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Hay Group Winning In Indonesia May2013


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What does it take to succeed in Indonesia?

We asked 82 large-cap and global companies to take a broad look at effective they have been. "Winning In Indonesia" outlines the challenges faced by them and how they are coping in this fluid and exciting market.

Read more to understand what "Winning In Indonesia" requires.

Published in: Business, News & Politics, Travel
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Hay Group Winning In Indonesia May2013

  1. 1. What every multinational company must know about succeedingin Indonesia.IndonesiaWinning inMay 2013
  2. 2. ContentsAgainst all oddsDesperately seeking talent24812Square pegs, square holesFilling the leadership pipeline14Fitting the jigsaw17Winning in Indonesia: Do you have what it takes?18About the survey
  3. 3. Winning In Indonesia©2013 Hay Group. All rights reserved2However, Indonesia’s time has come toshine on many corporate agendas. With itslow cost of living, Indonesia has a growingmiddle class with a sizeable disposableincome that is driving a strong domesticconsumer market. On the flip side, Indonesiahas also gained a reputation for being a graft-ridden bureaucracy, that has made doingbusiness just a little tricky.Even as foreign direct investments continueto pour into the country, little attention hasbeen paid to how foreign Multi-NationalCorporations (MNCs) are coping in thisfluid and exciting market.Against all oddsIndonesia has had a raw deal in the past 7 years or so. Until thisyear, its growth potential has been eclipsed by being sandwichedbetween the twin Asian powerhouses of China and India in terms ofeconomic importance.To this end, Hay Group conducted anexecutive survey to assess the performanceof established foreign companies – thechallenges that they face and how well theyare coping. A brief summary of the results ispresented in Table 1.From our survey, it seems that MNCs inIndonesia are coping well with externalchallenges like dealing with government;adjusting to local customer needs and evencorruption. However, companies continueto struggle with internal issues that revolvearound talent, performance and reward.
  4. 4. 3Indonesia is a long-term commitment andinvestment for Holcim.There is no denying thatit’s taken years of hard work and determination –establishing relationships with government andlocal communities based on mutual trust and co-operation - but I don’t see any other way around it ifreal success in Indonesia is what you want.“”Coping well Still strugglingDealing with corruption Shortage of skilled workersEstablishing relationships withgovernment & politiciansShortage of local managersDealing with legal framework Lack of leadership skills amongmanagersHaving a clear strategy for Indonesia Aligning operating model to businessobjectivesAdapting to local customer needs Clear link between compensation andperformanceFigure 1: Challenges of doing business in IndonesiaSource: Hay Group survey, 1Q2013Eamon Ginley, CEO andPresident Director of PT Holcim Indonesia Tbk
  5. 5. Winning In Indonesia©2013 Hay Group. All rights reserved4With the abundance of natural resourcesunderwriting Indonesia’s ambitious visionfor 2025, the economic potential is realand attainable. However, it has becomeapparent that the supply of a local skilledworkforce will not be able to keep up withthe increasing demand required to transformIndonesia into the world’s sixth largesteconomy.Of the estimated six percent of thepopulation that receives a basic or primaryeducation, only 30 percent go on to obtainuniversity degrees. Projections from theWorld Bank and Indonesia’s Central Bureauof Statistics showed that Indonesia will beshort of some 10 million skilled workers by2025.Desperately seeking talentIndonesia’s potential as an emerging economy is undeniable. It hasa grand vision – to be a Top 10 advanced economy by 2025, andTop 6 by 2045. To achieve this lofty goal, Indonesia has to attain areal economic growth above 7 percent every year for the next fourdecades. Business, as President S.B. Yudhoyono puts it, cannot go onas usual.
  6. 6. 5Figure 2: Attrition rates in Indonesia2005 2006 2007 2008 2009 2010 2011 201213. Hay Group PayNet Indonesia, 2012Indeed the pain of the shortage is being felteven now. Our survey found companiesare hit by a double whammy at one end,the lack of skilled workers to perform morevalue-added tasks on the shop floor and atthe other end, an acute shortage of goodIndonesian managers with the right technicaland management competencies. This is thepotential quicksand that will stymy MNCs’growth ambitions and strategy for Indonesia.Intense talent competition in recent yearshas driven attrition rates above 10 percent(Figure 2).
