Transformation in state-owned companies brings positive results

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.