Report No. 4965-ND

IndonesiaManagement Development(In Three Volumes) Volume 1: Executive Report

May 20,1985

East Asia and Pacific Regional Office

FOR OFFICIAL USE ONLY

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FOR OMCIAL USE ONLY

[NDONESIAMANAGEMENT DEVELOPMENT

A Multi-Donor Sponsored Study

i*orld BankUnited States Agency for International Development

International Labor OrganizationOverseas Development Administration, U.K.United Nations Development Program/DTCD

Ford FoundationFrench Ministry of External Relations

Team Leader and Principal Author Other Team MembersNagy K. Hanna, World Bank Benjamin Fisher, World Bank

R. Johnson, ConsultantMain Contributors: National Planning Agency, IndonesiaSamuel Paul, World Bank J. Butterworth, CorsultantRobert Boynton, Consultant, The American University of Leeds, UK

University, USA C. de Bettignies, Consultant,Victor Powell, International Labor French Foundation for

Organization Management DevelopmentK. Davey, Consultant, University of (FENEGE) and INSEAD.

Birmingham, UK M. Bicheron, Consultant, (FENECE)K.B.S. Murthy, Consultant, Indian Institute R. Hirono, Consultant,

of Management at Ahmedebad (IIMA), India Seiki University, JapanRolf P. Lynton, Consultant, Ministy of I. Khanna, Consultant, IIMA

Health, Indonesia G. Glentworch, OverseasWilliam Schaffer, Consultant, Ford Development Administration, UK

Foundation P. Mawhood, Consultant,University of Birmingham, UK

Local Consultancy Carlos Ramos, Consultant,LPPM (Indonesian Insticute for Philippine Executive Academy

Management Education and Development) A. Sharshar, Consultant,Virginia Commonwealth

Other Local Contributors University, USAHundreds of Indonesian managers, policy Roger Bancroft, Consultant,

makers, educators and opinion makers State University of New Yorkhave contributed to the study W.K. Holestein, Consultant,through extensive interviews and University of Leeds, UKgroup discussions Dragoljub Kavran, DTCD,

United Nations

EditorLucy Keough, World Bank

Tbis document has a restricted distribution and may be used by recipients only in the performance oftheir offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.

INDONESIA

MANAGEMENT DEVELOPMENT

SYNOPSIS

BackgroundThis study was initiated at the request of the Government. It

represents a colLaborative effort of sponsoring aid agencies and Indonesianbusiness leaders, educators and managers. A shared understanding of country-wide management issues has evolved from a large number of intensive interviewswith policy makers, managers and administrators. Based on this understandingthe study team proposes the broad outlines of a long-term strategy for manage-ment development and a structured learning process for carrying out furtherthe detailed design and implementation of this strategy.

The study addresses a series of management development issues inIndonesia. They include: present performance problems and common practices;learning processes within organizations; capability of local managementeducation and training, consultancy and research institutions; and the impactof certain public policies, systems and structures on managerial and insti-tutional performance and development. As past significant achievements ofIndonesia's economic development are known, particularly in nation buildingand macroeconomic management, this review focusses on the improvements neededfor effective management of institutional changes to meet the demands of anemerging new environment.

Findings

There is a growing awareness of the costs of inefficient andineffective management and of the need to mobilize and develop further theentrepreneurial, managerial and leadership resources of the country. Thestudy highlights the costs in terms of policy and investment implementationproblems, low productivity, poor maintenance, slow development of humanresources, and perhaps more importantly, in terms of limited institutionaladaptation and inability to exploit potential commercial opportunities andreach target beneficiaries. Progressive managers are deeply concerned withthe dominance of macro constraints to their performance, the scarcity ofentrepreneurial attitudes, the need to acquire new skills to manage increas-ingly complex institutions under environmental conditions of growing diversityand uncertainty, and the appropriateness of transferring foreign managementtools to Indonesian institutions. Progress in addressing these concerns hasbeen limited by: (i) the lack of broad policy and promotional forums; (ii)the limited attention of senior managers to these issues; and (iii) theabsence of systematic effort and long-term perspective to promote and sustainthe necessary changes.

A review of the managerial environment suggests that certainhistorical and cultural factors and managerial practices tend to inhibit thedevelopment of Indonesia's entrepreneurial, managerial and institutionalresources. The study suggests that further research on these factors is

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critical to adapt management improvement efforts and systems to the oppor-tunities and constraints that such factors present. Technical assistance formanagement and institutional development should employ this understanding in acollaborative effort to build on cultural strengths and thus make presentpractices and institutions even stronger. In particular, the powerful "rolemodel" of the senior manager as the "father figure" may be used to nurturesubordinates and promote new managerial standards, while minimizing itsauthoritarian and centralizing aspects. Systematic efforts to inculcateentrepreneurial attitudes, support experimentation, and develop systems andincentives to reward responsibility and risk taking can overcome the coloniallegacy which fostered passive attitudes.

Most of present managerial practices, such as excessive central-ization, limited delegation, and preoccuparion with controls and standardizedprocedures and solutions, are the result of adaptation to historical con-ditions and limited managerial skills. However, accelerated change of thesepractices is necessary for effective functioning in the emerging environmentas this environment is Likely to be highly competitive, complex, diverse andfast changing. This environment will put a premium on the role of managers informulating policies and strategies, in developing human resources and leader-ship succession within organizations, and in creating cultures, incentives andprocesses that promotes organizational learning and high performance. Ifsignificant and sustainable improvements in managerial practices are to beaccomplished, Indonesian managers themselves will have to be both the primarymotivacors and overseers of this change. Systematic examination of successfulprograms and institutions should yield important insights for promotingeffective "home grown" managerial practices and technology. Highly successfulprograms such as Family Planning and INPRES suggest ways to decentralize, tobuild on the strengths of local institutions, to adapt to varying implemen-tation capabilities, and to promote learning by doing through phased coverageand diversification of program activities.

While historical and cultural factors impose certain constraints,there are also key public policy and institutional factors with pervasiveimpact on the development and effectiveness of management in Indonesia andhence require further improvements. Public expenditure pLanning and budgetingand financial contr I systems are too centralized, short-term, and rigid tomeet the increasing need for strategic and long-range planning and timelyadaptation. Civil service policies need further improvements to reward full-time job commitment and high performance and to support responsibility-taking,on-the-job learning, and other management development processes. Theincreased need for policy analysis, effective implementation and continuousadministrative improvement suggest further improvements in the policy supportsystems, career streams, organizational structures, and the linkages among thecentral policy-making agencies. Effective decentralization in the managementof development activities calls for further improvements in the systems,staffing, and funding for those functions that could be most effectivelycarried out at lower levels of government. Regarding public enterprises, theneed is to move from ad-hoc operational intervention towards formulating clearobjectives, strategies and medium-term corporate planning processes. Otherareas for policy improvements include the selection, motivation and develop-ment of managers and subjecting the role of public enterprises to continuous

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and systematic review. Finally, the study identifies some of the problemareas in government-business relations and suggests improvements in theregulatory environment, communication channels, and support services, andorganizing policy dialogues between private and government agencies.

