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IMPLEMENTATION STRATEGY OF CORPORATE
PARENTING FRAMEWORK PT PERUSAHAAN GAS
NEGARA TBK
ARIZONA STATE UNIVERSITY
WPC 480 - STRATEGIC MANAGEMENT
SPRING 2024
INTRODUCTION:
Indonesia has been active in the oil and gas sector for almost 130 years with a long and
relatively successful history of gas production, characterized by a relatively stable regulatory
framework. Indonesia has been an international pioneer and continues to be an important
player in the international oil and gas industry. Indonesia is the tenth largest producer of
natural gas in the world and the second largest producer in the Asia Pacific region after China
(Indonesia Investments 2018). Thus, the oil and gas industry is a decisive sector in national
development, both in meeting the needs of industrial raw materials and domestic energy needs
as well as generating the country's GDP, so this sector must be managed as much as possible
(BPH Migas 2021). Oil and gas is the primary energy source on earth compared to other
energy sources such as solar, wind, geothermal, nuclear and hydroelectric energy.
The upstream oil and gas business is a business with unique characteristics and
different from other businesses. This unique characteristic is speculative, which requires a
large cost and the nature of oil and gas that cannot be renewed or reproduced. With these
unique characteristics, the oil and gas industry is a business that is risky, requires high
technology, capital intensive and optimal and professional management. Thus, the growth of
companies in the diversified oil and gas sector causes companies to form core competencies
that tend to be different from their original business. This is done through the development
of subsidiaries in business groups. To focus the formation of competencies between the
parent company and its subsidiaries, a corporate strategy is carried out to plan and execute
strategies to achieve corporate goals.
PT Perusahaan Gas Negara Tbk (PGN) is a Pertamina Gas Subholding company. PGN
as Subholding Gas conducts all downstream natural gas business process activities, namely
the fulfillment of natural gas supply from domestic and international sources to manage
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infrastructure carried out by itself or its Subsidiaries or Affiliates up to the distribution of
natural gas to all end user segments ranging from small customers, SPBG, households,
commercial, industrial and power plants. In carrying out its business activities, the parent
company formed several subsidiaries to manage oil and gas block fields in Indonesia. PGN
and its subsidiaries and affiliates are part of the Gas Subholding to support each other and
provide added value in providing natural gas to end users (PGN Annual Report 2021). The
provision of reliable and quality natural gas can occur due to the support of Subsidiaries and
Affiliates that have an important role and become the core business of providing natural gas
through the upstream business, natural gas trading, storage and gas processing and other
activities. All of these activities are carried out with the aim of obtaining oil and gas reserves
which are then expected to be produced and developed.
Based on PGN's Annual Report (2020), PGN's financial performance in 2020 was
recorded positively from the Company's net profit booked. The Company's revenue was
recorded to realize 94% of the 2021 RKAP target (realization of USD3.04 billion from the
target of USD3.23 billion), but this was offset by operating expenses that were maintained
through efficiency efforts. Several subsidiaries of PGN were able to achieve quite good
performance. There is a significant increase in profit contribution, but there are subsidiaries
that have negative profit contributions, the data is shown in Table 1 below:
Based on Table 1, there are two subsidiaries that experienced losses, namely PT Saka
Energi Indonesia (Saka) and PT Graha Permata (PGN Mas). However, in 2020 PGN Mas
experienced a decline followed by a low profit value due largely to the Covid-19 outbreak. In
contrast to Saka, which has experienced losses from year to year. According to Saka's
financial statements from 2015 to 2020, Saka experienced losses, only in 2018 Saka
provided profit to PGN as the parent company. The data is presented in Figure 1.
In Figure 1, Saka continued to experience losses from 2015 to 2020. It can be seen that
Saka's total attribution experienced a negative value, only 2018 experienced a positive value.
One factor that can affect Saka's performance is the world crude oil price. Based on Figure
2, it can be seen that the average price of West Texas Intermediate (WTI) crude oil, there is a
downward trend in world crude oil prices in 2015, which amounted to 93.17 US$ per barrel
to 48.72 US$ per barrel in 2015. This was an important factor in influencing Saka's financial
performance in 2015.
Figure 2 explains that in 2021, there is an increase in world crude oil prices, which
amounted to 52.77 US$ per barrel in 2020 and to 68.13 US$. This is a positive catalyst for
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Saka's performance. After losing money for two consecutive years, in 2021 Saka made a
profit of US$ 6 million. Saka managed to increase the volume of oil lifting in 2021, to
25,000 barrels per day, so that Saka could post a positive performance in 2021. However, to
continue the positive trend in terms of Saka's financial performance, it is necessary to
formulate a corporate strategy in order to provide benefits to the parent company.
PGN formed subsidiaries or affiliates to support performance improvement and
sustainable growth, namely by focusing and allocating resources towards adjacent business
and business diversification. Adjacent business is the creation of new business lines to reach
new markets to strengthen the core business (Scholess et al. 2021). Meanwhile, business
diversification is a corporate growth strategy where companies expand their business
through adding businesses or moving to different businesses (Chan et al. 2019). This step is
expressed through the restructuring program, business alignment, strategic option and
strategic development, among others, through the diversification of PGN Group's business
portfolio. The provision of quality and reliable energy can be realized due to the support of
subsidiaries and affiliates that play a role as core business in the provision of energy sources
through the upstream business, natural gas trading, storage and gas processing, gas
transportation through pipelines and non-pipeline modes of transportation, information
technology services and maintenance, and construction including asset management. The
development of these business fields is considered in accordance with the principles of good
corporate governance with the aim of achieving the company's revenue and profit
projections.
To support the achievement of performance in the establishment of subsidiaries or
affiliates, PGN sets the strategic direction of the business portfolio based on PGN's Annual
Report (2021) as follows:
1.
Maintain and evaluate PGN Group's existing business portfolio.
2.
Increased synergy with oil and gas holding as developer infrastructure
as well as the provision of natural gas or LNG.
3.
Diversification through new business portfolios, both adjacent and emergent, within the
framework of PGN's role as a gas subholding, as well as consideration of PGN's
business conditions. The direction of portfolio diversification is carried out through
optimization of PGN's existing diversified business portfolio with a focus on the core
competencies of subsidiaries (selected focus).
Saka is a subsidiary of PGN in upstream oil and gas. The purpose of its establishment
is to ensure long-term oil and gas supply for PGN. Saka is involved in upstream business
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and investment, including exploration, exploitation and development of energy sources.
Saka currently manages ten assets in Indonesia and one shale gas block in America.
According to Saka's Annual Report (2019), 2019 was a challenging year for Saka. Slowing
global and national economic conditions accompanied by simultaneous elections that
increased domestic political turmoil continued to test the company's performance throughout
the financial year. However, Saka remains steadfast in its commitment to provide energy for
the people of Indonesia. Currently, Saka has implemented Six-Point-Plan strategic
measures, Saka forms the foundation to trigger synergy for all stakeholders in achieving the
company's targets. Starting from improving operational performance, finance, governance to
management reshuffle. Saka hopes to prove every step to bring the company closer towards
realizing the vision of becoming the leading company in the field of oil and gas exploration
and production in Indonesia.
Achieving corporate goals is by realizing strategic rarities that suit the company's
needs. Saka needs to get special attention from PGN as the parent company. The problem in
this research focuses on increasing the subsidiary's profit to the parent company. PGN needs
to assist Saka in forming an effective and appropriate corporate strategy to nurture the
subsidiary so that the subsidiary can win business competition in the upstream oil and gas
industry. Thus, subsidiaries can face the dynamics of increasingly competitive business
competition.
According to Goold et al. (1994), to be able to create a value-added company requires
an effective corporate strategy. Corporations have a challenge in making subsidiaries better
than their competitors in competing in the current industry to continue to develop and
advance. The challenge in creating added value to other companies is called parenting
advantage and to be able to create added value in the company A holding requires a
framework called a corporate parenting framework.
