At a Glance
- Digital commerce penetration gains achieved during the Covid-19 pandemic are impressive, but they mask an even bigger opportunity for large consumer products companies.
- There’s as much as an 8% gap between the digital penetration of top incumbent consumer goods companies and their respective product categories.
- Seizing the digital commerce opportunity means creating an operating model that addresses three key challenges: ownership, expertise, and agility.
After the surge in e-commerce in 2020, CEOs of large consumer goods companies might well feel a sense of satisfaction with their online performance.
In the US, digital commerce penetration in consumer goods increased by about 30% between 2019 and 2020, according to the US Census Bureau. In grocery, it rose 75%, with online sales doubling in some categories. On top of that, 85% of online consumers say they were satisfied or extremely satisfied with their experience, a Bain survey finds, indicating that the shift to online is likely to be sticky. Other regions witnessed similar shifts.
The trouble is, for many consumer goods companies, these impressive numbers mask an even greater opportunity. Most incumbents continue to have massive headroom for growth in e-commerce, and the penetration boost during the Covid-19 pandemic has only widened the gap.
We analyzed online performance and found that, among the top consumer goods players, the gap to overall online category penetration could be as large as 8 percentage points. Top consumer products companies are leaving significant growth and market share on the table as they lag behind their overall market—and in many cases, the gap is only increasing (see Figure 1).
Top consumer goods companies have significant headroom for growth in digital commerce
When we look into what holds traditional consumer goods companies back from reaching their digital growth potential, often the big stumbling block is that they are trying to capture their online future with yesterday’s operating model.
Compare the operating models of a typical large consumer goods player and that of an insurgent. The younger company likely has a small, dedicated team running hard at e-commerce for the brand, with all cross-functional responsibilities sitting in the same room to execute. That gives them complete clarity and alignment on what everybody is doing. There are no embedded processes to slow things down and lots of freedom to experiment.
By contrast, an incumbent company likely operates under a matrix organization, with functions such as sales, trade marketing, and supply chain serving all brands. Numerous established processes, decision rights, and people are embedded at the global and regional levels—first and foremost serving the needs of the still-majority brick-and-mortar business. In the world of e-commerce, where frontline execution and swift decision making is critical, traditional companies need to rethink their operating model to make these possible.
Assessing the digital commerce capabilities of more than 400 consumer products organizations, we found that winners set digital commerce as a key growth priority, overinvest to build digital commerce capabilities, and ensure deep connection between e-commerce and brand teams to increase alignment and agility (see Figure 2).
Digital commerce winners rely on operating models that allow them to outperform in key capabilities
To match their nimbler competitors, large companies need digital commerce operating models that will allow them to address three key challenges.
- Ownership: Who has accountability for defining and delivering against the digital commerce growth ambition?
- Expertise: How do we fill the capability gaps that exist to achieve full potential?
- Agility: How do we execute at pace locally and effectively scale learnings globally?
We’ll look at these challenges one by one.
It’s easy for a CEO to set an ambition—reaching a 30% online penetration rate for digital commerce or the $1 billion mark for online sales, for example. Yet, with accountabilities typically scattered throughout the organization, the responsibility for hitting those goals is unclear.
At many consumer goods companies, e-commerce responsibilities and decision rights are tucked into everyone’s core day-to-day job. Everyone owns e-commerce, yet no one owns e-commerce. This can be especially challenging when rates of digital penetration are low; there is less incentive for brand and functional leaders to prioritize a challenging new business model. Even the most advanced companies grapple with such issues as defining the role of sales managers vs. shopper marketing managers vs. brand managers vs. media for digital commerce growth. CEOs need to clarify who owns the digital commerce transformation agenda for the organization, not only at the brand or category level but also at the enterprise level.
In our experience, companies choose from four different ownership models for digital commerce, each of which has benefits and drawbacks (see Figure 3).
Four operating model archetypes for digital commerce
Standalone model. Companies with this model establish a single e-commerce entity that is 100% led by a digital commerce general manager. The digital commerce business unit typically reports directly to the C-level head of market, with dedicated digital competencies and P&L responsibility. There are variations of this model. For example, at some organizations, the e-commerce general manager reports to a sales leader or even the CFO. Also, some companies choose to have areas like supply chain, site content, and product innovation for e-commerce report directly to an e-commerce leader, whereas others maintain omnichannel leadership for these responsibilities, with dotted-line reporting to e-commerce.
While this approach has been effective for some incumbents, the challenge is that, at most consumer goods companies, brands are the nucleus of the business and the P&L owners. Removing P&L responsibility from the brand team can create issues that make collaboration difficult. Moreover, it cultivates a culture of brand leaders who do not understand or prioritize e-commerce, which will result in challenges as the business scales.
Execution engine model. Some companies deploy a hybrid model, building a specialist team that is responsible for executing digital commerce–specific activities (such as sales, search and display, and content) in collaboration with digital commerce strategy resources within business units. The divisions or categories are the primary P&L owners, inclusive of digital commerce, and a dedicated leader within each category manages its digital commerce agenda. The approach to digital commerce is harmonized across business units, enabling functional teams to execute efficiently.
The execution engine is overseen by a market leader—reporting to a CEO or functional leader (often sales)—who is fully responsible for the digital commerce transformation mandate set by the CEO. This leader advances the online agenda in close collaboration with the digital commerce category leads.
There is a downside to this model. Shared ownership across brands and the execution engine takes effort to get right. It also requires both sets of e-commerce leaders (execution engine and brand) to have the influence, seniority, and expertise to effectively champion the business transformation internally.