  7. 7. Winning In Indonesia©2013 Hay Group. All rights reserved6
  8. 8. 7Moreover, with Indonesia’s legal age ofretirement currently set at 55 -- prime timein many countries -- this will have severeconsequences on leadership succession inan already-strapped talent market. With themean age of senior and middle managersFigure 3: Average age of employees in 2012Clerical/ Junior Middle SeniorProduction management management management6050403020100AverageAge(%)5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2328343536353535373838404243454647474848Source: Hay Group PayNet Indonesia, 2012hovering above 42, more than half of theleadership team will be retired by 2025(Figure 3). The leadership vacuum will notbe easily filled, given the current shortage ofskilled managers and professionals.
  9. 9. Winning In Indonesia©2013 Hay Group. All rights reserved8Square pegs, square holesGiven the situation, what can companies do?Numbers and skills aside, companies withvisions of expansion and growth in Indonesiamust appreciate certain nuances. Indonesianemployees are typically title-conscious andoften associate remuneration and status witha position.In addition, performance measurementsare not something the older generationof workers are familiar with, having beenrewarded for long service and loyalty.What is required, therefore, is a mindsetshift – both on the parts of the employer andemployee. For example, employees must bewilling to change their attitude to workingbeyond 55 years old and employers mustview them as experienced assets, rather thanwalking liabilities with more health issuesand less energy.Companies must face the hard truth: thetalent shortage is not going to get betteranytime soon. If anything, it will get worseas MNCs diversify away from China andIndia and into Indonesia.Hence, managers take this reality intoaccount by actively designing jobs andoperating model to suit available talent pool.Here is where we can learn from our peersin emerging markets like China, India andBrazil.
  10. 10. 9Indonesian graduates prefer to work overseas – inSingapore, Australia, USA.This means that those whoremain in the countary are very much in demand.Their high demand and short supply result in quickstaff turnover in companies, with them securing acorresponding 25 to 30 percent salary increment witheach move. But paying more has not alleviated theshortage over the years. In fact, the opposite seems tobe true: talent now expects bigger salary increases asa matter of course.”“Rully Safari, Director of HR – PT HolcimIndonesia Tbk
  11. 11. Winning In Indonesia©2013 Hay Group. All rights reserved10Take the case of an engineering client inChina. After a fruitless two-year search fora HR Director locally, they split the joband redesigned it for two managerial-levelpositions. These positions, requiring lessexperience, were easier to fill in talent-scarceChina. It is their hope that, out of the twomanagers, one will eventually emerge to beDirector-level material.For those of us working in more maturemarkets, hiring two people to do the jobof one may seem unproductive and evenwasteful. However, as pointed out by ourclient, “in China, if you don’t over-stafftoday, you will be short of staff tomorrow.”So while the challenge in mature markets isto design jobs so that it can be done by fewerpeople, the opposite is true in emergingmarkets like Indonesia.This begs the question: how can youefficiently design jobs so that it can be doneby more people to mitigate the risks thatarise from high attrition?A good place to start is for companies toknow what jobs need to be done (that is,work measurement) and match them withthe talent available within (that is, role-fit).At a glance, managers will intuitively be ableto see the gaps in tasks versus competencies.In other words, which square pegs are inround holes, which holes are empty etc?So far, we have considered the work to bedone and the person doing it. In the nextsection, we will consider the trickier questionof how does all the work align with thebusiness objectives, which is the next bug-bear of MNCs in Indonesia.
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  13. 13. Winning In Indonesia©2013 Hay Group. All rights reserved12This is borne out by our 2011 BestCompanies for leadership survey (Figure4), which found that Indonesian companieshave leadership training programmes and doset stretch targets for employees. However,very few involve direct coaching andgrooming by senior leaders.In the era of rapid growth phase of thepast few years, CEOs in Indonesia havebeen focusing so much on managingexternal issues such as capitalizing onmarket opportunities, expansion intonew businesses, and securing the verynecessary financial capital, that they haveoverlooked the importance of buildinginternal organizational strengths for futuresustainability and continued success. All thisis akin to growing a bigger body withoutbuilding the corresponding muscle strength.Hence in order to sustain the growth, leadershere have to develop “dual” vision – keepingone eye on the external market and the otheron their organization’s institutional strengthand intangible capital.Filling the leadership pipelineBusiness leaders in our survey cited the lack of leadership skillsamong Indonesian managers as one of their challenges. Part of theproblem may lie in the fact that, like many of their peers in India andChina, senior executives here tend to focus so much on managingexternal issues that they often overlooked the importance ofbuilding internal organizational strengths for future sustainabilityand success. These include formal processes for leadershipsuccession, mentoring and talent development.
