Please read the case and discuss the discussion question.

Question:

Is a large-group intervention an appropriate methodology in this situation and in this culture? What would you have done differently?

Integrative CasesLarge-Scale Strategic Change: The Semen Indonesia Merger Integration Case*

Semen Indonesia (SMIG), formerly known as the Semen Gresik Group (SGG), is an Indonesia-based, state-owned holding company whose core business is cement production. It is also engaged, through their subsidiaries, in cement packaging and distribution, limestone and clay mining, and real estate operations.

The establishment of SMIG as a holding company on December 20, 2012 was the outcome of an OD intervention initiated with its predecessor, SGG, in December 2011. The intervention was aimed at integrating three subsidiary operating companies following a government-mandated merger in 1995. SGG, at the time of the intervention, was really Semen Gresik, one of the three large cement companies involved in the merger and acting as a virtual holding company for two other cement producers: Semen Padang and Semen Tonasa. After SGG's acquisition of a majority stake in Vietnam's Thang Long Cement (worth USD $157 million) in December 2012, the company became the largest cement company in Southeast Asia and changed its name from SGG to Semen Indonesia to signify its establishment as a strategic holding company.

In May 2014, SMIG's market capitalization of $8.7 billion was large enough to qualify for the Forbes Global 2000 list. The installed capacity of the company reached 32 million tons of cement per year and covered 43 percent of Indonesia's cement market in 2016.

This case describes the transformation interventions that facilitated the consolidation process and aligned the strategy, processes, and people. The result was enhanced organizational integration that helped SMIG become a more effective and efficient company and made a significant contribution to Indonesia's economy.

Background

Indonesia is the world's largest archipelago with 17,508 islands, some 6,000 of which are inhabited. With an estimated population of over 263 million and over 300 ethnic groups, Indonesia is highly diverse. The country recognizes 700 indigenous languages spoken across the region, although having Bahasa Indonesia as the national language has facilitated communication challenges. Reflecting its geographical spread, Indonesia has a considerable regional diversity and strong regional identities, defined as a strong feeling of attachment or loyalty that people in a region have for that particular territory.

In 1995, three state-owned cement companiesSemen Padang (SP), Semen Tonasa (ST), and Semen Gresik (SG) were merged by the Indonesian government as part of its reformation of State Owned Enterprises (SOEs). From a business perspective, the merger positioned the combined organizations as the largest cement company in the country. However, the government's decision to have SG serve as the parent company to whom SP and ST reported and to call the new organization SGG created ill feelings among employees as well as officials, the community, and community leaders.

Prior to the merger, the three enterprises were competitors with different work cultures that reflected the strong regional identities of the archipelago. Semen Gresik, founded in 1957, was located in East Java and owned the first cement factory built following Indonesia's independence. SP is Indonesia's oldest cement factory and the source of regional pride for people in West Sumatra. It was established in 1910 as NV Nederlandsch Indische Portland Cement Maatschappij decades before Indonesia's independence. On the other hand, ST, which was founded in 1968 in Pangkajene Kepulauan, South Sulawesi, was a symbol of government support duringthe conflict between the Dutch and West Iran. As the largest cement factory in the eastern part of Indonesia, ST was also a highly regarded company in the region. Thus, becoming subordinate companies was difficult for SP and ST managers and employees to accept.

These regional loyalties became the source of loud protests and the merger was strongly resisted. SP, for example, boycotted the SGG administration and deliberately refused to provide managerial and financial reports for several years. As a result, SGG was criticized for the accuracy of its audited financial statements. The conflicts caused considerable interruption in the operation of plants and stagnated corporate growth. Indeed, the inability to consolidate and integrate the business resulted in a decline of the company's performance.

Thus, like many mergers, SGG faced the common challenges of employee resistance, lack of operational consolidation, and the creation of a unified corporate culture. In his book,Pride of a Nation: The Corporate Transformation of Semen Indonesia, CEO Dwi Soetjipto, who became the new president director/CEO of SGG in 2005, highlighted the following reasons for the hampered merger of the three companies:

1. Lack of trusteach company suspected that the other companies intended to destroy it. The impact was to limit access to the other company's data and information;
2. Hoped for outcomesThere was continued belief that spin-offs might still be possible, which resulted in the companies keeping their distance from each other. Frequent rumors in Semen Gresik had it that Semen Padang would become the parent company;
3. IndependenceEach company acted on their own, blocking and tackling each other in markets where their operations overlapped;
4. Self-interestRising sentiments or regionalism encouraged outside parties to exploit the situation for their own agenda;
5. Demands for equalityPersistent demands for welfare equality within the Semen Gresik Group hampered efforts to foster a feeling of solidarity among the group members.

