How to Sustain an Indonesian Family Business and The Environment

In Southeast Asia, around 85% of businesses valued at $1 billion or more are still run by their founder or founding family. But like elsewhere, most family-operated businesses here do not survive the transition to the second generation.

Traditionally, family-owned businesses tend to operate in silos. This can lead to a one-track mindset and research by KPMG has found that many family businesses are closed ecosystems where idea generation is centralized among key individuals and the innovation potential of the bulk of the workforce goes untapped.

At steel manufacturing company Gunung Raja Paksi (GRP), we understand these challenges all too well. When our founders, Djamaluddin Tanoto, Kamaruddin Taniwan and Margareth Leroy, chose to step down in 2019, they entrusted the company to their children, Tony Taniwan and myself.

From its genesis in 1970, GRP has strictly upheld the values of integrity, transparency and business excellence. These have been the guiding principles for us to innovate and remain competitive on the front lines of the steel industry.

After the leadership transition, our first goal was to revamp the company’s traditional processes to bring change and spur innovation. From the outset, we sought to create an open ecosystem in which idea generation would not be centralized among key family members and to tap the potential of our entire team of professionals.

The COVID pandemic erupted soon after the control handover. Recognizing its potential impact, we strengthened corporate governance by replacing family members in leadership positions with qualified professional managers from outside with the experience and skill set to help guide the company through challenging times. We invested a considerable amount of time and resources to evaluate potential candidates for the right track record of success, leadership skills and drive for innovation and growth.

As a result, we brought in senior consultants and executives with global experience in manufacturing, health care and other industries to form our new leadership team, including Abednedju Giovano Warani Sangkaeng as president director and Roymond Wong as director of finance. These appointments marked the beginning of our journey toward full-scale professionalization, enabling us to tap diverse skill sets and expertise.

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GRP’s steel is certified as compliant with the EU’s new Carbon Border Adjustment Mechanism. (Courtesy of Gunung Raja Paksi)

With the right people in place, we recognized the need to address new areas such as the decarbonization of steel production and the rising importance of economic, social and governance (ESG) criteria for investors.

Sustainability is now a top priority for our business. Under the leadership of Sheren Omega, who we recruited from PwC to become head of sustainability, we developed a comprehensive ESG strategy and laid out our net-zero road map to align with Indonesia’s pledges under the Paris Agreement on climate change.

We are conscious that our carbon emissions are a crucial concern for customers and regulators. Our ESG strategy handbook, rolled out last year with help from consultancy ERM, is built around the five key pillars of responsible procurement, environmental and social compliance, the energy transition and low carbon solutions, responsible environmental management and nurturing talent. These five pillars are helping to drive efforts and provide guidance on priorities as we move toward producing sustainable steel.

The fruit of our efforts can be seen in the certification of our steel as compliant with the EU’s new Carbon Border Adjustment Mechanism. This follows GRP’s moves to invest in renewable energy, improve operational efficiency and begin the shift from traditional blast furnaces to energy-efficient electric arc furnaces.

Digital transformation has become a key priority for us to further drive our sustainability agenda. We have been successful in kick-starting several digital initiatives. We are using a cloud computing platform to digitalize human resource processes and improve employee experiences. This has allowed us to make use of analytics to reach data-driven decisions and think critically about the company’s future.

The team has also been looking toward incorporating smart technologies into our production processes to make our workflow smoother, such as incorporating artificial intelligence into scrap metal processing to reduce human error in the process of grading production material.

Today, GRP is a publicly listed company. We achieved record revenue of $945 million last year, along with a net profit of $58 million. The journey toward professionalization has not been an easy one, but it was necessary to advance our vision of making GRP a leader in sustainable steelmaking.

By incorporating traditional values and a familial culture into a modern and efficient business, we have created a company that is not only successful in terms of revenue growth but is also a model of sustainable business practices. A future where steel production is synonymous with sustainability is within our reach. We are excited about making this happen with our dedicated team.

This article has been published with the title:

“How to sustain an Indonesian family business — and the environment”

https://asia.nikkei.com/Opinion/How-to-sustain-an-Indonesian-family-business-and-the-environment

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