PROPOSED BUSINESS STRATEGY FOR PT. PILAR KENCANA TAMA
TO WIN THE INCREASING COMPETITION
Ariobimo Singgih Wicaksono
Institut Teknologi
Bandung
Ariobimo_wicaksono@sbm-itb.ac.id
Abstract
PT. Pilar Kencana Tama has
several limited capabilities that weaken the company's competitiveness and
external factors that often hinder its business operations in the construction
services business industry. Meanwhile, market demand for business products from
contracting companies is increasing along with the increasing population growth
in Indonesia. A new business strategy is required that can support Pilar to
develop in the long term and take advantage of the momentum of high market
demand for civil construction so that Pilar can have a high market share in its
business industry. The approach to solving strategic problems owned by Pilar is
with an analysis framework of the internal and external business environment to
design a new business strategy. The external environmental analysis is used by
the PESTEL framework which includes Political, Economic, Social, Technological,
Environmental and Legal aspects. The internal environment analysis is used by
the stakeholder mapping framework, VRIO, the BCG (Boston Consulting Group)
growth share matrix, and the business model canvas. Other analytical data were
obtained through qualitative interviews with Pilar’s director, external parties
regarding new business model proposals, quantitative surveys with prospective
customers and several literature reviews to support the data analysis. Both
types of analysis are summarized in the form of SWOT analysis to serve as basic
parameters for strategy formulation using the Diamond Strategy and a new
business model canvas as well as additional strategy formulation using Strategy
Moves to determine how Pilar attacks on competitor companies if necessary. The
results of the study show the company's advantages such as the big amount of
its heavy equipment resources and the company's orientation that emphasizes
quality over quantity. However, Pilar also has weaknesses from its operational
capacity such as unproductive and uncreative human resources, lack of business
line expansion, and only has one channel to market its business products, so
that Pilar cannot easily jump right to try new business models outside of the
business model which has already been done. With the analysis results related
to other construction model business opportunities, Pilar needs to implement a
new business model proposal by implementing several predetermined strategies.
The proposed strategy to support Pilar's success in running the new business
model is by overhauling the company's internal resources, implementing the
Diamond Strategy that has been determined, and implementing several aspects
that have been calculated related to the determination of the level of
importance of criteria from customers in buying products related to the
proposed new business model. Pilar also needs to use the Differentiated Circle
concept in target market segments to attack larger competitor companies that
have long been in the area where Pilar will carry out the proposed new business
model.
Keywords: construction services; population growth;
competitiveness; diamond strategy; strategy formulation.
Pendahuluan
There are so many civil contractor
companies that are established especially in Indonesia. Civil contractors
usually only work based on the request from the project owner, it could be the
structural aspects, specifications for each material, operational method,
and/or even the expected time of the projects done. However, the civil
contractor business industry does not always work as well as it is supposed to.
There are some factors that could
affect the civil contractor business model which would give impacts to their
cash flows, human resources, development, or even their capability. Probably
the factors still could be prevented or solved if the companies have strong
ideas and resources although some factors are very difficult or even looks
impossible to prevent or solve.
Unanticipated Political Factors
The latest Pilar’s project done
was in February 2020 when the pandemic of Covid-19 also started to come to
Indonesia. Since then, Pilar has been struggling to fetch any projects either
in a civil engineering scope or not. The total number of Pilar’s projects done
since its establishment in 2016 is only thirteen projects, this number is
clearly the unideal number for civil engineering contractors to achieve its
growth.
Figure 1 Completed Projects
2001 - Nov 2022.
The down trend of Pilar’s
conducted projects are shown in figure 1 In March 2020, Pilar started to
execute their plan to seek any civil projects on Kementerian Pekerjaan Umum dan Perumahan Rakyat (Government Ministry of Public Works and
Public House). However, their attempts to win some tenders are obstructed by
some political factor. There are some people from the institution asking for
“Slices of Cake” if Pilar wants to win the tender. Which means, this factor would
threaten the company’s financial, reputation, and stability. Implicitly, there
are some people who indicated doing some “collusion” for their own political
reason.
During the operational period when
Pilar was established, most of the projects Pilar conducted were projects in
the field of General Civil Construction, such as the construction of
substations, the construction of high-voltage transmission tower foundations,
the construction of warehouses for factories, and the construction of simple
buildings. The process for obtaining these projects is mostly obtained from
winning project tenders held by institutions or companies providing the
projects such as PLN, Indocement, GI Star, etc.
