Rethinking the Value Chain

NEW REALITIES IN COLLABORATIVE BUSINESSNEW REALITIES IN COLLABORATIVE Rethinkingthe ValueChain

RETHINKING THE VALUE CHAIN nEW REAlITIES In COllABORATIVE BUSInESS Acknowledgements CO-CHAIRS Robert Wilkinson Jerry Black The Consumer Goods Vice President, Strategic Industry Development Chief Digital Officer Forum thanks the following The Coca-Cola Company AEON executives for their time, support and valuable insight into the research CORE TEAM Tanja Kunz, The Consumer Goods Forum and development of the Nigel Bagley, Unilever Walt Lentz, Royal Ahold ‘Rethinking the Value Saliha Barlatey, Nestlé Miguel Lopera, GS1 Global Chain: New Realities in Diego Bevilacqua, Metro Peter Mackie, Brambles (CHEP) Collaborative Business’ Chrysanthi Bormpoli, The Coca-Cola Company João Nuno Magalhães, Jerónimo Martins, SGPS, S.A. report. Peter Freedman, The Consumer Goods Forum Caroline Mak, Dairy Farm Lee Green, The Consumer Goods Forum Andy Marrs, Facebook Ruediger Hagedorn, The Consumer Goods Forum Dr. Philip Marsden, Counsel to CGF Board Kees Jacobs, Capgemini John Mayer, J.M. Smucker Uma Kannappan, Capgemini Maureen McDonagh, Facebook Silvia Rindone, Capgemini Charlotte Mercer, Capgemini Maximilian Musselius, ECR Russia CONTRIBUTORS Jon Nordmark, iterate Studio Bruno Aceto, GS1 Italy, Indicod-Ecr David North, Pick n Pay Adam Agnew, Capgemini John Phillips, PepsiCo Jeff Arnold, Kellogg Alejandro Pintado, Grupo Bimbo Kamini Banga, Dimensions Consultancy Simon Potts, Boots Pete Blackshaw, Nestlé Jonathan Pridmore, Mondelēz Alan Bridges, McCain Foods (GB) Ltd. Thomas Pütter, Nagel-Group Greg Buckley, PepsiCo Marjolein Raes, The Consumer Goods Forum Maggie Buggie, Capgemini Katrin Recke, AIM–European Brands Association Rob Bullen, Mondelēz Gustavo Redondo, Danone Christophe Cambournac, Nielsen Tom Rose, SPAR International Andrew Clarke, Mars/Effem Akikazo Sato, Kao Mike Corbo, Colgate Palmolive Philipp Schukat, GIZ Carl Dempsey, Johnson & Johnson Ueyama Shigeru (上山茂), Kao Jean-Noël Divet, L’Oréal Dave Stangis, Campbell Soup Company Jim Flannery, GMA Jon Stine, Intel Corporation Andre Fourie, SABMiller plc Lisa Sweet, World Economic Forum Angela Francolini, McCormick Marianne Timmons, GS1 Global Marty Gardner, Wegmans Enrico Toja, Johnson & Johnson August Harder, Coop Chris Tyas, Nestlé Michael Hodgson, Sainsbury’s Xavier Ury, Delhaize Group Dirk Holbach, Henkel Wim van Herwijnen, Metro Group Prof. Dan Jones, Lean Enterprise Academy Alex von-Behr, Unilever David Jones, Waitrose Tom Whisler, General Mills Nick Kaufman, Kroger Barron Witherspoon, The Procter & Gamble Company Joop Knulst, Heineken Jon Woolven, IGD Vladimir Krasojevic, Carlsberg Gary Wyborn, The Coca-Cola Company Ash Kumar, Capgemini

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Two-day Future Value Chain Design Shop in Capgemini’s Accelerated Solutions Environment in London, 17th-18th March 2015. Table of Contents

7 Foreword 9 Executive summary 11 Value chains reach their limits 13 Why change? 21 What will change look like? 31 What should we do? 41 How do we get there? 45 Conclusion

RETHINKING THE VALUE CHAIN New realities in collaborative business

FOREWORD

As an organisation committed to 1.8 billion people worldwide will join ¡¡How will we address security and positive action in bringing about needed the consuming classes. In contrast, trust as information proliferates in a change in the industry, The Consumer rural populations will continue to world that is increasingly transparent Goods Forum (the CGF) Board initiated develop along different lines. Ageing and ubiquitously connected? the strategy and steps that led to the populations in Japan, China and much creation of this report. This paper of the West are creating a massive A smaller group in Paris, in April, held considers some of the essential ways of demographic shift. Can we serve follow-up sessions on the output anticipating and addressing profound these new markets at the same time from the intensive London workshop shifts in consumer behaviour and the and ahead of digital interlopers and that was further supported by industry landscape. We urge you to start-ups? additional analysis, expert interviews read on. and teleconferences. Resulting from These are among the questions this, the group put forward three Consumer behaviour has changed that The Consumer Goods Forum’s strategic thrusts. These address forever. The path to purchase is no End-to-End Value Chain & Standards consumer engagement, transparency longer linear and could involve social Pillar sought to answer with the and the last mile of distribution. media, an app, web-based research, an Future Value Chain study. The Pillar in-store visit and an online purchase, seeks to identify emerging trends This report argues that these thrusts will in any order. Consumers now have the and recommend concrete actions. benefit from future value networks. A power and the means to share their These trends are set to continue over departure from linear value chains, they concerns and opinions with a larger the next 20 years and will transform will be born from dynamic non-linear audience than ever, through a growing our industry. collaboration and will evolve alongside array of social and digital channels. In existing ways of working. The report this era of the empowered consumer, Gathering in London during March takes a closer look at each megatrend how do we evolve our business models 2015, executives from more than 40 and its implications for the industry, to deliver on consumers’ expectations? companies, together with Capgemini, and presents the initiatives and their formed a research group to ask: associated action plans. At the same time, the internet has ¡¡What has fundamentally changed accelerated innovative competition. since companies first came together As Board co-sponsors of this Established technology firms and to form collaborative industry bodies strategically relevant study, we an army of internet start-ups are in the nineties? appreciate the support of the Board, moving rapidly into consumer ¡¡How will changing demographics, the Core Team and all others who have markets and do not follow established increased urbanisation, digitisation contributed to this important work and go-to-market patterns. Emerging and new shopping landscapes are confident of the CGF’s commitment, markets are incubating new retail and change our value chains? with the backing of the CGF Board, manufacturing business models, based ¡¡How will this evolution progress to push forward with the continued on digital technologies. Can we re- in developing economies – and research and development of these engineer our business models rapidly can business leapfrog current areas of focus. Going forward, the CGF and efficiently enough to rise to these infrastructure constraints in the early will further explore these initiatives with growing challenges? stages of market development? a view to developing concrete action ¡¡What will be the role and impact plans. We invite you to help us ensure China and India are creating expanding of consumers, individually and that future value networks strengthen urban economies at the fastest pace collectively, as they increasingly drive our industry and benefit consumers in history. By 2025, an additional the value chain? through the challenges that lie ahead.

Board Co-Sponsors of The Muhtar Kent Motoya Okada Consumer Goods Forum’s End-to- Chairman & CEO President & Group CEO End Value Chain & Standards Pillar The Coca-Cola Company AEON Co., Ltd.

