CONGLOMERATE ORGANIZATION
Research
Contents
1
2
3
What is Conglomerate? ........................................................................................................................ 4
1.1
Understanding Conglomerates ..................................................................................................... 4
1.2
How Conglomerates Come to Exist............................................................................................... 4
1.2.1.
Acquisitions ........................................................................................................................... 4
1.2.2.
Expansions............................................................................................................................. 5
1.2.3.
Extensions ............................................................................................................................. 5
1.3
Benefits of Conglomerates............................................................................................................ 6
1.4
Disadvantages of Conglomerates ................................................................................................. 6
1.5
Conglomerates in the 1960s ......................................................................................................... 6
How Conglomerates can Do Better in Emerging Markets .................................................................. 7
2.1
What Sets a Conglomerate Apart?................................................................................................ 8
2.2
Emerging Market Conglomerates are at an Inflection Point ........................................................ 8
2.3
What is the Ideal Emerging Market Conglomerate Model? ....................................................... 10
2.4
A Clearer Identity Leads to Higher Returns ................................................................................ 11
Philippine Conglomerates: Their Role in Promoting Inclusive Development .................................. 12
3.1
Introduction ................................................................................................................................ 12
3.2
Philippine Conglomerates: Government’s Partner in Nation-Building ....................................... 13
3.3
Conglomerates and their Contributions to Economic Growth ................................................... 15
3.4
Net Income: Growing faster than GDP from 2011 to 2018 ........................................................ 15
3.5
Market Capitalization: Rivaling ASEAN Counterparts, Still Below Asian Manufacturing Giants 16
3.6
Value-Added: Registering Significant Growth from 2012 to 2018. ............................................ 17
3.7
Intermediate Inputs: Conglomerates are the Largest Consumers.............................................. 18
3.8
Efforts of Conglomerates to Advance Inclusiveness ................................................................... 19
3.9
Employment: High Firm Level but Relatively a Small Percentage of Total Workforce Based .... 19
3.10
Women in Business: Playing Major Roles in Growing Conglomerates’ Businesses .................... 19
3.11
Sustainable Business Practices: In Place for Many but Reporting Standards Varies .................. 20
3.12
Corporate Foundations: Where Conglomerates’ Development Initiatives are Lodged ............. 22
3.13
MSME Connectivity: A Pressing Need for More ......................................................................... 23
3.14
Challenges and Opportunities..................................................................................................... 24
3.15
Improve MSME Connectivity ...................................................................................................... 24
1
4
3.16
Standardize Sustainability Reporting for Better Monitoring & Evaluation................................. 26
3.17
Strong Industrial Policy for Greater Inclusiveness ...................................................................... 27
The Philippines' Top Conglomerates ................................................................................................. 28
4.1
Aboitiz Equity Ventures, Inc. ....................................................................................................... 28
4.1.1
Aboitiz Governance Structure ............................................................................................. 29
4.1.2
Transitioning Pathways towards Sustainability .................................................................. 29
4.1.3
Transforming Sustainability Leadership .............................................................................. 29
4.2
Alliance Global Group Inc............................................................................................................ 31
4.2.1
Organizational Chart ........................................................................................................... 31
4.2.2
Conglomerate Structure ..................................................................................................... 31
4.3
GT Capital Holdings, Inc. ............................................................................................................. 32
4.3.1
4.4
JG Summit Holdings, Inc.............................................................................................................. 33
4.4.1
4.5
5
6
7
Organization Structure ........................................................................................................ 33
Organizational Structure and Conglomerate Map .............................................................. 33
ICTSI - International Container Terminal Services, Inc. & Bloomberry Resorts Corporation...... 34
4.5.1
Organization Chart .............................................................................................................. 34
4.5.2
Responsibilities ................................................................................................................... 34
Spans and Layers for the Modern Organization................................................................................ 35
5.1
Spans and Layers Analysis is Nothing New ................................................................................. 35
5.2
Effectively and Sustainability Delayering an Organization ......................................................... 36
5.3
Defining and Measuring Supervisory Burden ............................................................................. 37
Spans and Layers: A Primer for Leaner Organizations ...................................................................... 40
6.1
Creating a Leaner and Nimbler Organization ............................................................................. 41
6.2
What are the Benefits of Performing a Spans and Layers Analysis? .......................................... 41
What is a Matrix Organization? ......................................................................................................... 42
7.1
How Do Matrix Organizations Work? ......................................................................................... 43
7.2
Types of Matrix Management..................................................................................................... 43
7.3
Advantages of The Matrix Organization Structure ..................................................................... 44
7.4
Disadvantages of the Matrix Organization Structure ................................................................. 46
7.5
Making Matrix Organizations Actually Work .............................................................................. 47
7.6
Matrix Organizational Structure Roles and Responsibilities ....................................................... 50
2
7.7
Features of Matrix Organizational Structure .............................................................................. 51
3
1 What is Conglomerate?
Reference: https://www.investopedia.com/terms/c/conglomerate.asp#toc-what-is-aconglomerate
A conglomerate is a corporation of several different, sometimes unrelated, businesses. In a
conglomerate, one company owns a controlling stake in several smaller companies, conducting
business separately and independently.
Conglomerates often diversify business risk by participating in many different markets, although
some conglomerates, such as those in mining, elect to participate in a single sector industry.
Economists, however, warn that large and far-flung conglomerates can become inefficient and
costly to maintain, eroding value for shareholders.
1.1 Understanding Conglomerates
Conglomerates are large parent companies made up of smaller independent entities that may
operate across multiple industries. Each of a conglomerate's subsidiary businesses runs
independently of the other business divisions, but the subsidiaries' managers’ report to the senior
management of the parent company. Many conglomerates are thus multinational and multiindustry corporations.
Taking part in many different businesses can help a conglomerate company diversify the risks
posed by being in a single market. Doing so may also help the parent lower total operating costs
and require fewer resources. But there are also times when such a company grows too large and
loses efficiency. To deal with this, the conglomerate may divest. This is known as the
conglomerate "curse of bigness."
There are many different types of more specialized conglomerates today, ranging from
manufacturing to media to food. A media conglomerate may start out owning several
newspapers, then purchase television and radio stations and book publishing companies. A food
conglomerate may start by selling potato chips. The company may decide to diversify, buy a soda
pop company, and then expand by purchasing other companies that make different food
products.
Conglomeration is the term that describes the process by which a conglomerate is created when a
parent company begins to acquire subsidiaries.
1.2 How Conglomerates Come to Exist
Companies can become conglomerates can be created in a variety of ways, and sometimes in a
combination of ways.
1.2.1.
Acquisitions
The most common way is via acquisitions: simply buying other companies. If a target
firm is big enough, it might not become a mere subsidiary; instead, it and the acquiring
company might merge, combining their talent, assets, resources, and personnel into one
4
new legal entity. A conglomerate merger occurred when The Walt Disney Company
merged with the American Broadcasting Company (ABC) in 1995, for example.
1.2.2.
Expansions
Another approach is that of organic expansion. This strategy is more of corporate
restructuring and reorganization, and sometimes the creation of a parent company to
own various smaller ones. For example, in 2015, Google Inc. restructured. The corporate
parent became known as Alphabet, and Google became a separate subsidiary within it,
in a move intended to separate the company's core business—the well-known search
engine—from a rapidly increasing array of other business ventures Alphabet was
developing or acquiring.
1.2.3.
Extensions
Yet another approach is that of an expansion of a family business or a historic, onesector business into new industries or areas. Berkshire Hathaway (see "Real-World
Examples of Conglomerates" below) can be considered an example of this. The company
sprang from two 19th-century Massachusetts cotton mills that merged in 1955.3 When
Warren Buffett gained control of it in 1965, he took it out of the textile business and
turned Berkshire Hathaway into a holding company—one that existed to invest in other
businesses, rather than manufacture products or provide services on its own.
Of course, there can be overlap among these approaches, and some conglomerates are
the result of all three. Case in point: Moët Hennessy Louis Vuitton (LVMUY), commonly
referred to as LVMH. This French luxury conglomerate began as a family business in
1854—a luggage and other leather-goods maker named Louis Vuitton, after its founder.
LVMH came into being over a century later, the result of a merger between Vuitton and
wine/spirits company, Moët Hennessy.
LVMH itself acts as the holding company for 75 different subsidiaries, or "houses" as it
calls them, in six different sectors. The original Louis Vuitton, Moët & Chandon, and
Hennessy (the latter two owned by Moët Hennessy) are three of those houses. Most of
the others LVMH has bought, and while they all tend to be producers of upscale,
discretionary consumer goods, their fields range from jewelry (Tiffany & Co.) and
cosmetics (Givenchy Parfums) to publications (Le Parisien) and designer clothing (Fendi)
IR is primarily concerned with ensuring that the right company information is released in
a fair and trustworthy manner to the current and prospective target audiences of the
company. These are its shareholders and stakeholders, its investors (retail and
institutional, domestic, and foreign), as well as the analysts and media who comment on
its performance. The types of information involved are strategic, financial, and legal.
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1.3 Benefits of Conglomerates
For the management team of a conglomerate, a wide array of companies in different industries can
be a real boon for their bottom line. Poorly performing companies or industries can be offset by
other sectors and cyclical companies can be balanced by counter-cyclical or non-cyclicals. By
participating in several unrelated businesses, the parent corporation can reduce costs by utilizing
fewer inputs that may be shared across subsidiaries, and by diversifying business interests. As a
result, the risks inherent in operating in a single market are mitigated.
In addition, companies owned by conglomerates have access to internal capital markets, enabling
greater ability to grow as a company. A conglomerate can allocate capital for one of their
companies if external capital markets aren’t offering as kind terms the company wants. One
additional advantage of conglomeration is that it can provide immunity from the takeover of the
parent company as it grows ever larger.
1.4 Disadvantages of Conglomerates
Economists have discovered that the size of conglomerates can hurt the value of their stock, a
phenomenon known as the conglomerate discount. The sum of the values of the individual
companies held by a conglomerate tends to be greater than the value of the conglomerate's stock
by anywhere from 13% to 15%.
History has shown that conglomerates can become so vastly diversified and complicated that they
grow too challenging to manage efficiently. Layers of management add to the overhead of their
businesses, and depending on how wide-ranging a conglomerate's interests are, management's
attention can be drawn thin.
The financial health of a conglomerate is difficult to discern by investors, analysts, and regulators
because the numbers are usually announced in a group, making it hard to discern the performance
of any individual company held by a conglomerate. This lack of transparency may also dissuade
some investors. Since the height of their popularity between the 1960s and the 1980s, many
conglomerates have reduced the number of businesses under their management to a few choice
subsidiaries through divestiture and spinoffs.
1.5 Conglomerates in the 1960s
The first significant conglomerate boom occurred in the 1960s, and these early conglomerates
were initially deemed to be overvalued by the market. Low-interest rates at the time made it, so
leveraged buyouts were easier for managers of big companies to justify because the money came
relatively cheap. If company profits were more than the interest needing to be paid on loans, the
conglomerate could be ensured a return on investment (ROI). Banks and capital markets were
willing to lend companies money for these buyouts because they were generally seen as safe
investments.
At the same time, the theory of synergy was becoming fashionable in business management and
economic circles: the idea that the cross-combining of companies, products, and markets can
enhance efficiency and profitability. This the-whole-is-greater-than-the-sum-of-its-parts concept
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helped justify mergers and acquisitions, even if the target firms were far from the parent
company's core business.
