FMCG Giants that Failed at Digital Transformation

FMCG Giants that Failed at Digital Transformation
Summary

There are many reasons why big companies fail at digital transformation. The most prominent reasons include a lack of clear strategy or vision, inadequate resources or funding, resistance to change from employees and leadership, and a failure to adequately address security and privacy concerns. Additionally, a lack of focus on the customer experience and an inability to adapt to new technologies and market trends can also contribute to a company’s failure at digital transformation. With that being said let’s take a look at the reasons behind the failure of 2 FMCG giants namely Hershey and Revlon in their digital transformation efforts:

Hershey:
1. Unrealistic deadlines and failure to pre-empt risks
2. Project completion was set for one of the company’s busiest times of the year.
3. Leaders failed to adequately recognize the scale of work involved.
4. Shortcuts were taken such as shortening the testing phase resulted in the project failing on launch

Revlon:
1. Insufficient risk identification and mitigation.
2. No clear vision on what they aimed to achieve
3. Failure to implement effective control measures beforehand

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Throughout the history of digital transformation, there have been always been more losses than wins, 70% to be exact. This is because many organizations reflect a lack of vision, understanding and commitment to their digital transformation process. This leads to organizations making ill-informed strategic decisions that will put them on a downward trajectory. In this article we will be taking a look at 2 industry titans that experienced failure in their digital transformation initiatives:

Hershey:

Hershey is a prominent confectionery company with more than 90 brands around the world that drive over $4 billion in annual revenues. Despite their success and popularity today, the Hersheys brand has experienced its fair share of losses, one of it being a major legacy modernization initiative launched way back in 1996.

Hershey at that time needed powerful ERP system to replace their patchwork of legacy IT systems that were staring to become detrimental. The company decided to replace its legacy systems with an integrated ERP environment that consisted of three main components:

  1. SAP R/3 ERP software
  2. Oracle Seibel’s CRM
  3. A new SCM solution by Manugistics.

All in all, the modernization costs came to a whopping $112 million. The transition to the new ERP systems was slated to last 48 months but Hershey’s leadership team decide to rush the project by reducing timeline for the project to under 30 months.

In order to accommodate the shorter timeline, the IT team were left with no choice but to cut down on the testing phase. More importantly, the final switch was slated for July 1999, which coincided with Hershey’s busiest seasons. This was recipe for disaster because over $100 million worth of orders were left unfulfilled despite Hershey having the inventory due to problems that arose with the ERP system. This travesty caused Hersheys to lose out on 19% of their quarterly revenues resulting in company’s stock dropping by 8%.

See also  Tech Titans that Failed at Digital Transformation

To summarize Hershey’s experience is a cautionary tale for leadership teams aiming to implement legacy modernization journey initiatives within an unreasonable amount of time.

Revlon:

Revlon is an American multinational company dealing in cosmetics, skin care, fragrance, and personal care. They had begun implementing SAP S/4HANA and other ERP solutions without properly taking into account the risks associated with a digital transformation initiative. The implementation in February 2018, not long after they had acquired Elizabeth Arden. This meant the company was balancing an SAP implementation as well as an acquisition which most experts would consider the perfect recipe for disaster. And they were right.

On February 2018, soon after the company launched its new ERP system in the U.S, the damage was instantaneous. Their manufacturing facility located in Oxford, North Carolina began to experience service level disruptions that effectively crippled the organization’s ability to manufacture large quantities of finished goods and fulfill shipments to several large retail customers in the U.S. Furthermore, the company began to incur expedited shipping fees and other unforeseen expenses in accordance with the remedial actions taken by the company to mitigate the decline in customer service levels, which continued for quite a while.

When the dust finally settled, Revlon had lost over $64 million in unshipped orders, suffered a 6.9% drop in its stock price, and worst of all got sued by its investors for financial damages suffered as a result of this debacle.

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