The CEO Imperative: How can one operating model delight many consumers?

Rapid transformation needs bold leadership, but consumer companies risk falling behind. Five design principles will keep change on track.

In brief

• CEOs need to set a new transformation agenda.
• Many organizations are working to an unrealistic timeline.
• Complacency is creating a risk of delay or failure.

For the Chief Executive Officer (CEO) at a global consumer products company, the biggest challenge is to keep your organization transforming fast, so it’s always ahead of the changing consumer. To stay relevant, you must deliver multiple business models, strategies and propositions fast. But you can’t build a different operating model every time you need to do something new. You won’t have time and it would cost too much. Instead, you need to create more agile, responsive and resilient ways of working that enable you to pivot overnight.

Many organizations are struggling to create that kind of operating model, according to a new report EY commissioned from MIT SMR Connections. Based on a global C-Suite survey and interviews with CEOs and industry researchers, the study explores the challenges organizations face as they change their operations to meet evolving consumer needs. 86% of the C-suite said transformation was essential to becoming future ready, but the study reveals great uncertainty as to whether leaders are taking the right steps to steer their organizations.

This is the 7th edition of our CEO Imperative Series, which addresses critical issues and actions to help you reframe the future of your organization in a profoundly new context . We set out five design principles that can help you keep your transformation on track, with actions for you as CEO. The full findings of our study are available in the report itself.

A new world needs a new operating model

The products, services and experiences people want are changing fast, and so is what they value. For your consumers, technology is constantly enabling new ways of choosing, purchasing and engaging with products. For your business, technology is redefining the kind of value propositions you can offer and how you can organize to deliver them.

When the expectation from the consumer shifts from “let me buy a healthy product” to “help me live a healthy life”, it takes an ecosystem of partners working together to deliver. It’s the need to sustain these multi-faceted relationships that put the old ways of working, and the companies that propagate them, at risk.

The options for you to design, make, market, package, combine and deliver products, services and experiences in new ways are multiplying. New technological capabilities – especially in data and analytics – can get you closer to the consumer than ever before. They can also get you closer to all the stakeholders and partners in your ecosystem – all the way through your supply chain from raw materials through to an integrated omni-channel network that connects you to the consumer.

Leading systemic transformation

As CEO, you need to create a transformation mindset and set a C-suite agenda that reflects a new reality. The global pandemic, economic uncertainty, technological change, and other factors have profoundly changed and will continue to change every aspect of the consumer’s life – their needs, expectations, and behaviors.

The challenges and opportunities this creates for your business are by nature systemic – they impact all your operations. But most operating model transformations are not systemic. They focus on specific business functions, not the system as a whole. They are about taking incremental steps along a linear roadmap towards an end goal. This is too narrow and inflexible for the times we are in. Transformation efforts that are designed for the world as it used to be are likely to falter or fail completely.

The future belongs to companies that are agile, responsive, and resilient. You can build those key characteristics into your business by applying the five design elements set out below. They are shown as a list, but they are all interconnected. Doing well in one or two is good but not enough – you need to master them all. And you need to do that in a way that builds and sustains trust – with consumers, your people, and all your ecosystem partners.

1. Harness dynamic ecosystems

Make your organization part of a connected, dynamic and flexible ecosystem that integrates your consumers, customers, suppliers, partners, data research companies, start-ups – and sometimes even your competitors. Everyone in the ecosystem has a role in creating value. They will all benefit from a share of it.

2. Embed digital and data into your DNA

Create a listening organization – one built on data and analytics that enables you to make the right decisions at the right time. Digital networks and their data flows are the connective tissue and nervous system that enable the ecosystem “body” to function. Many companies are prioritizing analytics, but that’s not enough.

3. Embrace talent flexibility

Develop people with deep skills in key areas like technology and data transformation, but you also need brilliant generalists across functions with the mindset and capabilities needed to work together in new ways. An adaptive workforce and culture thrives when supported by emerging technologies and new ways of working.

4. Innovate at scale

Involve everyone in the effort to innovate. People on the front line, dealing with consumers and ecosystem partners daily, are often the best sources of ideas. But these ideas are often not captured, or rigid processes stop them from gaining traction. The most successfully innovative companies support cultures, technologies and processes that capture, rapidly develop and scale ideas that work.

5. Let your purpose shape everything

Embed your organization’s purpose in everything you and your people do, every day. It will define your value propositions, your role in ecosystems, how you attract and retain talent, who you partner with, and which consumers you serve. Sustainability and purpose are key drivers of value, but they aren’t always made an integral part of operations.

Actions for CEOs

As CEO, there are three key actions that are essential to delivering an operating model that will flex for the future.

1. Set a leadership vision that disrupts organizational barriers

You might be on a transformation journey, but are you bringing your organization with you? It’s part of the CEO’s job to challenge orthodoxy and inspire action. But in our survey, 63% of leaders expected their corporate culture to be a source of resistance. And 55% said failure to orchestrate a transformation roadmap was another possible potential barrier.

As one CEO interviewed in our study said, “[successful transformation] is going to require org structure change and leadership change that cultivates creativity and encourages employees to not think with the traditional corporate mindset”.

2. Be realistic about how long it takes to build capabilities

The leaders in our study are working to create the capabilities needed to reach their corporate goals, and they’ve set very ambitious deadlines. For example, 61% say it’s critical for them to create a flexible talent pool within two years. But as adjunct professor quoted in our report said, “For every operational innovation I’ve studied and written a case study about, it was a three-to-seven-year effort just to get everybody on board, align the incentives, and get buy-in”.

3. Start from what’s needed in the future, not from today’s capabilities

The pace of change requires transformation even in areas of perceived strength. In our study, 77% of leaders said they had the emerging technologies and analytics capabilities needed to transform their operating model. At the same time, however, 70% said the need to upgrade their technology infrastructure created a significant barrier to transformation. This contradiction illustrates the gap between having what is needed for today versus tomorrow and has consequences for defining and delivering on a transformation agenda.

Adopting an ecosystem-based mindset is an effective approach to supplement or even replace capabilities critical to achieving transformation goals. This will help free up capacity that enables focusing efforts on areas of highest value creation. Among the leaders interviewed, it was noted that consumer products companies must build decentralized ecosystems for every part of their business.

No single business model wins

It has been 25 years since Clayton Christensen published the Innovator’s Dilemma. That classic text asked the question that CEOs have been wrestling with for decades: faced with disruption, how do you build the business you need to become, while still running the business you are today?

But there’s no single business model that will win in the future – not at scale. You need to deliver many different strategies, models, and propositions from one core operating model. In short, this is a shift from duality to plurality.

So, how can you focus on the future when running your current operations is all-consuming? The answer is to look beyond “now versus tomorrow” thinking. The value you are creating today will fund your future transformation, but the investment in future transformation will also help you create value now. There’s an opportunity to turn this into a virtuous cycle.
While the imperative to become “future fit” is clear, this is a race with no clear finish line. You need to keep adapting your business priorities and strategies to anticipate and reflect volatile market conditions.

Organizations transformed around our five elements will be much better positioned to stay ahead of changing market forces. They’ll have better relationships with their consumers, which will pave the way to long-term relationships built on trust. They’ll be in a stronger position to collaborate with partners and be far more agile, which will support multiple new business models and enable them to get products to market faster. As a result, you can lower your operating costs, increase your commercial success, and drive long-term growth.

Disclaimer

The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.