This optimism kept stock prices high and allowed companies to guarantee loans. The glow wore
off big conglomerates as interest rates were adjusted as a response to steadily rising inflation that
ended up peaking in 1980.
It also became clear that the purchased companies weren't necessarily improving their
performance, which disproved the popularly held idea that they would become more efficient
after being acquired. In fact, mismanaged and misunderstood by the parent, they often
performed worse and dragged down the entire corporation's bottom line. So much for synergy. In
response to falling profits, most conglomerates began divesting the companies they bought,
downsizing and returning to their core businesses. A few continued on as shell corporations.
2 How Conglomerates can Do Better in Emerging Markets
Reference: https://www.strategy-business.com/article/How-conglomerates-can-do-better-inemerging-markets
Conglomerates in the West are feeling distinctly unloved these days. Investors and business leaders
have become increasingly skeptical toward them, unconvinced of the benefit of grouping a number
of diverse businesses together under one corporate umbrella. In some markets, they are seen as
lumbering, unfocused, and inefficient.
The result? Markets have applied a “conglomerate discount” to these businesses, valuing them
below the sum of their parts. The removal last year of U.S. conglomerate General Electric from the
Dow Jones Industrial Average is perhaps the most obvious example of this. Investors were already
taking aim at conglomerates in Europe well over a decade ago, notably in the cases of
Mannesmann and Preussag, two storied German conglomerate names that shed their longstanding industrial legacies to become focused businesses in a series of dramatic multibillion-euro
deals in the late 1990s and early 2000s.
Such skepticism may be well founded in developed economies such as the U.S. and Europe. In
emerging markets, however, including India, Mexico, and Southeast Asia, the conglomerate is alive
and well, and several factors are providing a supportive backdrop for this business model. Industry
leaders such as India’s Aditya Birla Group, Mexico’s Alfa, Indonesia’s Salim Group, Ayala
Corporation of the Philippines, and Vietnam’s Vingroup are good examples of such leading
conglomerates.
Nation-building policies — such as the “Make in India” initiative launched by the Indian government
in 2014 — and policies that tend to support homegrown industries are a key element of that
supportive backdrop. Conglomerates have also benefited from governments’ inability to tackle
large infrastructure challenges, stepping in with know-how and financing where governments can’t
or won’t.
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Even given this positive narrative, though, conglomerates in emerging economies can improve their
performance by developing a much clearer identity.
Very often, the identity and focus of a conglomerate have emerged slowly and in piecemeal
fashion; leaders frequently make decisions to invest in countries or markets without first building
the capabilities needed to support those decisions.
To achieve the best returns, conglomerates must settle on what kind of conglomerate they want to
be, and what they can become. Once their identity is clear, conglomerates should build the
capabilities they need to support that identity.
Strategy&, PwC’s strategy consulting business recently carried out a study analyzing the operations
and performance of more than 30 conglomerates. The research looked at the evolution of business
groups across regions and the way the markets have viewed the attractiveness — or otherwise —
of conglomerates as investments. Focusing on those regions where “conglomeration” remains a
viable strategy, the study identified five strategic models for conglomerates. Each offers a clear
route to value creation and defines the actions that will drive the best performance.
2.1 What Sets a Conglomerate Apart?
A conglomerate is a business group consisting of several distinct, sometimes unrelated businesses.
For this study, a conglomerate needed to have a presence in at least three industry sectors that
were not part of the same value chain (mining, metal fabrication, and metal products
manufacturing would not count, for example, because they are part of the same value chain). In
addition, the conglomerate’s business in at least two of the sectors had to account for more than a
significant share of total sector revenue. Strategy& developed two metrics that help to show
varying degrees of conglomeration in a country or region:
The Country Conglomeration Index (CCI) measures the extent of conglomeration in a particular
economy, and simply shows the market capitalization of the top five conglomerates as a
percentage of the total market capitalization of all listed companies on that country’s stock
exchange.
The Country Conglomeration Quotient (CCQ) measures the degree of diversification within a
conglomerate, defined by the number of sectors it operates in and the extent to which a sector
occupies a significant share in the conglomerate’s overall portfolio.
2.2 Emerging Market Conglomerates are at an Inflection Point
Looking at three groupings (U.S. and Europe, Japan and South Korea, and emerging markets)
through the lens of the CCI and CCQ (see “How conglomerates have progressed globally”), we can
see that conglomerates in the U.S. and Europe have been through a complete cycle of emergence,
growth, and decline (displaying a CCI of 3 to 8 percent) and are now in growth mode again as
technology giants such as Amazon build diversified stables of businesses.
8
In South Korea and Japan, conglomerates including South Korea’s chaebol have grown significantly
in the last 50 years and dominate the economy, with a current CCI of 50 percent.
In emerging markets, conglomerates are at an inflection point (with a current CCI of 15 to 25
percent), as the market dynamics around which they were built start to change in the following
ways.
First, although government support for conglomerates is declining — meaning they are less directly
supported at home — the protectionism sweeping much of the globe has provided a fresh rationale
for building up diverse groups within one country.
Second, emerging markets have in recent years been buoyed by a rising middle class, and this is
offering a new avenue for growth. Many conglomerates are taking advantage. That is particularly
the case for conglomerates whose businesses may historically have been based on manufacturing
and asset-heavy industries in which there is now a degree of global overcapacity.
One relatively recent example of this second trend was a move in 2017 by India’s Reliance
Industries oil group into telecommunications with the launch of Jio, a mobile voice and data
service, which has grown rapidly as more and more Indian consumers have been able to afford
mobile telecom products.
Yet emerging market conglomerates also face several challenges. The gradual opening of home
markets to foreign investors has created more competition. One notable instance affected India’s
retail sector in 2018 when U.S.-based Walmart bought a US$16 billion stake in local e-commerce
giant Flipkart.
Smaller companies are gaining greater access to capital, resulting in heightened competition. And
workers have many more choices than they previously did, so it is becoming increasingly difficult
for conglomerates to attract and retain world-class talent, especially at the entry level. Finally,
technology disruption is bringing its own set of challenges in the form of displacement of business
models.
9
These factors illustrate why it is now time for emerging market conglomerates to sharpen their
focus and be clearer about their identity and business models.
2.3 What is the Ideal Emerging Market Conglomerate Model?
Leaders deciding on the best focus for their business should find the following five archetypes
useful (see “Five archetypes for conglomerates”).

A national champion is defined by a strong focus on its domestic market and by running
B2B businesses, mostly in mature industries. The national champion is also typically present
in a few adjacent sectors, to be able to cross-leverage capabilities. A common “parent
brand” representing national identity develops a high degree of trust and loyalty among
customers and employees. Decision making is generally centralized, and talent moves in a
fluid way between the business units. A uniform cultural thread runs across all the
businesses. Adani Group, an Indian conglomerate with operations in coal trading, port
development, and power generation, has created a strong brand identity in B2B businesses
and has significant involvement in national projects.

In addition to being an established player in its home market, an emerging markets leader
seeks to achieve regional scale and has a strong foothold in other emerging markets. Its
focus is B2B businesses, mostly in mature industries, that are typically adjacent to one
another. EM leaders have a moderately centralized operating model; power resides partly
with regional teams. A common talent pool is leveraged across group companies and
business segments. Culture is localized in order to address the requirements of each
regional market. Larsen & Toubro, an Indian conglomerate specializing in heavy
engineering, is one example and has expanded to the Middle East and Africa through
strategic partnerships and joint ventures with local companies.

A global specialist operates in multiple sectors in its home market, but its global approach is
defined by a focus on one or two sectors. Most group revenues come from one sector.
Typically, the business units run autonomously, and the group tries to establish a global
culture with a mixed talent pool. Alfa, a Mexican conglomerate, is a global specialist
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operating domestically in five unrelated sectors including packaging, IT services, and oil and
gas exploration. But when it expanded overseas, it focused on two sectors (food and
automotive parts) and now generates 59 percent of its revenue from outside Mexico.

The tech platform archetype usually focuses on B2C businesses in emerging industries; tech
platform conglomerates have a presence in multiple business segments using a common
platform. Different brands are built to represent distinct identities for each business
segment. Decision making is highly centralized. One example: Reliance Industries’ Jio is a
digital platform that is used to provide a variety of services to a captive subscriber base in
media and entertainment services, digital payments, and e-commerce.

The investment group archetype operates in many unrelated businesses (a mix of B2B and
B2C) in mature as well as emerging industries. Decision making is highly decentralized; each
group company functions as a stand-alone entity. The group companies do business under
different brands with little or no relation to the holding group. Votorantim, a Brazilian
conglomerate operating as an investment group, has created governance structures giving
more autonomy to its group companies, and has modified brand names to reduce their
association with the holding group.
2.4 A Clearer Identity Leads to Higher Returns
Conglomerates in emerging markets should aim to gravitate toward one of the five archetypes.
They can do this by building, developing, or buying new capabilities, as well as strengthening core
capabilities and retrofitting obsolete capabilities to help them succeed in the next decade.
Greater coherence with archetype dimensions leads to significantly higher returns. Lack of clarity
in the identity leads to “capability drift” and consequently a lower performance.
A national champion, for example, would need to focus on operational excellence in particular by
cultivating strong project execution skills and strengthening regulatory influence to win in its
markets. Adani Group, an Indian conglomerate, has achieved operational excellence by enhancing
data-sharing and analytics across three business units: resources (coal mining), transportation
(ports, logistics, shipping, and rail), and energy (renewable power, thermal power, and power
transmission). It has also built a generally more integrated business model.
To be an EM leader, a conglomerate would need to combine operational efficiency with
knowledge of other territories by building effective collaboration and partnership management
capabilities. Larsen & Toubro created a systematic approach to managing partnership
performance, assessing partners on the technical abilities needed for critical deliverables, and
testing risk/return scenarios for projects. A potential partner’s past performance is crucial for the
company; lessons from previous projects are incorporated into any agreement, and clauses on
liability are drafted after legal due diligence.
A global specialist needs to leverage its worldwide brand image along with a strong focus on
research and development and on building deep insight into one industry. Alfa Group operates in
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several industries in Mexico and is particularly strong in consumer-driven innovation and in
capturing market trends. It leverages its state-of-the-art research and development center to
build industry-leading food processing technologies and then commercializes them into consumer
products relevant for global markets.
A tech platform conglomerate needs a strong platform and talent base to address consumer
needs through fast-paced innovation. Reliance Industries has set up an incubation center called
GenNextHub to catalyze a startup ecosystem that will develop fintech, Internet of Things, and
other capabilities.
Finally, an investment group would have to hone its investment discipline to outperform market
cycles and achieve superior shareholder returns. Votorantim, one of the largest industrial
conglomerates in Latin America, has been improving its governance model, which favors greater
autonomy of subsidiary companies to allow for more agility in responding to changing market
dynamics.
Although the conglomerate model has come under increasing scrutiny in some quarters, it still
has plenty of life in emerging markets, particularly if the right choices are made by conglomerates
aligning themselves with one of the five archetypes. For those embracing each archetype,
developing the capabilities needed to follow that path in a coherent way will be critical to
improving performance. This will lay the foundation for a successful next wave of expansion and
an exciting future for emerging market conglomerates.
