Retail and CPG Companies Accelerate Innovation Amid Regulatory Pressures, Resistance to Change

Prioritizing innovation to optimize and grow

Many CPG and retail companies have been doubling down on innovation since the pandemic, investing heavily in digitizing and optimizing technologies across all channels where they interact with customers. This intense focus on transformation is driven by a host of factors, including the need to keep pace with rapid e-commerce expansion and accelerate an industrywide shift to omnichannel sales, all part of an effort to meet changing consumer expectations.

Results from Protiviti’s inaugural Global Technology Survey suggest that most CPG and retail companies recognize the urgency of innovation. For example, 82% of IT leaders from the industry group stated that their business has set clearly defined innovation goals, and 97% already have or are developing a clear innovation strategy.

The survey also shows that while most CPG and retail companies are on a mission to innovate, at least at some level, their IT leaders are concerned about several obstacles that could impede their progress or derail their success.

Companies across major industry groups are focusing their innovation activity around the following areas:

• Optimization of current systems, products, processes and more
• Building resilience against disruption
• Growth (e.g., new markets adapting new business models, revenue)

Based on the responses of their IT executives, CPG and retail companies are on par with businesses in other industry groups in terms of how much they are focusing on innovation for optimization.

Like many businesses operating in an uncertain economy, these companies want — and need — to make the most of their existing technology investments. At the same time, companies, including those operating in the service industry, also want to leverage every tool at their disposal to enhance customer experiences across all touch points.

What percentage of your company’s innovation activity is focused on each of the following areas? (CPG and Retail Industry Respondents vs. All Respondents)

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The CPG and retail group is also slightly more focused on innovation to drive growth, compared with all respondents to the survey. This isn’t surprising given that companies within this group operate in an industry where the competition for market share is mission-critical and relentless. Economic conditions have many companies focused more on customer retention at the moment, but those that amplify their innovation and marketing spend to acquire new customers are likely to win the day.

CPG and retail companies are prioritizing building resilience, an effort that is concentrated in the supply chain area where disruptions have been a continued challenge since the pandemic. Protiviti’s latest Top Risks Survey shows that CPG and retail executives see supply-chain issues as the number-one risk for their industry this year.

The overall takeaway from the findings is that most CPG and retail companies are taking a strategic approach to innovation that can help them support business success for the long term while boosting their bottom line along the way.

Compliance pressures are top of mind

The survey results also show that IT leaders in the CPG and retail industry group worry about regulatory and compliance requirements stifling innovation in their companies.

Which of the following best describes your organization’s top three challenges when it comes to innovation?

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Numerous regulations are top of mind and their direct impact varies by organization and business segment in this diverse industry group. For instance, many companies handling consumers' personal data are under increasing pressure to meet complex and potentially costly data security mandates where they operate. These requirements include the proposed American Data Privacy and Protection Act (ADPPA) in the United States, the California Consumer Privacy Act and, of course, the General Data Protection Regulation mandates in the European Union.

Data is essential to personalization efforts in an omnichannel world, so, these mandates, while well-intended, can be problematic for the consumer-centric CPG and retail industry group. Also, whether they’re expanding their use of artificial intelligence (AI) to create new customer experiences or AI-driven products, businesses in this industry group will need to stay on top of regulations that may affect how they continue to use emerging technology. The EU has already introduced the Artificial Intelligence Act for regulating AI, for example.

In the United States, the Biden administration’s Executive Order on America’s Supply Chains, is keeping companies across industries focused on supply chain transformation and sustainability. Plus, the intensifying focus on environmental, social and governance issues on a global scale, including from customers, employees and investors, has many CPG and retail businesses scrambling to demonstrate that they are responsible corporate citizens focused on sustainability and attuned to social matters of importance to their many diverse stakeholders. In addition, more consumers are focused on buying products that they know are created in a sustainable manner, and these regulations provide validation.

IT executives in the CPG and retail industry group also appear to be equally concerned about a resistance to change in their organization undermining innovation objectives. Respondents to our survey cited corporate culture issues in the workforce, such as the lack of effective collaboration or an unwillingness to be curious or explore new ideas, as a significant challenge. The resistance to change may stem partly from workers —  employed in areas ranging from the retail floor to the distribution center to the manufacturing plant — worrying that they will be replaced by automation and AI, or that they will be expected to learn new skills, like data analysis, so they can work with new innovations. Some also worry they won’t be able to be upskilled or reskilled appropriately — or in time.

Why design thinking matters

Problem-solving and anticipatory elements of innovation require design thinking — and according to survey respondents that skill set is sorely needed in the CPG and retail industry group. Nearly half (45%) of IT leaders said the lack of design thinking in their workforce is undermining their organization’s ability to innovate. Leveraging design thinking skills in developing strategy, solving problems and enabling intentional innovation will create a culture of innovation that drives enterprise agility, produces an environment for strategic thinking and empowers employees to think differently about how they approach their work.

What skills-related gaps, if any, impede innovation at your company? (CPG and Retail Industry Respondents vs. All Respondents)

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What if there is a recession?

Like many businesses in our IT Executive Survey, companies in the CPG and retail industry group expect to pull back on their innovation strategy and investments if an economic recession officially comes to pass. Over half (51%) said they anticipate cutbacks; that compares with 48% of all respondents. And less than one-third (29%) of IT executives in the CPG and retail industry said they expect that their organization would be able to continue advancing their technology in a downturn.

If an economic recession happens, how do you anticipate that your technology innovation strategy/investments will change? (CPG and Retail Industry Respondents vs. All Respondents)

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The big picture

Innovation initiatives, especially more experimental and future-forward endeavors, are often the first projects to get shelved when economic headwinds intensify. But businesses in the CPG and retail industry will want to thoughtfully consider whether putting the brakes on innovation is the right move at a time when they should be stepping on the gas.

In Protiviti’s latest Top Risks survey, retail and CPG leaders around the globe said they see the rapid speed of disruptive innovations enabled by advanced technologies outpacing their organization’s ability to compete and/or manage risk appropriately as the number two risk for the industry in 2032.

If skill gaps are slowing down innovation, retail and CPG businesses may want to consider tapping outside resources that can help them bridge those gaps by bringing personnel with in-demand skills to the task. They can also work with external third parties to meet their optimization goals, build new applications and manage change effectively once they are ready to execute their innovation vision.

Additionally, external resources with specialized skills can help businesses identify and manage the risks that accompany digital innovation — including security risks like improper controls and poor access management. And, according to most IT executives in CPG and retail are either very concerned about their company’s exposure to these risks or leaning heavily in that direction.