Life Cycle of Indonesian Family Business

8/8/2019 Life Cycle of Indonesian Family Business

http://slidepdf.com/reader/full/life-cycle-of-indonesian-family-business 1/20

Executive Summary

In Indonesia, Only 3% of family businesses which still exist up until now were built in

1932 to 1943, 2% were built in 1944-1955, 10% were built in 1956-1967, 24% were built in

1968 – 1979, 24% were built in 1980 – 1991 and 37% were built in 1992 – 2003, thecomposition is dominated by relatively new companies. On the positive side the data shows us

that within the last decade there has been good progress in Indonesian family businesses

development. It also demonstrates there has been improvement in business management. The

research analyzes the steps needed in small scale Indonesian family businesses life cycle toenable them enhancing their transformation and growing ability into professional ones.

Moreover, businesses could also learn from the failure and success of others.

The research applies five stage models which consist of: existence, survival, success,renewal and decline. First, the existence stage is known as entrepreneurial or birth stage, founder

communicated and realized business idea thus business is still fragile. Simple organization

structure is applied thus information is processed informally and documented in the form of

hand-writings. Second, the survival stage, company has accomplish to overcome start-upproblems, growth is excellent and founder spots on new opportunities however the founder trap

also starts to exist. Third, the success stage, day to day operational activity started to be handledby professional director except when competent relatives do exist. However, it is still difficult to

give up the authority for running the business to outsiders. Fourth, the renewal stage, company

wishes to re-experience early stages; execute collaboration and teamwork to accelerate

innovation and creativity by infiltrating matrix structure, thus decision making will be muchdecentralized. Corporate is still big and bureaucratic but its members are driven to work-hard.

The research analyses PT. Nyonya Meneer, a traditional herbs and medicines company.

The sample was chosen attributed to its 88 years business period and has been lead by threegenerations. The methodology uses non-participative observer method. Qualitative design

(Naumes, 1979) is applied to observe participant as reference (Weber, 1968). The research usessecondary data which has been well publicized yet by mass media and also by the companyitself. Secondary data is utilized to compare the result obtained through interview with the one

that is understood and broadcasted by mass media. Obtained information then grouped to analyze

its life cycle stages of the business sample.

Mrs. Meneer company was formed in 1919 by Lauw Ping Nio who was well-known asMrs. Meneer. At the beginning Mrs. Meneer mixed herbs to help people with illness. All and all

it was done simply to lend a hand for charity purpose without requesting for any payments.

Business foundation was triggered by her spouse’s death and since the traditional herbalmedicine business started, she was able to supply her customers regularly thus customers were

able to buy directly and people no longer felt hesitate asking for favors.

The herb’s effectiveness popularity has becoming well-spread through word of mouth.Orders started coming from outside Semarang city, product demands increased drastically which

made Mrs. Meneer no longer able to deliver the herbs on her own. The problem is solved by

changing product packages by putting her picture as an authenticity guarantee. Mrs. Meneerstarted to expand her business by opening a shop in Padamaran and she kept developing her

recipes. Any reference books related to many kinds of medical plants were read to find newdiscoveries. Her two daughters (Lucy and Marie) were actively included within the daily

activities, with her full passion and persistency Mrs. Meneer started analyze production needs,



projected raw material availability and also planned to increase her market share. Moreover, Mrs.Meneer began to search for distribution agents who are willing to sell her products. Her first

agents were in Cirebon, Jogjakarta and Solo. Mrs. Meneer’s company had becoming more

successful with the increasing number of employees, her leadership style was discipline anddirect manner, affectionate but wise. Her philosophy regarding profit was to share it with others

which made the harmony within the work place and enhanced her employees’ hard-workingcharacters. Nonnie, her first daughter got married and moved to Jakarta to open a shop in JuandaPasar Street with the intention of improving their distributions channels. In late 40’ish, Mrs.

Meneer’s products had been brought by many Chinese-Indonesian doctors to abroad countries.

Many Dutch people were interested to bring her products to their homeland. She decided on

changing her company form became partnership in 1952 and observed carefully every wordwithin the certificate which claimed Lucy and Marie as corporate commissaries, herself as the

Chief Director and Hans Ramana as Vice of Chief Director.

Product’s distribution had started to be well-organized in 1952, a truck was provided toload and freight the traditional herb medicine to Surabaya and Jakarta. She also bought a

Germany grinding machine with 100 times bigger capacity compared to human’s; it needed only

an hour compared to three days when it was done manually. Mrs. Meneer realized that traditionalherbs medicines are health products; therefore she had always reminded to keep excellent

hygienic level. Mrs. Meneer’s took an active role in the company, decided rules and regulation

and displayed superb commitment for its development. Founder managed the company directly,

started from mixing to selling, her skills and ability to process these spices was derived from hermany years experience.

In 1967 the company was formally trusted over to her son-in-law, Hans Ramana, the Vice

Director. Her daughter, Lucy Saerang, Marie Kalalo and Has Pangemanan sat down within thecommission board. Management model was still following founder’s model and simple

management system was employed. Beauty products lines were developed. Mrs. Meneer’s beganto send her products to smaller Indonesian regions using limited equipments and vehicles. In the

70’ish, the industry started to undergo intense competition level, the number of traditional herbs

medicine ( jamu) companies recorded was about 70 companies. Hans Ramana short leadershiptenure ended in 1976, he passed away in Honolulu, U.S.A. and the business was changed into

corporation in 1977. Table 8 shows the transition era when leadership transferred from first

generation to first successor. It also shows the increasing demands for traditional herbs medicineincreased the industry competition, PT. Sido Muncul and PT. Air Mancur were the main

competitors within the periods.

