Without disruptive action, consumer products companies face declining margins, says Ernst & Young
Source: Ernst & Young , Author: Posted by BI-ME staff
Posted: Fri June 22, 2012 4:16 pm

INTERNATIONAL. In an unprecedented business environment of accelerating pace of change and spiraling complexity, almost three quarters of consumer products (CP) companies say they need to make significant changes to their business in order to sustain historic margins according to Disrupt or be disrupted, a report released today by Ernst & Young.

Commenting on the report findings, Howard Martin, Global Consumer Products Leader at Ernst & Young says, “We believe CP companies are facing a dramatic pace of change in which tried and tested ways of creating value are no longer fit for purpose. This highly disruptive environment, that we call the “brand new order” presents companies with huge opportunity, but also heightened risks.”

The report, which canvasses the opinion of 285 senior global executives including the CEOs and CFOs of leading CP companies and industry investment analysts, identified that companies face a brand new order, where the traditional ways of creating value are no longer valid and execution is critical.

To address the brand new order, companies need to disrupt current and traditional ways of thinking, established business models and the old approaches to value creation. To win in the brand new order, companies need to focus on three imperatives:

1. Reframing strategic choices
Seventy-four percent of companies agreed significant changes are needed if they are to sustain the predictable margins that analysts and investors have come to expect from the sector. Strategies that worked consistently in the past are no longer reliable. However, few are confident in this uncertain environment at making the right decisions and when deciding where to compete, less than a third of respondents globally believed their company was very good and this opinion varied considerably by market. Thirty-seven percent of North American respondents report strong confidence compared with 31% in Asia Pacific and 20% in Europe.

2. Realigning the value chain
The growing global demand for raw materials is driving up input costs whilst catering to the needs of empowered consumers in increasing numbers of diverse and volatile markets through increasing numbers of retail channels including online and direct to consumer is dramatically escalating both complexity and cost across the value chain. However, just 26% of respondents rated their company as very good at creating a lean and agile supply chain and the increased cost and scarcity of resources was the most frequently mentioned risk by business leaders.

On the demand side, companies recognize they need to change the way they engage with consumers and although over half the companies identified that social media has transformed relationships over a quarter (28%) rated themselves as poor at creating brand engagement and reaching consumers.

3. Ruthless executing to capture value
Thirty percent of companies say that they are very good at creating a clear strategy and aligning resources behind it. When looking at the challenges impeding implementation, 36% of respondents point to talent and capabilities as the most critical barrier to executing strategy.

The empowerment of talent is the most important driver for successful execution, yet just 20% of respondents identified their company as very good at attracting and optimizing talent and resources. Many companies are experiencing skill shortages in the areas where they need them most, the rapid-growth markets, and the need to generate value and prioritize innovation requires companies to adopt a highly open approach to how and where they source talent.

In summarizing the future for CP companies, Martin says, “The macroeconomic environment is tough and isn’t about to change and winning in the “brand new order” requires companies to take action on many fronts. CP companies need to challenge accepted ways of thinking and adopt a highly disruptive approach to managing almost every aspect of their business and above all, they must execute flawlessly.”

To download the Disrupt or be disrupted report, visit www.ey.com/brandneworder

About Ernst & Young MENA
The MENA practice of Ernst & Young has been operating in the region since 1923. For over 88 years, we have evolved to meet the legal and commercial developments of the region. Across the region, we have over 4,200 people united across 20 offices and 15 Arab countries, sharing the same values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

For more information, please visit www.ey.com/mena

About Ernst & Young Global
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

For more information, please visit www.ey.com

 

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