Denaldy Mulino Mauna was tasked with rescuing Perum Perhutani, the state-owned forestry company that manages 3.7 million hectares of forest. Considered by many to be just a novice, he has plans to change the corporate culture and make the company a sustainable success. He talked to Elsid Arendra of GlobeAsia.
When State-Owned Enterprises Minister Rini Soemarno asked Denaldy Mulino Mauna to take over the running of Perum Perhutani in August 2016, he realized this was not going to be just a stroll through the company’s expansive timber estates.
While considered too young for the job by many, Denaldy brought plenty of experience to the task. Born in Paris in 1971, he was deputy group financial officer at PT Triputra Agro Persada before he made the move to Perhutani. He has an MBA from the University of Maryland and a Master in Business Law from Bandung’s Padjadjaran University.
There was no shortage of challenges. First was the company’s balance sheet, with a loss of Rp357 billion in 2016. “When I started, Perhutani’s (annual) cash flow was around Rp200 billion, of which Rp100 billion was needed to pay about 21,000 employees. Then we still had to finance the company's operations and other costs,” he recalls.
While many might have been depressed by the task of trying to make ends meet, Denaldy also saw opportunities. The company has significant assets: it manages 3.7 million hectares of land across Indonesia, with the largest part - 2.4 million hectares - in Java and Madura. It produces 45 different products ranging from high-quality timber such as teak, rosewood and mahogany to derivative products such as resin, turpentine and eucalyptus oil. It is also home to 236 tourist destinations in Java and Madura, which represent a huge buried treasure.
Cost Efficiency the key
The first step was to institute a cost reduction program (CRP). Emphasis was placed on a five-step program starting with situation analysis. That was followed by changes to management, emergency actions, a restructuring process and the development of a system encouraging growth, with a focus on four main aspects of finance, operations, organization and culture. As a result, Perhutani emerged from 2017 with a profit of Rp406 billion.
When Denaldy talked to GlobeAsia, he was sunburned after handling the disaster that had occurred with the landslide on Perhutani’s forest in Brebes, Central Java. He recalled that he had also faced a disaster when he took control of the company. “The condition was worrying. Something had to be done quickly and firmly if the company was to rescued. Being in the red is one thing, but the important factor is cash flow. Cash flow is like the blood that moves the company,” he said.
”I started reviewing all the costs. Costs and expenses are one thing we can control while sales are highly dependent on external conditions such as the rupiah exchange rate, the global economy and the number of buyers. The first year I cut a lot of costs that were unnecessary or could be kept as low as possible. “It was not easy. There was always resistance both internal and external. I kept telling my colleagues we could not stay in our comfort zone and just hope circumstances would change. We had to work it out. We had to struggle and suffer first.
“An example was cutting the class of hotel used when a director made a visit to the regions. I told my colleagues we had to stay in cheaper hotels. I didn’t object to sharing a room.”
The situation was exacerbated by declining sales. “I decided that there were three aspects that we had to improve: quality, cost and speed. Improving our quality, reducing costs and speeding up the service was the only way we could compete in global markets,” said Denaldy.
“We had very good quality teak, without question, but countries like Myanmar and Vietnam had teak of one grade lower and were winning orders. So there must be something wrong with us. Customers are king, they have the money and the options. We could not sell our better quality product because of slow service, pricing that could change in the middle of a contract, and so on. Customers chose a lower quality at half our price and much better service.”
Given Perhutani’s method of doing business, Denaldy realized that it was hardly surprising that it was losing money. At one stage, he discovered that a Chinese company was selling resin below Perhutani’s basic selling price. “Finally we learned that cost efficiency is the key. Only with cost efficiency, being quick in response and production, and improving our product quality could we hope to compete.” Even with the company now making a profit, Denaldy spends much of his time in the regions. He constantly lectures his staff across the country of the need to restrain costs and incease efficiency. “I rarely ever sit behind my desk," he said with a smile.
Trips out to the field are important to him. “If I write an official letter I'm sure the orders would be easily ignored. The result is different if I meet the staff in person, tell them what is happening in our company, what is our position, our financial condition, our plans and results. It pushes them to work better, more efficiently.
“We also encourage them to come up with ideas, innovations even from the lowest rank of workers. And we are fully transparent with our financial statements.”
From the operational side, Denaldy created quick wins by applying the problem identification corrective action (PICA) process. "From the cultural side, obviously there is a difference from private companies to being at a SOE. There is always resistance and opposition. What’s important is not to back down. I firmly apply employee discipline and empower all employees to increase productivity. Each leader is given the additional task of appointing new leaders and encouraging the principle of delegation.
“Subordinate staff are directly responsible for the project so that they can take over if the department head is out of town or in meetings. Often I ask the staff of the division leaders to make presentations so that I can monitor how far they understand what they are doing."
Denaldy admits however that his efficiency and cost cutting drive only provides a short-term solution. For the long term, there is no other way than to spur growth of sales. The profit the company earned in 2017 was not the result of higher revenue, which actually fell by 1%. To deal with this situation, the company is innovating, for instance with online sales of its products. Another potential growth area is tourism.
Developing Sustainable Business
Perhutani has been operating a four-stage business transformation process divided into two major areas: the revitalization of existing business and new business development. In existing business, one growth area is ecotourism.
In the tourism sector, Perhutani has 236 natural attractions and while the number sounds impressive, the financial contribution is small. “That shows us the scale of the hidden treasure,” says Denaldy. “The tourism sector contributes 4% of our net growth, or Rp120 billion per year. I have conducted a comparative study to similar companies in Sweden and Finland which have 30-40% contribution from tourism. That is also because their citizens are environmentally conscious. They really preserve their natural resources. Back in Indonesia, we need rebranding. Perhutani is also in the process of changing the work orientation of ‘what can we sell?’ to ‘what do consumers want to buy?"
The Canopy brand has been developed to include a variety of natural tourist assets with guaranteed standards of products, services and professional management. The brand was launched at the end of last year at two pilot projects, Kawah Putih in Bandung, which has been operating since 1987, and Banyunget, which has been operating since 2016 in Trenggalek, East Java. The Canopy locations offer clean environment, fun and an adventurous nature tour experience. Visitor numbers at the two sites have already jumped dramatically and Perhutani hopes to boost revenue growth from the tourism side to 10% of the total this year.
The company has formed a new ecotourism and agroforestry division to handle this new business plank. It is cooperating with various parties such as the Ministry of Tourism, local governments, the private sector, local communities and even with international business partners with a plan to build an eco-theme park using biomass-based energy on 600 hectates of forest in West Java with total investment value of $2 billion. Conserving the environment also protects communities from natural disasters like floods and landslides.
Denaldy believes this is the legacy he’ll be able to create with his time at Perhutani. “I want to build a memorable and interesting experience when tourists visit our locations. Our country is very rich, I hope Perhutani can bequeath a landmark tourist destination that is not inferior to tourist destinations in neighbouring countries."