Walk into any meeting with CPG executives and the conversation quickly moves to what 3G Capital is up to. The multibillion-dollar investment firm has been on a CPG buying spree with a clear strategy to reduce costs through layoffs, reduced budgets and other austere measures. Who’s going to be their next meal? Which CPG company are they next likely to acquire next? Word on the street is that they are raising USD$10 billion for their next CPG acquisition (Mondelez, General Mills or Kellogg’s, any guesses??). It’s a topic that piques everyone’s interest much like what’s in store for the US under Trump’s presidency. Just that in this case the future of CPG companies is more apparent. And it is telling.
Most CPG companies have reacted defensively by cutting costs to improve margins making themselves a less attractive takeover. Forget about 1 year plans, most of them are talking about what to do next quarter. Great for the short term, but certainly hara-kiri in the longer term. Why is this? Most of them have reduced advertising spend, slashed innovation budgets and decreased analytics spends. Reduce advertising spend and it will impact your brand equity in the longer run. Slow down your innovation factory and you get more commoditized and increase retailers’ buyer power. Decrease analytics spend and you rely more on intuition than facts. Talk about digging a bigger hole.
Looking at recent and upcoming movie and TV releases makes you wonder… where are the real ‘human’ stories? Seems our world is made up of robots, AI and augmented reality. We seem to be living in a super advanced world where everything is run by super advanced machines. So why did I take you on a journey into a world of movie fantasy? To remind you that AI is already here and has permeated our lives even though many don’t always realize it. For CPG companies, to obviate the current crisis, the power and potential of technology and AI must be tapped.
Three immediate questions that I am asked by CPG executive are (1) Is AI already here and how can it help? (2) Won’t it cost me a fortune? (3) How do I show value to the C-suite? So here goes:
- Is AI here, already? The answer is yes. Big data technologies and AI have become so advanced that simple to medium analysis and reporting can get automated. Simply put, AI can build models to capture decision logic which human beings use. This is not simple data crunching, it’s actually simulating the human decision making process. Self-learning modules ensure the algorithms improve over time and make better smarter decisions. Your best brains are codified, forever. But wait, current technologies are not limited to simply replicating what humans do. Since the Big Data platforms pull data from traditional (syndicated, survey and internal data) and newer sources (digital, social and mobile), application of machine learning will enable generation of business decision options that current approaches will not allow. Want to understand the long term impact of advertising on not just volume but on brand equity, ability to charge price premium etc.? Machine Learning will do this in a jiffy. So now if you need to reduce advertising spend, you have a solid business case to get more budget. Talk about RoI based decisions, aka zero based budgeting!
- Where do I get the money? The thing about technology is that scale brings incredible cost savings. Implement for one business unit in one market and it will cost an arm and a leg. Scale it up to multiple BUs and markets and it’s cheap. Once it’s set up for one BU, it can easily be replicated for other BUs with some customization. Small everyday decisions and less frequent but more important decisions are automated. What currently requires an army of people (whether on-shore or off-shore) can be handled by technology platforms. This delivers significant cost saving which is easy to scale up, maintain and improve.
- How do I sell this internally? You will need to get your fellow C-suite excited and on-board. Depending on which hat you wear, here is the pitch:
- CFO: Show your CFO how—with the same budget, or better yet, a reduced budget—a cutting edge analytics capability can be built. This is zero based budgeting.
- CMO: Show use cases (and value) on the decision options and insights the new solution can bring which current system just can’t.
- CIO: Articulate how AI represents a huge technological upgrade from the current legacy systems which are in place, and how that has positive impact across the organization.
I hope you are already feeling better. Remember it emerged that Big Data at Caesars Entertainment is a US$1 billion asset. This is what the goal of your insights and analytics function should be—to make Big Data and Analytics a strategic asset for your company in 2017 and beyond.
Author: B. Srinivas, Client Partner, Absolutdata