Business model innovation in consumer goods

Today, businesses should consider changing more frequently and in more fundamental ways. Consumer goods companies and retailers face a confluence of rapidly evolving technologies, consumer demographic shifts, changing consumer preferences, and economic uncertainty. Left unaddressed, these trends have the potential to not only undermine historical sources of profitable growth but also render traditional consumer goods business models obsolete.

By now, top management teams have almost universally embraced the notion that their companies must innovate, not only at the level of products and services, but at the level of business models. Rethinking the fundamentals of how a business creates, delivers, and captures value wasn’t a priority in an era of slow change and stable markets, but in a time of rapid change and disruption, it now must be.

In our quest to understand exceptional companies and what makes them different, we analyzed 97 consumer goods companies from around the world. We identified a small group of companies—which we termed Exceptional Winners—that, over a period of 10 years, consistently outperformed their peers. The good news for managers and investors alike is that exceptional performance can be achieved within different consumer goods industry segments (e.g., personal care products and food and beverage), across different company sizes, and with different business model types. It is therefore within managers’ control to deliver sustained exceptional performance. But how do you do it?

There are four themes that set Exceptional Winners apart from their peers:

·         They focus intensely on what they do best by creating a coherent business and operating model—we call this the Business Model Coherence Premium

·         They drive value from one of three dominant business model types—Operational Excellence, Product/Brand Leadership, or Customer Solutions

·         They develop a set of critical and distinctive capabilities that work together as part of a self-reinforcing business model

·         They drive greater maturity into the distinctive capabilities than their peers

A coherent business model can potentially make the most efficient use of a company’s resources, attention, and time. By allocating capital and expenses more deliberately and effectively, companies focus more on the capabilities that can create differentiation and enable them to win in the market. But how do you create a coherent business model?

To unlock the potential benefits of Business Model Coherence, you should consider taking four deliberate steps—reconsider your current business model design; prioritize five to six mutually reinforcing and distinctive capabilities; define what it will take to be world-class in those capabilities; and rapidly transform and test these through a series of minimum viable transformations.