How KPMG in the US’s Innovation Lab is helping clients spot the trends of tomorrow.
The consumer goods marketplace can sometimes appear to be in a constant state of change. Millennials, who represent about a third of the world’s population, are coming into young adulthood with a consumer mindset and behaviors that are very different from those of past generations. Meanwhile, venture capitalists are investing in start-ups hoping to remake old industries. And tech giants are ploughing significant sums into technology platforms and applications that create new marketplaces for goods and services.
“The pace of change is unrelenting and now outrunning the company strategy,” says Colleen Drummond, Head of KPMG’s Innovation Lab at WeWork in New York. “The traditional planning cycle is failing to keep pace with technological and digital disruptions. Their rate of growth is in many cases exponential.”
The dangerous thing about an exponential growth curve is that they feel gradual, and then change feels like it happens suddenly and rapidly, leaving little time for companies to react. “The threat can feel gradual and even insignificant at the start and yet very quickly become a game changer,” says Drummond. “Uber is a good example in the taxi industry, but there are examples of this kind of disruption taking place in almost every consumer category, from movies (Netflix) to hotels (Airbnb).”
A recent round of financing for Uber effectively valued it at US$41 billion. Delivery start-up Shyp has raised US$10m to finance its expansion and TPG Capital, whose advisers include the actor Ashton Kutcher and Bono, are helping to fund Airbnb and laundry service Washio. All this activity begs the question: which sector will next be surprised by a challenge to its business model?
In an environment where change is the new normal, and success favors agility, flexibility and preparation, how can companies stay ahead of disruptive implications that challenge investment and operational priorities? And how can they profit from them by developing strategies that turn those disruptions intonew opportunities?
Drummond says companies must first dedicate time and resources to picking up on the “weak signals”, or subtle signs of potential disruptions or marketplace game changers. “Our approach includes scanning the marketplace, from an outside-in perspective, to identify changing customer demographics and behaviors, technology innovation, VC investments and start-up activity, plus tech giant innovation investments. Then applying sense-making techniques to understand the real implications,” Drummond says. “Weak signals help you adjust your strategic planning before you hit that threshold of change. At that point it becomes much more difficult to reposition.”
Jeanne Johnson, Principal at KPMG Advisory with a focus on omnichannel andchanging operating models, says that weak signals help formalize “a critical set of capabilities and insights” into potential disruptions to their business, sooner and with more focus. Weak signals can complement traditional trend and market intelligence methods by highlighting “unknown” or “unexpected” factors influencing consumer behavior. In many cases, these signals give companies insights into emerging business models being deployed by would-be competitors.
“The pace of change isn’t just quicker, but also more disruptive to operating models. This isn’t about tapping into insights that will help companies tune-up merchandising or supply chain management capabilities,” she says. “Instead, they might realize they need to integrate and collaborate with somebody else’s supply chain. Or it may be realizing they need to interact with suppliers and manufacturers in a different way than distribution models of the past.”
At KPMG’s Innovation Lab, a team bringing together backgrounds in trends research, customer experience and motivation, technology innovation and start-up scanning, offers an “outside-in perspective” to help clients identify signals of change within the context of their businesses.
“It is about identifying the weak signals you can know, but don’t,” says Johnson. “Then it is about putting those signals into context: what are they actually telling you so that you can do something about it?”
At KPMG’s Innovation Lab, the methodology starts with consumers. That is why it is made up of a cross-generational team of Millennials, Gen Xers and Boomers of varied expertise who put their desires, behaviors and expectations under the microscope. Field research is also done through a customer lens. Given they’redigital natives and two times more likely to be early adopters of new technology, Millennials are perhaps having the most impact on consumer changes, making them a key area for gleaning weak signals.
Recently, the Innovation Lab completed a two-day session for a major beer company on the rising popularity of craft beers in the US. According to the Brewers Association, the trade association representing small and independent brewers, craft brewers had 11% of the total beer market in 2014, the first time they’ve claimed double-digit market share. (The trade association defines craftbrewers as companies that produce less than six million barrels annually that are not owned or controlled by a large conglomerate).
Craft beer volume increased 18% last year. Growth for the overall beer category, however, was only 0.5%.