The study reviews overall performance problems and needs of thecentral and local government agencies and public and private enterprises andassesses in-service management training within these agencies. The mainconclusion is that there is a significant imbalance between the economy'sneeds for qualified managers and the present capacity to develop such staff.Most significant deficiencies are the lack of organizationally-based (inhouse) management development systems, the relative isolation of LAN anddepartmental training centers from line management concerns, the theoreticalorientation of training, and the low status, inadequate incentives and lack ofcareer streams for full-time trainers. Since the completion of this survey,LAN has initiated several activities to improve civil service training in linewith the recommedations of the study. Local government management trainingand development programs suffer, in addition, from inadequate adaptation ofthe programs to the specific needs of various regions. With the exception ofthe Agriculture Training Institute, the sectoral training centers of publicenterprises and most in-house training at public and private enterprisesneglect management training and reLy on external short-term training withoutthe benefit of a plan or system for managerial and organizational develop-ment. Management training opportunities and advisory services for smallbusinesses and cooperatives are insignificant in contrast to the large size ofthis target group. Management consultancy firms are in their infancy, but,with appropriate national policies for their professional development, theycould make a valuable contribution to improving managerial systems andpractices.

The review of formal educational institutions suggests that there areserious deficiencies in the productivity, quality and relevance of managementand public administration education programs at most public and privateuniversities. Among the major contributing factors at public universitiesare: (1) the weak link between educational planning and employers' need; and(2) low salaries, weak incentives, and inadequate organizational structuresand measures of performance to promote excellence in teaching and research.While perhaps common to all disciplines, these constraints have a particularlynegative impact on management and public administration education since thistype of education needs to be adapted to the Indonesian environment and linkedto the real problems facing practicing managers to be effective. Creating amanagement and accounting faculty (distinct from economics) at the majorpublic universities would promote a less conservative and more entrepreneurialand practical approach to management education. The major constraint to theproductivity and quality of management education at private universities isthe shortage of finance for faculty and facility development, and thus thelack of an adequate number of students and faculty to allow economies of scaleand excellence. However, since private institutions are not constrained bycivil service policies or the bureaucratic culture of public universities,they have greater potential for innovating and responding to business needs,as LPPM has demonstrated. Public administration programs at public univer-sities suffer similar problems, with the additional factors of limited access

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to data for research on public management performance problems and weak linksto local government development needs.

Recommendations

The study team has examined an extensive number of options and meansthat were proposed by many concerned Indonesian participants or based on abroad range of international experience and some promising Indonesianmodels. A coherent and long term strategy for management development hasemerged from this examination. The strategy emphasizes the broad involvementof managers in the creation of a sustainable management development processand of national forums and organizational mechanisms to promote, guide andevaluate this process. The proposed strategy is not a blueprint plan.Rather, it involves a learning process that would generate consensus andcommitment for change and would further elaborate, experiment, monitor andredesign the various elements of the strategy in light of experience. Thestrategy aims at institutionalizing government policy intentions to achievenear self-reliance in management education and training; improve managerialprocesses, systems, and practices; and create an environment that promoteshigh managerial performance.

The strategy has four basic elements. First, various nationalforums, ministerial task forces and promotional activities are proposed toformulate national policies for management development, to initiate and manageorganizational development activities in key agencies and sectors, and topromote self-help management development and public recognition of outstandingmanagers. A national advisory Forum for administrative development is pro-posed to advise the Ministry of Administrative Reform on policies for manage-ment development of the civil service and to provide a forum for promoting andevaluating administrative improvements. Similarly, it is recommended that theGovernment promote and support some of the emerging associations and pro-fessional forums for promoting enterprise management development, such asPERMANIN to provide a forum for dialogue between the public and privatesectors and to support various promotional activities for enterprise manage-ment development.

The second element is the development of management and publicadministration education and training institutions. University undergraduateprograms may stress practical learning in the main functional managementareas. Increasing emphasis should be given to Master's level programs inenterprise and public management at faculties that are independent of theeconomics and social sciences. Management and public administration perspec-tives could be infused into the curricula of other professional schools,particularly at the engineering and agricultural institutes. Cooperativeprograms and resource sharing need to be promoted among faculties of manage-ment and public administration within and among universities. A selectiveapproach to assisting public and private universities is suggested, withincreasing focus on some promising private management institutes. Within thecentral government, a high priority is given to LAN's organizationaldevelopment to play a leading role in upgrading public administration trainingthroughout the departments, to limit its direct training to the highestadministrative levels, and to build its capabilities in advising on adminis-

trative reforms, consultancy services and research. Phased assistance toupgrade the departmental training centers should be closeLy Linked to thedesign of programs, systems and processes for organizational and managementdevelopment, and to the involvement of the senior administrators of thesedepartments in managing these broad changes.

For the local governments, the focus should be on strengthening theMinistry of Home Affairs' training center as the leading institution tosupport planning and evaluation of regional training needs and to develop thenecessary software and provide the specialized services to the proposedregional training centers. It is proposed that 6 to 7 new autonomous regionaltraining centers be established which would integrate on a regional basis allin-service public administration training at provincial training institutionsand would involve the local administration and universities in adapting theseprograms to the needs of their regions.

For public enterprises, the agriculture training institute may befurther developed into a model for management training and services for theagricultural enterprises. The government may assist in the creation ofmanagement development systems within all large public enterprises and involvepublic enterprises in the planning, finance and evaluation of their respectivesectoral training centers.

FinalLy, several of the promising private management educationinstitutions (that have emrged since the beginning of this survey) deserveGovernment recognition and support. Some of these institutions could befurther developed into models of excellence and couLd be financed to supportother management education institutions and universities in the development ofcase studies, research and consultancy, innovative teaching methods, and otherqualitative improvements. A gap may still remain in addressing long-termnational priorities in management which may require a joint government-privatesector effort to create, over the medium term, one or more national institutesof management. Specific policy measures should be considered to enhance therole and contribution of private mangement institutes to improve managementdevelopment and the managerial environment, such as, government recognitionand accreditation of graduate programs of these institutes, excempting themfrom taxes on imported books, facilitating access to student loans, andallowing for adequate experimentation and autonomy to promote innovation anddiversification among these institutes.

The third element of the strategy is a set of national programs todevelop: (a) core management faculty teams; (b) local cases, relevantteaching materials, and 'action learning' methods; (c) mechanisms forinvolving clients in shaping training programs; (d) management consultancyfirms and associations; (e) national fund and agenda for management research;and (f) study tours to expose policy makers and business leaders to successfuladministrative reforms and models of managerial excellence. The governmentmay also support professional and industrial trade associations to sponsor anational management development and productivity movement, perhaps adaptingfrom the successful experience of Japan.

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The last element is to improve the managerial environment.Improvements in overall public policies and systems would be critical forsustainable progress in management development and for widespread improvementsin the management of scarce national resources, including managers andinstitutions. Priority areas for which task forces may be established andforeign technical assistance may be used are: civil service policies (compen-sation); administrative decentralization and local government administrativedevelopment; public expenditure planning and financiaL management systems;management information and evaluation systems; government control systems ofpublic enterprises; and regulatory policies influencing business managementdevelopment.

To phase implementation, an action program has been identifiedcomprising those measures in the strategy which can get underway immediatelyeither because the issues they address are urgent and Lend themselves to nearterm solution or because they represent prerequisite preparation and Learningfor other activities. The activities proposed by the study team are summar-ized in table I and are estimated to cover the first two-years of the long-term (ten-year) strategy. Further design and implementation of the long-termprogram will require careful planning, phasing and monitoring, taking accountof the synergy among the four main elements. No single "super agency" wouldbe necessary or feasible to impLement this program. Rather, most activitieswill be led by the senior managers of the line agencies or the managementdevelopment institutions. Task forces may provide a flexible organizationalmeans to formulate and manage tailor-made organizational development programswithin the central agencies and line agencies. Technical assistance teams maybe provided by aid agencies to provide analytical support and cross-countryexperience to the Indonesian task forces. Similarly, inter-ministerial taskforces provide a national mechanism that would selectively address priorityareas of policy reforms and draw on the capabilities of various nationalagencies to move from general intentions to the specific design and implemen-tation of reforms.

