paper individual odcm - kokoh ronald

IN3N – ORGANIZATION DEVELOPMENT AND CHANGE MANAGEMENT

SAMPOERNACHANGE THROUGH ACQUISITION

KOKOH RONALD (2009 02 3000)

WIJAWIYATA MANAJEMEN BATCH LXIPPM SCHOOL OF MANAGEMENT

JALAN MENTENG RAYA NO. 9JAKARTA

2009

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SAMPOERNA: CHANGES THROUGH ACQUISITION

Dated May 18, 2005 is a new era in the long and successful history of PT. Hanjaya Mandala Sampoerna (Sampoerna). Philip Morris International (PMI) acquired one of the largest cigarette producers in Indonesia by buying 98% stake in the company at a price of Rp.10.600 per share or in total value of 18.58 trillion rupiah1. This is not

only surprising for the company's internal community but throughout Indonesia. Products such as A Mild, Dji Sam Soe, and various kinds of cigarettes that already had a very strong brand position in Indonesian customer, that is also identical to the Sampoerna family business which was commanded by Putera Sampoerna. Beside, acquisition was done when company’s financial performance continued to rise [Exhibit 1].

Sampoerna, one of the icons in the national tobacco industry, has now been acquired by a company which is also the global tobacco industry icon. This is quite a rare event in the Indonesian industry. Therefore, this paper will examine the acquisition of Sampoerna by PMI from the view of strategic change management. The discussion will begin with the identification of the pressures that became the ground of the decision. Furthermore, will be briefly discussed what kind of change is happening and what actions are performed by the company. The writer will also try to assess the effectiveness of such actions and provide recommendations based on the theory in change management.

The Story of Change Begins

Sampoerna traces its origin to Liem Seeng Tee, a Chinese immigrant who founded the Company in 1913. At his home in Surabaya, Indonesia, he began producing and selling hand-rolled kretek cigarettes, named after the crackling sound they make as they burn. His small company was among the first to manufacture and market kretek as well as non-clove cigarettes on a commercial basis. Kretek cigarettes quickly grew in popularity. By the early 1930’s, Liem Seeng Tee had changed his family name and the name of his company to Sampoerna (Indonesian for ‘perfect’).

However, by 1959, three years after the passing of Seeng Tee, and in the aftermath of Indonesia’s struggle for independence, Sampoerna was once more on the verge of closure. In that year, Aga Sampoerna (Seeng Tee’s second son) was appointed to lead the company, and succeeded in reestablishing and rebuilding the company. Aga’s second son, Putera took over the helm of PT. HM Sampoerna in 1978. During Putera Sampoerna’s tenure, the company established itself as a public company with a modern corporate structure, and embarked on a period of investment and expansion. In the process, Sampoerna consolidated its position as one of Indonesia’s top-tier companies2.

Sampoerna’s cigarette is a very popular product in Indonesia and has become the identity of one of the richest families in Indonesia. No one ever predicts that this company will be put up for sale by the family. Putera Sampoerna took this bold decision because he considered the tobacco industry will not stay profitable in the future. According to Adrian Rusmana, BNI Securities’ Head of Research, in the last three years, the revenue growth of tobacco companies in Jakarta Stock Exchange (JSE) is under the level of 10% (Kurniawan, 2009). The industry is also experiencing great pressure as the increasing public awareness of the dangers of cigarettes and regulations about it, such as laws that regulate tobacco control, legislation Prov. DKI No 2 / 2005 on the control of air, even the UN Conventions - 2

1 Cited from http://berita.liputan6.com/ekbis/200503/97974/class='vidico'; accessed at October 27, 2009; 15:30 PM2 Cited from company’s website; http://www.sampoerna.com; accessed at October 27, 2009; 16.40 PM


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Framework Convention on Tobacco Control / FCTC. (Tempo, June 22, 2009). When referring to the theory, the Pressure is categorized as a geopolitical pressure (Palmer et al, 2009: 55).

