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1East meets                              West:       An executive leadership challengeFeb 2012 What does it take to lead I...
2Leading Indonesian companies                                       The frustration factor                                ...
3    Figure 2: Hay Group’s Employee effectiveness framework           Employee Effectiveness Framework   Clear and promis...
4Leading Indonesian companies                                       Money can’t buy love                           Climate...
5Figure 3: Why employees leave Baby Boomers                     Generation X                     Generation Y             ...
6Leading Indonesian companies                                       Right situation, right style                          ...
7The CEO challengeToday’s leaders are expected to play multifaceted roles: visionarychief, astute decision-maker, brillian...
8Leading Indonesian companiesThis paper was first presented at Hay Group’s CEO exclusive roundtable on 25th January 2012. ...
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Haygroup East Meets West An Executive Leadership Challenge Feb12

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Indonesia, Asia’s less talked-about jewel, is nonetheless a significant market for any organization with global aspirations.
A robust domestic market fueled by a growing middle-class poses challenges for both local and multi-national companies
alike.

In 2012, Hay Group and Fortune magazine in Indonesia launched our country’s first Most Admired Companies with the aim of understanding what sets successful companies apart from their peers in our market. Published in January 2012, the rankings include local luminaries like PT Astra International, PT Unilever Indonesia, PT Bank Central Asia, PT Bank Mandiri and PT Garuda Indonesia in the top five.

In this Viewpoint, we will summarize what makes them admired by their peers and incorporate some observations from Hay Group’s Leadership forum, held in Jakarta on 25th January 2012, in tandem with the launch.

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Haygroup East Meets West An Executive Leadership Challenge Feb12

