THE INDONESIAN JOURNAL OF BUSINESS ADMINISTRATION Vol. 1, No. 2, 2012: 105-111

FORMULATING CHANGE MANAGEMENT PROGRAM TO SUPPORT ERP IMPLEMENTATION AT WEAPONRY DIVISION, PT. PINDAD

Surya Dwiartha and John Welly School of Business and Management Institut Teknologi , [email protected]

Abstract—PT Pindad as one of the State Owned Enterprises Anticipating these situation, PT Pindad want to in Indonesia, manufacturing the defense and security improve their business process and to achieve better equipment recently conducting change in their business result as conducted in the corporate strategy by system by implementing Enterprise Resource Planning in the implementing Enterprise Resource Planning (ERP) in Weaponry Division. To support the implementation of ERP, one of their core business unit at Weaponry Division. it should be accompanied by good change management program. However current change management program The implementation of ERP is targeted to boost the seems to ignore the implementation stages features in Kotter overall performance in PT Pindad. The aim was mainly 8-Steps. Anticipating this condition, the author suggesting because the business process will become standardize Kotter 8-Steps as a basic framework of research. The and integrated among business unit. Standardization findings from FGD and in-depth interview shows that Step- and integration are the crucial factors for PT Pindad to 3: Creating a Vision, Steps-4: Communicating Vision for achieve their mission and to support corporate strategy. Buy-in and Step-5: Empowering Action had not been done ERP will links all areas and functions of a company systematically causing the possibility of failure looming including order management, manufacturing, human large. To support the analysis, STAR Model of organization, resources, financial systems, and distribution with Strategy Map, and DICE Framework were being used to fill the void on the Kotter Program. However, PT Pindad had external suppliers and customers into a tightly not done Kotter’s Step-6 to Step-8 because the change integrated system with shared data and visibility. management process was still in the preliminary phase. Potential benefits include drastic declines in inventory, breakthrough reductions in working capital, abundant Keywords: PT. Pindad, change management, strategy map, information about customer wants and needs, along STAR model organizational design, DICE framework with the ability to view and manage the extended enterprise of suppliers, alliances, and customers as an I. INTRODUCTION integrated whole (Escalle et al., 1999). Introducing ERP in a corporation will be PT Pindad is the only company engaged in the categorized as introducing a radical change. defense and security equipment manufacturing Statistically, the introduction of radical changes shown industry, in which produces the Main Equipment that the percentage of failures are more likely to System in Indonesia. PT Pindad production is happen compare to the successful implementation. always be fluctuated every year. In 2004, Indonesia’ Therefore, introducing ERP will need to be lead and Ministry of Defense is given a priority by the managed thoroughly in order to minimize the impact of government to complement their defense equipment by failure. ordering additional purchase to PT Pindad, that resulted on the increase of sales for product at II. BUSINESS ISSUE EXPLORATION PT Pindad. But in the contrary, the following year in 2005, the issue of this conflict is diminished, the A. Problem Formulation shifting priorities of procurement of military products According to Hawking (2004) many companies in the Ministry of Defense to PT Pindad also decreased struggle during the implementation phase due to the drastically. In 2006 and 2007, the sales of military underestimation of the complexity and the lack of products started to grow again. Another reason why the experience for the change process. Schneider (1999) amount of production for defense equipment and also reported that ERP projects often experience high military products can’t be predicted each year is costs, and that about half of all ERP projects fail to because of monopsony market structure (80% of sales achieve promised benefits. This result mainly occurs goes to the Army). The sales and production in PT because the managers significantly underestimate the Pindad will have strong correlation with the policies of efforts involved in managing change. ERP its main customers, in this case is Indonesian Armed implementation also should be supported by good Forces (RJPP, 2009-2013). change management program to be succeeding.

