Friday, August 16, 2013

Yin and yang propel Ayala's journey to the future


By Winston A. Marbella

Businessmen who love to read – as well as serious readers who like to dabble in business – will be delighted by an article in the 25th Anniversary Supplement of the BusinessWorld published last July 26.

Curiously titled “Outside of Time,” it was the kind of business story that would have roused BW Founder Raul Locsin to jump for joy.

The 1,600-word piece, written by Diane Claire Jiao, painted an unusual portrait of Ayala Corporation and the two men at its helm, CEO Jaime Augusto Zobel de Ayala (aka JAZA), and his younger brother (by a year), COO Fernando.

What makes the article unusual is its deft use of two books – completely alien to each other – to define the strategic trajectory of the nearly180-year-old conglomerate and the management philosophy of the two youngish brothers, whose contrasting but complementary operating styles can best be described as Yin and yang.

But, first, let’s examine the more interesting of the two books, because it defines the company and the two men running it.

In 2007, JAZA became the first Filipino to receive the Harvard Business School’s alumni achievement award. In an interview with the Harvard Business Review, JAZA reflected on his role in Ayala Corp., which the family has run for one generation shy of two centuries. He quoted this passage from Milan Kundera’s 150-page French-language novel, Slowness:

“The man hunched over his motorcycle can focus only on the present instant of his flight; he is caught in a fragment of time cut off from both the past and the future; he is wrenched from the continuity of time; he is outside time.”

‘Liberating present’

On the surface, JAZA seemed to be talking about his yearly travels with his brother Fernando, riding motorcycles along the backcountry roads of Tasmania, Baja California and South Africa. But his mind was also roaming the back roads of the conglomerate they run like their bikes.

“It’s liberating to have some time when the moment at hand is all that matters,” JAZA, 54, said about the bike trips with his brother. Then he added metaphorically, “So often, in business, we are reflecting on the past or looking toward the future.”

The words define the brothers’ approach to the business. To get to the core of JAZA’s management philosophy, we have to use the prism of the novel. 

Slowness uses a fictional narrative to explore the author’s philosophy about modernity, technology, memory and sensuality. Says the publisher: “(It) is a meditation on the effects of modernity upon the individual's perception of the world.”  

The author uses the speed of modern life as a metaphor. Several scenes are tied to the speed of movement: speeding cars or slow walks through a garden. Slowness symbolizes the act of remembering, and speed the act of forgetting.    

Speed and failure are tied together: Intelligent decisions require deliberate slowness -- speed breeds rash judgments.

Here lies the appeal of Slowness to JAZA: The author’s philosophy defines not only the brothers’ complementary working styles but also Ayala Corp.’s road map to a speeding future.

Upward mobility

“When we came in, we were trained as managers and professionals, not as owners,” Fernando Zobel, Ayala Corp. president and chief operating officer, recalled in the company’s 175th anniversary report. Working their way up the corporate ladder under professional managers, the brothers developed distinct operating styles perfectly suited to their company’s ride to the future.

JAZA is the deliberate manager, schooled in the Harvard Business School’s rational quantitative approach to management. Fernando brings the all-important qualitative input – gut feel -- to the equation.

“Our relationship is all about teamwork and trust. Our environment is becoming increasingly complex, and working in unison enables us to cover twice as much ground at twice the speed,” Fernando said in a 1999 interview with Men’s Zone. “We share and test thoughts, opinions and decisions. We temper each other’s more emotional impulses when they are unwarranted and encourage each other when the environment calls for boldness.”

In Milan Kundera’s motorcycle analogy, the brothers are the exiting present in their company’s passage from a storied past to a modern future.

Road map to modernity

Two Harvard professors, likely to have been JAZA’s mentors, have written a book that models Ayala’s journey to the future. 

In Winning in Emerging Markets, Tarun Khanna and Krishna Palepu have produced a framework for crafting emerging market strategies that go beyond the usual broad parameters like geography. 

Their framework describes how “institutional voids” -- the absence of intermediaries like market research firms and credit card systems to efficiently connect buyers and sellers -- create obstacles for companies trying to operate in emerging markets.

According to the authors, understanding these voids and learning how to work with them in specific markets will lead to success. 

The authors cite Ayala Corp. as one of the successful models of “emerging giants.” 

The book’s complete title is: Winning in Emerging Markets: A Road Map for Strategy and Execution.
When they take their next bike trip in some back country road, the brothers Zobel will focus on the present – just staying on the saddle for a fleeting fragment of time. 

They will have more important things to think about when they get back to work: How to steer their company’s passage from a glorious past to an uncertain future.

