Software is eating the world and cloud technology is eating enterprise data centers. The Consumer Products (CP) Industry too has embraced cloud technologies to optimize business operations and enhance customer experience. There’s no doubt that cloud services have a bright future in the CP industry. But do CP companies have the right cloud strategy in place?
At a glance, the consumer products (CP) industry appears to be at a happy place. A recent industry study by McKinsey highlights how the CP sector has outperformed the S&P 500 over the last two decades, delivering a materially higher total returns to shareholders. But in reality, the CP industry is amid disruption. Serious disruption!
From activist investors forcing a change in company strategy and structure, and massive portfolio revamps, to unprecedented influx (and even success) of new entrants – the CP industry has it all. Long-term prospects aren’t hunky-dory either. Technology giants and marketplaces (such as Amazon) offer big opportunities, but also stage big threats. Their access to consumer data and control over web commerce/digital commerce, leading to increased level of wallet share will continue to pose threats for the CP industry.
Fortunately, there are credible strategies to survive this disruption. These strategies include having a greater focus on a brand’s health and wellness, reinventing brand positioning and messaging, improving digital consumer engagement, leveraging direct-to-consumer channels, tapping into global markets and, of course, M&A to align product portfolios for the future. Each of these strategies has a strong technology play to it, and in turn, a strong play for cloud in the CP industry.
A recent Gartner report has revealed that the global public cloud services market is currently worth $214.30 billion. By 2022, it is expected to grow to $331.20 billion. I am certain that a fair share of these billions will be funded by the CP industry.
Cloud-based service models are gradually becoming a mainstay in the CP industry due to their scalable, cost-flexible, and agile value propositions. This transition is not only making infrastructure management easier, but is also facilitating greater collaboration and agility within the organization and across ecosystem. And while, return on investment has been a contentious topic so far, it is increasingly favoring cloud services in recent years.Where, or How to use Compute? – That is the Question
Cloud technology isn’t a new phenomenon. But its meaning varies from one CP company to another. When it comes to cloud, organizations find themselves at the crossroads – where do they use the compute or how do they use the compute. These approaches can have a telling impact on these organization’s cloud strategies.
As industries adopted cloud, the initial focus was on the location (where it was implemented). The fascination of cloud was primarily around the business model and speed of provisioning. Since the focus was on a consumption model and the execution speed, the private cloud came into existence. In summary, for those who hold this belief, cloud is a competitor to their data centers.
But very soon, the nature of workloads changed. For the lack of a better word, our industry calls it “digital”. Essentially, it is the architecture of systems (mainly micro-services/API-based), system landscape (from applications to products and platforms), and adoption of super-computing propositions (AI, NLP, advanced analytics) that define what is cloud native.
Now we suddenly have something that’s either not possible or required over-engineering of your data centers. And, therefore, according to this belief cloud isn’t a competitor but rather a substitute to data centers. It is unfortunate that the “public cloud vs data centers” or “is cloud an alternative or a substitute” debate is still stifling some organizations’ cloud approach and strategies.
Emphasizing the Right Cloud Strategy
These two beliefs innately coexist if you have the right cloud strategy, which emanates from a business strategy rather than an IT strategy. Depending on which business goals are more critical, enterprises can tailor their priority of cloud development or migration. And, while formulating a coherent strategy, it is also important to understand the integration needs specific to the model chosen.
The workload modernization strategy of a CP company depends on a clear understanding of its present system landscape and the future strategy. The above value model can help organizations analyze what cloud means at a system or process level on the basis of their technical maturity and the business value they aim to drive.
The core systems are critical to the product development and operations. These systems generally demand long-term investments and strategy. The core systems focus on stability, cost efficiency, and incremental innovation. Furthermore, organizations also need to make informed decisions regarding legacy systems. Structural changes to these systems can be fairly expensive and, more often than not, without tangible revenue impact. Hence, core systems are best suited for IaaS cloud migration and judicious PaaS leverage.
Most of the innovation and differentiation in the CP industry is happening at the edge. Edge systems deliver commerce, experience and consumption, and are directly impacted by any business strategy. The rate of change expected from edge systems is best delivered by cloud-native architectures. Cloud provides multifaceted solutions which allow for easy access and integration of cutting-edge technologies such as AI, ML, IoT, and advanced analytics. These technologies are critical to charting consumer habits and consumption patterns, thereby easing core processes (e.g. inventory management and supply chain management) leading to real savings. Predictive analytics is also helping CP organizations with planning for preference shifts and dynamically adapting to a surge or dip in demand. As it’s evident - such innovation systems are intrinsically cloud native.
A Promising Future
Software is transforming the world. And cloud is transforming how we think about data centers. New entrants have one definite advantage over their matured cousins – they don’t have the baggage of legacy systems. New entrants are, by design, cloud native and agile. And for established CP companies, a comprehensive cloud strategy is not a choice but rather a need. One can argue it’s a need in every growth or survival strategy of CP companies. As CP companies try to partner with cloud providers and system integrators a comprehensive cloud strategy and its successful execution will differentiate leaders from the laggards. I strongly believe that the value model shared in this blog is applicable to various scenarios and is a practical tool for developing successful enterprise cloud strategies.