Will 2025 be a feast or famine for companies in Indonesia? That will depend on the kinds of talent management strategies that they implement now. Find out more about the risks and challenges of business sustainability in Indonesia.

1. Help wanted:
Averting the
talent famine
Understanding the underlying risks and challenges of talent
11 | 2012
management in Indonesia. >>

3. Contents
Potential, people and performance 2
Retiring in the prime of life 7
Leadership, development and succession 12
Akan Datang: A talent apocalypse or an economic miracle? 15

4. 2 Help wanted: Averting the talent famine
Potential, people and performance
Will 2025 be a feast or famine for companies in Indonesia?
That will depend on the kinds of talent management strategies
that they implement now. Find out more about the risks and
challenges of business sustainability in Indonesia.
Not business as usual
Indonesia has a grand vision – to be a To support this grand vision, the MP3EI1
top 10 advanced economy by 2025, and program was launched in May 2011. Some
top 6 by 2045. To achieve this lofty goal, 750 projects valued at US$240 billion are
Indonesia has to attain a real economic earmarked for implementation by 2025.
growth above 7 percent every year for the Of these, 135 infrastructure projects worth
next four decades (Figure 1). Business, as more than Rp490 trillion are already
President S.B. Yudhoyono puts it, cannot underway2.
go on as usual.
Figure 1
Indonesia’s 2045 economic vision (Source: MP3EI, p 15)
GDP: USD 700 Billion
Income/Capita: 2010
USD3,000
GDP: USD 4.0 – 4.5 Trillion
Income/Capita esitmated: 2025
USD 14,250 – 15,500
(country with high income)
GDP: USD 15.0 – 17.5 Trillion
Income/Capita esitmated : 2045
USD 44,500 – 49,000
1
Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia. The Masterplan for Acceleration and
Expansion of Indonesia Economic Development 2011-2025 focuses on 3 key goals of increasing value-added,
production efficiency and national innovation.
2“
Kadin: MP3EI Offers Big Business Opportunities”, Embassy of Indonesia, Washington, news release, 28 August
2012 (http://www.embassyofindonesia.org/news/2012/08/news108.htm)
©2012 Hay Group. All rights reserved

5. Talent famine
The intention is to narrow the income gap, As with all ambitious visions, there are
reduce unemployment and boost economic many challenges that Indonesia has to
growth across the regions. The Indonesian overcome. One of the biggest challenges
government hopes that by accelerating and that we foresee is the severe talent shortage,
expanding infrastructural development, it which will only get worse in the years
can attract global investments and create ahead, if nothing is done now.
high value-added jobs for the people.
High value-added jobs are essential to With the abundance of natural resources
developing human capital and higher underwriting Indonesia’s ambitious vision
GDP per capita. This, in turn, will boost for 2025, the economic potential is real and
domestic demand, create a vibrant economy attainable. However, it has become apparent
and generate the momentum of growth that the supply of local skilled workforce
that Indonesia needs to bypass the middle- will not be able to keep up with the
income trap. Indonesia is determined to increasing demand required to transform
avoid the economic stagnation typically Indonesia into the world’s sixth largest
faced by emerging economies following the economy.
initial growth spurt.

6. 4 Help wanted: Averting the talent famine
Figure 2
Attrition rates in Indonesia
(Source: Hay Group PayNet Indonesia, 2012)
13.0 12.6
Employee turnover rate (%)
12.0 11.4
10.6 10.9
11.0
10.0
9.0
8.0 7.9
8.0 7.3
7.0 7.2
6.0
2005 2006 2007 2008 2009 2010 2011 2012
Projections from the World Bank and While this is nowhere near China’s attrition
Indonesia’s Central Bureau of Statistics rate of 21 percent in 2011, employers are
showed that Indonesia will be short of some finding it difficult to recruit managers
10 million skilled workers by 2025. Intense and professionals (Figure 3). Across the
talent competition in recent years has seen board, Director-level talent are in shortest
attrition rate climbing above 10 percent supply. This is the Achilles’ heel that would
(Figure 2). curtail Indonesia’s economic progress if left
unresolved.
©2012 Hay Group. All rights reserved

7. Figure 3
Hiring hits a snag (Source: Indonesia Skills Report, World Bank, May 2010, pp xiv)
Difficulties in filling vacancies by sector
Manufacturing
Director 84%
Professional 69%
Administrative 11%
Sales 29%
Production 29%
Unskilled 0.86%
Non-educational services
Director 78%
Professional 56%
Administrative 14%
Sales 25%
Production 23%
Unskilled 6.6%
Percentage indicating “very difficult” and “rather difficult”
Difficulties in filling vacancies by export orientation
Non-exporter
Director 79%
Professional 60%
Administrative 11%
Sales 26%
Production 25%
Unskilled 4.2%
Exporter
Director 85%
Professional 70%
Administrative 16%
Sales 36%
Production 39%
Unskilled 1.9%
Percentage indicating “very difficult” and “rather difficult”