The Transformation Challenge

As the former CEO of SP, Dwi Soetjipto knew that being CEO of SGG was going to be a challenge. Shortly after being appointed as CEO, top management meetings were mostly characterized by one-way communication. Other executives would just listen to what he had to say but refused to engage in a mutual conversation. They also rejected his idea of further consolidation because they believed that the deep-seated internal conflict made such ideas impossible.

Although aware of the history of conflicts and feuds among the three companies, Soetjipto believed that integrating the three companies was needed to build the foundation of a coordinated management structure for a company spread across three different regions, including Java (SG), Sumatra (SP), and Sulawesi (ST). Importantly, integration was not meant to produce a centralized cement business since each operating company would be given freedom to innovate and develop their market. The difference was that the business would be run more efficiently. And for Soetjipto, consolidation addressed the continued decline of SGG's business performance, which was lower than its private sector competitors. He also believed that integration would require a full understanding of the interests of different stakeholders. His desire to make major changes at SGG kept him moving forward despite the resistance and rejection of his leadership in the early part of his assignment.

From 2005 to 2010, Soetjipto guided SGG through a comprehensive consolidation process. He began by implementing better governance processes and introducing the idea of organization synergy. Soetjipto defined synergy as working relationships among the three operating companies that combined their separate perspectives into a mutually supportive way of achieving shared goals. In 2007, Soetjipto led the creation of a corporate restructuring blue print with implementation plans for each entity. The aim was to combine the production potential of the three operating companies to better cope with growing market demand. In 2010, the company began creating group-level functions in procurement, marketing, quality control, human resources, IT, financial management, and internal audit. Based on a company assessment conducted between 2010 and 2011, these changes improved the company's operational and financial performance but a lack of unity among the three operating companies, manifested in a silo mentality, no common vision, and no unified culture or mindset, remained the main challenge. For this reason, Soetjipto sought the help of an OD practitioner. A local OD consultant and his American partner met with Soetjipto to understand the situation and change requirements. They outlined their general approach to change that addressed Soetjipto's issues.

The Transformation Strategy

When the two OD practitioners met with Soetjipto for a second time, the purpose of the meeting was to establish a relationship of trust with the CEO, get a better picture of the business, and understand the scope of work needed. Financial and non-financial contracting issues were clarified and the scope of the engagement, based on the CEO's desired purpose and business outcomes for the transformation journey, were clarified. Most importantly, a change blue print was initially drafted based on the consultants' experience with large scale changes. It consisted of the transformation of the executive team (Phase 1) and the transformation of the next layer of leadership (Phase 2). The CEO expressed 100 percent readiness and support for the effort.

Phase 1: Transform the Executive Team

Like most large-scale change efforts, the executive team had to be clearly aligned since they would beindividually and collectivelyleading and modelling correct behavior for the entire enterprise. Phase 1 of the transformation involved meeting with the key leaders, assessing the current and desired state, facilitating an executive team intensive, and planning to sustain the journey.

Involve the Key Leaders

The OD practitioners met with Soetjipto for a third time to further clarify the direction of the effort. They listened to his organizational vision, aspirations, and assessments as well as his views about the developmental needs of each member of the executive team. During this meeting, the CEO appointed Irham Dilmy and Ursula Silalahi as internal change agents. Dilmy and Silalahi were internal consultants responsible for implementing the Human Capital Master Plan that was to integrate the human resources systems of the operating companies. The OD practitioners also assured Soetjipto of their support and the anonymity and confidentiality of the process to create a safe environment. The OD practitioners met with the internal change agents to operationalize the change blue print, including the theory and practice foundation for the ensuing change journey.

Soetjipto then scheduled a meeting with the Executive Team (ET) to share the overall conceptual framework of the transformation process, solicit their input regarding the most important conversations for the 2.5-day intensive meeting, and develop their support, buy-in, and commitment. However, geographical issueseach operating company was located in a different part of the countryand the lack of unity among the executives resulted in low participation. As a result, the OD practitioners met with those who were available and made phone calls to those who were not able to attend.

