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13 July 2026

Manolito R. Elle

Ten strategic opportunities shaping technology in 2026

In brief:Despite widespread artificial intelligence (AI) adoption, only a few organizations in Asia have the infrastructure, governance and talent required to scale AI and deliver meaningful return on investment (ROI).Success in 2026 will depend on treating infrastructure as a strategic asset, accelerating growth through partnerships and selective mergers and acquisitions (M&A), and designing platforms for agent driven interoperability, physical AI at the edge, and regional collaboration.Organizations must invest in production ready infrastructure to achieve real results.“As AI innovation accelerates, companies that move fast, without compromising interoperability or governance, will be best positioned to capture winner-take-most outcomes." As 2026 unfolds, technology companies are operating in an environment shaped by rapid artificial intelligence (AI) adoption, increasing geopolitical complexity and growing pressure to deliver measurable business outcomes. This urgency is further intensified by what EY describes as a non-linear, accelerated, volatile, and interconnected (NAVI) operating environment, where disruptions evolve quickly and ripple across industries. According to the EY Global Responsible AI Pulse survey, which gathered insights from C-suite leaders on responsible AI adoption, uptake is highest in the technology, media and entertainment, and telecommunications (TMT) sectors. A strong reliance on technology and data to deliver core services makes responsible AI particularly critical in these industries.The survey also found that organizations in these sectors are more likely than others to communicate their responsible AI principles to external stakeholders (80% vs. 71%). In addition, they are more advanced in governance: 74% have established an internal or external committee to oversee adherence to these principles (compared with 61% in other industries), and 72% conduct independent assessments of responsible AI governance and control practices (also versus 61%).Within this complex and fast evolving landscape, there are ten opportunities that represent actions for technology leaders to drive growth, resilience, and trust in this rapidly shifting environment. The first part of this article will discuss the first five opportunities: accelerating growth through partnerships and selective M&A; navigating Southeast Asia’s unique market dynamics; designing for agent‑driven interoperability and physical AI; making AI safety and reliability a core business responsibility; and reinventing pricing and go‑to‑market models to reflect AI‑mediated value creation.Accelerate growth through partnerships and selective M&AVelocity will define success in 2026. As AI innovation accelerates, companies that move fast, without compromising interoperability or governance, will be best positioned to capture winner take most outcomes. To scale and unlock new markets, technology firms are forming targeted partnerships and pursuing selective M&A, particularly with startups offering AI-ready capabilities or proprietary data. Leaders will take an all of the above approach, combining alliances and acquisitions to seize fleeting opportunities. Prioritizing interoperability, clear outcome sharing, and embedded governance from the start will enable resilient ecosystems that deliver differentiated value and adapt quickly to regulatory and technical change.A Southeast Asian perspectiveTechnology companies in Southeast Asia face a more complex landscape: uneven digital readiness, fragmented regulations, infrastructure gaps and limited access to AI capabilities and talent. In 2026, success will go to those who can navigate these constraints, deploy AI and other innovations effectively and securely, and translate them into commercially viable outcomes. Leaders can win by making concrete moves like pursuing targeted joint ventures, embedding sovereignty by design, and building platforms that support agentic interoperability and physical AI at the edge.Design for agent-driven interoperability and physical AIWhat sets leaders apart is interoperability, enabling AI agents to operate seamlessly across platforms, clouds and ecosystems. At the same time, physical AI, such as robotics and edge based systems, is moving from concept to real world execution, allowing companies to connect intelligent software with physical action and unlock entirely new sources of value.An analysis of how central physical AI and robotics are in AI roadmaps over the next 12–24 months shows that 11% of respondents consider it a core strategic pillar, 25% view it as a major workstream, 53% describe it as an exploratory pilot, and 11% say it is not currently included in their AI roadmap.Make AI safety and reliability a business responsibilityAs AI scales across organizations, safety and reliability must be embedded into everyday operations, not treated as separate compliance efforts. This requires empowering functional leaders to own AI governance, strengthening data readiness and integrating controls into product and operational lifecycles. Without these foundations, companies risk fragmented execution, operational failures, and loss of trust, while those that get it right can scale AI confidently and protect long term business value. A survey on confidence in AI strategy shows that 30% of companies are confident their approach effectively addresses ethics and responsible AI, while 44% believe it sufficiently covers safety, security, compliance, and risk mitigation; in contrast, a stronger 65% express confidence that their AI strategy is well aligned with business objectives.Reinvent pricing and go-to-market modelsAI native companies are reshaping how software is priced, packaged and bought. As agentic, AI mediated purchasing becomes more common, traditional subscription and usage based models are increasingly complemented or replaced by secure APIs, instant trials and outcome based pricing. Customers are no longer satisfied with simply paying for access or consumption; they expect a frictionless buying journey and clear, transparent proof of value.By 2026, leaders will need to move beyond pilots and link pricing directly to measurable outcomes and delivered value. GenAI and agentic tools are simultaneously spreading across sales, service, support and financing, enabling bundled, end‑to‑end experiences and accelerating “Service as Software,” where automated platforms handle tasks once done by people. Success will depend on designing for agent‑driven commerce (e.g., secure APIs for product and pricing) and ensuring interoperability so workflows run smoothly across platforms and clouds.Stay flexible across open and closed AI modesThe growing range of open and closed AI models is forcing tech companies to make new strategic choices. Open models typically offer more transparency, customization, and cost control, improving quickly and making them easier to tailor and integrate into proprietary workflows. Closed models often lead on raw performance, reliability and built-in support and safety features, but they can come with higher costs, greater vendor lock-in and less flexibility for localization or strict compliance needs.This shift isn’t only a technical debate; it’s also shaped by business realities and policy constraints worldwide. In regions where proprietary models or infrastructure are limited, open approaches can unlock wider access and faster innovation. For enterprises, the best path is a flexible strategy that balances price and performance, avoids dependence on a single vendor, and aligns with evolving regulatory and data-sovereignty requirements. Organizations that can orchestrate both open and closed models — choosing what fits each workload, region, and compliance need — will be better positioned to capture value, reduce risk, and adapt as the AI ecosystem continues to diversify. Internal AI usage across business functions shows that 41% of organizations primarily use closed models, 27% rely on open models, and 26% adopt a hybrid approach, while only 6% primarily use internally developed AI models.The second part of this article discusses the remaining five opportunities: embedding sovereignty into technology architecture, bringing technical specialists closer to the business, elevating tax from compliance to strategy, turning finance into the engine of AI return on investment (ROI), and moving decisively from experimentation to execution.Manolito R. Elle is the Technology Sector Leader of SGV & Co.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

19 June 2026

Warren R. Bituin

Emerging Technologies: The Philippine workforce in the human-machine hybrid economy