The underlying theme in the learning process recommended is theinvolvement of the Indonesian managers themselves. Managerial andInstitutional development efforts require long-term commitment and adoption ofcollaborative and learning approaches which engage clients in self-improvementand permit continuous adaptation in light of experience. This effort, there-fore, can only succeed if the senior Indonesian managers take the lead inpropelling this process forward. However, aid agencies can play a supportiverole in this process. The study reviews previous experience with technicalassistance for institutional development in Indonesia and suggests that moreattention should be given to adapting institutional development approaches andmanagement tools to take account of the cultural and behavioral aspects andthe policy environment. Further assistance may be pursued both through directassistance (specialized projects) to the proposed management developmentforums, institutions and faculties, and through systematic support to insti-tutional development in the context of investment projects. Indonesianmanagers and educators may also familiarize themselves with the wide spectrumof services and various country experiences with management development sothey can make informed choices. While the responsibility for follow-up restswith the Indonesian government and business leaders, donor agencies may

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facilitate the implementation process through informal coordination amongthemselves and dialogue with designated government and business forums.

Since the completion of this survey, the Government has takenimportant measures to improve civil service training and management education,the supervision of public enterprises, and the regulatory environment for theprivate sector. Among the notable examples are the recent decree governingmanagement methods and supervision of state-owned enterprises, the creation ofa national steering comnittee to promote the mobilization and effectiveutilization of foreign aid for overseas training, the initiatives of LAN, thecreation of a sectoral training center at the Ministry of Industry, World Bankassisted trining for administrators of the Ministry of Education, expandedoverseas training, improving the slaries of civil servants and integratingsome of in-kind payments into the basic salary structure, the establishment ofseveral private management education institutes and the reforms of theInvestment Coordination Board (BKPK) and of regulations governing exports andimports. Also, the Government has recently clarified its priorities forforeign assistance in the areas covered by this report (see table 2). It ishoped that further technical cooperation would reinforce these recentinitiatives and would be guided by Government priorities and the overallstrategy suggested in this report.

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Table 1: THE ACTION PLAN

For public administration For enterprlse managemunt

1. Forum to Cuide Administrative Development 1. Forum to Promote Enterprise Management Develop-(a) Set up Natinal ADvlsory Forum on Public ment

Administration Developmunt. ((a' Assist exinLing buit lWiaLud foru.m cv(b) Set. up Ltitecageucy cask fuacru fur liClicy evuLve tanfrdb provldlug Fo icy advisory

studies; and intr- gency gask forces for linpts to government on enterprise manage-organizational development programs. eanc development (e.g., PERKANIN).

(c) Tnitiate publit campaign to promote (b) Sponsor a national management develupment/miaagerial excellence. productivity movement.

(d) Mobilize public and foreign aid resources.

2. Avaistance for PubILe Mnamement Development 2 Assistanca for Enterprime Management Develo- -lastitutions ment Institutions(a) Upgrade LAN's SESPA and Its consultancy (a) Consolidate faculties of management at

and research. selected state universities.(b) Assist selected publlc administration tb) Assist promising private management educa-

faculties at sLate untversitles. tlon lnstitutions, especially outsideCc) Estabilsh full-time positions and career Jakarta; some may evolve Into national

for tralnors; assist traLning centers at Institutes of mangement.Flneure. Hoae Affairs and Educatton. (c) Develop managaucnt trairing .d consul -

Cd) Establish one regional training center; tancy at LwP and few othat selectedassist Home Aftairs' role in decentrall- sectural training centers.

Ing local government training. (d) Study alternatives to meet management

development needs of small enterpriscu and

to develop a national supervisory trainting

progrm.

1. Support ProgTams tro Facilit&te Pubti Manurap- 3. Support Programs to FaciJtrate Interprise Macia-

sent Development emhnt Develop ent

(a) Apply ;managerlal skill profile analysis" (a) Fund overse.a training for management

to mintstries and central gutdmnee faculty at public and private universities

agencie. and sectoral training centers.

(b) Initiate a senior executive development (b) Recruit and train selected retiring enter-

program. prise managers to become trainers.

(c) Fund overseau traLntng for nubile ndmttls- (.1 Fund a nationa. program for developing

traior. faculty ds.welopi'wlt. training materials and teaching methods.

(d) Expand in-country foreign language (d) Support INKINDO to Initiate development uf

training programs. particularly In support local management consultancy firma;ol overrees training. conrultancy at MOF for public enterptises.

(e) Fund a natinal program for developitg te) Establish ntional fund and agenda for

training naLerimls and tenching methods. management research.

(f) Initiate an tn-country program fur

developnSg senior executtves.

(g) Support a national management development

movement and study tours for business

leaders.

A. Policies to Improve Adminitcrative E.nvironmwnt 4. Policies to Isprove Managerial Environment

(a) -mprove civil servlce policies. starting (a) improve corporation planning and control

with com-panation and development of eyo"e s go°erning pubJIr enterprine

ranagerr. -ana;genent.

(b) Accelerate decentralizatton =easures. (b) Improve vegulatory policies influencing

(c) Introduce medium-term investment pr4grau- private business management development.

ming. starting %Lth tiae wtnre 3dvmincd (-; Accredit the graduate programs uf private

ministries and puipli.: enterpr.ses. manaeu,ent Lducatlon lnstItute,. exempt

(d) Strengthen the Natinal Group on them from taxes on imported books and

Autonat on. materials, fecilitete accews to student

loaIaGS and allow f.r adequat: experlaen-

tation and autonomy to promote innovatton

and diversification.

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Table 2: PRIORITIES OF GOT FOR MANAGEHENT DEVELOPMENT

No. Subproject Objectives

I. Conduct a program to identify managerial skills - should be expanded to cover all managerialneeded in departmental and non-departuental Echelons and to develop need assessment capabi-agencies. litics within the central department and non-

departmental agencies, as well as lucalgovernments.

c. Conduct senior executive development programs - to initLate pilot programs targeted at seniorin Indonests. executives in public and business managesent,

using consortia from IINA, AIM. INSEAD, etc.- LAN to collaborate with other reputed univer-

sities to delivery semLnars for Echelons I andII.

- program to be cond-acted in Indonesia to reacha large audience.

- can.later be lnstiruionalized into executivestaff colleges in Indonesia.

3. Overseas traJning for management teachers and - to accelerate management development ov sendlagtrainers, cenitral and local goveLrnmenc adiatnis- teachers/trainers for degree programs, and fortrators, aud senior enteprise mLanagers, top mnagers to raise awareness about manage-Including the private sector. aent development in their inatitutions and

enterprises.

4. Expand in-country foreign language training - to enable sending participants for overseasprograms. training.

- to study and establish a new English languagecenter

- to strengthen existing language facilities- to study foreign language needs other than

Engllsh- to study language needs in the provinces.

5. LAN institutional development - Institutional development should focus onCumpurmerars building tnsttitriomla u imagement capactty,a. staff development staff development. library and teachingb. teaching materials materials, currlcula development, and a capa-c. research & consultancy city to service public management training andd. library Jevelopment training of trainers for all ministries.e. technical assistance. - Introduce Senior executive development programs

(seminars) for Echelons I and II.