On Sunday, 23rd April 1978, 83 years old Mrs. Meneer passed away. The first director

position was trusted to Nonnie Saerang, the second was handed over to Hans Pangemanan.Meanwhile commissary position was held by Marie Kalalo, Lucy Saerang and Charles Saerang.

Business was exclusively kept within family members, reserved their traditional authenticity

characters and still large profit-oriented. The same traditional management technique was stillemployed. The main obstacle was to rebuild traditional herbs medicine image which had been

slowly overwhelmed by pharmacy’s medicine reputation. Conflicts between majorities group

and minority group started after three years Mrs. Meneer passed away. Fortunately Mrs. Meneerhad developed distribution system to gather information, ideas and data from customers such as:

critics, customers’ needs or any other suggestions to increase production quality. Products within

the market were controlled and maintained. The company maintained partnership betweenmanufacturer and agents/distributors. Advertising and promotion were done to increase sales and



popularity. Mrs. Meneer’s traditional herbs medicine image were famous among women and hadreached Sumatera, Sulawesi, Maluku and even Irian Jaya islands.

Anxiousness and stressful atmosphere began on the 15th January 1985 with the hitting

incident where it was taken to the green court with assaulting claim. The internal conflict hadmade Mrs. Meneer’s company stopped the operational activities for half a month (started from

Saturday, 30 November 1985 until Wednesday, 4 December 1985) but they were still giving thecore salaries and wages to the employees as the result, the company did not earn anything buthad to pay expenses. The conflict was solved when the majority groups bought-back the minority

share in 20th March 1986. As the conflict ended, the company began to improve and correct the

company’s boards of director arrangements. For over a year the company did not develop new

jamu products. Some of distribution and agents did not receive the supply they ordered thussome partnership relationships were neglected and it happened right when demands reached the

peak. Therefore, competitors used this moment to supply the market with their products. In

consequence, their market share and demands increased significantly. In 1987 – 1989 periods,the company tried to fix their distribution channels, packaging, maintaining good relationships

with employees and conducting continuous innovations. Plasma Agriculture program was

developed to sustain product’s efficiency in order to increase the certainty on receiving rawmaterials quantity, quality and price stability levels. Mrs. Meneer’s product packaging was

modernized to increase customers’ eagerness and branding toward the products. The company

has started to use recycled material as their packaging material. As the result, the company’s

product image has been continuously becoming better and was able to penetrate abroad countriesMalaysia, Brunnei Darusalam and Singapore. It had also awarded employees with excellent

performance and loyalty. Product diversification was driven by the changing trend, therefore the

company tried to fulfill the market’s demand towards instant products. In 1989, Mrs. Meneer’scompany owned 150 traditional herbs medicine ( jamu) product lines.

During 1990’ish periods, the company was handed over to the third generation.Competitors had increased dramatically to 300-500 companies in Indonesia. However, Mrs.

Meneer’s company had 34% national market share and the rest were spread within abroad

countries. In 1995, product lines increased to 206 variety and in 2001 it reached 254 products.Clinically-tested products were done to increase traditional medicines quality to make their

products able to compete world-wide, it was done within five main products, which were:

traditional herbs medicine ( jamu) for back pain, diabetes, diarrhea, hypertension and cholesterolThe new innovation boosted product demands which reached 270 tons per month and also to the

growing customers’ fanatics. Mrs. Meneer’s owned 40 distribution agents wide spread within 19

Indonesian provinces throughout these number of distribution agents, company were able to

strengthen and adding more outlets to become 28.665 outlets with 57.330 employees. Thenumber of abroad outlets was 4.900 within twelve countries, which are: Malaysia, Philippines,

Korea, Netherlands, Taiwan, Japan, U.S.A, Brunei, Arabia, Vietnam, Singapore, New Zealand

and Denmark.Several problems identical to family business are: (1) unfocused strategic planning,

decision making and resources allocation processes (2) informal and unsystematic procedures on

solving the problems related to succession (3) tendency to react reluctantly towards changesalthough maintaining a sustainable business and continuously conducting innovative and creative

improvements to increase the company’s service quality for its customers and business partners

are critical. To become successful family businesses, the combination of three main aspects(business management, family management, ownership management) is essential.



LIFE CYCLE OF INDONESIAN FAMILY BUSINESS

Prepared by: David Sukardi Kodrat and Lenny Gunawan

David Sukardi Kodrat: Affiliation : AMA (Association of Indonesian Managers),

ISEI (Association of Indonesian Economic Bachelors),

ADIWIRA (Association of Entrepreneurship Education).Address: Waterpark Boulevard, Citraraya, Surabaya 60216, East Java-Indonesia

Contact Number: +62811334092, +62317451699Email address : [email protected]

: [email protected]

Lenny Gunawan: Affiliation : Monash University Alumni and

ISEI (Association of Indonesian Economic Bachelors).

Address : Waterpark Boulevard, Citraraya, Surabaya 60216, East Java-IndonesiaContact Number: +62817309705, +62317451699

Email address : [email protected]

: [email protected]

Economy Faculty of International Business Management Department

Ciputra University, Indonesia

2007

mailto:[email protected]








Foreword

An interesting myth within family business that is known not only in Indonesia: “the first

generation builds the business; the second enjoys, while the third destroys it.” The saying

explains that the action of maintaining the business and handing it over to the second generation,is not an easy thing to be done, thus it gets even harder transferring it to further generations.

