The Future of Business: Next-Wave Disruptions & Opportunities

Keynote Speech of Jaime Augusto Zobel de Ayala, Chairman and CEO of Ayala Corp., at the BusinessWorld Economic Forum

Former Prime Minister Cesar Virata; Hon. Jorge Moragas; Ambassador of Spain to the Philippines, Ambassador Joey Cuisia; Miguel Belmonte, President and CEO of the Philippine Star; esteemed speakers, partners, colleagues, and guests.

Ladies and gentlemen, good morning. I’m delighted to be here with you today. When Miguel Belmonte, a dear friend of mine, reached out and asked me to talk a little bit about the future of business in the Philippines, I couldn’t say no. I am a great believer in the continuous evolution of businesses to stay relevant with the times. It is a principle that we have applied at Ayala, and I thank the organizers for giving me an opportunity to share some thoughts as we begin today’s forum.

Today, let me walk you through three things…

First, how the landscape we currently operate in is extremely dynamic, and how we as companies can no longer be reactive to the changing times.

Second, the importance of innovation, and how building an innovation mindset becomes an imperative for our organization to remain agile enough to respond to rapidly changing technological and behavioral trends.

Finally, what transformation could look like in a conglomerate like Ayala.

Let me tackle the first point which is that we live in a world of accelerated change. The breakneck pace of technological progress has given rise to new possibilities — but at the same time, this increasingly rapid rate of change has dismantled those who were not nimble enough to adapt. A 2018 study by Innosight — a strategy and innovation consulting firm that we’ve worked with in Ayala to better understand and navigate disruption — found that the average lifespan of S&P 500 companies has fallen from over 60 years in the 1960s to just 24 years in 2016, and this is expected to shrink further to just 12 years by 2027. Taking the place of traditional firms in the S&P are younger, more nimble companies like Netflix, Google, Amazon, and eBay.

Here in the Philippines, there seems to be a pervasive mindset that industries may be slower to change or that disruption will hit us gradually. However, I would urge all of us to look at these industries — e-commerce, fintech, and telecommunications — and how the rise of technologies and new players have changed the landscape dramatically in the past decade alone. These changes are happening quickly and are by no means limited to these industries alone. We also see new technologies emerging in healthcare, education, automotive, and energy, among many others.

Now, more than ever, businesses can no longer be reactive — companies that do not innovate run the risk of being irrelevant. We need to be proactive in finding gaps in our current systems and areas ripe for transformation, and we need to act swiftly, even if it means we have to be the ones disrupting ourselves. Thus, I think, a paradigm shift is necessary — businesses should realize that what brought success in past years will not be the same ones that will bring success in the future.

There are examples to draw from across the world. In terms of innovative responses to technological change and market preferences, consider Apple, which continues to be a trailblazer through cutting-edge design and the ecosystem it has begun to create. In the field of social impact innovation, global groups such as Coca-Cola and Nestlé have institutionalized inclusive business models through community-based entrepreneurship in many of the emerging markets that they deal with.

The transformation across these companies required clear strategic planning, investments in both infrastructure and people, patience, but more importantly an innovative and open mind. This is key to ensuring the sustainability of our businesses in this dynamic world.

Which brings me to my second point — At Ayala, we have embraced innovation. Our capability to reinvent ourselves as a company has led to our continuing to be vibrant and engaged, even after 185 years. The strategic choices we have made came as a result of our willingness to tread in uncharted waters and go beyond business as usual. This includes our efforts at establishing the first bank in the country; establishing the country’s first mass transportation system; and our pioneering effort in land distribution, and urban planning and development.

Over the last few years, we have made a deliberate attempt at institutionalizing an innovation mindset across the group. We believe that critical to our future growth and success is the kind of innovative and disruptive thinking that start-ups and young entrepreneurs have been able to embody.

We established a unit called Ayala Innovation, a think-tank center of excellence to drive disruptive thinking across the group. The team has a mandate to constantly be on the lookout for trends and help build future-ready businesses, and to nurture the group’s network to foster collaboration and find synergies. More importantly, Ayala Innovation has set out to build capabilities across the group through training programs aimed at inculcating curiosity, meaningful risk-taking, and grit — essential qualities of corporate entrepreneurs and innovators.

As a result, this innovation mindset has become part and parcel of our identity, and is what lies at the heart of the digital transformation we are currently undertaking. While we are at the early stages of our journey, I would like to take a few minutes to tell you a little bit about the way we have been preparing ourselves to perhaps give everyone an idea of what innovation and transformation could look like in a large corporation in the Philippines.

Leveraging the advances in data infrastructure developed by the telecommunications industry, we believed there was opportunity to start incorporating more digital tools in our products as well as in our internal processes — with the ultimate goal of improving the customer experience and bringing down costs through increasing efficiency in operations.

Our business units have been pursuing their own transformation journeys for quite some time, although separately, at different levels, and at varying speeds. Last year, we held our strategic planning sessions in Shanghai and Silicon Valley to get an idea of what disruption and innovation was like in both the East and the West, and we collectively decided to formalize this journey and be more strategic and unified in our efforts towards building the Digital and Future-Ready Ayala.