In brief:The Philippines must strategically adopt AI, robotics, and emerging technologies to close labor gaps and boost productivity in sectors such as healthcare, BPO, and agriculture.Human-machine collaboration will transform workforce dynamics, lengthening careers and demanding continuous reskilling. Strong governance, ethical safeguards, and ongoing investment in digital infrastructure are vital for inclusive growth and regional competitiveness. “The success of the human-machine hybrid economy will depend on coordinated action across government, industries, and labor markets."Emerging technologies are rapidly transforming the global economy, from artificial intelligence (AI) to brain-computer interfaces (BCIs) to longevity research. These advances are redefining the very nature of work beyond simply enhancing human capabilities. C-suite leaders are increasingly operating in what can be described as a NAVI risk environment — non-linear, accelerated, volatile, and interconnected — where multiple disruptive forces are shaping the global operating environment, including climate change, technological innovation, demographic shifts, and the rising influence of non-state actors. These intersections between primary forces create megatrends, identified as global, cross-sector scenarios that shape how organizations operate, compete and create value.The EY Megatrends 2026 report explores eight megatrends at the global macro level and highlights how each one can evolve in different sectors. The superfluid enterprise infrastructure explored in the previous article discusses how autonomous systems create the foundation for human-machine collaboration at scale. While superfluid enterprises eliminate organizational friction, the human-machine hybrid discussed in this article explores how new technologies will enable humans to expand their capabilities. Augmenting human potentialRecent policy directions from the Department of Information and Communications Technology (DICT) and National Economic and Development Authority (NEDA) between 2025 and 2026 highlight a growing recognition that digital transformation is no longer optional but foundational. AI is already streamlining data analysis, predictive modeling, and complex decision-making across industries. In the banking sector, major banks have expanded AI-driven fraud detection systems, significantly reducing transaction risks while improving customer trusts.Early-stage BCIs, though still largely experimental, are being explored in academic settings like the University of the Philippines for neurorehabilitation research. These initiatives suggest a future where Filipino workers may interact with machines through neural interfaces, particularly in healthcare and assistive technologies.Simultaneously, AI-driven longevity research is reshaping expectations about working life. According to a 2026 study by the Philippine Institute for Development Studies (PIDS), life expectancy improvements combined with better health technologies could extend productive working years by up to a decade. This creates both opportunities and tensions in labor market planning.The Philippine labor paradoxThe Philippines faces a demographic paradox: a young workforce grappling with underemployment alongside an aging population needing extended productivity. As of 2025, youth underemployment remained above 14%, while demand for high-skill roles surged, as reported by the Philippine Statistics Authority.This mismatch is particularly evident in the IT-BMP sector, where companies report shortages in AI specialists and data engineers despite a surplus of graduates. Human augmentation technologies can help bridge this divide. For instance, AI-assisted coding platforms are enabling entry-level programmers to perform advanced tasks, effectively compressing the skills gap.Opportunities here and thereHealthcare stands to benefit enormously from hybrid technologies. AI-powered diagnostic tools are being piloted in rural clinics where access to specialists are limited. These systems assist doctors in identifying conditions such as tuberculosis and diabetic retinopathy with higher accuracy according to the Department of Health pilot programs (2025). Robotic-assisted surgery, though still concentrated in urban centers like Metro Manila, is improving surgical precision and reducing recovery times.In the business process outsourcing (BPO) industry, AI is both a disruptor and an enabler. BPO companies are integrating generative AI into customer service workflows, allowing agents to handle more complex queries while automating routine interactions. According to the IT & Business Process Association of the Philippines (IBPAP) 2026 outlook, hybrid human-AI teams could increase productivity by up to 30%.Agriculture, traditionally slower to adopt to technology, is also evolving. Precision farming tools using technology such as drones and satellite data are being deployed in rice-producing regions such as Nueva Ecija and Ilocos Norte. These tools help farmers optimize irrigation, predict yields, and reduce input costs.Workforce transformation and longevityLonger working lives demand a fundamental shift in career development models. Filipinos may increasingly engage in multi-stage careers, transitioning across industries as technology evolves. Government programs like DICT’s “Digital Workforce 2025” initiative are expanding reskilling efforts, focused on AI literacy, cybersecurity, and data analytics.Longevity also impacts social protection systems. In September 2025, the Social Security System (SSS) implemented a landmark Pension Reform Program (PRP) designed to support Filipino retirees amidst increasing life expectancy and rising living costs. Aiming to maintain the purchasing power of elderly citizens, the PRP provides guaranteed, multi-year pension hikes across three tranches.Sustainability and technologyHuman augmentation technologies can also support sustainability goals. AI-driven energy management systems are being implemented in manufacturing hubs to reduce electricity consumption, aligning with the Philippines’ commitments under international climate agreements. In healthcare, optimized resource allocation through AI reduces waste and improves service delivery.Regionally, competition is intensifying. Countries like Singapore and Vietnam are investing heavily in AI and robotics. Singapore’s National AI Strategy 2.0 (updated 2025) and Vietnam’s aggressive digital workforce programs highlight the urgency for the Philippines to accelerate its own investments or risk losing competitiveness in key sectors like BPO and manufacturing.Regulatory and ethical challengesThe adaptation of human-machine hybrid systems introduces complex regulatory and ethical issues. Data privacy remains a central concern, particularly with sensitive data such as neural signals in BCI application. The National Privacy Commission has begun drafting updated guidelines for AI governance (2026), emphasizing transparency, accountability, and user consent. Another challenge is equitable access. Without targeted policies, advanced technologies could widen inequality between urban and rural areas. Infrastructure gaps, particularly in broadband connectivity, must be addressed to ensure inclusive adoption. On the other hand, liability in hybrid systems also requires clarity. If an AI-assisted medical diagnosis leads to an error, determining responsibility between human practitioners and machine systems is legally complex. Policymakers must establish clear frameworks to address such scenarios.Partnerships will be crucial when drafting policy frameworks and other regulations. Collaboration between academia, government, and private sector stakeholders can accelerate innovation. Equally important are workforce policies. Voluntary enhancement frameworks, that is, ensuring that workers are not coerced into adopting augmentation technologies, will build trust as a starting point. Continuous training programs must be institutionalized, not treated as one-off interventions.A defining opportunityThe success of the human-machine hybrid economy will depend on coordinated action across government, industries, and labor markets. If managed effectively, the hybrid economy can deliver higher productivity, safer workspaces, and more resilient growth, ensuring that technological progress benefits all Filipinos rather than a select few.The next article in this Megatrends series will discuss the concept of the productivity reset, which redefines value when traditional metrics no longer apply.Warren R. Bituin is the Technology Consulting Partner of SGV & Co.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

