New synergies in conglomerates

SM Investments Corporation (SMIC) recently acquired a substantial stake in the Philippines’ largest logistics provider 2GO Group Incorporated, intensifying the new arena of competition among the country’s conglomerates – logistics. This move is part of SMIC’s strategy to address the emergence of e-commerce, which is a brewing threat to the mall’s foot traffic, at the same time a real opportunity to diversify channel.

Ayala Corporation, SM’s mall rival, has also made its own foray into e-commerce with the acquisition of online fashion platform Zalora, in a similar bid to create online and offline retailing synergies.

Synergies have been the line of defense of conglomerates all over, including that in the Philippines. Coherence of a few core capabilities across diverse product line entities and bringing them to significant scale are the essence of successful synergies in conglomerates, as posited by Leinwand and Mainardi in a 2012 Harvard Business Review article.

Every successful conglomerate we know of — GE, Honeywell and Tata — as the authors noted, has prospered by applying such critical capabilities to all the disparate parts of the enterprise. As an example, “GE has its strengths in the management of large-scale industries. Tata, which operates in very diverse businesses as automobiles, electric power generation, tea, IT services, and tableware, has a distinctive managerial approach, grounded in its history of frugality and its philanthropic aspirations.”

In the Philippines, “Ayala’s businesses draw strength from synergy…created by powerful institutional partnerships,” according to the company website. Furthermore, “Ayala and its partners have been able to leverage their expertise, resources, capabilities and client bases for their mutual benefit, with results often exceeding the sum of its parts.”

SMIC, on the other hand, is leveraging synergies across all business units through serving customers well and innovation, according to its website.

But conglomerates are facing grave threats from more innovative and nimbler tech companies and start-ups, such as those in e-commerce and fintech space. That’s why increasingly, conglomerates are finding new sources of synergies from one of its the most precious resources, that is data. When such data is collected from across all group companies into central data models, specifically an enterprise data hub, then organized and analyzed for distribution and sharing, it becomes a powerful source of synergies to facilitate group-level understanding of customers’ buying patterns and opportunities. These, however, should follow the Data Privacy Act, which stipulates consent from customers before their information is used.

According to management consultancy firm Forte Consultancy, “various leading companies in North America and Europe, such as RBC Canada, Hilton Hotels Corp, and Harrah’s, have been using central data models to facilitate sharing and making use of customer information compiled from all individual business lines and group companies for years, and have realized handsome returns for their investments. The concept has caught on in the Middle East more recently; one regional conglomerate attributed over $500 million of its revenues earned over the past two years to the use of its central data mart, leveraged through its group loyalty program.”

There are numerous ways on how synergy can be achieved through central data models. One obvious benefit is the opportunities created to cross-sell to group customers across companies through a loyalty program.

Examples of loyalty programs are Ayala Corporation’s Ayala Reward Circle (ARC) and SM’s SM Advantage Card. Such programs are also great platforms for business development through building a strong lead list for a quick and successful launch in new ventures.

Moreover, through membership loyalty programs, customer satisfaction and experience are enhanced by providing special treatments to loyal customers of a conglomerate company, say, a telco, when he or she visits a sister company bank. This may come in terms of priority lanes for transactions, and special discounts on sister company’s products.

Another value of central data model for synergy is to facilitate making decisions on where to put investments in terms of new branches. This is done through analytical tools to create socio-geo mapping, that is, consumer behavior and patterns, combined with provincial economic and third-party data to show the propensity of foot traffic or purchase.

Data as the new source of synergy in conglomerates is an emerging trend in the country, as part of the conglomerate’s move toward digital transformation. Central data hubs are easier to implement nowadays than in the past, due to faster-to-deploy and pay-per-use cloud models. But it’s not without its attendant challenges, such as cleaning data and enduring quality data, compliance to the Data Privacy Law, and creating a data culture across the organizations.

The opinions expressed here are the views of the writer and do not necessarily reflect the views and opinions of FINEX.The author may be emailed at The author is a senior executive in an information and communications technology firm. He is the chairman of the ICT Committee of the Financial Executives Institute of the Philippines (FINEX). He teaches strategic management in the MBA Program of De La Salle University. He is also an Adjunct Faculty of the Asian Institute of Management.