Building and Sustaining Your

Dr. Handry SatriagoPresident & CEOGE Indonesia

Building and Sustaining Your Competitive AdvantageA Session with Akademi Berbagi JakartaJakarta, 8 December 2012

The world we are The world we are facing today…

1. The more global world1. The more global worldBorderless. Cyber connected.

A Global World…Princess Diana's death.

An English princess

with an Egyptian boyfriend

crashes in a French tunnel,

driving a German car

with a Dutch engine,

driven by a Belgian who was drunk

on Scottish whisky,

followed closely by Italian Paparazzi,followed closely by Italian Paparazzi,

on Japanese motorcycles;

treated by an American doctor,

using Brazilian medicines.

and you're probably reading this on your computer,

that use Taiwanese chips,

and a Korean monitor,

assembled by Bangladeshi workers

in a Singapore plant,

That, my friend, is Globalization

It’s a flat world…

• Globalization 1.0 (1492 – 1800) �Globalization of the Country�Aqcuiring natural resources…Colonialization

Thomas Friedman (2005)

• Globalization 2.0 (1800 – 2000) : �Globalization of the Company �The Golden Arches Theory..Multinational company

• Globalization 3.0 (2000 – now)�Globalization of the Individual�The world is on the flat screen

• Processors : Philipinnes, Costa Rica, Malaysia, or China

• Memory : Korea-owned factory, Taiwanese-owned factory, Germany-owned factory, or Japan-owned factory

The Dell notebook

Japan-owned factory

• Graphic card : Taiwan, China

• Cooling fan : Taiwan-owned factory in Taiwan.

• Motherboard : Korean-owned factory in Shanghai, or Taiwan-owned factory in Taiwan.

• Keyboard : Tianjin, China

• Wireless card : Malaysia, American-owned factory in China

A Global World…The price of global communication

A keep changing world…with magnitude and frequency getting bigger

Scientific Management (1895)

The Global Economy (1985)

Productivitiy and Efficiency (1970)

The IT Revolution (1990)

The Security Issues (2000)

The Message Revolution

it is growing world…The world in 2007

it is growing world…The world in 2030

The Golden Arches TheoryGolden Arches Theory of Conflict Prevention (Thomas Friedman, 2000)

Dell Theory of Conflict Prevention also known as "Dell Theory”has been presented by Thomas Friedman in his book The World Is Flat (2008).“The Dell Theory stipulates: No two countries that are both part of a major global supply chain, like Dell’s, will ever fight a war against each other as long as they are both part of the same global supply chain.

The New Economy

A Day Without “Made In China”A $5T economy in 2010, 2nd in the world, 9% economic growth in 2009. Have >800MM labor force from 1.3B population. FDI flow >$100 B. China is potential customers, partners, and employees for everyone.

13

India Intellectual RevolutionChina is the factory of the world, and India is the back office. It has >100MM english speakers (2x UK)

The New Economy

>100MM english speakers (2x UK) workforce. More than 1 million white collar, service industry jobs moved to India*. The share of IT Industry is more than 7% of GDP. Fourth largest economy (PPP) with >100B FDI, mostly in high tech industry.

14*Robyn Meredith, The Elephant and The Dragon (2007)

The New Economy

Abu Dhabi is leading transition.

pearl diving oil.

inhabitants inhabitants

per capita gdp per capita gdp

15K 1.5M

<$1 $70K

Past Present Future

BRICCIVETS

The New Economy

BRICICIVETS

Developed “BRICs”

2%

92%

8%

5%

48%

5%

GDPgrowth

Debt Deficit Unemploy-ment

8%

12%“CIVETS”

GDPgrowth

Debt Deficit Unemploy-ment

GDPgrowth

Debt Deficit Unemploy-ment

32%

6%

3%

7%

2. Surplus SocietyCompetition

The surplus society“has a surplus of similar companies, employing similar people, with similar educational backgrounds, working in similar jobs, coming up with similar ideas, producing similar things, with similar prices and similar quality.”

Kjell Nordstrom and Jonas Ridderstrale,Funky Business

Competitive advantage is easily diminished diminished By imitation, substitution, moving or resources, and lack of capability to endure the position

Extinction rate for companies is increasing

Average Lifetime of S&P 500 Companies

An example of competition

An example of competition

BMW started it ……

An example of competition

Audi Responded….

Subaru Needs To Say Something….

Bentley CEO Has The Final Words…Words…

3. A Turbulence WorldHigher Risk

Turbulence GE Impact

9/11 Catastrophe $600M lost in aircraft, NBC commercials and reinsurance business

Enron, WorldCom bankruptcy

Lost of confidence in conglomerate companies, share down 20%

Turbulence examples

share down 20%

Natural Disaster Crisis

Lost of market opportunity, shrinking growth

Sub Prime Mortgage Crisis

GE share hits $6..from $38..one of the lowest share price in GE history

Dubai Crisis ?