01 June 2026

Roderick M. Vega and Rhaniel Robert T. Sy

From compliance to competitive advantage

In brief:Organizations must shift from reactive risk management to proactive, forward-looking strategies.Embedding compliance and integrity into core business decisions drives resilience and long-term value.Strengthening cybersecurity, third-party governance, and speak-up culture enhances risk visibility and mitigation.“In an environment defined by rapid change and uncertainty, organizations must take a more integrated and forward-looking approach to risk management."In today’s non-linear, accelerated, volatile and interconnected business landscape, risk is no longer just a threat — it can also serve as a driver for growth. Leading organizations are capable of actively identifying risk through in-depth risk assessment frameworks, implementing effective countermeasures, and making risks more manageable when they occur. However, this is only one side of the coin. There are also unseen risks that organizations are unable to anticipate and prepare for, such as the recent US-Iran conflict, which resulted in disruptions of global supply chains, economic instability, and oil shortages. Another example of an unexpected risk is the COVID-19 pandemic, which reshaped working conditions and forced organizations to rapidly adapt. These risks were discussed in the recent SGV thought leadership forum, “Transforming Risk into Strategic Advantage,” held on 6 May 2026, where industry leaders discussed how businesses can convert emerging risks into drivers of long-term value.The modern Philippine risk landscape In June 2025, Ernst & Young (EY) conducted a survey across 300 executives (mostly with Compliance and Risk Management roles) across different industries and identified ten key areas that pose a major risk to the current business landscape. It identified data privacy and cyber security breaches (41%), sanction risk (38%) and AI governance (34%) as the top three threats to organizational compliance and integrity. Over 70% of respondents identified data privacy and cybersecurity as critical risks due to the increasing data privacy concerns brought by technological disruption and the growing sophistication of cyberattacks. This is followed by risks posed by regulatory non-compliance (50%), stemming from the increasing complexity of regulatory requirements and potential penalties. Lastly, emerging regulatory requirements related to sustainable operations and environmental, social, and governance (ESG) factors (35%) are affecting operating models and organizational reputation. Surprisingly, corruption risk was ranked tenth in the survey at (15%), the lowest among the ten key risk areas.Compliance as a business enablerTo keep up with the current changes in the regulatory landscape, some organizations have chosen to take a transformative approach. Transformative organizations link compliance efforts with core business functions to drive growth from identified risks. This enables better aligned business outcomes, where risk insights guide decision-making, improving responsiveness to emerging threats and the ability to turn compliance from a cost center to a value-generating function. Modernization is a key factor in keeping up with the regulatory landscape, with organizations actively investing in artificial intelligence (AI) to aid compliance functions. This enables the automation of routine compliance tasks, risk detection through complex pattern recognition, and the automation of due diligence and background checks. Organizations can also leverage AI for more complex functionalities, such as the generation of cross service insights that can be used to make informed strategic decisions and promote growth.Organizations can assess the potential impact of risk and implement controls and response actions to mitigate negative effects through effective risk management strategies. However, they must shift from a reactive to a proactive approach by establishing controls that detect risks early and enable timely intervention. Cybersecurity: Detection of lurking security threatsA critical example of this necessary shift to a proactive approach is the risk area of cybersecurity. A threat actor only needs to find a weakness in any system to breach an organization’s defense, such as an unpatched vulnerability or a payload disguised as a friendly email. In addition, modern and more sophisticated cyber threats often infiltrate systems quietly and remain undetected for months. These attackers study an organization’s security before launching a more devastating attack, making it critical to invest in detection and response as much as deterrence. Cyber compromise detection is one such proactive approach for the organization to identify threats. Investigators using specialized tools collect telemetry data from the organizations system to identify indicators of compromise that may signify the presence or a lurking threat. Through this continuous monitoring, organizations can detect, contain and respond to threats early, minimizing damage and in turn strengthen cyber resilience.Managing third-party risk: A critical blind spotThird-party entities play a major role in the day-to-day business operations. They allow organizations to allocate more resources to develop core competencies by outsourcing expertise, staff training, specialized assets, and even allowing risk transference. Engaging with third parties can increase quality of service while reducing costs.These advantages, however, come with additional risks. Corporate integrity may be compromised when engaging third parties with poor conduct. Organizations may suffer reputational damage, while a compromised third party may exploit policy loopholes, engage in acts of bribery and give kickbacks to gain better deals. This can lead to loss of consumer trust, financial loss, regulatory penalties, and diminished investor confidence. Organizations must therefore conduct due diligence on third party vendors to mitigate both short- and long-term risks. This includes rigorously investigating adverse media reports, litigation records, financial stability, sanctions exposure, and compliance history. Extensive due diligence can also uncover potential areas of concern, such as undisclosed shareholders, falsified information, accounting irregularities, and process irregularities. A layered approach combining public data, stakeholder feedback, and on-site reviews helps ensure that partners align with organizational values and compliance expectations.Building a speak-up cultureA strong speak-up culture detects risk early while strengthening trust and accountability. Whistleblowing platforms are a major contributor to uncovering misconduct and unethical behavior by allowing employees to report them when observed. According to the latest survey by the Association of Certified Fraud Examiners, 43% of fraud cases are detected through whistleblowing. However, the ineffective implementation of whistleblowing frameworks can expose the whistleblower to retaliation from peers and senior management. A failure to quickly respond to whistleblower reports can make employees feel unheard and neglected, while an indifference to upholding integrity by upper management may increase hesitation to speak up. This can lead to employees losing faith in the system and make the unfortunate decision of turning a blind eye to unethical behavior. Employee trust cannot effectively be built when there is a clear gap between what the leaders say and do. General counsel officers (GCOs), Chief Compliance Officers (CCOs), and other members of senior management must set the tone for promoting and demonstrating integrity with ethical leadership. This fosters a culture of trust, transparent communication, and psychological safety for employees. Organizations should also raise awareness and clearly communicate the importance of integrity and compliance. Though conventional training methods may not be enough, role-specific training can better cover how policies directly apply to certain job roles. In addition, AI has proven to be a useful tool that helps employees navigate an overwhelming volume of policies. These technological innovations improve the overall awareness and understanding of employees and support ethical decision-making.The path forward: From risk to valueLeaders today face a fundamental shift: the question is no longer whether risks exist, but whether they are ready for those they cannot yet see and anticipate. In an environment defined by rapid change and uncertainty, organizations must take a more integrated and forward-looking approach to risk management. This means embedding compliance into the heart of strategic decision-making, enabling faster and more effective responses to emerging threats. It also requires investing beyond traditional cybersecurity defenses — building robust detection and response capabilities that allow for proactive mitigation of incidents. At the same time, stronger oversight of third parties through rigorous monitoring, screening, and governance has become essential. Above all, organizations must cultivate a culture of integrity, where leaders set the tone from the top and consistently align words with actions, closing the gap between what is said and what is done.Roderick M. Vega is the Forensic and Integrity Services Leader, and Rhaniel Robert T. Sy is a Forensics Manager, both of SGV & Co.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