3 Philippine Conglomerates: Their Role in Promoting Inclusive
Development
Reference: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3919558
3.1 Introduction
Across the world, there has been an increasing realization that economic growth should be
inclusive, particularly for those belonging to the poorest sector of society. According to Anderson
and Johnson (2012), the usual indicators of economic progress often fail to measure the
distribution of this progress across the different sectors, groups, and regions. The United Nations
defines inclusiveness as providing opportunities for all and allowing them to participate in and
benefit from the growth and development process (United Nations Development Program, 2017).
It is in this light that Rauniyar and Kanbur (2010) says that poverty reduction and social protection
can be achieved through job creation, development of human capital and social infrastructure.
The private sector can contribute much towards the desired developmental outcomes. In the
developing world, private firms account for about 90% of total employment and contribute much
by way of taxes and capital flows (Avis, 2016). As an example, the private sector’s contribution to
the Asia-Pacific regional economy through purchases of local goods and services is estimated at
USD 13.8 billion, and tax payments, at USD 9.5 billion (ADB, 2020). For this study, we examine a
12
particular group of these private firms, conglomerates, which are typically horizontally integrated
large corporations comprised of smaller subsidiaries (Fabella, 2016) and in many cases, are familyowned and -controlled entities. In Asia, these companies have the potential to help grow micro,
small, and medium enterprises [MSMEs] by strengthening local entrepreneurship, creating skilled
employment, and promoting knowledge and technology transfers (Pavone, Eklin, GregoireZawilski, & Casas, 2015). By being reliable partners of the government, these firms are
increasingly being recognized as vital cogs of the country’s economic development agenda (Angot
& Ple, 2015).
3.2 Philippine Conglomerates: Government’s Partner in Nation-Building
Over the past decade, the Philippine economy, as measured by its gross domestic product [GDP]
has been growing at an average rate of 6.3% per annum (Philippine Statistics Authority [PSA],
2020). However, despite the country’s remarkable economic performance, poverty remains a
chronic development issue. Of the 36 million people estimated to be living below the regional
poverty line, the 2017 ASEAN Development Report states that nearly 90% are either Filipinos or
Indonesians (Buan, 2017). A flourishing economy with a prevailing poor population manifests the
country’s slow progress in raising living standards to more Filipinos, which may place its longterm
sustainability and socio-economic progress in peril. The economic impact of the COVID-19
pandemic in 2020 further exacerbated this concern as the country’s GDP contracted by 9.5%,
leaving about 4.5 million Filipinos unemployed (PSA, 2021).
During the COVID-19 pandemic, conglomerates were seen as essential partners of government in
its effort to address key challenges that the country had to face. Large business groups donated
more than Php 20 billion at the onset of the pandemic (Lopez, 2020), inclusive of cash donations
to the Philippine General Hospital, Philippine Red Cross, and other government agencies, as well
as supplemental in-kind donations of PPEs, medical supplies, and food, and retrofitting of
quarantine facilities. Such efforts by the conglomerates should be seen as evidence of the private
sector’s willingness to be a partner of government in nation-building. With an enabling
environment, conglomerates may help rebuild supply chains, support economic recovery, and
play a bigger role in the government’s drive for job creation and poverty reduction.
For this research, we examine the performance and programs of fifteen conglomerates to
determine how they have contributed to economic growth that is inclusive and sustainable.
Towards this end, we use the financial reports from the Security and Exchange Commission (SEC
17-A), annual reports and sustainability reports released by corporations, and other publicly
available information. Appendix A provides a summary list of these reports. In the Philippines,
these large businesses constitute 0.5% of the country’s total establishments (DTI, 2020) and are
mostly present in the non-traded service industries (Mendoza, Arbo & Cruz, 2018). Collectively,
the top fifteen conglomerates subject to this study generated revenues of Php 3.43 trillion in
2018, which corresponds to nearly 20% of the Philippines’ GDP for the same year. Table 1
provides a summarized description of these conglomerates.
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Conglomerate
Net Income
in 2018
Notable Subsidiaries
Main Sectoral Presence
(in Billion Php)
Aboitiz Equity Ventures
31.2
Alliance Global Group,
Inc.
23.7
Ayala Corporation
55.1
Cosco Capital, Inc.
8.8
DMCI Holdings, Inc.
19.8
Filinvest Development
Group, Inc.
13.4
GT Capital Holdings, Inc.
17.9
International
Container Terminal
Services, Inc.
Aboitiz Power Corporation
Aboitiz InfraCapital
Union Bank of the Philippines
Megaworld Corporation
Emperador
McDonald's Philippines
Ayala Land
Bank of the Philippine Islands
Globe Telecom
Manila Water Company
Integrated Micro-Electronics
Puregold
D.M. Consunji, Inc.
DMCI Homes
DMCI Power Corporation
Semirara Mining and Power
Corporation
Filinvest Land, Inc.
Eastwest Banking Corporation
MetroBank
Toyota Motor Philippines
Federal Land
Banking, Construction and
Infrastructure, Utilities
Food and Beverage,
Manufacturing, Real Estate
Banking, Construction and
Infrastructure,
Manufacturing, Real Estate,
Telecommunications,
Utilities
Retail
Construction and
Infrastructure, Real
Estate, Mining, Utilities
Banking, Construction and
Infrastructure, Real Estate
Banking, Manufacturing,
Real Estate
13.2
none
Logistics and Transportation
JG Summit Holdings, Inc.
27.9
Universal Robina Corporation
Robinsons Land Corporation
Cebu Air, Inc.
Banking, Food and
Beverage, Manufacturing,
Real Estate, Retail,
Transportation
Jollibee Foods Corporation
7.8
Lopez Holdings
Corporation
21.2
LT Group, Inc.
20.6
Metro Pacific Investments
Corporation
22.2
Jollibee, Chowking, Mang
Inasal, Burger King
First Philippine Holdings
Corporation
ABS-CBN Corporation
First Gen Corporation
Asia Brewery
Philippine National Bank
Tanduay Distillers
Philip Morris Philippines and
Fortune Tobacco
Metro Pacific Tollways
Meralco
Maynilad Water Services
Food and Beverage
Media, Utilities, Real Estate
Banking, Food and
Beverage, Manufacturing
Construction and
Infrastructure, Utilities
14
San Miguel Corporation
SM Investments Corporation
48.6
58.6
San Miguel Food and Beverage
Petron Corporation
Ginebra San Miguel
SM Prime Holdings
SM Retail
BDO Unibank
China Banking Corporation
Food and Beverage, Mining,
Utilities,
Banking, Real Estate, Retail
Source: 2018 Annual reports SEC 17-A reports. The conglomerates selected for this study
recorded the highest revenues in 2017. The table shows that Philippine conglomerates have
highly invested in various key sectors in the economy.
3.3 Conglomerates and their Contributions to Economic Growth
In this section, we assess the financial strength of the fifteen Philippine conglomerates through
their net income and market capitalization, as well as their contribution to the economy through
their value-added generation and consumption of intermediate inputs. These statistics present
the growing financial and economic muscle of these conglomerates, many of which have begun to
diversify in overseas markets. SM is now in China, Jollibee in North America, among other
countries, and Tanduay is now the largest Rhum maker in the world (Francia, 2018). Note,
however, that Philippine conglomerates have not been able to make major investments in key
sectors that bring rapid industrial development (such as manufacturing in the case of South
Korea) which creates larger multiplier effects and delivers better employment opportunities
(Mendoza, et al., 2018). Nonetheless, they have become important partners of the government in
the pursuit of the latter’s economic growth agenda.
3.4 Net Income: Growing faster than GDP from 2011 to 2018
Over the past decade, conglomerates have greatly contributed to and benefitted from the
country’s economic growth. In 2018, the select conglomerates generated a total net income of
Php 389 billion, translating to an average annual growth rate of 7% since 2011, which is higher
than the estimated 6.5% average nominal GDP growth (Philippine Statistics Authority, 2020).
Figure 1 shows the conglomerates’ combined net income from 2011 to 2018.
Figure 1. Net Income of Top Conglomerates (2011 to 2018)
15
Source: Authors’ calculations based on SEC 17-A reports. The net income of the top 15
conglomerates has increased by an average of 7% from 2011 to 2018, higher than the average
GDP growth rate for those years.
3.5 Market Capitalization: Rivaling ASEAN Counterparts, Still Below Asian
Manufacturing Giants
In terms of wealth creation, these big businesses posted record-high market capitalization levels,
with family-led corporations, SM Investment Corporation (Sy family), JG Summit Holdings Inc.
(Gokongwei family), and Ayala Corporation (Zobel de Ayala family) topping the list (Bloomberg,
2020; Yahoo Finance, 2020; PSE EDGE, 2020). As seen in Figure 2, these Philippine conglomerates
rival those of the biggest diversified ASEAN business groups, such as the CP and TCC Groups
(Thailand), UOB Group (Singapore), PBB Group (Malaysia), and Sinas Mas Group (Indonesia). In
terms of market capitalization, SM Investments Corporation is among the leaders in the ASEAN
region, ahead of the CP Group of Thailand and UOB Group of Singapore, but still behind Asian
manufacturing giants such as the Samsung Group of South Korea and the Tata Group of India.
Figure 2. Market Capitalization of Listed Conglomerates in Asia (February 2020)
Note: Market capitalization of Philippine conglomerates was computed for publicly listed
companies (both parent and subsidiary) while for non-Philippine corporations, data from
Bloomberg and Yahoo Finance were taken as is. The data reflects a pre-COVID-19-pandemic
situation.
16
Source: Bloomberg (2020), Yahoo Finance (2020) and PSE EDGE (2020). Market capitalization of
Philippine conglomerates rival those of ASEAN counterparts but remain below those of Asian
manufacturing giants.
3.6 Value-Added: Registering Significant Growth from 2012 to 2018.
One of the measures used by our study to determine the conglomerates’ contribution to
economic growth is the value-added they generate by employing the factors of production (i.e.,
labor, capital, taxes, and land) to create goods and services. Using the Unitied Nations System of
National Accounts [UNSNA] framework, we computed value-added as the sum of payments to
labor, consumption of capital, taxes on production, and operating surplus (i.e., payments to
creditors, income taxes to government, dividends to shareholders and net current transfers) (Vu,
2000). Data for these variables were sourced from the parent companies’ financial statements, as
found in their SEC 17-A reports1 for the years 2012 and 20182. Initial estimates show that the
value-added generated by these conglomerates has grown substantially from 4.7% (2012) to
almost 6.0% (2018) of Philippine GDP. As seen in Table 2, approximately Php 1 trillion in valueadded was generated by the conglomerates in 2018, more than twice their combined valueadded of Php 496 billion in 2012.
Table 2. Value-Added Generated by Top 15 Conglomerates (2012 & 2018)
(in Php millions)
Note: Based on the UN Systems of National accounts; estimates include net profits from associate
companies and/or joint ventures.
Source: Authors’ calculations using the consolidated income statements found in SEC 17-A
reports. In 2018, value-added generated by the conglomerates is about Php 1 trillion.
17
A caveat in this measure is that firm-level financial accounting captures business activities that are
conducted outside Philippine boundaries, such as ICTSI’s port operations in other countries. Given
that the conglomerates’ consolidated financial statements also reflect their foreign activities,
which are not counted as part of their contributions to Philippine GDP, certain adjustments would
have to be made upon the availability of relevant information.
