Leader Development Program Pupuk Indonesia

When You stop learning You stop growing Kenneth H Blanchard THANK YOU COMPETITIVE STRATEGY LEADERSHIP TRAINING PROGRAM IN-COMPANY TRAINING PROGRAM MarkPlus, Inc. EightyEight@Kasablanka 8th Floor 192 Jl. Casablanca Raya Kav.88 Jakarta 12870, Indonesia Tel. +62 21 5790 2338 | Fax. +62 21 5790 2268 Developed by MarkPlus, Inc. © 2019



AGENDA PELATIHAN DAY 1 ƒ Pelatihan akan diadakan selama 1 hari SESSION 08.30-10.00 Business Landscape Analysis 10.00-10.15 Coffee Break 10.15-12.00 12.00-13.00 Supply Chain 101 13.00-15.00 Lunch 15.00-15.15 15.15-17.00 Marketing Strategy and Tactic Coffee Break Exercise : PDB for Pupuk Indonesia Products ©2019 MarkPlus Institute 2 COMPETITIVE STRATEGY LEADERSHIP TRAINING PROGRAM In-Company Education Training Material Healthcare Property and Consumer MARKPLUS INSTITUTE EightyEight@Kasablanka 8th Floor Jl. Casablanca Raya Kav.88 Jakarta 12870, Indonesia Tel. +62 21 5790 2338 | Fax. +62 21 5790 2268 HARI 1 Exercise : SESI 4 PDB for Pupuk Indonesia Products 193

POSITIONING Target Market Brand Frame of Point of Competitive Reference Differentiation Edge DIFFERENTIATION ©2019 MarkPlus Institute 4 Content What to offer? Context How to offer? Infrastructure 194©2019 MarkPlus Institute 5

PDB TRIANGLE Differentiation Positioning Brand Integrity Brand BRAND ©2019 MarkPlus Institute 6 When You stop learning You stop growing Kenneth H Blanchard THANK YOU 195



STRATEGICMANAGEMENTPROCESS 1 Persoalan Klasik di BUMN • Posisi sudah BOD-1 & BOD-2, tapi belum move on dari seorang “Spesialis” menjadi “Generalis” • Tenggelam dalam rutinitas operasional & berpikir target jangka pendek (KPI & RKAP) • Pola pikir masih bersifat silo/parsial, Kurang mampu berpikir HelicopterView • Kurang berani bermimpi jauh kedepan (minimal 5 tahun) • Konflik karena tidak sepakat dengan mimpi/visi bersama • Belum adanya sinkronisasi dan harmonisasi antara kompetensi jabatan, kompetensi BUMN, Program LDP dan Sistem Karir 196

1. Business Acumen (BA) o Definisi : Kemampuan untuk memanfaatkan peluang dalam memanfaatkan profit dan mengembangkan aktivitas bisnis perusahaan. o Mencakup : • Ketajaman bisnis • Pemahaman terhadap bisnis proses perusahaan • Identifikasi langkah perbaikan di unit kerja • Perbaikan proses bisnis di perusahaan 2. Strategic Thinking (ST) o Definisi : Kemampuan untuk mengembangkan berbagai aspek strategis dalam merumuskan dan mengambil tindakan strategis di unit kerja yang dipimpinnya bagi kebutuhan jangka pendek maupun jangka panjang perusahaan. o Mencakup : • Mampu membaca peluang – peluang strategis perusahaan • Bertindak dengan memperhatikan aspek aspek yang dapat dikembangkan di dalam perusahaan • Keputusan yang diambil selalu memperhatikan kebutuhan jangka pendek dan jangka panjang 197

GreatLeaderHarus Memiliki : • Keahlian Bidang (Kompeten dibidangnya) • Kedalaman Bidang (Memahami kondisi internal perusahaan) • Keluasan Bidang (Memahami kondisi eksternal perusahaan) • Siap menghadapi VUCA GreatLeaderTercermin Pada: • Visioning • Business & Industry Knowledge • Problem Solving & Decision Making • Entrepreunership 198

WHATDOWEMEANBYSTRATEGY? Where Where Are We We Want Now ? to Go? • Business environment and industry conditions • Creating a vision for the firm’s future direction • Firm’s financial and competitive capabilities By crafting an action plan that heads the firm in the direction of its intended goals—that is, its strategy WHATDOWEMEANBYSTRATEGY? Where Are How Are We Going to Where We We Now ? Get There Want to Go? 199