  1. 1. 1East meets West: An executive leadership challengeFeb 2012 What does it take to lead Indonesia’s Fortune’s Most Admired companies? Indonesia, Asia’s less talked-about jewel, is nonetheless a sig- In 2012, Hay Group and Fortune magazine in Indonesia nificant market for any organization with global aspirations. launched our country’s first Most Admired Companies with A robust domestic market fueled by a growing middle-class the aim of understanding what sets successful companies poses challenges for both local and multi-national companies apart from their peers in our market. Published in January alike. 2012, the rankings include local luminaries like PT Astra International, PT Unilever Indonesia, PT Bank Central Asia, Furthermore, the government’s economic master-plan, PT Bank Mandiri and PT Garuda Indonesia in the top five. “MP3EI”, aims to move Indonesia from an efficiency-driven economy to an innovation-driven economy by 2025. Key In this Viewpoint, we will summarize what makes them success factors include development of knowledge workers, admired by their peers and incorporate some observations the management of knowledge and enabling technology, from Hay Group’s Leadership forum, held in Jakarta on 25th the fostering of entrepreneurship that fuels innovation, and January 2012, in tandem with the launch. research & development (R&D). In addition to the infra- structural changes needed to support this breakthrough, the mindset and skills of Indonesian workforce and management also needs to shift. How can this be achieved? ©2012 Hay Group. All rights reserved www.haygroup.com/id
  2. 2. 2Leading Indonesian companies The frustration factor The economic indicators are optimistic: FDIs into Indonesia is rising. Middle class disposable income is also rising. Consumer spending is also rising. And yet CEOs are finding it harder to translate this optimism into their own business. It seems that an extraordinary amount of effort needs to be put in just to increase output, revenues or even to decrease cost of sales. And worse, in some cases, the effort seems to be inversely proportional to the results. Hay Group believes that the secret lies in Sadly, only one in six employees here tapping into the discretionary effort of believe themselves to be effective in their employees. According to an extensive study jobs. This is an astonishing figure. If you on employee engagement and enablement consider the gains Asia and indeed, conducted by Hay Group Insight (the Indonesia, has made in the past 5 years on employee survey division of Hay Group), the backs of only 16% of the workforce frustrated employees represent an feeling effective, then how much more astounding 29 per cent, or nearly one-third could we have achieved if we had moved of the Asian workforce today (Figure 1). the frustrated population of 29% into the effective category? If nothing is done to deal with the frustrated population, what usually The highest percentage (35 per cent) of happens is two in three will become Asian employees was found to be detached. ineffective and the rest will just leave. These are the employees who perform the bare minimum of what is needed and no more. What is worrying about detached employees, despite the high level of support for success that companies have invested in them, is that their commitment and motivation remain low. Figure 1: Employee engagement and enablement: a comparison of Asia versus West Employee Engagement - Asia employee enablement employee enablement “Detached” “Effective” Above-average I am enabled to be productive I’m am enabled to be productive Employee Enablement - Asia but not particularly engaged and highly engaged 35% West = 28% 16% West = 39% “Ineffective” “Frustrated” Below-average I am not enabled to be productive I am not enabled to be productive and not particularly engaged even though I am highly engaged 20% West = 12% 29% West = 21% Below-average engagement Above-average engagement Source: Hay Group Insight, 2010©2012 Hay Group. All rights reserved
  3. 3. 3 Figure 2: Hay Group’s Employee effectiveness framework Employee Effectiveness Framework Clear and promising direction Confidence in leaders Employee Engagement Results Quality and customer focus  Commitment Respect and recognition  Discretionary effort Productivity Development opportunities Pay and benefits Financial performance Drivers Employee Attract and retain talent Effectiveness Performance management Customer loyalty Authority and empowerment Employee Enablement Resources Innovation  Optimized roles Training Collaboration  Supportive Enhanced corporate Work, structure, & process environment reputation With various innovative HR tools, What is the bottom-line impact and including incentive pay, perks and career opportunity cost? advancement prospects to engage today’s employees, why is employee frustration Our research shows that companies that continuing to impede performance in the engage and enable their employees out- workplace? performed their industry peers on revenue growth by 4.5 times. In terms of profit- According to our research (Figure 2), ability, such companies exceeded industry workplace frustration appears to stem from averages in terms of five-year Return on the lack of employee empowerment and Assets, Return on Investment and Return enablement. While work remains on Equity by 40% to 60%. This level of challenging, the lack of empowerment to performance is not to be sneered at, in any make decisions and the lack of enablement sort of economic climate. to perform effectively is causing significant numbers of employees in Asia to Or look at it another way. While CEOs feel frustrated. make promises about what their organization can deliver to customers, shareholders and other stakeholders, it is the employees who keep these promises on their behalf. Do we really want to put detached or ineffective employees in front of our clients and investors? www.haygroup.com/id
  4. 4. 4Leading Indonesian companies Money can’t buy love Climate change is good for you Knowing what makes up employee Let us now turn to the kind of effectiveness, let us look at what makes our organizational climate that leaders are employees tick. Figure 3 shows the top five creating in Indonesia. Figure 4 show the reasons why employees in Asia leave us. gap between the ideal and reality in terms of the six factors of organizational climate. A quick analysis of Figure 3 immediately confirms that saying “people join The biggest gaps in organizational climate companies, but leave their boss”. have to do with clarity and flexibility. Common reasons across the three Employees want to know how their generations are: responsibilities, functions and/or projects are connected to the company’s objectives. • Lack of recognition And they want the flexibility to determine • Ineffectual direct manager/supervisor how their work is to be carried out; this brings us back to our earlier discussion • Uncompetitive pay on employee enablement. In other words, what they are saying is “tell me what needs Out of the top five reasons for leaving, to be done and how it is connected to only one has to do with money itself. The our goals. Then give me the tools to get it rest are about how the employees are done. Oh and please get out of my way.” managed by the direct supervisor, how valued they feel and whether they think “We need to be clear about our that that their career is going somewhere expectations and the entire leadership within the organization. team must be sending the same message,” said Mr Joseph Bataona, Director of Bank In other words, both the Baby Boom- Danamon. ers and Generation Xers want to work in organizations where their contribution is valued and recognized by top management. It really boils down to the leadership and the organizational climate that they experience.©2012 Hay Group. All rights reserved
