Revenue growth management: Building capabilities to sustain impact

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Key takeaways

  • In the current inflationary environment, revenue growth management (RGM) has emerged as a top priority for consumer leaders, and companies that do it well typically see a significant gain in annualized gross margins of 4 to 7 percent.
  • To sustain impact over time, companies must embed RGM cross-functionally and invest in capability building as they are 2.4 times more likely to capture and sustain value from it.
  • At-scale RGM capability building is at the top of the consumer agenda and must incorporate four key principles to do it well.

The growth of online shopping, supply chain constraints, shifts in the channel mix, gross margins strained by rising inflation—these are just a few of the headwinds consumer companies have faced over the past several years. Not surprisingly, revenue growth management (RGM) has emerged as a top priority for consumer leaders in this environment.1Revenue growth management: The time is now,” McKinsey, August 10, 2021. Companies that do it well have been better able to meet consumer expectations and align pricing strategies across channels, which typically has led to a 4 to 7 percent gain in annualized gross margins.2

But to sustain such gains over time, businesses should consider embedding RGM best practices across their organization. That requires several actions, including establishing the right global or regional and local organization structures, hardwiring revenue growth techniques into core business processes, implementing incentives, such as integrating RGM into performance scorecards, and—critically—building and maintaining these capabilities at scale. Indeed, companies that invest in capability building are 2.4 times more likely to capture and sustain value.3

The necessary capabilities encompass skills, behaviors, mindsets, and techniques to support and further expand the company’s RGM strategy and approach in areas that include pricing, promotions, assortment, and trade investment. While the exact proficiencies will vary across companies and roles, from sales and marketing to finance and supply chain, the core RGM capabilities for sustained impact remain the same. At scale, they provide organizations with enterprise-wide muscle to manage, react to, and meet such challenges as the current rise in inflation. Without this scale, the RGM effort will likely amount to a one-time initiative led by a few experts in central positions and leave companies unguarded when new challenges arise.

This has put at-scale RGM capability building at the top of the consumer agenda. It may not be easy to do, but there are principles that have worked well at best-in-class organizations.

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Hallmarks of great RGM capability building

Companies commonly face four distinct challenges in strengthening the skill sets, competencies, and strategies for successful management of revenue growth. First, RGM proficiency levels often vary across the organization; there is not typically a baseline of knowledge, and experts with the needed skills are unevenly distributed. Second, broad scaling is hard because knowledge is often centralized among a few individuals on the core RGM team, and as needs shift with digital advances, new customer behaviors, and the changing post-COVID-19 economy, these experts cannot disseminate their knowledge fast enough to keep up.4What got us here won’t get us there: A new model for the consumer goods industry,” McKinsey, July 30, 2020. Third, stakeholders beyond the commercial functions need to be part of the training curriculum to unlock RGM’s cross-functional value. Finally, people often feel they don’t have time for skills-building classes in addition to their other responsibilities.

To successfully build and maintain the capabilities that sustain an RGM effort, companies need to plan for and resolve these challenges. Our experience suggests that there are five hallmarks of successful RGM capability building.

Start from the current baseline of RGM knowledge and skills

Capability building is a big commitment for an organization and its people, and knowing where to focus the program is pivotal to designing and delivering a relevant, impactful learning journey. Therefore, taking time to identify the current levels of knowledge and skills—for example, through an assessment of individual skills across all key RGM concepts—is a good starting point, as it will allow leaders to understand the greatest gaps and align the right set of learning outcomes with the right people. Leading companies perform granular baseline assessments to determine all RGM subskills and analyze data by role, tenure, region, and the like.

Be cross-functional and collaborative

Successful RGM teams work cross-functionally and use a common RGM-specific vocabulary and acronyms across departments. This is particularly important given that relevant employee groups stretch across many parts of an organization, from key account managers (KAMs) to finance. Cross-functionality helps maximize the value of RGM capability building as the whole organization becomes aligned on the effort. For example, supply chain stakeholders can work with finance departments to change the pack-price architecture of certain products and can continue innovating on commercial renovations using an RGM mindset (Exhibit 1).

Successful RGM teams work cross-functionally across the organization to obtain input and syndicate ideas.

Consider a food company where leaders were working to instill a company-wide RGM approach and an accompanying common language. Employees in need of training did not have a lot of time available to attend learning sessions, however. So leaders focused on involving a broad set of stakeholders in their RGM capability-building programs—from supply chain and innovation teams to commercial teams, such as KAMs and brand managers. Program attendance was encouraged by company leadership in an effort to role model and reinforce the importance of the overall training and the participation of local leaders in each deep-dive workshop. Leaders made it clear that this was a time for everyone to step away from their desk, put down the phone, and roll up their sleeves to learn and apply RGM best practices. To maximize the value of the program for participants, the company integrated data from past experiences and real-life challenges into the workshop exercises. Leaders used those as learning opportunities to advance RGM initiatives, discuss challenges cross-functionally, and consider potential solutions.