WHATISSTRATEGYABOUT? to position the firm in the marketplace to respond to changing to attract customers economic and market conditions HOW to capitalize on to compete against rivals opportunities to grow the business to achieve the firm’s performance targets AFIFramework (Rothaermel, 2017) 10 200

TheStrategicManagementProcess Method put in place by strategic leaders that can increase the likelihood that a firm will formulate and implement a good strategy, which can lay the foundation for a sustainable competitive advantage (Barney & Hesterly, 2015) TOPͲDOWNSTRATEGICPLANNING (Rothaermel, 2017) • Rational, data driven strategy process • Driven by Top Management • Assumption: we can predict the future from the past • Works well in a stable environment • The formulation is separate from Implementation 201

Manajemen Stratejik Apa tujuan manajemen? • Efektivitas • Efisiensi – “Doing the right things” Æ Tercapainya tujuan – “Doing things right” Æ Mendapatkan hasil yang sebesar- besarnya dengan dengan sumber daya yang ada Sumber:Robbins&Coulter(2007) Strategic Level Corporate Overallpurposeandscopeof business, Strategy investor’sexpectations,longͲterm vision. Businesstobe in Challengesofcompetition, BusinessStrategy choiceofproducts,exploiting Tacticstobeatthecompetition andcreatingnewopportunities. OperationalStrategy Howeachpartofthebizis Operationalmethodstoimplementthetactics organisedtodeliver corporateandBUͲlevel direction 202

Lingkup Corporate Lingkup Business Level Strategy Level Strategy (Holding) • Bagaimana strategi Anper • Apa bisnis yang akan kita & Cuper (SBU) masuki? berkompetisi dan menghasilkan laba? • Apa bisnis yang perlu kita pertahankan & kembangkan? • Apa bisnis yang perlu kita tutup? Keselarasan Tujuan Bisnis Kelancaran Arus Kas (Cash Flow) Laba (Profit) Tumbuh & Berkembang (Growth) Keberlanjutan Jangka Panjang (Sustainability) 203

LABA = Total Pendapatan – Total Biaya Siapa Yang Menikmati Laba?? : 1 Pemilik/pemegang saham = Deviden 2 Karyawan = Bonus 3 Direksi = Tantiem 4 Cadangan & Investasi Laba = Total Revenue – Total Cost Laba = Total Revenue – Total Cost 204

Laba = Total Revenue – Total Cost Efficiency Cost Reduction Program (CRP) • Penjualan Produk Program dan Jasa 205 • Investasi • Deviden • Divestasi

BUSINESSSTRATEGY WHO? Which costumer segments will we serve WHAT BUSINESS WHY STRATEGY Customer Do we want to needs, wishes satisfy them? and desires will we satisfy? HOW Will we satisfy our customers’ needs? BUSINESSSTRATEGY 206

GENERICBUSINESSSTRATEGY 207

BUSINESSSTRATEGY:VALUEDRIVERS Differentiation Cost Leadership Product features Cost of input factors Customer service Economies of scale Complements Learning- curve effects Experience- curve effects 208

BUSINESSSTRATEGY:BLUEOCEANSTRATEGY VALUEINNOVATION Blue Ocean Differentiation Strategy Cost Leadership BUSINESSSTRATEGY:VALUEINNOVATION • Eliminate: which of the factors that the industry takes for granted should be eliminated? • Reduce: which of the factors should be reduced well below the industry’s standard? • Raise: which of the factors should be raised well above the industry’s standard? • Create: which factors should be created that the industry has never offered 209

BUSINESSSTRATEGY:BLUEOCEANSTRATEGYVS STUCKINTHEMIDDLE 203 STRATEGYEVALUTION 30 210

WHYWENEEDTOEVALUATE? EVERYTHING’S CHANGE The best formulated and best implemented strategies become obsolete as a firm’s external and internal environments change. Timely evaluations can alert management to problems or potential problems before a situation becomes critical STRATEGYEVALUATIONISNOTEASY • Increasing environment complexity • Increasing difficulty to predict the future with accuracy • Increasing number of variables • Rapid rate of obsolescence of even the best plan • Decreasing time span for which planning can be done with any degree of certainty 211

STRATEGYEVALUATIONACTIVITIES Examining the Comparing Taking corrective underlying bases expected results actions to ensure to actual results that performance of a firm's conforms to plans strategy STRATEGYREVIEW,EVALUATIONANDCONTROL CONSISTENT • Strategy should not present inconsistent goals and policies INTERNAL FEASIBLITIY • Neither overtax resources nor create ASSESSMENT unsolvable subproblems EXTERNAL CONSONANCE • Need for strategists to examine sets of ASSESSMENT trends, as well as individual trends ADVANTAGE • Creation or maintenance of competitive advantage 212

