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Innovation: The only way

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Ylagan 060319 - Innovation: The only way

At the BusinessWorld Economic Forum 2019 last week, keynote speaker Jaime Augusto Zobel de Ayala, “JAZA”, chairman and chief executive officer (CEO) of Ayala Corporation made it clear: “Businesses should realize that what brought us success in the past will not be the same issues or factors that will bring us success in the future” (BusinessWorld May 31, 2019). He shared how the Ayala group has consistently embraced innovation, enabling it to remain in business for the last 185 years.

Innovation has been the magical business buzzword since the mid-nineties. “Disruptive innovation” is the most persistently influential business idea of the last two decades, urged by business economist Clayton Christensen’s challenge in his benchmark HBR journal piece “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” (Harvard Business Review, Harvard Business School Press, 1997).

Christensen qualified that “disruption” must not be taken negatively as destructive, but as positive change in the work environment. “The technological changes that damage established companies are usually not radically new or difficult from a technological point of view. They do, however, have two important characteristics: First, they typically present a different package of performance attributes — ones that, at least at the outset, are not valued by existing customers. Second, the performance attributes that existing customers do value improve at such a rapid rate that the new technology can later invade those established markets” (Christensen, Clayton [January 1995]. “Disruptive Technologies Catching the Wave”, Harvard Business Review).

BusinessWorld Editor-in-chief Roby Alampay moderated the first session at the conference, drawing out from the speakers the most sensitive aspect of business management in disruptive innovation: how will people be affected by rapid changes? Kristine Romano, Managing Partner of McKinsey Philippines elicited evidently-disturbed quiet from the audience when she said it has been a cumulating ratio of people being replaced by machines in the workplace — about six out of 10 jobs can be automated now. Many call centers abroad are run by artificial intelligence (AI), as are some 3,000 seats in local call centers now AI. “Perhaps sometime around 2040, machines will be as smart as humans,” she said. The audience audibly gasped.

Riza Mantaring, president of the Management Association of the Philippines (MAP), countered that because of the rise of AI, business must compete by having “superworkers” with analytical skills who can solve complex problems, create new products and innovate processes — for machines can only do routine and repetitive processes until new programs are built into them by creative humans. Or they become totally obsolete. A question from the floor prodded, can “superworker” skills be learned on the job or best taught in schools? Mantaring replied that the educational system is still playing “catch-up,” but courses are now created in school curricula that prepare future workers in the digital environment of business and life in general. There is already a vacuum, as discussion around the tables at the conference worried about the surged demand and the depressed supply of technical workers.

Big data is guiding marketing today, where sampling and surveying are shamed by the completeness of individual and market information (history and statistics can be processed in extensive details by computers) and the expanse of iterations to project sales and corresponding probabilities. Marketing and distribution networks have morphed from showrooms/outlets, space-consuming warehouses and physical delivery systems to the complete cycle of advertising and ordering onto sales and payments — all digitized and virtual. The second session showcased the online strategies of Globe Telecom, Lazada Philippines, and Entrego, who all attested to digital transformation, indeed, changing the requirements of the regular supply chain. The discussants and the audience seemed not to be too perturbed with breaches of personal privacy in marketers’ machine-enabled, amazingly thorough profiling and customization of offerings. All is fair in love and war, and this is both — for the bottom line.

Yes, the potent brew of innovating with disruptive technology for a competitive edge would all boil down to money. The third session discussed financial technology (fintech), which organizes with awesome efficiency transactions, recording and audit, and builds detailed and complete statistics on credit and collection for revenue forecasting and planning. Noel Santiago of the Bank of the Philippine Islands stressed that digitalization is important for banks to know the on-time, real-time changes to itself and for clients for themselves, likewise. Lito Villanueva, founding chairman of FinTechAlliance.ph, boasted of the energized open banking system and the over 81 fintech players in the country today. In globalization, fintech has opened the reach of business to the world’s 7.7 trillion population, projected to reach about 10 billion in 2050 and more than 11 billion in 2100.

Vicente de Villa III, Senior Director and Officer-in-charge of Financial Technology at the Bangko Sentral ng Pilipinas (BSP), spoke on online banking and electronic transfers, credits/debits through banks and other BSP-supervised financial institutions (BSFIs). The National Retail Payment System or NRPS is a policy and regulatory framework that aims to provide direction in carrying out retail payment activities speedily and safely while keeping these electronic transactions convenient and affordable. But why does there have to be any fees or charges at all to the end user, when infrastructure and software capacity and capability has long been in place for these electronic transfers and online transactions? The question from the floor was asked by Renato C. Valencia, Lead Independent Director of GT Capital, banker and former Social Security System (SSS) Administrator. “God bless you for asking, Sir,” de Villa said; “it may come in the future, but not just yet. The BSP is encouraging healthy competition among the banks and BSFIs to strengthen client usage of this facility and entrenchment of the concept and practice of electronic banking.” Based on compliance with BSP Circular 980, which requires BSFIs to report details of all fees that will be charged to their clients when performing electronic payments, fees charged to clients range from P10 to P1,000 through the BSP’s PESOnet, and P10-P50 through InstaPay.

Affordability may indeed be key to successfully harnessing rapidly evolving “disruptive” technology in the innovations and changes needed for businesses to keep competitive and to survive. “The business environment of market leaders does not allow them to pursue disruptive innovations when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from sustaining innovations which are needed to compete against current competition,” Christensen says (“The Innovator’s Dilemma”, op.cit). For this reason, disruptive innovations tend to be produced by outsiders and entrepreneurs in startups, rather than existing market-leading companies” (Ibid.).

BusinessWorld economic forum summarized and concluded with a focus on the youthful entrepreneurs and the next-generation successors to big business in the country. Even before a bachelor’s degree in finance Maria Francesca Tan founded her MFT Group of Companies, “a private equity form that adheres to the principles of restructuring corporate blueprints of family legacy businesses,” she says. Kevin Andrew Tan, scion to the Megaworld patriarch Andrew Tan and the family megafortune in real estate, entertainment and gaming, food and beverage, among many others, vows by “The Internet of Things” now that he is CEO of Alliance Global, Inc. He presented the “smart home” concept in the group’s condominium developments, where the convergence of multiple technologies like wireless sensors, controls and automation improve the quality of life for residents.

Indeed, why not improve the quality of life when changes and improvements are only waiting to be made, said Aideen Judan-Jiao, youthful President and Country Manager of IBM Philippines. IBM, which “sort of lagged behind” in the disruptive innovation challenge, has been reengineering and reinventing itself to really get back into the action. IBM has come up with a qubit-powered machine, the Q System One “the world’s first integrated universal approximate quantum computing system designed for scientific and commercial use.” The system is more powerful and reliable, easier to maintain and upgrade.

So many overwhelming technicalities for the more traditional businessmen of today. But all must move with the changes, to survive in the competitive ecosystem, forced by the new technologies.

 

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com

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