Innovation, key to SMC’s success — CFO
Innovation — wanting to find better solutions to address people’s needs — was one of the main drivers of the diversification of conglomerate San Miguel Corporation (SMC) over a decade ago, and a critical factor that enabled the 128-year-old organization to breach the P1-trillion mark in revenues in 2018, two years ahead of its target, said 2018 ING FINEX CFO of the Year and SMC CFO Ferdinand K. Constantino.
“It was the innovative thinking and the vision of our president and chief operating officer, Ramon S. Ang, that started it all. He reimagined San Miguel as a company that could better answer many unmet needs of Filipinos: reliable, affordable power; secure, accessible fuel supply; better, future-ready infrastructure. Then he went on and led that transformation,” Mr. Constantino said. “He wanted for San Miguel to have a positive impact on the lives of Filipinos and for it to be a true catalyst for economic growth.”
As CFO, Mr. Constantino’s role in San Miguel’s transformation likewise evolved: from being the number cruncher, to budget planner and endorser, to being an active player in mapping the direction of the business.
“My job is to ensure, together with my partners, that we have enough funding, the right business controls, good governance, execution support to pursue and implement everything properly. Beyond that, I also have to help ensure that change is managed well. Having been in San Miguel for some 46 years, I think I also offered a measure of stability for management, for employees, for the investing community and shareholders during major transitions in our history,” he added.
If there is one Filipino multinational conglomerate that has transformed its business model so dramatically, it is San Miguel. Gone are the days when the mere mention of “San Miguel” would connote just beer or food. Today, San Miguel is as much a leader in power generation, oil and fuels, and infrastructure, as it is in the food and beverage and packaging industries.
Mr. Constantino’s contributions to San Miguel over more than four decades were recognized last year when he earned the prestigious ING FINEX CFO of the Year Award, given by Dutch financial giant ING Bank, N.V. and the premier organization of finance executives, the Financial Executives Institute of the Philippines (FINEX). The recognition was reaffirmed last April when Mr. Constantino was likewise named “CFO of the Year” by The Asset, a regional publication.
The CFO as tech enabler
With the massive volume of San Miguel’s products and services, a good IT infrastructure proves critical to success. “You have to have a good IT system to do things well; keep track of everything in the warehouse, what’s going in and out — the works,” he added. As early as the 1990s, Mr. Constantino had already taken an important role in the digitalization of the business, pioneering the use of enterprise software SAP when he was CFO of the beer business in 1995. It was SAP’s first Philippine contract signed in the country.
Today, SMC has a dedicated Corporate Information Technology Management group that guides the company’s overall technology strategy. Service groups such as San Miguel Information Technology Services, meanwhile, provide support. Dubbed iSMC, the conglomerate’s digital strategy involves the use of data analytics and intelligence, social media, and the cloud, to enhance the agility and scalability of its processes.
The CFO as sustainability champion
Technology, however, is not the only source of disruption for a major conglomerate like San Miguel, whose lines of business touch almost every vein of society and the environment.
Thus, in an increasingly volatile and climate-prone world, innovating also means embedding sustainability in its entire supply chain. An example is San Miguel’s food and beverage segment where the biggest disruption is the rising cost of raw materials. Mr. Constantino said the conglomerate’s response is to find substitute ingredients such as cassava for corn. He cited San Miguel Pure Foods’ ongoing engagement with farmers to plant the crops on some 49,000 hectares of land.
San Miguel is also initiating the construction of the country’s first-ever recycled plastics roads, where hard-to-recycle plastics are converted into raw material for asphalt to be used in road construction. The company has just signed an agreement with materials science firm Dow Chemicals for the research project, which will be pilot-tested in select areas, said Mr. Constantino, who is also chairman of the San Miguel Foundation, the conglomerate's corporate social responsibility (CSR) arm.
Another major innovation is “Project 50x2025: Water for All,” where San Miguel seeks to cut its operational water use by 50% by year 2025. In 2018, it achieved a 25.3% reduction across the group, equivalent to about 8,831,000 cubic meters, through water recycling, rainwater harvesting, and desalination of sea water.
“We’ve exceeded our target of 20% reduction by 2020, a full two years ahead of schedule,” Mr. Constantino noted.
Another major undertaking is the Tullahan River cleanup, where SMC plans to invest P1 billion for five years to dredge and revive the 59.24-kilometer river that starts at the La Mesa Reservoir, spans Valenzuela and Malabon, and drains into the Manila Bay. "We are gradually reworking our CSR strategy in ways that transcend the traditional thinking on corporate giving. We are expanding the reach of our programs and engaging our employees and other stakeholders so that more people can make a difference and participate in causes that are close to our hearts," he said.
Considering the risk profile of San Miguel — which contributes about 5% of the country’s gross domestic product, is among the country’s top taxpayers for many years, and directly employs over 28,500 (with thousands more employed by its suppliers, distributors, retailers, and business partners), a lot is riding on the success of its innovations.
Mr. Constantino said that at San Miguel, pushing the envelope on innovation is “a given.” It is the “not-so-secret sauce” that has ensured the company’s longevity and adaptability, almost 130 years on.