The high competition market is also convinced Sampoerna to let go off the businesses. Although famous for being innovative, the company is not able to pursue the domination of Gudang Garam in the industry of clove cigarettes. They have to settle for second in the market share rankings of national

tobacco industry [Exhibit 3] with only 19.91% compared with Gudang Garam 30.25% (GAPPRI in Agnes, 2009). Putera’s decision to sell the company also strengthened by the opportunity in high sale price - selling at the right moment (ibid, 2009). Interestingly, these companies are family-owned so that the pressure is felt by the owner directly. Even until today, the company's internal do not know accurately the in-depth reason why Putera Sampoerna sold this company. Refer to Palmer, so we can called that in this case, most of pressure come from vision of its owner which is directly influenced by environmental pressure.

In the company's official statement, this acquisition provides an opportunity for companies to take advantage of PMI's knowledge and experience from various countries over decades. In addition, the acquisition also brings resources, as well as new methods and procedures in the company's management (HM

Sampoerna's Annual Report, 2005). For PMI, their acquisition could increase market power, avoiding the cost of new product development, increase the speed of penetrating the market, and avoid the barriers to entry (Agnes, 2009).

When Two Cultures Collide

The acquisition decision brings fears to Sampoerna’s employee. For most employees, the figure of Putera Sampoerna is not only perceived as a corporate leader, but also as a parent that is worthy enough to be considered as role. The acquisition feared would damage the harmonious atmosphere that had been created. Most of Sampoerna’s management was concerned in the decreasing of employee’s motivation. The reason is one thing that will come to people's minds when multinationals acquire local firms is efficiency. They were worried that there will be a reduction of employees (Yos Adiguna in SWA, 2007). Manual (production by hand) can produce 350 cigarettes / hour, while the machine is able to produce 8000 cigarettes / min. Thus, one machine is approximately equal to 1,500 people. Another concern is the existence of culture shock in a company that can lead to resistance.

Putera Sampoerna aware of this latent danger if the unrest is allowed. Putera Sampoerna summoned all the leaders and gathered them in one big room to announce the acquisition decision. The Uniqueness of this meeting is not to build a sense of urgency. When referring to the Kotter’s change management model (1996: 21), Sampoerna directly build coalitions to notify changes. All the people obey the Sampoerna family and no one questioned the reasons behind the decision. Putera directly coordinate all these leaders, calling them as ‘change agents’ to transmit the spirit as change agents to all Sampoerna’s internal parties, and ordered them to spread the information to the lowest level within the organization (SWA, 2007).

When the information has spread, there was resistance from some parties, although a small number, including several directors. Some of them even chose to resign. Most workers accept the decision


PRESSURES

For Sampoerna, uniqueness of family –owned business, pressures is felt by the owner directly, creating decision to change without any specific reasons. But we can conclude that geopolitical pressure and combination with opportunities in company highest bid, made acquisition is the best solution based on its owner (internal pressure influenced by environmental pressure).

AVOIDING RESISTANCE

Just promising the employee there will be no

radical change; provide with job security.

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because management promised no changes in operations; all will still be working as usual. The resistance does not occur because of all the elements felt the certainty of their fate. Kotter (2009: 163) stated that resistance can occur because of fears of status uncertainty. Besides, the lack of resistance is also due to the factors of good communication.

Leadership was then moved to PMI, Martin Kings pointed as president. He is entrusted as a leader in the change in Sampoerna. At the top management, some of PMI's name is now in control, mixed with local former potential executive [Exhibit 5]. Once elected in the Extraordinary General Meeting of Shareholders, Martin Kings and Angky Camaro immediately conduct a town-hall meeting attended by the entire management and staff. On that occasion Martin announced that there would be no changes, ranging from corporate law, business planning, and certainly no layoffs.