105 Dwiartha and Welly / The Indonesian Journal of Business Administration, Vol.1, No.2, 2012: 105-111

Based on the situation the previously described g) Complete Kotter 8-Steps Change Management above, the implementation of ERP become major Program through Focus Group Discussion and in- concern for PT Pindad, not just because the size of depth interview discussion project but also the risk that need to be absorbed. The h) Recommendation for PT Pindad in the form of complexity of the problems will be explained from modification Kotter 8-Steps Change Management problems formulations below: Program 1. How is the progress of current change management program in PT Pindad In this research, there are some restrictions to keep 2. Is current change management program could the consistency of the author's own purposes, which comply with Kotter 8-Steps Change Management are: Program. a. The object of this research is PT Pindad, 3. Step by step of Kotter 8-Steps Change particularly in the Weaponry Division. Management Program will be analyzed thoroughly. b. Interview and data collection are being held The author will make a suggestion if there is a during preliminary phase of ERP implementation, missing step in the implementation using FGD and which is: January-February 2012. in-depth interview mechanism. c. Selected respondents and sources are employees 4. What Model or Framework can be used to of PT Pindad and team that responsible for ERP complete the analysis during the evaluation of implementation. Kotter 8-Steps Change Management Program. C. Method of Data Collection and Analysis B. Conceptual Framework Method that being used to collect the data was Focused Group Discussions (FGD) and it was held in ERP PT Pindad. The representatives were PT Pindad’s employees, particularly that had direct relationship with ERP implementation, such as employee in the Weaponry Division and change management Minimizing team.FGD was used to show different applications and the Risk of development that were useful to personalize the ERP systems to better fit with the organization. Tadinen (2005) used FG to test the hypothesis aimed to Change Management Program investigate the importance of the soft factors across the ERP life cycle stages, asking users to identify in which stage(s) each soft factor is important. Evaluation of current Meanwhile, interview that being conducted in the Change Management Program PT Pindad was focused to analyze the condition of the organizational design to support the implementation of

Improvement on Improvement on Step ERP later in the further phase. Interview conducted in Step 3: Creating a 5: Empowering the early stages when the ERP implementation was still Vision Action in the planning stages so that the employees involved could learn future obstacles and had prepared it early. Improvement on Step 4: The conducted interview was to support the result from Communicating the Vision FGD. Because of that, the number of people who was Research interviewed was kept small so that the interviewee labored gained deeper insight.Many of the respondents in the interview come from change management team New Change Management because those involved heavily in the implementation Program based on Kotter process. The interview was held during two-months period (January-February 2012). At that time, the ERP The research will be made as the following steps: implementation had just started and most of the a) The conceptual framework will be used as a employees in the adaptation mode to the new system. research reference b) Study literature to strengthen the analysis D. Change Agenda c) Determining methods and instruments to gather Based on the FGD and in-depth interview, it was and to collect data and sources for analysis found that the current change management program in d) Processing collected data and sources through PT Pindad misses some steps such as: Step 3 Get the method that have been determined on the step b) Vision Right, Step 4 Communicating Vision for Buy- e) Kotter 8-Steps Change Management Program will in, and Step 5 Empowering Action. However Step 6 - be used as a base of evaluation for the current Step 8 haven’t been done by PT Pindad because by the program at PT Pindad time this research was conducted, they were on the f) Determining which steps in Kotter 8-Steps Change preliminary phase. Management Program hasn’t been done To fill the void on the Kotter 8-Steps Change Management Program, the researcher suggested using

