CEOs of packaging companies should address six specific moves. All require action and urgency. “Trying to ride out the transformational changes ahead by hunkering down will not work!”
That call to action, put out by McKinsey & Co, a nearly 100-year-old global management consulting firm founded in 1926 by University of Chicago Professor James O. McKinsey, comes through four of the firm’s partners. They are David Feber, Oskar Lingqvist, Daniel Nordigaarden and Matthew Seidner. And their respective home bases attest to the common global perspective they share: Detroit, Stockholm, Toronto and Chicago.
Photo courtesy of Berry Global
Among the questions the team addresses day-in and day-out are:
- What exact actions are required?
- What lies in store for the packaging industry during the next normal—2023 to 2030?
- How can CEOs navigate choppy waters?
McKinsey’s partners hold, “If CEOs are to navigate this extraordinary disruption, next-generation industry winners must update and future-proof their business models and market approaches.”
Top Priorities
They further argue, “Transformational change is upon us. Sustainability and digitization are megatrends shaping the environment. Both are responsible for creating a good deal of uncertainty, presenting mounting challenges and facilitating promising new opportunities.”
Talking directly to the points at hand, they list out specific strategies that can’t be ignored. Current-day proliferation of disruptive technologies, instability in markets and increasing volatility all demand that CEOs of packaging companies prioritize six moves and use them to create resilience, capture growth and navigate transformational change.
The measures: invest where it matters, identify real opportunity, get out ahead of inflation, boost margins, build talent and embrace digitization (see Must Moves sidebar for more detail).
Feber, Lingqvist, Nordigaarden and Seidner do not hesitate to deliver hard-hitting advice. “From a corporate-structure perspective, CEOs of packaging companies should consider two components of change.” They are:
- Focus on growth drivers and spin off non-core businesses into new stand-alone entities
- Capitalize on digital enablement—in customer engagement, internal workflows, the supply chain, manufacturing automation and faster decision making
Digitization Test
“The packaging industry is still in the early stages of digitization, but we expect it to become a clear priority and an important value creation lever, particularly in the current context of volatile raw-material markets and increased protectionism and trade policies, because digital can make supply chains transparent and promote excellence in procurement,” McKinsey’s influential partners observe.
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They admit, “Transformational changes of the immediate future will challenge many packaging players. Nevertheless, these changes will also offer real growth opportunities for organizations pursuing the right focus and actions.”
Resiliency Touted
How should CEOs of packaging companies manage in this new environment? Feber, Lingqvist, Nordigaarden and Seidner offer this answer: “The first requirement is to build resilience.”
Elaborating on that point, they explain, “Research on the last recession found that some companies—the resilient ones—generated excess total shareholder returns during the downturn and the recovery. Resilient companies have some distinctive characteristics in common, which enable them to emerge strong during the recovery phase.” The four-man contingent then lists out steps to consider following:
- Focus on expansion by fixating aggressively on resources. For example, double reallocation to key growth areas
- Innovate—include new business models and capabilities
- Rebuild the portfolio through acquisitions, while restructuring costs from a position of strength—e.g., drive down sourcing costs and automate
Sustainability Lenses
“CEOs ought to think about sustainability in a fully holistic manner,” according to the McKinsey strategists. “In addition to having a sustainable product portfolio, they should accelerate programs to reduce greenhouse gas emissions—both in operations and throughout the supply chain.”
Feber, Lingqvist, Nordigaarden and Seidner maintain, “Capital allocation is already—and will increasingly be—based on the sustainability and performance of businesses that will be focusing their attention through three lenses: decrease leakage, improve circularity and reduce carbon footprint.”
Those tactics have led the market watchers to conclude that, “We expect a more balanced understanding of true sustainability… We now see stronger efforts to commercialize packaging innovations, as well as better marketing of their performance—e.g., the carbon footprint printed on package.”
Photo courtesy of Sunshine FPC Inc
Other advice they render: “It will be important for innovative products to be more sustainable and less expensive, so packaging converters will probably have to consider incorporating new materials—even new substrates—into their portfolios.”
Next-Level Value
McKinsey executives stress one inevitability. Companies must execute the moves within the context of today’s operating environment that is fraught with labor shortages, remote work, and reliance on more and more automated tools and technologies.
“From a growth perspective, the performance and attractiveness of subsegments—specific combinations of substrates, geographies and end uses—will continue to vary significantly.” The consulting firm continually echoes one call: “Winners should identify and move into the most attractive segments by tailoring a granular market approach.”
Because change often emerges gradually and then accelerates suddenly, McKinsey recommends, “CEOs of packaging companies must treat the higher volatility of their markets as a new normal.” Pointing to just how essential that mindset is, the team of partners says, “Corporations that fail to address the real issues will face significant uphill struggles and risk going out of business or being acquired.”
They simply insist, “Resilient and successful companies will embark upon the next level of value creation.”
Must Moves
According to McKinsey & Co, CEOs of packaging companies and other industry leaders can use six priority moves to create resilience, capture growth and navigate transformational change.
- Sustainability: Invest where it matters to consumers and regulators
- Growth: Win by identifying granular pockets of opportunity
- Procurement/supply chain: Use strategic category management to get ahead of inflation and supply headwinds
- Pricing excellence: Recapture inflation and use it to accentuate margins
- Talent: Attract, retain and retrain employees. Get the return to work right
- Digitization: Embrace e-commerce and the use of automation in the front, back and middle of processes
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