Family business is mainly characterized by the significant ownership and contributionsfrom family members within the business management. Therefore, automatically they anticipatethat leadership and supervisory roles will be given to and conducted by successors. The life cycle

model shows that companies’ growing and development stages are similar to human although

every company might go through varies experiences which differ one to another.

A survey in Australia proves that 71% family businesses owned by first generation, 20%of them owned by the first successor and no more than 9% owned by the next successor

(Astrachan, 2003). As survey in America demonstrates that 90 % family businesses owned by

first generation, 13% by the first successor and only 10% owned by the next successor (Paisner,1999).

In Indonesia, Only 3% of family businesses which still exist up until now were built in

1932 to 1943, 2% were built in 1944-1955, 10% were built in 1956-1967, 24% were built in1968 – 1979, 24% were built in 1980 – 1991 and 37% were built in 1992 – 2003, within these

establishment periods, we may observe that its composition is dominated by companies which

ages are relatively new (no more than 3 decades). On the positive side the data shows us that

there has been good progress in Indonesian family businesses development, especially within thelast decade. These new companies’ existences are within the middle up level. Thus, the data also

demonstrates there has been improvement within the business management that allows them to

grow faster.The research analyzes the steps within Indonesian family businesses life cycle for small

scale companies so they will be able to enhance their transformation ability and growing intoprofessional ones. Moreover, businesses could also learn from the failure and success of others.

Family business’ life cycle

Prior business’ life cycle literatures were used to predict company’s development

progress (Greiner, 1972; and Churchill and Lewis, 1983). The latest findings within this area

were used to comprehend the practical essence on managing businesses’ development (Millerand Shamsie, 2001).

Business’ life cycle adopts concept in biology (Penrose, 1952; Downs, 1967; and Greiner,

1972). Like humans, business also experiences life cycle from baby (existence) (Tichy, 1980)

grows to teenager (survival) (Mintzberg, 1989) and then becoming old (maturity and decliningstages) or die (saturated) (Kimberly and Miles, 1980). Nonetheless, human’s life cycle is

determined by their ages. Company’s business period also influence its growth even though it is

not the critical factor. The practical evidence shows that there has been insignificant correlationbetween company’s business period and its life cycle (Susanto, 2005). There are some

companies which exist within centuries and still running excellent businesses, but some still

within 20 years and has already started to be grasping for energy.Company’s life cycle theoretical idea is to determine where the company’s current stand

point and where it heads towards the next point. Every point in company’s life cycle is a loosely

comprised set of organizational activities and structures (Hanks, 1990). Several important noteson understanding organization life cycle are: (1) organization might return to the previous life



cycle point (Drazin and Kazanjian, 1990), (2) organization might be in a certain life cycle pointfor a long period (Miller and Friesen, 1984) and (3) organization which failed to pass early

stages will rapidly gone through declining, saturation and finally dying stages (Churchill and

Lewis, 1983).There are several understandings about company’s life cycle concept to be observed: (1)

the number of stages exist within companies’ life cycles varies between three to ten stages(Adizes, 1979; Churchill and Lewis, 1983; Miller and Freisen, 1984; and Mintzberg, 1984) and(2) differentiating small companies and large corporations (Churchill and Lewis, 1983) and

between commercial and non-profit organizations (Kimberly and Miles, 1980).

The research applies five stage models which consist of: existence, survival, success,

renewal and decline (Lester and Parnell, 1999 and Miller and Friesen, 1984) as shown in figureone.

Existence stage is known as entrepreneurial or birth stage. In this stage, company’s

founder owns a business idea which is communicated and realized, the start-up business is still infragile condition with main problems such as: lack of cash flow, facing the unstable market, lack

of customers to support its existence, decision making problem, single-handed ownership and

authority managed by one or a few people. Generally, a simple organization structure is appliedthus information is processed informally and documented in the form of hand-writings.

In Survival stage, company has accomplished to overcome negative cash flow, revenue

has increased, company’s growth is excellent and founder spots on new opportunities however

the founder trap also starts to exist. In order to solve the problem good administration systemneed to be employed. Founder also realizes that he could not work alone thus the formation of

board directions occurs.

Professional executives and relatives start to be invited to join the company. However,when founder constantly thinks that only him/herself and his/her family and relatives are the

ones who are able to work well then the founder trap has started to take place. Consequently,founder felt reluctance to hire professional executives or (if hired) they are not well-trusted in

running the company although recruited from big corporations, being well-paid but still reserved

as back-quarter players to the company, however founder feels the pride for his/her success onrecruiting the top executives although they are not fully authorized and given the flexibility.

Within the second stage, company able to advance their growth and starts to enter the

third stage which is success stage. In this stage, day to day operational activity has started to behandled by professional director except when competent relatives do exist. However, founder

still feels reluctance to give up the authority for running the business to a stranger which is

simply understandable from the standpoint that founder did the all the hard work to establish the

company and wish to take pleasure in his/her success.As soon as founder able to overcome those wishes and decides to hand over the authority,

he/she has to be mentally prepared as hiring other people means differences among individual

characteristics are highlighted. It is a fatal mistake when founder expects to find “tailor-made”people like him/herself. Moreover, managing a start-up business surely is different with running

an established prospect-full business. In addition, within this stage company has entered

administrative and management improvement therefore recruited professional executives do notsubstitute but compliment the founder’s management, administrative and systems.