3.7 Intermediate Inputs: Conglomerates are the Largest Consumers
The research used consumption of intermediate inputs as a measure of the conglomerates’
contribution to economic growth. Consumption of intermediate inputs reflects the cost of goods
and services purchased from both domestic and foreign sources which are then used to produce
goods or services for further intermediate use or final consumption. The UNSNA framework
computes the value of intermediate inputs by adding the costs of materials, services, rentals, and
royalties on copyright (Vu, 2000, which were obtained from the parent companies’ SEC17-A
financial reports for the years 2012 and 20183. Table 3 shows that the top fifteen conglomerates
purchased approximately Php 2.39 trillion in 2018, doubling their combined intermediate input
use of Php 1.16 trillion in 2012. As such, conglomerates are some of the largest consumers of
intermediate inputs and are possible sources of indirect linkages as well.
As regards this measure, we would also like to point out that there is currently a lack of
information regarding the proportion of domestic and imported inputs used by these
conglomerates. The utilization of domestic inputs generates multiplier effects in the domestic
economy through supply chain networks, while greater use of intermediate imports would benefit
foreign suppliers and those within their production networks. Future research on the
consumption of intermediate inputs by conglomerates should be made to track the volume of
inputs that are domestically produced as well as those that are imported.
Table 3. Intermediate Inputs Purchased by Top 15 Conglomerates (2012 & 2018)
18
Source: Authors’ calculations using data from the SEC 17-A parent company reports in 2012 &
2018. Conglomerates comprise the biggest users of intermediate inputs in the economy.
3.8 Efforts of Conglomerates to Advance Inclusiveness
Beyond the traditional financial and economic metrics, the authors did an archival review of
various reports released by the conglomerates to determine comparable indicators that convey
the concept of inclusiveness. The indicators discussed in this section are as follows: employment
generation, women in business, sustainability reporting, corporate foundations, and MSME
connectivity.
3.9 Employment: High Firm Level but Relatively a Small Percentage of Total Workforce
Based
on their SEC 17-A report submissions, the top 15 Philippine conglomerates generated 309,184
jobs in 2018, or the equivalent of one in every ten Filipinos working in large establishments
(estimated to be at 3.33 million as of 2018). See Figure 3. While this figure reflects a high
employment level per firm, it only represents 3.42% of the total private-sector employment in
2018. However, this does not include data on indirect employment, which refers to employment
generated by firms that supply goods and services to the conglomerates. Hence, any similar
research on conglomerates will also need to look into indirect employment data to get a more
complete picture of their contributions to employment creation.
Figure 3. Employment Share of Top Conglomerates to Total Employment in Private Sector (2018)
Source: Published company reports (SEC 17-A and Annual Reports) and DTI 2018 SME statistics.
The figure shows that 1 out of 10 employees belong to the top 15 conglomerates studied.
Employment per firm is high but share to total labor in establishments is small.
3.10 Women in Business: Playing Major Roles in Growing Conglomerates’ Businesses
In terms of the number of women in senior management roles, Figure 4 shows that the collective
ratio for the top 15 Philippine conglomerates is 43.8% in 2018, which is lower than the national
level of 46.6% but well above the global and ASEAN ratios of 24.1% and 39.0%, respectively (Grant
Thornton International, 2018). This figure also represents a marked improvement from the 34.7%
ratio registered in 2006 (based on SEC 17-A company report filings), signaling that the corporate
management structure of these conglomerates is evolving into one that is more open, diverse and
inclusive.
19
Figure 4. Women in Management of Top Philippine Conglomerates & Globally (2006 & 2018)
Source: Grant Thornton International’s Women in Business (2018); Authors’ calculations using SEC
17-A and Annual Reports for years 2006 & 2018. Women already play a big role in growing
business in the Philippines.
3.11 Sustainable Business Practices: In Place for Many but Reporting Standards Varies
A number of these top Philippine conglomerates have also manifested sustainable business
practices through their adherence to internationally recognized sustainability reporting standards,
such as the Sustainability Reporting Standards by the Global Reporting Initiative [GRI]; the
Integrated Reporting [IR] framework by the International Integrated Reporting Council [IIRC]; and
the Business Reporting on the SDGs by the United Nations Global Compact. The practices of
sustainability reporting, as presented in Table 4, reflect the conglomerates’ affirmative response
to the challenge of divulging information that enable them to properly situate their organizations’
economic, environmental, and social contributions in the sectors where they operate.
Table 4. Adherence of Top Conglomerates to International Reporting Standards
20
Source: 2018 Annual Reports, Company Reports, and Corporate Social Responsibility Reports. The
table shows that sustainability and integrated reporting are being practiced by some
conglomerates.
Many conglomerates have currently aligned their outcomes with the United Nations Sustainable
Development Goals [SDGs]. Given their capacity to infuse the necessary funding and resources,
the conglomerates can lead the private sector in implementing sustainable solutions. With it
comes the opportunity to access untapped markets and reinvent the concepts of profitability and
entrepreneurship through the lens of sustainable development.
Our research shows that the top 15 Philippine conglomerates have been reporting their
respective initiatives on the following SDGs: (1) SDG 4, on inclusive and equitable quality
education; (2) SDG 6, on availability and sustainable management of water and sanitation; (3) SDG
7, on affordable, reliable, sustainable and modern energy; (4) SDG 8, on inclusive and sustainable
economic growth, full and productive employment and decent work for all; and (4) SDG 12, on
sustainable consumption and production patterns. It is important to note that some of these
initiatives have been implemented prior to the launch of the SDGs under the 2030 Agenda for
Sustainable Development. See Table 5. This suggests that the private sector has recognized the
value of sustainable development for quite some time now, as demonstrated by their ability to
achieve corporate objectives along with social responsibility.
Table 5. Alignment of Conglomerates’ Programs with the UN SDGs (2018)
21
Source: Authors based on the 2018 Annual Reports of the top 15 conglomerates. The numbers
show how many conglomerates are aligned with the specific UN SDG.
The Ayala Group created their 2030 Sustainability Blueprint – a framework document that sets
explicit SDG targets for each of their subsidiaries and affiliates, and measures corporate
performance against agreed operating and sustainability metrics (Ayala Corporation, 2020). The
Aboitiz Group also implemented their respective sustainability policy framework, which requires
their subsidiaries to set their own SDG targets and periodically assess their corporate
performance vis-à-vis such targets (Aboitiz Equity Ventures, 2020). In addition, the SM Group has
already mapped their 2030 targets as regards the different UN SDGs (SM Investments
Corporation, 2020). These initiatives do not rest at the top but are also cascaded to their
subsidiaries and affiliates. We also highlight the programs and activities of First Philippine
Holdings (Lopez Group) and Manila Water (Ayala Group) as they help contribute to the
attainment of the country’s SDGs. Moreover, First Philippine Holdings makes it a point to access
more domestic inputs for their operations, thus directly helping various MSMEs in the process
(First Philippine Holdings, 2018).
3.12 Corporate Foundations: Where Conglomerates’ Development Initiatives are Lodged
Most Philippine conglomerates implement their corporate social responsibility projects [CSR]
through their corporate foundations. Of the fifteen conglomerates studied, fourteen have active
corporate foundations with projects that are philanthropic in nature (e.g., post-disaster relief
efforts, cultural, environmental conservation and education programs) as well as a few projects
that are complementary to business operations (e.g., Farmer Entrepreneurship Program under
JFC Foundation).
The structure of corporate foundations varies across conglomerates. Some conglomerates opted
to establish a single corporate foundation that consolidates CSR programs of various corporate
units (i.e., SM Foundation for SM Investments Corporation and Jollibee Group Foundation for
Jollibee Foods Corporation). Others, such as Lopez Holdings Corporation and Metro Pacific
Investments Corporation, operate multiple corporate foundations with separate teams working
on distinct projects.
Across corporate foundations, programs and projects are wide-ranging, but remain coherent with
respect to by-laws and corporate principles set by management. The San Miguel Foundation and
Ayala Foundation hold various programs on health, business entrepreneurship, education,
disaster relief efforts and cultural conservation. Yet, some programs are singular in purpose, such
as the educational program under the Gokongwei Brothers Foundation of JG Summit Holding.
Measuring the impact of these various projects has always been a challenge. A lot of projects are
short-term and micro-targeted, such as coastal clean-ups, scholarship programs, medical missions
and feeding programs. In stark contrast, some initiatives were designed to tackle the more
pressing and lasting issues of climate change and environmental sustainability (Aboitiz
Foundation’s Cleanergy Park and Lopez Group Foundation’s Oscar M. Lopez Center), and cultural
and historical preservation (Ayala Foundation’s Ayala Museum). Regardless of the scope of these
22
programs, the corporate foundations manifest the conglomerates’ willingness to contribute to
addressing some of the challenges faced by our society today.
3.13 MSME Connectivity: A Pressing Need for More
Philippine conglomerates have ventured into CSR activities as their way of giving back to society.
While CSR activities are sometimes criticized as nothing more than good publicity stunts for these
companies, there are those that institutionalized inclusive business models which have adopted
shared-prosperity values as part of their companies’ core operations. Implementing such
programs typically require better connectivity with smaller firms and producers that are tied to
the company’s supply chain.
A prime example is the Farmer Entrepreneurship Program of the Jollibee Foods Corporation in
which the latter sources 20% of its vegetable needs directly from smallholder farmers
(Camposano-Gomez, 2019). Another is the ‘Kabalikat sa Pag-unlad’ program of the Universal
Robina Corporation, a program that eventually integrates hog farmers as upstream suppliers of
the firm’s value chain (JG Summit, 2018). See Figure 5. These innovations address income-related
constraints by increasing productivity and scale for small firms and farmers that are integrated
into the conglomerates’ business model.
Figure 5. Conglomerate-Led Programs that Link Agricultural Farming in Supply Chains
Source: Camposano-Gomez (2019) and JG Summit Team (2018). The figure shows that
conglomerates are moving to increase connectivity with MSMEs and those at the bottom of the
pyramid.
Some conglomerates have also manifested their support for innovation by assisting startup4
companies in various industries, such as information technology, e-commerce, and financial
technology, through financial grants and mentorship. In March 2012, Globe Telecommunications
23
(an Ayala Group company) established Kickstart Ventures, a venture capital firm, to support
startups in Southeast Asia (ABS-CBN News, 2019). To date, this firm has supported the launch of
brands like Kalibrr and Entrego. Additionally, a partnership between the DTI and IdeaSpace
Foundation (primarily supported by the Metro Pacific Investments Corporation) helped establish
QBO Innovation Hub, a platform for startups and innovation entrepreneurs (IdeaSpace, 2020).
In summary, conglomerates can contribute to MSME development by incorporating smaller
businesses to the formal and more sophisticated markets where conglomerates thrive. As MSMEs
also significantly contribute to employment and job creation, conglomerates have the potential to
play a bigger role in stimulating inclusive growth by establishing more extensive linkages to these
smaller firms.
3.14 Challenges and Opportunities
We see in the previous section that the conglomerates play a significant role in the country’s drive
for inclusiveness, supporting the government in this thrust. Cognizant of their programs and
initiatives, there is still room for the conglomerates to further their contribution to this agenda.
To become better instruments of inclusiveness, the conglomerates must undertake certain steps
such as improving MSME connectivity, standardizing sustainability reporting, and working with
the government for a strong industrial policy.