However, along with the many projects that Pilar has conducted, Pilar has never
worked on a housing or real-estate development project where in fact the
development project is a very common job in the field of civil construction.
Figure 2 Indonesia
Population 2015-2022 (Annur, 2022)
In figure 2 it can be seen that
there has been significant population growth in Indonesia in the last 7 years.
In 2015 Indonesia's population reached 255 million people and in 7 years it
increased by 20 million people to 275 million people. This makes residential
construction opportunities also increase due to the fact that if the number of
population increases, the need for housing also increases. Under these
conditions, Pilar has to try to work on a residential construction project due
to some of Pilar's internal limitations, such as the lack of experience working
on residential construction and the lack of resources to support the work.
Thus, Pilar also lacked their competitiveness while other civil or ME
(Mechanical Engineering) construction companies were also conducting any
related real-estate projects that are actually aligned with the increasing
population growth and the needs of own living houses.
Research objectives that
correlated with the research questions are: 1. To improve Pilar’s business
development in a new business environment. 2. To give Pilar a suitable strategy
to overcome the challenges in the new business environment.
Metode
This final
project will use qualitative and quantitative methods to conduct the research.
The method would be used to analyze deeper the current issues that are
affecting the company the most and to propose the most possible strategy to
implement. The qualitative method will initially be conducted by interviewing
the CEO or Founder of the company to identify their weakest capabilities until
their strongest, their external factors issues, and their internal factors
issues, then conducting external interview with several related. The
quantitative method will be used by spreading a questionnaire according to the
proposed new business model to related people.
There are two
data collection types to be analyzed internally and externally which the result
of the analysis will be formulated into diamond strategy and strategic
positioning. Two data collection types are called primary data and secondary
data. The primary data is the data collection obtained internally and
externally from the qualitative research of the conducted unstructured
interview with Mr. Pandu as the CEO of PT. Pilar Kencana
Tama, interviews with several people who have experience in buying houses or
even developing real-estate projects to obtain any criterias
for the new business model, and the AHP questionnaire of people’s preference
when buying a house based on certain criterias. The
secondary data is the data collection obtained from textbooks, journals, or
articles that the theory is relevant to the primary data and the topic of this
final project.
The internal
interviews data is gathered to formulate the strategies based on the company’s
most affecting issues i.e. internal and external factors, capabilities or
skills, etc. which are using the qualitative research methods. The result of
qualitative research will be analyzed using several frameworks to find any
points related to the proposed strategy.
In this research,
the author uses the Analytical Hierarchy Process (AHP) method in calculating
the results of the questionnaire to determine the largest weight of the
criteria determined based on people's preferences in buying a house. This AHP
method can determine "Weighted Average Score", "Priority
Vector", "Consistency Rate", and other values
based on the results of the importance level values
determined by the questionnaire consisting of numbers -9 to +9
for each comparison of the two variables from the criteria.
Hasil dan Pembahasan
This chapter will explain the proposed strategy that
will be explained and how to implement it based on the analysis that has been
done in the previous chapter and subchapter.
The SWOT generic strategy matrix will be determined
based on the previous SWOT analysis which will be assigned as a score 1 if the
Strengths and Opportunities aspects required to be determined in between the
three generic strategies and score -1 if the Weakness and Threats aspects
required to be determined in between the three generic strategies i.e. Cost
Leadership, Differentiation, and focus. The following is the SWOT generic
strategy matrix determination.
