companies can take to maximize the returns on PLM investments and raised some
interesting questions . Key findings:
• All five capabilities are part of building effective PLM processes and all can help
increase revenue and control costs .
• Leading CPG companies—those that efficiently develop and deliver goods consumers
want, and identify those that are no longer necessary—succeed in part because they
integrate these capabilities better and continuously across the lifecycle .
• The definition and use of these capabilities, and PLM itself, differ greatly from
company to company . Many companies equate PLM with activities related to the
stage-gate process or point solutions that address discrete operational issues, which
is shortsighted .
• The myriad of tools and processes available to enable all stages of PLM are not
leveraged to their best advantage, making it less likely that the right product is in the
right place at the right time for the right period of time .
While PLM is an effective capability to reach performance goals, firing on all PLM
cylinders remains challenging, especially for consumer companies contending with fewer
resources to invest . The good news: leading companies have shown that seizing the right
opportunities to refine PLM strategies and capabilities will result in winning products,
produced and delivered cost effectively . This report will discuss current and leading PLM
practices and capabilities and provide a short action plan of PLM refinements that have
proven to significantly impact product success .
PART I:
Conventional Scope of PLM may Limit Product Performance
TRADITION BOUND
If you ask a dozen product managers at CPG companies to define PLM, you may end up
with a dozen different explanations . And, therein, lies one of the problems . While more
than one-third (36 percent) of respondents to our survey state that they have a holistic
PLM strategy, most survey respondents do not, leading to the conclusion that the scope of
PLM is something of a moving target .
Which of the following statements apply to your company's approach to innovation?
Our innovation strategy varies
82%
by category
We are typically fast followers with most
41%
new products
We have an effective, holistic approach to new
product development and introduction (from
36%
innovation through end-of-life)
Innovation is
Our organization has a well-defined
34%
innovation strategy
Critical Stage
of PLM
We effectively seek breakthrough innovation
32%
opportunities
We are typically first to market with most
23%
innovations /new products
We have an effective process for capturing ideas
14%
from outside our company
None of the above statements apply
2%
0
20
40
60
80
100
6

---

To be sure, the 2009 version of PLM is, or at least can be, very different from that
of a decade ago in large part due to advances in some of the key capabilities explored
here, including innovation processes, technology and analytics . The pace at which
companies adopt and apply these new tools differs markedly . For example, our research
showed that:
• The traditional approach to PLM is alive and well—that is, an approach that
emphasizes and invests in R&D, stage-gate, and product launch activities . In fact, 90
percent of CPG companies surveyed believe they are great at launching products; but
questions remain as to a) whether they do so as efficiently as possible, and b) if they
can extend that success to post-launch stages of the lifecycle .
• Companies are making use of significant amounts of consumer and shopper
insight and analytics to guide the first stages of a product’s lifecycle through launch
performance . An overwhelming 86 percent thought using insights in the innovation
stage was very important, while fewer than half (40 percent) thought
it was very important in the commercial portfolio optimization stage .
How important are shopper/consumer insights in each
of the following product lifecycle stages?
Innovation
12%
86%
2%
Idea Management
13%
82%
5%
Product Development
19%
76%
5%
Use of Insights
Concept Development
26%
72%
Throughout
2%
Lifecycle Stages
Commercialization & Launch
42%
Varies
13%
45%
End-of-Life
17%
40%
43%
Commercial Portfolio
58%
Optimization Organizations
40%
2%
Manufacturing & Testing
25%
51%
24%
Not important
Somewhat important
Very important
• Because of the intense focus on upfront launch activities, companies are not giving
the same attention to issues that pop up in later lifecycle stages, such as SKU
proliferation and the resulting organizational complexity it can create . A sizable
cohort—40 percent of companies—revealed that they do not have a rigorous process
for eliminating underperforming products and rationalizing their product portfolio,
and only 17 percent thought they were very effective .
• Cross-functional collaboration across the stages is occurring, with R&D and marketing
functions working closely to develop products; however, more than one-third of
respondents say their organizations’ culture does not encourage open collaboration
across the entire enterprise .
7