Saka needs special attention from PGN as the parent company, namely preparing a
corporate strategy that focuses on core competition and value created between the parent
company and its subsidiaries. This strategy is adapted from Champbell's theory of Corporate
Parenting Framework in Figure 3.
The corporate parenting framework analysis uses four main elements, namely critical
success factors, parenting opportunities, parenting characteristics and parenting fit matrix. To
analyze the parenting fit matrix, there are 5 criteria areas that can be presented to see the level
of compatibility of the subsidiary with the parent company, these areas include Heartland
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Business, Edge of Heartland Business, Ballast Business, Value Trap Business, and Alien
Territory Business (Porter 1988). The position of each business unit in the matrix can serve
as a guide for the parent company in determining the appropriate corporate strategy for its
subsidiaries. The positioning of each business unit in the matrix is based on the fit between
parenting characteristics and parenting opportunities and the record of any misfit between
parenting characteristics and business opportunities. Each area has different strategic
implications for the future development of the corporation.
PGN as the parent company is required to be able to create value for its subsidiaries.
By using the corporate parenting framework and positioned into areas on the parenting fit
matrix, the author is interested in analyzing the suitability of PGN's characteristics with Saka
as a subsidiary and whether the parenting process carried out on children is appropriate.
1.1
Strategy and Strategic Management
Strategy is a response to environmental changes that encourage anyone to survive and
compete to be a winner. Strategy is about the ability to use resources effectively and
efficiently (Shams et al. 2021). In business activities, strategy is one of the factors that
determine the success or failure of a business. Strategy focuses on the plans and actions that
the organization will implement to achieve its goals. Weston et al. (2004) say that strategy is
defined as the vision, planning, culture and policies of an organization over a long period of
time. Strategic decisions involve the company in the future. Strategy cannot be static, but
must be reassessed continuously.
Thompson et al. (2014) explain that strategy is a management plan to improve the
organization's position, achieve company performance, and satisfy customers. Strategy is a
management action plan in running a business and directing operational business activities
to achieve company goals and best performance (Hutahayan 2020). A good strategy can be
seen from management excellence in the strategy implementation process. The heart and
soul of all strategies are actions taken by top management in the market where the company
competes, strengthening the company's position in the long term and gaining a competitive
advantage (Voss and Houser 2019).
Central to the concept of strategy is the orientation of the firm towards identifying,
collecting and analyzing intelligence to create new knowledge within the firm (Cacciolatti
and Fearne 2013). Therefore, strategic orientation can be considered an essential element of
the innovation process. Evolutionary economics suggests that new knowledge provides
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opportunities not only to advance new ideas along established trajectories, but also to create
new combinations of knowledge and generate new trajectories for innovation (Adams et al.
2019).
Strategic management is a collection of various decisions and actions that result in the
identification of formulation and implementation of targets made to achieve company goals
(David and Craighead 2020). In the implementation process, a strategic management is
needed that focuses on the short-term and long-term goals of the organization and the
preparation of goals to align the resources owned with company activities, environmental
changes and stakeholder expectations (Fuertes et al (2020). David and David (2009) say that
strategic management is the art and science of formulating, determining and evaluating
functional decisions that enable an organization to achieve its goals. The benefits of strategic
management are to help companies or organizations to set better strategies with a systematic,
logical and comprehensive approach to various alternative strategies.
Thompson et al. (2014) also said that strategies in diversified multibusiness companies
can be organized in different ways. To deal with the different conditions of the business
competition environment, the strategy involves three levels of strategy, namely:
1.1.1
Corporate level strategy
Corporate-level strategy consists of initiatives to diversify to enter into different
industries, improve the combined performance of the company's diversified business groups
and seek steps to create synergies across businesses and turn them into competitive
advantages (Thompson et al. 2014). Corporate strategy relates to decisions, according to its
character that must be made on the entire scope of the company as a whole. Corporate
strategy also deals with where a business can compete rather than how to compete in a
particular industry, which is a business unit strategy. At the corporate level, issues often
arise related to the definition of businesses in which the company will engage and the
allocation of corporate resources among business units. The results of corporate-level
strategic analysis involve which businesses to add, which businesses to retain, which
businesses to emphasize, which businesses to reduce, and which businesses to transfer.
(Anthony and Govindarajan 2007). According to (Collis and Montgomery 2005), an elective
corporate strategy It is related to valuable corporate resources, attractive competition in
business and effective systems. A great corporate strategy does not only depend on the
quality of each element, but focuses on how each element can be sustainable in an integrated
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system (Graebner et al. 2017). (Bindra et al. 2019; Melin 1992) Corporate strategy is also
involved in wealth creation, value creation, innovation, product development and learning
(Singh et al. 2019; Singh and Dhir 2019). However, in these studies, companies pay less
attention to factors that influence the value creation and performance of their subsidiaries or
affiliates (Carwright and Schoenberg 2006; Dhir 2019).
1.1.2
Business level strategy
Business unit strategy relates to actions and approaches that are organized to produce
successful performance in a specific line of business (Thompson et al. 2014). According to
Hux and Mujlul (1999), the characteristics of a business level strategy are that it has clear
competitors, all products are affected by price changes, has well-defined customers, changes
in variety and quality will affect products in general and all products in a business unit are
relatively substitute products. All products within a business unit are capable of standing on
their own if they are divested.
1.1.3
Functional level strategy
According to Thompson et al. (2014), functional strategies are aimed at various
functional areas of an enterprise or business, which results in a specific framework created
as an implication of the business strategy.
1.2
Corporate Strategy
Corporate strategy is the company's step to assess the configuration and coordination
of business activities in several markets. According to Collis and Montgomery (2005),
corporate strategy has three important aspects: value creation, configuration and
coordination. The value creation aspect emphasizes on creating value which is the goal of
corporate strategy. The configuration aspect focuses on arrangements such as the scope of
some of the company's markets, including vertical, product and geographic boundaries. The
coordination aspect emphasizes how the corporate hierarchy focuses on the relationship
between the parent company and all parts of the company in a structured manner.
Wheelen and Hunger (2011) explain that there are three alternative strategies that can
direct the development of a corporation, namely stability strategy, growth strategy and
retrenchment strategy. Johnson and Kevan (2009) added that corporate strategy focuses on
the implementation of strategies that aim to make the corporation more survivable in the
face of increasingly high competitive situations.
Corporate strategy can be divided into three levels, namely (1) Directional strategy,
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oriented to the entire company to achieve growth, stability and savings, (2) Portfolio
Analysis, which is the company's orientation towards the industry and market environment
in which the company is competing through its products and business units, and (3)
Parenting Strategy, which is a management way to coordinate activities, transfer resources
and grow capabilities between production lines and business units. Directional strategy is
more directed towards the growth of the company, portfolio strategy focuses on managing
the company's cash flow, while parenting strategy is how the company builds corporate
synergies through resource sharing and development (Wheelen and Hunger 2011).
According to Hunger and Thomas (2004), as a corporation, a multibusiness company
that oversees many business units, a corporate strategy is needed to organize and manage
various production lines and business units under it in order to achieve maximum results in
accordance with company goals. Multibusiness companies are companies that operate in
many markets (Leavy 2022) through several different business units (Paroutis and Pettigrew
2007) which are usually the result of company growth or the result of the acquisition of
other businesses (Alzate and Montoya 2018). In this case, the parent company plays an
important role, which in turn has a lot to do with the various production lines and business
units it manages. Corporate strategy in general will always talk about how to organize
resources in all production lines and business units, including how to develop the
capabilities of existing functions. Thus, there will be a series of coordination activities and
transfer of expertise from one business unit to another, where the parent company can create
potential synergies and can create greater results than the sum of each business unit
separately.