RETHINKING THE VALUE CHAIN 7

EXECUTIVE SUMMARY

‘Rethinking the Value Chain: New Realities in Collaborative Business’ on the Web More information about the report and programme can be found at www.futurevaluenetwork.com

EXECUTIVE SUMMARY

From value chains to their physical location and their place on trapped in silos and responding to value networks the path to purchase. And they are wary change can be agonisingly slow. This Understanding value chains has been of what may happen to the digital data fundamentally linear architecture central to growth in our industry for that they provide. makes it difficult for them to respond 30 years. Dramatic changes in consumer simultaneously to multiple demands. behaviour, business innovation, Consumers also demand accurate, demographics and economics mean accessible information about products, How to respond value chains will no longer meet their ingredients, their provenance and We will see value networks play business goals as they once did. As a their social and environmental impact important roles in many aspects of result, future success will increasingly wherever they see an item or a refer- business, with new collaboration models require a shift from traditional, linear ence to it online. as a crucial success factor. This report value chains towards more collaborative identifies three strategic thrusts where value networks. Business changed collaborative networks will underpin Businesses born in the internet era are central elements of a rapidly emerging More than ever, consumers are contributing to a dynamic competitive industry agenda. empowered. In business and society, environment, requiring a rapid response we see networks springing up that and higher standard of customer service They are: are organised around consumers and from incumbent businesses. Meanwhile, ¡¡Consumer engagement. Taking their communities, and supported emerging markets are incubating part in a dialogue with consumers, by the internet and the new business new retail and manufacturing justifying their trust in our industry models it makes possible. Networks are business models, many of which are ¡¡Transparency. Keeping consumers non-linear; they offer many routes to also digitally native, offering them a informed about products’ key consumer value. They respond rapidly to competitive advantage. attributes, ingredients, nutrients changing needs because they need less and provenance as well as their top-down control. They help build mass The world changed environmental and societal impacts collaboration with multiple partners. Emerging markets are producing a ¡¡The last mile of distribution – rapidly growing urban middle class who both to the retail store and to If we do not understand and start to will have more in common with western the consumer. Reconsidering the consider this fundamentally different consumers in metropolitan areas, assumption that it is an area in which approach, the industry will struggle sharing the same struggle for space and we operate independently of each to create value and secure long- access to resources. In contrast, rural other, and exploring opportunities term growth. populations will present the industry to collaborate, under certain with a radically different set of needs. circumstances, to improve speed, Consumers changed Meanwhile, the West, Japan and China efficiency and consumer satisfaction The path to purchase is no longer linear. are seeing a massive demographic shift It might involve social media, an app, to ageing populations, which offer yet Value networks can drive each thrust web-based research, an in-store visit another set of distinct expectations. forward, providing we adopt a culture and an online purchase, in any order. So more open to collaboration, embrace a consumers are less engaged with the Our value chains have more modular approach to technology industry’s traditional communication not kept pace and build new business processes platforms (television, radio, print) and The value chains that we have built over around both. Together, we will put the rely more on online social networks. the years have become vastly more consumer at the centre of collaborative They expect businesses to present efficient but they remain mostly linear: networks which will help us achieve content and offers relevant to them, important information is frequently long term growth.

RETHINKING THE VALUE CHAIN 9

Vealu chains reach their limits

Value chains reach their limits

Prelude: early tremors Chained to the past A sunny morning in September 2014 sees Consumer industries have relied on chains. a taxi pull up outside a small jewellery Whether supply chains or value chains, workshop on the outskirts of Stockholm. The nothing gets from A to Z without marching owner hands a package to the driver and, through the rest of the alphabet in the without knowing it, both play a small part in right order. Chains are sequential; they challenging the value chain that has supported are linear. Companies like Uber and Tictail our industry for more than 30 years. offer a different model. Built on the internet from the ground up, organisations like these The exchange was part of an experiment in are flexible and nimble because they have less which Uber taxis picked up items from small internal hierarchy than traditional businesses. retailers and manufacturers and took them They work in parallel, structuring activity to customers in the metropolitan area. Only across a network, both internally and with one hour elapsed from order to doorstep. external suppliers and customers. Networks Participating retailers saw trade grow 500 allow many different paths to the customer. percent during the 24-hour trial, which was They are non-linear. They represent new designed and implemented by ecommerce models for value creation. platform Tictail. The firm plans to introduce the service in full this year. Traditional value chains and supply chains cannot respond effectively and quickly enough Think about it. No extended supply chain, no to the complex and varied demand signals we big carriers, no large warehouses, no capital now face. This is not just bad for a business; it investment and in a month or so, Uber and is bad for the whole industry. If the value chain Tictail achieved something most conventional no longer supports growth, what will happen retailers could not do with millions of dollars to investment capital? Could we see flight of of investment and years of planning. Next day capital to industries or business models with delivery is tough enough. Within the hour? more potential for growth? Forget it. These are the early tremors in a seismic shift which will transform our industry. Let’s examine the problem in more detail.

RETHINKING THE VALUE CHAIN 11

Why change?

To see if such fundamental change is monitoring and a digital service. Consumer necessary, we need to ask: goods, healthcare, financial services and social care providers will hope to align ¡¡How consumers have changed, not just paths to purchase, blurring the line between over time, but geographically, and across goods and services and placing a premium the globe on information quality and connectivity. ¡¡How business changes, with the advent of new technology and new business models The societal need to drive trust

¡¡How the world has changed as demograph- Research from Edelman1 shows 87 percent ics shift and emerging markets develop of people want meaningful interactions with ¡¡Whether our current value chains can serve brands, but only 17 percent think this is what new consumers in the new world brands offer. The study also shows that, in addition to ‘emotional needs’ and ‘rational Taking each in turn, we find that… needs’, there is now a third important need- category for consumer trust, a ‘societal need’.

CONSUMERS CHANGED Through social media, consumers share content and information about themselves, New paths to purchase make purchases and recommend brands, Shoppers can find just the right item in many but do not feel they get much in return. They different ways. It might be in a store, from an expect to get more from brands, especially if online retailer, direct from the manufacturer, we are asking them to share their data. through social media, in an app, from advertising or via word-of-mouth. Meanwhile, Consumers demand data online networks influence consumers’ personal on health, environment and set of rational, emotional and social criteria for social impact of goods deciding what to buy. They face hundreds of Consumers have a growing concern about, choices of different brands and retailers in a and understanding of, the impact of goods on complex physical and digital journey. their health, the environment, animal welfare and the societies touched by the supply chain. In just a few years, we will see massive They are beginning to demand clear, adoption of new consumer technologies concise, accurate information on all of these, embedded in new business models, all consistently across all channels. This need for aiming to improve the way people live consistency in information is what’s driving the their lives. A trip to the doctor might result CGF and industry in the development of GS1 in a prescription, a product, an app, online standards to define context and meaning.

1 http://www.edelman.com/insights/intellectual-property/brandshare-2014/

RETHINKING THE VALUE CHAIN 13 Why change?

Successful companies are proactive novel buying and spending patterns. about how they can retain and enhance They are all declaring a multi-front trust. They engage with consumers, innovation war as well as collaborating not just on a product-by-product basis, with traditional and non-traditional but as retailers and manufacturers. business partners in new ways. Consumers see them doing the right things, throughout their organisations. From 2003 to 2013, 712 companies

They are able to link their company fell out of the Fortune 10002 while the values to consumer value. average lifespan of a company within the S&P 500 has dropped from 90 years in 1935 to an average of 18 years

BUSINESS CHANGED in 2011.3 Clearly, it is no longer business as usual. Business breaks boundaries Globalisation and ecommerce mean the competitive landscape THE WORLD CHANGED has changed. Digital, high-tech companies do not recognise established Emerging opportunities market boundaries. Apple has Patterns in global economics and jumped from computers to consumer demographics have shifted. We have electronics and even, with Apple long been fascinated with emerging Pay, into banking services. Amazon markets, but most international started by selling books to consumers; companies are just beginning to now it also sells cloud computing to understand what it means to sell and big business. Companies such as these operate in them. At the same time, our do not follow established patterns industry faces a compelling opportunity in commerce. At the same time, to improve lives with access to goods start-ups are continually generating and information in these markets. new business opportunities, changing distribution models, and creating

2 https://www.cbinsights.com/blog/corporate-war-innovation 3 http://fortune.com/2014/10/09/dom-barton-four-things-that-worry-business/

WHAT’S DIFFERENT NOW?

In March 2015, Capgemini conducted an ¡¡ Global economic and demographic will result in both developed and in-depth study of all trends that impact shifts including increasing urbanisation, developing markets our industry, examining global economies smaller households, ageing and millennial ¡¡ Increasing concern for the health and societies, consumer expectations, population shifts and the rising middle and well-being of consumers in their natural and human resources, governmental class in developing nations. These communities, including demand for regulations, corporate governance, data changes mean new products, services ethical and local sourcing, traceability and technology. Some trends are not new. and distribution and accountability of materials and ingredients and Although they continue to be relevant, models will be focused on consumers environmental sustainability they will not significantly change the and communities. They will also involve ¡¡ Scarcity of natural resources and need way we operate. However, some are new major infrastructure investments, for for more efficient, ethically sourced and emerging and will act as catalysts to example, in mega-cities production while reducing waste transform our industry. These are: ¡¡ Social media, mobile and wearable ¡¡ Increase in regulatory compliance technology, the internet of things, ¡¡ Socially networked consumers demand requirements and oversight of industry advanced data analytics, 3D printing access to more information, more rapidly, practices and transparency and robotics will combine with new in order to trust the products they buy business models changing the shape of If you are interested in further details on and the companies that serve them our industry. New shopping landscapes this trend-research, please reach out to Capgemini (see appendix).