Table 1 Pilar SWOT - Generic Strategy Matrix
|
SWOT Factors |
Cost Leader-ship |
Differentiation |
Differentiation Focus |
Cost Focus |
|
Strengths (S) |
||||
|
1. Zero account payable |
1 |
|
|
|
|
2. Strong financial management |
1 |
|
|
1 |
|
3. Rare, rentable, and large amount of tangible assets (heavy equipment) |
|
1 |
1 |
|
|
4. Owned a useful Drone for planning, monitor, and summarize the physical project progress |
|
1 |
|
|
|
5. Good reputation with projects provider, suppliers, and partners |
|
1 |
|
|
|
6. Preserves the material and technical results quality |
|
1 |
|
|
|
7. Oftenly finished the projects earlier than the period time |
|
1 |
|
|
|
8. Always give a retention time and payment retention through a guarantee service of free maintenance and surveillance. |
|
1 |
|
|
|
9. Always conduct a quantity and quality check of material procurement and working result periodically |
|
1 |
1 |
|
|
Weakness (W) |
||||
|
1. Relatively low capital ability |
-1 |
|
|
-1 |
|
2. Organizational capacity is small |
|
-1 |
-1 |
|
|
3. Lack of civil engineering experts |
|
-1 |
-1 |
|
|
4. Conventional reporting method |
|
-1 |
|
|
|
5. Heavy equipment warehouse is not in a strategic location |
-1 |
|
|
-1 |
|
6. Lack of permanent, competent, and reliable human resources |
-1 |
|
|
-1 |
|
7. Lack of brand awareness capability |
|
-1 |
-1 |
|
|
8. Low innovation capability |
|
-1 |
-1 |
|
|
9. Narrow target of project focus within civil construction industry |
-1 |
-1 |
-1 |
-1 |
|
Opportunities (O) |
||||
|
1. High number of governmental projects available due to Indonesia's focuses on infrastructure development. |
|
1 |
|
|
|
2. The increasing of own-living houses backlogs due to the population growth |
|
1 |
1 |
|
|
3. People's shifting behavior on smartphone. Business promotion could be easily delivered to people |
1 |
|
|
1 |
|
4. Advancement in technological implementation |
1 |
1 |
1 |
1 |
|
5. Encouragement of construction sector to develop worldwide |
|
1 |
|
|
|
6. Low bargaining power of suppliers due to so many existing suppliers’ vendors |
1 |
|
|
|
|
7. An equal bargaining power of buyers as long as a construction company could preserves the quality |
|
1 |
1 |
|
|
8. Low threat of new substitutes due to the construction demand is still high and only carried out by a construction company |
|
1 |
|
|
|
9. Low barrier to entry of threat new entrants in terms of government policy that narrowing new entrants project focus |
|
1 |
1 |
|
|
10. Existing competitors are more focus on government infrastructure development, Pilar could narrow its target to private companies’ projects |
|
1 |
1 |
|
|
Threats (T) |
||||
|
1. So many collusions required to win a government project tender |
-1 |
|
|
|
|
2. Strict government regulation for construction sector industry |
|
-1 |
|
|
|
3. Inflation and exchange rate increasing steadily |
-1 |
|
|
|
|
4. Extreme weather could affect workers' productivity |
-1 |
-1 |
-1 |
-1 |
|
5. High intense rivalry among competitors within the industry |
-1 |
-1 |
-1 |
-1 |
|
6. Low barrier to entry of threat new entrants in terms of product differentiation |
|
-1 |
-1 |
|
|
7. Low barrier to entry of threat new entrants in terms of zero capital requirement |
-1 |
|
|
|
|
8. Existing competitors have high capital ability and so many subsidiaries, they can broaden its target to any project focus easily |
-1 |
|
|
|
|
TOTAL |
-5 |
5 |
-1 |
-3 |
As can be seen in table 4.12 that the differentiation
strategy has the highest value based on the determination of the SWOT analysis
regarding its requirement to the three generic strategies. It concludes that
Pilar should use differentiation strategy to develop their business further
concerning their SWOT either.
Figure 3 Proposed Industrial Organizational Model.
The figure
above represents the overall strategy formulation with respect to any factors
that might require to accommodate the new proposed business model. The several
aspects in the industrial organization model have its own analysis in the
previous sub chapters that covers the external environment, attractiveness of
the new business model, asset and skills, and etc.
Figure 4 Adopted Diamond Strategy (Hambrick &
Fredrickson, 2005).
The
business strategy is analyzed using Diamond Model within five elements in order
to identify from Arenas, Vehicles, Differentiators, Staging, and Economic
Logic. Arenas is determined to analyze where Pilar needs to compete against the
industry. Vehicles is determined to analyze how Pilar needs to compete and
achieve their differentiation. Differentiators is determined to analyze
specifically how Pilar would win the competition based on the Arenas and
Vehicles elements. Staging determines the speed of expansions and sequence of
initiatives to broaden Pilar’s product line and brand power. The Economic Logic
determines specifically how Pilar will generate profits with this strategy.
Currently, the business that Pilar is working on has a
narrow segmented market where based on the project portfolio that has been
undertaken by Pilar, the projects undertaken are projects provided by customers
from a private company or BUMN. With this narrow segmented market, Pilar should
add a B2C (Business to Customer) market segment to improve its development to
make it more effective and faster. With this B2C concept, Pilar can add to its
product lines and can focus more on emphasizing the results of satisfaction
from end-user customers.