03 July 2025

Kristel Frias

Wat Hafen Vela

Insurers have a unique opportunity to drive innovation and growth by addressing protection gaps in the market. In the Philippines, growth in the country’s insurance penetration rate is at 1.89% in the first quarter this year from 1.78% in the same period in 2024. While the momentum is expected to carry throughout the remainder of the year, it is still below the global rate of 6%. As reflected in the insurance premium expense of each Filipino at P1,094.94 from P965.56, insurance density of the country also improved by 13.4%. Per Statista, the insurance industry’s forecast in Southeast Asia could grow by 3.5% annually until 2029. This optimistic forecast is attributable to the global silver tsunami expected to triple by 2050. he "silver tsunami" refers to the significant demographic shift as the Baby Boomer generation reaches retirement age, which will drive demand for financial planning services, life insurance, and health insurance with integrated wellness programs.Despite promising growth, geopolitical tension and trade wars are also expected to result in economic shocks this year, requiring strategic and operational flexibility from insurers. Coupled with increasing risks from cyber threats, climate change, and demographic shifts leading to a growing retirement savings gap, insurers are called to rethink their strategies. testAccording to the 2025 Global Insurance Outlook, significant protection gaps exist, particularly in cyber and climate-related risks, where a staggering 99% of cyber losses and 60% of natural disaster losses remain uninsured, according to insurance company Munich Re’s Cyber Survey 2024 and research publication Swiss Re Sigma, respectively. In 2024, the World Bank reported that natural disasters shed $3.5-billion Philippine assets yearly while direct losses to both public and private assets have reached more than 1% of the gross domestic product (GDP). Additionally, the growing retirement savings shortfall presents further avenues for value creation. A strategic focus on enhanced data utilization and modernized technology is essentia

03 July 2023

Not available

Managing liquidity risk in today’s environment

After several years of abundant and cheap liquidity, banks are facing new liquidity risk management challenges in today’s rapidly changing environment. Between June 2022 and May 2023, the Philippine benchmark interest rate moved from 2.5% to 6.25%. Similar interest rate trends have been noted across the Asean markets, impacting bank balance sheets and creating tougher economic conditions for customers. Borrowers are dealing with increased loan payments on variable-rate loans, decreased savings rates due to inflation, and general uncertainty about economic conditions.The recent data are tracking significant growth in bank fixed-income securities investments, which are susceptible to unrealized losses in a rising interest rate environment. Securities growth was 60% from April 2020 to April 2023. Banks hold these securities to collect cash flows from interest and principal, but long-term securities with large unrealized losses are not typically sold to avoid realizing a loss. Thus, these investments do not represent true access to liquidity, unless banks undertake repurchase agreements at market value.Another factor driving up liquidity risk was demonstrated in the recent overnight failure of certain US banks. The sudden collapses show how, in the age of instant communication and social media, a financial panic can go into hyperdrive, facilitated by the ability to make instantaneous bank transfers and withdrawals.Although underlying problems caused the failure, banks need to recognize the additional liquidity risks now that social media has become interwoven into our social and financial lives. In an analog, bricks-and-mortar world, the US banks in question could arguably have had time to reach out to (and be propped up by) the Federal Reserve. But the speed at which social media fanned the flames of customer panic meant that, by the time banks opened the next morning, it was already too late to save them.Conditions can change quickly. Banks must stay on top of their liquidity management. TRADITIONAL STRESS-TESTING ASSUMPTIONSBanks need to take another look at their liquidity stress testing assumptions in light of:• The new speed of bank runs given the evolving role of technology in banking, including the ability of social media to turn a drama into a crisis. All the evidence suggests that a bank run precipitated by social media has the potential to cause even a healthy bank to fail in a matter of days.• The inflationary environment, with some observers predicting interest rates could climb into the low — or even the high — teens.• The potential need to support entities or funds, such as money market funds or unit investment trust funds (UITF), even though banks are not contractually obligated to do so.The new reality in which banks find themselves operating means current estimates of their contingency funding requirement may be significantly too low. They may also be underestimating the need to deal with intense media coverage or to incorporate reputation risk considerations into funding decisions. At its core, a contingency funding plan (CFP) is a crisis management tool. The plan should set out strategies management expects to use to address liquidity shortfalls. In this environment, now is a good time for banks to review their CFP and test its operational components.When updating stress testing, it’s vital not to ignore the worst-case stress tests. Monitoring and reporting functions are normally performed routinely, by the numbers on hypothetical, forward-looking scenarios. Management should look beneath the surface to highlight potential problems. Banks can no longer afford to “play it safe” with liquidity.The point is stress tests are not predictions. These are not events we think will likely eventuate. They are tools for revealing vulnerabilities — which means we must base them on worst-case scenarios. For example, what would the balance sheet look like if 80% of depositors pulled out their funds in a short period of time? It’s important to assess the impact of extreme but plausible scenarios like this on an institution’s earnings, liquidity, and solvency positions.SOLVENCY AND LIQUIDITY ARE TIGHTLY INTERTWINEDBanks also need to think more deeply about the link between their solvency and liquidity, which affects their liquidity buffer. The liquidity buffer is a pool of ear-marked, high-quality, and liquid assets used to meet immediate liquidity needs when faced with adverse conditions.Capital is not a substitute for liquidity. But the two are very closely intertwined. The more solvent a bank is, the less likely will a run ensue. Therefore, the weaker a bank’s solvency position, the more careful the bank has to be about maintaining a higher capital buffer.Apart from solvency concerns, the size of the liquidity buffer is also affected by a bank’s survivability horizon and risk appetite. The board should have a view on how long the bank is intended to survive a stressful environment when there is no access to new wholesale funding. Discussing these types of conditions will help to determine the size of the liquid asset buffer the bank needs. BUILDING LIQUIDITY RISK INTO DECISIONSIn tackling this issue, bankers should ensure liquidity risk strategies are clearly articulated and understood throughout the institution, especially in business units that generate and consume liquidity. This will help to drive corporate strategy that addresses liquidity risk and prudent business decisions. Otherwise, there may be gaps between business and financial plans, which can greatly weaken liquidity positions in the current environment.For example, institutions may not adequately prepare for the implications on the liquidity of actions taken in normal business activities, like focusing on a new customer segment, or strategic initiatives, like acquisitions or entering new markets. Liquidity costs must also be taken into account to more accurately reflect the true costs of products and services, leading to more appropriate deposit pricing.For banks looking to embed liquidity risk into day-to-day business decision-making, incentives can play an important role. Are targets sufficiently designed to achieve an appropriate balance between risk appetite and risk controls? Between short-run and longer-run performance? Or between individual or local business unit goals and firm-wide objectives?UNDERSTANDING BANK FUNDING RISKAn important piece of managing liquidity risk is to understand how the bank is funding its balance sheet. Normally, this involves a mix of core deposits, noncore deposits, wholesale funds and equity. Management should understand concentration risks, including large fund providers or large depositors, concentrations to certain industries, concentrations of noninsured deposits or concentrations in certain types of wholesale funding. Part of the CFP should be potential responses to those concentration and funding risks. Deeply knowing your customers and a study of historic deposit behaviors can also help the bank understand the expected maturities on its deposits. DATA QUALITY MAY NEED TO BE ADDRESSEDThe experience of helping banks to assess liquidity risk in institutions around the region highlights the need to address data problems. Accurate risk assessment depends on aggregating data across multiple systems to develop a group-wide view of liquidity risk exposures and identify constraints on the transfer of liquidity within the entire banking group.If banks are adjusting their stress-testing scenarios and assumptions, this is also an opportunity to check the validity and accuracy of data used in all reports feeding into liquidity risk management. Improving the accuracy of liquidity metrics and liquidity positions can identify significant liquidity opportunities.INDEPENDENT REVIEW OF LIQUIDITY RISK MANAGEMENTFinally, in a rapidly changing environment, an independent review can be helpful to evaluate liquidity risk management processes for their alignment with regulators’ guidance and industry sound practices.All these efforts will deliver strong returns on their investment. The better banks manage liquidity, the less it will cost — an increasingly important differentiator in today’s market. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Vicky B. Lee-Salas is a partner of SGV & Co.