When segregation of duty is clearly managed, top manager will be able to focus on future

strategic planning while middle managers focus on day-to-day activity. Organization’s structurewill be formally done and controlling is conducted through bureaucracy. However, bureaucracy



becomes the main critic in success stage for the inflexibility it creates in the company’s abilityresponding to business environment changes.

Renewal stage, company wishes to re-experience the early stages; execute collaboration

and teamwork to accelerate innovation and creativity. Creativity can be infiltrated by doingmatrix structure thus decision making is much decentralized. Corporate is still big and

bureaucratic but its members are driven to work-hard.

Methodology

The research analyses PT. Nyonya Meneer, a traditional herbs ( jamu) and medicines

company. The sample was chosen attributed to its 88 years business periods and has been lead by

three generations. The methodology uses non-participative observer method. Qualitative design(Naumes, 1979) is applied to observe participant as reference (Weber, 1968).

The research uses secondary data which has been well publicized yet by mass media also

by the company itself. Secondary data is utilized to compare the result obtained throughinterviews, with the one that is understood and broadcasted by mass media. Obtained

information was then grouped to analyze its life cycle stages within the 88 years business

operational periods.

Discussion

Founder runs the company

PT. Nyonya Meneer was formed in 1919 by Lauw Ping Nio who was well-known as Mrs.

Meneer. At the beginning Mrs. Meneer mixed herbs to help people with illness. All and all it was

done simply to lend a hand for charity purpose without requesting for any payments. Businessfoundation was triggered by her spouse’s death and since the traditional herbal medicine

business started, she was able to supply her customers regularly. As the result, customers wereable to buy directly and people no longer felt hesitate asking for favors.

The herb’s effectiveness popularity had became well-spread through the word of mouth.

Relatives and friends outside Semarang city, (Central-Java province) started to place orders too,product demands increased drastically and made Mrs. Meneer no longer able to deliver the herbs

on her own. The problem was solved by changing product packages by putting her picture as an

authenticity guarantee. The result was overwhelming, sales boosted dramatically as customersfelt as if products were delivered personally by Mrs. Meneer. Local sales had gone even further

when Mr. Soleh sold her traditional herb medicine using a carriage everyday. Further

information can be seen in table 1 (appendix).

Mrs. Meneer started to expand her business by opening a shop in Padamaran. The shopwas small but located strategically. At that time there were not many traditional herb medicine

products produced. Her products had dry texture, instantly-ready to be drunk at the shop. Product

lines were limited, such as: traditional herbs ( jamu) for digestion system, jamu for men and jamu for women.

Bringing into play her excellent creativity, Mrs. Meneer kept developing her recipes. Any

reference books related any medical plants were read to improve her new discoveries withinhealth and well-being area. Her two daughters (Lucy and Marie) were actively included within

her business daily activities and the number of demands kept increasing, productions were

smoothly rolling. As the result of her business passion and persistency, Mrs. Meneer started toanalyze production needs, she also projected raw material availability and planned to increase



her market share. Her entrepreneurial spirit had enhanced her force of will to keep her businessgoing and growing. Further information can be seen in table 2 (appendix).

In order to maintain the fantastic sales figures, Mrs. Meneer began to explore distribution

agents who are willing to sell her products. Her first agents were in Cirebon (West-JavaProvince), Jogjakarta and Solo (Central-Java province).

Distribution channels in Jogjakarta were managed by Mrs. Meneer together with hersecond spouse. They were routing the main commercial streets using a carriage, to sell theproducts. Similar cases were gone through on finding willing partners to distribute her products

in Semarang city. Further information can be seen in table 3 (appendix).

Together with the increasing number of employees, Mrs. Meneer’s company had

becoming more successful. She led the company with disciplines and direct manner. Everyemployee followed her working rhythm which was dedicated fully to the company. Besides her

direct manner, Mrs. Meneer also led her employees with affections and wisdom. Her fondness

and charity personalities drove her to hire a maid who was dedicated to prepare the employeesmeals. No other company had done the same thing during that periods.

Her philosophy about profit was to share it out together with others. It created the work

place harmony and enhance her employees’ will to work harder, thus the business productivitylevel had increased. Further information can be seen in table 4 (appendix).

Nonnie, her first daughter got married and moved to Jakarta to open a shop in Juanda

Pasar Street with the intention of improving their business distributions channels (finding new

distribution partners) and market share in Jakarta, further down to Surabaya. In the 50’ish, Mrs.Meneer’s products had been brought by many Chinese-Indonesian doctors and had been taken to

abroad countries. Many Dutch people were interested to bring her products to their homeland.

Further information can be seen in table 5 (appendix).The immense development which followed the company’s growth had driven Mrs.

Meneer to plan even further for her future business sustainability. Her bright intellectual led herto change her company form to become partnerships in 1952 using the service of a law firm.

Through her tedious and critical mind, Mrs. Meneer observed carefully every word within

the certificate which claimed that Lucy and Marie are the corporate commissaries, herself as theChief Director and Hans Ramana as Vice Director.

Product’s distribution has started to be well-organized started from 1952, a truck was

personally provided to load and freight products to Surabaya and Jakarta. Demand had started togrow even bigger, consequently supply was increased to balance it. Mrs. Meneer bought a

grinding machine from Germany which capacity was 100 times compared to human capacity

when the work was done manually; it needed three days compared to an hour by machine.

