Suits the C-Suite

19 September 2022

Cecille S. Visto

Ready to ride the digital wave

The current buzzword in tax is digital transformation. The business sector is well aware that riding the digital wave is necessary and inevitable. Companies that can leverage and successfully implement digital transformation — if they have not yet done so — have the distinct opportunity to seize new growth opportunities ahead of competitors and smoothly transition as government rolls out digital innovation initiatives.At the 1st SGV Tax Symposium organized by SGV & Co. and held on Aug. 19, digital innovation and business transformation were widely discussed by guest speakers and panelists, in alignment with the main theme, The Future of Tax.One of the highlights of the symposium was the presentation of BIR Commissioner Lilia C. Guillermo, which zeroed in on digital transformation in tax administration.Ms. Guillermo centered on the BIR’s 2030 digitalization vision, which is composed of four pillars: the strengthening of the BIR organization; modernizing the BIR digital backbone; enhancing policies, governance, and standards; and elevating taxpayer experience and innovating BIR services. In her presentation, she said digitalization is not a one-person show, but a long and deliberate process in which all stakeholders must be fully engaged.The BIR’s digital transformation program aims to transform the BIR into a data-driven organization through a digitally empowered and resilient workforce utilizing reliable, scalable, and robust digital technologies and infrastructure to innovate BIR services and elevate taxpayer experiences.During the Conversation with C-Suites session, which was moderated by SGV Tax Head Fabian K. delos Santos, executives from the logistics; information and communications technology (ICT); and property development and retail sectors emphasized that businesses must keep pace with the ever-changing digital landscape and prepare to harness the benefits of a truly digital economy.International Container Terminal Services, Inc. Chief Financial Officer (CFO) Rafael D. Consing, Jr., Converge ICT Solutions, Inc. Chief Executive Officer Dennis Anthony H. Uy, and SM Prime Holdings, Inc. CFO John Nai Peng C. Ong all acknowledged the paramount need for companies to equip themselves with the necessary tools to be ready for the digitalized mode of tax administration and enforcement.As the Department of Finance and Bureau of Internal Revenue are poised to adopt the electronic invoicing system (EIS), taxpayers — particularly those who have been selected to participate in the pilot program — must have readied their infrastructure for the EIS implementation.Mr. Consing said e-invoicing is a breakthrough project that is aligned with ICTSI’s own digital initiatives. The logistics company was among the early preparers, recognizing the benefits of digitalizing a portion of its finance function, mainly since it operates in various jurisdictions.E-invoicing could bring about ease of compliance for the private sector and at the same time, real-time monitoring on the part of the BIR. Compliance with the invoicing requirements for those seeking refund claims will also largely gain from electronic receipting.Mr. Uy, meanwhile, stressed the important role that the ICT sector will play in the government’s digital transformation.The digital infrastructure must be established to pave the way for wider broadband penetration and improved speed quality. Without a mature digital framework, full implementation of any digital endeavor may prove to be challenging.The discussion also delved into recent legislative changes that have had a major impact on business and are expected to foster a more vibrant economy.Mr. Ong said the passage of Republic Act 11032 or the Ease of Doing Business and Efficient Government Service Delivery Act of 2018, is lauded by the property sector, especially companies like SM Prime, which is engaged in nationwide mall operations and real estate development. Permit filings and securing of licenses were made more convenient, principally in areas where government agencies have set up satellite offices in malls.He cited other developments that will drum up more economic activity in the short- to medium-term, such as the liberalization of the Retail Trade Law and the harmonization of tax incentives under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, including the publication of the Strategic Investments Priority Plan, which includes the establishment of smart cities.The retail sector, he said, will likely take advantage of the trade liberalization rules allowing foreigners to set up shop in the Philippines with lower investment requirements. The more relaxed rules are expected to encourage more direct investments into the malls. Mr. Ong added that smart cities can bring about progressive developments envisioned under the current administration’s socioeconomic agenda.ICTSI’s Mr. Consing said industries heavily immersed in science, technology, engineering, and mathematics should still be encouraged to sustain the country’s growth.Digitalization can also provide previously considered sunset industries with a new lease on life. Online selling, for instance, grew by leaps and bounds during the pandemic. Giving this sector access to digital infrastructure allowed it to electronically market and sell products, which was previously not widely available.All these economic activities will result in more taxable revenues and the corresponding taxes collected can be funneled back into the economy.While the digital shift may face challenges in areas where manual procedures have been the norm, executives are confident that these are only temporary. They, however, cautioned that there is a need for strong regulations to prevent any technological abuse.Even the BIR recognizes that true and lasting transformation will not be achieved overnight. Among the first steps that must be taken is to learn and build the capabilities of BIR examiners and personnel using a specialized BIR learning platform. The BIR wants to train and introduce its personnel to the industry’s best practices, including analytics and systems development, the establishment of a cybersecurity framework, enterprise architecture, advanced data warehouse solutions, and project management methodologies.Indeed, it will still take time before full digital compliance and monitoring will be the rule more than an exception. But both the public and private sectors need to gear up to ride the digital wave, which may be the only way to successfully navigate the business world in the foreseeable future. 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 EY or SGV & Co.Cecille S. Visto is a tax senior director and lead manager for the Entity Compliance and Governance Services of SGV & Co.