14 RETHINKING THE VALUE CHAIN Why change?

In China and India, per capita income is less and data synchronisation as well as than US$8,000; yet their size will soon make restructuring systems around category them the largest economies in the world. and demand management. Through this, Expanding urban areas are creating new major benefits have been achieved in supply consumers at the fastest pace in history. chain efficiency and the management of By 2025, an additional 1.8 billion people spend categories. Through the mid-2000s, worldwide will join the consuming classes, we pushed collaboration to the fore. New representing annual growth of 3.7 percent, Ways of Working Together, which went on to according to an MGI report.4 The growing become a CGF initiative, focused on shared consumer class will spur rapid growth in processes and standards, connecting business demand for products and services specific to information between organisations and new urban needs. sharing data across the supply chain.

Growing emerging markets will require Each iteration offered business advantage for investments in the coming decades to a time, but collaboration was linear, mostly meet surging demand for buildings and between leading retailers, large manufacturers infrastructure capacity. Cities will need and their tier-one suppliers. an additional 80,000 square kilometres of residential and commercial floor space Are we doing a good enough job? by 2025.5 Despite all our collaboration initiatives over the last 20 years, there are still a number The world economy was once linear, with of significant areas where the industry goods and services moving between must improve. The opportunities and developing nations and the US and challenges described here cannot all be Western Europe. Now it is more like a network, addressed by individual companies or by with value moving in complex patterns, bilateral collaborations. in both directions, across developed and emerging economies. Consumers are changing and their trust in business is slowly draining away because the The internet and globalisation have already industry does not offer consistent, clear and changed consumers and the world. Can our accurate product information. If a consumer current value chain keep up? scans a product in the supermarket with their smartphone, will they get the right information and the same information they find on OUR VALUE CHAINS ARE a website? It’s unlikely.

NOT KEEPING PACE IGD ShopperVista research showed 56 percent of shoppers want to know more Back to the future about where their food comes from, up from Over the last 30 years, consumer industries 34 percent in 2011. Currently only 12 percent have made the value chain more responsive feel they know ‘quite a lot’ about the origin of and efficient. But while each wave of new their food.6 management thinking makes an impact, we have not changed the fundamental But most information in the value chain sits architecture of value creation. in silos. Even within companies, systems may not be interoperable and may not The Efficient Consumer Response (ECR) share data easily. This lack of transparency model began in the 1990s. The aim was is becoming more and more visible collaboration between companies on to consumers. efficient replenishment, upstream logistics,

4 https://www.mckinsey.com/~/media/McKinsey/dotcom/Insights%20and%20pubs/MGI/Research/Urbanization/Urban%20 world%20-%20Rise%20of%20the%20consuming%20class/MGI_Urban_world_Rise_of_the_consuming_class_Full_ report.ashx 5 https://openknowledge.worldbank.org/bitstream/handle/10986/17599/842260WP0infra0Box0382136B00PUBLIC0. pdf?sequence=1 6 http://www.foodmanufacture.co.uk/Supply-Chain/Big-leap-in-shoppers-traceability-concerns

RETHINKING THE VALUE CHAIN 15 Why change?

EVOLUTION OF While the 1990s and 2000s saw linear value chains achieve greater efficiency, demands on consumer COLLABORATION industries now require a new, non-linear, approach.

EFFICIENCY GROWTH LONG-TERM GROWTH BY Efficient Consumer Response New Ways of Working Together NEW VALUE CREATION Value Networks

MID- MID- 2015- 1990s 2000s 2025

Industry Track (collaboration)

Connect Share our Consumer/ Focus on Prepare Business Supply Shopper Consumer our People Information Chain Satisfaction

Trading Partner Track (competitive advantage) COLLABORATION VALUE COLLABORATION

ECR EUROPE EFFICIENT CONSUMER RESPONSE

p SUPPLY-SIDE FOCUS DEMAND-SIDE FOCUS p

16 RETHINKING THE VALUE CHAIN Why change?

This relates not only to product information, sectors, including governmental bodies and but also to consumers’ data. In the US, in civil society. The consumer, as the centre of 2014, 45 percent of online adults did not trust these networks, is pulling the strings in their companies with their personal information, up dynamic paths to purchase, and mobilising the from 43 percent in 2013.7 In the UK, 45 percent network whenever and wherever they explore, of UK consumers are more concerned about buy or enjoy products and services. their online privacy than they used to be, and 50 percent express unease about the visibility Let’s look at an example. At the 2015 Global of their social networking activity.8 Summit of The Consumer Goods Forum, Stefano Pessina, executive vice chairman and The last mile to both the retail store and the chief executive officer of Walgreens Boots consumer is also falling short. According to the Alliance, talked about new partnership models European Commission, 20 percent of all trucks to serve consumers’ health. Providing better in the EU run empty. This creates carbon value, he indicated, comes from improved emissions and costs fuel. With limited space co-operation between retailers such as on the roads, and mega-cities becoming more Walgreens Boots with consumer goods crowded, our approach to the last mile will manufacturers to share important insights damage service to consumers. about consumer behaviours. Bringing together information about insurance provision will Overall, there is an argument for change. help provide consumers with better choice. Successful companies will remove the Working with medical charities will help constraints inherent in linear value patients understand and cope with the side chains and will anticipate the threat from effects of medication. And the retailers’ new competition. This will require an evolution customer reach offers the opportunity to work across industry towards value networks, with healthcare providers and technology that encourage collaboration, to address companies to realise the potential of new these challenges. techniques to monitor health and get expert advice at any time of the day or night. Patients Why networks are different can remotely consult with doctors who can Traditional value chains, with the consumer also prescribe medication. positioned at the downstream end of the chain, are built on relatively static relationships The industry cannot create such partnership- between companies and designed around models with linear value chain collaboration. internal business processes, most often They require networks to be connected via supported by siloed information systems and autonomous and interoperable business data storages that follow these structures. services which can, for example, provide relevant information (information flow), Networks are different. They are organised conduct a business transaction (transaction around consumers, offering a multiplicity of flow) and deliver a relevant product channels and interfaces across all value-add (physical flow). They need to be orchestrated processes in our industry: from consumer in an agile and modularised ‘plug and play’ dialogue, sales and innovation to sourcing, manner. This demand for autonomy and manufacturing and distribution. Networks are interoperability will require us to collaborate made up of dynamically connected ‘plug and to ensure that we can innately understand the play’ relationships between retailers, brand data that we are exchanging, by ensuring that manufacturers, logistics service providers, it is standardised and reliable. suppliers and organisations from other

7 https://www.truste.com/resources/privacy-research/us-consumer-confidence-index-2015/ 8 https://www.truste.com/resources/privacy-research/uk-consumer-confidence-index-2015/

RETHINKING THE VALUE CHAIN 17 Why change?

Ultimately, the consumer is increasingly in Can we afford not to change? charge, making decisions that have direct If the industry does not change, the impact across the value network, with the consequences will be stark. Content industry responding to that – rather than the distributed on social networks is drawing other way around. This means that the value consumers’ attention away from the print and networks of the future cannot be managed broadcast platforms which have traditionally like chains. Industry-driven, top-down carried our messaging. Meanwhile, new commands cannot direct all the simultaneous market entrants, such as eBay and Amazon, activity across different tiers of the network. are raising expectations of online service Instead, they need protocols to maintain order. and delivery. These companies, along with firms from emerging markets, can take Future value networks will be based on revenue from incumbent organisations by widespread collaboration enabled by a engaging consumers and creating a sense raft of new technologies, including: of trust and transparency beyond our current status. We will be left with dissatisfied ¡¡The internet of things consumers who spend less time and money ¡¡New means of transport, such as with us. They will no longer trust the industry driverless cars because of the lack of consistent information ¡¡Smart, mobile and wearable devices about the products and their origins and ¡¡Social networks scepticism on the use of personal data. ¡¡Virtual, augmented reality They will not engage with us if we do not ¡¡3D printing, robotics, etc. fit into their lives in an easy, healthy and sustainable manner. All of these technologies generate data which new tools can analyse in vast But, by putting the consumers at the centre of volumes, predicting future opportunities. value networks, we can prevent this damage A company failing to collaborate through to our industry and put it on the path towards these technologies could find itself future growth. disconnected as the network builds new paths to value creation around it.