1.3
Corporate Parenting
A multi-business company consisting of several strategic units will act as a parent or
holding company (Feldman 2020). Holding company The parent company will act as an
investor for its subsidiary and also play a more significant role in directing the strategic
direction of the subsidiary (Aguilera et al. 2019). The parent company does not always
operate as an independent business, but is considered a cost center, bearing most of the
administrative costs and managing all the business activities of its subsidiaries (Sing and
Salwan 2015).
Parent companies and "child" business units are important building blocks for
understanding the number two selling units in divestiture unit acquisitions. Various studies
have distinguished different approaches to "parenting" that firms use with their business
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units, and these include structural, operational, financial and governance decisions (McGrath
and O'Neill 2023). Porter (1989) identified four ways that parent firms add enterprise value
to their units: active portfolio management, restructuring, transfer of proprietary skills, and
activity sharing. A related stream of work focuses on empirically demonstrating this
"nurturing advantage" and measuring it in various contexts (Feldman 2021; Nell and Ambos
2013).
Corporate Parenting aims to form a corporate-level strategy that focuses on the core
competencies of the parent company and the value formed from the relationship between the
parent company and other business enterprises (Prahalad and Hamel 1990). According to
Campbell et al. (1995), holding companies can create value by adopting corporate
parenting. Goold et al. (2012) added three conditions under which holding companies can
create value for their subsidiaries, namely (1) Holding companies can play an active role in
overseeing the business performance of subsidiaries, including interventions in business
activities, (2) The creation of corporate parenting will improve the performance of
subsidiaries is through holding companies that have the right competencies such as
resources, attributes, access and strong external connections to support subsidiaries that are
needed for subsidiaries, (3) The creation of corporate parenting value so that holding
companies have a strong level of knowledge about the business sector where subsidiaries
operate disciplines to increase corporate value.
The corporate strategy explains the various sources of parenting advantages of
multi-business firms can be merged into a consistent corporate parenting strategy, and how
this parenting strategy can contribute to operationalizing corporate strategy (Assadzadeh et
al. 2021). According to Galpin (2019), development in a focused corporate parenting
approach as a core competency serves as a source of competitive advantage for diversified
firms. A focused corporate parenting approach requires companies to organize an integrated
set of capabilities, applying all the skills, knowledge, tools and talents needed in a relevant
manner for value creation.
According to Campbell et al. (1995), it is explained that there is an influence between
the parent company and its subsidiaries. A good parenting pattern of the parent company
will create good value for the subsidiary compared to competing companies. Added value
can be achieved if the parent company has the resources and capabilities that match what is
needed in its business and takes every opportunity that exists. Parenting fit can be analyzed
through three factors, namely critical success factors, parenting opportunities, and parenting
characteristics.
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Campbell et al. (1995) provides two approaches to structural analysis, namely: (1)
looking at the critical success factors of each subsidiary to see which factors have a positive
influence and which factors have negative factors and (2) looking at parenting opportunities,
which are as follows:
a.
Critical Success Factor
It is the overall success factor of a business unit that helps to create the company's
competitive advantage and improve the company's performance. The parent company must
have an understanding of the critical success factors in the business to ensure that they do
not affect the business in an inappropriate manner. Some of the factors that determine the
success or failure of a business unit include product attributes, strategic elements, resources,
competitive capabilities and core competencies. Critical success factors of a business will
differ greatly both within the same industry and between different industries.
b.
Parenting Opportunities
It is the potential or opportunity possessed by a subsidiary that allows the parent company to
improve performance and create added value for its business. There are ten factors
associated with determining parenting opportunities, namely:
1)
Size and age, which is the age and size of the business unit that causes problems related
to functional capabilities, financial issues, regulations and overhead costs.
2)
Management, which is corporate management that authorizes business units to recruit
employees who have the potential to advance the subsidiary.
3)
Business Definition, which is a description of the business that the parent company is
developing in determining the target market that the subsidiary will enter. The definition
helps to determine new parenting opportunities.
4)
Predictable Error, which is the nature of the situation and the existing business to allow
managers to predict errors in the business, so that the diversification strategy carried out
by the subsidiary is appropriate and on target.
5)
Linkages, i.e. more effective utilization of business networks with other businesses so as
to gain efficiency and position in the market.
6)
Common Capabilities, which are specific capabilities of a subsidiary that can be shared
and developed with other subsidiaries to help improve performance in other subsidiaries.
7)
Special Expertise, which is a special ability owned by a subsidiary to be able to provide
benefits and benefits for all business units with its capabilities and competencies.
8)
External Relation, i.e. the subsidiary has a relationship with
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stakeholders, shareholders, labor unions, suppliers and government. Page The parent
company's assistance is needed to create better relationships with these parties.
9)
Major Decision, which is a management unit that has the ability to make difficult
decisions where the company does not have the expertise.
10)
Major Change, which is a business change made by management because they face
problems. Especially in terms of making strategic decisions for business changes and
for loans from investors.
c.
Parenting Characteristic
It is the success factor that becomes the parent company's competitive advantage so that
there is a possibility that the company will create value to its subsidiaries. To understand the
parenting characteristics and business opportunities of the parent company, we can look at
the following five categories:
1)
Parent's mental maps, which consist of values, rules, aspirations, deviations and success
formulas that guide parent company managers in their dealings with the business.
2)
The corporation structure, management system and process, which is the mechanism of
the parent company to create corporate value. There are important factors that allow for
value creation, namely: (1) levels in a hierarchy, (2) the existence of a matrix, (3) the
management appointment process, (4) the human resource recruitment system,
(5) the structure of strategic decision-making and (6) the process of corporate planning
and spending. In addition, it is important for business management to be able to interact
within these structures and processes.
3)
Central functions, services and resources of starf departments, which are the means of
support in the creation of corporate value.
4)
The resources, experience and managerial ability of the parent company to be able to
provide the selling power of the company, i.e. the parent company has specialized
resources, strong capabilities and competencies.
5)
The decentralization contract between parent's and business, which is the stage where
the company decentralizes by delegating authority and responsibility to subsidiary
managers.
The company not only recognizes the parent company in addition to its characteristics,
but also must recognize the discrepancies that often appear in the characteristics of the
parent company, including its business success factors. So, to better know the characteristics
of the parent company can be seen through the following things, namely:
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a.
Does the parent company have the characteristics of capabilities, resources and management
processes?
b.
Can the parent company fulfill parenting opportunities within the subsidiary?
c.
Can the parent company explore and benefit from the relationship with the subsidiary?
d.
Is there a mismatch between the characteristics of the parent company and the critical
success factors of the subsidiary?
1.4
Parenting Fit Matrix
This parenting approach describes fit in a matrix. This matrix is referred to as the
parent matrix. The horizontal line of the matrix shows how well the parent characteristic
matches the parenting opportunity in the business. Meanwhile, the vertical line illustrates
the existence of fit between the critical success factors and parenting characteristics of each
subsidiary of the company's business portfolio contained in the matrix.
The business portfolio will be put into a matrix and the fit between the parent company
and the subsidiaries will be examined. So that it can be seen whether their proximity will
build value or destroy value. The matrix will also explain about corporate diversification and
critical success factors. Each position in the matrix can be implied into the corporate
strategy.
According to Campbell et al. (1995), there are five positions or areas in the parenting
fit matrix, namely heartland, edge of heartland, ballast business, alien territory business and
value trap business. Based on Figure 4, as for the explanation of the parenting fit matrix
which is as follows:
a.
Heartland
Subsidiaries within this area have a high degree of conformity. Subsidiaries with
growth opportunities in accordance with the capabilities of the parent company. In this
business, the business unit has the advantage of the behavior and value insight of the parent
company. The parent company is able to understand the critical success factors of the
subsidiary so as to reduce the possibility of value destruction in the subsidiary. Edge of
Heartland
These areas show that the subsidiaries have a high level of conformity. Meanwhile, some
other aspects have a low level of fit. Hence, the parent company can both create value and
destroy value in the subsidiary.
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b.
Ballast Business
In this area, businesses that have low prospects and create selling points in the future, but fit
the parent method can be placed in this position.
c.
