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SERA's Business Model Innovation: Transformation To Growth
SERA's Business Model Innovation: Transformation To Growth
SERA's Business Model Innovation: Transformation To Growth
However desperate the situation and circumstances, dont despair. When there is everything to
fear, be unafraid. When surrounded by dangers, fear none of them. When without resources,
depend on resourcefulness. When surprised, take the enemy itself by surprise.
Sun-Tzu. The Art of War (fourth century B.C.)
2006 was a special year for PT Serasi Autoraya (SERA). In its 20 year anniversary, its
bid to reduce its dependence on its car rental business, TRAC-Astra Rent a Car, SERA has
completed establishing and launching new complementary transportation services and business
units to its portfolio, namely TRAC Driver Services (driver that accompanies the rental vehicles
- establishment in 2003), TREMOTRAC Motorental (long term motorcycle rental services
establishment in 2004), O-RENZ Taxi in Surabaya (retail taxi services establishment in 2005),
Toyofuji Serasi Indonesia (TFSI, a shipping company establishment in 2005) and Mobil88
(used car trading acquisition in 2006). These new businesses have significantly contributed
towards SERAs IDR1.12 trillion revenues and IDR187 billion operating incomes, which have
been rising since the last several years (78% and 37% higher respectively compared to its 2005s
figures).
A few years earlier, an optimistic note of market growth was shared by one of TRACs
senior personnel,
"Our market has grown by an average of between 15 percent and 20 percent since the
market started to pick up in 2000. This is reflected in the growth of our fleet from 3000 cars in
1998-1999 to 7500 in October this year," SERAs marketing director Edi Gunawan, late 2003
(Rudijanto, 2003).
But this was just one side of the story. SERA was in fact having serious competitive
challenges in its core car rental business. Its selling boxes business model of providing a car
with a driver to its retail and corporate customers, were generating good returns to SERA, so
good that it had induced many new players to enter the market with lower priced offerings.
Thanks to a combination of unsustainable price wars, low level of differentiation in selling
boxes, fierce competition, highly fragmented market segments and high level of product
switching to its competitors lower product specifications, SERA was increasingly operating in a
Red Ocean (read loss-making) strategy.
The result: SERAs net profit margin had been steadily falling since its 2001 years high
of 17.9% to its lowest at 1.84% in 2006. The nature of the industry also requires continuous high
investments in order to purchase more cars for rental. Hence to meet its fleets growth
requirements, SERA had to seek funds from the financial markets by means of issuing a 5-year
Medium Term Notes (MTNs) in 2003, at a fixed initial interest rate of 13.88% per annum (AAA
Securities, 2006). Despite SERAs favorable and growing fleet profile, dominant market
position in the industry, and strong cash flow protection there were market concerns regarding
its high dependency on a few main customers and high financial leverage (Pefindo, 2005).
These led to the weak rating of SERAs MTN of initially idBBB+ (ADB, 2005). The falling
margins validated the analysts concerns: SERA almost breached its LER covenants of 5.5 times
and 6 times in the years 2005 and 2006 respectively (SERA, 2011).
To add salt to the wound, SERA was internally also experiencing an increasing level of
staff turn over from year to year at strategic level starting from 2005,at an alarming rate, almost
doubling annually. At strategic level of staff, middle managers and managers, the trend were
1.6%, 2.3%, 3.9% and 6.1% for the same period. The figures for total staff turnover were even
worse: 5.6%, 7.4%, 10.2% and 11.6% for the years 2005 to 2008 (SERA, 2011).
Therefore, with SERA completely surrounded by dangers: the perfect combination of
external market competitions as well as internal decreasing organizational productivity and
limited resources, a set of serious dilemmas needs to be resolved quickly by SERAs top
management: How can it transforms it self out of this dire circumstances ? Is there a resourceful
or innovative solution that SERA can take, to not only turn it around but also grow? What
priority should SERAs top management take in handling these issues?
gas, many firms have implemented a corporate policy on renting cars for business operations, far
before the economic crisis hit Indonesia in 1997 (Wiradji, 2002).
By using rented cars, the company is free of the costs for maintenance, regular service
checks, replacement parts and 'unexpected' incidents like traffic accidents and theft. Using a car
rental service allows a company to maintain a fixed budget for its transportation needs and to
help smooth out the company's operations because its transportation problems will be minimized.
When a rental car is damaged in an accident we just inform the related car rental company,
which takes it to a garage. If the car has to stay in the garage more than one day, the car rental
company immediately makes available a replacement car of the same class," stated an energy
executive back in 2002 (Wiradji, 2002).
The leadership also saw a new set of opportunities: in the external and internal group
markets. Externally there was an increasing need for firms to focus on their core businesses, and
thereby the trend to outsource their fleet management systems, in order to achieve time and cost
efficiencies. Internally inside the Astra group of companies, there was a significant logistics
business potential to integrate major logistics activities within Group, as well as serve existing
TRACs customer base.
With these insights, SERA had no choice but to redefine its business. Its past definition
of What Business We Are In (WBWAI) of Land transportation provider focusing on vehicle
rental services & driver management was no longer relevant to the changed business
environment. It thereafter updated its new WBWAI to be an integrated transportation service
provider (See Exhibits 4 and 5 for SERAs Business Transformation and Corporate Philosophy
respectively).