Mrs. Meneer and her daughters had became more driven to create new recipes sinceproduction was still rising. More research and development activities were done to enhance their

production lines. Pages of recipes were written daily and then experimented. Further information

can be seen in table 6 (appendix).Mrs. Meneer realized that her products are health products; therefore she had always

reminded her employees to maintain excellent hygienic level in production. She also realized that

supplier bears significant responsibility to choose superb raw material quality, they also have theresponsibility on showing how products were dried, inventoried. Even the grinding process had

to be done perfectly as well as maintaining the correct packaging so the products’ freshness and

quality are well-preserved.Within drying stage, spices should be treated according to their needs. Some had to be



completely dried, but some needed only to be half-way dried. It is important because when thosestandards were failed to be adhered, raw material would not be able to be grinded well. In

addition, most raw materials had to be processed using a pipisan (a flat, smooth-surfaced stone

taken from mountains). Each pipisan is specifically provided for specific type of herbs or spices.The degree of texture smoothness could be measured using the palm skin’s sensitivity.

Herbs powder which was used on skin such as parem and pilis, have to be exceptionally well-grinded, while mangir , has coarser texture. Mrs. Meneer’s skills and ability to process thesespices was derived from her many years experience. Further information can be seen in table 7

(appendix).

Tables 1 to 7 show how the company formed by founder went through each stage from

existence to survival stages. Within these stages, founder took an active role in the company,deciding rules and regulation, displaying superb commitment for its development. Founder also

managed the company directly, started from mixing to selling.

Company in transition periods from first generation to the first successor.

In 1967 Mrs. Meneer was still the Chief Director although formally the company was

trusted to her son-in-law, Hans Ramana (the Vice Director). Her daughter, Lucy Saerang, MarieKalalo and Has Pangemanan sat down within the commission board. Meanwhile, management

model was still following their mother’s model (large profit-oriented). The company still

employed a simple management system.

Product diversifications began to be enriched by many kinds of other illness medicines.Product lines were also developed by varies beauty products such as: face powder, bathing scrub,

body deodorant products to hair and massage oil.

Mrs. Meneer’s sent her variety products to smaller Indonesian regions had increased hermarket share although the activity was done using limited equipments and vehicles only.

Within the 70’ish, the industry started to undergo intense competition level. Newtraditional herbs medicine competitors appeared and crowded the market with their products,

striving to capture customers’ interests. Within these periods, the number of traditional herbs

medicine companies recorded was about 70 companies (both the registered and unregisteredones). Competitive atmosphere were obvious from the war price, the action of launching similar

product lines or fighting over market share in certain regions.

Hans Ramana short leadership tenure within the company was supported significantly byMrs. Meneer and his siblings. He was a down-to-earth characteristics and wise leader which

made him popular and becoming well-known. His reputation made him able to create

harmonized business relationships with his agents and distribution partners. Every once in a

while he went to many places to evaluate the selling process. As the result, his leadership had ledthe company to grow incredibly.

However, In 1976, Hans passed away in Honolulu, U.S.A because of TBC illness in

Honolulu, U.S.A. before he was legally crowned as the next leader. Therefore the company hadto be handed over to the other siblings. In 1977, Mrs. Meneer’s business was changed from

partnership to corporation through the certificate made in front of an attorney named Tan A Sioe.

Table 8 shows the transition era where Mrs. Meneer’s business leadership transformsfrom the first generation to the first successor. Operationally during these periods, the company’s

management was done by second generation. On the other hand, Mrs. Meneer herself tried to

scrutinize whether her successor deserve to handle the business’ next role leader. Unfortunatelyin her case, her first to be successor passed away. As a consequence, Mrs. Meneer’s first



succession process did not go well. The effect of the incident will be described clearly withincompany’s second generation’s operational activity.

Table 8 also shows the increasing demands for traditional herbs medicine increased the

industry competition which also implies that the other main competitors such as PT. Sido Muncul and PT. Air Mancur used this opportunity to increase their market shares and sales. On the

positive side, we can conclude bigger market player has positive effects on growing the productsdemand.

Company managed by second generation

Mrs. Meneer passed away when she was 83 years old on Sunday, 23rd April 1978, leaving

behind her 4 children and tens of grandchildren. The first director position was trusted to NonnieSaerang, second was handed over to Hans Pangemanan, meanwhile commissary position was

held by Marie Kalalo, Lucy Saerang and Charles Saerang. The main thoughts which linger in

everybody’s mind were how to keep the business exclusively only within family members.Second was how to reserve their traditional authenticity characters and at the same time

producing even bigger profits, as abundantly as they could. Third, they wished the company

would still be operating using the same traditional management technique heritage from theirancestor. In contrast, they also dealt one main significant problem which to rebuild traditional

herbs medicine image that had been slowly overwhelmed by pharmacy’s medicine reputation.

In the third year after Mrs. Meneer passed away, the company started to experience long-

term family conflicts between the majorities group (Nonnie Saerang, Hans Pangemanan (secondgeneration) and Charles Saerang (third generation) and the minority group (Lucy Saerang and

Marie Kalalo (second generation).

The majorities felt that they were the children who were prepared by Mrs. Meneer’sherslf to continue her leadership in the company. On the other side, the minority felt that they

were the ones who did most of the hard-works, giving most of their time to service and developthe company. They argued that the company’s secret weapon was still within their hands, which

was the expertise on herbs mixing.

