‘Creative Destruction’ is transforming packaging

The Packaging 2.0 revolution is happening right now. Are you ready? How can your company use packaging as a strategic weapon?

Alexander Pope stated that order is Heaven’s first law. What he did not add was that disorder is its accompaniment. From heavenly bodies to the natural world, both order and disorder are ever present and inseparable. The second law of thermodynamics posits that all thermal systems oscillate between equilibrium and degeneration. This phenomenon, broadly referred to as entropy, has extensive applications, including the economic and industrial sectors. Order and disorder form the very warp and woof of all evolution.

It was Austrian economist Joseph Schumpeter who vivified the significance of entropy in the business world. He advocated the view that business cycles are an integral part of the process of economic development. He coined the term “Creative Destruction” to characterize the making and remaking of markets when the economy was acted upon by a phalanx of forces. Some of these forces, he contended were: innovations, labor efficiencies, access to capital, new technologies, mismatch of supply and demand, and fresh market possibilities. He further explained that creative destruction occurs in cycles; and at each turn leaves behind a roster of winners and losers, while redefining markets and the businesses that compose them.

Let’s look at a few examples of creative destruction.

Federal Express created the overnight delivery industry and dominated it for decades. But when that market was becoming commoditized by low-cost competitors, FedEx was forced to reinvent itself. Strategically repositioning itself as a supply chain services company, FedEx redefined the market. With a booming global economy, it justly reasoned for the need for timely inbound and outbound logistics. Then it reset its core and compass to solving the transportation and distribution challenges of companies. FedEx swiftly trained its people and transformed their competencies. It forged closer relationships with companies and understood their tiered supply chain needs. To signal the shift, the company’s value proposition became one of assuring synchronized deliveries and supply chain efficiencies to corporations. It was no longer an overnight parcel delivery company, but an enabler of global commerce. It exploited chaos, reinvented itself and broadening its business value.

Kodak was an iconic American company synonymous with photography. But long entrenched in film manufacture, it did not see the shift to digital photography, one that required no film. Worse, this shift was provoked by Hewlett-Packard, an unlikely competitor from an entirely different industry. Soon followed by Apple and others, Kodak was ambushed by the digital revolution. Saddled with a legacy infrastructure that was no longer usable, it was forced to shutter factories, sell business units and bury its very core in a bid to merely re-adapt. The changing market dynamics, one of digital convergence, ignited by a series of disruptive innovations, left Kodak virtually irrelevant as a company.

But the iconic exemplar of creative destruction was Apple. Its story needs no retelling; it’s the stuff of culture and legend. Apple unified the worlds of computers, internet, phone, photography and music by bringing them all together in a single device. It established a Digital Platform that set the standard for how we connect, communicate and collaborate. In the creation of iPod and iTunes, it challenged the traditional music industry. With the iPhone, it trampled the world of telecommunications. And with the iPad it raised the standard for comfort and convenience. The meteoric rise of Apple to digital hegemony can be attributed to a set of interlocking principles that drive creative destruction.

The packaging convergence

The packaging industry is under creative destruction. It is being assaulted by six forces that are challenging the status-quo and changing the face of this industry. The convergence of these forces will drive the next evolution. Let us examine these forces:

1. Global Supply Chains: The porous movement of goods and services has unleashed a slew of attendant challenges. Theft, counterfeiting, brand tampering and spurious merchandise have become rampant in many industries. The economic impact of these illegal activities is staggering, not to mention the remediation costs suffering companies incur. In the pharmaceutical industry, fake prescriptions, phantom pharmacies and false drugs have become the new normal. Packaging has a new responsibility—to fight these economic pandemics proactively. It must make choices a priori with respect to form, shape, design and protection measures.

2. Mass Customization:It’s the era of hyper-segmentation and endless choice. But the relationship of customer choice to commercial profit can be elusive. The golden mean between volume and variety cannot always be struck without hunting down hidden costs. More choice can translate to complexity in fulfillment, inadvertent cannibalization, confusion of customers, and contention for resources. And from a packaging perspective, it can mean myriad variations, longer design cycles and rising innovation costs.

3. Short Product Life Cycles:Companies are bringing products to markets faster than ever. Line extensions and the next generation of products follow the previous versions in speedier tow. This acceleration will demand tighter organizational collaboration, less room for error and a well-orchestrated supply chain—from concept to customer. Time-to-market is solidifying as a corporate function. But the implication for packaging is to appreciate various functional needs and fully support the business.

4. Evolution of Branding:Will the day arrive when a grubby bag of cement from Central Illinois wins a branding contest against a sleek shampoo bottle in mid-town Manhattan? Industrial branding has indeed arrived. Following the success of consumer electronic goods, companies are seeking to create visceral products. They are asking: Why not have delight begin at the drawing board? The future role of packaging will be to redefine encasement as enchantment.

5. Sustainability:Ideally they should encompass an entire business, but sustainability initiatives tend to be disjointed in the absence of a cohesive action plan. A credible initiative involves senior management as sponsors, but tactical managers to navigate the various constraints in the company. From product design to manufacturing, packaging to transportation, and from suppliers to co-packers, everyone has to be involved. Yet, packaging will play an increasing role with respect to materials, sourcing, designs and disposal.