19 June 2023

Not available

How sustainable supply chains enable business transformation

Supply chains underscore sustainability and serve as the core of an organization’s ESG-related goals and objectives. With this in mind, supply chain leaders are taking the necessary measures to safeguard resources while identifying new opportunities to drive results. EY teams conducted a global supply chain survey, the EY Supply Chain Sustainability 2022 Report, which polled respondents from countries like Argentina, Canada, and the US for insights from the retail, technology, and agriculture sectors. The findings indicate that several executives have long-term goals for sustainable supply chains, but only some have the acumen, programs, and technology to assess their progress. Some challenges included costs and a need for a strong business case to justify expenditures. According to the US Environmental Protection Agency, more than 90% of an organization’s greenhouse gas emissions and around 50% to 70% of its operating costs are attributed to supply chains. As such, executives can clearly realize significant sustainability-related benefits to greening their supply chains in the long term. The study discovered that eight in 10 supply chain leaders are gearing their initiatives toward more sustainable operations. They are increasing efforts toward decarbonization, proper use of natural resources, ethical sourcing, and fair trade. They are also trying to increase innovation, lessen risk, and realize a greater return on investment for ESG-related initiatives. In the Philippines, many manufacturers, retailers, and local governments have taken steps to reduce plastic use in favor of more environmentally friendly materials. For example, several cities have implemented ordinances banning the distribution and/or use of single-use plastics for onsite dining. Several cities have also banned the distribution of plastic bags in their establishments. With the Philippines counting as a significant contributor to the plastic problem, accounting for 750 thousand metric tons of plastic waste entering the ocean in 2010, the Philippine Alliance for Recycling and Materials Sustainability (PARMS) and its member companies have committed to the Zero Waste to Nature, Ambisyon 2030 (ZWTN 2030) initiative. The initiative aims to divert waste from landfills by recycling materials and resources, supported by strategies and a roadmap with specific implementation timelines and targets to ensure that none of the industrial or post-consumer packaging waste generated by PARMS members ends up in nature by 2030. In addition, with the government’s passage of Republic Act No. 11898, also known as the Extended Producer Responsibility (EPR) Act of 2022, obliged enterprises established their own EPR programs for the EPR registration deadline in February. With the Act now being implemented, there is greater anticipation that the country will see a significant increase in its overall recycling rate. While the EPR Act initially covers plastic packaging, the coverage will gradually expand to encompass other materials as well. This article will delve deeper into the most salient insights from the report with the aim of supporting executives in achieving their sustainability-related goals. LACK OF TRANSPARENCY AND ROI-BACKED SUSTAINABILITY EFFORTSThe demand for supply chain-related visibility has increased with the burgeoning expectations of employees, regulators, and stakeholders. Consumers are becoming more mindful of ESG-related matters, such as sustainable sourcing, organizational health, and work conditions. The report showed that supply chain visibility was a top priority that year for executives, compared to it being a second priority for previous years. In addition, there is a crucial need to assess risks and plan for disruptions and crises. However, only 37% of respondents reported end-to-end supply chain visibility. Collaboration programs, data analytics, and digital tools can help businesses set KPIs and establish overall governance. Organization-wide visibility is a comprehensive initiative, and companies can use it to assess program effectiveness, track resources, and understand labor conditions. Management can also capitalize on technology to identify and home in on operational efficiencies. Notably, the report revealed that 33% of organizations lack a business case for sustainable supply chains, whereas almost half of the respondents reported that their companies have difficulties in measuring sustainability-related returns. Consequently, lacking a solid business case could lead to a shortage of financial support for long-term efforts. FOCUS ON END-TO-END SUPPLY CHAIN TRANSFORMATIONAs much as 61% of businesses reported that cost savings and efficiency were primary motivators for undergoing supply chain sustainability initiatives. Even so, financial gain was not the only benefit. According to Andrew Winston from a Harvard Business Review Whiteboard Session, organizations should prioritize four elements to concretize return on investment for supply chain sustainability: 1. Cost reduction. Improve operational efficiency, lessen material waste, and minimize carbon footprint. 2. Revenue growth. Assess how sustainable supply chains influence market share, profitability, and stock price. 3. Supply chain risk management. Create long-term sourcing strategies and manage compliance and regulatory risks. 4. Intangibles. Delve into sustainability’s relationship with brand reputation, customer loyalty, and talent retention. Moreover, 55% of supply chain executives expect improved operational risk management in the next three years, whereas 31% already reported more efficiency and productivity. Regarding long-term returns, 54% of respondents said they expect an increase in share price or other benchmarks of shareholder value. TAILOR-FIT SUSTAINABILITY-RELATED INITIATIVESExecutives must determine how sustainable supply chains fit into their business strategies. Businesses can structure their efforts by identifying how supply chains enable their goals. Deploying technological capabilities to improve visibility can boost supplier and stakeholder engagement. Organizations can broaden their RoI metrics to include intangible impacts and sustainability results. Given the ever-changing nature of the global market, companies need to go beyond standard business-case drivers such as customer loyalty, market share, and revenue. Enterprises should adopt an end-to-end approach, focusing on cross-functional collaboration, planning, and distribution to identify new opportunities. C-LEVEL CONSIDERATIONSAround 10% of respondents stood out in terms of progress in sustainability-related areas, and their organizations are realizing considerate benefits. One thing they have in common is their considerable focus on transparency. More than half (57%) of this group have public-facing sustainability goals. In terms of material gain, almost half of these trailblazing leaders have already reported a better employee experience. Compared with other respondents, these executives are reaping financial gains despite focusing less on cost-saving measures. At least 25% have reported increased revenue from their supply chain sustainability initiatives, while 43% expect an increased share price in the next three years. Lastly, the data show they are more likely to use sustainable supply chains to protect their corporate brand. Supply chain sustainability has become increasingly important as global market expectations evolve. Organizations are starting to identify financial and nonfinancial opportunities of ESG-related efforts, and executives who know which KPIs to prioritize are already reaping the benefits. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co. Benjamin N. Villacorte is a partner from the Climate Change and Sustainability Services team of SGV & Co.