We want you to know more of this.

4. DemandingCustomerFaster. Cheaper. Better

Do we really know what our customer wants and needs?

• The GE lighting story• Xerox story• The internet banking story• The internet banking story• GE MRI story

5. The need forA cleaner worldGlobal Warming. Pollution

• Overall clean tech (solar, wind, biofuels) revenues will reach >$320B in 2018

• Increase push for business

The “Green” Business

operation (Kyoto Protocol, Cancun Agreement)

• Renewable energy, water, “green” products and services are among the most major industry in the future

Indonesia in The Global World

McKinsey Report 2012

Indonesia has been a hub for global trade and business since long time ago

Indian (1st century)

Chinese (4th century)

Arabs

We welcome everybody…

Arabs(13th century)

Europeans(16th century)

• Portuguese• Dutch• British• Spanish

The first multinational company in the world

• The Ducth East India Company or “Vereenigde Oostindische Compagnie” (VOC) was established 1602

• First company to issue stock• Possess quasi government power includes

wage war, coin money, and establish colonies

• Paying annual 18% of divident for almost 200 years

World Economic Forum Competitiveness Index

The IMD World Competitiveness Yearbook (WCY ) looks at the relationship between a

country’s national environment(where the State plays a key role) and the

wealth creation process (assumed by

enterprises and individuals). The WCY focuses on the outcome of the interaction of four competitiveness factors, which four competitiveness factors, which generally define a country’s national environment. These are:

- Economic Performance

- Government Efficiency

- Business Efficiency

- Infrastructure

On the basis of these four factors and more than 300 criteria, the WCY assumes that healthy performance in these dimensions creates a national environment that sustains World Competitiveness.

We can play a role as an We can play a role as an object or subject of object or subject of object or subject of object or subject of globalizationglobalization

Why

Indonesia should be the major player in the global world…

Why

The thoughts of Michael Porter

Why nations have differences in prosperity? What drives nation to become more competitive and prosperous?

– Government policy? : Italy, Germany has low govt intervention...in South Korea and Japan, Govt intervention in some of the industry (machines, robotics, advance materials) is modest

– Cheap-abundant labor? : Germany, Switzerland, Sweden, has high wages and labor shortages...besides, the high wages should be the target of competitiveness

– Bountiful natural resources? : Germany, Japan, Singapore, South Korea...has limited natural resources

– Mcroeconomic factors?, such as exchange rates, interest rates, govt deficits, but Japan, Italy, and South Korea has budget deficit...Germany and Switzerland has appreciating currcies, Italy and South Korea have high interest rates

– Differences in management practices? including management-labor raltions..but different industries require different approach to management.

Source of Prosperity

Kemakmuran dari “warisan”

Kemakmuran yang diciptakan

• Kemakmuran yang diciptakan dari hasil menjual sumber daya alam yang diwariskan ataupun dari real estate (penyewaan atau penjualan atas tanah)

• Kemakmuran yang diciptakan oleh perusahaan-perusahaan yang menghasilkan produk dan jasa yang bernilai tinggi

Source: Michael Porter (2003)

tanah)

• Kemakmuran yang terbatas pada ketersediaan sumberdaya alam dan sifatnya sementara

• Fokus perhatian adalah distribusi kesejahteraan (bagaimana membagi kue agar semuanya dapat)

• Aktor utama adalah Pemerintah sebagai pemilik sumberdaya dan distributor dari kesejahteraan yang dihasilkan dari bumi negara tersebut

• Kemakmuran yang tidak terbatas, karena diciptakan dari kemampuan inovasi dan produktifitas dari perusahaan-perusahaan yang ada di dalam perkekonomian negara tersebut

• Menciptakan kondisi agar produktifitas dan inovasi terus tumbuh adalah pusat dari kebijakan pemerintah

• Aktor utama adalah perusahaan-perusahaan di dalam ekonomi, dan peranan Pemerintah adalah menciptakan kondisi yang kondusif bagi perusahaan-perusahaan tersebut

The more competitive the nation does related to the more prosperous of the nation…

National Competitiveness Components

Source: Michael Porter (2003)

The thoughts of Michael Porter

Microeconomic Competitiveness

The Global Competitiveness Report 2008-2009 © 2008 World Economic Forum

Relationship between Microeconomics Foundations and GDP Per Capita

Source: Michael Porter (2003)

The Diamond Model

Goverment

IFC(associations)

Source: Michael Porter (2003)

