PT Pos Indonesia: Surviving rough seas

PT Pos Indonesia: Surviving rough seas

Debbie A. Lubis, Contributor, Jakarta

Over a decade ago, the postman was an eagerly awaited person.
Most people relied on postmen to send packages, money or love
letters.

With the rapid growth in IT, the role of "Mister Postman" has
subsequently faded away. At present, with just the click of a
mouse or a few taps on your cell phone you can send a letter, a
document or even money to any part of the world.

People can now stay in touch with their loved ones easily. No
need to send cards or love letters. Also within minutes, a
penniless college student can withdraw money transferred by his
parents, thanks to the magic of the ATM.

The changes have indeed affected the business of state-owned
company PT Pos Indonesia, which once monopolized the delivery of
mail, money orders and packages throughout the country.

The growing number of courier companies offering express
delivery services has also posed a threat to the company's
business. At the same time, the implementation of regional
autonomy in 2002, which caused a sharp drop in the sending of
government documents from Jakarta to provinces, cut down on its
postal and delivery business.

"The rapid change in IT technology really affected our
business," said Alinafiah, the president director of PT Pos
Indonesia, which was, in the past, among the most profitable
state-owned companies.

Five years ago, PT Pos' annual profits could reach more than
Rp 100 billion. The rapid changes in the way people communicate
has turned PT Pos into a money losing company. The period of 2002
to 2003 was a difficult time for PT Pos. During the two-year
period, it suffered massive financial loss.

The worsening of PT Pos' business was not merely caused by
changes in people's lifestyle but also due to the fact that the
company has to carry on Public Service Obligations (PSO) from the
government.

The company, for example, has to maintain the operation of its
money-losing branches in remote areas in order to support the
government's transmigration program, although, based on normal
business calculations, the operation of such offices is no longer
feasible.

In the past, when the company's business was still healthy, PT
Pos used a cross-subsidy strategy to support its operations in
remote areas. But the decline in overall business activities has
made it difficult for PT Pos to finance its 2,000 branches in
such areas.

The rough seas began to calm down in 2003 after the company's
management decided to change business direction by transforming
the company's money-losing divisions into profit-oriented
businesses.

The strategy reaped good results as reflected by the decline
in the company's financial losses in 2003. In 2004, PT Pos'
balance sheet returned to the black after two years in the red.
For the year, PT Post booked a net profit of Rp 2.49 billion, as
compared to a net loss of Rp 7.1 billion in 2003. This year, the
company expects a 15 increase in net profit.

"2004 was the turning point for PT Pos," Alinafiah said.

The success cannot be separated from the company's ambitious
business transformation program, "Change Management Team". The
program was introduced at the beginning of 2003, with the main
mission of carrying out a massive transformation of the company's
core business activities.

Alinafiah implemented the business transformation based on the
so-called "6 R" strategies, to be implemented from 2003 through
2007.

The "6 R" strategies refer to Repositioning the company's
mission, Reinventing its business, Reengineering the business
system and process, Restructuring the organization, Right-sizing
human resources and competence, and Resources allocation.

The repositioning of the strategy aims at making the company
become more competitive and more business-oriented.

The second strategy, Reinventing, requires the company to make
product differentiation. With this strategy, the board of
directors decided to revamp the company's traditional business
and put more emphasis on logistics services, financial
transactions and integrated network-based philately.

One of the company's breakthroughs was the launch of a new
service, Insured Delivery, in early 2003. With the service, all
goods delivered are guaranteed by insurance. As part of the
service, customers can also track their mail or documents over
the Internet.

In 2003 alone, the new service generated revenue of more than
Rp 15 billion and this rose to Rp 23 billion in 2004.

At present, the company does not just deliver goods to
designated addresses, but also provides packaging and warehousing
services as part of its integrated logistics services. This has
received a positive response from the business community.

The company also launched Next Day Delivery service in eight
big cities that covers islands such as Java, Bali, Batam and
Medan. This mail-express system is set to compete with services
offered by private express companies.

By the end of 2003, the company also launched Direct Mail
with an investment of Rp 20 billion. With this service, companies
can send information or promote their products more easily. PT
Pos will send the data to its branches, which will then print it
and put it in envelopes before sending to he designated
addresses. This service has been utilized by several card centers
and also during the campaigning for the legislative and
presidential elections.

For financial transactions, the company has cooperated with
foreign banks to provide "instant" money orders. It also
cooperates with a local bank to deal with money transfers by
migrant workers to their families, another bank for housing
credit installments and with the local Islamic bank to provide
banking services.

The company also provides Online Payment Point in which people
can pay their telephone bills online. "All of our strategies are
aimed at linking the physical network of the post office with the
virtual network," Alinafiah said.

With the strategy of Restructuring, PT Pos tries to
create an efficient bureaucracy. "In the future, the organization
will be just the holding company while each business unit, like
Direct Mail, can be managed in partnership with private
companies."

"We are thinking of merging some regional offices to boost
efficiency. The organization will not be centralized and the
bureaucracy will be cut because we are open for cooperation with
other parties," Alinafiah said.

PT Pos is trying to find the ideal number of employees to meet
its market needs. Alinafiah said that right-sizing did not have
to mean lay-offs.

At first the company offered early retirement for 500
employees, but it turned out that 1,500 employees applied. After
discussions with the company's union, all of the applications
were accepted and fair financial compensation offered.

In the Resource Allocation strategy, the company's assets are
allocated proportionately. In cooperation with a private
investor, PT Pos has, for example, transformed its one-hectare
site in Bali to a house-shop complex, but still with the post
office at the center.

"From 2003 until 2007, we will carry out a massive
consolidation and revitalization. We hope to see some growth in
the next two years. I expect our overall business can achieve 20
percent growth after 2007," Alinafiah said.

The turbulence might be over for PT Pos but in this
increasingly competitive market, other challenges are likely to
emerge.