During the past several tumultuous years, consumer companies have been forced to adapt at breakneck speed. While all companies have had to respond to changing customer preferences, consumer organizations arguably have felt these challenges more acutely. Dramatic spikes and troughs in demand, the mass adoption of digital channels, global supply chain challenges, and the inflationary environment have applied significant pressure on retailers and consumer goods companies.
These pressures are affecting all levels of an organization. The C-suite garners a lot of attention and credit when a company performs well, and the front line enjoys a certain visibility as the face of the organization. But management—the heart of the organization—has the burden of translating strategy into action and results. The “middle” of the consumer organization plays an important role: managers set the tone, gather customer insights, and represent the next generation of executive talent.
McKinsey’s 2022 Voice of Consumer Organizations Survey gathered input from 1,470 upper and middle managers at North American consumer companies to understand their points of view.1 Respondents shared where their company excelled and struggled as well as the capabilities needed to succeed in the coming years. Drawing on the findings from this survey, coupled with other McKinsey research on high-performing organizations, we found leading organizations excel in five areas. This focus offers a path forward for companies seeking to adapt to a shifting landscape.
The ‘middle’ of the consumer organization plays an important role: managers set the tone, gather customer insights, and represent the next generation of executive talent.
Strategic clarity is critical to unlocking organizational performance. Companies must ensure that employees across all functions and levels understand not only the overarching business strategy but also how their actions contribute to achieving stated priorities. Our research highlighted a critical gap: on average, managers understand their company’s strategic objectives, but 28 percent of managers report their company does not cascade objectives and key results (OKRs) to the team or individuals.
This is important for two reasons. First, strategic clarity enables accountability and allows employees to be more empowered decision makers as opposed to being restricted to functional silos. Second, linking business priorities to the goals of individual employees is crucial to instilling a sense of meaning and purpose to their work.
Many organizations still rely too much on centralized decision making. Across consumer goods companies and retailers, managers report that critical decisions tend to be made centrally—that is, at a level other than where the work actually occurs. This phenomenon applies to nearly 30 percent of front-office activities. While many decisions (such as capability building and global brand strategy) may lend themselves to centralization, others (such as local brand building) may benefit from empowering working teams with this authority. Speed can be a casualty of centralized decision making: local functions often have the context and data to make a host of decisions around activities such as performance marketing and in-store marketing, but informing centralized decision makers takes time and invites bureaucracy. In many instances, companies could deploy organizational resources closer to where decisions need to be made.
High-performing companies integrate their business and digital strategies. The acceleration of digitalization in the consumer sector during the COVID-19 pandemic has been well documented. Most companies have experimented with digital pilot programs, but the degree of progress varies significantly. For example, 49 percent of high-performing companies have completely integrated digital into their operating model for key areas, nearly twice the number of low performers that have. The key differentiator of high-performing companies is that digital activities are embedded in functions and geographies, not siloed in an IT organization.
In addition, managers at high-performing companies are 1.4 times more likely to report that their organization has digital talent largely in-house for key areas and 1.6 times more likely to say their digital agenda cascades down to teams.
Differing perspectives on the biggest gaps in capabilities. Consumer companies must have a range of capabilities to execute their strategy, inform decision making, and respond to changing trends. Our survey revealed a divergence in perceptions between upper and middle management on their organization’s capability gaps. For example, at consumer goods companies, middle managers were more likely than upper managers to cite programmatic M&A and consumer insights as capability gaps. By contrast, upper management was more likely to report data-driven marketing, digital route to market (RTM), and revenue growth management as the biggest gaps.
Respondents from retail companies were only slightly more aligned. Both upper and middle managers cited AI and automation as a key capability gap, but they had divergent opinions on other gaps. The largest variance between the two groups—at nine percentage points—involved precision management of revenue growth.
Gaining consensus on capability gaps is necessary before organizations can implement effective solutions. For example, managers report that redeploying existing talent is the most common tactic for closing capability gaps. According to our research, however, skill building and hiring are the most effective approaches, while redeploying existing talent ranks third.
Pursuing a transformation to keep pace. Nearly two-thirds of managers reported their company had embarked on a reorganization over the past three years. Of this group, 92 percent agreed the effort was inspired by a meaningful reason: digital transformations were the most cited rationale, followed by cost reductions. Respondents also identified cultural transformation, post-merger integration, and growth as objectives.
Reorganizations are notoriously tricky to execute, considering companies must manage many factors at the same time. When asked to name the most common challenges in a reorganization, respondents cited poor role modeling from leaders as the top impediment. This result aligns with other McKinsey analysis on the importance of engagement from the top of the organization.1 Condensed timelines were also a commonly cited challenge.
Reorganizations are notoriously tricky to execute, considering companies must manage many factors at the same time.
Taking a cue from high-performing companies
Consumer executives seeking to raise their organization’s game should take note of the common approaches leading companies pursue to improve results across these five areas.
Ensure strategy is translated throughout the organization. A clear strategic vision won’t be as effective unless it is translated into clear OKRs at the team and individual levels. Managers who prioritize this step can energize their functions and teams with well-defined targets.
Align resources with decision making closer to the consumer. Speed and responsiveness matter. High-performing companies vest teams with the necessary autonomy and authority to make decisions.
Reevaluate the operating model, embedding digital into the day-to-day business. The pace of change means companies must regularly assess their operating model and incorporate optimal ways of working. Priorities include process efficiency and clarity of roles. Organizations should push for simplicity, clarity, and accountability. In addition, digital must be “democratized” and embedded within the business.
Shape the capability program. To fill gaps in a strategic way, companies should identify the next-generation capabilities that matter and then create a multifaceted plan to develop them. This effort must go beyond simply redeploying existing talent. Managers should be encouraged to take a broader view of the capabilities that count (such as digital and analytics) and then receive support and training.
Get reorganizations right. Managers understand how a reorganization can enable corporate strategy, but companies need to embrace a “go big or go home” mindset and ensure this sweeping effort produces lasting change. In addition to emphasizing accountability for end-to-end implementation and change management, leading companies embed continuous improvement in the organization. To increase the odds of favorable outcomes, executives should model the behavior they want to instill throughout the organization and set appropriate timelines.
Managers are vital to the translation of business strategy into execution and results. What’s more, their experiences and insights highlight ways organizations can boost performance. Executives would do well to incorporate their voices into planning, operations, and reorganizations.