The attached article from Emma Cosgrove highlights the urgency of simplification and focus when faced with significant demand fluctuations like we have seen during the COVID-19 pandemic.
Some of the biggest, best and most admired consumer packaged goods (CPG) companies like Mondelez, P&G and Coca-Cola found out how important the 80/20 principle is during the last few months. The in-article quote from Coca-Cola CEO James Quincey says it best: “…ruthlessly prioritizing to deliver on core sku’s…”
Variety vs. Simplicity
What Mondelez, P&G, Coca Cola and hundreds of other CPG companies found out during the enormous surge in demand (nicely referred to as “pantry loading”, but more like hoarding) is how much the drive toward creating a multitude of options and varieties to meet consumer demands inhibits the ability to be nimble, responsive and timely during demand surges. Candidly, these companies (and others) have well-run and modern supply chains, but CPG companies tend to prioritize variety & selection over focus & simplification. Trying to satisfy so many varied tastes adds complexity through the company, from data master set-up, to packaging & graphics development, to product stewardship, and all through the commercial and operations functions. So, quite simply…is it worth it?
Sometimes referred to as the Pareto Principle, 80/20 is simply:
- 80% of the value created is driven by 20% of the work or initiatives. In other words, 20% of the input drives 80% of the output.
- Focusing the 20% that drives the 80% enables superior resource management, better quality of inputs, improved innovation, timeliness & enhanced value creation.
When I explain 80/20 to people, I’m amazed at how others only view 80/20 as a “cutting” exercise; a short term, draconian approach to slashing items or resources. It is so much more than that. In my own words…
80/20 is not about cutting. 80/20 is about understanding & applying relentless focus on the elements that are most important and core to your business, so you deliver them with excellence, while not allowing non-core elements to become a distraction.J. F. Stone
Some companies, like Illinois Tool Works (ITW) make 80/20 an integral & rigorous part of their business philosophy. It is part of the company’s DNA and all leaders are expected to be experts in its practice and implementation. For other companies, applying 80/20 is a temporary, ‘on-paper’ exercise without serious data, segmentation or organizational implications considered.
If you have not made 80/20 an integral part of your portfolio strategy, you should, and watching the enormous challenges best-in-class CPG companies have had during this pandemic helps give you a sneak peak into why. To elaborate, integrated 80/20 portfolio management enables you to deliver FIRST:
- FOCUS: Core segments, markets, customers, products and organizational strengths. This also includes understanding your point of difference and how to leverage it fully. Frederick the Great famously said “he who defends everything, defends nothing.”
- INSIGHTS: Utilize voice of customer (VOC), qualitative & quantitative insights, and market data analysis to bring better solutions and meaningful differentiation to end users.
- RESPONSIVENESS: Having successfully lead seasonal businesses, responsiveness and service is paramount to capture sales and meet demand. Too much complexity strains the business operations & supply chain and inhibits response effectiveness.
- SIMPLICITY: The elegance in simplicity is you know what you are, and you deliver that mission, vision, purpose and strategy with consistency and excellence. This is a continuum and requires a constant review & dialogue around whether additional opportunity and expansion is worth the complexity, cost, time and investment.
- TARGETS: Do you know your key metrics and targets? What about those of your customers? When you build an integrated 80/20 business, you build an organization & culture that actively measures and improves key business measure targets.