Pilar is also experiencing problems with the
Geographic Scope aspect where Pilar only wants to work on the island of Java
according to the area where Pilar's office is located. This of course makes the
scope of business that Pilar can work on very small. With Pilar's small
Geographic Scope, Pilar's opportunities to add income, maintain company
stability, and develop the company are very ineffective. Pilar should broaden
their Geographic Scope in order to increase opportunities to grow the company
more effectively. By enlarging the Geographic Scope, Pilar can develop its line
of business aligned with the growth in population and the need for housing in
Indonesia for a long period of time.
Figure 5 2021 Construction Statistics (Handayani, F., &
Yuniastuti, W. (2022, n.d.).
Figure 4.13 is the latest report of the 2021
construction statistics summary in Indonesia which consists of Building
Construction, Civil Engineering Constructions, and Specialized Constructions
sectors. Since its establishment, Pilar operates in civil engineering and
specialized constructions in which these two sectors are valued more than 900 Trillion Rupiah. This market demand
is actually a promising number for every construction company to dive down into
the business industry if they could adapt and develop more effectively.
Figure 6 2021 Constructions Value in Indonesia (Handayani, F., &
Yuniastuti, W. (2022, n.d.).
In 2021, the total construction value in Indonesia
reached 1.415,568 Trillion Rupiah. However, with the current motivation of
Pilar’s business orientation that is also shown by the green columns in the
figure 4.14, the exact accumulated construction value in Java Island is only 353,312
Trillion Rupiah and it was 24,95% of the overall
construction value in Indonesia. Thus, Pilar could actually give their best
performance to develop their business while considering outside of Java Island
to fetch more potential projects.
Figure 7 The own living housing backlogs news (Purnamasari, D. M. (2021,
n.d.).
According
to Vice President Ma'ruf Amin, the country now needs
to build 11.4 million residences
based on ownership. According to Ma'ruf, the amount
of housing backlogs or needs in the country is relatively significant when
compared to housing availability. Even as the world's population grows, so does
the need for homes (Purnamasari,
D. M. (2021, n.d.). "As the population continues to rise, so does
the need for housing. The current requirement for housing based on ownership is
expected to be 11.4 million units. The government intends to decrease
Indonesia's home backlog or deficit to 5 million by 2024." Said Ma'ruf Amin. In conclusion, the target of Indonesia’s
housing backlog needs to be reduced by 6 million houses in three years.
Table 2 Arenas Suggestion Summary.
|
Aspect |
Current Approach |
Suggestion |
Objective |
|
Market Segments |
B2B (Business to Business) |
B2B and B2C; end-user customer |
Wider market segments. |
|
Geographic Scope |
Java Island |
Whole province in Indonesia |
Wider geographic scope. |
|
Product Line |
Civil engineering and specialized construction sectors |
Expand to public housing or real-estate sectors. |
Wider product-line breadth. |
The Vehicles element determines how Pilar competes to
accommodate business strategies based on the arenas elements that have been
analyzed in the previous subchapter. Pilar needs to overhaul its company's
internal development methods by overhauling its human resources. This method
can be done by conducting training regarding the new business environment that
will be carried out for existing employees and recruiting several human
resources who have work experience in real-estate development companies by
selecting prospective human resources according to their interests, creativity,
relationships, and intelligence related to the business environment according to
the Arenas elements that have been analyzed.
According to the results of an external interview that
the author has interviewed Mr. Suseno as a
representative of a company that works in the real-estate sector, the
implementation of this new business model can be carried out in several stages
that need to be considered, such as:
1. Look for a land that proper to be developed, the land
needs to be at least 3000 m2 wide.
2. Calculate the ROI of the chosen land.
3. For a newcomer company, the business needs to create a
joint venture between Pilar and the landlord. This could ease the
financial flows from the initial development until the actual house purchase
from potential customers.
4. Define the capital investment method. Whether from own
capital investment or need to be supported by banks.
5. Define the concept and target segments.
This joint venture with the landlords can be
implemented by providing housing development planning proposals and providing
an illustration of the comparison that if the landlord sells very large vacant
land, it will be very difficult to sell– compared to if the land is built
housing which can be sold more quickly and profitably. However, in practice,
the legality of real-estate development must be carried out by a company that
has ownership rights to the land due to several conditions that need to be met
so that the land can have a building permit and plot fragments in accordance
with the plan. This can be overcomed by making an
agreement between the developer company and the landlord that the ownership of
the land needs to be transferred to
the developer company and the landlord gets the agreed amount of profit.