Martin realized that the culture is one of the critical factors in the acquisition of the company. This will hamper the achievement of goals if the accumulation of it not at the right proportion. Therefore, he will not intervene in the existing culture and prefers to focus on the company's strategic plan forward. Sampoerna’s cultural remains will be preserved as such because prior to the acquisition, Martin considered that the culture in Sampoerna is already very good and strong – a local company with international workings (ibid, 2007) [Exhibit 6]. This is also the reason why he only brought 14 of his staff and entrust some of the top management to the the previous leaders of Sampoerna.

Interestingly, Javanese culture will be maintained by PMI. One is in terms of product launch time, raising the selling price, and a meeting with the Javanese calendar system. Other culture, such as it’s a tradition that Sampoerna always budget cost for the “pawang hujan” at the launch of its products. PMI which is a foreign company, although did not understand, still follows these tradition. This made the PMI headquarters confused when auditing the financial statements because of the 'unique' cost. Martin, as PMI representative in Indonesia must explain that this is common in Indonesia.

PMI‘s culture was also signed to strengthen the existing Sampoerna culture. The style of American in being outspoken at giving opinion is very different to Javanese culture that tends do the contradictory. The use of English is increasingly common not only in top management but also in the middle management; both oral and written. In lingual matters, Martin did not have problem because he can speak Indonesian and Sampoerna himself always recommend English to be used by every employee (Hidayat, 2007). Culture acculturation can be seen in Exhibit 4.

Referring to Lewin’s theory of cultural formation (Kurt Lewin in Schein, 2004: 319-329), there are four phases required in the merger of cultures, especially in the merger or acquisition, the exploration phase, unfreezing, merge, and stabilization. The first phase, exploration, should already be identified where the cultural similarities and differences between the parties, and goodwill to achieve the best should remain preserved. The second phase is to dilute the old culture to the parties in the merger. The third phase is merging cultures, or the forming of cultural synergy, usually by defining a new culture, through education or training, coaching, mentoring, and so on. The fourth phase or stabilization is realized by various artifacts such as logos, colors, physical appearances of the building, and so forth, as well as organization’s system such as regulation, the definition of a new culture, reward & punishment, and furthermore, the stabilization is continue done by gathering activities, and so on.


CULTURE TREATMENT

Change in culture come last. Easiest thing to do,

when acquisition, is begin with selecting

company with strong good culture so we only

need little adjustment.

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The first and second phase faced wisely by PMI so Sampoerna is now in the third stage, and was relatively easy to be done, because the critical point is in the second phase. PMI as the new owners did not implement their culture to be dominant. Similarly Sampoerna with the Javanese culture, that has a desire to become more globally.

Another Strategic Action: Eight Step Process – Kotter Model

Returning to Kotter’s perspective, next thing to do is for Martin to create the vision of Sampoerna in the future. He demanded Sampoerna to improve acceleration, starting from the quantity and quality of products, as well as human resources, considering the very dynamic business changes. This is a key strategy of the future development of Sampoerna. Continuous improvement being implemented by the Sampoerna with employee development systems, management and control report, reward & punishment, as well as information technology systems / IT (PT. HM Sampoerna Annual Report, 2005).

In addition, PMI is also restructuring the Sampoerna’s business portfolio. Currently, there are approximately 31 companies subordinate under the HMS. According to the Surabaya Stock Exchange data, 18 still associated with the core business (Agnes, 2009). The rest is a company engaged in various sectors, ranging from trade services, information technology, investments, property, processed food and beverage, printing, to transportation. These companies are threatened to be removed from Sampoerna’s portfolio. It may occurs, the plan to release of Sampoerna's child companies is caused by its lowly performance, or because the PMI wants to return to its core business [Exhibit 7].

In the early days of the acquisition, Martin insisted the spirit of change in Sampoerna and convinced all to pursue the same vision [Exhibit 8]. Vision and mission are translated into the main target. One of the targets that best describes the spirit of change in Sampoerna is to become a market leader in the national tobacco industry in the next five years. After building a vision and make measurable targets, then for all elements to work harder than before (ibid, 2007).