12 September 2022

Fabian K. Delos Santos

The future of tax

In recent years, tax administrators have begun shifting their focus from being regulatory and tax-collecting to becoming transformational. This trend has been further accelerated by the exigencies of the COVID-19 pandemic. Tax authorities have harnessed the latest advances in technology, taking major steps to strengthen their organization and enhance the taxpayer experience. Integrating digital into modernization programs, designing customer-centric services, and fine-tuning age-old policies are at the heart of this global digital transformation — with improving compliance the ultimate objective.But the digital revolution is only one component of a multi-faceted tax ecosystem needed to drive much-needed transformational change.Taxpayers, regulators, and tax practitioners have crucial roles to play to make the Philippine tax ecosystem more transparent, accountable, and vibrant.With these goals in mind, SGV & Co. organized the 1st SGV Tax Symposium to bring in these stakeholders to share ideas, insights, and experiences that could help to further evolve our tax ecosystem. True dialogue, after all, starts from people coming together with a shared goal and common starting point.Aligned with the firm’s purpose of nurturing leaders and enabling businesses for a better Philippines, SGV Tax articulates its vision towards a sustainable Philippine tax ecosystem, where taxpayers are knowledgeable on tax rules and willing to comply. A sustainable tax ecosystem starts from the taxpayers, who can help build a culture of ethics with better tax knowledge and appreciation of their social responsibility and commitment to nation-building by paying the correct taxes.The importance of closely collaborating with regulators, who are business partners in achieving inclusive and resilient economic growth cannot be underestimated. When tax practitioners are armed with the necessary technical skills, while embracing the value of integrity, they foster an environment where taxpayers are compliant, employment soars, the Philippines becomes an investment haven for potential investors, and businesses flourish.We all want to see a more evolved, advanced and effective tax system. We all understand the critical importance of taxation to national socio-economic development. We all want a system that is fair, equitable and progressive, one that is less complex and more value-adding.At the SGV Tax Symposium, we shared the latest developments in taxation and the economy, in the hope of stimulating new conversations on where we want our tax system to go despite the many complex issues facing us today post-pandemic. Increasingly, tax is becoming the business and economic gamechanger in this period of recovery.The role of tax is particularly important given the priorities of the new administration, as discussed by various government leaders during the SGV Tax Symposium.National Economic and Development Authority Undersecretary Rosemarie G. Edillon kicked off the plenary sessions by discussing the recent economic performance and outlook, describing as the key to economic recovery the full reopening of the economy through well-crafted policies and programs. She also noted the risks to accelerated and sustained recovery, such as inflation, the fiscal deficit, and the slowdown in global demand.Trade and Industry Undersecretary Rafaelita M. Aldaba discussed competitiveness, innovation, and the 2022 Strategic Investment Priority Plan, touting the recent liberalization reforms and the push to attract more investment in science, technology, and innovation. She said the Philippines is ready to embrace more investment that will bring in new technology, innovative processes, and disruptive business models. She also assured investors of a conducive innovation and business environment awaiting them.Representative Jose Ma. Clemente S. Salceda discussed the Department of Finance’s priority measures as well as the tax agenda that the House Committee on Ways and Means will focus on. He said Congress will study the feasibility of a 15% minimum tax on book income, address base erosion and profit-shifting through measures such as aggressive transfer pricing policies, and promote legislation that will allow the Philippines to gain a just share of global tax revenue.Bureau of Internal Revenue (BIR) Commissioner Lilia C. Guillermo focused on the digital transformation of tax administration. She outlined the BIR’s path to its 2030 digitalization goals, which comprise four pillars: the strengthening of the BIR organization; the modernization of the BIR digital backbone; the enhancement of policies, governance, and standards; and the elevation of the taxpayer experience via innovative BIR services. There are specific projects for each pillar, but the majority of the positive feedback was on the BIR’s planned implementation of convenient, fast, and reliable online or digital transactions in the areas of registration, filing, payment, audit and enforcement.Over the years, we have seen the progression of tax administration in the Philippines — from manual filing towards e-filing and e-payment and recently, increasing digital transformation. With the policy already laid down by both the BIR and the Department of Finance, supported by the Marcos administration, we expect to witness a rapid evolution of tax administration.From level 1 of the digital tax administration life cycle, the government is moving towards levels 2 and 3 with the impending full roll-out of the e-invoicing or e-receipting system (EIS). Under Levels 2 and 3, the focus will be on the real-time reporting of data to drive compliance and collection where tax authorities will have direct access to company data. In some instances, the BIR may allow taxpayer information to be cross-referenced and shared across agencies to eventually allow for the electronic audit and assessment of taxpayers.EY ASEAN Tax leader Amarjeet Singh and EY Asia-Pacific Tax Leader Eng Ping Yeo, who both spoke virtually at the event, agreed that digital transformation is necessary and choosing the right operating model, partners, and systems is key on the road to transformational success. However, a tax administration cannot transform on its own. It needs to, among others, build in significant time for consulting and engaging with taxpayers and the private sector.The vital need for organizations to focus on digital transformation was further highlighted by executives from some of the major business groups, such as John C. Ong, Chief Financial Officer (CFO) of SM Prime Holdings; Rafael D. Consing, Jr., CFO of International Container Terminal Services, Inc.; and Dennis Anthony H. Uy, Chief Executive Officer of Converge ICT Solutions, Inc. They shared key insights into how their respective industries are gearing up as government embraces digital transformation.In our relentless effort to see our purpose come to life, SGV Tax has collectively envisioned what this Future of Tax could be. It is our hope that the SGV Tax Symposium has inspired all those who participated to pursue greater work and success, all towards the aim of a better Philippines.There is more work to be done as tax administration continues the shift to being transformational. More robust and involved discussions are expected in future SGV sessions. 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. or EY.Fabian K. Delos Santos is the head of Tax of SGV & Co.

05 September 2022

Rossana A. Fajardo

How tech companies can stay agile in an uncertain world (Second Part)

