Not long ago, it would have been unimaginable that a start-up could create a running shoe to compete against the retail presence and manufacturing power of a giant such as Adidas. Today, brands such as Allbirds shoes and Bonobos menswear, with few if any of the industry leaders’ conventional assets, have quickly become fashion leaders by using viral marketing and direct sales to consumers. Or consider how start-up Glossier shook up the cosmetics category, raising more than $86 million since its 2013 launch. The young company uses various social media platforms and apps to connect with and understand a community to derive consumer-driven innovation. Glossier’s use of rapid prototyping and customization based on consumer feedback works: The company sells one of its signature “Boy Brow” eyebrow shapers every minute.
Within the consumer products industry, different players feel disruption differently and at a different pace across the value chain and categories. For example, while some categories, especially apparel, toys and pet care, are further along on the disruption spectrum, disruption moves at a slower pace within other categories, such as oral care and beer. But that is quickly changing. The undeniable reality is that no category is immune to technological advancements and rapidly evolving consumer expectations, and regardless of disruption’s pace, all companies need to prepare (see the Bain Brief “Overcoming the Existential Crisis in Consumer Goods”). That means companies in categories such as food and beverage need to learn from more disrupted categories.
It is understandable that business leaders feel paralyzed at first, not knowing how to react, where to play offense and where to play defense. A fundamental hurdle is that most companies plan ahead by following a tried-and-true formula—that is, they look backward. Instead, the incumbents that survive and outperform will be those that find a way to put themselves one step ahead by looking into the future.
As disrupters rapidly rewrite the old rules, every consumer products company, leadership team and board of directors feels pressured to answer this question: How do we make progress when we don’t know the endgame? A disruption radar helps companies find the answer not only by tracking new angles of category disruption and increasing the focus on consumer needs but also by providing a more analytical methodology for identifying disruptions and gauging their impact. Three big ideas help companies to develop the components of a winning strategy amid unprecedented disruption.
No. 1: Envision “today forward” and “future back.” The first big idea is to envision the business both “today forward” and “future back.” Today forward uses existing digital technology and management approaches to make a business better, faster and cheaper right now. That means zeroing in on the three to five focused, well-defined initiatives that can get the firm moving in the direction of its future. Every organization has its dreamers and doers, and today forward is the path of the doers.
Future back is the opposite. It involves imagining the future and then working on the steps required to position a company to compete in 10 or 20 years, including how to make progress today in order to make that happen. It means defining a vision for the industry and company, often inspired by a fundamentally underserved consumer need or an emerging and breakthrough technological solution. Future back is the domain of the dreamers.
One of the major obstacles to adopting a today-forward and future-back approach is that consumer goods incumbents customarily build large fact bases before they act, and they focus on the quarterly cycle, often pursuing short-term results at the expense of long-term investment. Most companies celebrate the doers, who excel at tactical execution of short-term initiatives. Amid disruption, however, business leaders must find a way to complement the doers with dreamers—namely, those who think long-term, are comfortable with the unknown and can navigate an environment in flux.
Combined, today forward and future back convey a sense of long-term direction to employees and other stakeholders, while at the same time articulating the first steps the organization can take to start moving in that general direction. In effect, it allows companies to build a faster horse while simultaneously imagining the car.
No. 2: Focus on raw consumer needs. Most brands instinctively look at the future from a category or product perspective, but that kind of thinking becomes outmoded as category lines blur and as products, services and experiences merge. Winning brands instead learn how to unleash innovation by rediscovering the raw need that the business serves.
Many consumer goods companies fall in love with their products, which is natural and understandable. But a product, no matter how great, is really just the temporary answer to the raw need that a business serves. Raw need is the essence of what a consumer values, independent of how a company addresses that need.
Innovators have a knack for articulating this need and building their businesses around it. Unencumbered by a set of legacy assets and capabilities holding them back, they zero in on creative solutions that wow consumers. With a new breed of competitors rediscovering consumers’ raw needs and creating innovative ways to address them, companies must get comfortable with a challenging idea: The consumer experience you deliver in the future may be quite different from the one you provide today.
Consider how Baby Tree, the largest maternity and parenting online platform in China, “listens” to what its 144.1 million total active monthly users discuss and then enlists a private label manufacturer to produce and launch a Baby Tree branded product to address consumer pain points. Domino’s has leapfrogged its pizza competitors by pursuing a simple mandate from the CEO, who wanted the customer to be able to order pizza while waiting at a stoplight. A clear raw need―convenient pizza―led to a business model enabled by technology.
Many incumbents started with a unique insight or model for meeting the raw consumer need at one point, but over time, they create impediments that obscure that need and expose the business to disruption. Consumer goods companies can learn how to reboot by looking at companies in industries that are further out on the disruption spectrum. For example, as comparative store sales began to decline, Walmart started to make changes, refocusing on its raw consumer need of saving time and money. That meant embracing new digital technologies and affirming its focus on e-commerce. The retailer made several e-commerce acquisitions, and its online sales grew by 44% in 2017.
At the same time, Walmart recognized it could use its existing brick-and-mortar stores, historically its biggest asset, to address consumer needs and help fuel the company’s e-commerce growth in the US. As of early 2018, Walmart offered in-store pickup for groceries in about 1,200 US stores, with plans to add roughly 1,000 more locations during the year. By the end of 2018, it offered grocery delivery in more than 100 metropolitan areas, covering 40% of US households. To meet this goal, Walmart used its stores as fulfilment centers for grocery pickup and delivery, deftly addressing the challenges associated with last-mile delivery.
No. 3: Quantify the disruption for better-informed decisions. Most consumer products executives are aware of ongoing trends, but trying to gauge the real impact of those trends (positive or negative) can be difficult, even paralyzing, for leadership teams.
Bain uses a six-lens framework to identify potential category future states (see “Six Ways to Predict Disruption”). When the impact of trends is quantified and rooted in data, companies can move to fact-based decisions—for example, they see how their category’s profit pool will likely change over time. By developing both a today-forward and future-back view of the profit pool, brands typically see a radical difference (see Figures 2 and 3). They can detect how market share may shift among players along the value chain, how margins may evolve and the emergence of new segments or players that may not even exist in today’s profit pool.