There are five components to this transformation:

Transforming existing businesses

Exploring new business models and opportunities

Venture capital investments

Leveraging data and analytics

Upskilling and empowering our talent

Let me briefly take you through each component.

The first involves transforming existing businesses to be resilient to disruption amidst continuing success. Our largest business units — Ayala Land, BPI, Globe, and Manila Water — have long been critical pieces of the group. We have further empowered these core businesses to build internal capabilities and engage in transformation initiatives that are relevant to their own companies and industries. These initiatives may or may not be digital in nature, but ultimately allow the business to thrive in this new environment.

For instance, a few years ago, Ayala Land restructured itself to transform into a multi-entity property company with businesses catering to different market segments. This transformation entailed carving out Ayala Land from the parent company, allowing it to become its own business group with a devolved leadership structure, where each company is led by its own CEO and team. This gave the subsidiaries the capacity and flexibility to adapt to the needs of their own markets. The changes that we made years ago are now bearing fruit — the success that Ayala Land sees today and the resilience it exhibits, despite the ups and downs of the industry, can be partly attributed to our willingness to allow organizational changes like this to happen.

Similarly, BPI is essentially also transforming itself into three banks. The first one is our traditional brick-and-mortar bank, which we will continue to grow. The second refers to BPI’s digital initiatives. While not a separate bank, these initiatives have grown in magnitude in the last few years with more than three million clients now transacting online. These digital efforts complement our traditional services by making transactions more seamless and accessible for our clients. Noel Santiago, Chief Digital Officer of BPI, who is overseeing the company’s various digital transformation initiatives, is here today, and will be able to speak more on this component.

Finally, we have BanKo, our platform for promoting financial inclusion in the Philippines. BanKo works closely with other thrift and rural banks, microfinance institutions, NGOs, and cooperatives to significantly increase our reach, particularly in areas where financial services are lacking. From only 10 branches servicing 2,500 clients in 2016, BanKo has seen tremendous growth in the last few years and now has over 200 branches across the country, providing ₱4 billion in loans to almost 60,000 clients. These three tentacles — our brick-and-mortar branches, our online initiatives, and BanKo — allow us to cater to the needs of many people, with our client total base growing to more than eight million today.

It’s worth noting that no transformation within financial institutions can occur without the proper regulatory framework in place. We are thankful that the Bangko Sentral ng Pilipinas has been proactive along this front — from creating a conducive environment for experimentation that allowed fintechs to blossom; to allowing international players to also participate in our banking sector; and to strongly pushing for greater financial literacy and inclusion among our people as a key thrust of government. These measures drive us incumbents to be more creative and innovative in the way we design and deliver our services.

For the second component, we keep an open mind and are continuously exploring new technologies and business models. I think this is very nicely illustrated in our ongoing efforts in AC Industrials, AC Health, and fintech.

AC Industrials, our holding company for industrial and automotive technologies, is building a portfolio that will allow it to be a significant player in the future of mobility. IMI, for instance, has been pivoting its manufacturing capabilities to supply components for autonomous and electric vehicles. Supporting this are AC Industrials’ recent ventures in complementary technology companies such as VTS, a metal mesh sensor manufacturer, and Merlin Solar, a manufacturer of next-generation solar panels.

AC Health, one of our youngest business units, was a company that was born from an innovation exercise. We conducted in-depth market research to better understand the pain points of the local healthcare industry, and found that there was massive opportunity to utilize new technologies to improve accessibility and affordability of healthcare products services.

Within its portfolio today is our pharmacy Generika, which is complemented by FamilyDoc, our chain of community-based 3-in-1 clinic, laboratory, and diagnostics facilities focused on primary care. The clinics are powered by our healthtech company VIGOS, leveraging technology to drive down costs and increase efficiencies. We also have investments in disruptive start-ups, MedGrocer and AIDE, that augment our efforts to build an integrated healthcare ecosystem that blends traditional facilities with digital solutions.

Finally, we at Ayala are very excited about fintech as an emerging industry. Earlier, I spoke a little bit about how BPI has been making strides in transforming its core operations, and we have complemented our banking assets with investments in mobile wallet GCash. These two, together with our transportation payments solution beep, have a combined reach of more than 20 million customers and over 58 thousand merchant partners. These assets are working more closely together to both enhance the customer experience and promote greater financial inclusion in the country.

The third component of our transformation journey involves the bolder and more deliberate steps we are taking regarding venture capital as a tool to be closer to new disruptive technologies.

We would like to be more active in finding and seeding budding entrepreneurs and start-ups, both to learn from them and to enable the entire start-up ecosystem to thrive. Our two corporate venture capital arms — Kickstart, which currently operates under Globe, and AC Ventures — will be working together to scout for investment opportunities. This will be enabled by a new $150 million fund called the ACTIVE Fund that will search for promising companies and entrepreneurs from both the Philippines and overseas, with technologies or business models that complement or augment the capabilities of our existing businesses.