3.15 Improve MSME Connectivity
Given their financial strength and size, conglomerates can be the government’s partner in
providing growth opportunities for MSMEs and communities belonging to the “bottom of the
pyramid” [BoP]. Many of the country’s conglomerates have taken steps to integrate these MSMEs
and BoP communities into their existing supply chains and operations. Nevertheless, the
challenge at hand is to ensure that it is implemented in a sustainable manner, in lieu of merely
occasional projects.
As viewed from Figure 6, MSMEs employ almost two-thirds of the private workforce but have low
value-added generation. Linking these MSMEs with big firms will push the former to conduct
business more professionally, increase total output, and adopt better technology. Likewise, new
business opportunities will help pave the way for these firms to accumulate more assets, make
more investments, and create more employment.
24
Figure 6. Employment in Establishments and Value-Added by Source (2018)
Source: Department of Trade and Industry (n.d.). While MSMEs employ two-thirds of the total
number of workers, these firms still need to address productivity issues.
With greater access to the country’s economic and financial resources, the private sector
can utilize these resources to promote both economic growth (increasing national and per capita
income) and development (reducing poverty and unemployment).
How should the government and private sector tackle segmented domestic supply chains and
develop them into a more cohesive and dynamic industrial structure?
A perennial hurdle faced by MSMEs is access to financing. Total loans extended to MSMEs are
estimated at Php 578 billion, equivalent to a share of 6.2% of the Php 9.3 trillion total credit
portfolio of the banks (BSP, 2019).5 See Figure 7. Access to credit remains highly elusive to
MSMEs despite government regulations and lending requirement measures imposed on financial
institutions, such as those enshrined in Republic Act No. 9501 Magna Carta for Micro, Small and
Medium Enterprises. If not through policy, in what way can credit assistance reach our MSMEs?
Are there any successful financial innovations abroad that Philippine banks can replicate?
Figure 7. Total Loans Extended to MSMEs over Total Bank Loan Portfolio (2018)
Php 578 billion
Php 9.3
trillion
25
Source: Bangko Sentral ng Pilipinas (2019). The figure shows that access to credit remains elusive
for MSMEs.
Beyond mere aggregate numbers, the research presents relevant and current initiatives on MSME
financing. In 2019, the Bank of the Philippine Islands (part of the Ayala Group) recorded a 6%
increase in MSME loans and a 100% increase in microfinance loans (Ayala Corporation, 2019).
UBX, Unionbank’s integrated online financial platform that primarily caters to unbanked
individuals and MSMEs (including rural banks), has disbursed about Php 1.5 billion worth of loans
in 2020 for MSMEs affected by the pandemic (Agcaoili, 2021). The Philippine Guarantee
Corporation has also signed 6 agreements with banks to provide MSMEs with loans amounting to
Php 10.2 billion in order to sustain their operations during the pandemic and post-pandemic
recovery periods (Philippine Guarantee Corporation, 2020). Moreover, the Department of Social
Welfare and Development partnered with the Land Bank of the Philippines and six other financial
service providers [FSPs] to disburse government cash subsidies during the pandemic (Philippine
News Agency, 2020). The initiatives of conglomerates demonstrate their affiliated FSPs’ ability to
connect consumers, particularly those belonging to low income and marginalized households, to
the formal bank network.
Contextually, strengthening domestic supply chains through greater connectivity would not only
support MSMEs operations during the pandemic but also act as a trickle-down channel for the
recovery of a wider network of firms and individuals. The partnership of banks and government
institutions bodes well for the financing access and reach of MSMEs, an important ingredient in
sustaining operations, supporting production, and providing means to manage risks. This strategy
is viable as developing MSMEs could translate to better productivity, more employment and
better wages, hence raising inclusiveness on most fronts.
3.16 Standardize Sustainability Reporting for Better Monitoring & Evaluation
While it is the government’s responsibility for imposing regulations on sustainability reporting,
conglomerates may set the standard for the private sector. Several conglomerates already
practice sustainability and integrated reporting as seen from their adherence to internationallyrecognized sustainability reporting standards and their alignment with the UN SDGs. The
challenge, however, is to present these reports in a way that enables the conglomerates to
communicate their programs and key contributions better to their stakeholders for better
decision- making, as well as the regulatory bodies for appreciation and monitoring of their
contributions to the national sustainability agenda. For instance, the lack of a standardized
mechanism for gauging sustainability initiatives by conglomerates limits the ability of interested
parties to conduct an objective assessment of their programs and results.
The practice of sustainability reporting is echoed by the Securities and Exchange Commission
[SEC] through a recently released memorandum circular providing guidelines for sustainability
reporting of publicly listed companies in the country (Security and Exchange Commission, 2019).
Related to this, the first ever GRI Sustainability Summit was held in October 2018, which brought
26
senior officials from different business sectors together to bridge the gap in sustainability
reporting and encourage the private sector to align business with the UN SDGs as commitment to
meaningfully contribute to environmental sustainability, employment, gender equality, and
poverty alleviation (The Daily Tribune, 2018). The adoption of standardized reporting can help
conglomerates better communicate their initiatives and facilitate the evaluation of their
contribution to the economy and society.
3.17 Strong Industrial Policy for Greater Inclusiveness
Going beyond improving the private sector’s operational performance and strengthening their
developmental impact, a whole-of-nation approach is necessary to implement an industrial
program that promotes fair competition, robust job creation, strong connectivity with MSMEs,
effective technology transfer and catch-up, and diversified expansion of the country’s export
baskets and markets.6 In the Philippines, our economic managers plan to develop this industrial
program by upgrading the competitiveness of our public infrastructure, However, other strategies
are critically as important, such as providing incentives to draw foreign and local investors
towards the manufacturing sector and becoming less reliant on rent-intensive sectors of the
Philippine economy (DTI, 2017).
The country’s industrial policy – the Inclusive Innovation Industrial Strategy (i"s) of the DTI (2017)
– in its current form is a collection of ‘industry roadmaps’ which provides a more detailed
blueprint of where certain sub-sectors are, what they aspire to become and what they need to get
there, inclusive of government support, quality of workforce, financing investments, and
technological requirements. See Figure 8 for i3s Framework.
Figure 8. Inclusive Innovation Industrial Strategy (i3S) Framework
27
Source: Department of Trade and Industry (2017). The framework shows that various government
support, such as investments in skills and infrastructure, are necessary to help develop MSMEs in
the country.
The use of inclusive business models is also considered a vital strategy for the private sector to
contribute to society while remaining aligned with core operations and achieving organizational
targets and objectives. They are characterized as commercially viable programs or livelihoods
intended to make those at the ‘bottom the pyramid’ a part of the companies’ value chain as
suppliers, distributors, retailers, or customers (Briones, 2016). To enable a new and stronger
industrial policy, a sharpened and targeted incentive scheme underpinned by competitive
markets is necessary, as this will pave the way for a second wave of pro-competition reforms
following previous deregulation and privatization policies. Moreover, strong and fair incentives
for MSMEs connectivity with conglomerates should be in place to push the process of
recalibrating the industrial structure to one that is employment-generating and poverty-reducing
(DTI, 2017). The academe can also play a role in developing this program by regularly convening
private sector and government leaders to discuss the measures that will enable MSMEs to
participate better in bigger supply chains.
The synergy between private sector activities and government policies embodied in a clear
industrial policy is crucial for inclusive development. By speeding up this process, we may soon,
rather than later, witness economic growth that is truly inclusive and shared with a greater
number of Filipinos.
4 The Philippines' Top Conglomerates
4.1 Aboitiz Equity Ventures, Inc.
Reference: https://aboitiz.com/corporate-governance/governance-practices/
In 2021, the Aboitiz Group began writing the next chapter in its centennial history to continue to
drive change for a better world by advancing business and communities in the next 100 years. We
have taken deliberate steps to transform our organization into an enterprise that not only
endures but thrives in the new and dynamic business landscape. Our transformation is anchored
on the strong foundation of growth and expansion nurtured by more than five generations of
leaders with their unwavering commitment to the highest standards of corporate governance.
At the helm of our story of transformation are the Board of Directors who firmly believe that a
sound framework of corporate governance creates a path towards achieving the Group’s strategic
goals and growth aspirations.
28
4.1.1 Aboitiz Governance Structure
4.1.2 Transitioning Pathways towards Sustainability
In this section, we share with you our ESG approach to business and how our Group Purpose
and Brand Promise drive the why and how we do things in Aboitiz. Other details are available in
the AEV Annual Report 2021 Form 20-IS filed with the Philippines’ Securities & Exchange
Commission.
In 2021, the Group’s resilience was tested in the midst of the continuing impact of the COVID-19
pandemic and compounded by natural calamities such as Typhoon Odette which wreaked havoc
in Visayas and Mindanao as the year came to a close. Guided by our time-honored values of
integrity, teamwork, innovation, and responsibility, we mobilized sound risk management
systems and timely response to crisis situations. Despite the challenges, the company remains
confident in capturing growth opportunities and continuously strategizes on our transition
pathways towards the Great Transformation which includes focused and deliberate actions
towards ESG.
4.1.3 Transforming Sustainability Leadership
Our culture and values are the intrinsic factors that have connected our past and present in
transitioning pathways to become a more sustainable organization. Our leadership continuously
transformed to have a keen focus on our sustainability journey, guided by strong leadership that
promotes the continuous improvement of our environmental, social, and governance (ESG)
performance. Our commitment to sustainability is demonstrated through our brand promise of
advancing business and communities. As our business grows, our stakeholder communities
29
should equally gain. We define sustainable development as inclusive growth that is reflected in
the dimensions of ESG:
Environment - The Aboitiz Group minimizes competition for limited resources in the
communities we operate and ensures that these can be replenished for future generations.
Social - The Aboitiz Group understands the basic premise that no business shall succeed in
failing communities. As such, Transitioning Pathways towards Sustainability In this section, we
share with you our ESG approach to business and how our Group Purpose and Brand Promise
drive the why and how we do things in Aboitiz. Other details are available in the AEV Annual
Report 2021 Form 20-IS filed with the Philippines’ Securities & Exchange Commission. 103-1,
103-2, 103-3 we implement sound labor practices in the workforce and responsible operations
in our host communities.
Governance - The Aboitiz Group operates and manages the interest of its stakeholders,
including checks and balances, that enable the Board of Directors to exercise appropriate
control and oversight responsibilities on the environmental and social aspects of the business.
We follow this simple equation:
In order to deliver our ESG strategies, we continuously redefine our leadership functions and
responsibilities to strengthen the Aboitiz Group’s ESG work plans and performance targets.
Business Units and Corporate Service Units: implements and addresses ESG operational
programs; manages data gathering and monitoring.
ESG Technical Working Group: ensures that material issues are discussed, addressed, and
reported to the Aboitiz Group Management Committee
Aboitiz Group Management Committee: responsible for monitoring ESG integration in the
company’s principles and policies
Environment, Social, and Corporate Governance Board Committee: provides direct oversight
on sustainability and the ESG framework, ensuring that ESG direction is integrated into the
Aboitiz Strategic pillars.
30
4.2 Alliance Global Group Inc.
Reference: https://www.allianceglobalinc.com/about-us
AGI was incorporated in the Philippines on October 12, 1993, and began operations in 1994 as a
glass container manufacturer after it acquired a glass manufacturing plant in Canlubang, Laguna.