6. Creating full tim positions for trainers In - to accelerate measures to develop core staffthe central Government departments, and inten- trainers in central departments by creatingsive development of major Badan and Pus Diklats fulltime functtonal positions, recruitment,of Ministries of Home Affairs, Finance and Edu- training of trainers, adequate Incentives andcaLion, and perhaps Transport dnd Agric4lLure. career planning.

- establishment of organizational developmentprogram Including manpower planning andresearch capacity.

- curriculum development- support services, including lnformatln system

and library- training of trainers- technical assLstance.

7. Intensive institutional development of the - training staff developmentseceoral trainlng centers, coverlng agricul- - improve institutional managemnttural enterprises (at LPP), Industrial, banklag - materials and curriculum developmentand cooperatives' management training centers. - lncentives to staff for pedagogical development

- consulting and research capability development

No. Subproject Objectives

8. Assist promising private managefenr institutes; - asess potential needs of existing promisiLugassist new private institutes outside Jakdrta lnstitutes and Identify new ones outside

JakArtA.- to send faculty members abroad for degress- to invite visiting professors to teach with

local faculty- to establish the infrastructure and facilltles

9. IntenaLve development of selected angement - to strengthen management faculties at selectedfaculties at universities, particularly at the unlvernities and institutes. This involvesmajor provincial cities. staff and program development to make these

univerlties/lnstitutions develop as nationalcenters of excellence and services.

- PrLncipal intitutlonal development programssuch as teaching materials development, pedago-gical research, correspondence courses end newprograms.

10. Training of management consultant/trainers for - to provide outreach programs for small-businesssmall scale business for state banka and indus- management developmenttrial extension programs and taktng approprLate - to Integrate management development considera-policy measure3 to employ the traince.. cions Into ongotng program of aslatance to

sm*ll-enterprisem.

II. Development of 6 to 7 regional mangement - establiasbent of a basic organizatlon andtraining centers, perhaps starting witb one at management structureYogyakarta's Selaputda as a pilot, for Integra- provlslon of full-time functional positions forting sectoral administrative training program training staffand tallorlng them to reglonal needs (integrat- - recruitment of additional staffing both regional and field-based central - staff training and workshopsgovernment staff in such training). - survey regional needs of local Covernments

technical assistance

12. Set of Studiesa. on small enterprise managment development - to formulate strategies to reach special targetb. on national supervisory training program groupsc. on improving corporate planning and control - to Improve objective setting, accountabillty

systems of public enterprises, and thelr and planning for public enterprisessupervising agencies, including the - to support equity objectives.Klnistry of Finance.

INDONESIA

MANAGEMENT DEVELOPMENT

EXECUTIVE REPORT

1. This study was initiated when the Government of Indonesia requestedaid agencies to investigate ways -o accelerate the full development of itsmanagerial manpower. As the study progressed, management issues began to beconceived in a wider context including both quantitative and qualitativedeficiencies in managerial resources and practices, and the frequent incom-patibility between these and the challenges facing leaders, entrepreneurs andorganizations. Management development thus extends beyond formal educationand training and includes on-going processes whereby managers and institutionsare continually reassessing their performance and the factors - e.g., attitudes,policies, structures - which influence that performance. Management develop-ment thus incLudes other key factors which influence learning processes withinorganizations: senior management style and organizational culture, careerplanning and management succession systems, task assignment and job rotation,systematic delegation and on-the-job coaching, incentives for performance,information sharing, support to risk taking and experimentation, and manyother less tangible but important ingredients for managerial andorganizational deveLopment. It also includes the overall policy environmentfor management and the macromanagement systems and central guidance agencieswhich govern the formulation and implementation of policy reforms, mobiliza-tion and allocation of financial and human resources, distribution of respon-sibility among levels of government, and interactions between government andbusiness.

2. A primary objective of this report is to help Indonesian managersclarify their own perception of management issues and thus strengthen theircommitment and capability to devise policies and institutions to promotemanagement development. The report describes the nature, causes and magnitudeof the "management problem," then suggests measures which respond toIndonesia's special needs. The report proposes a long term change processwhich involves increasing awareness of and commitment to management develop-ment; improving the way managers are developed within their own organizations;transforming and strengthening the role of educational institutions to developappropriate managerial skills and systems; and inducing reforms in the macro-management systems and policies that influence managerial practices andculture. This process would be guided by national leadership and seniormanagers; foreign aid can only play a facilitating role. It would rely onlearning and experimentation rather than blueprint plans.

3. While much of the report focuses on weaknesses of Indonesia'spresent managerial en"ironment, this should not detract from the country'ssubstantial efforts and significant achievements since independence. Overall,sound macroeconomic policies have been pursued by the New Order Government,and, more recently, during a difficult period of resource scarcity, decisivepolicy reforms were taken. Underlying this success is a continuity of the

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Government's basic development philosophy, careful management of external debtand inflation, and political commitment to development and to initiate policyreforms to deal with major external shocks. In addition, there has been sig-nificant progress, under sometimes difficult circumstances, in bringing aboutnational stability and unity among a large number of islands and ethnic groupsmarked by impressive diversity. Indonesia inherited virtually no administra-tive or educational infrastructure from its colonial experience and has had tobuild up and staff modern institutions, almost from scratch. If the reportappears, on occasion, unduly critical, this is because it is written with aneye on future challenges, which are expected to be fundamentally different,and perhaps greater than previous ones. Many Indonesian managers expressedcandid and deep concern to the study team over how their organizations willcope with these increasing demands. Hence, this report addresses managementproblems rather than accomplishments, recognizing that Indonesia has demon-strated that national consensus and commitment can be mobilized to overcomeeven the most challenging development constraints.

4. The study represents a collaborative effort which benefitted greatlyfrom the involvement and concern of many Indonesian policy makers, educators,business leaders, foreign aid agencies, and technical assistance personnel.In order to test various hypotheses on the widest possible audience, the studyteam interviewed a significant number of public and private sector executives,collectiveLy representing a broad range of experience and perspective. Basedon a shared understanding of the problem, the report proposes the broadoutlines of a Long-term strategy for management development and a process forcarrying out further the design and implementation of this strategy. Furtherelaboration, phasing, experimentation, monitoring and revision of variouselements of the proposed strategy should be part of this learning process. Anaction program is suggested to initiate this process; the program includesvarious national mechanisms and task forces to design the details of theprogram and to ensure continuity and flexibility of the process.

5. The main conclusions of the study are: (1) certain historical andcultural factors and dominant management practices tend to inhibit the devel-opment of effective entrepreneurs, managers and institutions; (2) there is asignificant imbalance between the economy's need for qualified managers andits present capacity to develop such staff through management education andtraining institutions and through organizationally-based management develop-ment systems; (3) local management consultancy and research capabilities areat an early stage of development; and (4) there is an urgent need to reorientand strengthen the core agencies and processes governing macromanagement(including civil service policies, public expenditure planning and budgeting,decentralization, and regulatory policies) to tap the full potential ofIndonesia's human (and other) resources.

6. To address these problems, the study team suggests the followingfour basic elements of a long-term strategy: (a) various national forums andmechanisms to strengthen overall capacity for administrative development andto promote policies and programs for productivity improvement and managementdevelopment; (b) qualitative and quantitative improvements in a nationalnetwork of management education, training and development institutions;(c) national programs to develop core management faculty teams, address

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national priorities in management research, strengthen Local managementconsultancy firms, expose policy makers and business leaders to improved man-agerial practices, and promote a national movement (self-help activicies) formanagement development; and (d) several task forces to address key policyareas which have strong impact on managerial performance and development inthe public and private sectors.

