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.