As we scout for potential investments, we are keeping an eye out for opportunities within four key themes: a frictionless future, automation to augmentation, a world of plenty, and new frontiers in real estate.

We also view our venture capital investments as a way to have our eyes and ears on industries we are not currently in, to see if there are any gaps we could potentially address. Let me take e-commerce as an example. As most of you are aware, we invested in Zalora Philippines a few years ago. Our investment has given us a much deeper understanding of the e-commerce industry and we saw the need to develop stronger logistics infrastructure.

We thus leveraged Zalora’s existing fulfillment assets and supplemented it with additional resources to establish Entrego, our new logistics platform that is now the fastest-growing courier, express, and parcel services provider in the country. Zalora and Entrego work closely with our existing payments platforms to explore avenues to better facilitate online transactions. Entrego’s CEO, Cons Robertz, will be speaking in one of the panels today and can tell you more about the many exciting initiatives they have.

The fourth component is centered on data and analytics which we believe will be a key strategic advantage in the near future.

We are taking the first steps in our journey to significantly boost our data analytics capabilities. While we recognize that we may not be as advanced as our peers in the region, within the group, we do have some expertise in this field. For instance, Globe has launched Gie and Thea, hybrid agent-bots built using machine learning capabilities which help us address customer needs online in a much quicker way. Peter Maquera, Senior Vice-President at Globe, will touch more on how advances big data and mobile technology are shaping our future.

We hope to expand this capability and build on it at a group-wide level. We are currently building AC Analytics, which will serve as the group’s central hub for insights and data science. Broadly, our data analytics initiative involves harnessing the vast amounts of data across our businesses and use these to be more scientific and accurate in knowing customers, to continuously design products and services that address the needs of these customers and our partners, and to generate meaningful insights to guide our strategic decisions.

As a group, substantial resources are being devoted to develop and acquire data science talent, and also institutionalize a culture of collaboration among our companies. More broadly, we hope that by investing in this space, we are able to do our part in building a stronger data science community here in the Philippines. We’ve already seen how Filipinos can excel in this high-potential field globally, and with the group’s size and reach we believe we can make a strong impact.

The final component of our transformation journey — which perhaps may be the most crucial — deals with empowering our talent and shifting our culture towards a mindset of curiosity; openness to failure; innovative, yet meaningful thinking; and flexibility in work.

Last year, we formally launched Ayala University, our internal platform for continuous learning. Among the many programs in its portfolio, we have launched an Innovation Learning Program in partnership with the Global Innovation Management Institute, which exposes our talents to innovation frameworks and provides a safe space of Ayala’s innovators to develop disruptive solutions to persistent challenges. Since launching the program in 2017, we now have close to 150 professionally certified innovation managers initiating new projects across the group.

We have also partnered with online learning platform Degreed, which allows all our employees to access the most relevant content from various sources around the world, to truly institutionalize the practice of lifelong learning and prepare our workforce for the workplace of the future. I believe Susie Lie, Vice President at Global Business Solutions which handles the Degreed platform, is also with us today. Since launching Degreed, the take-up within our group has been phenomenal, with over 90% of planned subscriptions being activated within the first three months.

We also remain cognizant of the changing demands and habits of an increasingly younger workforce, which includes different working styles and means of communication, and we remain committed to finding ways to adjust to these. Our Human Resources teams across the group have been hard at work transforming the way we recruit, train, engage, and retain our talents. In the works are a platform to increase employee engagement, programs for inter-company cross-posting for short-term projects, and programs on flexible workplaces for Ayala employees, among others.

In summary, the pace of change today is rapidly accelerating. In the same way that the world we live in today is vastly different from what it was just a decade ago, our world 10 or even five years from now will be very different from the world we see today. And while it is difficult to paint an exact picture of what this world will look like, I think safe to say it will be one defined by frictionless transactions; greater integration and enabling capabilities of machines; advances in digitization, analytics, and cybersecurity; and by new ways of working, living, and communicating. This requires organizations to continuously adapt and transform as new industries and technologies emerge.

Secondly, it is imperative, I want to reiterate, for businesses of all sizes to harness innovation and to foster creativity and critical thinking within its workforce, in order to remain competitive and relevant amidst emerging technological and behavioral trends. We should not be pursuing innovation for innovation’s sake — rather, innovation should allow us to address customer needs, and find and minimize gaps and inefficiencies.

Finally, as a large institution, we at Ayala have chosen to take the leap and pursue various simultaneous initiatives. This includes our programs aimed at building an innovation mindset, and our five-point transformation framework, where we seek to:

Transform our existing business units

Explore new business models and opportunities

Be more deliberate about our venture capital investments

Leverage data and analytics tools to guide our decision-making

And continuously upskill and empower our talent

We are still at the early stages of our transformation, and it is an ongoing challenge. The path we follow is not set in stone — we welcome new discoveries along the way, and we will revector or pivot when necessary.

To close, allow me to emphasize that transformation requires clarity of vision, courage to stay on the course, and boldness to disrupt yourself and challenge long-held conventions. It certainly won’t be easy, but I believe it is very much possible. Thank you very much, and I wish everyone a productive and insightful day.