Alien Territory Business
This area indicates that the parent company's potential to destroy value is greater than its
ability to add value. However, many companies do not divest such subsidiaries as they still
have future growth potential.
d.
Value Trap Business
This area shows that the business matches the parenting opportunities of the parent
company, but does not match the critical success factors. In addition, the parent company
has a low level of conformity with the critical success factors of its subsidiaries.
1.5
Analytical Hierarchy Process (AHP) Method
Alternative strategies that have been formulated using the parenting fit matrix method
with influential factors will be formulated with an acceleration strategy using the Analytical
Hierarchy Process or AHP method, so that strategic steps to determine priority strategies
that can be applied by PGN as a parent company to Saka as a subsidiary can be realized and
executed according to the level of urgency. According to Firdaus et al. (2016), the AHP
method can solve multicriteria complex problems into a hierarchy. These complex problems
are the criteria of a problem that is so much, the structure of the problem is uncertain and
unclear, decision making is more than one person and the inaccuracy of the available data.
To support decision-making for management, many multi-criteria techniques, both
isolated and integrated, have been used. Among them, AHP stands out as the most
frequently used (Dos Santos 2019). According to Saaty (1993), a hierarchy is the description
of a complex problem in a multi-level structure, where the first level is the goal, followed by
hierarchical factors, sub-criteria, etc., until the final level of alternatives. With a hierarchical
structure, a complex problem can be decomposed into several groups, then arranged in the
form of a hierarchy, so that the problem will appear more organized and systematic.
1.6
Previous Research
Research conducted by Astiwahyuni (2017), namely Analysis of Parenting Fit PT.
Professional Development Abadi Jaya in the Business Group of PT. GA Link Group there
are several parenting characteristics with high parenting fit with critical success factors and
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parenting opportunities. Furthermore, there are subsidiaries that are in the edge of heartland area,
even though the company has the opportunity to experience a change in position towards the
heartland area, so the company needs to intervene. Munir (2010), conducted research on Parenting
Fit in Multibusiness Companies: Case Study of "Transportation" Group. The research shows that the
company has the characteristics of the parent company and the characteristics of the subsidiaries, it
can be seen that there is a conformity of characteristics between the parent company and 19
subsidiaries, but there is no conformity of characteristics with one subsidiary. The suitability of
parenting in subsidiaries is caused by image and quality which are the determining factors of success
that make the parent company have the opportunity to carry out parenting according to its
capabilities. Then, PT. "Transportation" subsidiaries are not included in the heartland area, but are in
the ballast area, and some are even in the alien terriroty area. This shows that the parent company's
parenting opportunities for subsidiaries vary in strength and form of parenting patterns.
Asikin et al. (2021), conducted research on the Parenting Strategy of PT. Pupuk
Indonesia (Persero), research shows that subsidiaries in the core business group are parented
using corporate development and linkage influence patterns. The subsidiary is not in
accordance with the parenting characteristics of the parent company, nurtured with the
linkage influence pattern. While newly established subsidiaries are parented with stand alone
influence, except for PT Pupuk Indonesia Energi, which is parented with the linkage
influence pattern. This research requires a more thorough level of fit for subsidiaries because
the use of the parenting fit matrix has limitations stemming from the subjectivity of
executives at PT Pupuk Indonesia.
Galpin (2019), conducted research on Strategy Beyond the Business Unit Level: Focus
on corporate nurturing, the object of this research is the growth of 93 companies before and
after entering Fortune between 1995 and 2996. This study uses the Ansoff Matrix method
which offers four basic alternatives available to companies based on their market and
product choices and uses the VRIO (Valuable, Rare, Inimitable and Organized) method to
determine the criteria for a corporate parenting approach for competitive advantage. It was
found that diversification is a growth strategy that is widely practiced by companies.
However, the diversification strategy has a nurturing approach that does not focus on
creating competitive advantage. In contrast, building core competencies by embedding
integration capabilities in the company's organization to use a corporate parenting approach
that focuses on providing valuable, rare and incomparable advantages for diversification
strategies.
Research conducted by Purwanto et al. (2021) regarding Parenting
Strategy Implementation Model in PT Telkom Indonesia by using the Parenting Style
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method by Nilsson which connects the parenting strategy method with the financial control
method. Based on these results, it is found that most of the Telkom Group business units as
many as 14 business units are in the Heartland Business group, 11 business units are in the
Ballast group, 6 business units are in the group. Value Trap Business and 1 business unit in
the Alien Business group. If Telkom Group wants to maintain business units for the Value
Trap Business and Alien Business groups, it is included in the company's long-term program
with a test if one day the opportunity becomes more apparent, then the business unit can be
shifted and included in the Heartland Business group.
Research by Agbeche and Okechukwu (2021), looks at corporate parenting in the
Covid-19 pandemic era as a strategic tool for value creation. The research sees that Covid-
19 affects value creation and uses strategic guidance, synergy managers, financial managers
and financial sponsors, and functional leadership as a way to provide parenting roles by
subsidiaries or corporate entities. The purpose of the study was to determine whether during
the Covid-19 pandemic most corporate organizations were unable to perform their nurturing
function. The results explained that top management should ensure that the parenting style
should inspire the best for their subordinates and increase the support needed for success
now and after the Covid 19 pandemic. In addition, organizations should create an enabling
environment that allows subdivision offices to obtain financing without relying on the
corporate headquarters.
1.7
Framework of Thought
This research uses a descriptive analysis approach. Descriptive study is a research
that will answer the questions what, when, who, where, and how. In general, descriptive
studies involve data collection activities and create a number of time distributions for
researchers to observe certain events or characteristics (Cooper and Schindler 2014). From
the research framework, it can be seen that PGN formulated the current corporate parenting
strategy by looking at parenting characteristic variables and formulating critical success
factors and parenting opportunities factors on Sakak, then formed a parenting fit matrix to
determine the position of the subsidiary and formulated a corporate strategy. After
determining the corporate strategy, the formulation of priority strategies is carried out using
the AHP method, so that the implication is the priority strategy that PGN will carry out to
Saka.
16
3.1
Data Processing and Analysis Techniques
3.1.1
Parenting Fit Matrix
The analysis conducted in the study used the Parenting Fit Matrix (Campbell et al.
1995). Parenting excellence as a research topic has garnered much academic research for
more than a quarter of a century. Due to the strategic implications, fields of study such as
strategic management and corporate strategy have integrated parenting advantage into their
textbooks; as has the MBA curriculum in various business schools. It is now a standard
feature in management literature (Piyawongwathana and Sak Onkvisit 2021). The
framework is used to identify the level of conformity between the critical success factors and
parenting opportunities owned by each subsidiary under PGN with the characteristics of the
parent company itself, the parenting characteristics of PGN.
The following are details of the steps taken to identify critical success factor
variables, parenting opportunities and parenting characteristics:
1)
Identify Saka's critical success factors and parenting opportunities.
2)
Identify indicators related to parenting characteristics at PGN as the parent company.
3)
Furthermore, these variables are given a weight by Saka not exceeding 1 and given a
rating by PGN with a value of 1 to 5.
4)
After the weight and rating are obtained, the multiplication between weight and rating
is carried out to produce a value. The results obtained to determine the value of the x-
axis, namely the suitability between parenting opportunities and parenting
characteristics, and the y-axis for the mismatch between critical success factors and
parenting characteristics.
5)
Finally, the results of Saka's mapping in the matrix were obtained. In the parenting
suitability matrix, mapping is carried out to analyze Saka's position in the corporate
portfolio in the Heartland Business, Edge of Heartland Business, Ballast Business, Value
Trap Business, and Alien Territory Business area criteria. The results of this mapping as
an evaluation of parenting suitability are useful for providing an overview of the level of
compatibility between PGN and Saka.
