DISRUPTION INNOVATION STRATEGY “Create breakthroughs to close the growth gap and deliver new sources of value” DR. HITENDRA PATEL Ayala at 185 Years: The Ayala Sustainability Our Leadership Business of Business Building: Faces of Our Social Blueprint: Bridging the | PAGE 20 The AC Energy Transformation Commitment | PAGE 14 Filipino to 2030 | PAGE 18 Story | PAGE 52 DISRUPTION INNOVATION STRATEGY DR. HITENDRA PATEL Helping individuals and teams know when to follow the rules, when to break the rules and when to make the rules, to drive 10x growth. THE BIG PICTURE partnerships, new markets, and new transformational Disruption is inevitable, especially in our highly decisions. Amazon’s response is to treat every day technological, rapidly changing customer and as Day 1 to ensure that the company operates with increasingly more competitive business environment. a startup mindset: nimble, flexible, and constantly What is certain is that the future will continue to challenging the status quo. create shockwaves that will redefine if not reshape entire industries. Enterprises will have no choice THE BOTTOMLINE but to adapt to the speed of change and relentlessly The enemy of innovation is complacency, but the innovate to create value in new—and often last five years has shown that Ayala is anything but unexpected—ways. complacent. Ayala has made innovation a strategic imperative and its leaders broadly and frequently THE DETAILS communicate the importance of innovation. It has Today’s global landscape is dotted with the success invested in building innovation management systems stories of entrepreneurs whose unconventional across the organization and trained hundreds of ideas are upending tried and tested business individuals and teams in innovation, to be “future- models, and whose companies have displaced ready.” Ayala’s efforts have been recognized by the market leaders in every market. Brands like Apple, Global Innovation Management Institute as the Amazon, Alibaba, Facebook, Google, Netflix, Airbnb, first company to be Level 2 Certified in Innovation and Uber are synonymous with breakthroughs that Management in Southeast Asia. Composed of four are transforming the way we live, work, socialize, levels, this certification recognizes Ayala’s maturity in shop, travel, and entertain ourselves. Of course, terms of innovation as a management discipline and the magnitude of disruption has also led to the near corporate function. This is seen in Ayala’s continuing extinction of former market leaders like Blackberry, strong innovation performance, robust pipeline of Motorola, Kodak, and Sears. innovation projects, and broad mass of individuals trained in disruptive thinking and deployed to work How should companies evolve to survive the future? on several innovation initiatives. The quick answer is to anticipate it and take nothing Ayala has aggressively pursued new opportunities for granted. Leaders will need to think differently and in energy, industrial technologies, infrastructure, act differently. Leaders will need to look beyond their healthcare, and education, while embracing a • “How Likely Is Your Industry to Be Disrupted? traditional models and plan for foreseeable growth solutions mindset that focuses on ethnology FIND OUT MORE This 2×2 Matrix Will Tell You” by Omar Abbosh, gaps. Leaders will have to imagine future worlds with and technology to guide its entry, build-out, and Much has been written about disruption and Vedrana Savic, & Michael Moore Millennials and Centennials interacting seamlessly expansion in these new industries. This approach innovation. To learn more, I highly recommend https://hbr.org/2018/01/how-likely-is-your-industry-to-be-disrupted-this-2x2-matrix-will-tell-you with robotic, biotech, artificial intelligence, and green has allowed Ayala to streamline and strengthen the following articles: • “Rapid, Iterative Experimentation Process – energy technologies. Leaders will have to go beyond its core assets in real estate, financial services, • “It’s the End of the World as We Know It” A ‘Lean Startup-Style’ Approach To Innovation” optimizing products and services and create new and telecommunications as well, allowing these by Hitendra Patel by Courtney Wood, Ron Jonash, & Mick Simonelli offerings and experiences, new business models, new subsidiaries to be more competitive and resilient. http://ixl-center.com/index.php/2019/04/02/its-the-end-of-the-world-as-we-know-it/ https://hbr.org/2018/01/how-likely-is-your-industry-to-be-disrupted-this-2x2-matrix-will-tell-you 2 AYALA CORPORATION 2018 INTEGRATED REPORT 1 STATEMENT FROM THE BOARD (GRI 102-32) The Board ensures the integrity of this report and confirms that all disclosures on performance and impact on key material topics are fairly presented. The