The
way to compete in this new business model can also be implemented by acquiring
a real-estate developer company that requires financial support or other forms.
However, to acquire the fund-need company, Pilar needs to calculate ROE and its
previous financial projections first. This acquisition can provide several
benefits if implemented to the right company:
1. Less capital investment requirement.
2. Could get a very strategic location with a very low
land price.
3. The overall work would be less struggling due to its
prior operation and partnership.
Another aspect that needs to be implemented to support
the elements of the Vehicles strategy is the channel. Pilar needs to use the
Omni Channel to deliver their product lines to end-user customers or to
companies. Omnichannel is a platform that combines various channels in a system
with the aim of increasing shopping satisfaction and optimizing customer
experience. Omnichannel is the next stage of the multi-channel strategy.
Omnichannel focuses on customer satisfaction for having a seamless shopping
experience. Each channel is designed to support and relate to each other.
Because of the efficiency offered, customers will prefer to buy products
through an omnichannel platform rather than a single channel (Andi.
(2022, n.d.).
Currently, Pilar does not have a marketing channel to
distribute and promote its product business. Since its establishment, Pilar has
needed to pursue the projects it wants to get on its own. This of course makes
Pilar need more effort to get projects to develop the company. With
Omnichannel, Pilar can promote its business products through websites, social
media, marketplaces, or reseller platforms so that Pilar's business products
can be distributed to a wider market segment so that the company can develop
more effectively and can communicate via chat with customers. One of the online
platforms in Indonesia that can help Pilar to distribute and promote its
product line is Sejasa.com. Sejasa is a web-based
marketplace platform that provides various services from third parties
registered with Sejasa. The marketplace platform,
which is also available on the smartphone application, provides various
services ranging from hair care services, carpentry services, architectural
services, to photography services. The Vehicles element implementation plan is
explained in more detail in the table 4.14.
Table 3 Vehicles Suggestion Summary.
|
Aspects |
Suggestion Tasks |
Objective |
|
Internal Development |
● Create a training program for the existing employees about the new business environment. ● Hire related and experienced employees. ● Create a special employees division to look for other projects. |
Improve internal quality |
|
Joint Venture or Acquisition |
Create a joint venture or joint operation with a landlord or fund-need companies. |
Increase productivity, effectiveness, and efficiency |
|
Omni Channels |
● Create an own website. ● Register to marketplaces i.e. Sejasa.com, tukang.com, etc. ● Promote to social media i.e. TikTok, Instagram, Facebook, etc. |
● Effectively delivered the product-line. ● Gain customer relationships and acquisition. |
To win the competition in the new business model,
Pilar needs to have several important aspects that can differentiate Pilar's
products from competitors in terms of excellence to support its success.
Pilar's differentiation can be in the form of implementing aspects based on
customer interest in the goods they will buy. In this new business environment,
Pilar can implement it by applying aspects such as reliable quality products
and the application of integrated technology systems to each housing unit.
Figure 8 Criteria priority vector AHP result.
As can be seen in the figure 4.16 above, the three
green colored criteria are the highest value between each other’s group of
criteria. The “Strategic Location”, “Tropical Modern Design”, and “Lot Area”
could be Pilar's differentiators to run this new business model in order to win
the competition. These three criteria could also be the styling parameters for
Pilar to plan the concept and market segments of the real-estate. These styling
parameters are related to the current trend of people’s tastes whenever buying
houses that could ease Pilar to plan the new business environment to win this
new business environment competition.
Figure 9 Smart Home system preferability result.
Technology-oriented
aspects also need to be applied to support Pilar's success in this real-estate
business model competition. Based on the results of a survey conducted with 54
respondents, 90% or 49 people prefer to apply technologies to the homes they buy.
The concept of applying this technology can be implemented by providing a Smart
Home system to housing units built in real-estate.
Figure 10 Smart Home System (Erintafifah. (2021, n.d.).
Examples of Smart Home systems that can be implemented
are CCTV, lights, Smart Door Locks, or other devices that can be controlled and
monitored through a device installed in one corner of the house or a personal
smartphone. The application of this technological concept will become an
attraction and can further support its own success if the Smart Home in a
housing unit can be integrated with a security system in a real-estate or
housing complex to be built. The overall suggestion about this element of
diamond strategy is explained in detail in the table below.