3.1.2
Analytic Hierarchy Process (AHP) Method
The questionnaire required will obtain information that can formulate corporate
strategies using the parenting fit matrix method, then determine priority strategies that can
17
be carried out by PGN as a parent company to Saka as a subsidiary to develop. The selected
respondents are Saka Managers and the filling of the rating is carried out by PGN Corporate
Strategy Advisors who are experts in the science to be studied and have a stake in the object
of research. For the purpose of this research, it focuses on one of the Multi-Criteria Decision
Making (MCDM) methods referred to as Analytic Hierarchy Process (AHP) and shows that
AHP is very likely to provide a rating of options that is unacceptable to a rational person.
AHP is a multi-criteria decision-making method based on the logic of pairwise comparison
of criteria, rather than evaluating all criteria together, in problems involving multiple criteria
and alternatives (Akdeniz et al.2023).
The amount of academic research considering improvements/applications in the field
of multi-criteria decision making (MCDM) has been
is increasing in the literature day by day. Among these works, the most widely used MCDM
method is undoubtedly AHP (Cebi et al. 2023). The AHP method allows the evaluation of
many criteria. In addition, this method is found suitable for use in research due to its
effective, easy-to-understand, and flexible structure that can be easily adapted to changes
(Deretarla et al. 2023). In the application of the AHP method, the number of respondents has
a minimum limit of 2 respondents in accordance with Saaty's (1993) opinion, so that the
application of this method prioritizes the quality of data from respondents, not the quantity.
Analysis of determining priority strategies with the AHP method is carried out to determine
the best alternative strategies according to importance (Jas et al. 2023).
AHP analysis has the convenience to be widely applied in important decision-making
processes, including the search for the best strategy alternatives carried out in this study as a
reference in similar studies. The following is a hierarchy of alternative selection of Saka
corporate strategies to increase profits for PGN as the parent company presented in Figure 8.
The analytic hierarchy method (AHP), developed by Saaty is a powerful multicriteria
decision-making tool that has been used in the various applications in various fields of
economics, politics, and engineering (Leal 2020). The AHP method is a measurement tool
used through pairwise comparisons that rely on judgments from experts or experts to obtain
a priority scale (Asadabadi et al. 2019). The working principle of the AHP method is the
simplification of a complex problem that is not structured, dynamic and strategically
organized in a hierarchy. To answer the problem, a scale of 1 to 9 is the best scale in
building ideas and opinions according to the value and description of qualitative opinions
from Saaty's comparison scale.
18
1.1
Overview of PT Perusahaan Gas Negara Tbk
1.1.4
Company Profile
On May 13, 1965, Perusahaan Gas Negara (PGN) was officially appointed as a State
Company based on Government Regulation No. 19 of 1965, and in 1984 its business form
was changed to Public Company (Perum). In order to optimize the competencies and
strengths that have been developed so far, namely by taking advantage of future business
development opportunities, PGN formed Subsidiaries. The only upstream subsidiary is PT
Saka Energi Indonesia, while the downstream subsidiary is PT Gagas Energi Indonesia.
Since 2018, the formation of the tagline "A Member of Pertamina" explains that
PGN's position is part of Pertamina in line with the Government's initiative to form the Oil
and Gas BUMN Holding. PGN, as the Gas Subholding, conducts all downstream natural gas
business process activities, starting from procuring natural gas supplies from all domestic
and international sources as well as managing the infrastructure carried out by itself or by its
Subsidiaries to the distribution of natural gas to all end-user segments.
PGN as the Gas Subholding incorporates the entire natural gas infrastructure in
Indonesia and strives to expand energy access. Currently, PGN has operated its activities in 67
regencies and cities, in 17 provinces in Indonesia and continues to open new areas. Until
December 31, 2021, PGN operates in 17 provinces consisting of 67 regencies and cities.
PGN's infrastructure operations are carried out by the Operation and Maintencance
Management Group. The distribution and trading business is carried out by the Sales and
Customer Management Group and the Sales and Operations Region (SOR), which is
divided into SOR I, II and III. The regions can be seen in Figure 8.
Based on Figure 1, SOR I covers Sumatra and Riau Islands, which includes Medan,
Palembang, Lampung, Pekanbaru, Dumai, Batam and surrounding areas. The SOR II region
consists of West Java, DKI Jakarta, Banten, Indonesia Region, Indonesia. Central, which
includes Jakarta, Bogor, Tangerang, Cilegon, Bekasi, Karawang, Cirebon and surrounding
areas. Finally, the SOR III region consists of East Java, East Java, Bali, Nusa Tenggara,
Eastern Indonesia Region, which includes Surabaya, Blora, Sidoarjo, Pasuruan, Semarang
and surrounding areas.
PGN has been operating for 56 years since it was established as a state company.
Today, PGN has become a pioneer in the field of natural gas transportation and distribution.
In the synergy of PGN Group, PGN applies a nurturing pattern, acting as 'Active Advisor'
and 'Key Manager' for each subsidiary or affiliate in accordance with the theory of
19
Jaruzelski et al. (2011) on corporate culture, which is key to maintaining the company's
competitive advantage. This task aims to ensure that all Corporate Social Responsibility
programs (Awaysheh et al. 2020) are aligned with the goals and objectives of the program
and PGN Group's budget.
4.3
Overview of Parenting Patterns of PT Perusahaan Gas Negara Tbk
Currently, PGN nurtures all of its subsidiaries with a Key Manager or Active Advisor
nurturing pattern that is sectoral policy for PGN. This pattern is adapted from Jaruzelski's
Theory (2011), which focuses on the organizational culture that is key to strategic
implementation and supports innovation. In the conglomeration model between PGN and
Saka, from the market side; Saka cannot sell products to PGN's clients, because Saka has a
different business nature from PGN. Thus, only production from Kepodang Field is
purchased by PGN, the rest is purchased by external parties.
Output produced by subsidiaries under PGN Group can be sold outside PGN.
However, Saka cannot automatically sell its products to PGN. Saka's business is regulated
through regulations in the upstream oil and gas sector, where there are certain mechanisms
that Saka must carry out when selling its products. This is done by Saka itself.
Financially, Saka only has independent funding sources from outside PGN, so PGN
can only provide assistance in the form of loans to Saka. In terms of inefficiency, Saka has
full responsibility in terms of cost efficiency. In terms of operational risk, PGN does not bear
the burden of the risk accepted by Saka, because most of Saka's production is sold to parties
outside PGN Group.
4.4
Identification of Parenting Characteristic of PT Perusahaan Gas Negara Tbk
Parenting characteristics are some of the important characteristics or success factors
owned by corporate companies that become the competitive advantage of corporate
companies so as to provide advantages for value creation efforts to subsidiaries. The
characteristics of the parent company can be measured from several factors, namely the
mental map or mindset of the company; structure, systems and processes; main functions,
services and resources; resources, experience and managerial capabilities of the parent
company, as well as decentralization contracts.
The process of identifying parenting characteristics is based on interviews and
discussions with Advisor Corporate Strategy, who works under the board of directors of the
parent company. Advisor Corporate Strategy plays a role in making strategic management
20
decisions in accordance with the issue, and participates in monitoring the performance
management of all subsidiaries under the PGN Group. The identification results state that
PGN as the parent company has the following important characteristics:
a.
Company Mindset
In terms of governance, PGN applies a portfolio management model to Saka, meaning
that only in certain aspects will the parent company participate in decision-making at Saka.
The main ones are matters related to strategy and investment. Meanwhile, more operational
aspects will be handed down to Saka as a subsidiary.
Furthermore, PGN will establish sectoral policies that are alignment and joint utilization.
For example, related to information technology. PGN's IT team has policies related to IT
services for PGN Group. This is done in the context of security and efficiency, so it must be
followed by all PGN Group members. Another example is related to Health, Safety, Security
and Environment (HSSE), where PGN as the parent company has standards related to HSSE
that must be referred to by all members, because when an incident or work accident occurs
in a subsidiary, it will have an impact on HSSE in PGN as the parent company. The sectoral
policy is the policy of each PGN function in all subsidiaries. This sectoral policy is Key
Manager or Active Advisor in nature.
b.