12 June 2023

Not available

The role of micro transformations in organizational growth

The global market and economy continually grapple with various disruptions and crises, and it has become imperative for chief information officers (CIOs) to maintain day-to-day operations with a reduced margin of error. It is incumbent on CEOs to balance technological investment with budget constraints while executives continually face the pressure of showing their clients and stakeholders the value of their operational strategy.The burgeoning demand for investment value underscores the importance of micro transformations in businesses. Micro transformations are incremental yet substantive initiatives that target an organization’s key performance indicators (KPIs) based on their overall business strategies. Compared to traditional projects, micro transformations can help identify bottlenecks and strengths of pre-existing processes. CIOs can use this agile methodology to generate value for their companies.Organizations can effect sustainable change across their people, processes, and technologies by focusing on gradual changes rather than larger-scale and time-consuming efforts. Micro transformations can help businesses adapt to and address disruptions while targeting their most valuable KPIs.Launching a new feature such as an automated customer service chatbot to address customer-specific pain points and adopting the cloud to streamline internal processes are examples of micro transformations. Another example of a micro-transformation project is the implementation of an online deposit account opening solution. In a remote world, financial institutions benefit from a completely digital, user-friendly and seamless customer experience. We see this demonstrated in some digital banks that allow the opening of deposit accounts with only a mobile phone. The ability to open a deposit account at any time and place provides immediate customer value.It should be noted, however, that micro transformations should also be guided by an overall transformation strategy to ensure that all micro transformation initiatives are cohesive. The small victories resulting from smaller, bite-sized technology upgrades can create instant value for organizations while paving the way for more robust digital initiatives, projects, and solutions later on.ADDRESSING DIGITAL TRANSFORMATION FATIGUEDigital transformation can be a cumbersome and intimidating process that may appear promising at the start but fail to deliver results. On the other hand, micro transformations can target benchmarks that would be most impacted by a new offering or service, reducing the time it would take for businesses to realize gains. Organizations can further develop operational efficiencies, risk mitigation, and resource optimization by clearly delineating KPIs.For example, an up-and-coming startup envisions a new strategy after having difficulties with launching its first product offering. This strategy involves interfacing with potential clients and investors while bolstering the former with recent market research. Getting fresh perspectives can help management focus on and refine critical areas most relevant to their strategic priorities. Considering the customers’ needs is vital in formulating a sustainable business plan, which organizations can do via smaller-scale initiatives.If one were to dissect a micro transformation, one could say that it is underpinned by more than just the solution and execution of the work. It also goes beyond automation and changes because it entails continuous improvement and deep process design efforts. This process incentivizes organizations to think big while creating an agile, scalable plan to materialize gains. By returning to the drawing board, companies can identify market opportunities and streamline their day-to-day operations, even if it means upending pre-existing processes. Micro transformations involve adapting to change with a data-substantiated, systematic approach coherent with the organization’s business strategy.REDUCE COMPLEXITY, ADD CONNECTIVITYTraditionally, an organization focuses on initiatives involving collaboration platforms, feedback mechanisms, and workflow plans. While these could yield positive results, siloed efforts often require considerable micromanagement, which could introduce more variables to an already complex system.Micro transformations take a more systematic approach by focusing on project-centered priorities. Data is fed to the appropriate teams, ensuring that the same workflow plan governs everyone. Knowledge is provided to the digital system, which continuously evolves with each project stage. This consolidated approach gives organizations a level of connectivity that would have been a challenge had they abided by standard and traditional practices. Micro transformations assist businesses with streamlining their day-to-day operations to adapt and respond to different risks, which could boost client and customer confidence.As companies pivot into the digital space, micro transformations allow them to capitalize on value-driven core capabilities and identify market opportunities without immense commitments. This streamlined process allows management to deconstruct silos and test the waters with less risk than traditional, larger-scale transformations. In this case, end-to-end digital transformation may be able to help businesses materialize value faster with minimal disruptions to day-to-day operations.ELEMENTS OF MICRO TRANSFORMATIONS1. Processing of data and identification of KPIsIdentifying and articulating KPIs are vital to micro transformations. Organizations can strengthen their overall strategy using analytics-driven data by focusing on metrics that directly impact the business.2. Optimization of KPIsOnce the organization has identified its KPIs, management can identify opportunities and pain points of the company. Consequently, they can refine their product offerings and address underlying areas of improvement.3. Engagement of clients and stakeholdersCommunicating with stakeholders at different points of the project is essential for the success of micro transformations. Organizations should align initiatives and engage interest to foster investor confidence.4. Identification of appropriate technologiesTechnology underpins successful micro transformations, and the former is requisite for implementing changes on an organization-wide scale. By leveraging suitable technologies, businesses can engineer KPI-specific solutions and implement agile application frameworks for various strategic initiatives.GETTING STARTED WITH MICRO TRANSFORMATIONSMicro transformations are holistic approaches that create business value based on their strategy-related benchmarks. This manifold process allows companies to enhance their operating models based on insights-driven data. Management must select projects carefully, delineate the appropriate KPIs, and focus on customer experiences and needs to boost confidence.While micro transformations can yield immediate gains, instant gratification is not the end goal. Ultimately, it is a systematic approach that can help organizations position themselves in the global market and pave their way toward bigger digital transformation agendas. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Armand N. Cajayon, Jr. is a technology consulting principal of SGV & Co.

05 June 2023

Not available

Rethinking value: The evolution of consumer spending (Third Part)

