Design a winning consumer goods organization

1. Design a winning consumer goods organization
Over the past few decades, consumer-packaged-goods(CPG) companies have seen tremendous grow th: they’ve ventured into
new markets, launched myriad new productsand brands, and vastly expanded their distribution netw orks. But in doing so,
they’ve built up complex, expensive organizationalstructures—and costshave risen almost as fast as revenues.
CPG executives, looking for an arrangement that simultaneously enables grow th and contains costs, now invest considerable
time and effort experimenting w ith organizationaldesigns. It isn’t easy: betw een 1997 and 2007, few erthan half of the top 30
CPG organizations managed to reduce their selling, general, and administrative expenses (SG&A) by more than one
percentage point.
Granted, no single blueprint can guarantee both effectivenessand efficiency,and a company’s organizational design should
support its specific strategy. But are certain design choices right for a CPG company regardless of its strategy?
A quantitative analysis of more than 40 of the w orld’s largest CPG organizations suggests that the answer is yes. This new
McKinsey report, Designing a winning consumer goods organization (February 2012), identifies six organizational-design
choices that appear to be linked to a CPG company’s ability to drive grow th and keep costs down. The choices involve how to
take advantage of scale; the degree of centralization and specialization in the marketing, sales, and back-office functions; the
location of R&D resources; and staffing in emerging markets.
Some highlights fromthe research:
 Large global companies (those w ith annualrevenues of $10 billion or more and operations on at least tw o continents) enjoy
significant economies of scale. But there appears to be a tipping point—both in revenues ($20 billion) and the number of
countries that host operations (about 50)—w here the scale advantage tapers off.
 It pays to have a locally deployed marketing function, in w hich most marketing employees w orkin country off icessupported by
a small set of centers of excellence. Companies that take this approach tend to grow fasterand to have low er coststhan thos e
w ith a large proportion of centrally located marketing personnel(exhibit).
 Selectively moving research-and-development centers to low -cost countries can reduce totalR&D labor costs by 6 to 8 percent
on average, w ithout reducing the centers’effectiveness(measured as the percentage of incrementalgrow th fromnew
products).
 In the emerging w orld, staff size doesn’t matter: w e foundno link betw een the number of employees in such a market and a
company’s grow th rate there. What matters is having a skill mix tailored to local market dynamics.
Source : McKinsey
Recommended by : Steve Rogers ( steve_rogers2014@outlook.com )