The next key question was: How can SERAs top management translate these newly
minted, well defined philosophies into sustainable and real revenue and margin growths?
demand for vehicles occurred, but nowhere else along the year, resulting in overstock. On Driver
Management, typically client firms consistently found poor drivers behavior, low productivity
as well as uncontrolled overtime. OPEX costs on the other hand had resulted in uncontrolled fuel
costs as well as poor utilization and mileage management. The last issue of undedicated human
resources in transportation / cost management, complemented by often invalid transportation
data and undefined SOP/ policy, would mandate the client to conduct significant, time
consuming and costly process improvements.
Execution Challenges
Having set the principles right internally, SERA then went about in integrating its two
core revenue generating units, namely TRAC and Mobil88. The challenge was: how to generate
synergies between the two seemingly different business areas of car rental and second hand car
sales?
Mobil88s large client based is perfect target markets for TRACs old vehicles that are
no longer fit for operational usage. However, the need for a more transparent pricing bidding
mechanism was required to ensure the smooth transfer of Mobil88s and subsequently TRACs
resale vehicles. To do this, in 2007 parallel with the group BPR activities, SERA decided
establish PT Balai Lelang Serasi, also known as iBid, an auction service provider for cars and
motorcycles sales. iBid, therefore, increased SERAs commitment to the market to be the
preferred supplier of integrated transportation solutions provider.
iBid provided the missing gaps that were present at TRAC: the auction component. The
idea was having this additional unique service, would encourage better market participants in
bidding for used vehicles, and thereafter increasing the flow of inventory and stocks of both
TRACs and Mobil88s cars. iBids vision was set as To become a trusted auction house and a
choice for partners and customers, while its mission were as follows,
1. 1 Provide large-scale marketing channels, and saving cost and time of partners who
want to sell the asset
2. 2 Providing auction items with good service quality and a transparent auction process
3. 3 Maintain the customers trust during auction transactions
Having established iBid, SERA thus were able to leverage its market share and generate
additional revenues. The next step was to integrate iBid to TRAC and Mobil88. To achieve this,
the three different operations of wholesale, retail used vehicle operations and the newly
established auction hall, were linked in a three way supply and sales process, whereby TRAC
supplies used vehicles to Mobil88s whole operations. The vehicles are then resupplied to
Mobil88s retail operation for reselling to other re-sellers and end users. iBid is also supplied by
Mobil88 as well as by other independent suppliers, for reselling to a much larger sales channel,
again covering both end users and re-sellers. (See Exhibit 9 for SERAs Mobil88-iBid business
model).
The next key question here: How about the funding of all these great ideas?
Market Recognition
Apart from having a successful and innovative business model transformation that led
SERA to its improved financial performance, it also achieved significant market recognition for
its efforts. From 2006 to 2009, SERAs units were awarded no less than 6 (six) times by
independent consultants as well as its core clients. These included Indonesia Best Brand Awards
in 2007, Sampoerna supplier award for Best Supplier in Logistics Category, Superbrands in 2008
and Service Quality Award in 2009 (See Exhibit 12 for SERAs Group awards).
Having gone through such tumultuous challenge, the next steps for SERAs top
management would be to further increase its resourcefulness and develop new, innovative
business models in conquering new blue ocean markets, and perhaps not only entering from land
to sea transportation, but covering the air as well. Hence, an appropriate note could be gained
from an old military generals insight, To conquer is nothing. One must profit from ones
success. Napoleon Bonaparte (1769-1821)
2006 WBWAI What Business We Are In Avanza TRAC Tunas RC Adira Rental fee (IDR k)
3,525 3,500 3,375 Gap 25 150
Exhibits Exhibit 1. Product price comparison - Avanza car rental. SERA vs key
competitors Asperkindo Association of Rental Car Company of Indonesia CAGR Compounded
Annual Growth Rate DER Debt to Equity Ratio iBid Auction service provider IDR Indonesian
Rupiah MTN Medium Term Notes OPEX Operational expenditures ROE Return on Equity RSP
Rental Services Provider SERA PT Serasi Autoraya TFSI Toyofuji Serasi Indonesia Source:
Research & Development data (2011) TMS SERAsTransportation Management System TRAC
Astra Rent a Car
2008 Exhibit 2. SERAs 2006 business evolution - 1986 to 2010 Avanza TRAC Tunas RC Adira
Indorent Rental fee (IDR k) 3,525 3,500 3,375 3,275
Old: Pre2006 What Business Are We In Land transportation provider focusing on vehicle rental
services & driver management To be the world class company in land transportation services
Vision
To satisfy our customers by providing good quality services with the highest standard of
customer & Mission employee satisfaction, & strive to increase Exhibit 3. SERAs business
structure 2010 shareholder value.
Source: SERA (2011) Exhibit 5. SERAs Corporate Philosophy: WBWAI, Vision & Mission
Before and After Asperkindo CAGR DER iBid IDR MTN OPEX ROE RSP SERA TFSI TMS
TRAC SERA Source: Association of Rental Car Company of Indonesia Compounded Annual
Growth Rate Debt to Equity Ratio Auction service provider Indonesian Rupiah Medium Term
Notes Operational expenditures Return on Equity Rental Services Provider PT Serasi Autoraya
Toyofuji Serasi Indonesia Transportation Management System Astra Rent a Car (2011)
Old: Pre2006 What Business Are We In Land transportation provider focusing on vehicle rental
services & driver management
To be the world class company in land Vision Source: SERA (2011) transportation services To
satisfy our customers by providing good quality services with the highest standard of customer &
employee satisfaction, & strive to increase shareholder value.
Mission
Exhibit 10. SERAs financials Group Revenue, Net income & Net income margin
SERA (2011)
Source:
Bibliography
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Make the Competition Irrelevant. Harvard Business School Press. 6. KSEI (2010) Interest
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