Fortunately Mrs. Meneer had developed distribution system which main purpose was tomake products able to reach customers easily. The distribution channel main purpose was also to

gather information, ideas and data from customers whether it is about: critics, specific

customers’ needs regarding certain illness or any other suggestions which are useful to increasethe production quality. Products within the market were closely controlled and maintained,

where as defected products, packages and expired products were taken out from the retailers,

agents, small shops, carts and individual sales person and changed with the new ones. The

collaboration between manufacturer and agents/distributors was known as partnership.Advertising and promotion were done to increase sales and the products’ popularity. Mrs.

Meneer’s traditional herbs medicine image were famous among women. During those periods,

the company’s priority product was endless-beauty traditional herbs. The active role indistribution activities had brought the company’s products to reach Sumatera, Sulawesi, Maluku

and even Irian Jaya islands. Further information can be seen in table 9 (appendix).

For a very short period, the first director was held by Hans Pangemanan and second washeld by Charles Saerang from the majorities group however the condition did not last for a long

time as the family conflict was occurring. In order to calm down the situation, boards of direction

arrangements were changed to the team of Hans Pangemanan (from majority group) as the 1st

Director and Fritzcimons Kalalo (from minority group) as 2nd Director to lead the company.



However the new arrangement yet did not result harmony. Anxiousness and stressful atmospherehad become worsen on the 15th January 1985 when the hitting incident of Pandu Oktavianus

(who was pro to Hans Pangemanan) by Alex Haryanto (pro Fritzcimons) took place. The

incident was taken to the green court with an assaulting claim.The internal conflict had made Mrs. Meneer’s company stopped the operational activities

for half a month (started from Saturday, 30 November 1985 until Wednesday, 4 December 1985)but they were still giving the basic salaries and wages to their employees. The arrangement wasdone based on the agreement between the company, employees and government (labors and

workers department). As the consequence, the company did not earn anything within these

periods but had to pay expenses and therefore, the company’s condition got even worse by then.

The conflict was solved when the majority groups bought-back the minority share in 20th

March 1986. As the conflict ended, the company began to improve and did corrective actions in

the company’s boards of director arrangements. Hans Pangemanan was appointed as the Director

and Charles Saerang as the Marketing Director. Products promotions were done nationally andinternationally by conducting advertising in mass media, radio, putting brochures in the cities’

main streets, also the company gave sponsorships to many events. Product variety reached 120

kinds of traditional herbs medicine ( jamu).Within almost one year, Mrs. Meneer’s company did not develop new jamu product,

moreover some of distribution and agents did not receive the supply they ordered thus the some

partnership relationships were neglected. It was an unfortunate incident for the company since

the lack of product supply happened exactly when demand reached the peak point. Therefore,competitors used this opportunity to supply their products to fulfill the neglected demand. In

consequence, their market share and sales had increased significantly. Further information can be

seen in table 10 (appendix).In 1987 – 1989 periods, the company tried to fix their distribution channels, their

packaging, they also tried to maintain good relationships with employees and still conductingcontinuous innovations. Plasma Agriculture program was developed to sustain their product’s

efficiency and to increase the certainty on receiving raw materials quantity, quality and price

stability levels. The program was accomplished by conducting training and mentorship onagriculture, especially within modern herbs medicine planting area. The company also

guaranteed to procure the harvested products.

Mrs. Meneer’s product packaging was modernized in order to increase customers’eagerness and branding toward the products. The company used recycled material (such as

degradable paper) as their packaging material so Mother Nature would not be polluted.

Moreover, quality control was enhanced continuously. They also maintained the quality of

packaging paper and its endurance as packaging material. In 1986, Mrs. Meneer’s company hadbegun to use aluminium foil as the packaging material. The company had been trying to do

continuous improvement in their packaging beginning from the material used to developing

illustrations for every product.As the result, the company’s product image had been continuously becoming better

which enabled the company to penetrate abroad countries. Although the strategy was not easy

and often giving them many obstacles such as: regulations and quota limitation from exportdestination countries, they did not give up. The persistency had earned them the access to enter

markets in Malaysia, Brunnei Darusalam and Singapore at their early networking stage.

The company was able to maintain the excellent relationship with their employees, forinstance in 1986 the company conducted “an employee outing activity” to Tawang Mangu,



utilizing 12 buses. The company had also awarded employees with excellent performance andloyalty.

Mrs. Meneer’s innovation did not merely limited to shapes and packages diversification

but also launched new innovative product line, compact powder. Started in 1989, they hadlaunched cosmetic, traditional shampoo and soap products as well. Product diversification was

driven by the changing life-style trend, the company tried to fulfill the market’s demand towardsinstant products. The company realized that people did not wish to do time-consuming activitiesanymore including in the way they drink medicine. New product lines were grouped into

traditional, cosmetics and other instant products.

Up until 1989, Mrs. Meneer’s company owned 150 traditional herbs medicine ( jamu)

product lines, with variety textures such as: powder, boiled products or capsules started fromproducts with illness-prevention purpose, to medicines, to beauty products.

Tables 9 to 11 prove the failed regeneration process leads to continuous family conflicts

(from 1978 to 1989). Conflicts were solved when the majorities group bought-back theminorities shares. Although it seems that the conflicts has been alleviated, new conflicts arose as

second generation handed it over to the third. An interesting message taken from it: human

greediness and insatiability towards money and power result constant conflicts.

