Consumer packaged goods companies have traditionally been organizational role models for other industries. The brand or product management system—the heart of many consumer goods organizations—not only led to leading-edge marketing skills but also produced exceptional general managers. Recent events, however, have conspired to topple them off their pedestal. A potent combination of low inflation, competition from cut-price, high-quality private label and generic products, shifts in consumer tastes, the emergence of new retail formats, and runaway growth in promotion and merchandising costs has undermined the profitability of consumer products companies and raised doubts about their once-envied organizational structures.

Formerly well-oiled marketing machines are beginning to suffer stress and schizophrenia at all levels. Marketers are trying to stimulate category growth while at the same time slashing their advertising budgets for the nth year in a row. Operations managers are struggling to reduce distribution costs, yet trying to find ways to respond to customers jumping on the ECR bandwagon.

Each and every function within consumer packaged goods companies is being asked to collaborate more closely with the rest—but is all too often plagued by an inability to break free from a long tradition of independence. Business units that have operated autonomously for...