Traditional Consumer Packaged Goods (CPG) companies and retailers are rethinking their critical segments. With escalating pressures to continually provide innovative market offerings while simultaneously demonstrating sustainable, profitable growth, it’s no surprise that these CPG and retail companies are thinking more like their consumers. They are challenging the traditional topics as basic as how to define a channel and the nature and value of a product. As a result, these CPG and retail value chains lead progressive companies to develop new convergent products and channels which combine cross-disciplinary technologies and capabilities to create compelling value propositions.
Real-time convergence scenarios
Powerful things begin to happen when commercial offerings imitate consumer lives. Convergent platform innovations offer significant opportunities and present unique challenges, most notably the need to effectively orchestrate a number of outsourced, industry-spanning, cross-disciplinary capabilities such as complex high-tech product engineering, rapid lifecycle technology design and managing a complex global partner base. Unlike traditional outsourcing, where the activities are often non-strategic, orchestrating convergent platform innovation is significantly more complex as depicted in Figure 2. But it’s not impossible.
After limited trials earlier in the year in Philadelphia and Chicago, Peapod LLC—in partnership with Barilla, Coca-Cola, Kimberly-Clark, Procter & Gamble (P&G) and Reckitt Benckiser—announced this past October that it would open over 100 “virtual grocery stores” in commuter rail stations in Boston, Connecticut, New York, New Jersey, Philadelphia, Washington, D.C. and Chicago.
The idea is simple. Commuters armed with iPhones, iPads or Android phones just scan bar codes of the products in the virtual grocery aisles within billboards displayed on train platforms for home delivery. Peapod’s East Coast virtual stores’ ads feature household products, food & beverage (F&B) items and beauty care products. The company expects half its orders to come through mobile devices by 2014—good news since the typical iPad shopper’s ticket is higher than the typical Peapod ticket of $150.
The program mirrors Tesco’s Home Plus’ “subway store” offering in South Korea. Launched in June 2011, the subway program increased Tesco’s sales by 130 percent in just three months.
Whether in Seoul or SoHo, the concept of “taking shelves to where the customers are” requires retailers to successfully orchestrate a complex set of capabilities—from software support of mobility-enabled shopping to “last mile” warehousing and fulfillment issues in metro markets.
Coca-Cola’s Freestyle beverage dispensing system is another example of a successful convergent platform. Freestyle machines allow customers to mix and match over 100 individual Coca-Cola flavors through a wireless enabled touch-screen interface. The Freestyle platform offers a direct-to-customer channel for testing new products and interacting with customers. As in the Peapod and Tesco examples, Freestyle requires Coca-Cola to orchestrate non-traditional capabilities including micro-dosing technology from the medical device industry and precision automotive metal chassis building. Both examples demonstrate the opportunity and game-changing nature of convergent platforms.
Our experiences working directly with global CPG and retail companies and across industries engaged in complex innovation outsourcing such as consumer electronics and defense taught us that leading orchestrators consistently outperform their peers. On average, they achieve development and launch milestones 25 to 50 percent faster; and enjoy 20 to 40 percent cost advantages; and have a higher likelihood of sustained differentiation.
Thus, outsourcing convergent platform innovation requires the presence of five elements of success (click here to see the first two elements).