FROM VALUE CHAINS TO VALUE NETWORKS: WHO’S IN CHARGE?

INDUSTRY- CONSUMER- DRIVEN VALUE DRIVEN VALUE CHAINS NETWORKS

18 RETHINKING THE VALUE CHAIN Why change?

MASSIVE COLLABORATION based on new value creation FUTURE VALUE principles enabled by pervasive, modularised technologies. ¡¡ Retailers ¡¡ Entrepreneurs ¡¡ Manufacturers ¡¡ Project developers ¡¡ Healthcare companies ¡¡ Technology providers NETWORK ¡¡ Farmers ¡¡ NGOs ¡¡ Logistics providers ¡¡ Central governments ¡¡ Suppliers ¡¡ Local governments ¡¡ Service providers ¡¡ Financial service companies 2

RETHINKING THE VALUE CHAIN 19

Wht a will change look like?

What will change look like?

It is 2025 in São Paulo, Brazil, and Jorge COLLABORATIVE VALUE feels his phone buzz in his pocket, telling him the self-driving car he shares with his CREATION FOR LONG- neighbours will pick him up in two minutes. TERM GROWTH At the community experience centre, he’ll get a replacement part for his broken dishwasher from the 3D printer and take his Millennials, ageing consumers and those youngest son to the doctors. The boy will in urban and developing rural areas are get his feet measured before Jorge commits examples of consumer types the industry can to a clothing-and-healthcare service plan best serve by putting them at the centre of the government, a retailer and a pharma- the value network. But first we must change ceuticals firm have put together. Quickly, how we work with them. This also means he checks his phone’s digital wallet before reassessing and adapting the way we operate shepherding the child to the front door. within our industry, with companies outside the sector and with the public sector and Jorge and his family are not science fiction civil society. characters. They are typical of a group of consumers emerging in urban areas, For businesses, value will be created by worldwide. They could be in Brooklyn, increasing service quality in parallel with Berlin or Beijing. Space will be tight and reputation and consumer trust, which so will resources but collaboration within will secure consumer spending and and between communities, businesses revenue growth. In addition, value will and government means they will make be created via efficiencies, elimination of the most of everything at their disposal. waste, better use of assets and having more adaptable and agile businesses. These urban area consumers are one of the groups we imagine successful businesses will Consumers, communities and civil society ‘What’s put at the centre of value networks. We have will get value from improved quality of living. also identified ageing consumers, millennials Consumers will enjoy products that are good for the and rural area residents as the most salient affordable, accessible and fresh. They will consumer, is groups where consumer businesses can apply appreciate full transparency in ethical a collaborative approach most effectively, sourcing and product information regarding good for all although the industry will no doubt address sustainability, health and well-being. There will of us.’ other groups of consumers in this way. be less pollution, congestion and waste. Social inclusion will be important.

RETHINKING THE VALUE CHAIN 21 Wht a will change look like?

ILLUSTRATING FUTURE VALUE NETWORKS

URBAN AREAS

What has changed for Jorge and Isabella in 2025? Jorge and Isabella are typical city- the instant availability and freshness dwellers in São Paulo, Brazil. They live of the produce they need. They control with their two kids in a convenient their lives via mobile devices that apartment in a vibrant urban area. For provide personalised services and them quality of life is very important. offers, tailored to what they are doing Over the past 10 years better roads and and where they are. Jorge and Isabella public facilities have transformed their don’t own a car, but share a self-driving community along with a fast, reliable car in their community. Self-driving digital infrastructure. They frequently vehicles and drones deliver online visit the ‘Community Experience Centre’, purchases to their home when it suits which offers them a seamless mix of Jorge and Isabella. He considers buying commercial and public services, such as a next-generation house-robot and he a collection-point for online purchases dreams of the possibility of having his from different vendors, 3D printing, robot programmed to pick-up goods at health and educational services and the collection-point. All their payments stores offering an experience, rather are electronic, seamlessly integrated in than shelves stacked with thousands everything they do in their daily lives. of items. They especially appreciate

What has changed for the consumer goods industry in 2025? Mass collaboration has begun to community facilities and digital and take off. Consumer goods and retail physical infrastructure. Consumer companies work together and with goods manufacturers, retailers, online companies from other sectors such crowdsourcing services and third party as healthcare, finance, utilities and logistics companies are collaborating technology, to offer products and in ‘last mile’ logistics via shared city- services through smaller stores. The hubs to stores, collection-points and foundations of common standards home-delivery, including reverse- and interoperability that were so logistics. Much of the retail space has desperately needed have been been re-purposed to offer experiences developed to support this new world. and services. Other physical assets City governments and national have also been altered. For example, governments are also partners. city farms have replaced parking space There is a role for private business freed up by car sharing and improved providing public community services. last mile logistics. This is all based on a For example, mobile vending kiosks common, modularised and standardised offer consumer goods, but also public technology foundation, where accurate services such as healthcare and and context-relevant information public security. City governments and is shared with consumers in a fully businesses are investing together in transparent manner.

22 RETHINKING THE VALUE CHAIN RETHINKING THE VALUE CHAIN T Wh a

RURAL AREAS

What has changed for Manju and Puja in 2025? Manju and Puja are a young, newly the couple has better access to digital married couple living in a single story information which informs their choices dwelling in the Indian countryside. and fuels spending on healthcare, With newly paved roads to their village, education and entertainment. they have better access to the goods and services they need and can travel Their employer, working with more easily. Better public transport community groups, has helped set up and driverless cars mean they can wellness clinics, as well as tele-health continue to live in their family home and and tele-diagnostics facilities, at their commute to larger neighbouring towns work so employees don’t have to trek for work. to the nearest medical facility which is hours away by public transportation. Both Manju and Puja work at the same factory, built in their area to meet local Manju is attending a nearby college, demand for health and beauty products. sponsored by his employer, to earn With the income from their factory a degree. He plans to be a knowledge jobs, they aspire to purchase the latest worker, part of the virtual workforce goods they see becoming more popular. that his company employs in developing They now have more discretionary countries all over the world. Manju and income to buy consumer technologies Puja finally feel that they have the stable as food takes up a lower proportion of income they need to build a bigger their spending. With these purchases, house, buy a car and have children.

What has changed for the consumer goods industry in 2025? Demand for discretionary goods has Mobile internet access among increased substantially in developing consumers exposes them to new markets such as India, providing products and technology creating a growth for consumer goods companies. desire to ‘trade-up’ that companies need Infrastructure and cultural differences to anticipate. Although infrastructure remain challenging so manufacturers, is improving in many rural areas, in retailers, suppliers, government and others it is still poor, calling for alternate civil-society collaborate to create the distribution models including working services, products and development with regional independent stores communities need and want. to deliver products from multiple manufacturers to community hubs. As Businesses are working together with rural areas drive demand for products government to improve infrastructure from around the globe, industry has and public transport in previously responded by ensuring that products isolated areas to allow residents to can be uniquely identified, consistently access jobs, providing businesses described, and sourced reliably. To with a workforce and a market better meet demands, manufacturing for their products. Cross-sector has become more distributed collaboration also creates social and localised. Consumer goods and wellness programmes to keep companies have begun to source locally employees healthier while increasing and have identified ways to more productivity and employee morale. efficiently consume scarce resources such as water.