Understanding the Management Problem

7. Management (and institutional) development seems to be the Leastunderstood dimension of development policies and strategies and perhaps, themost difficult to address. Several factors appear to have constrained thedevelopment of Indonesia's managerial capacity. Senior managers have beenpreoccupied with the immediate problems of controlling fast growing develop-ment programs and institutions. With relatively few skilled administratorsand staff, senior managers had to impose standard and rigid procedures and tolimit training of subordinates to those narrow skills necessary to operateexisting systems. They had little time and relatively underdeveloped systemsfor effective delegation and nurturing of their juniors. The magnitude of themanagement problem and its pervasive and long-term nature have renderedisolated and short-term interventions ineffective. There are no broadlyrepresentative forums which could draw upon the perspectives of concernedmanagers and policy makers to generate national consensus, formulate policiesand mobiLize resources for improving management in the public and privatesectors. The ability to research management issues, including survey andanalysis of relevant data, is limited. (See Main Report, Chapter 1, SectionC).

8. Foreign aid agencies usually view management issues in terms of theconstraints which affect development projects. Problems observed inpreparation, implementation, and operation of foreign-aided projects are oftenattributed to weak project planning, rigid budgeting, a bias for newinvestments, complex impLementation systems, excessive centralization and weakcoordination, inadequate civil service compensation, and poor monitoring andevaluation. Utilization of new facilities is often quite low and manyprojects do not realize their full potential. Technical assistance activi-ties face even more fundamental constraints. Most of these problems can betraced to inadequate managerial skills, systems and practices. (SeeChapter 1, Section D).

9. The costs of managerial inefficiency, in both the public and privatesectors, can be substantial. In the public sector, managerial weaknesses areprime contributors to implementation delays, poor maintenance, low productiv-ity, and poor utilization of human resources and capital facilities. The con-sequences of managerial ineffectiveness in public service institutions aremore difficult to perceive; they are reflected in underdeveloped institutions,inappropriate selection of goals and strategies, and inability to reach themost needy with the right mix of goods and services. Similarly, in the pri-vate sector, the costs of ineffective management may be more difficult tomeasure, since their greatest impact probably extends beyond pure efficiencyconsiderations, to the inability to exploit potential commercial opportuni-ties. In an increasingly competitive environment, these costs may increase

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and threaten the very survival of entire industries. To compete successfullyin international markets, enterprises will increasingly demand managers ableto create business opportunities, provide new products and services, and pene-trate new markets, all while maintaining a competitive edge.

10. The basic dimensions of the management problem, as viewed byIndonesian managers and educators, and this study, are: (1) the dominantexternal or macro constraints to managerial development and performance;(2) the scarcity of entrepreneurial and leadership skills in an economyorganized around small enterprises and rural communities; (3) the need tomobilize and prepare indigenous managers to lead increasingly complex institu-tions, accelerate technology transfer, and adjust administrative systems tosocial and economic changes; (4) the diversity of economic conditions, localinstitutions, business cultures and managerial styles among regions and ethnicgroups, coupled with a national concern for unity, equity and harmony; (5) thegenerally inadequate management education and training programs, and the lackof on-the-job learning systems; and (6) the impracticality of wholesaletransfer of foreign management improvement models to Indonesia and theconsequent need to develop managerial technology and practices relevant toIndonesia's cultures, institutions and resources. (See Chapter 1, Section F).

The Managerial Environment

11. Many cultural and historical factors have influenced Indonesia'smanagement practices and performance, some negatively, and some positively.Among the more important cuLtural factors have been the paternalistic patternof most relationships and the strong desire to avoid open conflict. Furtherdevelopment of management practices should reduce the negative aspects whileincorporating the strengths of such cultural factors. For example, paternal-ism provides a sense of security for subordinates. It may be used to inducesuperiors to take greater responsibility for developing their subordinates.The "father figure" may provide a powerful "role model" in promoting newnorms. Its authoritarian and centralizing aspects may be reduced by promotingparticipation. The pressure of competition may also induce senior managers toinvite ideas from the junior and younger but better educated managers. Con-flict avoidance and tolerance for ambiguity may discourage upward communica-tion and delay problem solving, but creates a room for compromise. The needto maintain face and group loyalities may discourage risk taking, initiativeand change, but could be harnessed to improve group performance and teamwork. Decisions reached by peer consensus may be time consuming, but onceagreement is reached, smooth implementation is more likely. Managementresearch and process consultancy could seek further understanding of thesecultural factors to adapt management tools to indigenous practices and buildon cultural strengths. (See Chapter 2, Section A.)

12. Historically, Indonesians were restrained from positions of economicor administrative power during the colonial period. A deliberate effort wasmade to maintain the status quo in the social system. Predetermined educa-tional routes were devised for various ethnic and social groups; this systemforeclosed higher education opportunities to all natives but the aristocraticclass. There is widespread feeling that colonial domination actually fosteredpassive attitudes and dampened the emergence of an entrepreneurial spirit.

Subsequently, after independence, the government felt it necessary to effect acommand style of management, in its efforts to build national unity, ensurestability and accelerate development. (See Chapter 2, Section B).

13. Present management practices exert an environmental force of theirown and are not subjected to examination and systematic adaptation. Althoughthere is a wide variation in managerial practices across Indonesianorganizations, the management function is usually conceived in terms ofregulation and control. This has contributed to most organizations and enter-prises evidencing a marked concentration of authority. As a result, topmanagers are frequently overburdened with routine tasks which causes them toneglect institutional and staff development. Middle and lower levelmanagerial jobs, on the other hand, carry little real responsibility and offerfew learning opportunities in preparation for possible promotion to moresenior positions. Often coordination relies almost exclusively on directsupervision by top managers (in small-scale and young organizations) or onsuperimposing standard procedures and uniform solutions (in largebureaucracies). Decision making practices are highly personalized and usuallyfocus more on inputs than outputs and objectives. Planning, budgeting andmonitoring practices are pro forma and mechanistic, and are seldom viewed asmanagement tools for substantive decision making, performance improvement, andlearning. Personnel practices eicourage conformity and risk aversion.Finally, some managerial practices have created inward looking organizations,with limited capacity to respond to and learn from their clientele, otherinstitutions, or the environment. (See Chapter 2, Sections C and D).

14. Most of these practices represent a natural evolution and rationaladaptation to the above historical conditions. Some of their negative aspectsare mitigated by the strength of village-level institutions and self-helptraditions, the flexibility provided by informal groupings and the extensiveuse of task forces in large organizations, and the enriching influence ofethnic diversity on managerial styles. However, accelerated evolution ofthese practices is necessary to respond to the emerging environment and futurechallenges. Emerging managerial practices should emphasize the development ofinstitutional learning capacities to anticipate, adapt to, and create thefuture. If significant and sustainable improvements in managerial practicesare to be accomplished, Indonesian managers themselves will have to be boththe primary motivators and overseers of this change. (See Chapter 2, SectionF).

15. In public sector management, two key problem areas are the planning,budgeting and financial control systems, and civil service policies. Thepublic sector management environment has been shaped by budgeting and controlsystems which are too centralized, short-term, and rigid to permit strategicplanning and timely adaptation. Project funding is fragmented and complex,placing a heavy burden on financial management, coordination and monitoringsystems. Certain civil service policies, particularly the weak link betweenperformance and incentives, are not designed to encourage high levels ofmanagerial and professional competence. Inadequate full-time job commitment,largely the result of a fragmented and piece work compensation system, Lack offunctional orientation in civil service career streams, and limited in-servicetraining opportunities and other arinagement development processes all have a

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detrimental impact on the performance of public managers and institutions.(See Chapter 2, Section E.)