Doing Business in IndonesiaDoing Business 2010 Report – World Bank

Quantitative indicators on business regulations and protection of property rights throughout 10 stages of business life from starting until closing the business

• Procedure to start business

New Zealand = 1Singapore = 4Hongkong = 4Thailand = 8Malaysia = 9Malaysia = 9Indonesia = 11Vietnam = 11

• Time to start business

New Zealand = 1Singapore = 4Hongkong = 11Thailand = 33Malaysia = 13Indonesia = 76Vietnam = 50

Problems doing business in Indonesia 2010 - 2011

Source : World Economic Forum (2012)

Human Development Index 2011

International Patenting Output

Source: Michael Porter (2008)

Cluster Policy versus Industrial Policy

Source : Michael Porter (2000)

Scripps Research Institute

Scripps Research Institute

Burnham InstituteBurnham Institute

Sidney Kimmel Cancer CenterSidney Kimmel Cancer Center

Neurosciences InstituteNeurosciences Institute

Gene Research InstituteGene Research Institute

Genomics Instituteof Novartis Foundation

Genomics Instituteof Novartis Foundation

Torrey Pines Institutefor Molecular StudiesTorrey Pines Institutefor Molecular Studies

San Diego Supercomputer

Center

San Diego Supercomputer

Center

La Jolla Institute for Allergy & ImmunologyLa Jolla Institute for Allergy & Immunology

Scripps Research Institute

Scripps Research Institute

Burnham InstituteBurnham Institute

Sidney Kimmel Cancer CenterSidney Kimmel Cancer Center

Neurosciences InstituteNeurosciences Institute

Gene Research InstituteGene Research Institute

Genomics Instituteof Novartis Foundation

Genomics Instituteof Novartis Foundation

Torrey Pines Institutefor Molecular StudiesTorrey Pines Institutefor Molecular Studies

San Diego Supercomputer

San Diego Supercomputer

La Jolla Institute for Allergy & ImmunologyLa Jolla Institute for Allergy & Immunology San Diego

Bio Research CentersSan Diego

Bio Research Centers

Scripps Institution ofOceanography

Scripps Institution ofOceanography

Salk InstituteSalk Institute

UCSD CampusUCSD

Campus

La Jolla Bioengineering Institute

La Jolla Bioengineering Institute La Jolla

Institute for Molecular Medicine

La Jolla Institute for Molecular Medicine

Human Biomolecular ResearchInstitute

Human Biomolecular ResearchInstitute

Stein Clinical Research FacilityStein Clinical Research Facility

Hubbs-Sea World Research InstituteHubbs-Sea World Research Institute

Juvenile Diabetes FoundationInternational

Juvenile Diabetes FoundationInternational

Moores Cancer Center

Moores Cancer Center

Center for Molecular Medicine

Center for Molecular Medicine

UCSD School of Medicine

UCSD School of Medicine

UCSD School of Pharmacy

UCSD School of Pharmacy

Supercomputer Center

Supercomputer Center

Scripps Institution ofOceanography

Scripps Institution ofOceanography

Salk InstituteSalk Institute

UCSD CampusUCSD

Campus

La Jolla Bioengineering Institute

La Jolla Bioengineering Institute La Jolla

Institute for Molecular Medicine

La Jolla Institute for Molecular Medicine

Human Biomolecular ResearchInstitute

Human Biomolecular ResearchInstitute

Stein Clinical Research FacilityStein Clinical Research Facility

Hubbs-Sea World Research InstituteHubbs-Sea World Research Institute

Juvenile Diabetes FoundationInternational

Juvenile Diabetes FoundationInternational

Moores Cancer Center

Moores Cancer Center

Center for Molecular Medicine

Center for Molecular Medicine

UCSD School of Medicine

UCSD School of Medicine

UCSD School of Pharmacy

UCSD School of Pharmacy

San Diego Supercomputer

Center

San Diego Supercomputer

Center

San Diego’s First Biotech Company (1978)

Hybritech

San Diego’s Biotech Cluster (2005)

Pfizer Lilly

Novartis

Johnson & Johnson

Multinational companies Multinational companies needed to boost local needed to boost local companies development companies development companies development companies development (if they are ready….)(if they are ready….)

What can we do differently to become a to become a winner?