After its listing on the PSE in 1999, the Company obtained approval from the Philippine SEC to
broaden its primary business and become a holding company. That same year, the Company
began acquiring a diverse group of businesses, primarily in the real estate and food and beverage
industries.
4.2.1 Organizational Chart
4.2.2 Conglomerate Structure
31
4.3 GT Capital Holdings, Inc.
Reference: https://www.gtcapital.com.ph/sustainability-report
The year 2021 was a transformative one in terms of GT Capital’s sustainability story.
We strengthened our commitment to an investment philosophy that compels us to integrate
economic, environmental, social, and governance (EESG) considerations into our decisions to
create long term value for shareholders, communities, and the environments where we operate.
We invest in well managed businesses that ensure sustainable returns and those that contribute
to UN SDGs aligned with our material topics. Conversely, we avoid investing directly in harmful or
exploitative businesses. We, along with our component companies, leverage on each other’s
capacity to adhere to evolving industry standards, frameworks and influence to inform and
enhance our approach.
We aspire to emulate best practices in achieving relevant, reliable, and transparent ESG
disclosures. Through this Integrated Report, we started following the Integrated Framework on
top of the GRI Standards which we have been abiding by for years.
We revisited our materiality assessment with the help of third-party experts to identify the EESG
topics most important to our stakeholders. Through our engagement with experts from the
University of Asia and the Pacific (UA&P), we conducted a Materiality Assessment which involved
literature review, benchmarking with local and international peers, stakeholder consultations, and
management team consultations. Following these, we prioritized and filtered the material topics
to come up with our final list of 26 topics. Our UA&P partners were also instrumental in the
vetting process to ensure the quality of our report.
We are also nurturing our engagement with component companies so we may all move
harmoniously in our bid to improve our disclosures. Using an integrated approach, we identified
three priority SDGs where our component companies create the most meaningful impacts: SDG 8
- Decent Work and Economic Growth, SDG 11 - Sustainable Cities and Communities, and SDG 13 Climate Action. These priority SDGs will be complemented by our corporate social responsibility
arms’ forte in implementing programs that address SDG 1 - No Poverty, SDG 3 - Good Health and
Well-Being, and SDG 4 - Quality Education. This consolidation is intended to help our different
units in measuring our impacts. We also disclosed their respective strategies and impacts in this
report.
A ray of light shines just in front of us and we are sincerely grateful to everyone who tirelessly
pushes us toward it. To our employees, thank you for your unfaltering service. You are the
backbone of our success. To our clients, thank you for your unwavering support. To our
shareholders, thank you for your continuous trust. Our rebuilding journey would not have been
possible if it were not for you.
Allow us to end this message with a quote from our late founder, Dr. George SK Ty. He once said,
“For me, business is not just about reaching the pinnacle of success. It is about helping other
people achieve their dreams. This is my ikigai, and I was fortunate to have found it early in my
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life.” GT Capital was established espousing these values. Our ikigai, our reason for being, our
greater purpose will always be to create meaningful contributions to society. Rest assured that
this commitment will never falter.
4.3.1 Organization Structure
4.4 JG Summit Holdings, Inc.
Reference: https://www.jgsummit.com.ph/our-company/organizational-structure-andconglomerate-map?ref=nav_corporate_organizational_structure
JG Summit is currently one of the largest and most diversified Filipino conglomerates engaged
primarily in businesses that serve a growing middle class with rising disposable incomes in the
Philippines, Southeast Asia, and Australasia. JG Summit’s place in Philippine business has for its
cornerstone a business portfolio of market leaders, management team, and a vision of leading the
country to global competitiveness and making life better for every Filipino.
4.4.1 Organizational Structure and Conglomerate Map
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4.5 ICTSI - International Container Terminal Services, Inc. & Bloomberry Resorts
Corporation
Reference: https://www.ictsi.com/governance/reports-and-compliance
ICTSI is committed to a principled Corporate Stewardship of its people, customers, corporate
resources, and the environment. ICTSI is also committed to substantive development
partnerships, where both communities and sectors are empowered. The long-term and
overarching vision remains fixed: ensuring that the broadening impact of genuine Good Global
Citizenship is squarely apace with ICTSI’s expanding corporate footprint. It shall be the policy of
International Container Terminal Services, Inc. (ICTSI) to maintain an Environment, Social and
Governance (“ESG”) Sub-Committee (“Committee”), which shall assist the Board of Directors
(“Board”) in ensuring that the Company upholds the principles of sustainable development in its
operations.
4.5.1 Organization Chart
4.5.2 Responsibilities
The Committee’s regular responsibilities are enumerated below.
•
•
•
Oversees the management of the Company in setting and implementing the
Company’s general framework and strategy with respect to all Environmental,
Social and Governance matters.
Reviews and approves Company’s strategy, policies, practices, and disclosures for
consistency with respect to ESG Matters especially in the Annual Sustainability
Report of the Company.
Ensures and monitors that the strategy remains appropriate to the Company’s
purpose and compliant to all business and regulatory requirements;
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•
•
•
•
•
•
•
Assist the Board in its oversight, monitoring and review of the Company’s
sustainable development policies and practices in respect of its development,
implementation and monitoring;
Ensure compliance of the Company with legal and regulatory requirements and
international industry standards and guidelines applicable to ESG matters;
Support on-going commitments to environmental, health and safety, corporate
social responsibility, corporate governance and other sustainability matters
relevant to the Company; consider, and bring to the attention of the management
of the Company, as appropriate, current and emerging ESG Matters that may affect
the business, operations, performance, or public image of the Company or are
otherwise pertinent to the Company and its stakeholders, and to make
recommendations to the ESG Sub-Committee Charter – 2031 3 management of the
Company, as appropriate, regarding how the Company’s policies, practices, and
disclosures can adjust to or address such trends and issues;
Support continuous improvement of policies and strategies in place with respect to
ESG Matters, through corrective actions following regular assessments and audits
and investigation analysis of incidents;
Identify current and emerging ESG Matters that may affect the business,
operations, performance or public image of the Company; • Review the quality and
integrity of internal and external reporting of ESG matters and performance;
Review results of any future independent audits on the Company’s ESG matters;
and
Perform such duties and responsibilities that may be assigned or delegated to the
Committee by the Board from time to time.
5 Spans and Layers for the Modern Organization
Reference: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/human-capital/usspans-and-layers-for-the-modern-organization-2020.pdf
5.1 Spans and Layers Analysis is Nothing New
Altering spans of control (spans) and organization layers (layers) has always been a hot issue
during organization design for growth, restructuring or cost reduction. If you are looking for an
absolute number for the right span of control or layers across all organizations stop reading now,
because – you guessed it – there is no one number. And while benchmarks are a mildly interesting
data point, they are rarely if ever the answer to designing the right organizational context to get
to both the desired cost structure and the right behaviors for business success. There is, however,
real value in understanding the structure you design, knowing different spans and layers are
effective in different environments, and predict different behaviors. This article provides guidance
on the right questions to ask, the factors that could influence the appropriate span / layer for the
organization and how benchmarks can be used as one input for recommendations, along with
more important input such as business and operating model, supervisory burden, and the need
for both agility and stability.
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Span of Control (SOC) refers to the number of people reporting directly (i.e. not through a
manager or supervisor) to one individual. It is the ratio of management to staff in an organization.
For example: A manager who directly manages five employees has an SOC ratio of 5:1.
Organizational Layers refers to the number of organizational levels having supervisory
responsibilities. Spans and layers influence the way an organization delegates tasks to specific
functions, processes, teams and individuals. To ensure organizational efficiency and effectiveness,
a formal spans and layers analysis is often a worthwhile solution. A spans and layers analysis is
regularly triggered by internal and external business events. Some typical drivers for analysis
include:
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Improve communications (speed and accuracy)
Limit grade inflation (and title proliferation)
Increase productivity (reduce redundancy)
Speed decision making (reduce bureaucracy)
Increase responsiveness (to customers and business opportunities)
Increase empowerment (and create room for creativity and innovation)
Increase accountability (create room for growth)
And finally… to reduce costs
5.2 Effectively and Sustainability Delayering an Organization
Effectively and sustainably delayering an organization Some organizations use delayering as a
quick fix solution to address common organizational issues such as uncompetitive (or high)
operational costs and slow organizational responsiveness. Often, these issues are only symptoms
of much bigger challenges such as:
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Weak organizational discipline in spending (e.g., weak spend policies and lack of a costconscious culture)
Poor organization design (e.g., functional duplication and accountability overlaps)
Unsuitable career development process (only creating development opportunities
through layering)
Skill gaps at critical positions
Weak decision-making / governance model
Understanding the root cause of organizational issues requires a thorough, broad-based
organizational assessment to evaluate the current state of the organization across various
dimensions (e.g., cost, people, structure and processes). Delayering, as a standalone event, is
unlikely to bring sustainable cost savings. This can be likened to crash dieting. One can probably
shed some weight short term, but may put the weight back on, and sometimes more. Plus, it’s a
lot of short-term pain, often for little to no long-term gain. And sometimes it can even do
irreparable damage.
To establish a successful delayering exercise for an organization, we believe there are ten
critical elements that must be considered:
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1. Position delayering as part of a larger organizational change effort, rather than a standalone initiative.
2. Establish a burning platform and be disciplined in execution.
3. Ensure that the CEO is onboard and fully committed to boldly examine all areas (no
sacred cows).
4. Be transparent and honest in communications to the organization.
5. Set up a knowledgeable working group to drive the process (business leaders, HR, SMEs).
6. Establish strong guiding principles that will enable consistency and fairness in the process.
7. Be aware of the high emotional impact on everyone involved and develop a mitigation
plan.
8. Delayer from the top, not the bottom.
9. Realign people management processes during the diagnosis phase rather than reactively
after restructuring (changes to total rewards, performance metrics, promotion, skill
development, etc.).
10. Include a proactive design component in the organization structure to prevent
unnecessary alterations to the spans and layers
5.3 Defining and Measuring Supervisory Burden
Organizational realignment involves transitioning the workforce to align with the redefined
service delivery model. This transition may include separation of employees who have no roles in
the future state organization. Span of control analysis is then conducted as a supplement to
understanding the current state and proposing a future state organization that will produce cost
savings. As part of this, a supervisory burden analysis provides leaders with the strategic and
operational context of their organization’s span of control, deconstructs span of control into four
measurable supervisory burden criteria that leaders, managers, and employees can understand
and translate to their daily activities, and provides a fact-based, bottom-up approach to
developing and implementing span of control targets. We define and measure supervisory burden
across four components:
1. Nature of work: How similar is the work that the manager’s direct reports perform? It is
easier for a manager to oversee staff that has similar responsibilities rather than different
ones. As the similarity of work decreases, the appropriate level of supervisory burden
increases, negatively impacting appropriate span of control by decreasing the number of
direct reports a supervisor can oversee effectively. 2.
2. Degree of standardization possible: To what degree can work be standardized? The more
routine, rules-based, and similar the work, the more it lends itself to be coordinated
through standardization. Therefore, as standardization increases, the appropriate level of
supervisory burden decreases, positively impacting appropriate span of control by
increasing the number of direct reports a supervisor can oversee effectively. 3.
3. Complexity of work: How complex are the activities the direct reports perform? It is easier
for a manager to oversee staff who perform simple and repetitive tasks than those who
perform more complex activities. As activities become increasingly complex and varied,
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the appropriate level of supervisory burden increases, decreasing the appropriate span of
control. 4.