STRATEGYREVIEWFRAMEWORK 200 MEASURINGORGANIZATIONALPERFORMANCE Compare the firm’s performance to competitors Compare the firm’s performance over time Compare the firm’s performance to industry averages 213

PUPUK INDONESIA

Dr. Ir. Harris Turino, MM, MSi. • Lahir di Tegal, 51 tahun • S1 – FTJE UKSW Salatiga lulus tahun 1992 • S2 – PMBS MME X lulus tahun 1998 sebagai siswa terbaik dan dengan predikat cum laude • S2 – KIK STIK lulus tahun 2001 • S3 – PPIM FE UI lulus tahun 2010 dengan predikat cum laude dan memperoleh rekor MURI − Faculty Member PMBS dan ELI 1998 – sekarang − Dosen Program Doktoral dan Magister PPIM FE UI 2010 – sekarang − Dosen PPS IKJ 2010 – sekarang − Dosen Program MM dan MBA IPMI 2010 - sekarang − Program S1 STIK dan S3 (Doktoral) STIK 2001 - sekarang − CEO Kleo Beauty Group − Penulis buku Meretas Konsep Ekonomi Berbagi dan Menerawang Masa Depan Ekonomi Berbagi di Era Hiper Kompetisi Dr. Harris Turino [email protected] http://www.harristk.com 0816909159 214

AGENDA 1. Introduction to Corporate Level Strategy 2. The Concept of Growth 215

Level of Strategy Corporation Corporate Strategy (how to increase corporate value) Business-1 Business-2 Business Strategy (how to achieve its objectives and outperform the rivals) Finance Production Marketing Functional Strategy (how to help business to achieve its objectives) Tactic Distrib. Promo Sales (how to perform tasks more effective and efficient) 216

Corporate strategy is the way a company creates value through the configuration and coordination of its multimarket activities Collin and Mongomery, 1997 Corporate Strategy 1. Shareholder Value Creation as the ultimate purpose of corporate strategy. 2. The focus on the business scope and its relatedness in the corporation. Value ultimately determined by degree to which the businesses in the portfolio are worth more under the management of the company then they would be under any other ownership (Configuration - Decision Making) 3. The emphasis on how the firm manages the activities and businesses that lie within the corporate hierarchy (Coordination – Managing Decision) 217

pra etiya mulya !Principle of Financial Assets Portfolio # of Stocks Total Risk= Systematic Risk+ Unsystematic Risk Portfolio among risky assets is not just by adding number of risky assets but to find the 'perfect' combination of correlation among them prasetiya mulya r., '' �' -P-o-rto-f-ol-io-A-B- - ,_ - - - - - - - - _, • Period -' 1 Period ,_ --- -- ,_ - - - - - _, , - ..- -,' ' Portofolio AB ' ' rp ,_ - - - - - - - - _, Portfolio among risky assets is not just by adding number of risky assets but to find the 'perfect' combination of correlation among them 218

Issues in Configuration 1. The characteristics of portfolio expressed as its overall return and its overall risk. 2. How synergies between business are captured 3. How to achieve growth ambitions by internal investment and or external acquisitions 219

CEO’s Challenges • Two main challenges of CEO: – Managing growth – Winning the competition (outperform rivals) Explore Exploit Superior new business existing business Performance Identify Strengthen Competitive New Business Advantage Opportunities Growth vs. Competition Growth Competition • Identify new business • Outperform the rivals opportunities • Strengthen competitive • Explore new emerging advantage business • Exploit existing business • Sustaining profit • Superior profit • Medium- to long-term perspective • Short- to medium-term perspective 220

Growth and Competition 1 Securing the future Identify 6 Business Opportunities Growth Strategy 2 Competitive Strategy Develop/Buy Innovation 4 5 3 Competitive Superior Advantage Performance Apply a set of (wealth creation) activities for commercialization 6 Strengthen CA Company Growth • What is company growth? The increasing of firm value • How to measure it? ‰ Market value (# of share x share price) ‰ Valuation formula Firm Value FCF1  FCF2  ... (1 wacc)1 (1 wacc)2 (series of discounted free cash flow in the future) 221