8. 6 Help wanted: Averting the talent famine
The talent shortage is not just in the number The next section will deal with some of the
of workers, but in their skill sets as well. The challenges in Indonesia’s journey to be a
effect is reflected in Indonesia’s low ranking developed country.
in the Human Development Index3. Despite
having a high literacy rate of 90.4 percent4,
this is not a true reflection of the workforce’s
true productivity. For one, fluency in the
international business language – English –
continues to hinder Indonesia’s development
as a service-based, innovation-led economy.
3
Indonesia ranks 124, lagging behind its ASEAN neighbors. Source: International Human Development
Indicators, United Nations Development Programme. (http://hdrstats.undp.org/en/countries/profiles/IDN.html)
4
Source: Index Mundi (http://www.indexmundi.com/indonesia/literacy.html)
©2012 Hay Group. All rights reserved

9. Retiring in the prime of life
Fifty-five is the new marker for middle age according to a recent UK
survey5. It is also Indonesia’s current retirement age, when private
employees can start to collect pension from Jamsostek, the social
security provident fund.
Notwithstanding the obvious loss of national With the mean age of senior and middle
productivity when the workforce retires at managers hovering above 42, more than half
its prime, a Hay Group research revealed of the leadership team will be gone by 2025
an alarming trend. The early retirement age (Figure 4). The leadership vacuum will not
will have severe consequences on leadership be easily filled, given the shortage of skilled
succession and the strapped talent market. managers and professionals.
Figure 4
Average age of employees
(Source: Hay Group PayNet Indonesia, 2012)
60
48
48
47
47
46
50
45
43
42
40
36
38
38
Average age (years)
37
40
35
35
35
35
34
28
30
20
10
0
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Clerical/production Junior management Middle management Senior management
5
Middle age ‘doesn’t start till 55’ - but you’re old by the time you hit 69, says Britons, MailOnline, 18 September 2012.
(http://www.dailymail.co.uk/health/article-2205081/Middle-age-starts-55-youre-old-timeyou-hit-69-say-Britons.
html#ixzz29M3eb2Ln)

10. 8 Help wanted: Averting the talent famine
With the worrisome trends of labor capital development under its 2025 Vision,
shortage, skill shortage and leadership Indonesia needs to build its capability from
vacuum, can the 2025 Vision remain within and en masse.
on track? The stage may be set, but the
eventual outcomes will depend on the To close the skills gap, a massive reform of
evolving government policies and responses the education system and industry practices
by the companies. is required. Basic academic skills like
mathematics and reading remain essential.
However, management and technical skills,
Coaching or poaching? on top of fluency in English, will be in
higher demand, especially in the growing
The most direct and natural response, as service and export sectors (Figure 5). This
already evidenced in most companies, is to can only be provided by private education,
hire talent from abroad. Australia, India, in-house company training and practical
Malaysia, and Singapore are popular talent experience on the job.
hunting grounds. This is at best a stop-gap
solution6. To achieve the human
6
In an informal poll of private sector companies in Indonesia, we have found that not many organizations require
their expatriate staff to groom their local successors, as part of their regular duties. Without the skills transfer,
these jobs will always have to be filled by foreign imports.
©2012 Hay Group. All rights reserved

11. Figure 5
Skills for hire (Source: Indonesia Skills Report, World Bank, May 2010, pp xi)
Share of firms rating workers’ skills ‘very important’
Manager / Professional Skilled worker
1.0
0.93
0.84
0.9
0.8
0.72
0.71
0.66
0.7 0.61
0.6
0.56
0.6
0.51
0.52
0.5
0.43
0.5
0.34
0.4
0.28
0.28
0.28
0.27
0.3
0.22
0.22
0.2
0.09
0.1
0.0
Non exporter Exporter Non exporter Exporter
Basic skills (math and literacy)
Thinking skills
Behavioral skills
Computer skills
English skills