4. Interdependency of work: To what degree must the manager coordinate activities with
members of the work group? Interdependent tasks require workers to communicate
closely to coordinate their work. These tasks are more effectively performed in small
enough work groups to encourage convenient and frequent interaction. It is easier for a
manager to oversee a higher number of staff when minimal interdependence is required
within the work group than when extensive interdependence is required. As the
coordination effort increases, the supervisory burden increases, decreasing the
appropriate span of control.
When a span is too wide, upper management is not connected to frontline issues, which can
create increased stress at manager-level due to excessive workload, reduced opportunities for
continuous one-on-one performance feedback, and potential for greater need for “assistants” or
“chief of staff” roles. When a span is too narrow, middle managers spending close to 100% of
their time too closely managing others (micromanaging), or significant time performing work
(working supervisors). With an optimal span of control, upper management is connected to work
happening on the ground, middle managers spending most of their time managing and some of
their time improving operations and on other highly impactful “improvement projects” which are
implemented.
Figure 1. Span of ratios in this hierarchy must be reexamined to optimize the organization’s
structure
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Source: Deloitte Consulting LLP
In Figure 1, there are a few reporting relationships worth analyzing. Several managerial positions
possess a 1:1 or 0:1 reporting relationship. Our research shows that managers with only one
direct report spend approximately 94% of their time meeting with that direct report, creating
significant inefficiencies. Often, managers with one direct report tend to overlap duties with their
subordinate or simply sign off on their work, creating significant inefficiencies and creating high
overhead costs for the organization with little benefit. Managers with no direct reports may have
inflated titles, and it could be argued that their roles are individual contributor positions that
could be moved down in the organization, closer to the customers they support. Shifting down
managerial levels allows span of control to increase and potentially create faster time to informed
decisions. This presents an opportunity to review spans that are too wide, too narrow, and/ or do
not create parity between roles of the same title/level. Successfully flattening a hierarchy is
predicated on how effectively tasks are delegated. There are many benefits to delegating tasks; it
enables decision making to reside closer to the locus of knowledge, results in positive
motivational effects on subordinates, and creates growth opportunities for them. However, these
benefits must be carefully balanced against the potential for loss of control and coordination. The
success of flattening a hierarchy is predicated on the well-known benefits of delegation – such as
allowing decision making to reside closer to the locus of knowledge, positive motivational effects
on subordinates and creating growth opportunities. This must all be carefully balanced against the
loss of control and coordination created by delegation. Put simply, we should not be complacent
about the costs of pushing authority downwards; they are real precisely because authority offers
the benefits of control and coordination, which delegation forces us to give up in some measure.
If you are to undertake a span widening and layer reduction reorganization, people management
processes to support new structure should be considered, including:
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Promotion / succession planning
Performance management
Capability building / skill development (especially on being effective managers)
Governance
Compensation
Accountabilities reassignment
In addition, evaluate the technology needed to support the work; implement a communication,
change management and workforce transition strategy; develop a talent retention plan to help
stem the flight of critical talent; and establish metrics to measure the effectiveness of the new
structure.
In conclusion, there are only two ways to delayer an organization: Either shrink the organization
so that with a given span, the hierarchy will have fewer layers as the number of members in the
organization contracts; or keep the same number of members but increase spans of control.
Assuming we are focused on increasing span of control, we must first understand the conditions
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in which we can successfully do this without simply overwhelming the already overwhelmed
employee and manager and in turn decreasing speed of decision making and overall performance.
One final important note is that optimizing your organizations shape is not restricted to hierarchal
designs. Today we design adaptable organizations that are equipped to succeed in an
unpredictable world. While most organizations are designed in a deeply mechanistic way, we
know that, organizations are living human systems. Understanding the work done by the business
is a key factor behind designing for efficiency or adaptability (see figure 2). Routine work lends
itself to outsourcing, automation, and designing for productivity, and the nature of deep problemsolving or creative work aligns to more adaptable, flexible team designs that are speedy and
responsive. Whether you choose to organize for efficiency or flexibility, architecting your teams
intentionally will lead to better collaboration, productivity, and overall business outcomes. We
explore this topic more fully in our Adaptable Organization perspective.
Figure 2. Teams must be designed intentionally for efficiency or agility based on the nature of
their work
Source: Deloitte Consulting LLP
6 Spans and Layers: A Primer for Leaner Organizations
Reference: https://clarkstonconsulting.com/insights/spans-and-layers/
As companies evolve over time, their organizational structure changes to adapt to new strategic
and tactical imperatives. Just as a tree grows from a trunk and expands into branches, twigs,
leaves, and even fruits, organizations naturally expand functions, departments, and teams to
service the needs of their business and stakeholders. One element to consider when working
towards a leaner organization is the spans and layers approach.
As such, functions change, departments are created, people are hired, and before long, executives
are faced with a new reality: a complex organizational structure with management layers that are
too deep, teams that appear to move too slow, a growing and sometimes uncompetitive cost
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structure, and ideas that have difficulty flowing through the organization at the speed that is
required to win in today’s hyper competitive landscape.
6.1 Creating a Leaner and Nimbler Organization
A first step towards helping executives transform their organizational structure into a leaner,
faster, and more effective construct starts with establishing a factual baseline understanding of
the spans of control and management layers within the organization (an analysis commonly
known as “spans and layers”).
A spans and layers assessment looks at the span of control of different levels in the organization
(i.e., how many direct reports do individual levels of the organization have?) and the different
management layers (i.e., how many levels exist from the CEO down the lowest individual
contributor in the organization?) present within the current organizational constructs (see Figure
1).
6.2 What are the Benefits of Performing a Spans and Layers Analysis?
Performing & executing a spans & layers analysis is the first step towards unlocking a leaner, more
empowered organization. Extensive research has shown clear benefits and added value to
organizations, some of which include:

Faster decision making. As layers are reduced, decisions can be implemented faster
given fewer vertical layers of approval. In addition, decisions being made closer to where
the work actually takes place (instead of several layers removed) can lead to more
relevant work being performed inside the organization. In other words, not only can work
be done faster (efficiency), but in theory it should also be done better (effectiveness)
given it is closer to where the challenges & solutions live. Finally, reducing the number of
smaller, non-specialized work groups that might have ‘flown under the radar’ can
objectively and quantifiably be identified via spans and layers, especially across largescale organizations with thousands of employees.
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Improved accountability. Fewer layers translate into faster top-to-bottom (and vice
versa) communication. Additionally, we often see that the ‘telephone effect’ dissipates
and ideas are less distorted as they move up and down the organization. For leaders
looking to transform their organization, this plays a critical role in designing what the
future structure needs to look like to support their strategic ambitions
Changed behaviors. Contrary to what most leaders might believe, growing the span of
control in some supervisor/manager roles helps improve the effectiveness of the
managerial roles – as managers are unable to micro-manage (and/or increasingly forced
to delegate), their tasks & responsibilities can be elevated to other leadership/more
strategic roles. As employees are empowered with a broader set of responsibilities, this
prioritization exercise can lead improved behaviors provided the right supporting
mechanisms are in place to facilitate the transition.
Leaner cost structures. As spans are increased, fewer roles (whether managerial and/or
individual contributors) might be required inside the organization. While this is
oftentimes a misguided guiding principle of a spans & layers exercise, leaders need to be
cautious about focusing or over-relying on benchmarks as the only parameter to resetting
an organizational structure (more on this point below).
Lean and more efficient organizations can make decisions quicker and thus adapt to change more
easily and better welcome innovation. Transparency and communication are improved across the
organization, and operating costs can be improved as a direct byproduct of delayering.
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What is a Matrix Organization?
Reference: https://asana.com/resources/matrix-organization
A matrix organization is a work structure where team members report to multiple leaders. In a
matrix organization, team members (whether remote or in-house) report to a project manager as
well as their department head. This management structure can help your company create new
products and services without realigning teams.
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7.1 How Do Matrix Organizations Work?
Matrix organizations have two or more management reporting structures. While this may seem
confusing at first, team members typically have a primary manager for their department.
Reporting to a department manager functions similarly to a traditional work structure. For
example, team members working in IT report to the IT department head. The IT department head
reports to the vice president of their division. Eventually, all reporting relationships lead to the
CEO.
The difference in a matrix structure is that team members also report to project managers.
Projects often require work from members of various departments like IT, marketing, and finance,
which is why having a separate manager for individual projects makes sense.
7.2 Types of Matrix Management
There are three types of matrix management, with each type giving authority to the project
manager. You can visualize these management types on a scale with the project manager on one
end and the department manager on the other.
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
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Weak matrix. In a weak matrix, the project manager has the least amount of decisionmaking power compared to the other matrix management types. When the project
manager has limited authority over the project, the matrix becomes weak because the
project budget and timeline is in the hands of the department head. Creating a
communication plan can keep communication from getting lost in a weak matrix.
Balanced matrix. In a balanced matrix, the department head and the project manager
have equal authority and team members report to both. This keeps communication open
between everyone in leadership roles and allows the project to move forward smoothly.
Strong matrix. In a strong matrix, the project manager has most of the decision-making
power over the project, while the department head has more limited authority. This
creates a strong organizational structure because the project manager has full ownership
over the project. The department head can oversee the project but doesn’t make key
decisions.
7.3 Advantages of The Matrix Organization Structure
The matrix organizational structure is more complex than the hierarchical structure, but it has
many advantages. Some advantages of the matrix design include clear project objectives, an
efficient use of resources, free-flowing information, and training for project managers.
Clear project objectives
The matrix organization design can ensure greater clarity on project objectives. When your team
reports their progress to both the project manager and the department head, solidifying project
goals is critical. When the project manager feels supported by other members of senior
management, project organization becomes a priority.
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Scenario: Let’s say your team is working on an app development project. Because you’re using a
matrix structure, the IT developers report to you as the project manager and the IT department
head. The project objective is to create a keyword search app for marketers to use on-the-go.
When the IT department head and the project manager communicate a clear project objective
to the IT developers, the app gets developed quicker.
Efficient use of resources
The matrix structure allows for an efficient use of resources because teams include specialists
from various departments. This reduces overhead costs and the amount of time needed to
complete a project. In a hierarchical structure where every team reports to only one manager,
there are fewer managers per team. These teams may require more time to create one project
deliverable because they don’t have members with different specialties.
Scenario: The team creating the keyword research app may involve specialists from the IT
department, the finance department, and the marketing department. When these team
members successfully report to their department heads and their project manager, they
increase team productivity, save time, and get the project done more efficiently.
The matrix team reduces costs because without a combined group of specialists, companies
would have to restructure teams and potentially hire new team members every time a new
product or service is developed.
Free-flowing information
Working in a matrix structure creates a free-flow of information between teams because the
team reports to multiple leaders. While team members must remember to relay information in
a hierarchical system, the matrix makes information flow a requirement. Reporting information
to multiple leaders may seem tedious, but with the right project management system in place, it
requires little or no extra work from team members.
Scenario: If the development team on the keyword research app only reported to the project
manager, information about a bug fix could get lost. However, relaying information to the IT
department head is easy to remember when it’s part of the matrix process.
Training for project managers
The unique structure of the matrix organization gives project managers a large amount of
responsibility. Project managers must lead their team through the project lifecycle. This
structure challenges project managers and trains those who want to be cross-functional
managers in other departments.