Revenue growth management: The time is now

Revenue growth management: The time is now

Tailor learnings to proficiency levels

While everyone in the organization will benefit from day-to-day RGM knowledge, such as price and promotion management and trade analytics, different roles and stakeholders require different levels of proficiency across core RGM capabilities. KAMs, for example, need to be quite proficient at implementation, so it will have more emphasis during their learning journeys. Leaders should categorize the different levels of RGM proficiency, from basic understanding to advanced to expert, and segment the audience according to their category or proficiency level (Exhibit 2). For example, leaders from departments such as supply chain will need less proficiency in RGM than, say, overarching RGM team because that is not their core function. Based on the baseline assessments, leaders will identify the gaps between people’s current capabilities and those needed for their role in managing revenue growth.

Tailor the RGM curriculum to provide the level of RGM proficiency needed for each role.

Learning experts can work with RGM leaders to tailor the training curriculum to groups at each proficiency level and design distinct journeys for different departments to show how RGM affects and can be integrated into their day-to-day jobs. Organizations that do this have an easier time sustainably scaling up capability building across various roles.

A personal care company was rolling out a multicountry transformation of business unit RGM, but it was struggling to gain traction in implementing initiatives. RGM was not part of business as usual in every market, and many local teams did not fully understand the RGM analytics and insights and therefore didn’t feel compelled to implement the recommendations. The company decided to segment the training by targeting proficiencies for each role. Experts who were fully trained in RGM capabilities were given responsibility for incorporating tools and concepts into day-to-day work in each country. They trained KAMs and trade-marketing managers to an advanced proficiency level so that they could use the RGM tools to gain insights daily, while the wider organization received a broad training to bring everyone up to basic proficiency. This approach has not only helped the company scale learnings faster but has also provided a valuable tool for reinforcement.

Train experts to scale learnings

Scaling any capability across an organization is hard; this is especially true for RGM, given that it is highly analytical, strategic, and a comparably newer muscle to strengthen. As such, it should be taught by experienced facilitators, who are not usually available in large numbers. A train-the-trainer approach, then, is often most successful. In this approach, the most proficient—for example, the central RGM team—teach the next level about how to amplify RGM in specific departments. This creates a pool of trained facilitators who can, in turn, train new employees on these concepts to build a continuous loop of knowledge across present and future faculty. Eventually, this approach builds a cadence to teach and practice RGM skills across the entire organization. This system also allows the company to easily scale learning, even as roles change and new people are hired, and companies often develop a playbook to serve as a resource guide to drive reinforcement.

At a consumer durables company, for example, leaders saw a need to broadly roll out RGM capabilities but did not yet have a clear group of experts in place. Concurrently, big shifts were happening in the industry, such as the rise of online channels, which further highlighted the need for RGM capabilities. To both build an expert knowledge base and develop a continuous RGM learning loop, the team used the train-the-trainer approach to develop a preliminary cohort of leaders who could then serve as subject matter experts to teach future cohorts. The approach allowed the company to scale to a faculty pool of 15 people globally in just two months. This first group of RGM champions had the opportunity to shape the program’s delivery and put their personal touch on the RGM capability-building experience.

Harness different learning techniques

Our experience indicates that capability building is most effective when there is the right balance of theory and application—that is, when employees learn RGM concepts and then put them into practice. This is called the field-and-forum approach. Learners spend approximately 70 percent of their time on fieldwork, such as individual assignments and lighthouse projects, 20 percent receiving feedback through coaches and peers, and 10 percent attending workshops and taking courses (Exhibit 3).

These are the components of the field-and-forum approach.

Leading companies harness behavioral science to design an immersive learning journey that integrates RGM theory. They also allow faculty to practice new concepts using case examples, provide real world on-the-job learning opportunities, and set a cadence of refresher trainings to help learners acquire, apply, and sustain learning (see sidebar, “Advances in behavioral science that inform adult-learning approaches”).

For example, leaders at a food company fully integrated the learning journey into participants’ daily jobs. The journey featured on-the-job learnings, such as reviews of RGM promotion plans that were embedded into the regular KAM planning cycle, as well as bootcamps that provided an immersive learning experience. More than 70 practitioners were trained and certified in RGM globally across four markets with a participation rate of more than 90 percent throughout the full journey.

Advanced capabilities in RGM are only increasing in relevance as the macroeconomic, market, retailer, and competitive landscapes continue to evolve and intensify. Companies across the globe have a unique opportunity to reset their RGM strategies to get ahead. RGM capability building is not a one-and-done effort. RGM leaders and consumer executives must assess whether they have the right capabilities to capture opportunities today and the ability to develop those they will need for the future.

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