Are you a CP company growing its e-commerce channels? Get your operating model right

To thrive in an increasingly complex digital world, consumer products companies must be deliberate about how they structure and run the e-commerce side of their business and choose their platforms, product assortment, and marketing strategies. The operating model is an important component at the best of times but becomes vital when margins are thin – such as in e-commerce. And streamlining the organization’s internal resources behind a unified strategy can be the difference between winning and losing. A well-built e-commerce operating model will focus on refining these three areas:

Route to market: CP companies can transact online with consumers through two paths: (a) through their own direct-to-consumer e-commerce presence, also known as brand.com; or (b) through partnering with e-commerce marketplaces, omnichannel retailers, and/or delivery-focused aggregators. Each pathway should be understood in the context of the individual company’s brand strength, strategic ambitions, and brick-and-mortar presence. Most companies will end up with some combination of the two paths. Read more about the challenges and opportunities of each option here.

Optimal organizational structure: There are three different ways in which a company can organize its e-commerce operations: an integrated model, a center of excellence setup, or a fully distinct P&L.

Processes, metrics, and incentives:

For e-commerce, these cannot be based on the legacy operating model and must prioritize (a) the customer (this can be the retailer, marketplace, or aggregator); (b) the end consumer’s journey (as well as the marketing that goes behind it); (c) the digital content; and (d) the customer and consumer service.

Designing a best-fit organizational structure to support e-commerce goals

There are three options: an integrated e-commerce unit, a center of excellence that offers a centralized group of skillsets, and a separate e-commerce business unit with its own P&L and dedicated team that will own the customer relationship.

There are pros and cons to all three. An integrated function doesn’t require extensive in-house expertise or dedicated resources right off the bat. However, accountability can be challenging in this structure, and as e-commerce is only seen as a support function, key learnings aren’t always transferred across the organization.

A center of excellence (CoE) offers greater focus, enables the organization to move more quickly, and connects strategic business units to better deploy e-commerce best practices. However, a CoE is often viewed as separate from the rest of the business and will demand clear guidelines to set priorities. Additionally, the e-commerce impact can be difficult to measure.

A distinct P&L organizational structure treats e-commerce as a separate sales channel with a dedicated team that owns the customer relationship. This model offers accountability, transparency, and visibility with dedicated resources and costs allocated to e-commerce. However, to justify this level of investment, the e-commerce revenue has to have critical mass. A separate channel can also create conflict within the organization.

While every company will make the decision based on its unique needs, this is also not a one-time decision. In many cases, companies start with one operating model and then transition to another as the e-commerce business grows and needs change. What is essential is to choose a model that aligns with your current brand strength, strategic ambitions, and brick-and-mortar presence and stay on a continual path to maturity.

Adopting a clean-sheet approach to processes, metrics, and incentives

Irrespective of the chosen path to market and the organizational structure, any CP company hoping to make inroads into e-commerce will create metrics, incentives, and ultimately processes, that do not hark back to the legacy brick-and-mortar setup but have been set up anew for digital channels.

Leadership must ensure that all decision frameworks are adapted to e-commerce and KPIs and incentives for the channel are distinct and separate. Once KPIs are in place, they must also clearly indicate acceptable levels of performance in line with the overall e-commerce mandate. The organization also needs to ensure that there is appropriate multi-channel and multi-device revenue attribution to accurately measure and incentivize marketing effectiveness.

All of these will be enabled through cross-functional collaboration, with every single team having a clear understanding of its role as well as the overall omnichannel strategy.

The goal, ultimately, is to prioritize the four C’s:

1. the customer, which can be the retailer, marketplace, or aggregator
2. the end consumer’s journey and the marketing that goes behind it
3. the content, including the user experience and user interface  
4. the consumer/customer service, including reverse logistics   

The operating model is the first step on which all subsequent e-commerce approach decisions will depend, which makes getting this right crucial.  

This is the second in our six-part e-commerce series. Read the introductory macro piece here and stay tuned for upcoming editions, where we will tackle each of the five pillars of the AlixPartners framework.