They will have Milan Kundera’s Slowness and Khanna and Palepu’s Winning in their saddlebags to serve as road maps to the future – just in case they “forget” in the context of Kundera’s metaphor for speed in a rapidly modernizing world. 

(The author is founder/CEO of a management consulting think tank; e-mail 


Tuesday, August 6, 2013

Engineered for success

25th Anniversary Supplement
July 26, 2013

By Diane Claire J. Jiao

CORPORATE FOLKLORE has it that Ramon S. Ang began his path to the top when he became the mechanic of businessman Eduardo M. Cojuangco, Jr. 

A friendship quickly formed between the two — it turned out, if you could trust someone with your prized cars, you could trust him with just about anything.

During the furor of martial law and the People Power Revolution that finally ended it, Mr. Ang watched over Mr. Cojuangco’s businesses as the latter fled the country with his family. When Mr. Cojuangco returned and later became chairman of San Miguel Corp. in 1999, he appointed Mr. Ang his vice-chairman. In 2002, Mr. Ang was made president and chief operating offcer.

Then, just last year, Mr. Ang took full control of San Miguel. Mr. Cojuangco relinquished his 11% stake to his longtime ally and friend, and Mr. Ang effectively became the single largest individual shareholder of one of the country’s most important conglomerates.

The trek to the top

It makes for a neat little success story, but the more important things began well before Mr. Ang entered Mr. Cojuangco’s garage: how Mr. Ang developed as a businessman himself, and how that influences his leadership of San Miguel now.

Even at a young age, Mr. Ang showed a real knack for making money. According to the 2011 Bloomberg Markets profile, as a teenager, he bought used car engines from Japan, refurbished them and then sold them off for a profit. Later on, he bought and sold heavy equipment.

He soon moved on to the big leagues and, in 1992, participated in the acquisition of Fortune Cement Corp. with Henry S. Sy, Sr. — the man behind the SM Group of Companies.

Fortune Cement made an initial public offering in 1996, raising about $100 million, a 2012 Esquire Philippines profile reads. With the fresh capital, Mr. Ang expanded the company, buying Mindanao Portland Cement Corp. in Iligan and Prime White Cement Corp. in Cebu.

In 1998, Mr. Ang sold his shares in Fortune Cement to Blue Circle Industries, a British cement manufacturer, for an estimated $200 million, allowing him to establish Eagle Cement Corp. in Bulacan. Mr. Ang, a mechanical engineer, even personally designed the cement plant and supervised its construction.

So, when many wondered how Mr. Ang could afford to buy Mr. Cojuangco’s shares in San Miguel last year — a deal worth roughly P30 billion — he easily dismissed the shoptalk and told Esquire, “If you ask, with all these, do I have the means to buy the shares? Of course I do.”

A self-made man, Mr. Ang earned his stripes as an entrepreneur, proving he could slug it out with the rest of them. This, he said, is what he brought into San Miguel: “a sense of what it is to be entrepreneurial.”

“I ran my own businesses long before I joined San Miguel. None of them were quite as big, but I think the reason why they were successful was because we brought an element of entrepreneurship to them,” Mr. Ang said in the company’s 2012 annual report. “There was a certain comfort with taking risks, going for the big idea and being really invested in what we were doing.”

What can be achieved

The San Miguel of today represents what can be achieved, combining the brazen vision and tactical nous of an entrepreneur with the sheer scale and financial muscle of a conglomerate. Under Mr. Ang’s leadership, expansion and diversification has been aggressive.

San Miguel in its heyday was already the leader of the food and beverage industry, not just in the Philippines but also in Southeast Asia. Its business was stable, and its growth, steady. When Mr. Ang came in, though, he said steady was not fast enough. He steered the company into new areas with better growth prospects, such as oil, power, infrastructure, telecommunications and mining.

“We always like to take the long view, particularly when it comes to growth. The work that has been done in our traditional businesses — the food and beverage sectors — has enabled us to deliver good results. But we were also getting to a point where growth in revenues and profits was becoming more limited and slower,” Mr. Ang said in the 2011 edition of BusinessWorld’s Top 1000 Corporations. “We needed to participate in other higher-margin, higher-growth industries to help drive our earnings growth, and it made strategic sense to venture into industries such as power, fuel and oil because returns were so much greater.”

San Miguel saw a flurry of activity, buying into Purefoods Corp. but divesting stakes in Nestlé Philippines, Inc., National Foods Ltd. and Coca-Cola Bottlers Philippines, Inc. It also bought and later sold stakes overseas, such as in Singaporean canner Del Monte Pacific Ltd., Australian juicer Berri Ltd. and Japanese brewer Kirin Brewery Co. 