During the meetings, the OD practitioners presented ET members with an initial draft of the change blue print and asked for feedback and input to refine and develop the plan. They also asked the following four questions:

1. What needs to change for each executive?
2. What changes must the ET make to become more effective?
3. What changes must the team lead in the larger organization?
4. What conversations need to take place?

Lastly, the OD practitioners discussed and asked for the ET members' support and buy-in for the transformation journey. Data collected from this activity was not only used to refine the change blue print but also was used to create the data gathering instrument.

Assess the Current and Aspired State

The data collected from the four questions were used to create an interview protocol. Although the consultants wanted this to be a collaborative effort, no one showed up to a scheduled meeting. The local OD practitioner told his American partner that Indonesians held clear beliefs and expectations that external consultants are supposed to do all the work. As a result, they created the most compelling interview questions they could. However, during the first interview it was clear that the questions were neither appropriate or well-conceived. Working with an ET member, the OD practitioners revised the questions.

The new questions were utilized to conduct one-on-one semi-structured interviews with all ET members. In addition, three focus group discussions with random participants from each of the operating companies were also conducted to obtain a richer diagnosis.

The data were collated and presented to the CEO for his feedback and approval. Soetjipto saw the data as valid and reliable, they appropriately addressed the themes and challenges facing the organization, and provided a clear focus for the conversations during the intensive. The data were used as the basis for the design and were shared with members of the Executive Team before the retreat.

In sum, the data gathered during this stage allowed the OD practitioners to understand the reality of the organization's current challenges and aspirations. It also gave the ET a platform to prepare for the transformationof the next layer of leadership during their intensive meeting.

Facilitate an Executive Intensive

Together with the internal change agents, a member of the ET, and an administrative support person from SG, the OD practitioners developed specific objectives for the transformation and designed the agenda for the 2.5-day intensive. The overall purpose of the transformation journey became:

• To optimize enterprise-wide performance through increased consolidation and synergy
• To accelerate the establishment of a strategic holding company with enhanced competitiveness and increased bargaining power
• To define the role or function of holding and operating companies

The business outcomes to be pursued by the transformation included:

• Transform the three operating companies into one integrated and differentiated team
• Create an innovative business in exhibiting organization excellence
• Build the organization into a regional and national leader in the cement industry
• Improve the performance of individuals, teams, operating companies, and business activities
• Speed up the business development process
• Prepare and lead the implementation of changes necessary to achieve the performance targets by 2030

An obvious challenge in this change was alignment among the Executive Team members. For example, prior to the planned intensive, one operating company CEO who did not want to participate asked the Cabinet Minister in charge of SOEs to disapprove of the meeting and save his region's identity. The American OD practitioner travelled to the CEO's office to convey the importance of his presence at the retreat. After convincing him that he didn't need to say anything but just be present, he agreed to attend the intensive.

Ultimately, all 16 members of the Executive Team participated in the residential retreat. In the process, the CEO who reluctantly attended was heard, he heard others' viewpoints, and saw that the agenda was organized around the data collected from the participants. In addition, as the team discovered the ability to listen openly and communicate positively with each other about their organization's current challenges and plans for the future, the ET began to see the possibilities of integration.

Using the collated data reports, the focus of conversation during the 2.5-day intensive was eightfold:

1. identifying SGG's challenges and how to deal with them,
2. recognizing and celebrating SGG's achievements and uniqueness,
3. identifying the challenges and priorities to be addressed in establishing an integrated company,
4. clarifying the vision and mission and how to achieve them,
5. working on ET's relationship and team performance,
6. leadership development,
7. business development, and
8. planning for Phase 2.

Before delving into these conversations, the group engaged in an appreciative inquiry exercise to set a positive and supportive environment. They were presented with the research showing that groups who focus on non-positive issues often lower group productivity rather than improve it. In contrast, group productivity can increase significantly when using an appreciative approach.