12. 10 Help wanted: Averting the talent famine
With economic development, better the initiative of thinking about customers’
product and service quality will be expected. future needs, instead of waiting for
This implies a greater need for innovation, instructions from their managers.
which Indonesian companies lack as
compared with their Asian counterparts, For that to happen, companies must
according to Hay Group’s Best Companies be organized differently – with more
for Leadership survey (Figure 6). For empowerment downwards. In some
innovation to occur, Indonesian companies companies, it will mean more training
must be prepared to run unprofitable programs to enable employees to
projects to try new things and allow good understand what their new empowered role
ideas to bypass the chain of command. will entail and to impart personal and team
Leaders have to be more pro-active at leadership skills. In this way, the company
helping employees understand the long- is seen as investing more in their career
term strategy and their roles in achieving development.
it. On the employees’ side, they must take
Figure 6
Innovation best practices (Source: Hay Group Best Companies for Leadership survey, 2011)
Global Top 20 Asia Top 10 Rest of Asia Indonesia
100
94
90
90
90
90
90
81
80
70
65
65
65
61
60 58
54
54
54
49
48
50
40
30
20
10
0
My company runs Employees spend much Leaders are effective If you have an excellent
unprofitable projects to time discussing customers’ at helping frontline idea you may bypass the
try new things future needs employees understand chain of command with no
our long-term strategy negative consequences
©2012 Hay Group. All rights reserved

13. Accelerated talent Most companies like to measure the success of leadership development
development: programs by the number of training hours and skills enhancement achieved.
Future Stars While managers will acquire new knowledge for personal development, such
indicators do not guarantee that the company will have an experienced bench
of leaders who can generate sustainable wealth and growth.
Consider the case of a Fortune 500 conglomerate in China. The Chairman was troubled. The majority of the
board members would be retiring within five years. Yet, the next generation of managers was not ready to step
up to top leadership roles. On top of that, the company had been working to integrate operations among its
subsidiaries to generate economy of scale. This would be impossible without strong and determined leadership.
The usual approach of career development, on-the-job training and mentorship would take time. The Chairman
needed an urgent solution to deal with the situation before it became a crisis. Hay Group designed an
accelerated 18-month senior executive development program.
A customized leadership model established the norms for successful leadership performance over the next five
years. Key competencies, such as pursuing market leadership and achieving greater productivity, were identified.
The outward behaviors and traits were clearly defined to assess the level of performance of the managers.
The program successfully calibrated and cultivated the managers. One of the managers eventually went on to
lead a global beer brand. How had the program equipped the manager with skills and confidence for such a
heavy responsibility?
The program first assessed the manager’s strengths and weaknesses, as well as his potential, to meet the
expectations and challenges of the new roles. He was put through an international business school education,
stretched business assignments, and personal coaching by the Chairman. All the training and learning
opportunities were targeted at preparing him for his future role.
The program also considered the manager’s response and ability to work with his colleagues on actual business
cases – to ensure the manager possessed the right attitude and aptitude. The rest of the senior leadership was
constantly assessing and providing feedback on the manager’s performance. The stringent process assured the
objectivity and quality of the final promotion decision.
The graduates from this “Future Star” program are about 45 years of age and usually end up holding top jobs in
the conglomerate’s diverse portfolio. So far, nearly 40 top executives have graduated from this program.
The chief concern with most companies on a whim. Rather than submitting
is that adopting a coaching approach in a to circumstances, a leading Chinese
tight labor market is risky business when conglomerate consulted us to design
others are taking the convenient shortcut an accelerated program for leadership
of talent poaching. We believe that the risk succession (see box story above).
of not training is even higher: what if these
undeveloped talent stay on? The result was a robust talent grooming
process which enables the company
China faced a similar situation in the mid- to identify the right talent to fill its
2000’s. Talent management was a nightmare management bench.
with employees job-hopping, seemingly

14. 12 Help wanted: Averting the talent famine
Leadership development and succession
The current retirement age of 55 was set in 1979. With the
average life expectancy now at 70, we foresee that the Indonesian
government will need to gradually raise the retirement age in
order to retain talent and maintain national productivity.
National policy notwithstanding, In addition, for true leadership succession
companies can also help themselves by to take place, managers in Indonesia need
extending the employment of retirees to step up to the challenge. Hay Group’s
through short-term contracts, thus retaining Best Companies for Leadership 2011
their knowledge and experience. In survey revealed that Indonesian leaders lag
addition, the retirees would be required to behind their Asian counterparts in four key
groom and mentor the next generation of leadership areas (Figure 7):
managers during their tenure. In this way, a
short-term solution can also yield medium- • People development
term benefits.
• Connecting people to work that is
personally meaningful to them
But before these can take place, there must
be a mindset shift – employees must be • On-boarding new parents which is
willing to change their attitude to working critical for the relatively young Indonesia
beyond 55 years old and employers must workforce
view them as experienced assets, rather than • Maintaining a balanced mix of local and
walking liabilities with more health issues foreign talent
and less energy.
©2012 Hay Group. All rights reserved