  5. 5. 5Figure 3: Why employees leave Baby Boomers Generation X Generation Y Limited growth External inequity of Lack of recognition opportunities in the compensation organization Limited growth Direct supervisor’s External inequity of opportunities in the management style compensation organization Performance Lack of career development Lack of recognition assessments program Lack of career Business instability Lack of recognition development program External & internal Direct supervisor’s Direct supervisor’s inequity of compensation management style management styleBaby Boomer : 1940s – 1959 (age 50 ~ 69 years) Source: Hay Group Productized ServicesGeneration X : 1960s – 1979 (age 30 ~ 49 years)Generation Y : after 1980s (under 30 years)Figure 4: Organizational climate of Indonesian companies Organizational Climate of Indonesian Actual Ideal Companies 27% Gap 39% 30% 38% 40% 35% 100 100 90 90 80 80 70 70 60 60 Percentile 50 50 Score 40 40 30 30 20 20 10 10 0 0 Source: Hay Group Productized Services www.haygroup.com/id
  6. 6. 6Leading Indonesian companies Right situation, right style Now let’s look at the leadership styles Effective leaders are adept at all six of Indonesian leaders. Hay Group has leadership styles and can switch from one identified six leadership styles that apply style to another, depending on the all around the world – affiliative, coaching, circumstances. But, typically, managers will coercive, democratic, pacesetting and default to the style they are most visionary (Figure 5). comfortable with, especially in times of crisis and stress. The dominant style of Indonesia’s leaders is coercive, with coaching and affiliative as As pointed by Mr Jajha Setiaatmadja, the secondary or back-up (Figure 6). President Director & CEO of Bank Central Asia, “We must know many ways The good news is that there is no one best to manage people. They are not the same.” style of leadership – each has its strengths and limitations and is appropriate to As to what works best in Indonesia, Mr certain situations. For instance, the Ketut Budi Wijaya, CEO of Lippo coercive approach is useful in getting an Karawaci commented, “even when you organization through the economic crisis, provide critique, it must be done in a but will stifle initiative and innovation in harmonious and non-confrontational the good times. The affiliative style is most manner.” suitable for dealing with emotional situations, like when breaking bad news to employees. Figure 5: Hay Group’s six leadership styles Coercive leaders expect immediate compliance. They rely on negative Coercive corrective feedback and focus on negative consequences. Such leaders set the big picture and move their teams towards a shared Visionary vision. They sell “visions” as the keys to long-term success by explaining the “whys”. Affiliative leaders are concerned with creating harmony and promoting Affiliative friendly relations. They are likely to avoid performance-related confrontations. Such leaders are democratic individuals who believe in building Democratic commitment through consensus. They invite employees to generate new ideas and develop directions for themselves and the company. Pacesetting leaders have high expectations and are apprehensive about Pacesetting work delegation. They have no sympathy for poor performance, and are likely to do a job themselves if high performance is not forthcoming. Coaching leaders focus on the professional development of employees. They help employees identify their strengths and Coaching weaknesses, and encourage the achievement of long-term goals through instruction and feedback.©2012 Hay Group. All rights reserved
  7. 7. 7The CEO challengeToday’s leaders are expected to play multifaceted roles: visionarychief, astute decision-maker, brilliant strategist, team captain andinspirational boss. And they are expected to do all these effortlessly.And while there is much that we can learn To stand shoulder-to-shoulder withfrom the West in terms of business and Indonesia’s Most Admired Companies,talent management, particularly in the Indonesia’s top executives need to increaseareas of leadership and empowerment, it their repertoire of leadership styles. Theymust be tampered by an understanding of must provide clarity, create the righthow Indonesia works. organizational climate for greater delegation of authority and power, and“You start with the Western approach invest in the right processes for acceleratedbecause it‘s proven. But we have our leadership selection and development. ButIndonesian culture to consider too,“ within the context of Indonesia’s culture ofadvised Mr Emirsyah Satar, CEO of harmony, loyalty and consensus.Garuda Indonesia. A vast amount of latent potential liesMr Roberto Feliciano, CEO of First Media waiting to be unleashed in Indonesia.and Director of Lippo Group added, While companies like Astra International“We try to balance Western management and Garuda have taken bold stridesapproach with an Eastern philosophy of towards breakthrough change, it is time forbuilding consensus and loyalty. others to bridge the gap by helping their leaders to behave in ways that encourage, rather than drive people to sustainable performance.Figure 6: Leadership styles of Indonesian leaders 75% 53% 56% 48% 34% 58% Leadership Styles of Indonesian Leaders 100 90 Dominant 80 70 Percentile shown 60 50 Backup 40 30 20 10 0 Source: Hay Group Productized Services www.haygroup.com/id
  8. 8. 8Leading Indonesian companiesThis paper was first presented at Hay Group’s CEO exclusive roundtable on 25th January 2012. We have included theircomments and observations in this paper. We would like to thank the following executives for their insightful, lively androbust participation. Mr. Emirsyah Satar Mr. Hendrik Weiler Mr. Hiramsyah S. Thaib CEO Mr. Jahja Setiaatmadja President-Director, President-Director & CEO PT. Garuda Indonesia Tbk President-Director & CEO PT. ABB Sakti Industri PT. Bakrieland Development PT. Bank Central Asia, Tbk Tbk Mr. Kartika Wirjoatmodjo Mr. Ketut Budi Wijaya Mr. Prijono Sugiarto Mr.Rinaldi Firmansyah President-Director CEO President Director & CEO President-Director PT. Indonesia Infrastructure PT. Lippo Karawaci Tbk PT. Astra International Tbk PT. Telekomunikasi Indonesia, Finance Tbk Mr. Roberto Feliciano Mr. Sachin Gopalan Mr. Susanto Djaja Mr. Stuart L Dean CEO / Director COO CEO President & CEO PT. First Media / Lippo Group Berita Satu Media Holdings PT. Metrodata Electronics, Tbk GE ASEAN Contact the author Nidthia Chelvam, Managing Consultant for Hay Group Indonesia, helps multi-national companies and international organizations transform their business strategies into results. Nidthia also has extensive line and operational management experience with global companies across three continents. e| Nidthia.Chelvam@haygroup.comThe content in this report is provided solely for informational purposes. This report does not establish any client, advisory, fiduciary or professional relationship between Hay Group and you.Neither Hay Group nor any other person is, in connection with this report, engaged in rendering accounting, advisory, auditing, consulting, legal, tax or other professional services or advice.©2012 Hay Group. All rights reserved

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