Our current situation: Macro Our current situation: Macro economy is good, market is potential, economy is good, market is potential, but human capital is not ready, and but human capital is not ready, and but human capital is not ready, and but human capital is not ready, and policies for improving policies for improving competitiveness is not there yet…competitiveness is not there yet…

We need competitive talentWe need competitive talent1.1. English speakingEnglish speaking2.2. Analytical thinkingAnalytical thinking3.3. Capability to create the dotsCapability to create the dots4.4. Capability to connect the dotsCapability to connect the dots5.5. Communication skillsCommunication skills5.5. Communication skillsCommunication skills6.6. Behavioural Behavioural –– learning, humble, learning, humble,

empathy, realisticempathy, realistic7.7. Passionate to excelPassionate to excel8.8. ResilienceResilience

Cost advantage

Competitive

The Main Types of Competitive Advantage

Competitiveadvantage

Differentiation advantage

Cost Leadership

PLUS..• Focus on customer

satisfaction• High level of employee

dedication

Differentiation

There are thousands of coffeehouses in the United States and coffee is one of the most commonly traded commodities in the world. commodities in the world. Why is there only one Starbucks? (In 2004, Starbucks did $5.3B in sales. It has more than 8,500 locations in 30 countries)

Features of competitive strategies

�Efficient scale

�Standardization�Quality

� Innovation

DifferentiationCost Leadership

�Standardization

�Design for low production cost

�Control of overheads and R&D

�Avoid marginal customers

� Innovation

�Design

�Credibility

�Brand name

�Reputation

�Environmental posture

�Customer service

� Integrated services

What is Your Competitive Advantage?Advantage?

The problem is competitive advantage easily advantage easily diminished…

Your Threat• Imitation• Substitution• Holdup and

Stealing• Slack of your • Slack of your

capability

The need is to have sustainable competitive advantage

Goal: Having A Unique Strategy

If you have thesame strategy as

your competitors…

If the strategy is

Your strategy isa wash

It provides onlyIf the strategy isdifferent but

is easily copied…

If the strategy isdifferent but ishard to copy

It provides onlya temporaryadvantage

It is strong andsustainable

Strategy is making clear-cut choices about how to competeYou cannot be everything to everybody, no matter what the size of your business or how deep is your pocket

Jack Welch (2005)

At Soto Paru Fapet Bogor, Strategy is all about productsabout products

The product that offered is you are ready “to die for” to get it…

At Coffee Club Plaza Senayan, Strategy is all about servicesabout services

The services makes you forget that there are other good coffee corner shop…

GE Strategy: Decommoditizing“Try desperately to make products and services distinctive and customers stick to you like glue. distinctive and customers stick to you like glue. Think about innovation, technology, internal processes, services add-ons-whatever works to be unique. Doing that right means you can even make a few mistakes and still succeed”

Jack Welch (Winning, 2005)

“Strategy is choosing to perform activities differently than rivals do”Michael Porter (1980)

Think of Unthinkable..“Hard times give you the courage to think the unthinkable” (Andy Groove)

For Vertu, the strategy is expensiveness“I am selling expensiveness…if it is not expensive, people won’t buy it

Talking about “Survival of The Fittest” Theory…

A Value Proposition….

Dennis RodmanBasketball Player• NBA champion (1989, '90, '96, '97, '98); • Defensive Player of the Year (1990, '91); • All-NBA Third Team (1992, '95); • All-Defensive First Team (1989, '90, '91, '92, '93, '95, '96); • Two-time NBA All-Star (1990, '92).

A Value Proposition….

Vanessa MaeViolist

Being first in the market is an advantage, but without ability to sustain it , the advantage is easily advantage is easily gone..

The key is keep upgrading your understanding about your customers…unfortunately, many companies neglect this…

The Story of The Giant

• Xerox is the king for copier machine..but after 20 yrs patent expired, they are facing competition…

• Still go with big, high quality and expensive

1950’sthrough1970’s

100%Market Share

by Xerox• Still go with big, high quality and expensive

machine…

• Market and customer CTQ are changing…Market share dropped!

1979

Starting the competition:

•IBM•Canon•Kodak

Declining Market Share 1984

Xerox Market Share = 8%

IBMKodakCanonMinoltaOthers

GE Lighting in Indonesia: A Case Study

• 1996, GE Lighting wanted to launched it’s “differentiator” products, The Ultra Softwhite Products

• Based on the success in the US, and Europe, this • Based on the success in the US, and Europe, this product have 2 x longer life time than any other products in the market with the same price

• Thinks the CTQ is lifetime

• Great result in the beginning, but failed after 9 months…Indonesia market is different…lifetime is not the CTQ!

Customer changing, market changing, the successful sustainable competitive advantage companies always ready to make changes..make changes..

Change Objectives/Visions

Timing

Strategy/Systems/

The Change Elements(Model developed by Handry Satriago, 2008)

When to change?

What to change?Where to change? Timing

Change Elements

VisionsSystems/Process

People Acceptance

Leadership

Who and How to lead change?

How to make people accept the change?