Consumer packaged goods makers know they need to upgrade their operations to digital. That much was clear from the hit their supply chains took during the pandemic. In response, many have increased IT spending and have aggressive plans to boost innovation over the next two years.

But not all IT project spending on digital transformation yields results of similar magnitude. To maximize the returns they get, the most innovative CPG companies devote a substantial portion of their IT agenda to improvements in three key areas, according to BCG’s latest CPG IT benchmark survey:

• They use artificial intelligence (AI) in a select number of high-value, large-scale implementations.
• They concentrate digitization in a few must-have capabilities, including supply chain, first-party consumer data, and collaborations with online retailers.
• They adopt new ways of working that incorporate agile principles well suited to the industry’s specific needs.

More than 80% of companies expect to have deployed several large-scale AI use cases by 2023, and half expect to move to software-as-a-service (SaaS) solutions and public-cloud infrastructure hosting within the same time frame, according to the CPG IT benchmark.

Learn more about how CPG innovators add the digital capabilities that matter most—and the steps they take to make it happen.

Additional Insights from the CPG IT Benchmark Survey

The insights into CPG companies’ digital-transformation spending come from our survey of 35 companies that are part of the BCG CPG IT benchmark cohort. The companies range from smaller, regional companies with less than $3 billion in annual revenue to large global brands with annual revenue of $10 billion or more. Taken together, the companies represent an aggregate of $638 billion in annual revenue in fiscal 2020, and $9.9 billion in annual IT operating expenses. We surveyed companies about their IT operating models and spending levels, the digital innovations they are adopting, priorities for AI and analytics use cases, and existing digital capabilities and what they plan to add in the future.

For digital transformation investments to pay off, companies must take the following actions.

Ramp up AI. Companies should focus on customer-facing uses, which show the most potential. Companies are in the early stages of scaling precision marketing and predictive trend spotting. They should also continue to invest in data-driven pricing and promotions, and in AI-enabled manufacturing, which produce higher ROI than other areas. And they need to get IT more involved in scaling AI. CIOs can use IT's traditional role as a steward of enterprise-wide technology implementations to accelerate adoption of large-scale AI use cases.

Expand must-have digital capabilities. Companies that adopt AI to improve demand forecasting can smooth out operations and improve supply-chain performance. Likewise, investing in a control-tower-style data metrics dashboard can yield better insights into end-to-end supply-chain operations. Incorporating digital twins technology into a control tower can enable companies to combine insights with simulation to show external behaviors. Paired with AI and machine learning, this technology can also improve supply-chain performance. Companies can deploy predictive analytics and AI in scheduling, manufacturing, and other functions to avoid unplanned downtime and improve operations. Finally, they should create data-rich consumer databases to provide a basis for strategic insights and personalized interactions. And they should continue to invest in capabilities to service both new digital and existing omnichannel retailers.

Adopt new ways of working. A one-size-fits-all agile approach is rarely suitable for the full range of a packaged goods maker’s use cases. Instead, companies should tailor agile ways of working to meet their particular business requirements, such as by establishing a permanent agile team, developing specialized skills, or adopting a dedicated or shared resourcing model by skill area.

Aside from attending to the three key areas noted earlier, CPG companies must improve their technology workforce by building an internal talent base of software developers, software engineers, and data architects, and embracing new expectations about working order to attract and retain top tech talent. They must also invest in a modern and secure IT infrastructure by accelerating the move to public cloud hosting and SaaS. And they must apply appropriate safeguards by creating a robust cybersecurity culture that includes strong cyber governance and appropriate cybersecurity practices.