106 Dwiartha and Welly / The Indonesian Journal of Business Administration, Vol.1, No.2, 2012: 105-111

STAR Model (for Step-3), Strategy Map (for Step-4) Strategy Barriers and DICE Framework (for Step-5). Development Process a. Getting the Vision Using Star Model Organization Clarify Mission Galbraith STAR Model as an organizational design Values and Vision framework is developed within this framework to Affirm high level The vision is frequently understand what design policies and guidelines will be guide-lines about described in terms not needed to align organizational decision-making and organizational purpose conducive to execution behavior (Galbraith, 2002), it can be described in the and conduct following five categories: Conduct Strategic ™ Strategy Analysis It is important in the organization design process Identify, through Analysis is frequently because it establishes the criteria for choosing structure analysis, the focused on outcomes and not among alternative organizational forms events, forces, and the drivers of strategy (Galbraith, 2002). In PT Pindad, current situation experiences that show that strategy has not been implemented impact and modify through all level. strategy ™ Structure Formulate the Before the implementation of ERP, each Strategy employee doing specific jobs and assignment. PT Define where and how There is a myriad of possible Pindad like many other State Owned Enterprises the organization will methodologies. There is no is known for beureucracy and protocols. compete consensus which approaches ™ Processes to use in which The flow of information and decision processes circumstances across the proposed organization’s structure. Current process in PT Pindad show complicated c. Empowering Action from Employee Using DICE process, which each process need to be finished Framework first before continue to the next level. Many believed that change management has strong ™ People relationship on “soft issues” such as culture, Influence and define employee’s mindsets and leadership, and motivation. Such elements are skills through recruitment, promotion, rotation, important for success, but managing these aspects training and development. It also build the alone is not sufficient to implement transformation organizational capabilities to execute the projects. Soft factors do not directly influence the strategic directions. outcomes of many change programs (Sirkin et. al., ™ Rewards 2005). To find out about employee readiness facing the The purpose of the reward system is to align the change, DICE Framework was used as a tool to goals of the employee with the goals of the analyze. organization to provide motivation and incentive The DICE acronym represents the common for the completion of the strategic direction. The denominators that were found, which are: organization’s reward system defines policies ƒ Duration (D)– length of time between project regulating salaries, promotions, bonuses, profit reviews sharing, stock options, and so forth ƒ Integrity (I)– extent to which the organization can b. Communicating the Vision for Buy-in Using rely upon the project team to execute the project Strategy Map successfully Strategy Map can be used to communicate the vision ƒ Commitment– ensuring that appropriate levels of and strategy to the employee. Kaplan (2004) described top management (C1) and commitment to change companies will start developing or reaffirming their of employee affected by change implementation mission, values and vision. Then, consider the external (C2) are in place and internal forces impinging on the company’s ƒ Effort (E)– estimated amount of time those making strategy.There are two purposes for well-defined the change will have to spend over and above their mission statement: a) should describe the fundamental day-to-day jobs purpose of the entity, especially to customers and These variables are scored in a 1 to 4 point range and clients; and b) should inform executives and then plugged into a formula: employees about the overall goal they have come together to pursue. The values of company prescribe DICE = D + 2I + 2C1 + C2 + E its attitude, behavior and character. Then the case of vision, it should be market oriented and express how The result for DICE Framework is categorized into the enterprise wants to be perceived by the world. three categories: a) Win Zone (range 7-13): the project There are steps that must be followed if the vision can is very likely to succeed; b) Worry Zone (range 14- be transform into strategy: 17):risks to the project’s success are rising, particularly as the score approaches 17; c)Woe Zone (range 18- 28): the project is extremely risky. If a project scores over 17 and under 19 points, the risks to the success