Short-term win was obtained rapidly; within 1.5 years achieved number one in the national tobacco industry with 28.3% market share in the year 2007. In the same year on November 2007, The Indonesian credit rating agency PT. Pefindo upgraded the Company's credit ratings from id AA+ to id AAA with a stable outlook. This is the first time the Company achieve an id AAA rating. Revenue also showed a growing trend, accompanied by increased EPS and net income of the company (PT. HM Sampoerna Annual Report, 2007) [Exhibit 2]. The acquisition also speed the company's business acceleration. In 2008, Sampoerna add more than 8 Cigarette Production Partners, 15.000 new employees, build a new factory in Jakarta, then “pelintingan” through partners increased by 8.000 (PT. HM Sampoerna Annual Report, 2008). From those facts we know that the management did the right so that achieving success. Their action seems to be effective based on result they achieved. Refer to Kotter, their approach really considered this model [Exhibit 9].

What Next? Writer’s Recommendation for Sampoerna in Future

Overall action designed and implemented to manage changes in Sampoerna are congruent with all elements in Kotter’s model. So, when all possible steps have been taken, what else needs to be considered by Sampoerna in paving the way for better future? Here is a list of suggestions that really are worth a try:


EFFECTIVITY

The acquisition achieve it success. Considering

Kotter Model, the management followed

that pattern and not only doing the right

things but also doing the things right.

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Sustainable Development of Company Culture;One of the key success factors in the acquisition of Sampoerna was: culture change came last, not first. According to Kotter (1996:155), the organizational culture tends to be extremely difficult to change, because it has underlying assumptions which consist of values, beliefs and goals that have been long held in the organization. Underlying assumptions that drive “how things are done around here” at every level of the organization can’t be change suddenly. So, it is reasonable that at the beginning of acquisition, the organizational culture is ensured to stay the same. It is best to choose a more subtle acculturation. PMI as the new owner of Sampoerna needs to ascertain the sustainable development of company culture really happens. Of course, it also requires good communication and a lot of dialog among groups of people in the organization. Finally, PMI is able to show that its new approaches work and that it’s worthwhile to change.

Maintaining and Improving Leadership Role in CompanySampoerna has a very strong corporate culture. Its employees have ‘a can-do’ and ‘make things happen’ attitude, which treasured so much by PMI. Those attitudes were cultivated by the role of firm leader, Putra Sampoerna. When Putra Sampoerna is no longer the leader, the new figure who replaces him has to be able to maintain the existence of those culture and attitudes. New leaders should be compatible with the existing culture and keep improving good leadership and management to take the company to the next level. This responsibility lies in management’s hand at every level in the company.

Expanding Company GloballyFor Sampoerna, there are still significant goals to be achieved in the coming years. Sampoerna must not be complacent about its success. The philosophy Anggardha Paramita, which means ‘toward perfection’, underlies every action taken by the company. National market, indeed, has been properly managed, so that the company can move forward to expand into multinational companies. PMI as the new owner has to make a way for Sampoerna to enter the highly competitive international environment and market the kretek cigarette into one of the world's cigarettes icon. Continuing to set the bar high is the best motivation for employees to move toward perfection.

Lesson Learned

When acquisition happens, chaos ensues. There might be much stress, confusion, uncertainty, and even culture shock in the company. PMI Indonesia cleverly paid attention to prevent those negative impacts by choosing Sampoerna, a well run company with very strong corporate culture. PMI decisively ensure the Sampoerna’s employee that their culture and shared values, as product of many years of experience, will not be changed. Frequent communication before and after acquisition with the already existing employees about the change, the new vision, mission, and also the strategic decision, seem to play important role. This carried the acquisition success. Moreover, figure as parent, which was presented by Putra Sampoerna, considered by Martin Kings and PMI, as determining factor to cultivate strong corporate culture. From this case study of change management, we learn that with the right strategy, PMI has found the way to cope with the potential negative impact of an acquisition. Not only that, PMI is also able to maintain Sampoerna’s position as industry leader by continuing to focus on building the existing brands through ongoing quality improvements, developing and expanding to the international market.


