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How can your company avoid being hung up by its heritage?

By EY: Building a better working world
Published Last updated This article is more than 2 years old.

As conference themes go, “Seizing Opportunities in the Face of Disruption” is fairly universal. It’s hard to argue, however, that it’s much more applicable for any group than the attendees of this year’s Consumer Goods Forum Global Summit.

Attended by C-suite executives from the likes of Tesco and Nestlé, the theme of this year’s Summit reflects the hard truth that many big consumer goods companies are not faring well in the face of disruption. Digital technologies from machine-learning AI to cloud computing are transforming everything from supply chains to data storage; new shopping trends like direct-to-consumer brands are casting doubt on traditional retail strategies and the future of brick-and-mortar stores; and many large companies, somewhat constrained by history and size, are struggling to react to a rising tide of smaller, nimbler, digital-first businesses.

From 2011 to 2015, small and medium-sized companies took nearly three points of market share from larger competitors, resulting in an estimated $18 billion in lost sales, according to data from Information Resources Incorporated and BCG.

A global survey of consumer products C-suite executives conducted by EY earlier this year found that only 22% of respondents felt confident they could innovate to meet changing consumer wants and needs. Eighty-six percent of companies with over $10 billion in revenue said their traditional methods of value creation were being disrupted, while 84% reported that it was getting much more difficult to grow.

“The world of consumer products and retail is a great land of opportunity right now,” says Andrew Cosgrove, Consumer Products and Retail Lead Analyst at EY. “Yet many of the traditional leaders are not seizing that opportunity because they are tied to what worked in the past. They can rightly feel proud of their heritage, but they need to look to the future and figure out what parts of their heritage should be preserved and what parts have become baggage.”

Indeed, the EY survey found that approximately half of C-suite executives felt hamstrung by the heritage that originally made them successful when it came to making changes.

Of course, some companies are making moves: recognizing their own constraints on innovation, many businesses are building venture capital arms and buying up smaller companies that fit into niches in newer trendy consumer markets like health and wellness and organic foods.

Increasingly companies are looking to Chief Digital Officers to identify the strategies that can overcome digital disruption. But even these more forward-looking companies might want to think twice before patting themselves on the back. “Appointing a Chief Digital Officer is a big mistake to do—it’s like appointing a Chief Gravity Officer,” said Michael Fertik, the founder of Reputation.com, speaking on the Consumer Goods Forum summit panel “The Digital Disruptors Have Their Say.” Organizations can’t assign innovation and a digital approach to a single department; in a successful company, every aspect of an operation will be optimizing itself to make good on the headwinds of the future.

“Appointing a Chief Digital Officer is a big mistake to do—it’s like appointing a Chief Gravity Officer,” said Michael Fertik, the founder of Reputation.com.

Though approaches to the problem of how to achieve growth in the face of disruption might be difficult to enact, they’re a crucial investment in long-term success. Squeezed by slowing or disrupted markets, manufacturers and retailers are often cutting costs in an attempt to generate short-term profits and appease investors; in reality, they may be stunting future growth by making themselves more rigid and less capable of adjusting to shifting market paradigms. “The best companies take the long view,” says Cosgrove. “They batten down the hatches and win in the short term, but they win in the long term as well.”

In addition to cultivating this long-term perspective, companies need to compete aggressively for talent, closely monitor and speedily move to take advantage of consumer trends, invest smartly in emerging markets, and manage staff in a way that emphasizes flexibility over efficiency.

And there is a meta-approach that could encompass and precede all of the above: bold leadership. C-suite executives must lead by example, personally implementing and sharing with colleagues and employees a mindset that embraces change and is prepared to experiment in the short term to find pathways to increased profitability in the coming years. “Ultimately what we’re talking about with many in the industry right now is a lack of leadership and a need for new mindsets to get the right balance of choices to combat the ongoing disruption,” says Cosgrove.

In the end, he suggests, what’s needed may be a fairly old-fashioned value: “To lead takes courage.”

EY’s Better Questions series asks some of the tough questions faced by today’s global businesses. Better questions. Better answers. Better working world. Discover more. #BetterQuestions

This article was produced on behalf of EY by the Quartz marketing team and not by the Quartz editorial staff.

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