Third of three partsAfter learning to live with less during the height of the pandemic, many consumers have shifted to pursuing simpler, less consumerist values, according to the EY Future Consumer Index. The study surveyed over 21,000 consumers in 27 countries to determine how consumers see changes in their values and how they look at life. With consumers less willing to spend, businesses have the opportunity to rethink the concept of growth and how to evaluate it.In the previous parts of this article, we discussed the drivers that could reshape consumption patterns, the significant changes in those patterns that are predicted to occur over the next few years, the factors affecting drivers of growth, and their implications for consumer companies.In this last part, we discuss how redefining success will reshape business as we know it and how companies can further understand changing consumer expectations.HOW REDEFINING SUCCESS WILL RESHAPE BUSINESSConsumer companies will need to examine their strategies, business models, and operational structures for them to adapt to this shifting consumer climate and make sure they are relevant to the evolving definitions of value. While not all potential changes will occur suddenly, the current trends already show significant changes in how consumer companies will define and assess success.The Future Consumer Index identified the following drivers that can reshape the existing measures of success:Peer-to-peer models. Peer-to-peer activities are expanding quickly thanks to community platforms, online marketplaces, social selling, and agile payment systems. This makes it possible for customers to independently sell, buy, trade, exchange, and gift goods and services. While this is not a new concept, the sudden growth of backyard businesses during the pandemic, as we have seen in our Philippine market, has given rise to a new generation of microentrepreneurs.Pricing at ‘true cost’. The desire for “true prices” that take into account social, environmental, and health concerns is growing despite the fact that algorithms can already optimize prices in real time for commercial impact. Product pricing may become more individualized to user profiles as data quality and analytics capabilities continue to advance.Well-being as status. As consumers promote lifestyles that emphasize well-being instead of wealth, exercise, sports apparel, healthier meals, and wellness getaways serve as status symbols.Co-creation with consumers. Through social influencers and crowdsourcing, interactive media has given rise to a wave of user-generated content. According to the Digital 2023 Global Overview Report, a social media study produced in partnership with social media agencies Meltwater and We Are Social, Philippine social media users account for as much as 72.5% of the population. Less restrictive intellectual property laws, 3D printing, and open-source tools may also potentially make it easier for customers to collaborate with brands to co-design, manufacture, market, and share the value of goods and services.Enhanced leadership through AI. The delivery of optimized insights that support operational and strategic direction will come more frequently via AI and automation. When business leaders outsource certain judgments and make more decisions based on facts and data, this could ultimately redefine functional positions within boardrooms.UNDERSTANDING CHANGING CONSUMER EXPECTATIONSCompanies will need to adapt to a world where growth and wealth are no longer the exclusive measures for development and success. Businesses will have the ability to control what lies ahead for them by recognizing what factors can potentially influence consumer expectations and behavior through the following points of action:Developing fresh value pools. While some existing value pools will provide revenue, others will make additional contributions that will help to create a more comprehensive understanding of how “good” is defined. Having strong financial balance sheets alone will not help a business succeed in the market, especially if they come at the expense of other factors, such as environmental, social, and governance (ESG) considerations. A company’s success cannot be determined solely by how many or how much of a product it can sell, but also by the services it can provide, the impact it can make, and the values or communities it can support.Innovating ways to meet consumer needs. Through scaling AI, releasing new manufacturing techniques, and unlocking efficient operating constructs, technology will allow consumer companies to deliver personalization at a lower cost and with less resource use. By enabling customers to participate in value creation through peer-to-peer selling and brand collaboration, service-based models that span several categories and industries will become more prevalent in order to meet consumer expectations. A new corporate mission that satisfies expectations for wellbeing by evaluating the true costs and benefits beyond those measured in financial currency will be foundational for this development.Reviewing impact and contribution. Retailers can offer more value in terms of the insights and data they share back to brands, their contributions to employee wellbeing, and their position in the community on top of the revenue generated by their stores. The success of consumer goods companies may also depend just as much on their capacity to address systemic environmental problems or enhance consumer health as it does on their capacity to persuade customers to buy their goods.REDEFINING SUCCESS TO BUILD LONG-TERM VALUEOf all the factors discussed, long-term value remains the most important. As social and environmental key performance indicators join financial metrics as drivers of long-term value, intangible assets are likewise becoming more significant in driving value. New definitions of success will challenge the prioritization of growth as stakeholder knowledge and influence expands through increased connectivity and transparency.Growth and profitability are currently viewed as indicators of how well consumer companies are able to meet the demands of the market. However, given rapidly and dramatically changing consumer behavior and priorities, companies will need to reimagine new strategies to build long-term value and sustainably deliver the products and experiences that consumers, both today and in the near future, truly want. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Maria Kathrina S. Macaisa-Peña is a business consulting partner and the consumer products and retail sector leader of SGV & Co.

01 April 2023

Bernalette L. Ramos and Charisse Rossielin Y. Cruz

Providing value for the tech-reliant consumer (First Part)

First of two partsThe emergence of disruptive technologies along with ongoing global crises are impacting the consumer product and retail (CPR) sector, and the consumer value proposition working today may not be successful tomorrow. With this in mind, regional and local business strategy, Climate Change and Sustainability Services, and CPR leaders from SGV and EY-Parthenon, along with distinguished industry leaders shared the latest insights on the CPR sector in a seminar on June 20, “Getting ahead of the changing consumer and disruption.”Additional EY research has also found that consumers are attempting to maintain their resiliency in the face of ongoing economic concerns and cost-of-living pressures. This has led to them adopting new technologies more frequently, making changes in the way they purchase, live, and work with the goal of making daily life more affordable.The most recent EY Future Consumer Index, which surveyed over 21,000 consumers in 27 countries, examines how consumers worldwide perceive the personal advantages of technology. Insights from the Index also show that the way people consume as well as what they consume is influenced by their experiences using digital tools. This provides opportunities for brands that comprehend and influence these shifting attitudes and foresee the potentially transformative changes these may bring. However, this goes beyond simply choosing appropriate technologies, overseeing their implementation, and developing the infrastructure necessary to support them.Digital innovation must safeguard and promote the relationship with the customer. Trust, respect, and value in particular are the key factors. Companies must show they can be trusted to use technology securely and responsibly and utilize technology to benefit their consumers. Any innovation a company implements must provide fair value to its consumers. Being unable to strike the right balance between the three factors can result in hard-to-fix damage. However, striking that balance successfully can strengthen relationships with customers and gain their consent to expand and deepen that relationship when new technologies become more widely used.TECHNOLOGY-RELIANT, VALUE-DRIVEN CONSUMERSThe rate of digital innovation and adoption has become so rapid that users can easily become reliant on new tools without realizing how integrated they’ve become in daily life. Consumers are relying on digital technologies more and more to simplify their lives, save time and money, work from home, or lessen their environmental impact. According to Think With Google: Year in Search 2022, a report that shares insights and trends based on billions of Google searches, Filipino consumers are turning to digital services such as electronic payments to simplify offline in-store purchases, as well as online doctor consultations to save time.Consumers use digital for a variety of purposes, including managing their finances, selecting what shows or music to enjoy, keeping in touch with friends, keeping track of their health, and many others. For instance, 42% of consumers use a smart device to measure their health and physical activity, and 33% of consumers use facial recognition on their mobile phones.This disruption from technology presents business opportunities across real and digital worlds, such as providing a seamless consumer shopping experience through an omnichannel, orchestrating a digital ecosystem to best serve consumers along the consumer life journey, and designing a new meta-retail experience through the metaverse. Olivier Gergele, APAC Consumer Products & Retail Leader – EY Parthenon, said at the CPR seminar, “Though the metaverse isn’t ready, it will change the way we do business. It will be especially important to know its implications for us as retailers in the industry.”People are also placing more importance on issues that directly affect them as individuals than those that feel like collective challenges, such as their concern for the environment. Many are trying to cut back on their expenditure, though how they handle their finances depends on where they reside. Consumers around the world are focusing even more on value, with 64% of consumers believing private-label products to be just as good as branded ones and 73% reporting shrinking pack sizes but unchanging prices.The Index indicates that consumers have drastically boosted their use of both established and developing technologies at work and at home during a time when consumers are more concerned about a wide range of economic and personal problems. There is a significant pivot toward two concerns in particular: finances and health.When using new technology to engage consumers, retailers and consumer product businesses should keep these financial and health concerns in mind. Digital innovation can play a significant role in enhancing organizational performance by maintaining competitive prices, identifying efficiencies, and enhancing marketing. Trendipedia 2023, a consumer behavior study conducted by Tetra Pak, identifies two new trends in the Philippines, Malaysia, Singapore, and Indonesia: “flexi-shopping” and “eatertainment.” In flexi-shopping, consumers adopt a flexible mindset and reduce spending when needed but indulge in additional benefits they deem valuable, such as those related to health. The eatertainment trend shows that consumers, particularly Gen-Zs, look to be entertained with new flavors and trends in the online space, which brands should explore to reach them.However, it is important to weigh the need to address any ongoing business challenges against a longer-term strategy that already considers the benefits brought about by ongoing technological change. Companies also need to be careful not to take any actions that will prevent them from participating in long-term progress for the sake of short-term advantages. Brands that let their customers down run the danger of losing future digital relationships with them, and consumers will be more likely to reject digital innovations that don’t provide them with what they want. To understand how consumers feel about the digital advances that are permeating every area of their life today, it is crucial to pay attention to how consumers perceive these advances.NEW TECHNOLOGIES RAISE TRUST ISSUESCustomers and new technologies often have contradictory connections — consumers can become very dependent on a tool while also expressing concern about the risks it poses to their psychological and financial well-being. For instance, people take for granted that their mobile devices are always connected, but at the same time, they want to disable notifications and reminders because they can find continuous connectivity to be too much.Familiarity by itself cannot establish trust. For example, the use of AI (artificial intelligence) is becoming increasingly popular in areas such as customer care and an increasingly common part of brand engagement for many consumers. Moreover, disruptive business models leverage AI capabilities for robust decision-making. For example, the CPR presentation at the SGV CPR event revealed that Amazon heavily relies on consumer data it obtains from its platform for marketing and personalization costs. These costs aim to attract a higher wallet share from consumers and increased consumer engagement. However, many consumers are apprehensive about how AI may be used, with 24% of respondents fearing it may fully replace their jobs.Though the availability and accessibility of digital innovation continue to grow, the same cannot be said for trust in technology and its usage of personal data. Each annual release of the Index has seen no significant change in the willingness of consumers to share data with companies or brands. Consumers remain wary over how much data they provide — as much as 55% say they are very concerned about identity theft and fraud, 53% are very concerned about data security/breaches, and 53% are very concerned about companies selling their personal information to a third party. This shows how much consumers want to weigh the benefits of sharing data against the risks and the value they receive in exchange.According to Ashish Midha, Managing Director and CEO of ZALORA Philippines and Indonesia, speaking at the CPR seminar, “What’s important is to show people what’s relevant to them. It is a very fine line to balance between personalization and privacy, and it should be value-adding to the customer. One can very easily do the wrong thing, so it’s better to err on the side of conservatism.”In the second part of this article, we will discuss how technological innovations must prioritize providing tangible benefits to the consumer, how technology will redefine the consumer of tomorrow, and how companies must build trust with, earn the respect of, and provide value that consumers will appreciate. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Maria Kathrina S. Macaisa-Peña is a business consulting partner and the consumer products and retail sector leader of SGV & Co.