Significant time was dedicated to building trust among the ET members. The participants dialogued on the behaviors that create trust and mistrust. Using "feedback to feedforward," the participants exchanged appreciation for each other's strengths and gave suggestions for improvements. Among the important outcomes of the meeting was an improved relationship between the reluctant CEO and Soetjipto, a significant shift in the relationships among the operating company CEOs, and improved relationships among the ET members as a whole. Being Indonesians with a collectivist culture, it was important for them to have a harmonious relationship to drive the business going forth.

In addition, they clarified their vision and missionTo be a World Class Engineering Companyand they identified the priorities and strategies for integrating the company, including the establishment of a holding company to achieve their consolidation and integration goals. They formed a team to plan and drive its establishment, design the organizational structure, integrate its management system, and develop the HR policies and metrics aligned to the organization's vision, mission, and core values. Furthermore, they made a commitment to develop a team characterized by trust, open communication, and unity. This required setting aside the past conflicts and getting focused on the business.

The final outcome was a commitment to hold a large group event which they labelled theTransformationSummitin February 2012. They all agreed that they wanted to use such an event to achieve a faster, more effective, and more economic process to transform the whole organization. The third day of the retreat was dedicated to planning the large group event. The ET was divided into small groups to discuss ideas and suggestions for this event. Report outs following the discussions allowed people to provide feedback and make decisions. One group recommended that the ET should lead a serious conversation about the development of a new corporate culture. They described the aspirations of a new unified culture using the acronym of CHAMPS:

Compete with aClear & Synergized Vision

Have a High Spirit forContinuous Learning

Act with HighAccountability

MeetCustomer Expectations

PerformEthically with High Integrity

StrengthenTeamwork

They decided that an important objective of the Transformation Summit should be to further define and refine this aspiration, to identify the competencies needed to support such a culture, and to develop strategies for its implementation.

Sustain the Journey

The ET left the intensive meeting energized with a new paradigm and guiding principles for transforming their organization. In a meeting with the OD practitioners and three ET members, they translated commitments from the intensive into a project management system. A decision to digitize action plans and commitments for easier monitoring of the implementation allowed the ET to hold themselves accountable for the change journey.

Phase 2: Transformation of the OrganizationTransformation Summit

In Phase 2 of the change, a design team was convened to plan the large group summit and establish logistics for the meeting, facilitate the intervention, and sustain the journey.

Planning the Summit

Planning for the transformation summit was done by a design team comprised of the OD practitioners, the internal change agents, a member of the ET from SG, the human resources directors from each operating company, and an administrative support person from SG. Based on the data and results from Phase 1, the design team chose the theme "One Team, One Vision to be the CHAMPS" for Phase 2. With this theme, the Executive Team wanted the Transformation Summit to create a deep paradigm shifta breakthrough. This breakthrough meant a personal transformation for each individual and a collective shift in mindset across the operating companies embracing the new corporate culture of being the CHAMPS.

The cultural norm of hiring an OD consultant to do all the work for the organization was a challenge in this stage of the process, especially for the American OD practitioner. When the OD practitioners were asked by the internal consultants to prepare everything for the large group meeting, the OD practitioners explained to them and the rest of the design team that traditional OD processes valued engagement and participation. It was very important that they be involved in and take ownership of the design. Clarifying the roles and strengthening the relationships between the OD practitioners and the internal change agents was an important part of the process.

A total of five days was spent with the design team to plan the Transformation Summit. The OD practitioners struggled to empower someone from the design team to own the development of an agenda and facilitation notes. It was an important issue because the meeting was going to be conducted in the Bahasa Indonesian language. The American OD practitioner needed to have complete faith in the person in control of the script and facilitation because he could not intervene in real time during the large meeting. Although he would be provided with a translator, it was best that the planning team be united in their understanding of the purpose and agenda so that if adjustments and corrections needed to be made in the moment, they could do so without reliance on the OD practitioners. Finally, a woman from SP said, "I will take the challenge." In the end, the design team produced a 60-page document detailing the activities and exercises to be followed in the summit. All instructions, scripts, and facilitation processes were translated from English to Bahasa Indonesia.

As part of the planning process, the design team chartered a logistics team comprised of interested HR executives from throughout the organization and led by the General Affairs staff of SGG. They worked closely with the design team early in the process of the design to ensure that the details of the space, materials, food, room set-up, equipment, supplies, and timing were aligned with the summit's agenda. A "staging day" was held the day before the event to set up the room, prepare all that was needed, and allow the facilitators and ET members to rehearse their roles and presentations.