Second of two partsTechnology companies are stepping into a new era of uncertainty as they develop their global operational models. Decisions on sourcing, supply chains, product and service manufacturing, and distribution are impacted by the accelerated changes affecting complex economic, political, and regulatory changes in the larger corporate environment.To better understand the additional risks and challenges that technology companies must deal with, EY undertook a global research study with 750 technology executives to help consumers comprehend what technology companies must do to flourish in a changing environment. Moreover, the EY Global Technology Sector team supplemented the findings with additional insights and recommendations.In the first part of this article, we discussed how technology companies need to withstand uncertainty, address critical regulatory issues, optimize their supply chains, and choose the right operating model.In this second part, we continue by discussing rethinking the workplace, focusing on continuous change, ensuring worldwide compliance and reporting, and adopting ESG commitments.RETHINKING THE WORKPLACEInertia and uncertainty are frequent obstacles to change. In a recent EY return-to-work study, roughly 54% of employees worldwide shared that if they were not given sufficient flexibility in where and when they work, they would think about leaving their jobs after COVID-19.Because of this, executives in almost all of the surveyed industry sub-sectors regarded employee satisfaction and well-being as the most crucial factor. Tax and other statutory requirements were ranked as having the highest priority by FinTech executives, followed by the capacity to access or manage labor and skills and employee satisfaction and well-being.When redesigning work, important factors to keep in mind include:• Examine what new opportunities will arise as a result of the new, more collaborative ways of working and how roles may alter as a result.• Check to see if the organization’s new working methods complement its mission, culture, productivity, and performance.• Determine how much space is needed and how it will be used, while making accommodations for at-home workplaces and technological enablement.• Consider the ramifications for payroll, regulations, corporate taxes, international employment taxes, and cybersecurity before making decisions.Technology businesses claimed they are also taking steps to address the evolving nature of work. Talent is an essential resource for the sector, with key performance indicators that include the availability of talent, employee happiness, and attrition rate.As a result of COVID-19, 87% of executives from technology businesses reported that their organizations had reduced the number of physical workspaces they occupy, and 66% intend to expand their employees’ alternatives for working from home during the next three years. In the post-pandemic context, new operating models and modes of working should successfully combine people, place, and technology, changing how people operate across numerous working environments while keeping essential values and cultural characteristics.FOCUSING ON CONTINUOUS CHANGETechnology firms will need a comprehensive and holistic global trade strategy through an agile operating model to thrive and accelerate growth in this continuously changing business environment. It must be able to adapt to changes in international compliance regulations, rethink its staff, and make a commitment to environmental, social and governance (ESG) needs. Every C-suite executive will have to ask themselves if their operating model is prepared to support new initiatives and propel future success in the face of an unpredictable future.Two out of three technology executives emphasized the need to be flexible and agile, as well as the need for plans to change their operating model over the next three years to serve both current and changing business needs. However, the question of whether they have the tools and systems in place to make changes in real time while considering the overall effects each discrete change will have on the financial conditions and operational effectiveness of the business remains to be answered.Overall, the executives surveyed indicated that the most important areas they will invest in as enablers to improve their operating models over the next three years are technologies and tools related to customer transactions, relations, and support (58%); supply chain optimization (53%); and supply chain transparency (45%). Majority at 64% intend to alter the organizational structure to enhance tax planning and financial reporting. Due to the increasingly complicated compliance and reporting requirements everywhere in the world, there is a demand for global visibility and risk management.ENSURING WORLDWIDE COMPLIANCE AND REPORTINGCompanies can use combined tax and financial operating systems to support their complicated requirements, which can be easier said than done and expensive for businesses that must continually adjust their own capabilities. To reduce risk and improve both visibility and efficiency, finance functions can utilize standardized methodologies and advanced analytics to stay ahead of the digital curve.Technology companies will have to keep these key considerations in mind to ensure effective worldwide compliance and reporting:• Adopt a coordinated strategy for adjusting global tariffs.• Reduce trade network costs, risks, and delays.• Create a solid data foundation to increase the effectiveness of reporting and compliance.• Leverage the proper technologies.Over the next three years, technology companies will restructure their operational models, prioritizing the commitment to a sustainable future. Nearly two-thirds of the IT leaders who participated in the EY survey agreed that ESG considerations were important when developing their operating model. Reduced shipping costs and energy consumption will also be crucial considerations in operating model design. Long-term sustainability and ESG value can be created by applying the appropriate strategy and optimizing the supply chain, capital allocation, and portfolio, as well as by developing assessment frameworks to measure both financial and non-financial outcomes.ADOPTING ESG COMMITMENTSThe relevance of ESG, agility, speed, and flexibility are also high on the agenda in specific areas of change and focus over the next three years. ESG emerges as a factor in changes to the supply chain and operations. By implementing the following actions, technology companies can achieve high sustainability performance while giving shareholders profitable returns:• Recognize the development and efficacy of the present ESG strategy.• Examine ESG opportunities, impacts, and risks.• Include ESG in your organization’s overall strategy.• Communicate with stakeholders and provide performance reports on ESG.ADAPTING TO HANDLE CONSTANT CHANGEThe one constant in the world economy and the technology sector is the unrelenting and accelerating rate of change. Even the most adaptable firms are finding it difficult to keep one step ahead in this era of extraordinary change, whether it be a game-changing breakthrough or a once in a thousand-year black swan occurrence.The EY survey discovered that technology company executives are frequently attempting to respond to concerns that impact their functional issues while continuously reviewing their business and operating models. Addressing the immediate problem instead of realizing that there will always be problems requires a comprehensive, holistic strategy to handle ongoing change and expand the company.The study also notes that changing the operating model to increase company resilience and concentrating on issues like ESG are not separate initiatives. Instead, in the search for technology businesses to become truly adaptive, these become guiding principles that influence practically all upcoming organizational change initiatives. These changes progressively extend into the connections between the key stakeholders of a technology enterprise, from suppliers to consumers. 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.Rossana A. Fajardo is the EY ASEAN business consulting leader and the consulting service line leader of SGV & Co.

29 August 2022

Rossana A. Fajardo

How tech companies can stay agile in an uncertain world (First Part)