At first, a company should focus strongly on a few
business products instead of having so many low focus business products – Pilar should focus on this new business model to accentuate the
differentiation between competitors (Fartaria,
2010). It is also important for Pilar to determine its
competitor’s business segment i.e. how they advertise their products, how they
play psychology tactics to their most potential customers, and how they treat
their old markets.
Table 4 Differentiators Suggestion Summary.
|
Aspects |
Suggestion Tasks |
Objective |
|
Reliable quality |
●
Accentuates the
quality over quantity. ●
Quality should
be worth the prices. ●
Select the
experienced workers, subcontractors, and partners. |
● Increasing brand credibility. ● Sustain the brand power. |
|
Styling |
●
Implement the
styling parameters based on the criteria priority vector AHP result. ●
Follow the
current styling trends. |
● Ease the planning to execute. ● Gain attractiveness to the products. ● Hit the target segments accurately. |
|
Technology-oriented |
●
Apply the
technological system to the housing. ●
Integrate the
technological system with the security center of the cluster or complex. |
● Gain attractiveness to young generation market
segments. ● Value creation applied. |
Currently PT. Pilar Kencana
Tama has a geographic scope capability that only covers the island of Java,
where the island of Java only covers six of the 34 provinces in Indonesia, such
as DKI Jakarta, East Java, West Java, Central Java, D.I. Yogyakarta, and
Banten. This of course will greatly disrupt the development of Pilar's business
model which is not in line with the growth in demand related to projects that
Pilar can work on. In this staging element, the author provides several
strategies in the form of staging for Pilar to develop the company in terms of
geographic scope and workable product lines.
Figure 11 Strategic Staging of PT. Pilar Kencana Tama
Figure 11 represents the strategic staging that the
Pilar needs to implement to develop the company in its entire business. The
target in this figure also defines Pilar's motives to achieve a national
geographic scope and have a wide range of product lines in accordance with the
magnitude of market demand and population growth in Indonesia, which always
increases every year. This strategic staging is also based on analysis that has
been done previously in the elements of Arenas, Vehicles, and Differentiators.
Figure 12 The Adopted Concept of Attack (Fartaria, 2010).
Based on the analysis in the figure 12, Pilar
fulfilled the two criteria of when Pilar should attack their competitors and
has been determined as a green colored circle in the figure. Pilar should first
concentrate on the industry leader in their neighborhood due to the fact that
the existing competitor must have had financial resources to block Pilar’s
entry (by cutting prices, increasing advertising, etc.) (Fartaria,
2010). The summary explanation of strategic staging will be
explained in the table below.
Table 5 Strategic Staging Suggestion.
|
Stage |
Task |
|
Stage 1: join into a
new business model (real-estate) |
●
Hire related
and experienced employees. ●
Create a joint
venture with the landlord. ●
Formulate the
concept based on previous analysis. ●
Execute the
business and start to attack the related competitors. |
|
Stage 2: Expand to
wider geographic scope |
● Start new projects outside of Java Island. ● Hire related and experienced employees and marketing
agencies. |
|
Stage 3: Expand to
another related business sector and targeted geographic scope |
● If the real-estate business had settled, the firm
should try another business sectors e.g. building construction, FnB business, etc. |
The economic logic element defines how a company
cannot be sufficient if it only relies on income that is greater than its
expenses because customers and competitors will also not rely on that alone (Hambrick
& Fredrickson, 2005). To determine the success of a competition in a
business industry that has strong competition, it is necessary to apply
strategic methods in microeconomics to support success in competition.
Economies of scale is a concept that can be implemented by Pilar in order to
win the competition among its competitors in this new business model. Economies
of scale is a concept that describes a decrease in production costs per unit of
product in a company when it increases production volume (Muttaqien,
F. (2022, n.d.). An example of the results of applying the concept of
economies of scale is explained in more detail in the table below.
Table 6 Example of Economies of Scale Implementation.
|
Items (monthly) |
Current Ability |
Economies of Scale |
|
Production Unit |
10 |
20 |
|
Building Cost per unit |
Rp. 108.000.000 |
Rp. 108.000.000 |
|
Fix Operating Cost |
Rp. 50.000.000 |
Rp. 50.000.000 |
|
Total Cost Per unit |
Rp. 113.000.000 |
Rp. 110.500.000 |
|
Cost Saving |
Rp. 2.500.000 |
|
Figure 13 Cost Difference of Economies of Scale
Implementation.