24 RETHINKING THE VALUE CHAIN RETHINKING THE VALUE CHAIN T Wh a

AGEING CONSUMERS

What has changed for Maureen in 2025? Maureen is an ‘empty nester’ from a groceries, buy flowers, medicine and small city in the south of England. She supplies for her pets without a car. The was dreading this phase of her life: she city community website now bundles is reliant on friends and neighbours everything Maureen wants from shops for company and support while her in the area and delivers goods to grown-up children are far away. But it her door. is not how she imagined it. Healthcare, shopping and household help have been Maureen also gets the relevant health, organised well around her to make life entertainment, food, financial services, easier, helping her live by herself as she news and other content straight to gets older. her tablet. She has confidence in the devices and services that remotely Household-robots do the vacuum- monitor her health. She often looks cleaning and other chores while into her own digital health portal; not personalised mobile devices track just out of interest, but also to help her needs and provide support. For her make the right food choices. Her a number of years now, Maureen has son in Australia can access the same signed up to a new community service information, including the latest GP for the elderly. A group of businesses reports and health-checks, making him have created integrated, personalised feel still connected to his mum. services which help her shop for

What has changed for the consumer goods industry in 2025? Consumer goods businesses collaborate Collaboration across businesses and with health care providers, financial public-sector partners enables on- services firms and public bodies to demand services for this segment, create an effective and efficient support shifting consumption from goods system for the ageing segment of the to services. As part of the process, population that almost makes up the the industry has created new jobs and majority in the western world. These community-based services that have include shared logistics for goods taken pressure off children caring for distribution from city-hubs to stores and their elderly relatives. Companies help collection points close to public transit finance such services through micro within walking distance from home. and community financing partnerships. On-demand, subscription based Companies are fulfilling the needs of services provide health monitoring and the community they operate in, as well remote diagnosis. Social care and home as the needs of consumers, as the two maintenance services come from the have become more interconnected. same provider to minimise travel. All are This interconnectedness is driven by personalised services based on tiered industry working with the CGF and GS1 levels of affordability. to create processes and systems that enable these services.

26 RETHINKING THE VALUE CHAIN RETHINKING THE VALUE CHAIN T Wh a

wi l l c h a n g e l o o k l i k e 27

MILLENNIALS

What has changed for Jamie in 2025? Jamie lives in urban Boston, close to via mobile devices. He is influenced restaurants, stores and outdoor recre- by the word-of-mouth through his ation. The 26-year-old rents and shares online networks. But company brand his home and is not interested in owning factors such as innovation, shared a car, as he often works remotely. He values, traceability and transparency likes to walk, cycle or take public trans- also affect his purchase decisions. As port but also uses car-sharing services. such, accessible, accurate product and company information is important. Jamie works irregular hours and may take off the middle of the day to play Jamie owns multiple mobile devices: basketball with friends but work until large screens in his house, a smart the early hours of the morning to finish mobile screen and a smart-watch. They a project. Jamie prefers to buy fewer all offer location and context-specific goods with more purpose, always information and interactions and Jamie assessing product sustainability. For this is willing to trade personal information reason, he lives near small stores who for the right rewards and convenience. offer great services and an engaging communal experience. He purchases on Jamie is open to bartering for or sharing an ‘as needed’ basis. goods, as well as using recycled goods. Eating local, fresh and healthy produce As a digital, mobile-first native, Jamie is important to Jamie but he doesn’t shy prefers services over products, localised away from periodic indulgences.

What has changed for the consumer goods industry in 2025? Industry collaboration is providing generate huge amounts of data due information on ethical sourcing, social to their active participation and their responsibility and traceability that is so openness to a value exchange that important to this segment. rewards their information sharing with benefits. Consumer goods and Consumer goods manufacturers retail companies can better understand have created shared logistics with this data now, and are analysing this retailers and third-party carriers to data to help them deliver further move goods from shared city-hubs personalised value to consumers in to stores, collection-points and a transparent way, while meeting the home. This helps stores set up close business goals. to public transit and within walking or cycling distance. Companies are Businesses and public bodies have providing standardised, accurate and repurposed urban structures and shops context-relevant information, driven by to fulfil multiple functions, increasing big data analytics, accessible anywhere focus on community living and on mobile devices. These consumers experiences among millennials.

28 RETHINKING THE VALUE CHAIN RETHINKING THE VALUE CHAIN T Wh a

Wht a should we do?

What should we do?

Value networks will touch everything in By creating a strategic thrust in each area we business, affecting all activities and business will help establish collaboration models in processes, from R&D, production, finance, the short term, creating value and improving HR, merchandising, logistics and asset how consumers view our industry. Also, to management, market research, marketing support each of these thrusts, we need a and sales. Where should we start? The more modular approach to technology. These industry is under-performing in three problems may not be new, but value networks overarching priorities where collaborative give us the opportunity to address them in networks can accelerate return on investment. a collaborative manner and with a collective urgency, as outlined in the following sections. These are: ¡¡consumer engagement ¡¡transparency ¡¡the last mile

RETHINKING THE VALUE CHAIN 31 Wht a should we do?

CONSUMER ENGAGEMENT: PEOPLE WILL TALK TO US AND WORK WITH US

What is the problem? The digital and physical path to purchase is There are technologies around the corner complex and non-linear, but it also leaves that will transform how consumers and footprints in the form of a growing trail of businesses understand and talk to each other. personal data. As a result, consumers are Wearable devices that record consumers’ becoming more aware of the value of their movements and habits will become personal data and the risks it can present more widespread. Cars and home appliances to their privacy and security. They are also will be connected to the internet, similarly concerned about how data is collected, sharing data. Business can crunch through shared and used by businesses and want to be their own data, customer data and vast protected against its misuse. swaths of information from third parties in volumes previously unimaginable and at These concerns are exacerbated by so called unprecedented speed. ‘digital landmine accidents’ involving data breaches and privacy risks. They not only These advances are known respectively as damage individual companies but also the wearable technology, the internet of things consumer goods and retail industry at large. and big data analytics and they will become For example, the 2014 TRUSTe Privacy the foundation for dialogue with consumers Index found that 89 percent of US internet informed by their preferences, routines, media consumers say they avoid companies that do

habits, areas of interest and location. not protect their privacy.9

9 ‘TRUSTe Privacy Index: 2014 Consumer Confidence Edition,’ TRUSTe, December 2013

FUTURE VALUE NETWORK BUSINESS RATIONALE

INDUSTRY COLLABORATION PRIORITIES BUSINESS DRIVERS STRATEGIC OBJECTIVE

Transparency Business Revenue Long-term growth by

Consumer Engagement Consumer Trust STRATEGIC Modularised NEW VALUE THRUSTS Technology CREATION Last Mile Operational Efficiency

Other… Health & Sustainability

32 RETHINKING THE VALUE CHAIN Wht a should we do?

For more information on the Consumer Engagement Principles, please go to: www.consumerengagementprinciples.com

The industry needs to be consistently responsible with consumers’ data so it can add value through an on-going dialogue with them. This will also help avoid unnecessary government intervention.

What is our ambition? The goal is to have consumers view the industry as a responsible user and steward of their data and the insights we gain from it. This gives us a common foundation from which a digitally-enabled value exchange can be optimised by individual companies.

What are the building blocks for success? personal information is used; and giving With the industry-wide Consumer them the ability to correct or remove it Engagement Principles, as agreed by the CGF ¡¡listening and responding to consumer Board, we have an initial framework describing feedback about the use of their how companies should engage with their personal data consumers, which is designed to promote an ¡¡preserving integrity in social environment of trust and openness. media practices ¡¡protecting the reliability and accuracy This is the result of a number of ongoing, of consumers’ personal information and, collaborative initiatives in a process that has should things go wrong, being open about involved a large group of global industry the status of their personal information experts from the retail, manufacturing and online sectors, as well as other strategic value What is the call to action? chain partners. In order to help build trust with consumers and shape the way companies, retailers With these principles, the consumer goods and manufacturers use consumer data, the industry has committed to a number of industry is urged to adopt clear principles for positive actions in how companies deal with consumer engagement: The Consumer Goods data-driven consumer engagement and Forum’s ‘Consumer Engagement Principles’, data privacy. These include: as developed with representatives of the industry from across the world. The principles ¡¡enabling consumers to easily choose will benefit all stakeholders as the industry whether and how their personal information safeguards consumers’ data and nurtures is used; clear communication on how their greater consumer trust.

RETHINKING THE VALUE CHAIN 33 Wht a should we do?