First of two partsThe recent surge in risks associated with international commerce and technology nationalism has had a significant impact on the technology sector. Tariff increases, export limitations, stricter privacy regulations that include data onshoring, changes to employment requirements, and a closer examination of mergers and acquisitions (M&A) and ownership regulations are just a few of these.The borders between technology and other sectors are dissolving rapidly due to digital disruption, and technology companies must address this now more than ever. A shared demand for data and technologies, as well as cross-sector trends, are fostering industry convergence. These include the establishment of alliances centered on data and technology, the development of industry ecosystems, the exploration of new business models, the increase in investments in new hybrid technologies, and the digitalization of everything.EY teams conducted a global research study with 750 technology executives to have a better understanding of the increased risks and difficulties that global technology companies must face. Additional insights and suggestions from the EY Global Technology Sector team were added to the findings to help people understand what technology companies must do to succeed in a constantly changing environment.In the first part of this article, we discuss how technology companies need to withstand uncertainty, address critical regulatory issues, optimize their supply chains, and choose the right operating model.WITHSTANDING UNCERTAINTYThe results of the EY survey show that technology leaders are coping with shifting political costs, political volatility, and new limits that are posing both possibilities and problems for their supply chains and operating models. Many technology companies have adopted a “China-plus-1” strategy as a result of tariffs and increased labor expenses. Asia-Pacific nations including Vietnam, Malaysia, Thailand, and India gain advantages from new investments that diversify risks in their supply chains. There is also a greater sense of threat since businesses around the world may experience more frequent cyberattacks that have an impact on their operations.Technology businesses increasingly view government intervention through two distinct lenses, depending on their position in the value chain. On one hand, governments that are worried about protecting their access to crucial technologies are developing new, multibillion-dollar incentive programs to encourage the expansion of new research and development (R&D) and fabrication capacity, such as the proposed US Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act and the European Union’s proposed Chips Act.On the other hand, governments are increasing the complexity of the situation with new laws and regulations. Federal contractors are subject to US government procurement limitations that are motivated by national security concerns and have an impact on their supply chains. The Digital Markets Act was passed by the European Union to place restrictions on digital platforms, including guidelines on their ability to grow and the requirement to give users access to competing services.ADDRESSING CRITICAL REGULATORY ISSUESThe complexity of ensuring compliance has increased as a result of current geopolitical issues, which have also led to new export control measures. These include new export bans on sensitive technologies, telecommunications, encryption security, semiconductors, sensors and software.For instance, the Export Administration Regulations, which are overseen by the Bureau of Industry and Security of the US Department of Commerce, are “extraterritorial,” meaning that they place restrictions on products that are manufactured outside the US using software or technology that has US origins. To make sure they are compliant with these and any upcoming rules, technology businesses will need a comprehensive understanding of their upstream value chains.The study highlights the following critical regulatory issues affecting technology enterprise operational practices:• Trade taxes, sales/use taxes, value-added taxes, and taxes on digital services• European Union’s approach to competition• The OECD Base Erosion and Profit Sharing (BEPS) 2.0 projects with Pillars One and Two• An executive directive prohibiting anticompetitive behavior• Review of crucial supply networks for producing semiconductors and other cutting-edge technology via executive order• Intellectual property taxes (IP)Technology companies worldwide are being increasingly impacted by a wave of regulatory and tax environment changes. Countries aim to broadly tax their digital economies and transactions, potentially driven by recent political shifts. Legislators are concentrating on new tax and regulatory regimes as a result of the evolution of digital services and operating models such as over-the-top and Software-as-a-Service (SaaS). Findings from the EY survey revealed that efforts to update antitrust and competition laws in the technology sector, data transfers, and trade and taxation regulations were the main influences to changes in operating models.A closer examination of the survey results reveals some notable differences between various facets of the technology industry. Executives at internet, e-commerce, IT services, and cloud companies consistently expressed more concern about the effects of nearly all the previously mentioned regulatory issues. According to legacy technology executives, they are affected by the General Data Protection Regulation (GDPR) of the European Union, digital services taxes, and global minimum taxation. On the other hand, emerging technology company executives focused more on sourcing of raw materials and the impact of sector competition/antitrust policy.OPTIMIZING SUPPLY CHAINSTechnology companies had to rethink their supply chains after the impact of COVID-19 and a host of new “black swan” events. The pandemic put further strain on the global supply chain, which was already coping with the effects of the US and China trade issues. Importers had trouble buying manufacturing supplies on time, and exporters had trouble getting bookings on ships due to worldwide factory closures and a lack of shipping containers. It may not come as a surprise that 95% of the executive respondents said their organizations are changing their operational model and supply chain.The desire of technology executives and their organizations to nearshore and reshore their supply networks was significant in the survey results, reflecting how the effects of the pandemic on supply chains have increased the focus on resiliency and sustainability. As much as 71% of executives said their companies expect to move their manufacturing to be more localized over the next three years, compared to 19% who said their companies have already done so. The fact that 68% of the CEOs agreed that tech firms will need to take better efforts to reduce global emissions over the next three years is likely a linked aspect that also strengthens the case for near/reshoring.CHOOSING THE RIGHT OPERATING MODELExecutives recognize the need to continually and proactively update their operating models. They noted that they look for benefits such as higher revenue growth and employee satisfaction — the top benefits realized from operating model changes. However, many are also addressing tactical and functional issues, giving the impression that there is much more to do. Industry leaders were more positive about the advantages of implementing the right operational model. In terms of both financial performance and customer or employee satisfaction, these benefits should show a direct correlation between having the right operating model and significant improvements in business performance.The EY survey found that 65% of respondents have changed their operational model at least once in the previous 12 months. While highlighting the importance that the top technology businesses play in the effort to become adaptive digital enterprises, these technology executives nevertheless note that they still face difficulties. As a result, planning and evaluation paces are accelerating. Technology leaders reported that in light of the operational environment’s rapid change, they routinely examine their operating model either completely or in part. Nearly half of respondents claimed they now perform this assessment a few times a year.More than half of executives (55%) stated that they still think their operating models need to change while 50% are actively planning improvements despite more frequent evaluations of their operating models and more frequent revisions based on these reviews.Companies also became more certain that they had the right operating models, as their size and revenue increased. The majority of small- and medium-sized businesses or businesses with low to medium revenue believe they do not have the correct operating model and seek further enhancements, whereas high-revenue technology enterprises believe they already do. Executives in other sectors were evenly split or said they need to plan for future improvements, in contrast to the majority of executives in the autotech and technology infrastructure sectors who believe their companies have the correct operating model. 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.Rossana A. Fajardo is the EY ASEAN business consulting leader and the consulting service line leader of SGV & Co.

22 August 2022

Warren R. Bituin

Embracing the power of technology beyond the COVID-19 crisis

As the pandemic slows down in many parts of the world, many companies will find that digital technology will be one of the most powerful options for recovery during this next phase of the COVID-19 crisis.Businesses will also undertake this challenge despite severe obstacles which include inconsistent revenue, disorganized workforces, broken supply chains, and a persistent lack of investment capital.In the Philippines, companies have been forced to adopt new business models, including managing a hybrid work environment, expanding on digital business channels, and providing customers with a more pleasant and holistic digital experience that increases engagement.Many organizations still struggle to embrace these new technologies. Their legacy technologies have been deemed a liability as they hamper their ability to quickly adopt new and improved way of operations. As the cyberattack threat increases, they are also now more susceptible to cyber incidents as cybercriminals exploit opportunities in these newly digitized operations.Because of the nature of this unprecedented environment, digital technologies are one of the most effective solutions for recovery. More specifically, a proactive technology strategy built around adapting operations and building resilience can equip businesses with a stronger competitive edge as they recover from the pandemic.ADAPTING BUSINESS OPERATIONS IN EVER-CHANGING CONDITIONSFacing uncertainty during this pandemic is one of the greatest challenges businesses must address. The impact of COVID-19 on the economy as well as in our daily lives continues to evolve. This presents an unknown operating environment for enterprises.The capacity to adapt to these challenges will be crucial in this new way of doing business during these ever-changing conditions. Although it will be difficult to predict how conditions may change, companies can utilize these key actions as discussed in a recent EY article on how embracing technology can bring success:• Reevaluate infrastructure to support a hybrid workforce. This includes a flexible communications plan that supports the return-to-office situation. New infrastructure will benefit the company more in the long run by helping facilitate collaboration, remote working and higher levels of automation in operations. Teams will be able to better manage resources, track production, and protect the enterprise through a collaborative software platform.• To ensure business continuity, cloud adoption will help business operations transition more smoothly to support an ecosystem-based approach. This will allow more collaboration and connection among various teams that will improve decision making. Using the cloud will also allow companies to ramp up and down its supporting infrastructure as economic conditions change, linking suppliers, customers, shippers and employees to gain a flexible advantage.• Automation remains a key pillar of any digital transformation for a business. This offers tremendous potential for leaders looking to drive transformation in their organization: from cost savings and increased delivery speed to new operating models, to higher-value efforts for their people.BUILDING RESILIENCY AND FLEXIBILITY INTO THE ENTERPRISENew business models are being introduced because of the pandemic, such as hybrid work situations where employees work from home and in-office, a digital experience that boosts customer engagement, and the acceleration of digital businesses at the expense of traditional physical channels.However, many organizations have struggled to catch up and be more digitally prepared. Traditional technologies — always high-cost and slow-moving — have become a much greater liability. Moreover, as hackers take advantage of newly digitalized activities, more companies are now frequently being targeted by cyberattacks due to their lack of adequate cyber protection.Focusing on the following three key areas can help companies build a more resilient and flexible enterprise where digital technologies will be critical:1. Restructure IT operationsUpgrading digital infrastructure can enhance digital sales channels, the virtual customer experience and direct-to-customer delivery methods. This is evident even in the case of public services where government agencies now allow a more seamless engagement with the citizenry. For example, the Bureau of Internal Revenue (BIR) now accepts not only tax returns but also payments via electronic channels. Soon, its e-invoicing facility will expand and further facilitate online interaction between the Bureau and the taxpayers, be it large or micro, small and medium enterprises (MSMEs).2. Reevaluate digital strategyNow is the time to assess which new technologies the company will need to improve on, such as expanding cloud infrastructure and contactless payments and adopting 3D printing and augmented and virtual reality. In addition, companies will need to make difficult decisions around replacing legacy technologies sooner than later.3. Double down on cybersecurityCompanies should ensure that the virtual infrastructure is secure and that their data is safe and backed up. Leaders should also review their cybersecurity infrastructure and improve where necessary. Moreover, they must consider how to better support the security of third parties such as suppliers, customers and contractors. Companies should also keep in mind that strengthened security measures across its ecosystem should complement and provide a more effective defense against the current generation of security threats without slowing the business down.ACCELERATING DIGITAL TRANSFORMATIONAccording to a 2010 Harvard Business Review study that looked into how business fared during the 2008 recession, less than 10% of companies emerged stronger than before the crisis. They did this despite the global crisis by balancing strategic investments that focused on new technologies while cost-cutting through divestments.With COVID-19 creating fundamental changes to how we live and work on a larger scale than in the 2008 recession, the gap will only widen between leading and underperforming companies. The successful businesses of tomorrow will be those that embrace and accelerate their digital transformation to fast-track recovery and create a competitive advantage in a post-pandemic world. 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.Warren R. Bituin is the technology consulting leader of SGV & Co.