Free Cash Flow REVENUE Top Line ̶ COGS • core business … • new business ̶ SG&A Operational Excellent ̶ Depreciation (Cost Efficiency) ̶ Other Expenses … ̶ Interest ̶ Tax NET PROFIT Bottom Line + Depreciation Invested Capital ̶ /+ Additional Working Capital ̶ Capital Expenditure FREE CASH FLOW Return on Invested Capital (ROIC) ROIC = Profit Invested Capital Profit Revenue ROIC = x Revenue Invested Capital Cost Efficiency Revenue Generation (Operational Excellent) • Core business • Grasp new opportunities Securing The Current Sustaining The Future 222

Revenue From Core Business • Core business: o Generate current cash flow from current business revenue o Finance current operation and investment for the future • Current (core) business will be deteriorated overtime Æ decreasing current revenue & margin o Case: Apple in the beginning of 1990s o Case: Pfizer (Norvask) in the end of 2007 o Case: Circle K vs 7 Eleven vs Indo/Alfa Mart • Company has to grasp more revenue from new business opportunities! Source of Growth - McKinsey & Co (2008): • Firm growth is contributed by three sources: o Market Share Gain Æ organic growth o Merger & Acquisition (M&A) Æ inorganic growth Æ market growth o Portfolio Momentum • Along 1999 – 2006, 416 observed companies enjoyed 10.1% of revenue growth. 6.6% 3.1% 0.4% Total Growth Market Share 10.1% Portfolio Momentum M&A 223

Source of Growth: In Some Industries Portfolio Momentum M&A Share Gain 16% 36% High-tech 48% 31% 40% 26% Retail & wholesale 43% 22% 32% 21% Consumer goods 37% 29% 18% 37% Financial Institutions 46% 16% 43% 14% Telecommunication 53% 56% 11% Health Care 47% 43% Electric power & 32% natural gas Media & entertainment Three Growth Horizon Future Horizon-3: • Idea generation Create viable • Idea development options PROFIT Horizon-2: • Idea diffusion Build Emerging • New business launced Business Horizon-1: • Existing business that generate Extend and Defend cash today Core Business Now Now TIME Future Sustained revenue growth occurs if there is the flow of portfolio across 224 Horizon

Problems with Horizon-2 (H2) • H2= 0 • H2 X • H2 ≠ H2 • H2 = H1 Similarity vs Complementarity 225



Dr. Harris Turino [email protected] harristk.blogspot.com AGENDA 1. The Concept of Diversification 2. Diversification and Performance 3. Corporate Parenting 226

Introduction Diversification is the act to form portfolio that comprises of some assets. ‰ In investment field, the purpose of diversification is risk reduction. ‰ In business field, diversification have several motives and purposes. 227

Diversified Company A Company can be considered diversified if it has: ‰ multiple divisions and/or SBUs, or ‰ multiple product lines, or ‰ multiple market segments (by geographic location or customer type) Ansoff Matrix (1957) New Product Development Diversification Product • Develop new product • Develop new product with different charact- to new market eristics to existing market segment segments - Apple Igor Ansoff Existing Market Penetration Market Development Product • Increase sales per • Offer product to new customer market segment (geo- graphic or customer • Find new customer in type) – Delta Airline existing segment New Market Existing Market 228

Motive for Diversification ‰ Operational economies of scope and scale (Strategic Competitiveness) • shared and transferred activities Cross utilization • leveraging core competencies ‰ Financial economies of scope (Internal Capital Market) • internal capital allocation • risk reduction • tax advantages ‰ Anticompetitive economies of scope (Market Power) • Multimarket competition • exploiting market power ‰ Maintain and Increase Growth (Growth Motive) • avoid declining industries (portfolio renewal) • grasp new growth opportunities Cross Utilization ‰ Assets Amortization: SBUs share same strategic assets. ‰ Assets Improvement: strategic assets in one SBU are used to improve strategic assets’ quality in other SBUs. ‰ Assets Creation: strategic assets in one SBU are used to create new strategic assets for other SBUs. ‰ Assets Fission: Knowledge and experience in creating new strategic assets for new SBU provide insight (feedback) to improve strategic assets’ quality in existing SBU. 229

Example: Honda Motor Co. Ltd ‰ Assets Amortization: All SBU use at least three corporate strategic asset (brand, machine technology, distribution knowledge). ‰ Assets Improvement: Honda build distribution channel for motorbike based on knowledge and experience in car (both have much similar characteristics). ‰ Assets Creation: When creating distribution channel for motorbike, Honda got insight and inspiration to build “parallel network” (achieve more rural areas) for its other SBU, i.e. lawnmower. ‰ Assets Fission: Knowledge and experience from building parallel network can be used to expand car and motorbike distribution channel (deep penetration). Direction of Diversification Industry A Industry B sub sub Upstream Midstream Downstream Horizontal Lateral Vertical Diversification Diversification Diversification (Conglomeration) 230