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Bibliography

BooksKotter, J.P. 1996. Leading Change. Boston: Harvard Business School PressPalmer, Ian., Richard Dunford, and Gib Akin. 2009. Managing Organizational Change. New York:

McGraw-HillSchein, Edgar R. 2004. Organizational Culture and Leadership. USA: John Wiley & Sons.

Newspaper and MagazineSWA Magazine. HM Sampoerna: Padukan Budaya Lokal dan Multinasional. Kamis, 01 Februari 2007.____________. Ketika Timur dan Barat Menyatu. Rabu, 06 Februari 2008.Tempo Magazine. Indonesia Pasar yang Menggiurkan Bagi Industri Rokok Asing. Senin, 22 Juni 2009.

Electronic ReferenceSampoerna’s website. http://www.sampoerna.com. Accessed at October 27, 2009. 16.40 PMhttp://berita.liputan6.com/ekbis/200503/97974/class='vidico'. Accessed at October 27, 2009. 15:30

PMKurniawan, Agnes. 2009. Why Putera sold his Sampoerna. Accessed at October 27, 2009. 15:30 PM.______________. 2009. Analisis Industri Rokok Nasional 2007-2008. Accessed at October 27, 2009.

16:38 PM.______________. 2009. Kenapa Philip Meminang Sampoerna dengan Mas Kawin Sedemikian Besar.

Accessed at October 27, 2009. 16:30 PM.______________. 2009. Perubahan Sampoerna di Tangan Philip Morris. Accessed at October 27, 2009.

16:22 PM.

InstitutionPT. HM Sampoerna Tbk. Annual Report 2005. Jakarta. 2006.___________________. Annual Report 2007. Jakarta. 2008.___________________. Annual Report 2008. Jakarta. 2009.


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Exhibit 1

PT. HANJAYA MANDALA SAMPOERNA TBK FINANCIAL HIGHLIGHTBEFORE ACQUISITION

(in billion rupiah)

YEARS ENDED 31 DECEMBER 2004 2003 2002 2001

KEY BALANCE SHEET FIGURESCurrent Assets 8,835 6,956 6,984 6,762Property, Plant and Equipment 2,176 1,982 1,745 1,943Investments 179 154 101 22Land For Development 352 333 175 113Other Assets 157 180 505 295Total Assets 11,699 10,198 9,817 9,471Current Liabilities 3,872 174 2,084 2,673Non-Current Liabilities 2,651 4,014 2,338 2,407Total Liabilities 6,523 4,198 4,422 5,080Minority Interests 317 232 134 229Stakeholders’ Equity 4,859 5,768 5,201 4,162OPERATING PERFORMANCE – ConsolidatedNet Sales 17,647 14,675 15,129 14,067Gross Profit 5,807 4,522 4,587 4,073Net Operating Income 3,183 2,393 2,727 2,653Profit Before Income Tax 3,059 2,199 2,567 2,218Net Income 1,992 1,407 1,671 955Basic Earnings per Share (in full Rupiah) 454 321 374 208LIQUIDITY RATIOSCurrent Ratio 2.28 4.07 3,29 2,53Debt to Equity Ratio 0.71 0.40 0,43 0,78Total Liabilities to Total Assets Ratio 0.56 0.41 0.45 0,54OPERATING RATIOSGross Profit to Sales 32.9% 30.8% 30,3% 29,0%Gross Profit to Sales (Domestic Cigs.) 33.5% 31.3% 32,5% 34,1%Net Operating Income to Sales 18.0% 16.3% 18,0% 18,9%Net Operating Income to Sales (Domestic Cigs.) 20.7% 19.7% 22,5% 25,5%Net Income to Sales 11.3% 9.6% 11,0% 6,8%Net Income to Sales (Domestic Cigs.) 13.2% 10.8% 13,2% 8,9%Return On Assets 18.2% 14.1% 17,3% 10,6%Return On Equity 37.5% 25.7% 35,7% 23,9%Net Working Capital 4,963 5,246AUTHORIZED CAPITALNumber of shares authorized (billions) 6.3 6.3 6.3 6.3Authorized share capital 630 630 630 630Par value per share (in full Rupiah) 100 100 100 100ISSUE AND FULLY PAID CAPITALNumber of shares issued and fully paid (billions) 4.383 4.500 4.500 4.500Issued and paid up share capital 438.3 450.0 450.0 450.0Par value per share (in Rupiah) 100 100 100 100Source: PT. HM Sampoerna Tbk Annual Report, 2005