16. These environmental factors which hinder managerial excellence areby no means insuperable. This is aptly demonstrated by several successfuldevelopment programs, most notably Family Planning and INPRES (which providesdecentralized funding for simple infrastructural projects). These are bothcommendable examples of ways to realize effective management by building oncultural strengths, phasing coverage and activities over time to suit evolvingadministrative capabilities, creating decentralized and flexible managerialstructures, and designing learning opportunities within implementation anddelivery systems. Systematic examination of successful Indonesian programsand effective institutions and managerial styles could yield importantinsights for the deveLopment and dissemination of effective "home grown"managerial systems and practices. (See Chapter 2, Section C).

17. Future Challenges. Future economic transformation, industrial-ization, export pronotior, technological change and human resource developmentare expected to increase the demand for competent management. Growinginternational competition, particularly from several neighboring countries,and the acceLerated rate of technological change will put a premium on theability to identify and create new markets, and to shift resources quickly tothese new opportunities. Major changes in the skills and attitudes of thework force, including an increase in the proportion of managers and technicalspecialists, can be expected. The way people are organized and motivated isbecoming a critical determinant of productivity. Managerial tasks themselveswill be substantially transformed under the impact of more integrated nationaland international markets and the on-going revolution in information andcommunication technology. Administrators of public service institutions willmanage increasingly complex delivery systems and capital intensive facilitiesover wider and less developed regions and more diverse beneficiaries. Thiswill require a more responsive, motivated, entrepreneurial, and professionalbureaucracy. However, at present, managers are not being sufficiently pre-pared to meet these future challenges; pre-service education does not ade-quately address managerial issues and management development processes withinorganizations are rather underdeveloped. Moreover, management developmentinstitutions and consultancy services are not adequately organized and devel-oped to facilitate administrative reforms or to prepare future managers tolead the adaptation process. (See Chapter 2, Section H).

18. Future challenges of economic and social transformation suggest thatmanagement development will be a critical dimension of Indonesia's developmentstrategy. The environment within which national and institutional strategieswill be pursued is expected to be increasingly turbulent, complex, diverse,and competitive. As organizational structures must be made to fit strategiesand environments, institutional reforms become a basic element of developmentstrategy implementation. These challenges suggest an urgent need to reconcep-tualize the role of management in development. This role extends beyondoperational management to include policy and strategy formulation, the devel-opment of human resources within organizations, and the creation of cultures,incentives and systems that are conducive to organization learning and highperformance. Fulfilling this role will require changes in managerial

structures, systems, attitudes, skills and practices, and in the publicpolicies and institutions that determine their development and performance.Only through such mutually reinforcing interventions will sustainable changesbe brought about.

19. The following sections highlight specific performance problems inthe central and local agencies and public and private enterprises, and thepresent demand and supply patterns of managerial skills at theseorganizations. It is recognized that in-service training is only one elementin improving managerial performance and institutional development and must becomplemented by changes in organizational climate, structures, systems andincentives. However, the present scarcity in managerial skills, particularlyin strategic management and organizational development, puts severelimitations on introducing improved managerial technology and on implementingmacro-institutional an policy reforms. Investment in developing indigenousmanagerial resources (including management consultancy skills) is thereforeintertwined with progress in formulating and implementing administrativereforms and organizational development programs. In this context, in-housetraining centers and educational institutions would need to be transformedinto management learning systems which would develop change agents,institutional leaders, systems developers and policy reformers, and would alsoassist organizations to develop their own learning systems.

Central Government Management

20. The central government plays a dominant role in development andinvestment activities in Indonesia. It formulates public policy, manages andimplements the development budget, and monitors the operations of localgovernment and public sector enterprises. The staffing of the centralgovernment is marked by a very small managerial cadre supervising a very largebureaucracy. In particular, middle management is thinly staffed and its levelof competence is often low, while top management is frequently overburdenedwith operational details which could be deLegated. Consequently many top man-agement tasks, especially strategic planning for institutional and staffdevelopment, are commonly neglected.

21. Broadly stated, priority needs include: (a) new orientations,skills and support systems yor policy analysis and strategic planning at thecentral guidance agencies;l' (b) management development systems (includingtraining) for professional specialists in the technical ministries; and(c) field-oriented management skills and systems development in the social-sector ministries, particularly for effective delivery of social services andfor facilitating the development of the capacity of the communities to beserved. (See Chapter 3, Section A).

1/ The National Planning Agency (BAPPENAS), the Ministries of Finance andAdministrative Reform, the National Institute of Public Administration(LAN), the National Civil Service Agency (BAKN) and the CoordinatingMinistry for Economy (EKUIN).

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22. The centraL guidance agencies strongly shape the regulatoryenvironment, incentives. and management systems of all other public andprivate institutions. Their capacity for administrative reform, strategicmanagement, poLicy analysis and overall guidance and support are thus criticalto overall management performance in public and private institutions.Improvements in their management and policy support systems, and in the skillsand functional streams of their staff are necessary to achieve their fullpotential. There is a pressing need to improve Lheir research and consultancycapacity to assist public managers in their organizational developmentefforts.

23. In-service public administration training (at LAN and departmentaltraining centers) provides instruction to some 8,000 participants annually,out of an estimated 300,000 managers and supervisors in the public service.This averages to about three days of training in a five year cycle or lessthan one chance to take a medium-term management development course during a30-year service. However, as some senior administrators undergo courses up to900 hours, many others have no exposure to basic management concepts through-out their careers. For a fairly young civil service, only 3Z of whom havecompleted a university degree, management training opportunities seeminadequate.

24. The quality and relevance of most training programs leave signif-icant room for improvement. LAN has a broad mandate for supervising overallgovernment training activities, including management development. LAN hassucceeded in focussing the attention of government departments and agencies onmanagement concerns, including the need for more training. However, LAN'straining programs, structured in four tiers corresponding to hierarchical,rather than functional lines, do not always address the needs of a particulardepartment or sector. There is considerable duplication from one Level toanother. Curricula stress formal descriptive information relevant to passingpromotion examinations. There is still a considerable imbalance in the mix oftheoretical and practical content of training programs, primarily due to thelimitations of qualified trainers. Upgrading and consolidation of LAN'sactivities seems necessary in order to lead reforms and innovation in publicadministration training and to develop research, consulting, and policyanalysis capabilities for administrative reform. With a new leadership andrenewed commitment to organizationaL development, LAN seems ready forsubstantial improvements. Since this survey has been completed, LAN hasundertaken various initiatives, including the design of a training cycle forthe senior civil servants that emphasizes experiential learning, theintroduction of some policy-oriented courses, and the involvement of otherdepartmental training institutions in LAN's formulation of training prioritiesand policies. LAN also intends to collaborate with the Department ofEducation in the development of public administration programs at the stateuniversities. (See Chapter 3, Section B).

25. The departmental training centers (PUSDIKLATs) like LAN, tend toprogram their annual training cycle in relative isolation from their clientsand their organizational development needs. Mangement training in particularis relatively neglected. As a resuLt, their courses are usually based ontheoretical training requirements mandated by LAN, and a continuation of past

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offerings. Their planning and budgeting systems for training are nor Linkedto any long term organizational deveLopment or sector strategy. Civil servicepolicies, especially regarding compensation and career development, preventtheir recruiting full-time qualified and motivated trainers or experiencedmanagers. Effective training methods, relevant teaching materials and casestudies are lacking. Since managers' time (opportunity cost) is about20 times more costly than trainers' time, investment in more competenttrainers and more effective programs would seem to be a high priority. (SeeChapter 3, Section C).