  14. 14. 13Global top 20 Top 10 Asia indonesia100% 97%79%95%87%51%100%90%80%70%60%50%40%30%20%10%0%Employees are givenassignments or projectsthat stretch their capabilitiesSenior Leaders personallyspend time activelydeveloping othersLeadership developmentprograms better enableemployees to deliver ongoals/strategies95%77%71%Figure 3: Grooming the next generationSource: Hay Group’s Best Companies for Leadership 2011
  15. 15. Winning In Indonesia©2013 Hay Group. All rights reserved14Fitting the jigsawOne of the challenges highlighted by senior management in oursurvey was the dire need to improve business processes, includingthe use of technology and automation. Many MNCs in Indonesiahave grown exponentially especially in the past three years andsome have come to a point where their operating model no longerfit.To deal with this, let us start with thecompany’s strategy and long-term objectivesfor Indonesia. Key strategy questionsinclude:• Where is our point of entry intoIndonesia? The Greater Jakarta area orsome other expanded area of developmentthat the Indonesian government is tryingto push?• What are the immediate and long-termchallenges that we will face and how willwe tackle them?• What are the consumer behaviors thatapply to our business? Do we have anIndonesia-specific approach?• How much money are we willing to investin Indonesia and how does this fit in withour projected time horizon?
  16. 16. 15Armed with these long-term objectives anda business plan, an operating model can bebuilt to support the execution. And this iswhere most companies run into quicksandespecially in a fluid and dynamic market likeIndonesia. Veteran managers will admit thatthe most frustrating item on their corporateagenda is fitting the operating structureto the company strategy. The process canbe time-consuming, confusing and oftenperplexing.And yet it need not be insurmountable ifwe start with the premise that jobs are thebuilding blocks of organizations. Take thecomplicated business of post-acquisitionintegration, something which we will seea lot more of in Indonesia as the marketconsolidates. On behalf of a food andbeverage client in Indonesia, we recentlyanalyzed a target for acquisition purposes.An interesting finding was that the target’sR&D department was not a truly researchand innovation centre, unlike our client’s.The target’s R&D was focused on tweakingproducts and packaging to suit local tastesand helping out with market development.Our client commented that this was usefulinformation to have at the pre-merger stage.If they had taken the target’s organizationstructure at face value and combined bothR&D departments, the result would havebeen “an unmitigated disaster”.
  17. 17. Winning In Indonesia©2013 Hay Group. All rights reserved16Cementing Its place in IndonesiaHolcim Indonesia might have come to be only in 2006, but its origins stretch as far back as 1971 to its roots asPT Semen Cibinong through the acquisition route. Semen Cibinong was the first company to be listed on theIndonesia Stock Exchange in 1977.To date, Holcim Indonesia operates two plants; at Narogong, West Java, and Cilacap, Central Java, and a cementgrinding station at Ciwandan, Banten. A third cement plant in Tuban, East Java, is scheduled to begin operationsthis year. Annual cement production is currently 9.3 million tons, with projections that the Tuban plant in East Javawill increase this to 12.7 million tons.Holcim’s products are sold in more than 15,000 outlets across Indonesia and the company employs approximately2,800 people.“When we first started business in Indonesia, our focus was very much on Java. It was and still is where everyonewants to be. But this is a massive market and there is so much untapped potential, in other islands as well, ”EamonGinley, CEO and President-Director of PT Holcim Indonesia Tbk said.The untapped potential proved so real to Holcim that, in spite of diminishing performance in other global markets,the Swiss company made the decision to increase capacity in Indonesia with the new Tuban plant, a move thatsupports its overall growth plan for the Asia Pacific region.Eamon added,“It will take a few more years for our expansion plans to mature, but we’ve already made stronginroads.”Holcim has made strong inroads to the bigger Indonesia market largely because of its Indonesia-specific approachto doing business, and seeking ways to add real value to local consumers through innovation.It started a unique franchise program called Solusi Rumah, which leverages the services and expertise of localsmaller enterprises as vendors, offering a one stop shop for people aspiring to own a home. In 2011, Solusi Rumahvendors/partners numbered 399 retail and manufacturing outlets.