6. Information Transparency:The cars of yesterday were 80% metal and 20% controls. Contrast that with today’s automobile that is nearly all electronics with advanced software. Passenger safety, vehicle condition, location and emergency alerts are all tied together as unified communication. The car is now a command center, an information network. The same shift is occurring to the box, a metaphor for packaging. The smart box of the future will become an information system. It will unite product details, compliance information, degradation warning, theft alerts, traceability and brand authentication.

Packaging is a convergent industry composed of multiple feeder industries. From metals to glass, plastics to paper, wood to polymers, foam to filler materials, the packaging industry undergirds the entire economy of physical products. The stakeholders in this vast ecosystem are raw material suppliers, converters, co-packers, re-packers and eventual customers. Creative destruction of packaging will echo across many of these industries.

Packaging 2.0—Platform for business enablement

From high school physics, we know that when a body is acted upon by numerous forces, it seeks to resolve their impact and create a resultant force or a new vector. The resultant vector of the six forces on this industry is the emergence of Packaging 2.0, the next generation of packaging.

What are the attributes of Packaging 2.0? It is a unified platform for delivering value; it’s a clear system to support entire firms; it’s a full business function governed by targets and measures.

Consider the global business environment of today. Every company faces a core set of challenges: revenue pressure, eroding profit margins, increasing competition, decreasing customer loyalty and shrinking innovation lifecycles. In this demanding operating milieu, companies have no choice but to ruthlessly redline packaging for all its possible contribution. And that means seeking fresh answers to business success via packaging.

From concept to customer, design to delivery, and from education to innovation, how can companies use packaging as a strategic weapon? It’s only by mapping packaging to squarely aim for the following business targets:

• Create market opportunities bylocating and leveraging profitable product and service niches.

• Protect the supply chain bydesigning for easy delivery and protection against theft while using sustainable materials.

• Exploit the customer’s ecosystem byunderstanding customers’ customers and identifying where preemptive innovation can open new business.

• Collaborate better with the rest of the company byunderstanding the issues and success predicates of other functions.

• Improve branding bytelling a visceral story of the product, company and the connective theme.

• Improve sustainability bymaking optimal material choices that respect the business constraints as well.

• Improve information visibility by appreciating and aligning with full business cycles.

• Innovate efficiently bybuilding an innovation roster that maps product offerings to changing market needs.

The packaging profession has to reconfigure itself to the “platformation” of the industry. The threat of irrelevance awaits those firms and professionals who cannot see the “Digital Revolution of Packaging.”

Adapting to the shift

How can professionals ready themselves to the remaking of the industry? I believe there are three fundamental steps:

1. Embrace full business unity.Eliminate functional separatism.The purpose of packaging is to enable business, support customers and strengthen the bottom line. Packaging can no longer operate in a vacuum or as a microcosm of scattered design activities. It must function as a business discipline tied to the success of the firm. Let that principle propel your operating environment. Whether the firm is a brand owner, raw material supplier, converter, co-packer or any other value-adding aggregator in the industry chain, packaging is starkly business.

2. Educate, educate, educate. All packaging professionals, engineers and designers should draw a new cognitive baseline. They must learn to appreciate the dynamics of the marketplace, the demands of the supply chain and the dictates of the business itself. Merely staying schooled in design techniques will no longer suffice. The technology of packaging must now mesh with the business of packaging—in people’s minds first. It’s impossible to clap in today’s business with one hand.

What can empower this shift? Consider cross pollination across the organization. What if every Friday packaging professionals spend 45 minutes in a different department understanding its issues, challenges, and aspirations? An organized initiative for business immersion will unearth problems, improve processes and illuminate black space. It will establish common ground and correlational literacy.

3. Establish explicit value maps. The full legitimacy of packaging cannot begin until the function is openly mapped to the success quotients of the firm. Begin by asking questions: How can we use packaging as a weapon to improve various facets of the business? Where can our current product lines be expanded? What design changes can open emerging markets? What can be improved in transportation and delivery? What inefficiencies can be eliminated? What can be replaced? Where can we produce more for less? Where can we protect our brands and our customers’ brands better? Only with a comprehensive set of business questions can a firm unleash the full power of packaging.

Throughout history, with every industrial evolution, there was a Darwinian shakeout that left only the fittest. When railroads were first laid out, only those local merchants that saw it as a vehicle to business expansion flourished; the rest fell victim to their own myopia. When refrigeration and cooling technologies were invented, the food industry was changed forever. But only the winners perceived preservation and postponement as possibilities; the rest were riveted in a heated battle with the status-quo.

Packaging is not packaging anymore; it is business enablement. The shift is best summarized in the immortal words of Dorothy in “The Wizard of Oz”:“Toto, we are not in Kansas anymore!”

Dan Balan is a global leader in corporate transformation. A renowned expert in supply chains and breakthrough innovations, he is a paradigm shifter for the packaging industry. He is the creator of the Packaging360Leadership Program available through www.iopp.org. This article was partially excerpted from the keynote speech he delivered at the Global Food and Beverage Packaging Summit in Chicago in July 2014. He is the head of Fastraqq Inc. Chicago and can be reached at [email protected].