Management Structure
For PGN's management structure as the parent, there is a mechanism applied by PGN to
create corporate value. The nature of Saka's business is different from PGN, so the pattern or
business process is also different. Human resources with upstream oil and gas competencies
are directly recruited by Saka and placed in Saka, while PGN as the parent does not recruit
personnel who have the same competencies as Saka personnel.
PGN will only manage Saka on a portfolio basis, which means that only in certain aspects
will PGN 'interfere' in Saka's decision-making. This is mainly related to strategy and
investment. Other than that, many operational aspects will be handed down to Saka without
intervention by the Parent Company.
For example, in the corporate spending process, all subsidiaries receive all of their capital
from PGN; in the form of equity and shareholders loans. However, Saka is the only PGN
subsidiary that has externally sourced capital. Currently, Saka's capital structure consists of
Equity (paid-up capital of PGN), Shareholders Loan (Loan from PGN), Bond (Bond) and
external loan from Bank. In addition to the capital, PGN can encourage Saka to increase the
value of the company so that later it can provide capital gains for PGN.
21
c.
Key Company Functions
Saka is a full cycle company run by Saka itself and only a few things or resources from PGN
as the parent that can be shared by Saka.
d.
Resources, Experience and Managerial Capability
Saka is an upstream oil and gas company whose business nature is different from its
parent, so the competencies and capabilities that must be owned are different. Resources
with upstream oil and gas competencies are directly recruited and placed by Saka. While on
the parent company side, PGN does not recruit personnel who have the same competencies
as Saka personnel. Resources to manage the upstream business are expensive and costly, so
if there are redundant resources, it will lead to inefficiency. Thus, all resources required by
Saka are already available in Saka and Saka can independently run its business.
e.
The Decentralization Contract
Among the duties and responsibilities of PGN's directors, Saka runs its own production
aspects without any delegation of duties and responsibilities from PGN as the parent.
4.5
PT Saka Energi Indonesia's Critical Success Factors Conformity with
Parenting Characteristic of PT Perusahaan Gas Negara Tbk
The first component carried out in analyzing the subsidiaries in this study is to identify
the components of PT Saka Energi Indonesia's critical success factors. Critical success
factors are factors that determine the success of business units that help improve company
performance and create competitive advantages. The process of identifying critical success
factors at Saka was carried out through interviews with Saka Managers.
The next suitability assessment is a rating process for the critical success factor
components. The rating process was carried out by discussion and filling out a questionnaire
by Advisor Corporate Strategy which is an expert from the parent company, PT Perusahaan
Gas Negara Tbk.
The assessment weight of each subsidiary's critical success factor variable is carried
out with the criterion that the total assessment weight does not exceed 100%. Then the
process of rating the level of conformity between each component of Saka's critical success
factor and PGN's parenting characteristics carried out by the parent company management
with the following rating criteria:
22
1 = Very unsuitable
2 = Not suitable
3 = Less suitable
4 = Appropriate
5= Very suitable
Based on the results of interviews and questionnaires submitted by Saka management,
the weight given to each critical success factor variable that has been previously identified
can be presented in Table 4 below:
Based on expert opinion from PGN as the parent company, risk management is the main
factor in determining Saka's success based on the rating. Given the age of the blocks, the
blocks operated by Saka have various challenges to keep achieving the production targets set
by the company. Various strategic plans have been determined that require high investment,
especially with the condition of production facilities that require high maintenance. So, this
raises various potential risks that if not managed properly can cause production failures,
losses or even work accidents.
For policies carried out by the parent company related to risk management, each year
the identification of risks that can cause losses, both those that have implications for the
company's operations and finances and the preparation of mitigation plans. In the
preparation of risk management, it is based on the Company's Work Plan and Budget
(RKAP) which has been approved by the parent company. The mitigation plan is set,
implemented and monitored regularly with the aim of minimizing the risks that will occur
and reducing the impact of losses incurred on existing risk exposure.
The management of the parent company considers that it is basically in accordance
with the characteristics of the oil and gas business, which is a high-risk business. Therefore,
PGN as a corporate company is very concerned about the risk management of its
subsidiaries. This is evidenced by the provisions of risk management that are required for all
functions in PGN and its subsidiaries. The realization of mitigation of the risks that have been
prepared becomes the Key Performance Indicator of each management in the subsidiaries.
Cost Reduction carried out by Saka supports the parent company's corporate efficiency
program amid the fluctuating world crude oil price.
The next major factor in determining Saka's success based on the rating is health,
safety and environment. In every business activity, Saka is committed to determine the
standards and practices of Health, Safety and Environment (HSE) and Security as an integral
23
part of the company's work ethics. In the ongoing health program, Saka has met the
requirements of occupational health regulations, both national and international. Various
industrial health and hygiene programs that have been successfully implemented in 2021 are
health risk assessment; control of infectious diseases in the workplace including Pandemic
Covid-19, Influenza, HIV/AIDS; wellness; health campaigns; on-site health services and
public health. This is done based on the standards set by PT Perusahaan Gas Negara Tbk as
the parent company that must be referred to by all subsidiaries. This standard is set because
if a work accident occurs in a subsidiary, it will have an impact on the health, safety and
environment in PGN Group.
The safety challenges faced by Saka in the previous year came from a number of
high-risk operations, such as onshore drilling in West pangkah, offshore drilling activities in
Sidayu, preventive maintenance shut down activities onshore and offshore, well intervention
campaigns and other risky activities that require attention and all functions in the company
organization. In 2021, Saka successfully maintained its HSE and Safety objectives of no
fatalities, no major accidents, no security disturbances, no well blowouts and no
environmental pollution. This proves the company's continuous efforts to prevent serious
incidents during exploration and operation activities in the work area.
Furthermore, based on the scoring results by multiplying the weight with the rating
above, a final value will be obtained which reflects the level of conformity between the
critical success factors of PT Saka Energi Indonesia and the parenting characteristics of
PGN as the parent company which is presented in Table 6 below:
4.6
Corporate Strategy Formulation at PT Saka Energi Indonesia
This research is aimed at determining the priority of corporate strategy at Saka, which
has the main need to increase profit contribution for PGN as the parent company. The
selection of Analythical Hierarchy Process analysis in the research has a reason to be able to
identify multicriteria problems that can be simplified in the form of a hierarchy consisting of
goals, factors, objectives and alternative strategy choices. In the hierarchy, a complex
problem can be grouped and then organized to appear more systematic and structured.
AHP analysis in this study was conducted using
The most influential factor in corporate strategy is risk management. Saka implements
comprehensive governance to realize stakeholders' expectations, the company's vision and
mission, improve compliance with laws and regulations and business ethics values that apply
24
in the upstream oil and gas industry. Thus, Saka emphasizes the importance of risk
management to ensure proper decision making. In every activity, Saka identifies all potential
risks and considers mitigation efforts. All risk analysis is well collected so that the review
process can be evaluated properly. In accordance with the provisions stipulated in PP 5 of
2021, what is termed Risk-Based Business Licensing, which is the legality given to business
actors to start and run their businesses and activities based on the level of potential incidence
losses from a hazard or a possible combination of hazard outcomes (DG Oil and Gas
Performance Report 2021).
Risk management is an integral part of Saka's operational activities that affect the
company's business results and performance. The Risk Management Policy and Risk
Management Manual within Saka refer to ISO 31000:2018 and the Risk Management
regulations of Holding Oil and Gas and SubHolding Gas with the following details:
a.
Saka implements the principles of good corporate governance, namely transparency,
accountability, responsibility, independence and fairness,
b.
Risk is referred to as an event that may occur in the company's business activities in
achieving its business goals.
c.
Each risk is managed optimally by utilizing company resources so that it remains within
the company's risk tolerance limits.
d.
Each stakeholder has a role in risk management in accordance with their respective
responsibilities.
e.