Local Government Management

26. Provincial and local governments have been major, though regulated,actors in achieving national integration and economic development. Governmentpolicy is to promete decentralization of development activities. However, thecentraL bureaucracy has retained fairly tight control over regional governmentunits. It now appears that the size of the government's development programhas outstripped the capacity of central ministries to prescribe, design andmanage individual projects. In addition, the managerial and professionalcompetence of local governments has improved significantly in recent years andthey therefore appear ready to accept more responsibility and greater auton-omy. While better management training could help to improve the effective-ness, self-confidence and status of local government staff, more fundamentalis the need to devolve authority to provincial and local administrations. Tofacilitate such decentralization a number of management problems should beaddressed: the fragmentation of funding channels for local developmentactivities among a muLtitude of central government agencies; the limitedresources available to local governments to maintain and operate local facili-ties; the complexity of the procedures imposed upon local administrators; thedistortions in compensation, and limited prospects for recognition andprofessional development of provincial staff; and the personalized style ofregional leadership. (see Chapter 4, Sections A & B).

27. While the bulk of provincial staff time is presently devoted toroutine technical tasks, there is nevertheless a clear need for improvedmanagement skills in planning, budgeting, supervising, and coordinating. Thestudy team identified the following priorities for management training forprovincial staff: lateral communications; inter-and intra-agency cooperationin the pursuit of development and institutional objectives; simple managementtechniques and data analysis; planning and budgeting, especially for main-tenance; developmental diagnosis and economic rationality in project selec-tion; entrepreneurial and advocacy skills; and invoLvement of local communi-ties and facilitation of the development of their capacity for choice andaction. (See Chapter 4, Section B).

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28. In quantitative terms, regional managemenc gaining for the smalLselect cadre-stream appears to be roughly sufficient.- But for the largenumber of non-cadre-managers who are served by other ministerial programs,training opportunities are insufficient. The quality of regional trainingprograms suffers from several factors. Course content is designed and managedby central authorities (mainLy Ministry of Home Affairs (MHA)) and does notgenerally reflect the substantial differences in management needs amongregions. Subject matter is fragmented among many courses with few opportuni-ties to examine a broad issue in any depth. The status and pay of teachers atthe local level are particularly low so that qualified instructors and experi-enced managers (to serve as instructors) are difficult to recruit. Inaddition, MHA's training cernters and the Institute of Government Science(IIP) do not have the capacity to lead, support and upgrade provincial manage-ment training institutions. Meanwhile, provincial governments and localuniversities are not sufficiently involved in developing local administrativeresources. (See Chapter 4, Section C).

Public Enterprise Management

29. Many of the management problems and constraints of the bureaucracyspill over to the public enterprises. The measures and incentives for man-ageriaL performance, and hence for management training and development, aremuch weaker in public than in private enterprise. A recent sector study ofpublic enterprises by the Ministry of Finance reports that overall profitabil-ity has declined from 4% in 1979 to 2.9% in 1983. To some extent thisgenerally poor performance reflects the imposition of social/politicalobjectives on these firms' operations. However, equally important are therelatively deficient management systems, policies, and skills whichcharacterize most public enterprises. There appear to be four broad areas ofparticular concern to the management and operation of public enterprises:(1) enterprise managers are distracted from formulating corporate objectivesand Long term plans by their necessary adherence to detailed, short-term, andquantitative controls imposed by supervising ministries; (2) monitoring,information, and accounting systems are weak, particularLy in chose areasnecessary for setting and measuring performance; (3) appropriate means fordeveloping and rewarding managers are lacking; and (4) the role of publicenterprises in the economy is not subjected to continuous and criticalreview. While sharing many of the private sector's internal manage intproblems (see below), public enterprises must operate within the context ofcivil service policies, and hence have less latitude to offer adequateincentives and training opportunities to reward and develop their executives,than do their private sector counterparts. (See Chapter 5, Sections A and B.)

30. In-service, short-term training for public enterprise managers (atthe sectoral training centers) accommodates about 4,000 participants annually,out of an estimated stock of 29,000 managers and 67,000 supervisors. Almost

2/ Through the lower level government academy (APDN), in each provincefollowed by the higher level institute of government science (IIP) inJakarta.

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75% of senior managers are scheduled to retire in the next five years, whichwill put a heavy strain on the demand for training. Planned on-the-job train-ing and enterprise-based management development programs are virtuallyunknown. Very little attention has been given to supervisory level training,although this represents the major source of potential managers. Universitymanagement programs are too theoretical, general and short-term to meetvarious sectoral and enterprise needs. With few exceptions, in-house trainingfocuses only on technical fields, with virtually no practical managementcontent. With the exception of the Agricultural Training Institute (LPP), thesectoral training centers rely almost exclusively on part-time trainers, whosebusiness experience and incentives for providing quality training are verylimited. (See Chapter 5, Section C & D.)

Private Enterprise Management

31. The Indonesian Government now places great emphasis on stimulatingindigenous business and entrepreneurship to share the challenges of develop-ment with the Government and to promote employment and exports. With therelatively poor prospects for future oil revenues, industrialization andeconomic growth will depend increasingly on the private sector's taking alarger and more dynamic role in the economy than in the past. However, theextent to which this occurs may depend on the confidence with which businessexecutives view their economic environment and on their own entrepreneurialand managerial skills. Business leaders and managers face a complex set ofenvironmental constraints, including: (1) pervasive controls (e.g. import andexport licenses, investment permits, etc.) and an uncertain regulatory envir-onment both of which tend to restrict competition and distort markets andshorten the planning horizon; (2) the government apparatus which administersthese regulations is too centralized and cumbersome, with individual bureau-crats possessing a great deal of personal discretion which opens the door tounfair practices; (3) bureaucratic inertia and underdeveloped public supportservices, especially banking; (4) weak private sector organizations forpromoting management development and for providing policy input and feedbackto the government; and (5) historical isolation of the bureaucracy from theprivate sector. (See Chapter 6, Sections A & B.)

32. Medium and large scale enterprises suffer from a number of perform-ance problems related to weak management: (1) poor organization and use oflabor and production facilities; (2) lack of quality control; (3) poor pro-curement systems and inventory handling, and the absence of adequate subcon-tracting with small firms; (4) weak financial planning and management;(5) poor understanding of domestic and foreign markets; (6) low status andskill of personnel management; and (7) limited capacity to absorb technol-ogical improvements. Small enterprises and cooperatives share similarproblems; their need for improved, yet simple, cost accounting and marketingtechniques is particularLy acute. (See Chapter 6, Section C.)

33. Historically, middle level management positions in the enterprisesector have generally been filled by vocational/technical secondary schoolgraduates, with 10 or more years' experience. It has been possible forelementary school graduates to move into lower management, but this assumedsome 20 years' experience and such personnel seldom moved beyond this level.

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Recently, the demand pattern has shifted towards higher levels of education,particularly university-level graduates of management and, to a lesser extent,technical education. At present, enterprises in the modern sector face theirgreatest shortages in middle and senior management positions. Future demandfor trained managers is likely to be greatest in the manufacturing,construction, transport, and agricultural sectors.

34. In-service management traininB for large and medium scale enter-prises (by universities, private institutes, and in-house programs) accommo-dates about 12,000 annually, out of an estimated managerial stock of 160,000,or about 7.5Z and less than 42 if supervisory personnel are included. Manage-ment training opportunities for small businesses are negligible, in contrastto the present target group (500,000). Only about 5% of the cooperatives'local managers (21,000), unit heads (80,000) and directors (130,000) receivesome sort of training annually. (See Chapter 6, Section D).