15 August 2022

Maria Kathrina S. Macaisa-Peña

Consumer values in a world in crisis (Third Part)

Last of three partsConsumers around the world are settling into life amid uncertainty, adapting by assigning greater importance to taking control over their finances and favoring sustainable practices.The EY Future Consumer Index, which examines shifting consumer attitudes and behaviors over a range of time horizons and across international markets, demonstrates how accustomed people are to living in a constant state of crisis and uncertainty.In the previous parts of this series, we discussed three key shifts in play that differentiate the current crisis from previous ones, and the key trends in consumer behavior as identified in the Index. In this final part, we discuss the four imperatives that businesses have to take into account.FOUR IMPERATIVESBusiness leaders will have to adapt to meet the needs of consumer values that have shifted during the pandemic experience. Consumers are actively seeking more control over their lives instead of simply reacting to events.To address this, businesses will have to review their operations to optimize for better pricing, approach sustainable products as a cost-effective option instead of a premium choice, explore new and targeted ways to engage consumers on multiple digital channels, and reconsider what their purpose is as well as what KPIs they want to set.1. Review portfolios and operations to ensure affordability.To get the products they want at prices they can afford, consumers are more and more likely to trade down. Companies must think about how to manage their product portfolios in this inflationary environment to improve pricing outcomes.Prior iterations of the Consumer Index have demonstrated how the pandemic has increased the willingness of customers to switch to private label products. Retailers now have the possibility to broaden their selection of private label products. To ensure that they can best optimize for pricing, brands must also look for alternate supply chains, ingredients, or components and experiment with other product characteristics, such as packaging and package sizes.Due to ongoing price and revenue worries, this necessitates and facilitates improved supply chains and industrial resilience, but it is also likely to be more than a temporary remedy.2. Tailor sustainability strategies to offer affordable fixes.Despite their increased resolve to live more sustainably, consumers are becoming more price sensitive. Many businesses will need to switch approaches and explore how to make sustainable goods and services become the affordable norm for consumers, rather than as premium alternatives.The need to look into business models like renting, reselling, and mending to keep goods in use for longer is at the heart of this mindset. This creates a need to scale up current sustainability solutions so they can be more affordable from a procurement standpoint.For instance, the increase in energy costs brought on by the increased price of fossil fuels may encourage more investment in alternative energy, enabling scalable and inexpensive green energy and providing a chance for innovation to produce more sustainable products.3. Adjust investment in engagement to take advantage of new digital opportunities.The importance of digital channels during the pandemic is likely to continue increasing. However, the physical world will not become subordinate to the digital one overnight. Brands will have new opportunities to interact online and in the still emerging metaverse as a result.Now that consumers are becoming less brand loyal in their buying decisions, brands that have been generally decreasing marketing budgets during economic downturns run the danger of greater disintermediation. Businesses need to step up their efforts to clarify and define their unique brand offer by looking at fresh, focused approaches to connect with and engage with consumers through a variety of channels. This entails testing new digital technologies as well as gathering and using consumer data in ways that improve both physical and virtual customer experiences.However, these initiatives must be weighed against customer worries about data privacy and cybersecurity. Not only is it crucial to protect consumer data, but businesses can also gain the trust of their customers by demonstrating how they responsibly use their data to benefit them in real ways.4. Set KPIs that take shifting customer values into account.The extent to which consumer values are shifting is highlighted by the current and previous waves of the Index. People are less driven by monetary gains, and sustainable behaviors rather than wealth are more used to determine status. The way that consumers use their time is changing, and they are searching for ways to alternate between saving time on the things they dislike and spending time on the things they enjoy. Instead of focusing on salaries and careers, people are now increasingly concerned by purpose and flexibility.Companies need to reevaluate their goals, KPIs, and purpose in order to align with these developing values. Non-financial indicators like emissions, diversity, and innovation are progressively taking the place of traditional financial measurements like growth, profitability, share price, and shareholder returns. Companies must consider and evaluate these indicators in the context of the clients and staff they serve, and they must create new KPIs that instill non-financial values into their corporate culture.ADAPTING TO CONSUMERS IN A WORLD IN CRISISWhen their finances are stressed, people look for ways to save money and companies may feel the same way. This is a typical response, and for many people, it is also their only possible option. However, having experienced a pandemic, many customers now approach crises differently.In order to keep a sense of control over their lives, consumer values have altered, and they are determined to abide by them. They are more concerned with acting sustainably than they are with purchasing things they do not believe they need. To stay aligned with these evolving consumer needs and behaviors, businesses will need to start taking action as soon as possible if they wish to remain competitive and relevant. 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.