“Solusi Rumah has achieved its objectives of being a value-added service to customers while supporting the localeconomy at the same time,”Eamon explained.The Holcim success story can be attributed to the company’s strategy of“getting under the skin”of Indonesia. Thereis strong widespread engagement with employees and partners alike, and commitment to social responsibility.Its Geocycle team provides a total-solutions waste disposal model for industry, municipalities and agriculture forthe safe collection, storage and disposal of both hazardous and non-hazardous waste. Over the years, Holcim hasbecome a solutions provider to a wide range of industrial and municipal users who number among the largestcompanies in Indonesia.In 2011, its Cilacap Cement Plant was one of only a few businesses in Indonesia to receive a“Gold”PROPER ratingfrom the Ministry of Environment, the highest award in Indonesia for environmental and waste management andthe second for the plant. Its Narogong Plant holds a Green PROPER Rating.Eamon said,“Indonesia is a long-term commitment and investment for Holcim. There is no denying that it’s takenyears of hard work and determination – establishing relationships with government and local communities basedon mutual trust and co-operation - but I don’t see any other way around it if real success in Indonesia is what youwant.”
  18. 18. 17Winning in Indonesia: Do you have what ittakes?Indonesia’s future is bright and exciting. But the mood is temperedon the ground. Our survey has shown that companies are dealingwell with the external challenges of winning in such a dynamicmarket. In fact, many like Unilever, Nestle, Mercedes Benz andHolcim have thrived and become stalwarts in Indonesia.However, our research has shown that manyMNCs in Indonesia continue to strugglewith people and management issues. Infact, managers and leaders who are new tothe Indonesian market often wonder whythe simplest of day-to-day tasks seem totake a disproportionate amount of effortin Indonesia. Whether it is obtaining anemployment visa for a foreign employee,filling sales pipeline or hiring a local businessdeveloper, success in Indonesia requirespatience, a long-term game plan and a goodcorporate citizenship programme.However, these obstacles are notinsurmountable, if business leaders pay closeattention to building institutional strength.In fact, the management of a company’s poolof talent is too important to be left to theHR department alone and has become theresponsibility of the CEO. Nowhere is thismore true than in Indonesia.
  19. 19. Winning In Indonesia©2013 Hay Group. All rights reserved18About the surveyContact the authorNidthia ChelvamManaging ConsultantHay Group IndonesiaE| Nidthia.Chelvam@haygroup.comThe focus of our Winning in Indonesia surveywas to take a broad look at how effective areforeign companies. Over 82 large-cap andglobal companies were invited to take part inour survey in 1st quarter of 2013. After theinitial data analysis, face-to-face interviewswere conducted for qualitative responses.We would like to thank all the CEOs andDirectors who took the time to participatein the survey and interviews.
  20. 20. AfricaCape TownJohannesburgPretoriaAsiaBangkokBeijingHong KongHo Chi Minh CityJakartaKuala LumpurMumbaiNew DelhiSeoulShanghaiShenzhenSingaporeTokyoEuropeAthensBarcelonaBerlinBilbaoBirminghamBratislavaBristolBrusselsBucharestBudapestDublinHay Group is a global management consulting firm that works with leaders to transformstrategy into reality. We develop talent, organize people to be moreeffective and motivate them to perform at their best. Our focus is on making change hap-pen and helping people and organizations realize their potential.We have over 2600 employees working in 86 offices in 48 countries. Our clients are from theprivate, public and not-for-profit sectors, across every major industry. For more informationplease contact your local office through EastDubaiTel AvivNorth AmericaAtlantaBostonCalgaryCharlotteChicagoDallasEdmontonHalifaxKansas CityLos AngelesMexico CityMontrealNew York MetroOttawaPhiladelphiaReginaSan FranciscoSan José (CR)TorontoVancouverWashington DC MetroPacificAucklandBrisbaneCanberraMelbournePerthSydneyWellingtonSouth AmericaBogotáBuenos AiresCaracasName|versionx|01Month08|CountryLimaSantiagoSão Paulo