Level of Diversification Low Type SR Note High Single SR > 95% 95% of revenues come from single business Business unit (focus diversification) Vertically SR > 70% integrated More 70% of revenues come from series of Dominant 95% <= SR SBUs in a value chain Business <= 70% Related SR < 70% 70% - 95% of revenues come from single business unit Unrelated SR < 70% • Majority of businesses share linkage, or • Majority of businesses linked to at least one other businesses Most of SBUs are not linked each others • SR = specialization ratio = share of main SBU in total corporate revenue Example: Honda Motor Co. Ltd Net Sales 2010: ‰ Automobile business : 76.4% ‰ Motorcycle business : 13.3% ‰ Financial service business : 7.1% ‰ Other business : 3.2% (power generator, lawnmower, ski vehicle, aircraft engine, solar cell, etc.) • What is the diversification level of Honda? • What if automobile business net sales drops to 60%? 231

Way to Diversify Corporate Venture Strategic Alliance Acquisition Creating division Creating SBU by Acquire other or SBU internally. joint venturing business and with other parties integrate it into corporate management 232

Diversification Development ‰ 1960s – 1970s: Broad (related and/or unrelated) diversification was a fashion. ‰ 1970s – now: Related diversifications tend to outperform the unrelated one. ‰ 1980s: Corporations tended to refocus their portfolio around the core business. Some corporations almost become single business (e.g. Nokia). ‰ 1990s – now: Some researches indicate that moderate diversification tend to be better than focus. Overdiversified Æ refocusing Underdiversified Æ more diversification Diversification Trend Fortune 500 Companies: 1949 - 1974 1949 1954 1959 1964 1969 1974 (%) (%) (%) (%) (%) (%) 34.1 22.8 21.5 14.8 14.4 Single Business 42.0 12.2 12.5 14.0 12.3 12.4 17.4 18.4 18.4 12.8 10.2 Vertically Integrated 12.8 31.6 38.6 37.3 44.4 42.3 4.7 7.3 8.7 18.7 20.7 Dominant Business 15.4 Related 25.7 Unrelated 4.1 Source: Rumlet (1982) 233

Diversification In History Refocus Moderate Broad diversification (related diversification) diversification 1950 1960 1970 1980 1990 2000 Now • Only 1% Fortune 500 • 47% North America • Moderate diversified did refocusing Companies refocused companies outperformed their business (Wall focused and broad • 1960s: diversification Street Journal, 1985) diversified companies was a fashion. (Harper & Viguerie, 2002). • 20% - 50% Fortune • It signaled a strong 500 did refocusing • It is more related company. (Markides, 1993) diversification • Diversification index dropped from 1.0 to 0.67 (Grant, 1998) Focused, Moderate, and Diversified 234

Which Diversification Performs Better? Last four decades researches seem to support curvilinear relationship between level of diversification and performance, but some researches did not indicated consistent results. Performance Single Related Unrelated Business Diversification Diversification Why Related Diversification Fails? ‰ Increasing the costs of sharing, i.e.: o Cost of coordination: greater complexity. o Cost of compromise: suboptimal of SBU performance due to the necessity of sharing it with other SBU. o Cost of inflexibility: difficulty to respond or exit due to greater firm size and bureaucracy. ‰ Information-processing capability (bounded rationality). ‰ Political maneuver and agency problem. ‰ Acquisition premium paid. 235

Which Diversification Performs Better? Some corporations tend to continue diversifying their portfolio (become conglomerates), especially in Europe Source: Whittington (1999) Why Unrelated Diversifications Occur? ‰ Cognitive relatedness Managers believe that they have management logic or process knowledge to run seem-similar business (e.g. chemical vs. drug store). ‰ Conglomerates as cluster managers Conglomeration can be viewed as group of unrelated clusters of related businesses. Corporation might control each cluster financially, where each cluster consists of related businesses. ‰ Efficient internal capital market (governance structure) o Slack resources vs. attractive opportunities (excess resources) o Risk-return balancing o Principal-agent consideration ‰ Superior talent Corporations have superior talent, and/or have capability to attract or to develop talent. 236

Which Diversification Performs Better? There are bad and good conglomerates as well as bad and good single businesses. Source: BCG (1996) Which Diversification Performs Better? ‰ Academic researches can not indicate consistently which diversification level perform better yet. ‰ It is too simple to relate performance only with level of diversification. ‰ Investigation should accommodate other factors, such as form of organization, management competence, corporate style, etc. 237