16 January 2023

Bernalette L. Ramos and Charisse Rossielin Y. Cruz

How can private boards be future-fit?

In today’s rapidly-evolving and disrupted business environment, private enterprises need to be resilient and responsive to fast-changing business needs. Boards and management alike should widen their agenda, and continually embrace transformation to keep their organizations aligned with the times.The most recent geopolitical, societal and environmental events force companies to rethink their priorities and revisit their current business agenda. Suffice to say, strategies which worked pre-2020 may no longer be effective. That is why private boards must reframe how the future looks like for their organizations.EY has identified six key actions to test the future fitness of boards and their ability to lead the business.1. Gather new perspectives by asking the right questions from stakeholdersThis helps create a robust dialogue around risk, opportunities, and any impacts on long-term purpose, which enables more informed decision-making. Initiating these discussions with management invites the exploration of alternatives that may not have been previously considered. Inputs from external resources such as business advisors or consultants can be beneficial as it provides new perspectives or provides alternatives to the current problems companies face.Conversations with stakeholders can give boards a better view of current or potential problems to provide organizations with much-needed wisdom. The better the questions are, the better the answers to be found.2. Revitalize board dynamicsDiversity and ongoing self-reflection, along with openness to varied inputs, reinvention and adaptation, builds a stronger, more effective board. A reasonable exchange of ideas can provide different frames of reference that are essential to problem-solving. An active board also provokes difficult but necessary questions.As an example, the Securities and Exchange Commission advocated increasing female representation in the boardroom and that boards should be as diverse as possible, gender-wise. In a study by Harvard Business Review, companies with more than two women on the board outperform others with less in their sector. Clearly, increased diversity in the boardroom has direct benefits for organizations.3. Increase focus on the long termWhile current circumstances have many boards centered on short-term survival, flexible and longer-term strategies based on emerging technologies, trends, new intelligence and industry developments, as well as a clear commitment to putting people first, should also be clearly articulated. Companies are no longer just measured on how well they performed for a year – they are assessed on how well they prepare for the future.Information about sustainable practices, including environmental, social, and governance (ESG) programs, are a staple in investor briefings for large companies. In the not-so-distant future, corporate communications will include sustainability practices and measures alongside financial metrics.With the growing significance of sustainability reporting, assurance of non-financial measures is equally important. Private companies may initially look up to their publicly listed counterparts, which are required to report about their sustainability programs (currently under a “comply or explain” basis). Private boards can include ESG matters as a staple boardroom discussion as well.Future-fit boards are focused on identifying megatrends and guiding management to face new challenges and innovate to seize the upside of disruption. Future-fitness is also about creating an environment for management which provides flexibility to develop better, more innovative business models, new collaborations, and new ways of working, drawing on talent, and incubating new ideas.4. Adapt communication, protect reputationTo maintain stakeholder trust, private boards need to align purpose with action. Communication must be timely and the division of roles for external communication clearly understood. Private boards can set the tone for the whole organization to follow. The policies and guidelines they adapt and approve for the organization should trickle down through formal and informal communication channels to the staff so that frontliners are equipped with the right information to make the right call.In the EY Global Integrity Report 2020, only 58% of junior employees, compared to 70% of board members, agree that employees in their organization can report wrongdoing at work without fear of negative consequences for themselves. Management must build the trust of their workforce through the clear communication of values and transparent compliance with the rules, as well as provide secure ways in which employees can voice their concerns.5. Align and monitor cultureIn his book Start with Why, Simon Sinek said that “Cultures are groups of people who come together around a common set of values and beliefs. When we share values and beliefs with others, we form trust.” It is important that boards have a clear vision of the corporate culture, align it with long-term strategies, and monitor said culture using new metrics to view issues from every angle.Purpose is like a journey, the board and management are pilots and stewards, and the passengers are the employees and other stakeholders. The pilot, the crew and the passengers need to have a common understanding of where their destination is and more importantly, trust that everyone will play their roles in order to arrive safely.6. Enhance risk and compliance oversightTaking a pragmatic approach enables boards to gather external insights, deploy monitoring mechanisms, and think more broadly about emerging risks and how to address them.One of the shifts required is to develop new competencies for finance, risk, technology and compliance. Private boards can organize committees similar to what public companies do to enhance oversight functions of their boards. Private boards may wish to rethink their usual agenda to tackle enterprise-wide risks.FUTURE-PROOFING PRIVATE COMPANIESPrivate companies can become future-proof by reimagining the way things are done and private boards are instrumental to setting that tone. A clear purpose acts as a compass in the journey of an organization to reshape and reinvent itself, setting a clear and inspiring direction that future-fit boards can navigate.Furthermore, with the right information and the proper tools, private boards can lead the transformations of their companies to the next level and beyond. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.Kristopher S. Catalan is an Assurance Partner and the EY Private Leader of SGV & Co.