Board was supported by the Ayala management in providing high-level NOTE ON FORWARD-LOOKING STATEMENTS supervision to the internal teams who were convened to undertake the reporting process. Internal parties devoted significant efforts to ensure that This report contains statements describing the company’s objectives, the Ayala story is fairly presented in this report. Ayala also engaged external projections, estimates, and expectations, which may be “forward-looking parties, SyCip Gorres Velayo & Co. and DNV GL, to validate and assure statements” within the meaning of applicable securities laws and regulations. financial and non-financial disclosures to improve accuracy, objectivity, and Actual results could differ materially from those expressed or implied. Important overall report quality. The report was prepared under the supervision of the factors that could make a difference to the company’s operations include, among Chief Finance, Risk, and Sustainability Officer: Jose Teodoro K. Limcaoco. others, economic conditions affecting demand or supply and price conditions in the domestic and overseas markets in which the company operates, changes in The integrated report contains certain forward-looking statements which, government regulations, tax laws, and other statutes and incidental factors. by their nature, involve risk and uncertainty because they relate to future events and circumstances that may be beyond Ayala’s control. In addition, regulations of the Philippine Stock Exchange prohibit making price sensitive forecasts without considerable independent review and process. The directors therefore advise readers to use caution regarding interpreting any forward-looking statements in this report. The Board unanimously approved this report on 12 March 2019, and authorized its release on 26 April 2019. Jaime Augusto Zobel de Ayala Fernando Zobel de Ayala CHAIRMAN AND CEO PRESIDENT AND COO Jose Teodoro K. Limcaoco CHIEF FINANCE, RISK, AND SUSTAINABILITY OFFICER 2 AYALA CORPORATION 2018 INTEGRATED REPORT 3 In this report, we also introduce the Ayala Sustainability Blueprint: Bridging the Filipino to 2030, our master plan to purposefully contribute to the UN Sustainable Development Goals (SDGs). We had ABOUT THIS a rigorous process that involved senior management and executives across the group to determine and solidify our targets in contributing to the SDGs. We also improved our data collection process, INTEGRATED REPORT following a more diligent approach to embed a culture of reporting. We analyzed our financial and non-financial data to ascertain our accomplishments and determine Ayala is committed to integrated thinking and a strong focus on sustainability with the publication of this the opportunities we can maximize to scale impact. All information were reviewed formally by the 2018 Integrated Report. We continue to improve our corporate reporting, giving emphasis on our value Investor Relations and Sustainability teams and approved by Ayala’s Management and Board of creation, strategy, and performance. This report gives a holistic view of our businesses and our impact Directors before publication. to economy, society, and environment. REPORTING SCOPE REPORTING STANDARDS OUR APPROACH TO ON OUR FINANCIAL ON OUR SUSTAINABILITY FEEDBACK (GRI 102-50, 102-51, 102-52) EXTERNAL ASSURANCE STATEMENTS PERFORMANCE (GRI 102-53) (GRI 102-56) This report states the results and We continue to adopt global best Our Board’s Audit Committee SyCip Gorres Velayo & Co., DNV GL is an independent We aim to foster strong value created by the conglomerate practices in reporting non-financial provides oversight on the a member firm of Ernst & Young organization and global provider stakeholder relationships for our key stakeholders. information. This report was performance of external International Ltd, is the external of certification, assurance and we welcome feedback It details our consolidated prepared in line with the guiding and internal auditors. auditor of the company’s assessment, and training and inquiries to help us financial, economic, social, principles and content elements It is mandated to review and financial statements, services that we engaged with improve our future reporting. and environmental performance of the Integrated Reporting <IR> approve the audit, audit-related, with Lucy L. Chan as the to validate the figures and across our business units from Framework provided by the and non-audit services rendered partner-in-charge. In accordance information we presented related You may e-mail your feedback January 1 to December 31, 2018. International Integrated Reporting by the company’s external with regulations issued by the to our sustainability performance and comments to: All necessary notes, explanations,