08 August 2022

Maria Kathrina S. Macaisa-Peña

Consumer values in a world in crisis (Second Part)

Second of three partsThe most recent edition of the EY Future Consumer Index reveals how accustomed people are to living in a constant state of crisis and uncertainty. As consumers continue to express concern about the future, they prioritize ideals that focus on more control over their finance and sustainable practices.In the first part of this three-part article, we discussed three key shifts in play that differentiate the current crises with previous ones. Consumers now have greater control over how they organize their time due to the rise in remote working, but they also want more control over other aspects of their lives including how they spend their money and disclose their personal information.In this second part, we discuss the key trends in consumer behavior that were identified in the Index.KEY TRENDS IN CONSUMER BEHAVIORLeaders must adapt since it is obvious that consumer beliefs and habits are continuing to change rapidly on many fronts. How effective is a “Sell more items” strategy when many customers claim they wish to make smaller purchases? There are four imperatives that leaders will have to take into account, starting with some of the key trends that the most recent Index has shown.Cost cutting: Consumers are substituting but not sacrificingCurrently, the “Affordability first” consumer category is the dominant one, but the cost of living is a concern for all consumers: 79% of respondents express concern about their financial situation; 35% worry about having enough money for expenses other than basic necessities; 66% are concerned with getting value for their money.Many consumers would consider buying private label packaged food (49%), while 48% are purchasing cheaper alternatives. Consumers are, in many respects, returning to what worked for them in the last two years when they were able to save money by working from home, spending more time at home, cooking their own meals, and not feeling the need to buy new clothes or use cosmetics regularly. For many brands, this creates a challenging environment.People typically reduce their expenditures in a limited number of categories when money is tight while still rewarding themselves with “treats.” However, customers are now using their money-saving strategies in all areas. For instance, there is a thriving social media culture in the cosmetics industry where influencers share “dupes” — cheaper versions of luxury goods that, in their opinion, perform just as well and offer better value.The findings from the study demonstrate that this isn’t only about cutting back on spending; rather, it’s a continuation of pandemic-era habits. Some of the brand attributes that have historically conveyed prestige no longer appeal to customers as much. A deep-seated yearning to live and spend more “authentically” exists. Instead of replacing things, more people are committed to mending them. Seasonal fashion trends are less popular, with 79% of “Affordability first” shoppers and 55% of the more hedonistic “Experience first” consumers ignoring them.Sustainability: People are clinging to their principlesMany consumers struggle to balance their desire to live more sustainably with their need to live more inexpensively, especially as many believe sustainable goods to be expensive, with 67% of consumers claiming that the high cost considerably discourages them from purchasing sustainable items. However, resistant shoppers are looking for more affordable ways to achieve their goals of sustainable living rather than simply giving up on them.Many claim they are working harder to reduce trash and purchase used goods. By maximizing for both economic and environmental benefits, consumers are taking charge. As much as 87% are attempting to reduce food waste and 85% are attempting to reduce their energy use. Meanwhile, 36% report increasing their use of used goods, while 24% have either ceased buying or have bought less from a company that is not doing enough to protect the environment.This shows that attitudes toward sustainable goods and products have changed for the better. Not as many consumers still believe these products to be of poor quality or lacking in durability. Importantly, people place more and more faith in the information they receive about sustainable products from the manufacturers.Customers do not believe information from just any sources. They look for information that they believe to be trustworthy and transparent, and they value ways to filter and personalize the information they are exposed to. This broader trend can be seen playing out regarding sustainability, with over a third of customers having registered for an app or service that tracks aspects of their carbon footprint or environmental impact. Consumers are increasingly seeking reliable sources to help them make informed judgments about the things they buy.Consumer-facing businesses are also searching for reliable suppliers because they are applying “sustainability tech” to enhance their products. Many already collaborate with sustainability tech firms to gain access to data and insights that bring them closer to the consumer. New consumer insights are being produced by these relationships, which aid businesses in interacting with customers, promoting sustainable innovation, and achieving sustainability objectives.Digital: Customers value alternative experiences and products more and moreA small but expanding segment of customers is interested in investigating cutting-edge technologies and digital platforms, according to the Index. The metaverse, digital currency, or buying virtual goods have all been used by almost one in 10 consumers. It’s interesting to note that this baseline level roughly corresponds to where e-commerce was in 2005. Its 10% retail market share from 2017 has since doubled. Some analysts predicted the demise of high street shopping at that level of retail penetration. Could the retail sector be reaching a similar turning point?Due to the pandemic, many aspects of daily life are now “digital first.” Consumers are once more turning to digital as they want greater financial control. For instance, people are substituting lifestyle choices rather than making lifestyle sacrifices by balancing digital and physical experiences.The use of more recent digital products and services opens up new business options for firms. It becomes a question of whether they can invest in digital in ways that distinguish their brand experience, foster creativity, gather more customer data, allow for digital product line creation, and promote innovation.Trust will be a critical factor, as consumers express great concern about who they share their data with. They want to know how it will be used and protected, expanding their post-pandemic, always-on emergency posture to include a safety-first component.In the last part of this article, we will discuss four imperatives that consumer companies must consider to meet the needs of consumer values that have shifted during the pandemic experience. Maria Kathrina S. Macaisa-Peña is a Business Consulting Partner and the Consumer Products and Retail Sector Leader of SGV & Co.

01 August 2022

Maria Kathrina S. Macaisa-Peña

Consumer values in a world in crisis (First Part)