Company managed by third generation

Within the 90’ish itself, there were 300-500 traditional herbs medicine ( jamu) companies

in Indonesia. However, Mrs. Meneer’s company owned the 34% of national market share and therest were spread abroad. In order to overcome the increasingly competitive market, the company

had conducted innovative and creative attitude to increase their competitive advantage.

In 1995, product lines increased dramatically to 206 variety and continuously growingevery year. In 2001, it reached 254 products. Product diversifications varies from taste, texture,

usefulness and cosmetic products. Seventy percent of Mrs. Meneer’s products were dedicated towomen.

Clinically-tested products were done for five main products, which were: traditional herbs

medicine ( jamu) for back pain, diabetes, diarrhea, hypertension and cholesterol. These researchinnovations were continuously done to find other health discoveries, also to increase traditional

medicines quality and to make their products able compete world-wide. The outcomes of

conducting these clinically-tested medicines had given the company boosted product demandswhich reached 270 tons per month and also the growing customers’ fanatics towards Mrs.

Meneer’s products.

Under the third generation’s leadership tenure, distribution channels were continuously

being mended. Within these periods, Mrs. Meneer’s owned 40 distribution agents wide spreadwithin 19 Indonesian provinces employing 225 employees, comprises Jabotabek (Jakarta, Bogor,

Tangerang, Bekasi), West-Java Province, Central-Java Province, East-Java Province, Jogjakarta,

Bali, South Borneo, East Borneo, West Borneo, Jambi, Nusa Tenggara Timur Province, NorthSumatera, South Sumatera, West Sumatera, North Sulawesi, Central Sulawesi, Riau Province,

Lampung and Irian Jaya.

Throughout these number of distribution agents, the company were able to strengthen andadded more outlets, becoming 28.665 outlets which employed 57.330 employees.

Mrs. Meneer’s International commerce management model was adjusted to the target

market’s rules and regulation conditions. Most marketing networks were built in accordance tothe trading model of each destination export country. The number of abroad outlets was 4.900



within twelve countries, which are: Malaysia, Philippines, Korea, Netherlands, Taiwan, Japan,U.S.A, Brunei, Arabia, Vietnam, Singapore, New Zealand and Denmark.

Conclusion

Unlike most companies, family business has several structural difficulties which made its

management style becomes a little more complicated: (1) the higher possibilities of conflicthappened between family members cause high degree of company’s corporate politic.Consequently the company becomes unfocused in doing their strategic planning, decision

making and resources allocation processes. (2) succession process affects significantly to the

company’s future sustainability therefore it becomes the most important agenda. However, most

family businesses do not employ formal and systematic procedures on solving succession relatedproblems. (3) Family business usually reacts reluctantly towards changes and transformation

practices because of the founder’s dominant role. The implications of changes are considered

taboo, whether they are within: strategy, system, culture also leadership style. The inflexibilitytowards changes is the main reason for the family business’s low sustainability capacity.

In order to run a successful family business there are three aspects to be carefully

considered: business management, family management, and ownership management. To managea successful family business, all the three aspects need to be implied equally because they are

closely-correlated to each other. Wrong implication of these aspects would guarantee the failure

of company’s sustainability in the long run.

Business management relates to the strategy implication, vision and missionimplementation and also building organization design. This is a generic area where the condition

can be seen within any organization, whether it is a family business or not. Business

management aspect is important, however it becomes useless without the other two aspects.Family management aspect comprises of: segregation of power within family members,

decision making regarding which members would be sitting in the boards of directors, buildingand maintaining family bond and trust, balancing variety of intentions between family members’,

settling on family regulations, united the family’s vision, solving family conflicts and planning

succession within generations.Meanwhile, ownership management consists of: determining the structural and

distribution ownership patterns within family members who are included in the business, equity

capitalization, maintaining the family mechanism control in the business, developing regulationsof equity’s withdrawal for non-family members and maintaining the family’s ownership

domination.

Successful regeneration process in family business means the ability to combine business

management, family management and ownership management as can be seen from the shadowedarea in figure 2.

The shadowed area in figure 2 shows the combination of business management, familymanagement and ownership management, it is called a good family business. The combination

between business management and family management is called potentially-conflicted family

business. The phenomenon becomes possible since the family members possess power andaccesses on company’s development area, thus he/she eager to own bigger ownership in the

business.

Meanwhile the combination of business management and ownership management iscalled potential conflict family business since the person becomes a passive owner.



List of figures

Figure 1: Stages in Family Business Development

“Mr. Outside” Influx

BizGrowth ExtendedFamily

Founder

Focus

Existence Survival Success Renewal Rejuvenate

Time

Figure 2: Family Business success model

Ownership

Management

Family

Management

Business

Management



List of tables

Table 1: Company within 1919 - 1922 periods

Year Life Cycle

Stage

Strategy Structure Decision

Making Style

Situation

1919-1922

Existence * Production oriented.* Brand strategy

Non formal Centralized * Descended spousetriggered business

formation.

* Employs sixemployees.

Source: modified secondary data


Year Life Cycle

Stage


Making Style

Situation

1923-1925.

Existence * Operate businessusing a shop

* Product

Development

* Raw materialplanning

* Non formal Centralized * Sole competitorwas Jamu Jago(1918).

* Re-married and

had another child.