Facilitating the Transformation Summit

The Transformation Summit focused on building trust among the leaders of the three operating companies (Table 1). One hundred twenty five leaders from throughout the company were facilitated through conversations and collaborative decision making about the issues identified by the ET during Phase 1, including achieving the company's vision and mission, establishing and designing a strategic and legitimate holding company, and refining and defining the competencies needed to support the CHAMPS culture as well as strategies for its implementation.

Table1.High-level Transformation Summit Agenda

Day 1	Day 2	Day 3
Summit purpose & outcomes	Feedback from Day 1	Feedback from Day 2
Orchestra exercise	Prioritizing working/not working issues	Board of Directors exercise
Executive Team's (ET) Vision of the Future	System-wide action planning on priorities	Breakoutshow to engage rest of the company
Small and large group discussions about the challenges of creating a holding company	Hopes and appreciation of operating companies	System-wide communication
ET strategy presentation	Reflection and feedback	Personal commitments
Dissatisfaction, vision, and clear first steps exercise	Evening group Performance: Talent show	Commissioner inspirational send-off
Reflection and feedback
Evening socialization activity

The transformation summit began with an exercise that honored each region's identity but spoke to the importance of integration. Using the metaphor of an orchestra, where very different instruments work together to create a beautiful sound, the exercise prepared people psychologically to hear CEO Soetjipto speak about the vision and the "what and why" of establishing a holding company. After his presentation, participants were encouraged to ask clarifying questions. Participants then discussed at their working table their concerns around reaching the holding company vision. This was presented in the whole room for further discussion to identify actions and commitments.

After the above activity, the ET presented the strategy and they proposed milestones for setting up marketing and distribution, logistics and procurement, R&D, finance, human capital, and IT functions. These included system-wide structures and processes. Based on what they had just heard, the participants engaged in dialogue, clarified questions that were answered by the ET, gave their ideas on the advantages of establishing a holding company to their business, and provided their input on how they could support the holding company. Time was also allotted for a conversation on the corporate culture, values, and competencies needed to support the new organization.

An internal change agent then introduced the next activity. He emphasized that successful transformations required a clear understanding of people's dissatisfaction with the current situation, the creation of a positive future vision related to the CEO's presentation, and a concrete set of first steps to reach the vision. Under these conditions, transformation in the people begins to happen and resistance is reduced. The participants discussed what was working well and what was not working well. They were encouraged to write their answers on flipcharts which were collected for the next day's activity. Selected tables reported to the whole room so everyone received a sense of how people were thinking about the system they were working in.

At the close of the day, participants shared their reflections, evaluations, and suggestions to improve the facilitation for the remaining days.

The second day of the summit began with a synthesis of Day 1 feedback followed by a summary of the "working well" and "not working well" outputs from the last exercise. All these items were posted around the room and each participant was given colored sticky dots to identify his/her top three "working" and "not working" focus areas. With this exercise, the top issues for the group quickly emerged. Working at their tables, participants brainstormed actions and commitments using the top five priorities for each category. Then they created action and commitment plans needed from the individual, sub-function, and company levels to move the whole organization to where they would like it to be. This was breakthrough work.

Two big priorities that surfaced were related to building trust and relationships, hence ample time was devoted to trust building activities accompanied by a sharing of a model of trust and openness. To heighten the three operating companies' experience of building relationships, a classic OD intergroup conflict activity was modified for use in this situation. The large group was organized by operating companies and each group was asked to provide responses to three statements:

1. This is what we want from the other operating companies. . .
2. This is what we appreciate about the other operating companies. . .
3. This is what we want you to know about our operating company. . .

With this activity, another major shift took place as evidenced by the almost continual laughter during the report outs. The list of appreciations presented about the other groups contained deep sarcasm stemming from the tension and conflict that had built up for more than a decade. Since Asian culture is not confrontational by nature, this exercise gave the participants from each operating company the opportunity to express feelings that had been bottled up for years, to therapeutically release the ill feelings and negativity so that they could unite for a positive future. It allowed the participants a venue for an open dialogue.