---

To what extent do you agree with the following statements
regarding your product portfolio:
We used advanced analytics to measure our product
perform and margin from each SKU to the overall portfolio
We understand the incremental contribution to sales
and product performance in market
We understand the cannibalization impact of a
Portfolio
new product introduction on the portfolio
Management
and Optimization
We can effectively optimize our portfolio Cost-to-Serve 12%
21%
42%
18%
6%
is Inconsistent
We can effectively optimize our portfolio 5% 25%
45%
20%
5%
by category, market, channel, retailer
We have a rigorous and continuous process for eliminating 7%
33%
43%
12%
5%
underperforming SKUs/rationalizing our portfolio
Our end-of-life analysis is effective at maintaining a lean
portfolio and shedding underperforming products
Agree
Strongly Disagree
Disagree
Somewhat Agree
Strongly Agree
• There is an opportunity to better understand and exploit the lifecycle of products to
maximize incremental revenue to the portfolio, incremental contribution to margin,
and minimize cost to serve . For example, more than one-quarter of respondents
questioned whether they could effectively adjust and optimize their portfolio based
upon cost-to-serve retail channels .
Which of the following statements would you use describe
your approach to collaborative product development?
While companies
collaborate
New product development processes are
during product
well understood by employees across our
25%
different business functions
development,
there is not
a clear
When new products are developed,
our key functions (brand management,
understanding
88%
marketing, R&D, supply chain)
across functions
have accountability
of the overall
Product development process incorporates
PD process .
defined process phases supported by rigorous
43%
decision criteria and governance
• Companies leverage IT extensively and anticipate more investment in technology
as budgets warrant . The planned IT investments, aimed primarily at tools and
capabilities, are used mainly for data gathering and analytics in an effort to identify
the effectiveness of product spend (“Are we placing the right bets?”) . Fully utilizing IT
to make process improvements across PLM stages is a future goal .
8

---

Don't Know
Portfolio Management/
11%
SKU Rationalization
20%
Traditional PLM
12%
Current Focus of
Shopper/
IT Investments in
Consumer Insights
PLM Process is
18%
Data Gathering
and Insight
Analytics
Innovation
17%
Datawarehouse/Dashboards
22%
Although used by many companies and well understood, the stage-gate process as
currently employed appears to have a number of limitations . First, despite the seemingly
rigorous gate process, few projects are ever killed before launch . In our survey, 74 percent
of products that go through the Manufacturing and Test gate are launched, yet, more
than half of the respondents reported that “go/no-go” decisions could be made more
effectively . Second, despite the upfront investment in understanding the market, more
than one-third believed their pre-launch forecasts were inaccurate . Finally, depending on
the type of product (e .g ., breakthrough vs . line extension), much of the activity required in
each stage may add little value .
To what extent do you agree with the following statements regarding the
consistency of commercialization and launch in your company?
We evaluate potential market acceptance using customer feedback,
focus groups, test markets, and beta tests prior to launch
We evaluate product cost and margin
through each stage of development
We effectively target specific price points considering
target gross margins established prior to market launch
Commercialization
We ensure functional departments understand their
responsibilities and have committed resources
and Launch
Decisions
We can very quickly adjust commercialization and launch plans
to respond to market changes (e.g. competitive activity)
Need Rigor
Go/no-go decisions are made effectively
19%
37%
30%
12%
2%
We reliably predict and control the timing
of product delivery to our retailers
Our pre-launch forecasts are accurate
7% 26%
49%
19%
Strongly Disagree
Disagree
Somewhat Agree
Agree
Strongly Agree
9

---

Even for companies that equate PLM with the pre-launch, stage-gate process focused on
new product development, it appears that their investments fall short of delivering all the
value they could . Survey findings reveal that the majority of companies do not make use
of new tools and approaches for increasing the effectiveness of their innovation and new
product development stages, for instance, and don’t reap the benefits of investments they
do make . For example:
• Innovation is still part of a centralized R&D function in most companies (and up to 10
percent of total sales is spent on R&D) . Yet, it is the marketing organization that often
“owns” the final commercial success of the product .
• The majority of companies report that 30 percent or less of new product ideas come
from outside of the company; however, high performers expect 40 – 50 percent
of new products to come from outside their company . Indeed, one of the most
successful product launches of the last two years, Clorox’s GreenWorks® household
cleaning items, was developed with input from retailing partners Safeway and Wal-
Mart . Similarly, Kettle Foods, Inc . engaged consumers in online voting to determine
which chip flavors the manufacturer should produce and made it easy to buy the new
products online .
What percentage of products come from ideas sourced from outside your company?
What percentage of new products are sourced from outside your company?
26.8
25.7
30
30
25.7
21.0
25
25
19.3
19.2
19.3
20
20
14.0
15
15
Companies Rely
11.0
Most on Internal
10
10
Sources for New
Product Ideas
5
5
3.4
0
0
Mean % of
Mean % of new
Mean % of products
Mean % of new
products
technologies
sourced from outside
technologies sourced
sourced from
sourced from
the company
from outside the
outside the
outside the
company
company
company
Food
Beverage
Home
Mean
Source: Accenture GMA Grocery Executive Survey 2009
Base: all respondents
• Companies use a broad range of consumer and shopper data in the New Product
Development and PLM processes, but insights from this data are not broadly or
efficiently shared across the organization .
These opportunities for continued improvement in both PLM generally and the innovation
stage, in particular, are reflected in the marketplace . Truly differentiated, innovative
products that fulfill a need will find a warm reception from even cash-constrained
consumers as winning products, such as the Green Works items and Kettle Chips show .
The reverse is also true: the main reason new products fail is because they do not have
any distinctive, unique value and, therefore, do not meet an unmet consumer need—that
is, the development and launch processes failed to yield the right product .
10

---