15. Pay for performance
A key contributor to the intense talent This appears to be the path that Indonesia is
competition in Indonesia is its low labor heading towards according to Hay Group’s
cost. The talent auction will continue until PayNet database. There is a sharp mismatch
salaries rise beyond productivity levels. If between remuneration and performance.
Indonesia fails to develop its human capital Companies are not using their salary
sufficiently to match the target productivity budgets as a weapon to drive performance.
level by 2025, it will fall into the middle-
income trap it is trying so hard to avoid.
Figure 7
Leadership best practices (Source: Hay Group Best Companies for Leadership survey, 2011)
Global Top 20 Asia Top 10 Rest of Asia Indonesia
100
95
95
95
87
90
84
80
74
70
70
58
60
56
55
52
51
50
43
40
39
40
36
30
20
10
0
Senior leaders personally Leaders work hard to Introduced an on boarding Balanced mix of local and
spend time actively connect people with program to help new international talent in
developing others projects that are personally parents return to the senior leadership positions
meaningful to them workplace

16. 14 Help wanted: Averting the talent famine
For instance, as Figure 8 shows, for The remuneration and talent retention
supervisors/ junior managers, the average strategy must target at changing behaviors
merit increase is 8.3 percent while the that are aligned with the 2025 Vision. It is by
seniority-based one was a mere 0.4 percent creating an equal opportunity workplace with
lower. What kind of message does this exciting personal development opportunities
communicate to the employees? Not only that companies can keep their talent and
has effectiveness of the remuneration strategy motivate the rest of the employees.
been reduced, it drives the wrong behaviors.
Figure 8
Everyone gets a pay jump
(Source: Hay Group PayNet Indonesia, 2012)
Average forecast base salary movement (%) –
all organizations (April 2011–April 2012)
Type of salary
movement Supervisory / Middle Senior
Clerical / management
Operations Junior management / Overall
professional / Seasoned Executives
professional
Salary structure 10.6% 8.3% 7.2% 2.7% 11.4%
Merit / performance 9.7% 8.3% 6.9% 3.1% 11.0%
Inflation based 8.8% 8.1% 6.7% 3.1% 10.6%
Seniority based 7.9% 7.9% 5.8% 2.9% 9.9%
Average base
salary increase 11.2% 10.9% 10.4% 9.8% 10.7%
©2012 Hay Group. All rights reserved

17. Akan Datang7: A talent apocalypse or
an economic miracle?
The success of MP3EI will not just be in creating a more productive
workforce and greater national innovation. Indonesia has a real
opportunity to create a highly skilled middle class of professionals
and managers who are able to drive fiscal growth, achieve human
capital targets and ultimately sustain Indonesia’s economy
beyond 2025.
All this is contingent on the government The flip side does not look so good. If
and companies working together to solve Indonesia succumbs to a weak talent market
the upcoming talent apocalypse. Not and fails to develop its human capital
only must the retirement age be adjusted sufficiently, it will have to resort to foreign
upwards, the workforce needs to be talent to sustain its economic growth. This
equipped with technical, management and leadership-outsourcing model will displace
English language skills. the local talent pool and slow the human
capital progress. Without a stable talent
Within companies, transformation must development environment to groom local
also occur. Companies must focus on capabilities, there will be huge skill gaps
developing a sustainable pipeline of local and salary discrepancy. This will ultimately
talent, enabling them to succeed with the lead to social inequality and a stagnated
necessary skills and authority and rewarding economy.
the right kinds of behavior. With the
pending mandatory retirement of a large Whichever the case may be, the countdown
part of its middle and senior management, has already begun.
steps must be taken now to capture
institutional knowledge, groom the next-in-
line and formulate a post-retirement hiring
strategy.
7
Bahasa Indonesia meaning “coming soon”.

18. 16 Help wanted: Averting the talent famine
East meets West:
An executive leadership challenge
Today’s leaders are expected to play multifaceted
roles: visionary chief, astute decision-maker, brilliant
strategist, team captain and inspirational boss. And
they are expected to do all these effortlessly.
What does it take to lead Fortune’s Most Admired
companies in Indonesia? In 2012, Hay Group
and Fortune magazine launched our first Most
Admired Companies in Indonesia, with the aim of
understanding what sets successful companies apart
from their peers. Published in January 2012, the
companies ranked included 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 of Fortune Indonesia’s Most Admired
Companies. To download this viewpoint, please go
to: http://goo.gl/oE0Bu.
For more information, please contact:
Nidthia Chelvam
Managing consultant
Hay Group Indonesia
E| Nidthia.Chelvam@haygroup.com
©2012 Hay Group. All rights reserved

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