First of three partsThe past three years have been an unwelcome rollercoaster ride for consumers everywhere. People prioritized their health when the pandemic initially broke out and drastically changed their actions and attitudes towards purchasing goods and services. As the pandemic’s effects on the economy became more pronounced, consumers began to focus more on accessibility and living expenses. As the crisis slowed, people began to give more importance to a new set of “post-crisis” ideals, particularly those related to sustainability.However, the post-crisis period has not yet begun. Inflation has returned on a scale not seen in decades, interest rates are rising, the global economy is slowing down, geopolitics is being played out on a grand scale, and new COVID-19 variants keep appearing. It’s unclear if this confluence of events is ushering in a new crisis or merely escalating what we currently have, but the distinction will not likely matter in the eyes of customers.The most recent edition of the EY Future Consumer Index demonstrates how accustomed people are to living in a constant state of crisis and uncertainty. Consumers globally are concerned about the future; as much as 63% do not see economic recovery within the next 12 months, and 62% anticipate an increase in living expenses during the following six months.The EY Future Consumer Index examines shifting consumer attitudes and behaviors over a range of time horizons and across international markets, revealing the emergence of new consumer segments.The Index has been tracking five main consumer segments since the pandemic began. These five segments describe the consumers that organizations will have to engage with beyond the pandemic. They reflect the different ways that people make their choices, how they will live their lives, and what truly matters to them.Of these segments, two highlight the way consumers focus on living within their means and looking after the health of their families and themselves (“Affordability first” and “Health first”). Two other segments refer to the way some consumers prioritize environmental and social concerns (“Planet first” and “Society first”). The final segment identifies those who focus on living within the moment and maximizing their experiences (“Experience first”).As people react to a chaotic world, the proportion of customers who fit into each sector has fluctuated over the past year. They are actively responding to — or at least attempting to respond to — the never-ending waves of change and uncertainty rather than merely reacting passively. Even while the world keeps presenting them with new obstacles, people are becoming more and more motivated to take charge of and mold their lives around their own wants and objectives. In fact, 58% of people say they feel more in charge of their lives, a situation they wish to maintain and sustain.FUNDAMENTAL CHANGES IN THE CONSUMER LANDSCAPEConsumers now have greater control over how they organize their time due to the rise in remote working, but they also want more control over other aspects of their lives including how they spend their money and disclose their personal information. While they are growing more frugal with their money, they are also feeling more confident about acting to defend their lifestyles and values. There are three key shifts in play that can be identified compared to previous financial crises:1. Customers are more adaptable due to the pandemic experience.People are becoming accustomed to instability and uncertainty. Nowadays, many people have what is known as the “always on emergency mindset.” They are more willing to give up long-held habits and adopt new ones because they are accustomed to making significant changes to how they live, from daily decisions to long-term objectives. They have discovered levels of resilience they were unaware they possessed.2. They have more options thanks to the digital world.The online world was a startlingly undeveloped place in 2008 and 2009, during the previous major financial crisis. The smartphone was a basic device and broadband connections moved slowly. Today, consumers can obtain information, discover alternatives, share their experiences, collaborate, and learn from one another much more easily. However, the digital age can simultaneously increase anxiety, intensify uncertainty, and overwhelm people with too much knowledge, ideas and new concepts, especially given the speed of digital transformation.3. Consumer values have fundamentally changed.Previous versions of the Index demonstrated how drastically consumer values have shifted as a result of the pandemic. Particularly, people’s interest in material possessions has diminished as they became more committed to leading ecological lifestyles. The most recent data demonstrate that despite the impact on their household budgets, people are unwilling to simply give up on their new beliefs. Instead, they want to find new ways to convey them.What ramifications do these shifts pose for corporate executives? When a company’s ideals and activities are in line with the customers it hopes to serve, it succeeds; when they are not, it fails. Customers want to see their concerns and priorities mirrored back at them when deciding which brands to purchase. They increasingly focus on the company behind the brand rather than just the product, asking questions such as: what influence is it having on the globe, and is that impact consistent with its values?In the second part of this three-part article, we discuss the key trends in consumer behavior identified by the Index: cost-cutting, where consumers substitute instead of sacrifice; sustainability, where consumers prioritize their values in living affordably and sustainably; and digital, where consumers are increasingly turning to emerging technology to take control of their finances. 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.

25 July 2022

Rossana A. Fajardo

Transforming with humans at center (Second Part)

Second of two partsWhile transformation has always been integral to the long-term success of a business, both the nature and rate of transformation have changed in the past few years. Companies have to transform more regularly to keep up due to market disruptions increasing in frequency and impact, further highlighting the need to transform successfully and consistently.A 2021 research collaboration between EY and the Saïd Business School of the University of Oxford determined that to push organizational change, leaders must use a strategy that emphasizes human factors and take into account both leaders and workers. As much as 67% of the respondents claimed that they had gone through at least one underwhelming transformation during that period, leading to the startling insight that organizations accept this failure rate as the price of transformation.The path to transformation is neither straightforward nor linear, with detours and turns along the way. Leaders must be able to learn as they go, develop a strong belief in the transformation, cultivate a culture of both discipline and experimentation, and welcome emotions instead of ignoring them. Research findings from the study highlight that emotions are at the core of the complex factors that determine if transformation succeeds, regardless of location or industry. The study identified six key drivers that leaders have to instill in their practices to increase the likelihood of success in their transformation projects.In the previous article, we discussed the first three key drivers: adapting and nurturing the necessary leadership skills, creating a vision that everyone can believe in, and building a culture that encourages and embraces all opinions. In this second part, we discuss setting clear responsibilities and preparing for change, using technology to quickly drive visible action, and finding the best ways to connect and collaborate.EMPOWER: SET CLEAR RESPONSIBILITIES AND PREPARE FOR CHANGETransformations are typically viewed as linear processes, but findings from the study prove this is not the case. There will be all manner of twists and turns and stops and starts. Offering structure, discipline, and the creative flexibility to experiment and innovate will be key to managing transformation.Autonomy to execute must be established for the organization to transform effectively. In high-performing transitions, 52% of respondents indicated that roles and duties were clearly assigned to staff, and 49% said that decision-making authority was delegated in a clear and appropriate manner throughout the business compared to the 29% in low-performing transformations.By adopting a “fail fast” mentality as opposed to a “don’t fail” attitude, leaders can encourage experimentation and innovation. While a fear of failure frequently results in squandered opportunities, huge successes can be gained from small failures. The approach set up by 46% of respondents from high-performing transformations fosters creative experimentation, but they also simultaneously ensure that failed experiments do not have a detrimental impact on compensation or career.Key driver: In order to seize and take advantage of possibilities that can be overlooked by a mindset that is unwilling to fail, leaders must encourage experimentation and help their people develop a mindset of failing quickly instead.BUILD: USE TECHNOLOGY TO QUICKLY DRIVE VISIBLE ACTIONTechnology does not create the vision; it enables it. For the vision to be realized and the transformation process to be facilitated, the appropriate technology is essential. According to executives, effective technology usage is the second most critical factor in success, and poor technology use is the second highest factor in failure.It’s also critical to recognize how emotionally charged the introduction of new technologies may be. There are some that are afraid of what technology is capable of, or the impact it can make. Employees in unsuccessful transformations are 25% more likely to concur that the change causes job security concerns. Others might also view it as a way to avoid interpersonal connections, which are crucial for the emotional health of employees as well as the operations of the company.To get customers and employees on board with the vision and the value of new technology-enabled techniques, it’s critical to demonstrate their value early on and to attract early adopters and influencers. Leaders must prioritize progress over perfection and recognize how technology can affect the emotions within an organization.Key driver: With appropriate learning and emotional support, employees are more likely to develop a digital mentality and embrace the vision and value that technology can provide.COLLABORATE: FIND THE BEST WAYS TO CONNECT AND CO-CREATEThe perpetual state of transformation now makes interdependency and collaboration a critical need. This is opposed to legacy cultures that adopted a command-and-control, top-down hierarchical approach, with leaders setting the vision and employees simply carrying it out.Leaders will have to create a culture that encourages collaboration and creativity. They must create a safe environment where new ways of agile and digital working can flourish in order to promote creativity, engagement, and meaningful work. In high-performing transformations, 44% of respondents reported that their organization’s culture fostered new methods of working, as opposed to 28% in low-performing transformations. It is therefore important to enable employees to redesign and redefine their own jobs, both in terms of what tasks and behaviors need to change and how work is accomplished. Leaders can co-create new methods of working and purposefully build interdependence across teams to handle both the emotional and logical aspects of change.Key driver: Leaders and employees must work together to rebalance delegation, ownership, and empowerment in order for new ways of working to be successful.UTILIZE THE STRENGTH OF YOUR PEOPLE TO ACCELERATE TRANSFORMATION SUCCESSLeaders are aware of the need for their organizations to transform but acknowledge that change is difficult, with many intimidated by the idea. Simply standing still is not an option in a time of constant disruption. Leaders can put their business on the path to successful transformation by utilizing the power of their people and implementing leading practices in each of the six drivers.It is imperative to recognize that success does not come from excelling in just one of these drivers, but in all six of them. Simply put, while strategy, vision and technology set the framework for transformation, it is still humans that have to remain at the center of the journey. 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.Rossana A. Fajardo is the EY ASEAN business consulting leader and the consulting service line leader of SGV & Co.