Partially integrated model. Another hybrid structure relies on a digital commerce center of excellence or acceleration team tasked with identifying and deploying digital commerce best practices across the business. Unlike the execution engine model, the center of excellence is often lean, with little to no execution responsibility. Instead, digital commerce is overseen by a functional leader or regional/global leader, and it is embedded everywhere. It’s in the sales teams. It’s in the brand teams. It’s in the supply chain teams. Everyone is expected to work together.
The tricky part of this model is that it’s expensive and requires finding the talent to embed across the organization, which can be challenging. Typically, the model is deployed by more digitally sophisticated companies that have made e-commerce a priority by differentially investing in it over the past several years. They make the model work by bringing talent from agencies in-house and by creating a culture of innovation that attracts and retains top talent.
Fully integrated model. This 100% brand-led operating model is the most advanced, and it is rare outside of high-digital-penetration markets like China, where companies developed their digital commerce infrastructure without being held back by significant legacy operations. This model assumes that digital is a priority for the business, with all organizational leaders pushing an omnichannel (and often digital-led) agenda.
In addition to the critical ownership question, there is the big challenge of making the most of digital expertise, that scarcest of resources. Companies must distinguish what could be done globally or regionally vs. locally, avoid the common misstep of staffing general athletes to compensate for talent gaps, and determine which capabilities to build in-house and which require external partners. For multinational consumer goods companies, the global vs. regional vs. local decision has grown much more complex with the rise of digital commerce and the shortage of digital talent. They may struggle to decide what expertise they need to sufficiently support local markets and which capabilities to centralize to benefit from scale and incubation.
To make the most of their core digital expertise, some companies deploy a global or regional center of acceleration (CoA) for the e-commerce business that plays a range of supporting roles. For example, in fragmented regions like Western Europe, a regional CoA can efficiently support multiple smaller markets. Increasingly, we are seeing local execution support for digital commerce in these markets shift to a regional center, including key account management for shared customers, digital marketing, and content creation and adaptation, as well as e-commerce analytics.
Global and regional e-commerce CoAs also build new tools to assist local-market execution and collaborate closely with less digitally mature markets to develop a roadmap for advancement.
The big challenge with setting up a COA that does not execute locally: how to effectively provide support and influence when decision rights and execution responsibilities sit elsewhere. Despite the best of intentions, it is all too common for the baton to drop during the global-regional-local handoff.
Successful COAs with no local execution role typically do two things well. First, they maintain lean global and/or regional organizations, with the goal of delivering high-priority products or solutions to local markets. This allows them to centralize powerful tools and playbooks—for example, a product detail page optimizer—across the various levers of digital commerce and deliver easy access to local markets.
They also harmonize e-commerce roles and titles across the organization, with global roles mapping to regional roles and, ultimately, local roles. This dramatically clarifies who is doing what in service of e-commerce, helping to ensure the baton passes seamlessly from level to level.
Meanwhile, instead of trying to fill talent gaps by inserting general athletes into specialized e-commerce roles, companies can benefit by opting for specialized skill sets and depth of expertise. Some companies routinely hire externally for the most critical roles—recruiting digital commerce leaders from digital-first companies like Amazon, for example. Others create a matrix digital commerce organization, building capabilities within specialist teams that support dedicated customer-category groups and cross-pollinating learnings among the teams. A final option: moving digital commerce leaders into key omnichannel roles as a way of evolving them from brick-and-mortar leadership teams into digital-commerce-first leadership teams.
Finally, companies need to strike a balance when it comes to using external partners to compensate for the talent gap. Overreliance can leave a company with limited control over its marketing strategy. The best players systematically identify the specific capabilities where there is more to gain by keeping it in-house. For example, they may consider bringing a function in-house when there is a need for greater intimacy with granular data, where there is an opportunity for faster and better decision making, or when expert talent is embedded at multiple levels to oversee strategy and execution.
If the digital commerce boom has taught us anything, it is that agility is table stakes. Companies need to decide faster and have the flexibility to act quickly—and change course, when necessary—in everything from product testing to marketing to key account management. Traditional companies have made a number of moves aimed at speeding local execution and effectively scaling learnings across markets.
The best companies have revised their marketing planning time frames for e-commerce, moving away from annual marketing planning and budgeting that hinders flexibility to pivot quickly in-year. These companies also now avoid rigid business-as-usual budgets that leave limited room for digital commerce experimentation, preferring ring-fenced testing budgets with teams empowered to launch live tests quickly at their discretion.
Winning companies also replace multilayered approval processes with clear guardrails that enable teams to make real-time decisions, such as shifting investment between brands in the same category based on sales and marketing performance. Instead of initiating small-scale, single-market tests run in isolation and prioritized according to issues of the moment, these companies maintain an ongoing prioritization backlog, moving through accelerated test-and-learn feedback cycles. Sporadic and slow feedback loops with leadership are replaced by a leadership “hotline” aimed at removing critical roadblocks.
A final key to deploying e-commerce with agility: cross-functional teaming. Key account management, retailer.com marketing, content, analytics, and supply chain all need to team daily for optimal results. For example, passing inventory data to retailer.com marketing allows a company to lean into products with sufficient weeks of supply—and to shift budget away from products where supply is low. Similarly, cross-functional teaming allows a company to quickly develop the right creative for a new marketing opportunity suggested by a retailer.
Online commerce holds the keys to growth in consumer products. That is why all companies need to reexamine whether their operating model is helping or hurting their chances of capturing the digital future. There is no right operating model; there is only the right one for each company. Only by assessing their true point of departure and systematically tackling the three big obstacles of ownership, expertise, and agility can companies confidently remove the roadblocks that are keeping them from outpacing competitors—and from reaching their growth potential.