Newsmaker Interview: Ignasius Jonan
The CEO of the state railway talks about trains and serving the customer
By Mary R. Silaban
Thursday, October 2, 2014
For years Indonesians have had a love-hate relationship with their state-owned rail system. Shoddy infrastructure, bad service and delays were all part and parcel of what is still an essential transport service for a huge chunk of the population.
But that started to change in 2009 when Ignasius Jonan became head of Kereta Api Indonesia (KAI), with many saying he brought a breath of fresh air to Indonesian trains.
When he joined the state-owned rail company, Jonan was faced with 27,000 employees with low expectations in terms of work quality, a financial deficit (in 2008 it lost Rp 82.6 billion), and a high percentage of substandard or broken locomotives, diesel trains, freight cars and crumbling stations.
Yet in only five years, the former Citigroup Managing Director and Head of Investment Banking for Indonesia (2006-2008) has overseen a thorough facelift of the company’s structure and services, restoring the population’s faith in trains as a reliable mode of transport, once more feeling happy to let the train take the strain of their transport needs.
Jonan, who is now KAI’s longest serving CEO, shared the story of his success with AmCham Indonesia.
AmCham Indonesia: In only a short period of time, you have changed the image and mindset of the company. What did you do?
Ignasius Jonan: I changed the mindset from a “product oriented” company to a “customer oriented” company, which translates into changing the organization structure. This company exists for the consumers, so divisions that are not customer oriented have been removed. This company used to care least of all about the customer.
When the Cipularang toll road opened, people of course opted for car travel because it’s faster. As result, the Jakarta-Bandung train route experienced huge losses, and my employees told me it was because of the new toll road. I told them not to blame the toll road. There’s nothing we can do about the toll road. Are we going to close the toll road to win customers back? We improved the services and now the Jakarta-Bandung route occupancy has rebounded to 80 percent from previously 30 percent. As a matter of fact, almost all of our passenger routes show a high occupancy rate.
I also introduced the concept of reward and punishment. Before I came in to the company, the head of Gambir Station received take home pay of Rp 2.75 million; today he receives Rp 20 million. Now everybody can see how good the Gambir station is.
I clearly state the rules and the expectations of this company, including zero tolerance for those who practice corruption – they will be fired right away – and I advised people who cannot accept the new management style to resign. During my five years here, 1,300 employees have resigned, that’s 5 percent of the total workforce. But I am glad that it’s only 5 percent out of 27,000 employees. If it was more than 10 percent, that means this company is hopeless.
It’s interesting that you, with little knowledge of the train business, have changed the company. What’s your secret?
I believe that train management is a universal business and the rest is technical knowledge. Banking and the train industry are both customer focused - I didn’t feel inferior when I came to this company, because I knew many people who had worked for this company for decades and didn’t even know how to run the company properly.
You improved everything at the same time; from employees’ remuneration and the fixing and refurbishment of assets to passenger services. Where did the money come from?
The money comes from the consumers. We have to believe that when we make improvements people will pay for the service. And improving the service is a business, not a hobby. Every little change you make should be calculated in numbers ‑ how much will this affect the ticket price?
What is your view of public transport policy in Indonesia?
I cannot comment on public transportation, whether it is good or not. What I can say is that the implementation of the policy in many cases is not synchronized.
Let me give you some examples. For years I was proposing a single ticket system between the TransJakarta Busway and the trains without getting any positive feedback. But now the proposal has been approved by [Jakarta Governor and President-elect] Jokowi, so Jakarta will adopt this system soon.
In the case of port transportation, many people have asked me why the trains can’t get into the Tanjung Priok Port to speed up the transport of cargo. I have talked to people at the port and they always say that they support the idea, but the fact is, up until now I can’t get the trains in. And I know it is because some of the people there own trucking businesses.
Recently, there was an idea to build a Jakarta-Bandung high-speed railway funded by loans. I’m against the idea and I think the money would be better spent building a trans-Sumatra or trans-Sulawesi railway. I know opponents of my idea say that building railways for those areas is nonsense as the market is not there, therefore the usage rate is low. But loans, which would be repaid by our state budget, should be used to build the economies of other regions to bring prosperity to the people. You can’t just use the state budget to cater to the affluent.
The quality of public transportation is another issue, it goes up and down. You know that all ships and planes coming into Indonesian territory must be certified. The problem with certification is that the certification bureaucrats only have a slight understanding of how the industry works. I think it would be better if an international certification bureau does the job.
I believe if we can change these basic things, it would significantly change the face of Indonesian public transportation.
Is the train business attractive to investors?
The law accommodates private/foreign investment in trains, but I think it’s not attractive due to low commercial returns, especially for passenger trains. PT KAI has achieved a profit - last year it was 7 percent of sales - but it hasn’t achieved a commercial return, which should be at least 10 percent. In this type of exchange rate and inflation regime, commercial profit should be double the deposit rate, or about 16 percent. But no passenger railway company in the world can achieve that because it is public transportation.
You’ve achieved success in a big state-owned company in such a short period of time. What’s your take on the management of state-owned enterprises (SOEs) in Indonesia?
SOEs belong to the people of Indonesia, therefore the appointment of the CEO should be based on competency. The preference should not be based on ethnicity, political affiliation or gender. This company now has a female stationmaster for the first time ever in its 150-year history. This is part of a new spirit that has changed the company culture. I am glad that now the appointment of SOE directors has also gone in that direction.
In a company like KAI, which is a customer oriented business, the employees must realize that everything they do is for the comfort of the customers. I know that in many companies, employees care most about pleasing their bosses, not the customers.