TRANSPARENCY: PEOPLE WILL SEE WHAT WE DO

What is the problem? The UK had its 2013 horse meat scandal currently provide on physical packaging, and the US a salmonella-in-peanuts the industry will struggle to improve outbreak in 2009, but they both point to consumer trust. the same conclusion. Consumer trust takes decades to build but can unravel in a day. In Consumers are generally happy with the level parts of Asia, 2008’s contamination of baby of information they get on packaging. They milk with melamine tells the same story. know what to expect, because much of this information is presented in a standard way. Not only do incidents like these damage the The GMA found the vast majority of data culpable retailer or producer, they also tarnish consumers want is already available. Its the industry as a whole. Consumers who do research shows 80 percent of consumers are not have trust in companies and industries will looking for the expiry date while 70 percent simply not buy their products and services – are looking for name and flavour, storage and look for options elsewhere. and handling instructions, calories and

nutritional data.12 Across the board, trust in institutions is falling. Trust in government, business, media and Problems arise when demand for information NGOs in the general population is below 50 is triggered by new priorities hitting the percent in two-thirds of countries, including public agenda, according to a Hershey/ the US, UK, Germany and Japan, according to gravitytank study. Such a trigger occurred in

Edelman research.10 the case of the ‘pink slime scandal’ where a few media commentators, amplified by social Trust in the consumer industries lags behind networks, were able to rebrand and create the technology, consumer electronics, widespread alarm over boneless lean beef automotive and entertainment sectors, trimming, a safe ingredient used in a number

Edelman found in 2014.11 Our industry is scored of meat products. The industry argued there at 65 percent, compared with a 79 percent was no evidence BLBT was dangerous and rating for the technology industry. What is the negative perception was due to a shift in

more, this level of trust is under significant branding coupled with misinformation.13 pressure as stories about food safety hit the news daily and activists voice concerns about This is the problem for the industry. We often the social and environmental impacts of struggle to meet demand for new information products and their supply chains. about products and, when it does arise, fail to communicate our message effectively. Being transparent with consumers, both as individual companies and as an industry, we Traceability is increasingly important for can turn around their declining trust in us. consumers in their decision making, but what is important can change rapidly. Specific We also need to change how we aspects of ingredient provenance and supplier provide information. Consumers now move ethics, as well as environmental and ecological rapidly between the online and physical world impact, can become important to consumers and they expect product information to be overnight, depending on the public agenda. consistent across both. But, at the moment, Failing to meet these expectations can make the information in the digital world is often consumers suspicious of our industry and incomplete or inaccurate. Without having susceptible to messaging from social and the same assurance in the digital world we traditional media.

10 http://www.edelman.com/news/trust-institutions-drops-level-great-recession/ 11 http://www.edelman.com/insights/intellectual-property/2014-edelman-trust-barometer/trust-in-business/ 12 GMA/TPA work on ITI - Information Transparency Initiative (source: GMA) 13 http://www.huffingtonpost.com/2012/03/09/pink-slime-criticism_n_1335022.html

34 RETHINKING THE VALUE CHAIN Wht a should we do?

This is not a new topic. Our industry has been faces the prospect of every region or supply struggling to share consistent and accurate sector coming up with their own approaches product information with business partners to product data and then, later, the more and with consumers for many years now. difficult task to standardise them. We have not been able to solve the issue. Meanwhile, digital interlopers in our market are We need an industry-wide approach which putting more emphasis on better management balances prescriptive rules with principles of product information and third parties, such and guidelines when it comes to traceability as app providers and online portals, offer and sourcing information, provenance and product information services which may or safety, nutritional information, ingredients and may not be accurate and authoritative. allergens as well as sustainability. Currently, this information most often resides in silos. What is our ambition? To be effectively utilised, it needs to be more Our goal is to improve trust in the industry open and connected. by being more transparent. As a first step we can make information online consistent The industry must also signal to consumers with information on packaging, with an equal that something has changed: a strong level of quality assurance. To succeed here, declaration of a trustworthy promise. Smart the data that we need to be consistently label initiatives offer an opportunity to represented will also need to be consumable, broadcast these changes. shareable and intelligible. While the data content itself may be variable, the structures Finally, we need to measure how we improve that contain and define the data will need to the information we provide to consumers, be standardised. To achieve this, we must who will ultimately judge whether this work together even more closely than we have improves trust. in the past. What is the call to action? This is the minimum starting point, but trigger Working groups of The Consumer Goods events mean consumers will search for new Forum have joined executive leaders in our information at short notice. Our ambition is to industry to prioritise transparency consistently consistently provide consumers with exactly within their own organisations. This will not the right, accurate information they need, at only affect supply chain operations, but also the right moment and via the right channel. the demand side of the business such as This applies to all information about the marketing and sales. product itself and all additional digital information that is relevant to consumers. This Industry must agree on a clear strategy requires full traceability across the industry. for unique product identification and align Providers of ‘non-packaged’ goods, such as initiatives and GS1 Standards that enable fresh food, will also have to create these online provision of transparent information to resources as traceability and provenances can consumers, such as Trustbox in Belgium and be even more important in this context. the SmartLabel initiative in North America.

What are the building Successful companies will assign a specific blocks for success? executive role to address transparency. At the moment barcodes that carry the same This is likely to involve a chief digital officer product identifier do not uniquely describe operating cross-functionally to close the product or package variations, meaning minor gap between the information companies changes cannot be accurately disclosed. provide and the information consumers want, Urgent work is needed to develop and consistently across all channels — although adopt standard, global approaches to it may also involve leaders in marketing and providing the data that consumers and their strategy, depending on how the organisation proxies demand. If we fail to act, the industry is structured.

RETHINKING THE VALUE CHAIN 35 Wht a should we do?

THE LAST MILE: EXPLORING OPPORTUNITIES TO COLLABORATE

What is the problem? Supply chains have become increasingly expectations of the last mile without incurring efficient over the past decades, continuously prohibitive costs. Research from IGD shows reducing the ‘slack’ in the system. However, that, compared to the ‘zero’ marginal costs for we are now seeing a number of changes that customers picking up goods in store, the ‘click have a profound impact on the traditional and collect’ model has a marginal cost of £10 orchestration of the last mile. These changes per delivery, and the ‘pick and deliver’ model are driven by enhanced consumer demands has even higher marginal costs of £15 to £18 and expectations, alternative last mile per delivery. There is a clear opportunity to business models, cost-pressures and demand further explore alternative models that drive for environmental sustainability. down these last mile costs.

Consumers expect more when it comes to Sustainability is another important expectation availability, convenience and choice, and want in our management of the last mile. There personalised experiences and service levels are too many half-empty trucks on the roads, in how goods get to them. They increasingly raising significant questions about efficiencies want to choose their own scenarios when it and emissions. comes to online ordering, in-store experience, home delivery and click-and-collect services. The complexity of last mile orchestration will only increase in the context of further Meanwhile, alternative distribution models urbanisation and the expansions of mega- are rapidly emerging. Companies such as cities and with further proliferation of Amazon are forcing the industry to rethink the convenience-driven retail outlets. last mile distribution model. Already it has 23

percent of online retail sales14 and, in the UK We are on the verge of a last mile revolution. for example, it commands almost a 23 percent The industry must prepare its response. share in all consumer entertainment sales (based on data from July through September, What is the ambition?

2014).15 Faced with the combined pressures on the management of last mile deliveries, the Amazon has launched a one-hour delivery consumer industry must carefully assess the service in the US and the UK and is effectiveness of current systems. But deciding experimenting with crowdsourcing the last on the response means navigating some

mile of delivery16 using privately owned difficult decisions about where to collaborate vehicles, in an approach similar to the Uber and where to act proprietarily. taxi model created in collaboration with Tictail [see page 11]. This is not just about optimising last mile distribution on its own – this is about looking At the same time, conventional retailers with at the impacts and opportunities for the last both a physical store and online presence mile to enhance the consumer experience in face the pressure of meeting consumer an efficient and sustainable manner.

14 http://www.customerparadigm.com/amazon-continues-to-dominate-ecommerce-although-theyre-losing-money/ 15 http://www.theguardian.com/technology/2014/nov/10/amazon-uk-entertainment-market-sales-games-film-music-tesco-hmv 16 http://uk.businessinsider.com/amazon-on-my-way-delivery-service-could-crowdsource-deliveries-2015-6?r=US