The big shift

The big shift began in 2007, and it has been a frenzy year after year. San Miguel bought into heavyweights such as power distributor Manila Electric Co. (Meralco), oil refiner and retailer Petron Corp., Liberty Telecoms Holdings, Inc., and Indophil Resources NL, an Australian miner with a stake in the Tampakan mining project, said to be the largest untapped copper/gold reserve in Southeast Asia.
Bloomberg estimates that San Miguel spent $4.8 billion on 24 acquisitions between 2007 to 2011. This doesn’t include the conglomerate’s latest moves.

In 2012, it purchased 65% of Esso Malaysia Bhd., 100% of ExxonMobil Malaysia Sdn. Bhd. and 100% of ExxonMobil Borneo Sdn. Bhd. for a total of $577.3 million. That same year, it splashed out $500 million for a 49% stake in flag carrier Philippine Airlines, Inc. (PAL) and low-cost arm Air Philippines Corp.

The pace at which San Miguel has entered and left businesses has left some of its investors queasy. They called for focus and raised concerns the conglomerate was spreading itself too thinly.While conventional wisdom said companies must stick to their strengths, San Miguel found itself well outside its comfort zone.

Food accounted for just 13.5% of San Miguel’s revenues in 2012, down from the 16.4% the year before. Beverage also saw a decline to 12.7% from 16%. Packaging added just 3.5% from 4.4%. Oil, though, made up the bulk of revenues with 59.8% last year, up from the 50.2% in 2011. Power also contributed 10.5% from 13%.

Mr. Ang, for his part, is content to let the numbers do the talking. San Miguel posted a net income of P27.6 billion last year, surging by 57% from 2011.Revenues reached a record high of P699 billion, 30% higher than the previous year. Of this, 70% was generated by new businesses, which saw a 46% jump from year-ago levels. The core businesses, on the other hand, accounted for the remaining 30%, notching a 4% increase. 

Oil and power, he pointed out, are boosting earnings “in a way no one could have foreseen just a few years ago.” However, San Miguel’s latest performance doesn’t yet include PAL, arguably the most controversial acquisition yet in Mr. Ang’s tenure.

PAL flight plan

PAL, the first commercial airline in Asia, has recently lost its leadership in the local aviation industry. It has also been in the red with expenses soaring and revenues flat. It posted a total comprehensive loss of P2.96 billion in its third quarter ending December, nearly double the P1.46 billion in the same period a year ago.

Even Mr. Ang admitted that some of San Miguel’s investors were “not comfortable” with the investment in PAL. But, he had a strategy to bring the flag carrier back to its former glory: modernize and build its fleet, increase flight frequency and destinations, and consistently deliver a great customer experience.

The first order of business was to get new planes, the San Miguel chief said. “To keep the old ones was too expensive and not doing the PAL brand any favors.”

Smaller, wide-bodied planes meant PAL didn’t have to fly half-empty flights. They were also more fuel-efficient and cut down maintenance costs.“When you think like an entrepreneur, you see all the little things that in the end can make a difference,” he said.

And so, last year, PAL signed a $7-billion contract with Airbus to purchase 64 new planes over the next five years — the single biggest deal in the country’s aviation history.

Game changer

Winston A. Marbella, head of think tank Marbella International Business Consultancy, said San Miguel is changing the game by breaking the rules followed by most conglomerates.

“Viewed in this traditional light, San Miguel’s recent thrusts into energy, infrastructure building, power generation and telecommunications seem to have no rhyme or reason,” Mr. Marbella said in a 2012 column in BusinessWorld.

“There seems to be no common thread running through these new businesses — except that they are very profitable. And there is absolutely nothing wrong with being profitable in the business game.”

Mr. Marbella allayed investors’ fears that San Miguel is chopping and changing its portfolio too fast. The conglomerate, he said, is merely responding to opportunities that arise before any of its competitors can act on them. He said in an e-mail: “[Mr. Ang ’s] quick response to divest from or enter new markets is what makes San Miguel’s lightning moves awesome and fascinating. This makes them formidable because nobody can act with their kind of speed.”

More tricks afoot

Despite all that Mr. Ang has masterminded in the past few years, it seems he still has a few more tricks up his sleeve.

“We are, today, maybe at 60% of where we want to be. We are still pursuing many, many projects, and I think we should be able to accomplish something in the next couple of years,” he said in an interview this month.

He threw down the challenge in a 2012 interview with the Philippine Daily Inquirer. “When we started to diversify, people said I was crazy. But when you look at how far we’ve come today, do you think we made the right move, or not?”

It may yet be too early to say whether Mr. Ang’s strategy will pay off in the long-run. But whatever happens to San Miguel, it will not be for want of trying. And, as they say, those who dare, win.