Harvard Case - Shaky Grounds in Indonesia
"Shaky Grounds in Indonesia" Harvard business case study is written by Philipp Meyer-Doyle. It deals with the challenges in the field of Strategy. The case study is 3 page(s) long and it was first published on : Dec 1, 2019
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At Fern Fort University, we recommend that PT. Bumi Resources (Bumi) adopt a multifaceted strategy to address the challenges posed by the Indonesian coal industry's evolving landscape. This strategy should focus on:
- Diversification: Expanding into renewable energy and other less volatile sectors to mitigate dependence on coal.
- Innovation: Investing in research and development to improve efficiency and reduce environmental impact within the coal industry.
- Strategic Partnerships: Collaborating with international companies to access advanced technology and global markets.
- Enhanced Corporate Governance: Implementing robust governance structures to improve transparency and accountability.
2. Background
PT. Bumi Resources (Bumi) is a leading Indonesian coal mining company facing significant challenges due to declining global coal prices, increasing environmental regulations, and growing competition from renewable energy sources. The case study highlights the company's struggle to maintain profitability and its need to adapt to a rapidly changing industry. The main protagonists are:
- Samin Tan: The founder and CEO of Bumi, grappling with the company's future amidst a turbulent market.
- The Board of Directors: Facing pressure from investors to improve performance and address environmental concerns.
- The Indonesian Government: Implementing stricter environmental regulations and promoting renewable energy development.
3. Analysis of the Case Study
To analyze Bumi's situation, we can utilize various frameworks:
a) Porter's Five Forces:
- Threat of New Entrants: High, due to the relatively low barriers to entry in the Indonesian coal industry.
- Bargaining Power of Buyers: Moderate, as buyers have some leverage due to the availability of alternative energy sources.
- Bargaining Power of Suppliers: Low, as Bumi has access to abundant coal reserves.
- Threat of Substitute Products: High, driven by the increasing adoption of renewable energy sources.
- Rivalry Among Existing Competitors: High, as the Indonesian coal market is fragmented and characterized by intense competition.
b) SWOT Analysis:
- Strengths: Strong market position, access to abundant coal reserves, experienced management team.
- Weaknesses: Dependence on coal, vulnerability to price fluctuations, environmental concerns.
- Opportunities: Diversification into renewable energy, technological advancements in coal mining, growth of emerging markets.
- Threats: Increasing environmental regulations, competition from renewable energy, declining global coal demand.
c) Value Chain Analysis:
Bumi's value chain is heavily reliant on efficient mining operations and cost-effective transportation. The company needs to focus on optimizing its value chain by:
- Improving mining efficiency: Investing in technology and innovation to reduce costs and environmental impact.
- Strengthening logistics: Optimizing transportation routes and partnerships to ensure timely delivery of coal.
- Developing sustainable practices: Implementing environmentally friendly mining techniques and reducing carbon footprint.
d) Business Model Innovation:
Bumi requires a shift in its business model to adapt to the changing industry landscape. This can be achieved by:
- Diversification: Expanding into renewable energy and other less volatile sectors to reduce reliance on coal.
- Value Chain Optimization: Focusing on efficiency and sustainability throughout the value chain.
- Strategic Partnerships: Collaborating with international companies to access advanced technology and global markets.
4. Recommendations
a) Diversification:
- Renewable Energy: Invest in renewable energy projects, such as solar, wind, and geothermal power, to diversify revenue streams and reduce dependence on coal.
- Other Sectors: Explore opportunities in other sectors, such as infrastructure development, logistics, and technology, to create a more resilient business portfolio.
b) Innovation:
- Research & Development: Invest in research and development to improve mining efficiency, reduce environmental impact, and explore new coal-based technologies.
- Technology Adoption: Implement advanced technologies like automation, AI, and data analytics to optimize operations and enhance safety.
c) Strategic Partnerships:
- International Collaboration: Form strategic alliances with international companies to access advanced technology, global markets, and expertise in renewable energy.
- Joint Ventures: Explore joint ventures with local and international companies to develop renewable energy projects and expand into new markets.
d) Enhanced Corporate Governance:
- Transparency and Accountability: Implement robust governance structures to improve transparency, accountability, and stakeholder engagement.
- Environmental Sustainability: Develop a comprehensive environmental sustainability strategy to address environmental concerns and comply with regulations.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: Bumi's core competencies in mining and logistics can be leveraged for renewable energy projects and other sectors.
- External Customers: The shift towards renewable energy requires Bumi to cater to the evolving needs of customers seeking sustainable energy solutions.
- Competitors: Diversification and innovation are crucial to compete with companies already operating in the renewable energy sector.
- Attractiveness: The renewable energy market presents significant growth potential and offers long-term sustainability.
6. Conclusion
Bumi faces significant challenges, but by embracing diversification, innovation, strategic partnerships, and enhanced corporate governance, it can navigate the changing industry landscape and achieve sustainable growth.
7. Discussion
Alternatives:
- Maintaining the Status Quo: This is a high-risk strategy, as Bumi may struggle to remain competitive in a declining coal market.
- Focusing Solely on Coal: This strategy is unsustainable in the long term due to environmental concerns and the growing demand for renewable energy.
Risks:
- High Investment Costs: Diversification and innovation require significant investments, which could strain Bumi's financial resources.
- Technological Challenges: Implementing new technologies and developing renewable energy projects poses technical challenges.
- Market Volatility: The renewable energy market is subject to volatility, which could impact Bumi's investments.
Key Assumptions:
- The demand for renewable energy will continue to grow.
- Bumi can successfully implement its diversification and innovation strategies.
- The Indonesian government will continue to support the development of renewable energy.
8. Next Steps
- Develop a detailed diversification plan: Identify specific renewable energy projects and other sectors for expansion.
- Establish a dedicated innovation team: Focus on research and development and technology adoption.
- Seek strategic partners: Identify potential partners for collaboration in renewable energy and other sectors.
- Implement enhanced corporate governance practices: Improve transparency, accountability, and environmental sustainability.
Timeline:
- Year 1: Develop diversification and innovation strategies, seek strategic partners, and implement enhanced corporate governance practices.
- Year 2: Begin investing in renewable energy projects and other sectors.
- Year 3: Expand into new markets and further strengthen environmental sustainability initiatives.
By taking these steps, Bumi can position itself for long-term success in a rapidly evolving energy landscape.
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Case Description
The events in this case, which are fictional, provide a background for class discussion about problem-solving, critical thinking, stakeholder management and crisis management. The case puts students in the position of senior managers of an Indonesian geothermal energy company. Following an earthquake near the company's main geothermal power plant (there is some suspicion that it may have been caused by the geothermal power plant), the managers are asked to devise strategies and solutions to a series of problems to satisfy various stakeholder groups. With the CEO temporarily trapped in a lift, they must come up with recommendations to handle the crisis by the time their leader arrives.
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