The day ended with a sharing of reflections. One of the internal change agents facilitated a creative panel interview with three members from the Board of Directors who were encouraged to share their reflections and the highlights of the past two days. This was followed by a sharing of reflections and participants' feedback. In general, the participants expressed their satisfaction with the whole process. They shared that this was their first time to come together as a group and yet they were appreciative of the open and honest communication, sharing "here and now" experiences and reactions, and giving and receiving feedback to and from each other.

After dinner, a "talent show" took place to celebrate their hard work and accomplishments. Among the highlights of the evening was a song of spirit and community sung by an HR director that helped everyone think about becoming "one brain, one heart" and the playing of "We are the Champions" by the musical group Queen that fit with the theme of their new cultural aspirations.

The third day of the summit began with a presentation of feedback from Day 2. This was followed by an activity to improve the relationship between the Board of Directors and everyone else present. They exchanged appreciation for each other's strengths, provided suggestions for improvements, and made requests and offers on how the Board could better lead the group. This was followed by activities to identify ways to engage the rest of the organization after the summit. The participants agreed on ways to communicate the results of the summit to their respective organization going forward. The summit closed with two executive team members sharing their personal commitments on stage in front of all and a send-off speech from the government's state-owned enterprises Commissioner.

The outcomes from the Transformation Summit included:

• a clear understanding and acceptance of the rationale for establishing a strategic holding company
• a stronger commitment to institutionalizing the new corporate culture values
• a more trusting relationship between the executive team and the next layer of leadership
• a clear picture of what success would look like with comprehensive first steps and actions at the individual, unit, and system-wide levels
• a strong commitment to sustaining a long-term transformation journey

Sustaining the Journey

The summit was followed by immediate engagement of the entire organization and the translation of actions and commitments from the summit into an accountable project management system. Among the major steps that were initiated to support the implementation were the following:

1. A multi-level communication plan played a crucial role at the beginning of the implementation.The slogan, "From Gresik to Indonesia" was created to inculcate in the minds of all stakeholders that the name change was about building pride for their country and not just for their own region. It was included in every communication about the change.
2. To develop and improve coordination for a shared goal, the ET approved a new reward system element. Seventy-five percent of a person's bonus was based on the achievement of the holding company's revenue objective and 25 percent of the bonus was based on the individual operating company's revenue target. This sent a message to the employees about the importance of consolidation and working together.
3. Corporate governance practices were changed in accordance with the principles of transparency, independence, accountability, responsibility, and fairness in the company's financial statements. Financial statements were audited by an independent auditor and presented with transparency to shareholders.
4. A culture of innovation was supported by implementing incremental and breakthrough innovation programs.
5. The Indonesian Cement Center of CHAMPS (SICC) was established to keep abreast of the current competencies and resources applied towards SMIG's world-class competitiveness.
6. Important human resources policies were announced and implemented to retain employees. The ET assured all employees that the consolidation process would not interfere with their careers and gave employee engagement an important boost.
7. A permanent transformation team of internal change agents was established to monitor and plan the next stages of the change process.
8. The Executive Team worked hard to model the changes they were asking of others. They demonstrated to the whole organization that they were able to go beyond the past conflicts and form synergistic working relationships.

Evaluation: Impact of the Large-Scale Change

Merging three companies that had been committed to their regional identities was not easy and took many years to complete. The consolidation process led by Soetjipto in 2005 and the transformation events led by the organization helped integration occur where it mattered most. Ten months after the Transformation Summit, SGG successfully acquired Thang Long Cement in Vietnam and positioned SGG as the first state-owned multinational corporation and the largest cement company in Southeast Asia.

Shortly thereafter, the leadership team successfully implemented the name change from Semen Gresik Group (SGG) to Semen Indonesia (SMIG) to formally establish the strategic holding company. The smooth process, one that proceeded faster than planned, symbolized the "oneness" that had been created during the transformation events. The formation of SMIG allowed the operating companies to be viewed as equals. Other major changes included:

Clearly separated holding company and operating company roles and responsibilities under separate legal entities.

Allowing the holding company to leverage marketing, finance, IT, R&D, procurement and other functions in service of lower costs for the subsidiaries.

Creating the infrastructure for future regional and international expansion through acquisition of other cement companies.

By 2012, the company recorded the largest profit among all cement companies in Indonesia. As shown inFigure 1, SMIG's profits have grown quickly since 2005.

Figure1. SMIG Profit Growth, 1995-2012