By implementing Economies of Scale in the Economic
Logic element, Pilar needs to increase its production capacity or capability in
building the number of housing units per month. Table 4.17 and figure 13 are
examples of comparison that if Pilar applies Economies of Scale, then the cost
per housing unit will be lower and clearly can provide a higher net profit per
month. The overall goal in implementing Economies of Scale are (Vaidya,
n.d.):
1. Reduced per unit Cost.
2. Increased profits.
3. Growth of business.
4. Business credibility increases.
5. Improvement in existing processes.
Another aspect to support this Economic Logic element
is the need for scale up operations and presence in multiple market segments to
achieve a large cost advantage in spending fixed costs which are difficult for
competitors to do (Hambrick
& Fredrickson, 2005). Scale up operations and presence may not always be
implemented but this concept can increase a company's ability to survive and
provide strong profits every year. Another objective of this scale up operation
and presence is to provide strong brand strength with a wider target market.
Table 7 Economic Logic
Suggestion Summary.
|
Aspects |
Suggestion
Tasks |
Objective |
|
Economies of Scale |
●
Increase building
capability. ●
Choose the
right partnership with vendors, suppliers, and subcontractors. |
●
Reduce per unit
costs. ●
Gain larger
profits. ●
Improvement in
existing processes. |
|
Scale up operation and
presence |
●
Execute more
than two projects in a few cities at one time. ●
Execute more
than two projects with different market segments. ●
Get funding
support from certain banks. |
●
Cost advantages
against competitors. ●
Increase brand
recognition. ●
Gain special
credibility from banks. ●
Gain wider
market segments. |
This
new business model canvas is defined by the author based on certain internal
and external analysis which has been analyzed in the previous chapters. The new
business model canvas is proposed to summarize any aspect in the overall
business situation that Pilar should conduct and partner with. The new business
model canvas is also represent overall diamond strategy that has five elements
in which includes Arenas of where business environment the company should conduct
and compete with, Vehicles of how the company should compete in the determined
Arenas, Differentiators of what things is the company should apply to win the
competition, Staging of when the company should apply the overall strategy to
expand their business objectives, and Economic Logic of why the company should
not only vaguely count on having revenues that above costs.
Figure 14 New Business Model Canvas.
Figure 14 is a new business model canvas that has
added several key factors from the proposed strategy using the Diamond Strategy
based on interviews and external analysis which has been explained in the
previous chapter and subchapter including the results of an interview with Mr.
Pandu as CEO of PT. Pilar Kencana Tama and several
external parties related to the proposed new business model. In figure 4.22,
the key factors of the proposed strategy are colored in blue to show the
difference between the existing business situation and the proposed business
situation. In the nine aspects of the business model canvas, there is at least
one additional point for each aspect based on the proposed strategy which is
sufficient to represent the new business situation if the implementation of
this new business model is carried out.
From the previous analyzes that have been identified
from certain aspects, Pilar should also determine how they would attack their
opponent once they started to join the new business environment.
Figure 14 The Adopted Concept of Attack (Fartaria, 2010).
As can be seen in the figure 14 which also can be seen
in the Staging subchapter that Pilar fulfills the two criteria of the attacking
requirements which the new proposed business environment is also requiring to
extend the new segment within the new geographical scope.
Figure 15 Proposed attacking target market segment.
According to their marketing campaign on their
own-website, It can be concluded that if Pilar wants to join this new business
environment, author suggests Pilar to use the Differentiated Circle way of attacking which their movements will
going into two different market segments i.e. “High quality and prices” and
“Own-living purposes” target market. The proposed target market segments are
very possible to implement regarding that current competitor’s target market
segments are very weak.
This subchapter describes an example of an
implementation plan if Pilar will be involved in this proposed new business
model so that Pilar can run and adapt more quickly in this new business model.
The following is an example of implementing the business model.
