The technology-driven future of conglomerates

In the digital age, constantly adapting to transformation is becoming the norm among organizations, and especially among conglomerates. As technology has progressed in the past years, it is also redefining the form and function of conglomerates, which global giants like Amazon, Facebook, Google, and even a Philippine “techglomerate” like the Aboitiz Group are exemplifying.

In recent years, the world is witnessing the fall of traditional conglomerates and many are describing them as “unfashionable” within the sector. According to the Institute for Management Development, centuries-old conglomerates are starting to realize that the reason why some of them are deteriorating is because they are sticking to their older business models and investors are expecting them to function as independent entities instead.

However, giant conglomerates are not out of style as some perceive them to be because they are already adapting to a modern world where they use technology and the startup culture to develop innovative ideas and transform enterprises.

Despite the challenges faced by many conglomerates, the startup landscape today is providing an opportunity for them to restore their reputation by exploring sustainable mechanisms, igniting competitive advantages, and driving captivity over their customers.

Due to these changes, a new model for conglomerate is seen to have emerged, which venture capital investment firm Equal Ventures calls “the platform conglomerate.” The firm cites Apple as an example for this model, noting that it serves not as a consumer products company but as a “platform” business  that has been able to “to extend a nearly limitless array of products and services with extremely limited expenses beyond maintaining the core platform.”

“These [‘platform conglomerates’] develop a core capability for fueling new product development that can be deployed not just for a single product, but that is infinitely scalable to other future products. These companies leverage learnings around each successive product launch to hone their engine, creating a flywheel that generates increasing returns to scale,” Equal Ventures wrote in an article published on its website.

With this new model, the firm added, conglomerates should be able to internalize their capabilities in supporting the development of new products that can be used not just for one product but also for other products in the future. Such approach will help increase efficiency in business operations and help them benefit from investments in their future products.

Another form in which conglomerates are seen to have evolved is the “internet-enabled conglomerate,” which offer a wide variety of internet-supported products and services (e.g., retail, entertainment services, cloud computing services, gaming) and so has brought forth a fresh paradigm for business diversification.

In a study titled “The Rise of the New Conglomerates,” Columbia Business School Professor Kathryn Harrigan explains that new conglomerates are maximizing the use of the Internet and advanced technology to manage business operations and to harness data and concepts that will cater to the needs and demands of their customers.

Moreover, the study also points out that these internet-enabled conglomerates have also been taking advantage of synergies to improve their customer-centric approach to products and services and are more focused on adapting to flexible organizational structures and building solid foundations for their businesses.

These observations show that for conglomerates to rise in a changing environment, strategic approaches that optimize technological advancements is rightfully needed.

According to a report by a global strategy consulting arm EY-Parthenon (EYP), future years of prosperity for conglomerates in Southeast Asia can be fueled by four key pillars, namely: developing a strategy, building a digital ecosystem, creating a sustainable mindset, and shifting to asset-light business models.

A digital ecosystem, in particular, is formed by a combination of platforms that provides value to customers through personalized products and services, as well as strategic partnerships.

Conglomerates, EYP added, can use the digital ecosystem to further expand opportunities within enterprises they cover. For instance, building a digital ecosystem creates opportunities to develop networks where they can share and secure data, develop applications, and further improve the digital infrastructure within enterprises.

“Conglomerates can aim to create these network effects within existing businesses and are well positioned to ultimately become the digital ecosystem orchestrators. This would, in turn, allow them to get better control over the ecosystem dynamics and often outperform other entities in revenues and profits,” the report said. — Angela Kiara S. Brillantes