Continuously improve the risk management system in accordance with current
conditions and encourage all employees to develop and maintain a risk-aware culture in
maintaining company value and stakeholder trust.
Saka's Board of Directors is committed to managing and organizing risk management
efficiently and effectively. Therefore, the evaluation of risk management implementation
ensures that it is implemented effectively and supports organizational performance. Saka
conducts risk maturity measurement in risk management in collaboration with its parent
companies, PGN and Pertamina. In the maturity measurement, Saka developed assessment
aspects based on ISO 31000:2018 risk best practices. This program is a measurement of the
effectiveness of risk management implementation in order to provide direction for the risk
management system in order to provide direction for Saka's risk management system with
the following objectives:
25
a.
Receive an explanation of the state of risk management implementation and identify
aspects of risk management framework planning.
b.
Receive complete data on risk implementation gaps in the company.
c.
Receive direction (Strenght and OFI), direction, and suggestions for improvement in the
context of implementing risk management in the future.
In addition to risk management, Saka's directors are committed to risk mitigation. The
effort is to handle disaster risks, both through physical development and awareness, and
increase the ability to face disaster threats and uncertainties that may have an impact, both
on the examiner and the object being examined. Risk mitigation is described in detail
through an action plan so that it can be monitored and updated according to predetermined
targets, especially high level risks. The following are risk mitigation actions against risk
levels:
a.
At the "High Risk" level risk, which is a risk that threatens the achievement of the company's
objectives in handling risk by avoiding the risk of not carrying out activities or stopping
activities that increase risk.
b.
At the "Moderate to High risk" level, which is a risk that is dangerous and rarely carried out
Risk management by sharing the risks faced with other parties, in this case through
insurance coverage.At the "Moderate Risk" level, which is a risk that occurs regularly by
reducing the possibility and impact of risk, such as improving procedures, forming new
policies, replacing or buying new equipment and others.
c.
At the risk level "Low and Low to Moderate Risk", which is a risk that is not dangerous, risk
management is carried out by maintaining the level of risk that occurs and is still within the
risk tolerance limit and maintaining or managing it so that it does not become to a higher
level.
Saka currently has two watchlist projects, namely the West Pangkah Project and the
Sidayu Project, whose risks are regularly monitored by Saka as well as by PGN and
Pertamina as the parent company. Both watchlist projects have unique characteristics,
namely the West Pangkah Project which has production facilities built on a former firing
swamp (onshore), while the Sidayu Project is built in shallow sea (offshore). From the
development of the field area, to the construction of production facilities, to drilling, each
project has different risks and handling. Thus, risk management is an important factor in the
upstream oil and gas business.
The second factor that affects corporate strategy is technology. One of the factors that
influence the success of exploration is to improve technology management. Improving the
26
capability of production facilities is aimed at reducing errors and production disruptions,
given that the majority of existing production facilities are quite old. Saka is committed to
achieving the company's vision by implementing several policies and strategies, namely: (1)
Safety Culture, which ensures that the company operates safely and protects the environment
in accordance with applicable regulations and (2) Managing Asset Integrity, which ensures
that the asset integrity, reliability and availability of production facilities in off shore and
onshore remain useful to support organic growth. In 2021, Saka conducted a shutdown at
WK Pangkah to ensure the reliability and availability of equipment so that it is feasible to
operate safely and (3) Innovation, namely through the application of metal-to-metal-
reconnection technology in the re-entry of WK Sidayu more quickly, safely and efficiently,
Saka became the first upstream oil and gas company in Asia Pacific to apply this energy.
Furthermore, Saka seeks to apply new technology to wells through put-on- production
without drilling.
The last influential factor in corporate strategy is Efficiency. During the transition to
renewable energy, the use of oil and gas will continue to be optimized as an effort to
improve the efficiency of oil and gas transportation from one place to another. Saka must
prepare strategies to deal with the implementation of ESG and green energy through optimal
energy selection, renewable energy exchange and energy diversification.
The efficiency factor is important for Saka. In the midst of economic recovery due to
the Covid-19 pandemic, Saka directed the Board of Directors to prioritize the principles of
On Time, On Budget, On Scope, On Return (OTOBOSOR) in carrying out operational
activities, manage costs in a disciplined manner, uphold integrity, maintain adequate capital
and liquidity to increase production and revenue through exploration and production
activities. In addition, Saka realized operating expenses (opex) below the predetermined plan.
In 2021, Saka managed to maintain a natural decline in production of more than 30% to 20%
per annum. The increase in production and efficiency was accompanied by an increase in
commodities, both oil, gas and LPG, which improved Saka's performance.
Efficiency factors related to operations have been pursued by Saka through coordination
with PT Pertamina Hulu Energi (PHE) to accelerate the development of South Sesulu to
improve operational performance efficiency. Saka is also assessing divestment options to
improve the company's financial ability to finance operations and exploration activities and
settle the company's financial liabilities. Currently, Saka has managed to maximize lifting
above 100% when prices have increased. This is in accordance with the DG Oil and Gas
policy in the DG Oil and Gas Performance Report (2021) to increase oil and gas lifting,
27
namely: (1) Through simplification and ease of licensing to increase upstream oil and gas
investment, (2) Expansion and improvement of one-door service policies, (3)
Transformation of resources to reserves, (4) Maintaining high levels of existing production,
accelerating chemical Enchanced Oil Recovery (EOR), and (5) Conducting exploration for
the discovery of large reserves.
4.8.2
Prioritization of Objectives that influence corporate strategy at PT Saka Energi Indonesia
Against Factors
Based on the 3 factors that have been determined in the corporate strategy at PT Saka
Energi Indonesia, there are 3 factors, namely risk management, technology and efficiency.
The following is a table of global prioritization of factors against objectives as follows:
Based on the table related to the factors in each goal that influence the corporate
strategy of PT Saka Energi Indonesia, the goal that affects the corporate strategy is the
optimization of existing asset production with the highest value reaching 0.457. Saka aims to
increase production growth, reserves and financial capability. This goal is implemented by
focusing on the development of Saka's assets, namely organic growth through strategic
initiatives in the form of optimizing the production of existing assets operated by Saka
through well drilling step out and rework. This is in accordance with the policy implemented
in the DG Oil and Gas Performance Report (2021), which is to maintain high levels of
existing production. This optimization goal is realized with organic growth by Saka which
focuses on developing operating fields in an effort to increase production and reserves as
well as providing added value and maximizing Saka's self-managed assets. This goal is
expressed in various activities, including geological and geophysical studies, drilling new
wells and workovers, and well service for producing wells. In accordance with the
Directorate General of Oil and Gas Performance Report (2021), the Directorate General of
Oil and Gas' efforts to maintain oil and gas production levels for the following year are
through optimizing the production of existing fields, including through infill drilling and
workover.
The next goal that affects corporate strategy is exploration success with a value of
0.365. Currently, Saka is increasing exploration activities to obtain new discoveries.
According to PGN's Annual Report (2021), Saka carries out production and exploration
activities on its portfolio of oil and gas blocks.
In 2021, Saka's lifting performance reached 8.8 MMBOE, an increase of 1.3
28
MMBOE or 18% compared to 2020 which was recorded at 7.5 MMMBOE. This increase
was greatly influenced by the successful production of two new wells owned by Saka,
namely West Pangkah and Sidayu. In February 2021, production resumed at the Muriah
block. The increase in revenue greatly affects the profitability of the oil and gas exploration
and production business segment. The success of exploration is the company's commitment
to the government in developing oil and gas fields,
The last goal is to improve and learn to drive production and increase the efficiency
of the company's operational costs with a score of 0.177. In 2021, Saka was accompanied by
various positive achievements. Therefore, Saka has a Long Term Plan (RJPP) until 2026,
which has considered and anticipated external factors and other important assumptions that
may affect Saka's performance in the future. Every year, the Board of Commissioners
monitors and evaluates the results of the RJPP implementation and provides preventive advice
and direction Improvement. In the future, the challenges faced by Saka will be more severe
as Saka's financial liabilities mature, which has the potential to reduce the company's
financial capacity, especially in future business development. According to Saka's Annual
Report (2021), Saka has prepared several strategies to mitigate and optimize the company's
capabilities, namely by divesting assets by maintaining the principles of Good Corporate
Governance and through in-depth studies, establishing cooperation with Pertamina Hulu
Energi and synergizing with the PGN Group. So, this is expected to produce oil and gas and
monetize more efficient operational costs without impairment in marginal fields.