107 Dwiartha and Welly / The Indonesian Journal of Business Administration, Vol.1, No.2, 2012: 105-111 are very high, beyond 19, the project is unlikely to Existing Condition Proposition to Support ERP succeed. mind-sets to implement the company’s chosen III. BUSINESS SOLUTION direction. Reward Based on the Business Issue Exploration, current - Reward and - Reward and program that being implemented in PT Pindad compensation is compensation will be basically done the similar steps with Kotter 8-Steps based on employee’s based on people’s task Change Management Program. However in the Step- position only - Additional reward for 3, Step-4 and Step-5 still miss some of the important small win and employee element. In this Business Solution, those missing who support the success elements will be completed with proposed tools and of implementation business solution In the end those shared values will be used to bind five A. Creating the Vision based on STAR Model elements in STAR Model that have been discussed Analysis before. The shared values that being raised to support Basically creating a vision is almost similar with the implementation as follows: creating shared values. First of all, the organization is ƒ Values Drive Commitment being modeled by STAR Model, then it was being Commitment is not only derived from the described the difference among strategy, process, employee alone but rather also comes from its structure, people and reward. Each element in the Star leaders. The implementation of ERP is rather Model will undergo changes. On this sub-chapter it complicated because it involves many department will be specified every changes that occur, starting and the expected results aren’t visible directly. from existing form in PT Pindad and the change that is Weaponry Division as a central figure in ERP needed for the implementation of ERP so that it can implementation can become a good example goes well. because PT Pindad’s production evolves around this division. Sense of pride and dignity grows from Existing Condition Proposition to Support ERP employees who know that part of PT Pindad has Strategy managed to produce high quality goods and - Rely solely on the - Improving production services. defence and capacity and maintaining ƒ Discipline, Trust and Respect equipment good relationship with Although the implementation of the ERP will manufacture’s supplier change the business process and management product - Improve customer system in the company, but employees who receive - Consolidation satisfaction level and attract the immediate impact in the environment are still among core business new customer limited to Weaponry Division only. That is why the function - Improving total revenue implementation discipline and trust in another - Initiating new and overall production division absolutely required. business - Emphasizing teamwork, ƒ Strive to be the Best Along with Integrity development improvement and Tradition in order to produce the best products had - Building strategic leadership in all level long been existed in every employee at PT Pindad. alliance PT Pindad’s core competency in producing Process make them accustomed to detail and - Too complicated - Can be breakdown into always compete directly with another company's with dependency separate modules, which already establish themselves as world-class from production simultaneously weapon maker. department - Integrated system and can ƒ Knowledge Sharing and Teamwork - Have to be finished be accessed real time to Before the implementation of ERP, knowledge in each process simplify the business from each staffs usually being keep by certain process people. PT Pindad as a weapons manufacturer and Structure defense systems provider in Indonesia makes the - Each employee - Employee has many skills, process of information dissemination is very doing their specific and some of them involved limited. Only certain people who mastered the assignment heavily in change knowledge and it can’t be shared by - Bureaucracy and full management process carelessly.Nevertheless, after the implementation, of protocols - Coordinative, cooperative this condition can’t be neglected. and new defining roles The following is the new vision for PT Pindad based People on the future consideration - Talents are acquired - Produce the talent that is through required by the strategy “To Become Respected Weaponry conventional and structure of the Company recruitment system organization In The World” - Generating the skills and

108 Dwiartha and Welly / The Indonesian Journal of Business Administration, Vol.1, No.2, 2012: 105-111

B. Communicating the Future Direction using easy way to gauge the progress of the change that Strategy Map occurred in the PT Pindad is to use DICE framework. One-way to communicating the future direction of Basically good change management program PT Pindad is by mapped out the strategy through should adopt the following criteria: the project should Strategy Map. By implementing Strategy Map, be short term, led by a skilled leader, combination of employees will receive clear image and description motivated and cohesive team, championed by the top about company’s direction. Strategy Map also management team, implemented in a department described four perspectives, which has clear correlation receptive to change. If all the criteria are adopted, then among them. the project is likely will succeed. Based on the results of DICE framework calculation (it Process Strategy can be seen on Appendix 1) indicates the Streamlined Internal Business Process implementation of ERP in PT Pindad belongs to the Develop and - Restructuring Distribution and WIN category, in the sense that the process of change Sustain Supplier Inventory System will be successful. It means that empowering action to Relationship - Close Working Relationship employees can be done. with Vendor The improvements are done to increase the awareness Produce Products - Invention and Innovation of the employees so that the process of change can be and Service from Sustainable R&D run more smoothly and be accepted by all employees. Distribute and - Integrated Order and Delivery 1. Duration (D) Deliver Products System To improve the D score, reduce the time between and Service to key review milestones without compromising the Customer overall on-time delivery of the project. The Manage Risk - Collaborative Risk improvement that can be done as follow: Management ƒ Provide sufficient resources for - and Fulfilled Customer Needs commitment to - achievement of planned impacts, milestones, and KPI's, as detailed in Competitive Price - Providing Competitive Price agreement plans with the consultant. - Attract and Retain More 2. Integrity (I) Customers To improve the I score, establish a team that Improved Quality - Continuous Improving possesses sufficient technical skills, is led by a Products and Service capable team leader, and demonstrates strong Speedy and Timely - Reliable and Trustable Partner commitment to achieving a clear set of objectives. Purchase The improvement that can be done in PT Pindad Excellent Choice - Provide Complete Sales from the “integrity” such as: and Selection Service ƒ Strong support to implementation team, started - Customer Satisfaction” with selection, development, and management Meet the Financial Target process. Increase in - Increase in Revenue ƒ Ensure that high-caliber project leaders and

