Major transition period for the Jaya Group

By Johannes Simbolon

JAKARTA (JP): With initial asset of just Rp 10 million in 1961, PT Pembangunan Jaya has turned itself into a major business house in 35 years.

Now, it has more than 60 subsidiaries, with total assets of Rp 5 trillion (US$2.13 billion), generating a net profit of Rp 400 billion last year.

In a newly-published book on the group, titled Kiat Menjadi Konglomerat. Pengalaman Grup Jaya (Strategy to becoming a Conglomerate. Jaya Group Experiences), written by Bondan Winarno, the cofounder and key figure behind the group's success, Ciputra, added a poem about his dream that the business house may survive for another millennium. His short-term target is that it will rank among the top-10 private-sector companies in Indonesia.

Will the dream come true?

The question is crucial because Jaya Group is, at present, in a major transition period.

Ciputra, a flamboyant architect from the Bandung Institute of Technology, was officially replaced last month by low-profile Hanafi Lauw, also an architect from the institute, as the group's president. Ciputra, however, does not totally retire from the group because he still serves as an "active commissioner".

The question is: Can Hanafi handle the job?

Two other members of the board of directors, Soekrisman and Hiskak Secakusuma, who had assisted Ciputra since the early days, were earlier replaced by young-generation directors, Daryanto Mangoenpratolo, Edmund Sutisna, Leonardi Kusen and Tanto Kurniawan.

Among the members of the board of directors, only Hanafi has secured a share (3.5 percent) in the holding company, Pembangunan Jaya, while the new directors have promised not to own shares nor to work outside the corporation, as required by the Jakarta administration, which possesses 40 percent of the holding company.

The new directors are expected to ignore their self-interest and be fully dedicated to the company. Are they willing to do that?

Expansion

The change in management is not the sole problem faced by the power house. The corporate's rapid development has also posed new problems to the company.

Over the past 35 years, PT Pembangunan Jaya has established itself as the biggest property business in Southeast Asia, said Bondan.

"And from its core business of property development, it has diversified into a number of businesses, which even Ciputra and his aides cannot count exactly," he said.

It has built 10 housing complexes on a total area of 20,000 hectares with 35,000 houses, 260,000-square-meters of shopping centers, 2,500 hotel rooms, 163,000-square-meters of office space and 550 hectares of recreational parks.

The Bintaro and Bumi Serpong Damai estates in South Jakarta and the Ancol recreational park in North Jakarta are among Jaya Group's well acclaimed masterpieces, while Pasar Senen, its first project, stood as the pride of Jakartans from 1960 to 1980, before modern shopping centers flourished in the city. It also built the city's first modern office, the Jaya I building on Jl. Thamrin.

The feat in property development led to other fields, both related and unrelated to its core business of property. The drive for business expansion was so strong that the people inside the house dubbed Ciputra as "baby maker". In the first 20 years, a total of 25 subsidiaries were set up. In the five years between 1980 and 1985, 27 other companies were set up, followed by dozens of others in the following years.

From the outset, the business expansion never strayed from the core business. The inhabitants of its housing complexes serve as a captive market for its new businesses, which include steel/aluminum frames (produced by PT Jaya Steel), plasterboard (PT Jaya Plasterboard), fiberglass (PT Jaya Fibrindo), interiors (PT Jaya Interior), electrical and mechanical goods (PT Jaya Teknik), construction (PT Jaya Konstruksi and PT Arkonin), shopping centers (PT Cahaya Department Store), education (PT Global Jaya school), and finance (Jaya Bank).

Later, they expanded to fields unrelated to property, such as businesses concerning chopsticks (PT Buana Supindo Jaya), LPG (PT Jaya Gas), glucose (PT Jaya Glucose) and automotive assembly, (PT Indo-Swedish Motor Assembly Corporation).

Except for the gas distribution company Jaya Gas, all these businesses failed. The reason is not because of their "unrelated" characteristics because some of their businesses related to properties have not performed well either, including Jaya Interior, Jaya Steel and Jaya Aluminum.

The reasons for the failures don't lie in the type of the business, says Bondan, but in other factors, including weak business strategy, lack of supervision by the holding company, weak management and lack of funds.

To heal the "sick" businesses and to prevent the recurrence of similar cases in the future, Jaya Group restructured its organization in 1992 by grouping its businesses into seven main sectors: finance, real estate development, construction, consultancy, recreation, trading and industry. Two directors from the holding company were assigned to supervise one sector. The managements in the holding company and subsidiaries maintain contact with each other.

How can the directors still have time to think about strategies if they are so involved in operational activities?

Human resources

The transition is also occurring in human resource development.

The group now employs 12,000 workers, much higher than the 7,000 in 1981 and the six in 1961.

In the past, Jaya Group adhered to the so-called lifetime- employment and promotion-from-within principle. There was no recruitment from outside for top level executives.

It diligently trained its workers, even sponsored their further studies so that they could fill managerial posts in the company in the future. Thus far, 37 workers have achieved masters degrees under the sponsorship, the largest-ever education sponsorship carried out by a private company in Indonesia. It proudly declared the slogan "Center of Excellence".

But the Center of Excellence slogan posed troubles. Many of its employees, especially from the real estate sector, were poached by other companies.

Because the expansion of its businesses needs more professionals than Jaya Group has, it has abandoned its promotion-from-within principle.

The growing number of young workers also created a generation gap. A survey run by the U.S.-based Hay-McBaer Management Consultant in 1991 found that the group's workers had lost the company's sense of philosophy and mission.

What is good news for Jaya Group is that several surveys found that the workers feel neither the existence of nepotism nor racial favoritism in the company.

Ciputra has transferred the baton of leadership to the second generation. Will it still prosper, as dreamed of by Ciputra, to the next millennium?

Bondan's book clearly illustrates this major transition as the company's next challenge.