4.8.3
Results of Analysis of Alternative Corporate Strategies to Improve Company
Performance based on AHP
Based on the synthesis of the results of expert justification using AHP, it can be seen
that the final goal of this research is to identify priorities based on alternative corporate
strategies to improve company performance which are formulated into 3 alternative
strategies. The table is a selection of alternative strategies that can be used by PT Saka
Energi Indonesia which has the main need to increase profit contribution to PT Perusahaan
Gas Negara Tbk as the parent company.
The main strategy that must be done immediately is to accelerate the development of
new field projects in Saka-operated assets that have received government Plan of
Development (POD) approval with a value of 0.536. Currently, the government is carrying
out activities to improve regulations to provide investment certainty in the oil and gas sector.
29
In line with the Directorate General of Oil and Gas Performance report (2021), the upstream
oil and gas industry is an industry that requires risk and uncertainty, so that in order to get
investment so that production continues to increase, risk and uncertainty can be minimized.
So, accelerated project development in new fields is carried out to carry out fiscal stimulus.
Currently, the government no longer prioritizes the amount of production sharing (split) for
the state, but directs it to encourage oil and gas projects to run through providing incentives
for several POD Development Plans that have been considered uneconomical for
contractors.
The second alternative strategy is to increase exploration activities to obtain new
discoveries with a value of 0.284. This strategy is in line with the Directorate General of Oil
and Gas Performance Report (2021), namely the Reserve to Production Target. The Oil or
Gas Ratio in 2023 and 2024 is 71 Billion Barrel of Oil Equivalent (BBOE). The last
alternative strategy is to conduct metal to metal casing to improve gas leak resistance with a
value of 0.179. Saka through the application of metal to metal reconnection technology in
re-entry work at WK Sedayu efficiently, faster and safer. Thus, this technology can be
applied evenly throughout Saka's operating areas. Saka is the only first upstream oil and gas
company in Asia Pacific that has implemented this technology. So, in the future Saka will
apply the new technology to wells that have been explored through put-on- production
without drilling. Furthermore, regarding operational performance, it is necessary to
accelerate activities in South Sesulu to improve operational efficiency. The Board of
Directors seeks to synergize with PT Pertamina Hulu Energi (PHE) to assess divestment
options to improve the company's financial ability to finance exploration and operation
activities and manage the company's financial liabilities.
4.7
Managerial Implications
The results of this study indicate that the managerial implications are manifested as a
formulation of Saka's strategy in carrying out a company activity program that is suitable for
achieving company goals in providing profits for the parent company, PGN. Based on the
analysis of Saka's portfolio position in the parenting fit matrix, the results show that Saka is
in the edge of heartland area. In this position, Saka will be directed to be in the heartland
position, which is a position where the subsidiary is prioritized for all company activities
and becomes the company's core business in the future. To achieve the heartland position,
PGN can do two things, namely
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(1) Studying aspects regarding the competencies that Saka must have to manage its business
and (2) PGN needs to know the momentum when to let Saka's partners or executives make
strategic decisions related to business aspects that it does not master. In this area, a
prioritization strategy was formulated for aspects related to the urgency of Saka to provide
profits to PGN by prioritizing the work plan to be carried out by Saka.
Saka's strategy in improving the company's financial capability by accelerating the
development of new field projects in assets that have received Plan of Development (POD)
approval from the government to increase Saka's crude oil and gas reserves and production
to meet domestic energy needs. Currently, Saka continues to develop new field projects in
Pangkah PSC and bring Muriah PSC block back into production. In addition, Saka provides
full support to its non-operating assets for fiscal stimulus.
Saka's next strategy is to increase exploration activities to find new oil and gas
reserves. This is done as an effort to increase the oil and gas availability index. According to
the Directorate General of Oil and Gas Performance Report (2021), several efforts will be
made by the Directorate General of Oil and Gas, among others, through increasing oil and
gas reserves, oil and gas production and operating reserves for fuel and LPG. Thus, efforts to
maintain the level of oil and gas production for the following years are carried out, among
others increased exploration activities onshore and offshore (including deep sea) to increase
oil and gas reserves. Currently, Saka operates two offshore oil and gas blocks in the
Offshore North East Java (ONEJ) region. Operating activities in both blocks will increase in
line with the implementation of a massive national oil and gas exploration and production
program by SKK Migas to achieve a production target of 1 MMBOE per day by 2030.
The last alternative strategy is metal to metal casing to improve gas leak resistance.
Saka through the application of metal to metal reconnection technology in re-entry work at
WK Sedayu efficiently, faster and safer. Thus, it is necessary to apply metal to metal casing
technology in all of Saka's working areas. Saka takes advantage of the momentum of rising
commodity prices by increasing production through drilling and developing wells
appropriately and efficiently, one of which is by applying appropriate new technology and
optimizing operating costs.
In this study, Saka as a subsidiary or affiliate of PGN has many advantages to be part
of PGN, namely being part of PGN means being part of the Pertamina Group. In Pertamina
Group, there is an Upstream Subholding, namely PT Pertamina Hulu Energi, this is an
opportunity for Saka to share and transfer knowledge in the work area, so that Saka gets the
opportunity to expand its network. In addition, Saka gains trust from external parties (e.g.
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banks) to lend capital to Saka because it carries the name of Pertamina Group and PGN
Group. So, Saka needs to implement these alternative strategies to be able to provide profit
and attribution to PGN as the parent.
4.8
Research Limitations
Based on the results of this study, there are limitations experienced and become factors
that need to be considered for further research to perfect this study. Some of the limitations
in this study include: (1) The number of respondents and experts which only consists of 2
people, so that it is not optimal in explaining the real picture of the company, and (2) The
number of respondents and experts who are only 2 people.
(2) The object of research on subsidiaries consisting of only one company, so the results
cannot be compared.
CONCLUSIONS:
Based on the results of the research that has been carried out, it is concluded that:
1.
Critical Success Factors at PT Saka Energi Indonesia as a subsidiary are risk
management, technology, efficiency, effective human resource management and Health,
Safety & Environment (HSE). The scoring results that show the level of conformity of
Critical Success Factors with the Parenting Characteristic of PT Perusahaan Gas Negara
Tbk is 3.4. These results indicate that Saka has a fairly high level of compatibility with
PGN. However, there are characteristics that are still not in accordance with the parent
company, namely technology.
2.
Parenting Opportunities at PT Saka Energi Indonesia are management, special expertise,
size and age, major decisions and linkage. The scoring results that show the level of
conformity of parenting opportunities with the parenting characteristics of the parent
company are 4.3. These results indicate that PT Saka Energi Indonesia is considered to
have a fairly high level of compatibility with its parent.
3.
Based on the results of the identification of each variable, it is known that the position of
PT Saka Energi Indonesia is in the Edge of Hearland area. businesses that are in this
position are areas that are quite difficult to make clear decisions, because some factors
have a high level of suitability and some others have low suitability. In other words, the
parent company adds value but in some ways can potentially destroy value.
4.
Based on the identification of the subsidiary's position, several priority strategies were
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formulated using the Analytical Hierarchy Process (AHP) method in order, namely: (1)
Accelerate the development of new field projects in Saka's newly operated assets, (2)
Increase exploration activities to obtain new discoveries and (3) Metal to metal casing to
improve gas leak resistance to be applied in all of Saka's working areas.