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Exhibit 2

PT. HANJAYA MANDALA SAMPOERNA TBK FINANCIAL HIGHLIGHTAFTER ACQUISITION

(in billion rupiah)

YEARS ENDED 31 DECEMBER 2008 2007 2006 2005

KEY BALANCE SHEET FIGURESCurrent Assets 11,037 11,056 9,432 8,729Property, Plant and Equipment 4,330 3,522 2,391 2,399Investments 22 21 59 176Land For Development 176 344 344 352Other Assets 569 738 434 279Total Assets 16,134 15,681 12,660 11,935Current Liabilities 7,642 6,213 5,613 5,117Non-Current Liabilities 441 1,401 1,260 1,996Total Liabilities 8,084 7,614 6,873 7,113Minority Interests 2 3 93 246Stakeholders’ Equity 8,048 8,064 5,694 4,576OPERATING PERFORMANCE – ConsolidatedNet Sales 34,680 29,788 29,545 24,660Gross Profit 9,985 8,762 8,453 7,311Net Operating Income 6,225 5,585 5,175 3,940Profit Before Income Tax 5,797 5,345 5,345 3,725Net Income 3,895 3,624 3,530 2,383Basic Earnings per Share (in full Rupiah) 889 827 805 544LIQUIDITY RATIOSCurrent Ratio 1.44 1.78 1.68 1.71Debt to Equity Ratio 0.27 0.28 0.28 0.66Total Liabilities to Total Assets Ratio 0.50 0.49 0.54 0.60OPERATING RATIOSGross Profit to Sales 28.8% 29.4% 28.6% 29.6%Gross Profit to Sales (Domestic Cigs.) 28.2% 28.6% 29.3% 30.3%Net Operating Income to Sales 18.0% 18.7% 17.5% 16.0%Net Operating Income to Sales (Domestic Cigs.) 17.5% 18.4% 19.3% 18.4%Net Income to Sales 11.2% 12.2% 11.9% 9.7%Net Income to Sales (Domestic Cigs.) 11.5% 12.4% 13.5% 11.3%Return On Assets 24.5% 25.6% 28.7% 20.2%Return On Equity 48.4% 52.7% 68.8% 50.5%Net Working Capital 3,395 4,843 3,819 3,612AUTHORIZED CAPITALNumber of shares authorized (billions) 6.3 6.3 6.3 6.3Authorized share capital 630 630 630 630Par value per share (in full Rupiah) 100 100 100 100ISSUE AND FULLY PAID CAPITALNumber of shares issued and fully paid (billions) 4.383 4.383 4.383 4.383Issued and paid up share capital 438.3 438.3 438.3 438.3Par value per share (in Rupiah) 100 100 100 100Source: PT. HM Sampoerna Tbk Annual Report, 2008


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Exhibit 3

NATIONAL CIGARETTE INDUSTRY MARKET SHARE2003-2004

(in percent)

COMPANY 2004 2003Gudang Garam 30,25 32,79HM Sampoerna 19,91 18,33Djarum 18,26 18,71Phillip Morris Indonesia 3,91 4,69BAT Indonesia 2,54 2,86Bentoel 1,93 1,99Others 23,20 20,63Source: GAPPRI in Kurniawan, 2009

Exhibit 4

CULTURE ACCULTURATION IN SAMPOERNA BEFORE AND AFTER ACQUISITION

BEFORE AFTERBatik uniform, black dress. Batik uniform, black dress.Meeting date: 9, 17, 29. Meeting date: 9, 17, 29.“Pawang hujan” when launching products.