“What we started with was: how are people changing and what is causing them to prefer craft beer? We put a lot of work into seeing if there is a correlation between food and alcohol preferences,” she says. “We absolutely did see Millennials making different food purchases than past generations. That in turn has shifted beverage choices. We also saw that Millennials have a strong preference for authentic and local. There is a pervasive rejection of mass production. It is a huge challenge for a lot of major companies,” Drummond notes. But insights into demographic shifts alone don’t tell the whole story of a potential business disruption.
KPMG’s Innovation Lab also maps technology innovation to provide a snapshot of how new start-ups and companies could accelerate consumer adoption of certain behaviors.
To help facilitate this process, KPMG partnered with software company Owlin to create the KPMG Technology Trends Index, the first index in the world to provide a dynamic, real-time view of technology trends in eight large industry sectors. Consumer markets is one of the sectors.
Every day, over 500,000 online sources (such as tweets, press releases, annual reports, magazines, forums, etc.) are filtered through an algorithm designed by Owlin, which measures articles for timeliness, weight and relevance. “It helps you determine what is trending and what needs your attention,” saysDrummond. “Within those trending areas, you can also get a better sense of whether people are just talking about it or actually acting on those trends.”
The Lab also scans the landscape to identify relevant start-ups and the venture capitalists who are funding them, as well as tracks tech giant activity.
“Start-ups are real companies with real products and customers. They’re agile and succeeding because they are developing solutions to unmet customer needs and changes in behavior,” says Drummond. “And it is not just the start-ups but also the venture capitalists who are backing them. What do you think venture capitalists do? They get up every morning and think: ‘What industry can I disrupt today?"
Drummond says they will also “develop a value chain from the customer lens, and then layer the start-ups across it to see where they are trying to innovate. And what we’re seeing is start-ups even changing the definition of what it means to be fast and convenient. Today you can have virtually anything delivered to your door with a few clicks on your mobile.”
Deep dives into new business models and the companies that compete in them can also help identify insights. One of the most important points of research for the Lab has been Collaborative Economy businesses, which enable consumers to get what they want from each other rather than from established brands that used to be the only options in the marketplace.
Start-ups founded on the principles of this model, such as Airbnb, Zipcar and JustPark (in which, yes, you share parking spaces), number more than 9,000. They are funded by more than US$7 billion in venture capital with the express goal of disrupting existing business models.
The growth of these start-ups is being accelerated by a range of factors. These range from technological (mobile devices, social networks, payment systems) to demographics (Millennials – especially during the economic downturn where their financial prospects have been limited – support sustainability and sharing) and to political/regulatory shifts (by which government programs such as the US’s Patient Protection and Affordable Care Act – commonly known as ObamaCare – are being created for a growing number of freelancers and smallentrepreneurs).
The start-ups cover a vast range, from services, food, goods transportation, space and money. This increasingly popular business model is even being applied to the contractor marketplace, which has major implications for businesses such as leading paint manufacturers.
There is no shortage of accelerating trends, new technologies and breakthrough innovations. But by tuning into weak signals, companies can start creating organizational awareness and capabilities that allow them to proactively address disruptive forces of change and take corrective action.
“Companies constantly have new competitors coming at them with completely different business models,” says Drummond. “Their ability to adapt and pivot iscritical, but they can’t do that if they don’t recognize the drivers and disruptive forces of change.”
Millennials are the largest generation in history, and a key accelerator of technology disruption. They spend more time online than previous generations, and expect for digital to be integrated in their customer journey. They are fueling Collaborative Economy businesses, which seek to match independent supply and demand in real-time. Diving into the generation’s behaviors and expectations can yield valuable under-the-radar insights.
Tech giants have already proven a game changer in commerce, communications, payment systems and health. What are they investing in now? How could thataccelerate change? Look at Apple, which could revolutionize healthcare with the iWatch, challenge Tesla with exploratory investments in electric cars and is looking to place Apple TV at the heart of a home automation system.
Venture capitalists get up every morning thinking about which business modelthey can disrupt next. Companies need to scan the landscape to identify relevant start-ups and the venture capitalists who are funding them. KPMG’s InnovationLab also goes ‘divergent’ in its scan of start-ups; adjacent possibilities could represent threats and opportunities (for partnership, for instance).
Political and regulatory trends
Companies like Airbnb have met with some resistance from local and national governments around their business models. How successful have they been in forcing governments to change the rules? How could those regulatory trends accelerate change to other business models? Governments worldwide have also shifted towards programs that support entrepreneurship, a trend that has implications for big business and mass-produced goods.
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.