18 July 2022

Rossana A. Fajardo

Transforming with humans at center (First Part)

First of two partsTransformation has always been integral to the long-term success of a business. But for many years, the process by which businesses overhauled their operations to boost productivity and promote sustainable growth was sporadic. In many instances, changes in stakeholder expectations or market sentiment would prompt leaders to rethink their organizations from the ground up or make small changes to adapt.However, both the nature and rate of transformation have changed in the past few years. In the EY 2021 Global Board Risk survey, as much as 82% of board members and CEOs stated that market disruptions have increased in frequency and severity. Companies have started to transform more regularly to keep up — amplifying the need to successfully transform and do so consistently.A research collaboration established in 2021 between EY and the Saïd Business School of the University of Oxford determined the need for a more effective and contemporary means to sustain organizational change. Specifically, it has to employ a strategy that takes into account the sentiments of both leaders and workers to focus on human factors, which are frequently cited as one of the main reasons why transformations fail. Moreover, the research posited that apart from the transformation failure rate being too high, organizations can no longer afford the human cost associated with it.HUMAN EMOTIONS AT THE HEART OF TRANSFORMATION SUCCESSLeaders usually invest early to create the circumstances for a successful transformation on both an emotional and a rational level. The research observed that, along the way, confidence in the process may ebb as tensions arise, but also noted that the support usually increases to match the pressure. Workers will feel positive by the end of the transformation with proper and timely support. The study has found that positive worker sentiment increased by 50% after successful transformations.The emotional state of both leaders and employees at the start of a successful transition is comparable, but there will be a point in the transformation when things start to go awry. This is where supportive intervention is needed as up to 66% of employees feel stressed with an underperforming transformation. The impact of a failed transformation can be severe, with up to 75% of the workforce experiencing negative feelings and an extreme of 31% feeling angry, depressed or sad.This is particularly noteworthy in situations where a series of transformations is planned. While negative emotions in the workforce can rise by 25% during successful transformations, it rises dramatically to 130% during unsuccessful ones. Going into the next transformation with this negativity can be devastating for any new transformation efforts. This makes it even more important for organizations to revisit their transformation plans and keep humans at the center in order to better turn transformation failure into success.Research findings from the study identified six key drivers that can help increase the likelihood of transformation success. In the first part of this article, we discuss the first three: adapting and nurturing the necessary leadership skills, creating a vision that everyone can believe in, and building a culture that encourages and embraces all opinions.LEAD: ADAPT AND NURTURE THE NECESSARY LEADERSHIP SKILLSRegardless of whether a transformation was successful or not, employees in the study ranked leadership as the most important factor. Interestingly, while leaders considered leadership as the primary factor in successful transformations, they also saw it as irrelevant when the transformation failed. Given the importance of personal emotional development, leaders must be aware of their own mental and physical limitations. Moreover, they must be absolutely open and honest about their worries, fears, and self-doubt regarding the transformation journey, as well as admit what they don’t know and still need to learn.Leaders need to have the courage to admit they may not have all the solutions and be willing to demonstrate the humility to search both inside and outside the company for such solutions. For instance, compared to respondents in low-performing transformations, respondents in high-performing transformations were more likely to say that leaders embraced ideas from more junior staff.To demonstrate that the entire team is participating in the transformation together, leaders must take responsibility for both the good and the bad. By promoting collaboration, achieving consensus, and establishing consistent two-way communication with those driving the execution, leaders can highlight that everyone contributes. Successful transformation executives have reportedly spoken with employees directly to ascertain their concerns. Others made investments in technological platforms that enabled two-way communication and united diverse viewpoints.Key driver: Leaders must invest in their own transformation and place a strong emphasis on teamwork and communication.INSPIRE: CREATE A VISION EVERYONE CAN BELIEVE INVision establishes the transformation tone and foundational framework. In order to find a compelling vision, leaders must look outside of themselves, their company, and their sector. They should cast a wide net to find inspiration and employ future-back planning to locate exciting new opportunities, creating a compelling vision that can inspire everyone. Compared to 26% of respondents in a low-performing transformation, 47% of those in a high-performing transformation thought the vision was compelling and clear.As much as 71% of employees think that this can increase the success of a transformation, making it imperative for leaders to effectively convey why change is necessary rather than merely state what they must do if they want the vision to become a reality. Instead of just encouraging their people to understand the vision, leaders must nurture genuine belief in it.Compared to 25% of respondents in low-performing transformations, 50% of respondents in high-performing transformations said that leadership made it obvious why the organization needed to change.Key driver: Leaders must manifest a vision that everyone can support, motivating employees to go above and beyond.CARE: BUILD A CULTURE THAT ENCOURAGES AND EMBRACES ALL OPINIONSEmotions are the key to a successful transition, but if the business is unprepared, it can doom the transformation to failure. In the study, 50% of the employees who went through a successful transformation felt that transformation was merely another word for layoffs. Workers involved in poorly executed transformations reported feeling ignored, unsupported, and stressed both during and after the transition. Leaders admitted in follow-up meetings that they were shocked by these results and were not aware of the severe toll that a poorly executed change had taken on their workforce.In addition to giving enough emotional support to minimize anxiety and burnout, leaders must be able to manage emotions to keep employees motivated and engaged. According to the prediction model used in the study, extending emotional support increased the average likelihood of transformation success by 17%.Understanding the emotional condition of the workforce during the transformation process will help leaders spot early warning signs and make the necessary modifications to set the transformation back on track.Key driver: Leaders will have to pay close attention to what their people are saying, identify the cause of their anxiety, and try to solve problems in a way that is both productive and emotionally supportive.In the second part of this article, we will discuss the next three key drivers: setting clear responsibilities and preparing for change, using technology to quickly drive visible action, and finding the best ways to connect and collaborate. 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.Rossana A. Fajardo is the EY ASEAN business consulting leader and the consulting service line leader of SGV & Co.

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Consumer values in a world in crisis (Third Part)

Consumer values in a world in crisis (Second Part)

Consumer values in a world in crisis (First Part)

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Transforming with humans at center (First Part)

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