“Pawang hujan” when launching products.

Employee rather reluctant to talk with the boss.

Employee more outspoken sharing their opinion.

Javanese preferred manners. Straight to the point, provoked more sales-oriented, more creative, and more initiatives with a global outlook.At managerial level, everyday conversations in EnglishPeople are encouraged to become more high-achiever, with opportunity in carreer development, to branches of PMI in another country.

Source: SWA Magazine, February 6, 2008.


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Exhibit 5

BOARD OF COMMISSIONER AND BOARD OF DIRECTOR PT. HANJAYA MANDALA SAMPOERNA TBK

After Acquisition

NAME POSITION PROFILEBoard of Commissioner

Angky Kamaro

President Commissioner

Mr. Camaro started his career with Volkswagen AG Wolfsburg, spending two years at its Overseas Production Department. He then joined German Motor Mfg., a joint venture corporation between Daimler Benz and Volkswagen AG in Jakarta where his career progressed from Production Manager to Procurement Manager and then Assistant to the Finance Director until 1981.Mr. Camaro continued to pursue his automotive expertise with a move to Indomobil Group in 1982 as a Vice President Director - a position he held for almost 20 years. Mr. Camaro maintains a seat on the Board of Commissioners, Indomobil Group.In April 2002, Mr. Camaro joined PT HM Sampoerna Tbk. as Managing Director in charge of the Company’s Indonesian Cigarette Business.Mr. Camaro graduated from Technische Fachhochshule in Hamburg, Germany where he studied Aeronautical Engineering.

Matteo Pellegrini Vice President Commissioner

Douglas Walter Werth Commissioner

Eunice Carol Hamilton Commissioner

Phang Cheow Hock Independent Commissioner

Ekadharmajanto Kasih Independent Commissioner

Board of Director

Martin Gray King

President Director

Mr. King joined PMI in 2003 as Managing Director, Philip Morris Tabaqueira SA in Portugal. In March 2004, Mr. King moved to Beijing to become Managing Director, Philip Morris (China) Management Co. Ltd, where he developed the business in the important Chinese market. He moved to Jakarta in 2005 to lead PT HM Sampoerna Tbk.Prior to joining PMI, Mr. King worked for Philip Morris USA, since 1991. He joined the company as Manager, Manufacturing in Richmond, Virginia. By 1997 he was Director of Primary Processing at the Cabarrus, North Carolina Manufacturing Center and two years later he was appointed Director of Cigarette Manufacturing.In 2000, Mr. King became Director, Business Planning, Philip Morris USA, and in 2001 he was promoted to Vice President, Regional Sales. Mr. King graduated from Harvard University with a bachelor’s degree in Government and received a master’s degree in business administration from Darden School, University of Virginia.

Paul Janelle Director (Financial)

Shea Lih Goh Director (Marketing)

Yos Adiguna Ginting Director (HR)

Wayan Mertasana Tantra Director (Sales)Source: PT. HM Sampoerna Annual Report, 2008


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Exhibit 6

Martin’s Statement about Culture in Sampoerna(Cited from: SWA Magazine, February 6, 2008)

Sampoerna Culture’s in Common"Sampoerna has adaptive culture, the people are very dynamic with entrepreneurial spirit, dare to try and learn something new, innovative, and also friendly," he explained about the characters of Sampoerna’s HR that he felt. In addition, when facing a business problem, the former Director of Business Planning at Philip Morris USA added, the Sampoerna just does not give up easily. "They do not know the word 'cannot', they only know 'sure can'. This is a culture we learn before we buy Sampoerna," he said surely.