Table 16 Cost of implementation
|
Available Land Area |
50.000 m2 |
|
Houses to build |
60% x 50.000 m2 = 30.000 m2 → Maximum area for houses of the entire land |
|
Infrastructure to build (public and social facilities, roads, etc.) |
40% x 50.000 m2 = 20.000 m2 → Maximum area for the infrastructure |
|
Note: Suppose Pilar wants to build three different lot
areas with three different building areas (ex: 45/84 m2, 72/112 m2, and
105/144 m2). Therefore, the total possible houses to build are: 271 Houses - Type 45/84 = 103 lot - Type 72/112 = 93 lot - Type 105/144 = 75 lot |
|
|
Initial and Marketing Cost Note: Suppose Pilar wants to build a mid-high specification of building material with an assumption of 4 million rupiah per m2. Therefore, the initial and marketing cost will be: - Show unit houses for 3 different lots (45, 72, 105). - Furnishing show units houses 50 million rupiah per house. - Building infrastructure 750 thousand rupiah per m2. - Marketing campaign (social media, marketing agencies, etc.) - 3D Design (houses and entire complex) |
|
|
Furnished show unit houses cost |
|
|
Type 45/84 |
Rp. 4.000.000 x 45 m2 = Rp. 180.000.000 |
|
Type 72/112 |
Rp. 4.000.000 x 72 m2 = Rp. 288.000.000 |
|
Type 105/144 |
Rp. 4.000.000 x 105 m2 = Rp. 180.000.000 |
|
Furnishing show units houses |
50 mill x 3 houses = Rp. 150.000.000 |
|
10% Infrastructure built |
10% x 20.000 m2 x Rp. 750.000 = Rp.1.500.000.000 |
|
Marketing Campaign |
Rp. 50.000.000 |
|
3D Design |
Rp. 50.000.000 |
|
Total Cost |
Rp. 2.248.000.000 |
Table
16 is the example of the overall cost calculation whenever Pilar wants to
conduct the proposed new business model which in fact is really possible to be
implemented due to increasing population growth and the backlog of housing. To
start implementing this new business model, Pilar suggested looking for a cooperatable landlord in order to work on this new business
model aligned with the purchases of the houses. The 3D design and marketing
campaign are also required to reach the market without building the houses
first so the prospective buyers could be easily interested and make a
down-payment to buy the houses. The 4 million rupiah per m2 construction cost
is relatively a mid-high specification for the brand and material quality of
each construction segment. Pilar could determine themself for choosing any
subcontractor with lower construction cost yet the specification could be
promising
Kesimpulan
According to the results of the analysis that has been
carried out through questionnaire calculations using the Analytical Hierarchy
Process method, there are several priority criteria that the Pilar can make as
parameters to carry out this proposed new business model such as Strategic
Location, Modern Tropical Design, and Lot Area by applying several strategic
frameworks and attacking methods as explained in the previous chapter. The
following is a summary of the conclusions: 1. It is recommended that Pilar
implement a differentiation as a generic strategy to support this
business model so that this business model can outperform larger competitor
companies that have been in the location area where Pilar will run this new
business model for a long time. The differentiator that has been determined
based on external analysis is also in the form of implementing good quality
control, implementing trend-following housing designs, and implementing
technology systems that are integrated with the entire housing in order to gain
attractiveness and superior competitiveness among competing companies. 2. In
its implementation, Pilar needs to use the Differentiated Circle strategy to
attack competitor companies which based on the results of research conducted,
the competitor companies have several weak market segments or even not covered
at all. Pilar can target market segments that have own-living purposes and
market segments that want house building materials with medium-high specs. 3.
Pilar needs to concern the Strategic Location aspects which covers downtown
areas, schools, police stations, and several aspects of primary human needs to
support the attractiveness of business products in this business model if Pilar
has an own-living target market segment. If Pilar has a target market
investment segment, Pilar only needs to concern the Strategic Location aspect
which covers recreational sites, non-crowded environments, and several other
areas that don't really support primary human needs. 4. Pilar also needs to use
tropical modern design references to build plans in the real-estate business by
carefully selecting the services of architects who have good design taste and
experience building houses with tropical modern designs. This needs to be done
so that Pilar can more precisely reach the desired target market in accordance
with the increasing need for housing for the people of Indonesia. 5.
Calculations related to product distribution in the real-estate business are
also needed in order to concern the importance of lot areas compared to house
areas based on the results of AHP calculations where from all respondents, they
prefer to have larger lot areas than larger buildings. In the implementation,
Pilar also needs to concern the following aspects that can provide effectiveness
and efficiency when running this business model, such as: Hire related and
experienced employees; Create a joint venture with the landlord in order to
sustain the cash flows aligned with the demand; Implement the Economies of
Scales related to the execution of the house constructions.
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