36 RETHINKING THE VALUE CHAIN Wht a should we do?

Retailers and consumer goods companies experience, accounting for the growth in must decide if the last mile of distribution online shopping. Other models will include is a ‘customer facing experience’ and click-and-collect, pick-and-deliver and what this means for their brand. There is a click-and-deliver. Collaborative models for difference between straightforward ‘brown- sharing of warehouses and distribution assets box’ deliveries and those that are part of should be considered and tested for mutually a differentiation strategy, which is often beneficial efficiencies. important in grocery retail. The existing efficiencies of direct store In looking for new ways to orchestrate the deliveries for fast-moving consumer products last mile, we need to balance proprietary in developed urban markets should be differentiation against the benefits of better understood. The industry has to be collaboration in efficiency, costs, sustainability alert to opportunities to develop new models and consumer convenience. This does not and learn what will work where. Companies mean we have to choose one or the other. We such as Amazon and eBay are already experts will instead see a continuum emerge between in rapid experimentation and the consumer collaboration and independent execution in goods industry needs to learn from them to the last mile. We will need to find the right compete effectively. balance between the two approaches. What is the call to action? The initiative will always be with those The industry will benefit from understanding experimenting in new last-mile collaboration the opportunities for collaboration that are models which improve efficiency and enhance becoming available in the last mile, and consumer satisfaction and experience. These where they will sit on the continuum between models can improve availability, accessibility collaboration and independent execution. and speed in getting products and services to consumers where and when they want them. There is little public evidence or data on New models can also optimise use of assets which approaches to collaboration work such as warehouses, vehicles and stores while best where. Different companies are piloting minimising waste. different point solutions. Every stage and option will have to be analysed to understand What are the building the business case (for both consumers and blocks for success? business) and the conditions for potential There is no single response to the challenges collaboration, validity by type of category, in the last mile. The success of collaboration type of region and market maturity. will depend on the consumer segment, product category, proprietary efficiencies Such an industry assessment and longitudinal and geography. view will give further direction to exploring new collaborative opportunities. Most of all, the new approach to the last mile requires a change in mindset. Companies The three strategic thrusts of consumer that simply try to defend their traditional engagement, transparency and the last mile models and assets will not win. As an will be difficult to execute using existing industry, we must explore new and optimised business systems modelled, as they are, on models to enhance the shopping experience linear value chains. To evolve value networks, in stores re-imagined around consumer we need a new approach to technology.

RETHINKING THE VALUE CHAIN 37 Wht a should we do?

MODULARISED TECHNOLOGY ENABLES AGILE COLLABORATION

Legacy systems impair agility designed to openly share data. This allows Most of the IT systems in our industry applications to be developed and owned in adhere to established business models close proximity to the business. and value chains. As a result, they are often inflexible, hindering our ability to The problem is not just technology. It is also respond to the rapid pace of change. Of culture, skills and leadership. The level of course, the enterprise applications that executive awareness on the potential and run our business, and the data warehouses impact of this new breed of technology that report on and analyse performance, opportunities is still insufficient. There is have greatly improved efficiency. But their genuine resistance to change; it’s going too legacy, scale and importance to our existing fast for many. business processes often slows down our agility to change. And we often find that Compare our approach to IT with that of data is trapped: the business applications the internet-enabled, sharing economy. and organisations create silos which make it Companies such as Uber have an open difficult to share information. approach to data. They create rapid collaboration with disparate data sources. Our current applications are like trains. They They are agile. They are transparent. They are are efficient and reliable but make sudden responding to and creating new markets on

changes in direction difficult.17 the fly.

Value networks will demand rapid The case for modular technology collaboration with external providers, The business case for new technology-enabled supported by flexible, plug-and-play business industry collaboration will be built around applications and data. It will require a much consumer trust, lifetime use of products, better understanding of consumers and their touch points with consumers and interactions behaviour in order to frame and monetise between shoppers and brands. Success will the right services. Data will come from inside be determined by the collaborative change the business, but also from external sources that is achieved in consumer engagement, such as open data, mobile geolocation transparency and last mile. Other criteria will and social media. Our approach needs to be based on the ability to: be open and extensible, but our systems have been built to support rigid, linear and ¡¡provide business units (especially new and closed processes. innovative ones) with the IT support and tools they need to quickly create, manage Our commitment to rapidly improve and measure value consumer engagement, transparency and ¡¡be an open and data-driven enterprise last mile cannot be achieved with our current ¡¡become a collaborative digital enterprise technology capabilities and architectures. This approach to technology can create a As an industry, we need to much better exploit 360-degree view of commercial possibility. the next generation of business technology Rather than using linear business processes that is faster to deploy, more agile, and and IT systems which only go in one

17 https://www.capgemini.com/blog/cto-blog/2014/12/technovision-2015-from-train-to-scooter

38 RETHINKING THE VALUE CHAIN Wht a should we do?

separates data from its originating application and removes internal duplication ¡¡Services-Oriented Business Technology. At its core, this is the ability of an IT organisation to rapidly create ‘services’ in support of an existing or new business process. Such services would generally be formed from multiple data sources (both internal and external), and driven through off-the-shelf or externally-developed applications. In the modular approach, an assessment of business processes leads to the selection direction, successful companies will use of the necessary IT building blocks an open, extensible approach that allows including data sources, open application them to create ‘mash-ups’ of products and programming interfaces (APIs), analytics services at short notice, in collaboration with tools and user experience dashboards other organisations. For example, airline ¡¡A corporate commitment to the governance British Airways has moved to allow other disciplines necessary to establish and businesses to build services on top of its maintain a modular, component-based offering by opening up application interfaces IT architecture for its flight information.18 What is the call to action? Modular building blocks To create the technical foundations for rapid break down barriers collaboration, we must: Business agility and rapid collaboration require the transformation from ¡¡Understand the collaborative use-cases and monolithic corporate structures into scenarios that need technology support in smaller operational components. We need consumer engagement, transparency and component-based technology that breaks last mile down these rigid, purpose-built structures ¡¡Agree to develop and adopt an open into multi-use modules, easily-assembled or systems-oriented technology roadmap to dissembled according to business needs. aid the required modularisation with the goal of enhancing speed of communications The hallmarks of this approach will be: and enhanced connectivity of information. This offers a plug-and-play approach to ¡¡Autonomous and Cleansed Data. Data – business applications and data services to the performance numbers, the customer enable the key strategic thrusts information and selling, general and ¡¡Increase executive awareness of the impact administrative expenses – is the lifeblood of technology on industry collaboration of an organisation and the network and its importance to being able to connect it operates in. The modular approach necessary collaborative information

18 http://www.computerweekly.com/news/4500249571/BA-opens-up-API-on-flight-information

RETHINKING THE VALUE CHAIN 39

How do we get there?

With this vision of how value networks will Traditional collaborative value chain efforts cluster around new types of consumers, have focused on supply chain and operations, we can begin to see what the future delivered in one-to-one relationships. We might look like. Value networks will create now need to further establish a collaborative a fundamentally new approach to the culture on the demand side of our businesses, value chain, reconsidering its principles with consumers at the centre of conversation. and processes. Consumers, technology and the business But how do we do that? It is time for a world are changing extremely fast. There is new approach. Successful industry leaders no single cookbook for success. But targeted will create and instil a new mindset in their at specific problems, with specific goals, management teams to make the future value collaborative value networks do succeed and network real, learning through real world success will spread. examples that already exist – and imagining those that have yet to emerge.

RETHINKING THE VALUE CHAIN 41 How do we get there?

Where do we start? It is time to take action. We will benefit from ¡¡Remove traditional constraints in business future value networks as individual companies operations to allow collaborative, and an industry as a whole, only if we set networked working clear goals with deadlines and metrics. The ¡¡Build business models that re-order value best place to start is by working together on chains and create new opportunities consumer engagement, transparency and the last mile supported by modular technology. To achieve these goals, successful corporate leaders will: It is up to individual companies to rewrite strategies and adapt collaborative cultures ¡¡Create shared transformative vision of their so they can generate value from networked role in the future value network economies and consumers. ¡¡Engage employees at scale to help them act on the vision Drawing on the research-based digital ¡¡Build governance to ensure collaboration transformation framework of the MIT Center fits with corporate compliance for Digital Business, developed in collaboration ¡¡Exploit new technology, fusing IT and

with Capgemini 19 (and illustrated on the facing business communities to build required page), successful companies will: skills and technology platforms

¡¡Understand the contemporary consumer This requires executive leadership by experience (networked, collaborative, non- individual companies and suggests linear) and align value creation to it a facilitating role by The Consumer Goods Forum.

19 https://www.capgemini-consulting.com/leadingdigital

THE CONSUMER GOODS FORUM’S ROLE IN REMOVING BARRIERS TO COLLABORATION AND CREATING VALUE NETWORKS

The Consumer Goods Forum (the CGF) A Platform of Service Providers As part of the work accomplished by serves the needs of its retailer and The CGF provides the know-how for its strategic End-to-End Value Chain & manufacturer members by balancing three industry members to solve issues Standards Pillar, the CGF is working on: major platforms to create value. These are: collaboratively, applying special rules for this unique, global and collaborative ¡¡ The Consumer Engagement Principles; A Platform of Business Needs platform, like working towards open ¡¡ Traceability and Product Safety, The CGF solves issues faced globally by common standards, definitions and cross pillar; a wide range of companies, both large protocols, no strings attached. and small, and across a broad range ¡¡ Transparency; and of geographies. It helps make open-source A Platform for Industry Organisations ¡¡ Further research into the Last Mile via solutions available to all industry players Capturing, sharing and driving best the Pillar’s Steering Committee and improves the life and satisfaction of the practices and implementation. consumer, globally.