Similarity Between PMI and SampoernaThe fundamental similarity is that both companies have a passion to become the market leader. Also, both have a behavior and a willingness to improve themselves to perfection. "Sampoerna holds Anggardha Paramita values very highly, which means to perfection," he explained. It is also important, he continued, both sides make consumers as a major benchmark in developing the product. "The desire of our customers is listened to be applied. Sampoerna very understands what the consumer wants," he said enthusiastically.

Maintaining Sampoerna’s Culture“The most important thing for the PMI is to integrate the advantages that it can generate synergies that improve overall performance. Image and pride in the brand from a local flavor need not be disturbed, because that's exactly what we bought. We came to buy this treasure. So, we will not let ourselves ruin it. We, on the other hand, will do our best to increase its value. Further improve what is already good"

Another Perspective in Culture AcculturationMartin explained, PMI people have the character to be straight to the point and open in expressing opinions. Something that is often called the American style. "Criticism is usually thrown straightforward and sometimes spicy. But still in the context of work, not personal," he said. He will not blame if the employees Sampoerna judge PMI people being too aggressive and overly to the point. "PMI People prefers to convey directly, they do not like to whispers in the back," he asserted. On the other hand, he sees, Sampoerna’s staff is very polite, lack of courage in conveying thoughts in mind, and not straightforward. In his view, this is not talking about right or wrong, but rather to complement each other. "The PMI could learn about patience and willingness to listen more to others. Meanwhile, Sampoerna people can learn about the openness of expression, to separate business from personal affairs, not easily offended, and productive," he explained.


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Exhibit 7

Consideration of Release Some Strategic Business Unit

PT. Taman Dayu, developer which is located in Malang, East Java. Since established in 1990, company still suffering loss. PMI’S board of director seems not happy in the performance and will release it as soon as possible.

PT. Sampoerna Food Product Nusantara (compete in food and beverage industry). Same as PT. Taman Dayu reason to release.

PT. Wahana Sampoerna (compete in construction industry) seems to release because it financial performance.

PT. Agasam manages a number of restaurants/cafes and shops with the label merchandise A Store™. Currently, the store was established in 2003, already has 8 branches in Jakarta and Surabaya. Various merchandise such as shirts, hats, ashtrays, purses, bags (with logo “A“ letter) selling here. Although the contribution of the parent company very small, this is very profitable outlets. But may also be released by PMI because want to direct focus in cigarette industry.

In trade industry, Sampoerna has a lot of portfolio in various countries, such as: Bursa Tobacco Corporation, Sampoerna Investment Corporation, Vinasa Investment Corporation, and Sampoerna Latin America based in British Virgin Islands which may also be removed.


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Exhibit 8

Corporate Vision and Mission

The vision of Sampoerna is embodied in the “Three Hands philosophy”. The philosophy embodies the business environment and Sampoerna’s role in this context. The Hands, which represent adult smokers, employees and business partners, and society at large, are the three key stakeholders the Company must embrace to reach its goal of becoming the most respected company in Indonesia. They address each group through:

Delivering high quality cigarettes with fair value to adult smokersThe Company is fully committed to delivering the highest quality and fair-value products to adult consumers. This is achieved through creating relevant and innovative brand offerings that meet changing preferences.

Providing good compensation and working conditions to employees and building a good relationship with business partnersEmployees are the Company’s most important asset. Good compensation, working conditions, and opportunities for advancement are keys for employee motivation and productivity. Concurrently, our business partners play an essential role in contributing to our success, and we seek to work closely with them to ensure their longevity and vitality.

Giving back to the society at largeThe Company owes its success to the support of communities throughout the country. In giving back, the focus is on poverty alleviation, education, environment protection, disaster relief, and employee volunteerism.


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Exhibit 9

Kotter Model Perspective: Sampoerna’s Change Management Step by Step and Recommendation


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