Shareholder Value - Increase in Overall team members are appointed and have Productivity sufficient time to devote to the effort. Required Learning and Training Innovations 3. Top Management Commitment (C1) Human Capital - Intensive Training Program To improve the C1 score, top management's should - Elaborative Recruitment increase demonstrated commitment to both the System overall program and specific projects. Experience Technology and - Transformational shows that senior managers often overestimate the Information Capital Applications System organization's perception of their own true commitment to the change effort. Few of the few Communicating future direction of PT Pindad will be programs that can be use to improve score from C1 done using Strategy Map. This method is entirely new point of view, which are: because “Strategy Map” mostly used by management ƒ Alert senior management to the importance of in the framework level. To summarize Strategy Map their leadership role that being used the way to conduct Communicating ƒ Provide feedback on perceptions of leadership Vision with the Employees can be seen from the visibility, commitment, and communication Appendix. ƒ Ensure that senior managers are aligned, clear on priorities, and demonstrating leadership C. DICE Framework to Know Employee Readiness support for Empowering Action 4. Local Commitment (C2) Changes that happened in PT Pindad can’t be done To improve the C2 score, enhance communication entirely through ‘soft factors’ such as culture, with, and the understanding of, local staff. This leadership and communication techniques only. There goal is best achieved by taking coordinated action is a way to measure the process so that the on several fronts. Ways to improve local advancement of implementation can be detected. The commitment score are by doing the following things:

109 Dwiartha and Welly / The Indonesian Journal of Business Administration, Vol.1, No.2, 2012: 105-111

ƒ Proactively identify and engage key ACKNOWLEDGMENT stakeholders ƒ Provide expertise and advice related to This paper is written based on the author’s final stakeholder engagement and operational project at MBA ITB supervised by Ir. John Welly involvement M.SC, who has been relentlessly motivating the author ƒ Ensure that sufficient effort and discipline is to accomplish the final project. The author would like applied in developing and executing the to thank you to PT Pindad where the final project has communications plan taken place. ƒ Conduct an effective communication program 5. Effort REFERENCES To improve the E score, reduce the amount of effort that local staff must dedicate to supporting Austin, R.D., and Nolan, R.L. 1999. How to manage existing business requirements while also ERP initiatives. Harvard Business School, participating in the transitioning phase of project Cambridge, MA. Working Paper 99-024. implementation. Few alternatives to improve score Breaux, R. 2011. Managing Organizational Change: in “Effort” category such as: The Change Agent. Scribd Online. Retrieved ƒ Ensure that project priorities are driven by Dec 21st, 2011 from: strategy http://www.scribd.com/doc/43868525/Role-of- ƒ Ensure that implementation time frames are Change-Agent-and-Leadership realistic and achievable Chang, S.I., Gable, G., Smythe, E. and Timbrell, G., ƒ Define resources required during the transition 2000. A Delphi examination of public sector ƒ Rationalize the number of projects if necessary ERP implementation issues. Proceedings of the ƒ Allocate sufficient transition resources and/or Twenty First International Conference on reallocate work as required. Information Systems, Brisbane, Queensland, Australia, pp. 494-500. IV. CONCLUSION Chen, J., 2001. Planning for ERP systems: Analysis and Future Trend. Business Process The conclusions that can be drawn from the Management Journal, Vol. 7 No. 5, pp. 374- implementations of change management program to 386. support the implementation of ERP are: Detert, J.R., Schroeder, R.G. & Mauriel, J.J. 2000. A First, The role of Enterprise Resource Planning in framework for linking culture and altering business strategy can be seen clearly. It will improvement initiatives in organizations, change the way PT Pindad conducting their Academy of Management Review, 25(4), pp. manufacturing process and in the end it will change the 850-863. perspective of financial, customer and learning and Change. In Proceedings of the 38th Hawaii growth. International Conference on System Sciences, Second, even though PT Pindad already has their pp 219-226. change management program but it didn’t run Escalle, C., Cotteleer, M. and Austin, R. 1999. sequentially based on the Kotter 8-Steps Management Enterprise Resource Planning (ERP). Harvard Program so that skeptically will fail during the Business School Case, Report No. 9-699-020. implementation. Galbraith, JR. 2002. Designing Organizations: An Third, the current vision and shared values in PT Executive Guide to Strategy, Structure, and Pindad were not enough to support the implementation Process Revised. John Wiley and Sons, Inc. of ERP. STAR Model can create and produce suitable Hawking, P., Stein, A., and Foster, S., 2004. Change vision and shared values through “before and after Management: The Real Struggle for ERP comparison” during ERP implementation in strategy, Systems Practices. Idea Group Publishing ITP structure, process, people and reward section. 5094. Fourth, the way the management communicating with Kaplan, R.S., Norton, D.P., 2004. Strategy Maps: the employee was using conventional program. It will Converting Intangible Assets into Tangible be better if the management conducting the Outcomes. Harvard Business Press communication program through Strategy Map. It was Kaplan, R.S., Norton, D.P., 2008. The Execution new method that being proposed by the author to Premium: Linking Strategy to Operation for embedded the essence of change to all employees. Competitive Advantage. Harvard Business Fifth, based on the calculation using DICE framework, Press PT Pindad’s management and employees are ready to Kotter, J.P., 1996. Leading Change. Harvard apply change management in related with ERP Publishing Press implementation. It means that empowering action can Morton, N.A. and Hu, Q. 2008. Implications of the fit be done with the support from management. between organizational structure and ERP: A Sixth, Step-6 through Steps-8 from Kotter 8-Steps structural contingency theory perspective. Change Management Program can’t be analyzed yet International Journal of Information because the implementation in PT Pindad hasn’t rolled Management, 28 (5), pp. 391-402. to the phase yet. Oliver, Richard W. 1999. ERP is dead! Long live ERP!, Management Review, Vol. 88 pp. 10-12.