42 RETHINKING THE VALUE CHAIN How do we get there?

BUILDING BLOCKS OF THE DIGITAL TRANSFORMATION FRAMEWORK

CUSTOMER OPERATIONAL BUSINESS EXPERIENCE PROCESS MODEL

CUSTOMER UNDERSTANDING PROCESS DIGITISATION DIGITALLY-MODIFIED BUSINESSES ¡¡ Analytics-based segmentation ¡¡ Performance improvement ¡¡ Product/service augmentation ¡¡ Socially-informed knowledge ¡¡ New features ¡¡ Transitioning physical to digital ¡¡ Digital wrappers

TOP LINE GROWTH WORKER ENABLEMENT NEW DIGITAL BUSINESSES ¡¡ Digitally-enhanced selling ¡¡ Working anywhere anytime ¡¡ Digital products ¡¡ Predictive marketing ¡¡ Broader and faster communication ¡¡ Reshaping organisational boundaries ¡¡ Streamlined customer processes ¡¡ Community knowledge sharing

CUSTOMER TOUCH POINTS PERFORMANCE MANAGEMENT DIGITAL GLOBALISATION ¡¡ Customer service ¡¡ Operational transparency ¡¡ Enterprise integration ¡¡ Cross-channel coherence ¡¡ Data-driven decision-making ¡¡ Redistributing decision authority ¡¡ Self service ¡¡ Shared digital services

DIGITAL ¡¡ Unified data and processes CAPABILITIES ¡¡ Analytics capability ¡¡ Business and IT integration ¡¡ Solution delivery

This research-based framework of the MIT Center for Digital Business was developed in collaboration with Capgemini.

RETHINKING THE VALUE CHAIN 43

C oncluSIOn

Conclusion

The recipients of our goods and services Through our research we have identified are no longer passive. Empowered by their three strategic thrusts which will instigate own networks, they are driving change in collaborative transformation. There will still be our industry. areas where it is not appropriate to collaborate but a value network provides a strategic To embrace this change we need to learn from platform for collaboration to become readily them and let our industry be guided by them. available whenever we need it. Aligning our values with theirs, we can earn their trust and set ourselves on a path towards It will often be challenging but there is much new growth. cause for optimism. We have the tools, the people and the knowledge. We must use To achieve these objectives, collaboration them to place consumers at the centre of the is vital, but it will not be linear. A model future value network and secure a path to based on value creation networks will help long-term growth. us respond to rapidly changing demands.

RETHINKING THE VALUE CHAIN 45 C oncluSIOn

APPENDIX: THE PROCESS BEHIND THE PROJECT

In order to develop the ‘Rethinking ¡¡Consumer Expectations & Trends sourcing & production, distribution the Value Chain: New Realities in ¡¡Data & Technology Disruptions & channels, consumer engagement Collaborative Business’ report and ¡¡Influence of Global Economies and technology enablers. Within each associated business model for action, & Societies element, the groups were challenged The Consumer Goods Forum (the CGF), ¡¡Government & Corporate Governance to identify three areas of collaboration working with Capgemini, brought ¡¡Natural & Human Resources Trends that would balance the tension between together 55 participants and experts value and achievability. Over 15 areas from leading industry players, including Participants were assigned different of collaboration were ranked on a consumer products manufacturers, vantage points (manufacturer, retailer, matrix to determine the key areas of retailers, service providers, technology consumer, technology provider, collaboration to focus CGF efforts in companies, NGOs and other government/legislator, disruptor) to the future. industry organisations, including a approach the research from, before governmental body. sharing insights in small subgroups. Phase III: Action to Create The subgroups then presented their Solutions and Guidelines The first step in the process was an findings back to the whole group, where The final phase focussed on how to turn intensive two-day workshop held at common themes emerged as well the insights and models from the first the Capgemini Accelerated Solutions as the outlines of a ‘compelling case two phases into reality. In this phase, Environment (ASE) in London, 17th- for change.’ participants identified six possible areas 18th March 2015. The objective of the of collaboration to take forward for workshop was to evaluate the market, Phase II: Focus on the Future further consideration and refinement. technology and consumer forces Using the insights from phase one, driving change in the future and their participants were put in a 2025 future An ambition was created for each area, impact on the value chain. The industry mindset, where the industry has as well as an understanding of the participants also worked together transformed itself in serving consumers business rationale and cost of inaction. over the two days to develop a vision in a way that is inspiring other It was clear that not only did the for how value chains of the future will industries, governments and NGOs. participants agree why and what they need to transform and the associated Small breakout groups were given should be doing collectively, they also implications for business, including different consumer lifestyle contexts started to generate ideas as to how they practical guidelines and solutions. A key such as Urban Areas, Rural Areas, could go about future collaboration finding coming out of the workshop was Ageing Consumers and Millennials from in this area and the organisational that new collaboration models will be which to design and create models of implications involved. Underpinning pivotal to how companies deliver value the value chains of the future. From this this thinking were a set of strategic to consumers and other stakeholders work, it was clear that the linear value initiatives which could be taken forward along the value chain. chain had been transcended by the idea to put these areas of collaboration into and need for a ‘Value Network.’ action, for the industry as a whole and The workshop session included for individual companies. three phases: A subgroup of participants started the ongoing process of consolidating The three-phase process helped Phase I: Scanning the the future ‘Value Network’ model. achieve alignment among the Future Landscape In parallel, the remaining groups participants, defined a roadmap The group started the session by were asked to consider areas of for the CGF to follow, and created scanning and understanding the key collaboration and non-collaboration momentum and commitment to trends that will impact the global within their company; with consumers deliver on the recommendations, landscape as well as the industry over and shoppers; with transactional in the form of a collaborative value the next 10 years, and looking for the business partners; across industry; network model and the accompanying opportunities and threats they bring. and other, encompassing key elements comprehensive report. The areas of focus included: of the existing value chain such as

46 RETHINKING THE VALUE CHAIN ABOUT THE CONSUMER ABOUT CAPGEMINI

GOODS FORUM With 180,000 people in over 40 countries, Capgemini is one of the world’s foremost The Consumer Goods Forum (the CGF) is providers of consulting, technology and a global, parity-based industry network outsourcing services. The Group reported that is driven by its members to encourage 2014 global revenues of EUR 10.573 billion. the global adoption of practices and Together with its clients, Capgemini creates standards that serves the consumer goods and delivers business, technology and digital industry worldwide. It brings together the solutions that fit their needs, enabling them CEOs and senior management of some 400 to achieve innovation and competitiveness. A retailers, manufacturers, service providers, deeply multicultural organization, Capgemini and other stakeholders across 70 countries, has developed its own way of working, and it reflects the diversity of the industry in the Collaborative Business ExperienceTM, geography, size, product category and format. and draws on Rightshore®, its worldwide Its member companies have combined sales delivery model. of EUR 2.5 trillion and directly employ nearly 10 million people, with a further 90 million Learn more about us at www.capgemini.com related jobs estimated along the value chain. It is governed by its Board of Directors, which About Capgemini’s Consumer comprises 50 manufacturer and retailer CEOs. Products & Retail Practice Capgemini’s global Consumer Products For more information, please visit: and Retail practice works with a majority www.theconsumergoodsforum.com of the world’s largest retail and consumer products companies plus hundreds more. A Contact team of more than 12,500 consultants and Ruediger Hagedorn technologists throughout the world helps +49 171 693 5583 these clients reap the benefits of industry- [email protected] specific solutions such as Consumer-Driven Supply Chain, Digital Transformation, Insights and Data, and Global ERP Integration.

For more information: www.capgemini.com/consumer-products-retail

Contact Kees Jacobs +31 653 292 832 [email protected]

No part of this document may be reproduced or copied in any form or by any means without written permission from Capgemini and The Consumer Goods Forum. RETHINKING THE VALUE CHAIN nEW REAlITIES In COllABORATIVE BUSInESS www.futurevaluenetwork.com