Year Life Cycle

Stage


Making Style

Situation

1926-

1939

Existence * Distribution

divisiondevelopment

* Non formal Centralized * Limited

competitors* Employs 12

employees



Year Life Cycle

Stage


Making Style

Situation

1940-

1945

Existence * Role model * Non formal Centralized * Limited

competitors* Employ 16

employees

* Sent their son Hans

Ramana to studyabroad.





Year Life Cycle

Stage


Making Style

Situation

1946-

1950

Existence * Opened a branch * Non formal Centralized * Marriage of first

daughter.

* Employs fiftyemployees.



Year Life Cycle

Stage


Making Style

Situation

1951-

1952

Survival * Management

system* Production

efficiency(Bought Germanymachine)

* Recipe testing

* Formal -

Functional

Centralized * Company was in

the form of partnership.

* Arrival of newcompetitor PT.Sido Muncul

* Increasing demand



Year Life Cycle

Stage


Making Style

Situation

1953-1966

Survival * Quality Control * Formal -Functional

Centralized * New competitor,PT. Air Mancur.

* Demand was stillincreasing.



Year Life Cycle

Stage


Making Style

Situation

1967-

1977

Survival * Revising

managementsystem

* Profit oriented

* Product

diversification* Handing over to

successor

* Formal -

Functional

Centralized * Company has

evolved to becomea corporate

* Increasing demand

* Competitive

competition level





Year Life Cycle

Stage


Making Style

Situation

1978-

1984

Survival * Defending family

leadership within

the company* Building

distribution

networking* Create adaptive

management

* Formal -

Functional

Dual decisions

generated from

majority andminority parties

* Even more

competitive

industrialcompetition

* The growth of

traditional herbsmedicine industry

* European

regulation limitedherbs medicine

exports

* 1300 employees

* Mrs. Meneer

descended* Family conflict



Year Life Cycle

Stage


Making Style

Situation

1985-1986

Existence * Bought-back minority shares

* Management

conflicts

* Formal -Functional

Dual decisionsgenerated from

majority and

minority parties

* Even morecompetitive

industrial

competition* The growth of

traditional herbs

medicine industry* 1300 employees

* Family conflict





Year Life Cycle

Stage


Making Style

Situation

1987-

1989

Survival * Supply chain

management

* Boostingproducts’ image

* Performance

system* Product

diversification

* Innovation

* Formal -

Functional

Centralized * Even more

competitive

industrialcompetition

* The growth of

traditional herbsmedicine industry

* European

regulation limitedherbs medicine

exports

* 2000 employees

* Family conflict



Year Life Cycle

Stage


Making Style

Situation

1990-

2005

Survival * Enhance

innovation to

create difficult tobe duplicated

products

* Increase marketsensitivity

* Blue ocean

* Developing exportmarket

* Formal -

Functional

Centralized * Adverse

competition

market* The growth of

traditional herbs

medicine industry* 3000 employees




References

Adizes, Isaac. 1979. Organizational passages: Diagnosing and treating life cycle problems in

organization, Organizational Dynamic, 8, 3 – 24.Astrachan, Joseph, ed. 2003. Survey on Family Business. Family Business Review.

Churchill, Neil and Lewis, Virginia. 1983. The five stage of small business growth, Harvard Business Review, 61, May – June, 30 – 50.Downs, Anthony. 1967. The life cycle of bureaus. In Downs, Anthony, Inside Bureaucracy. San

Francisco: Little, Brown & Co and Rand Corporation.

Drazin, Robert and Robert Kazanjian. 1990. Research notes and communication: A reanalysis of

Miler and Friesen's life cycle data. Strategic Management Journal, 11, 319 – 325.Greiner, Larry. 1972. Evolution and revolution on organization grow. Harvard Business Review,

July- August, 37 – 46.

Hanks, Steven. 1990. An empirical examination of the organization life cycle in high technology

organization. Ann Arbor, MI: UMI Dissertation Services.

Kimberly, John and Raymond Miles. 1980. The Organization Life Cycle. San Francisco: Jossey-

Bass Publishers.Lester, Donald and John Parnell. 1999. A Strategic interpretation of organization life cycle.

Journal of Applied Management and Entrepreneurship, 5/1, 14 – 32.

Miller, Danny and Peter Friesen. 1984. A longitudinal study of the corporate life cycle.

Management Science, 30, 1161 – 1183.Miller, Danny and Jamal Shamsie. 2001. Learning across the life cycle: Experimentation and

performance among the Hollywood studio heads, Strategic Management Journal, 22, 725

– 745.Mintzberg, Henry. 1984. Power and organization life cycles, Academy of Management Review,

9, 207 – 224.Mintzberg, Henry. 1989. Mintzberg on Management . New York: The Free Press.

Naumes, William. 1979. Commentary. In Schendel, Dan and Charles Hofer, (eds), Strategic

Management , Boston: Little, Brown & Co, 467 – 471.Paisner, Marshall B. 1999. Sustaining The Family Business. Family Business Review.

Penrose, E.T. 1952. Biological analogies of the firm. American Economic Review, 42, 804 – 819.

Susanto, A.B. 2005. World Class Family Business. Bandung: PT. Mizan PustakaTichy, Noel. 1980. Problem cycles in organization and the management of change. In Kimberly,

John and Raymond Miles (eds.), The Organizational Life Cycle. San Francisco: Jossey-Bass

Publishers.

Weber, Max. 1968. Economic and Society. Roth, G and Wittich, C. (eds). New York: BedminsterPress.

Documents

Life Cycle of Indonesian Family Business