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Scenario: During this project, your team encounters some bug fixes and a delay in the project
timeline. As the project manager, it’s your responsibility to work with the IT department head to
successfully handle all issues. In doing so, you discover a personal interest in IT—and a potential
career opportunity in the future.
Team retention
The matrix organization has a great track record from team member retention because when
specialists are placed together, the product team stays strong. These team members work under
functional department heads and are then assigned to project managers. Specialists often enjoy
working together, and it can improve project performance.
Scenario: During the keyword research app project, the project team consists of various IT,
marketing, and finance specialists because these team members understand the ins and outs of
creating an application for phone users. This team of specialists will likely stick together to work
on many projects in the future.
7.4 Disadvantages of the Matrix Organization Structure
Like the hierarchical reporting structure, the matrix organization also has disadvantages. Most of
the disadvantage’s stem from this structure being complex. While complex designs can have
benefits when they work, they also have the potential to cause conflict and make things messy.
Complex reporting style
The complexity of the matrix organization can be a disadvantage because teams may have trouble
knowing who to report to and when. While the intention of the matrix is to benefit teams, it may
complicate projects and muddy the overall process.
Solution: The best way to prevent a reporting failure is to ensure every member of the matrix
understands who to report to and how to do so. Using an intuitive project management platform
that facilitates cross-team work can make the matrix structure less complex.
Slow response time
The complexity of the matrix can lead to slow response times, which can delay projects. Slow
response times come from the need to report information to multiple people. Having more
people involved is a good thing, but the downside is that relaying information to more people
takes time.
Solution: Using a project management system will solve the issue of slow response times with the
matrix structure. As a central source of truth, Asana can prevent duplicate work and increase
visibility among teams and leadership.
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Conflicting guidance
Conflicting guidance occurs if the project manager and department head aren’t on the same page.
While the matrix structure is meant to encourage teamwork, it may do the opposite depending
on the personalities involved.
Solution: To prevent conflicting guidance, establish a system that allows managers to interact
directly with one another. Team members can avoid feeling like they’re caught in the middle if
managers are aligned on project goals and stay on the same page.
Potential friction
The main difference between the matrix and hierarchical structure is that team members report
to two managers in a matrix structure. This makes the matrix organization more complex and puts
more responsibility on team members. Having two managers can give team members more
feedback and guidance, but it can also result in friction.
Solution: To prevent potential friction, it’s essential for the department head and the project
manager to communicate. It shouldn’t be the team’s role to choose between managers when
conflict occurs. Whether in person or through virtual systems, managers can prevent friction by
setting clear project objectives from day one and working together to create a successful product.
Juggling priorities
It can be difficult for team members to juggle priorities in a matrix structure if managers don’t
work together. If the department head believes their tasks are most important and the project
manager thinks the same, the team may have trouble determining which manager’s guidance to
prioritize.
Solution: When team members have trouble prioritizing tasks because of miscommunication
among managers, it’s up to the managers to discuss the tasks of the team and determine what
should be done first. Most issues that have the potential to arise from the matrix structure can be
solved with strong collaboration, communication, and clarity across teams
7.5 Making Matrix Organizations Actually Work
Reference: https://hbr.org/2016/03/making-matrix-organizations-actually-work
Most discussions about matrix organizations usually quickly devolve into a debate between two
sides: those who love to hate the matrix, and those who hate to love the matrix. The former claim
that a matrix structure slows decision making and obfuscates accountability. The latter retort that
a matrix structure is an inescapable prerequisite for lateral coordination in large complex
businesses. From our two decades of experience with organization design, we tend to side with
the latter. In fact, we may even belong to a third camp, those who love to love the matrix. But our
love is conditional upon its sparing and wise use.
Let’s get back to first principles first. Just in case you’ve forgotten, a manager in a matrix
organization has two or more upward reporting lines to bosses who each represent a different
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business dimension, such as product, region, customer, capability, or function. It’s often a
response to, or a prophylactic against, corporate silos. Silos can form in any company, regardless
of how it’s organized, whether that’s around different products, different regions, or different
types of customers. When a company reorganizes, it’s often because the strategy has also
changed. For example, the French global energy player ENGIE recently tilted its primary
dimension from product (such as power, services, and infrastructure) toward region in order to
better serve its clients in the territories in which it operates. Likewise, the British communications
services company BT Group recently tilted from product toward customer (such as consumer,
business, and public sector). But such reorgs don’t make silos go away — they just create new
ones. So it remains crucial to ensure lateral coordination between the various units.
Lateral coordination is accomplished rather easily at the top of a company. The executives in
charge of the various groups sit together naturally in the top management team. Often, they are
also incentivized for the company’s well-being.
But obviously the top management team cannot afford to let all day-to-day operational
coordination issues escalate upward. Its real challenge is to achieve lateral coordination also at
the levels below. This can be achieved through hard-wiring or soft-wiring. A matrix structure is an
example of hard wiring, because the two bosses of a manager in a matrixed position have the
joint responsibility to set his objectives, supervise his work, do his appraisal, and ensure his
development. For example, the procurement manager of a business unit would report both to the
business unit head and to the corporate procurement officer.
Soft-wiring relies on more informal, organic, voluntary, temporary, or one-off instruments, such
as an ad-hoc multi-dimensional task force, an annual corporate planning cycle, an advisory
council, a central coordination function, or a company-wide knowledge management system. For
example, the U.S. oilfield services company Schlumberger builds on its knowledge management
system to share technical expertise across regions and products.
Executives who are fundamentally opposed to a matrix do not argue that there’s no need for
lateral coordination. They simply consider that soft wiring can do the job all by itself. Whenever
there is a real need in the field for coordination across organizational silos, the managers
concerned will find each other. A matrix, they argue, needlessly complicates things. Patrick De
Maeseneire, the former CEO of the Swiss HR solutions provider Adecco, formulates it as follows:
“No complicated matrix structures. One man or woman. One number. In matrix structures,
everybody claims a success as his and points to everybody else when things go wrong.”
We would argue that it is not an either/or issue. Provided that the hard-wired matrix is deployed
sparingly and wisely, it has its place in the arsenal of management tools along with soft-wired
ones. Here are five practical guidelines.
1. Adopt when purposeful. The matrix should not be the default design option. It should be used
only when two conditions are met. First, when there is a major need for middle managers of
different units or teams to coordinate on important business matters on a daily basis. For
example, when the finance manager of a region has to coordinate intensely with the heads of the
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country subsidiaries in that region, it may make sense to put the business controller of each
subsidiary in a matrixed position, that is, to have each of these reports not only to their respective
subsidiary head but also the region finance manager. The second condition for a matrix is that the
required coordination cannot be achieved adequately through soft wiring only. For example, if
you are in a fairly steady business with fairly autonomous country subsidiaries selling either
standard or strictly local products, something like a quarterly “country coordination council” may
be sufficient.
2. Keep intrinsic conflict out. Research by Joachim Wolf and William G. Egelhoff shows that the
likelihood of intra-organizational conflict in a matrix structure depends on the groups involved.
For example, a matrix with region and function as organizing principles tends to have lower levels
of conflict than a matrix with region and product as organizing principles. The reason is easily
understood region and function have more complementary roles and objectives than region and
product have. If both region and product have P&L responsibility and are expected to manage the
same factors (human resources, customer relationships, price levels, etc.) to optimize their
performance, conflict is baked into the matrix. Therefore, when defining the roles and
accountabilities of the two matrix dimensions, make sure there are intrinsic reasons for them to
collaborate rather than to compete.
3. Limit breadth and depth. A matrix may contain more than two organizing principles (e.g.,
product + region + function). But since a matrix with two such principles is difficult enough to
manage, stick to two unless there is an overwhelming argument to broaden beyond two, such as
in a particularly complex part of the business. A trickier issue is how deep down the hierarchy to
replicate the matrix. We would advocate avoiding nested matrices. Continuing the example of the
subsidiary controller, “nested” means that the risk manager reporting to the matrixed subsidiary
controller would also report to the regional risk manager who in turn reports to the regional
finance manager. If grasping the preceding sentence is already quite challenging, imagine how
difficult it would be to make the concept work in practice.
4. Don’t pretend. The previous three guidelines are a call for the spare use of a matrix. But once
you have opted for one, go all the way. Ban the oft-used distinction between a dotted and full
reporting line, implying that the former carries less weight. Position the two reporting lines of a
matrixed manager as fully balanced — that is, 50-50, not 70-30 or some other unequal ratio.
(Don’t even use a dotted line to distinguish between different reporting lines on the org chart.
Use full lines in different colors.) Likewise, don’t degrade the joint objective setting and
performance appraisal of a matrixed manager into an almost perfunctory ritual whereby one of
the two bosses takes care of it, merely soliciting some final secondary comments from the other
boss. Messages or practices that appear to detract from the fundamental philosophy of the matrix
are lethal because the effectiveness of a matrix depends on its credibility.
5. Escalate by exception only. A common complaint about a matrix structure is that it increases
upward reporting and slows decision making. The opposite should be true in a well-functioning
matrix because it pushes operational decision making down in a controlled way. Suppose product
and region are the two organizing principles. When a decision is to be made about some minor
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regional product adaptation, the regional product manager should be able to make that judgment
without escalating the issue to a global product manager and the regional business unit head, let
alone to even more senior executives. It is up to the higher levels to refuse unwarranted upward
escalation of trade-offs and conflicts.
Nothing in business is perfect, and all organizational structures involve trade-offs. If you’re
implementing a matrix at your company, start small, learn, and fine-tune as you progress. There is
not a one-size-fits-all solution. How far you implement a matrix depends on the maturity of your
organization, i.e., its ability to understand that a seemingly complex and ambiguous setup can in
fact improve the quality and speed of decision making. Clear communication and consistent
behavior are required to dispel the matrixed manager’s anxiety about roles conflict and the boss’s
fear of losing power. Ultimately, your organization will gain enough trust in the matrix to let it do
its work, evolving from reluctant acceptance to full-hearted embrace, sensing the matrix is there
without noticing it.
7.6 Matrix Organizational Structure Roles and Responsibilities
Reference: https://theinvestorsbook.com/matrix-organizationalstructure.html#RolesandResponsibilities
A hierarchy is followed in the matrix structure. Given below is the proper sequence of the flow of
information, i.e., in the downward direction:
Matrix Leader: The matrix is always lead by the company’s head or the CEO.
Matrix Managers: This team of functional and project managers work under the CEO. They are
responsible for the timely performance of the assigned task by the matrix employees.
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Matrix Employees: All the other people who report to the dual bosses (i.e., the functional and the
project managers) and work under their guidance are termed as matrix employees.
7.7 Features of Matrix Organizational Structure
The principal trait of a matrix structure is its complexity. Therefore to simplify this concept, let us
understand some of its other characteristics:

Two Bosses: In a matrix organizational structure, the subordinates must report to two superiors,
one is the functional manager, and the other is the project manager.

Resource Allocation: The aim of opting for a matrix structure is to ensure the highest possible
utilization of human resource.

Multi-project Suitability: When a company has limited personnel and various projects to handle
at once, it can go for a matrix organizational structure to simplify the task.

Task Specialization: When the managers concentrate more on their part of operations, they
tend to specialize areas. When the project manager takes care of the administrative functions,
the functional manager looks after the technical elements.

Hybrid Structure: It is the amalgamation of the two organizational structures, i.e., the functional
and the project.
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