Transformation in state-owned companies brings positive results

Ari Darmawan and Sudibyo M. Wiradji, Contributor, Jakarta

In the minds of many people the image of state-owned companies has yet to improve significantly. The companies are often seen as the cash cows of those in power, full of corrupt practices and ineffective bureaucracy.

However, a large number of state-owned corporations (BUMNs) such as PT Indosat, PT Telkom, PT Antam and PT Semen Gresik have made vast improvements, particularly thanks to their privatization programs.

Such positive transformations are generally focussed on discarding old, encumbering values and corporate cultures and replacing them with new effective values reflecting professionalism, transparency and competency.

Some of the BUMNs which have not joined the privatization program have also shown an encouraging improvement in their operations. PT Perkebunan Nusantara (PTPN) XIII, for example, has operated as efficiently as well-managed private companies, thanks to the good corporate governance principles it has adopted.

The company that oversees oil palm and rubber plantations on the entire island of Kalimantan has taken a major leap. The company has even published a book, Leaping to the Next Curve, on the transformation process it started in 1996.

"This book is a positive contribution from us at PTPN XIII to other state-owned enterprises in their efforts to transform their businesses," said H. Akmaluddin Hasibuan, PTPN XIII's former director who was appointed director of PTPN III in North Sumatra in August 2003.

Besides stressing the importance of the total transformation that PTPN XIII had undergone, Akmaluddin also pointed out that better performance and productivity had resulted. He said that such changes were inevitable given the tough global competition. The results have turned the company into a potentially lucrative investment should one day the company decide to go public.

During the consolidation period the management realized that overall performance depended on several factors, one of which was work ethic or corporate culture. In order to improve creativity and initiative among the employees, the whole working process had to be revamped.

To overcome any resistance or rejection, there should be a consistent perception of the targeted values -- starting initially at the highest level with the company's directors and commissioners. Consultants are invited to discuss the relevant values to face the future. A future which will undoubtedly be more competitive. It is imperative for the top management of the company to make drastic changes in attitudes or mind-sets.

Professionalism, entrepreneurship and innovation are only some of the prerequisites for company survival. Once these are agreed upon they should be implemented throughout the entire company.

Giving one example of an old unusable value, Akmaluddin mentioned that seniority used to be one of the parameters in the promotion of employees. However, since the company's transformation, promotion is now based on competency. Thus performance is guaranteed.

Some of the vital factors in creating a better work culture and atmosphere in state-owned enterprises are: Work ethics or system, competent human resources, and the availability of information.

The work ethics or system should be developed based on the new values agreed upon and well understood by everyone for the betterment of the company, as well as for the employees' welfare. Competency, in its fullest sense, should be enhanced in every department of the company. The latest information technology (IT) must be used so that communications, or the lack thereof, do not impede the company's progress in today's globalized business. At PTPN XIII, using sophisticated IT equipment, communication with the remotest plantation is no longer a problem.

The first result of transformation was the elimination of outdated bureaucracy. Employees are more at ease with senior managers and directors. In meetings suggestions, and even criticism, flowed from employees at every level.

Other tangible results were reflected in the overall performance, productivity and revenue of the company. Its total assets, Rp 500 billion in 1996, increased to Rp 1.2 trillion in 2002. Sales also went up, from Rp 238 billion in 1996 to Rp 850 billion in 2002. Within six years profits also skyrocketed from Rp 4 billion in 1996 to Rp 70 billion in 2002. Productivity, likewise, was also part of the success story. In 1996 the company produced 10 tons of palm oil, while today it produces more than 17 tons. Its dry rubber production, which in 1996 was only 500 kilograms per hectare, is now 1,020 kilograms per hectare.

Like PTPN XIII, PT Semen Gresik has also paid serious attention to managing the company based on the principles of honesty, transparency, accountability and responsibility.

This commitment is reflected by the company's strong commitment to a seamless implementation of good corporate governance principles. A number of actions on the adaptation of the GCG principles have been made and they have even been reviewed by an independent consultant, Deloitte Touche Tohmatsu.

One of the company's important efforts in implementing the GCG principles was the appointment of an independent commissioner during an extraordinary meeting in February, last year.

The board of commissioners has also established an audit committee to ensure that all the activities are carried out under honesty, transparency and accountability principles. The committee consists of four members with the independent commissioner as the chairman, while other members represent people from external and independent sides.

Satriyo said that the implementation of GCG principles started when the company became a publicly listed firm in 1995. However, he said, the idea of transparency and good management began in the early 1990s when the company adopted the Japanese management standard Total Quality Control (TQC).

"All levels of employees were required to attend training courses on TQC so that they had the same perception on the company's vision," he said.

By adopting the TQC, the company can operate more efficiently because almost all levels of workers have been made aware of efficiency principles.

In addition, the company has also established a tradition of conducting benchmarking with other local and overseas cement producers so that the management can periodically monitor the quality position of the company's cement products.

Semen Gresik which is 25.5 percent owned by Cemex S.A. de C.V., a Mexico-based global cement company, 23.5 percent by the public and 51 percent by the government continues to improve the GCG principles within the company.

The entry of the Mexican cement giant as a strategic investor in 1998 was a driving force for the employees to perform better and to adopt more internationally accepted standardization, either in production activities or in the general management as a whole.