110 Dwiartha and Welly / The Indonesian Journal of Business Administration, Vol.1, No.2, 2012: 105-111

Peraturan Pemerintah Republik Indonesia Nomor 41 Sirkin, H.L., Keenan, P., Jackson, A. 2005. The Hard Tahun 2003 tentang Pelimpahan Kedudukan, Side of Change Management. Harvard Tugas dan Kewenangan Menteri Keuangan Business Review Online. Retrieved January pada Perusahaan Perseroan (Persero), 14th, 2012 from http://www.hbsp.org Perusahaan Umum (Perum) dan Perusahaan Tadinen, H., 2005. Human resources management Jawatan (Perjan) kepada Menteri Negara Badan aspects of Enterprise Resource Planning (ERP) Usaha Milik Negara. Systems Projects. Master’s Thesis in Advanced Powell R.A. and Single H.M. 1996. Focus Groups. In Financial Information Systems, Swedish International Journal of Quality in Health School of Economics and Business Care, Vol. 8, No. 5: pp. 499−504. Administration Ptak, P., Schragenheim, E. 2000. ERP: Tools, Tallman. 2011. Organizational Change and Techniques, and Applications for Integrating Development. Retrieved Dec 21st, 2011 from: the Supply Chain, St. Lucie Press,Boca http://www.jeritt.msu.edu/documents/Tallman Raton,FL. WithoutAttachment.pdf Rencana Jangka Panjang Perusahaan PT Pindad, Walker, J.W., 1994. Integrating the Human Resource 2009-2013 Function with the Business. Human Resource Rushkoff, D., 2005. Get back in the box : innovation Planning, Vol. 17. from the inside out, New York : Collins. Wier, B., Hunton, J., and Elnaby, H. R. 2007. Schneider, P. (1999). Wanted: ER People Skills, CIO Enterprise Resource Planning Systems and Magazine, 12 (10), pp. 30-37. Non-financial Performance Incentives: The Singla, A.R. 2008. Impact of ERP Systems on Small Joint Impact on Corporate Performance. and Mid Sized Public Sector Enterprises. International Journal of Accounting Journal of Theoretical and Applied Information Information Systems, 8, 3, pp. 165-190 Technology, 4(2), pg. 119-131.

111