Successful change needs transformational leadership

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It is not easy to give up the comfort of protection and venture into the liberalized market, but that is just what Philip S. Purnama had to do when he joined Bogasari Flour Mills in 1998. The flour-processing company, which belongs to the Salim Group, had by then for many years monopolized the market as a supplier for the State Logistics Agency (Bulog) to supply flour to meet domestic demand.

In the face of this abrupt shift, Philip, an MBA holder from the Harvard Business School, Boston, U.S., had no choice but to rack his brains.

For the sake of the company’s long-term goal, he formulated Bogasari’s forward-looking vision, which he calls “Vision 2020”. It reads as follows: “To become the leading global integrated provider of premium quality agrifoods and related products and services.”

The first thing he did at that time, which was also the early stage of the monetary crisis, was to borrow money. As it was impossible for him to obtain loans from (local) banks, which were on the verge of collapsing, he had to get the money from international loan providers. For that purpose, he contacted international institutions and even the U.S., Canadian and Australian governments — which granted him loans totaling more than US$600 million.

Then another challenge came. He had to introduce reforms, though many people in the company must have felt awkward about the plans. But successful reforms require transformational leadership.

Philip introduced efficiency in every line — production, sales and distribution. Line function was reinforced, while staff function was reduced. While originally there were only five sales administrative staffers to handle a sales volume of Rp 1 trillion, he increased the marketing force to 500 salespeople.

Bogasari no longer launched generic products onto the market; instead it gave its products unique labels that distinguished them from similar products. From originally only three regular brands popular during the Bulog era, Bogasari has now developed about 30 new brands for more specialized segments, among others Segitiga Biru, Cakra Kembar, Kunci, Pena Kembar, Taj Mahal, Kastil, Lencana Merah and Payung. Seven of these brands are for “non-flour” products, such as pasta, premix flour, rice flour and cassava flour.

However, developing a brand with an excellent equity value is not easy. Marketing experts have often suggested that producers regularly evaluate whether or not the elements of their brands meet the company’s demands. These brand elements encompass a logogram, typography, a slogan, a tagline and so forth. A brand element reflects the character of a product. The next stage is seeing whether the brand is received positively by the community.

Philip is well aware of this matter so he is very careful about managing his brands. To introduce the brands of its flour products, Bogasari has not only placed ordinary advertisements but has also undertaken innovative promotion through a co-branding program with other popular brands, among others with Sari Roti, Oreo, Bakmi GM, Roma, Holland Bakery, Khong Guan, Family, Tango and Arnotts. This joint marketing has proven effective to jack up the popularity of Bogasari.

To consolidate its brands, Bogasari has also established its own bakery school, conferred citations to cake makers and sent them overseas to take part in cake-making courses and established an association of noodle sellers. More importantly, Bogasari is applying the Customer Relation Management (CRM) concept.

When you wish to develop the market, Philip said, it is not enough for you just to let it grow naturally. Instead, he continued, you have to create the market systematically. Through its bakery school, Bogasari has introduced 500 new recipes and run nine main programs as well as special courses. Bogasari has also established an alliance with Australian Wheat Suppliers (AWB), an agency noted for its assistance in developing the industry, for supplies of raw materials and machinery.

Today there are 32 baking centers across Indonesia with some 30,000 graduates, most of whom have become entrepreneurs in the bakery business. This is what may be termed as a captive market, aside from the liberalized market, where Bogasari’s brands enjoy a very strong position.

In a span of his six years as the leader of Bogasari, Philip has increased the company’s turnover to US$800 million and let the company enjoy a market share of 66 percent. While in 1998 Bogasari’s earnings were recorded at just Rp 1.6 trillion, in 2005 it could book Rp 8 trillion. Meanwhile, its gross profit in the same period grew from Rp 0.6 trillion to Rp 1.4 trillion.

Interestingly, Bogasari is not only a champion at home because it has also exported 80,000 tons of its products a year, either through direct regular sales or through a tender. “Indeed, the percentage is still small. It is just 4 percent of the total sales, but in the next five years we will jack up the percentage to 10 percent,” Philip said.

In Philip’s hands, Bogasari has received the Indonesia Customer Satisfaction Award (2003–2005) from SWA Magazine and Frontier and the Best Corporate Social Responsibility Award (2005) from SWA Magazine.

Bogasari is proud to own market-dominating brands, such as Segitiga Biru and Kunci Mas (wheat flour), Bimoli cooking oil and Indomie instant noodles. However, this also means that Bogasari has the constant challenge of maintaining its good reputation and making sure that other brands will not chip away at its market share. Philip envisions three things to ensure that Bogasari will continue to enjoy its top position: supply consistency, product quality and perceived quality.

As for supply consistency, he sees no problems at all in this area. It so happens that Indofood has its own distribution network, Indomarco, which enables it to more consistently supply its products to the market.

As for product quality, Indofood is now an established company supported by a large-scale research and development team, so it has virtually no problems with this matter. This is evident from the fact that most of its product types — from flour to cooking oil and instant noodles — are the most complete in range and dominate the domestic market.

Regarding perceived quality, Philip said he required two types of support, namely a corporate image and a brand image. A lot of money is needed to build a brand image because in this respect good communication with consumers must be established to ensure the brands have a good image and enjoy a good reputation. In this case, Philip is aware that price does not control brand value.

“To lower your price when building brand awareness does not reflect the value of the brand,” said Philip.

Of all these three things, Philip said, the most costly in brand development is to guarantee that the brand will continue to exist in the market. In this regard, it is necessary to build trust and conduct negotiations with distributors.

“This is costly. The difficulty lies in guaranteeing the availability of supplies because we deal with hundreds of thousands of merchants in Indonesia,” he said.

In early 2006, PT Indofood Sukses Makmur also received the Best Employer Award (2006) from SWA Magazine and Hay Consulting. This did not come as a surprise for the company, which now employs 4,780 people and is accommodating a lot of job-seekers.

Besides which, its employees are comfortable with the company’s favorable working environment and confident it is a place where they can build their careers.

What is now happening at Bogasari, which is also the world’s biggest private wheat buyer, has not come about overnight. A lot went into creating and developing this condition.

As Philip has said, the company’s employees can enjoy a sustainable employee treatment program, right from the time they start working there. New employees, for example, will have to join an introduction program that will acquaint them with their working environment, their superiors, their subordinates, and last but not least, the working culture of the company.

“We have introduced a lot of programs about the corporate values of Bogasari,” he noted.

In education, he said, the company has teamed up with the Bogor Institute of Agriculture (IPB) for a post-graduate program in its Cilincing mill. Besides which, it has also cooperated with the Asian Institute Management, the Philippines, for an Executive Program.

With various programs run by the human resources division, Philip said, “Most importantly, the employees will realize what becomes a challenge to the company is also their personal challenge.”

In this way, an employee will have a deep sense of belonging toward the company. “They do not just think about how to be one or two steps ahead of the competition, they seem to obsess about always being in a leading position,” he said. (Burhan Abe)

The Jakarta Post, June 21, 2006
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