35. Private educational institutes constitute the principal source ofmanagement training for medium and large enterprises. With the notableexception of the Indonesian Institute for Management Education, LPPM, theirtraining is of limited quality. Except for a few joint ventures and multi-nationals, enterprises themselves provide very limited enterprise-basedmanagement development programs. Very few enterprises can afford to trainpromising managers abroad. The very short-term, technique-oriented andexpensive seminars conducted by foreign consulting firms in Indonesia tend tobe ad hoc, and not always relevant to the specific needs of enterprises. Suchprograms have very narrow and temporary impact, particularly in the absence ofmanagement development systems within enterprises. Programs provided by theMinistries of Industry and Trade for small enterprises, and by the Ministry ofCooperatives for their managers suffer from the bureaucratic culture of theirtraining centers and poor quality and motivation of their trainers. Manage-ment consultancy firms are in their infancy, but, with appropriate nationalpolicies for their professional development, they could make a valuablecontribution to improving managerial practices (see Chapter 6, Section E).

Formal Education for Management

36. While most management development processes should occur within theemploying organizations, formal educational institutions are expected toprovide central support to these processes and to prepare the future genera-tion of managers, leaders and consultants.

37. Quality improvements in form8l education for management are con-strained by: (1) the weak link between educational pLanning and employers'needs; (2) the relatively centralized management systems of educationalinstitutions; (3) low salaries and weak incentives for teaching and research;(4) the lack of managerial experience and continuity among educational admin-istrators; (5) the fragmentation of university resources and weak coordinationamong interdependent faculties; and (6) underdeveloped management informationsystems for monitoring and evaluating the effectiveness of policies andprograms. While perhaps common to all disciplines, these constraints have aparticularly negative impact on management and public administration educationsince this type of education needs to be adapted to the Indonesian environment

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and linked to the real problems facing practicing managers to be effective.It also requires multi-disciplinary approaches, experimentation, and highlyentrepreneurial faculty and administ:ation. (see Chapter 7, Section A).

38. While the &.2 between demand and supply is difficult to quantify,there are many indications to suggest that the effective demand for businessmanagement education far exceeds the combined supply capacity of public andprivate institutions. Applications to good economics faculties (most of whichend up in business programs) far exceed admission levels. Management problemsare quite pervasive, while the percentage of managers, even in large enter-prises, with any management education is very low compared to neighboringcountries.

39. In qualitative terms, management education is substandard in severalrespects. Public universities suffer from low (7%) productivity (the ratio ofannual graduates to total enrollment); on average, it takes 7 to 8 years tocomplete a 4 to 5-year undergraduate degree. With few exceptions, mostprograms are characterized by low quality and limited relevance to practicalsituations. Teaching methods are mainly limited to the classroom, Lectures,and theory. A particular problem arises due to universities' combiningmanagement and accounting with economics under one faculty. Creating distinctmanagement and accounting faculties (separate from economics) at major publicuniversities would facilitate a more dynamic and practical approach tomanagement education. In the present context, business management curriculaare heavily technique oriented and dominated by economics courses; behavioralsciences are virtually ignored. Teaching materials and case studies whichhave been adapted to Indonesian conditions are rare. Existing managementeducation is particularly unsuited to the problems of small businesses. Withabundant opportunities for routine consultancy and outside lecturing,management educators often neglect their teaching duties and facultydevelopment. The universities seek no employer/user participation indeveloping business programs or designing individual curricula; this mightotherwise be an extremely useful input to ensure the relevance of universityeducation to real world situations. (See Chapter 7, Section B).

40. With few notable exceptions, the productivity (1X) and quality ofbusiness programs at the private universities and institutes are lower thanpublic universities. The major constraint faced by these institutions is theshortage of finance for faculty and facility development, and thus the lack ofan adequate number of students and faculty to allow economies of scale inproviding quality education. However, since private institutes are notconstrained by civil service policies or the bureaucracy of state universi-ties, they have greater potential for innovating and responding to localneeds. Mobilizing public and private finances to assist private institutionson a selective basis could help to expand and improve the quality of theirbusiness programs. tn outstanding exception to the general rule of poorquality characterizing most private institutions is LPPM which might be usedas a model for developing similar institutions. Several new initiatives,namely Prasetija Mulya Management Institute and the Indonesian Foundation forManagement development, show potential for providing quality graduateeducation in business management. (See Chapter 7, Section B).

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41. There is a growing demand for public administration education,reflecting the growth in number and complexity of government institutions anddevelopment programs. State and private universities offer public administra-tion programs. Unfortunately their productivity (5% in state and 1% in pri-vate institutions) is low. In addition to sharing the same quality andrelevance problems of management education at public universities, most publicadministration programs are marked by a narrowly tocussed legaL and tradi-tional orientation, limited access to informatioi. for research on publicsector performance, and poor links with local administration. (See Chapter 7,Section C).

A STRATEGY FOR MANAGEMENT DEVELOPMENT

42. The study team proposea for government consideration the broadelements for a strategy to improve national capacity for managementdevelopment in Indonesia. This strategy aims at achieving near self-reliancein management education and training, reforming the administrative structureand significantly improving managerial practices and systems within the next10 years. This strategy emphasizes the broad involvement of managers in thechange process and the creation of national and organizational mechanisms toguide and evaluate progress. The four basic elements of the proposed strategyare:

(a) forums to guide and promote management development;

(b) assistance for management development institutions;

(c) support programs to facilitate management development; and

(d) policies to improve the managerial environment.

(a) Forums and Processes to Guide and Promote Management Development

43. Proposals t strengthen the national capacity for management devel-opment fall under three broad categories: establishment of (i) nationalforums; (ii) public sector mechanisms for administrative change; and(iii) promotional activities.

44. (i) National Forums. The principal recommendation here is theevolution of National Advisory Forum for Public Administration development.The Forum would be advisory and promotional body, with no authority toregulate or implement programs. The Public Administration Forum might consistof up to 20 senior policymakers, representatives of the central guidanceagencies, local government and management educators. It would offer advice tothe Ministry of Administrative Reform (or the chairman of a small group ofCabinet members) on pol:cies and plans concerning public administrationeducation and training in all economic sectors, provide a forum for assessingpublic policies and their impact on public management performance anddevelopment, promote relevant research and experimentation in administrativereforms and improved practices, and facilitate and monitor the implementationof the proposed strategy for management development within the civil service.

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45. Similarly, the Government may support some of the professional andbussiness associations and other forums for enterprise management develop-ment. These forums may be developed and recognized as sources for policyadvice on policies and programs to promote management development activitiesin public and private enterprises. Moreover, they could establish a vaLuabledialogue between the public and private sectors on the policy environment andits impact on management and enterprise performance. They may be commissionedto conduct research on effective management models and promising technologiesand disseminate its findings widely. They might also sponsor national work-shops, journals and other outreach programs. Some may evolve and includeleaders from public and private enterprises, business leaders, managementeducators, and perhaps few pubLic policy makers. Aid agencies and foundationsmay provide technicaL assistance and grants to some of these promising associ-ations such as PERMANIN. (see Chapter 8, Section B, paras. 8.11-8.16.)

46. (ii) Public Sector Mechanisms for Administrative Change. l-canicaLassistance programs, in association with Ministerial task forces or steeringcommittees, are proposed to plan and implement organizational and managerialdevelopment programs within ministries and agencies. The objective of thesetask forces, aside from formulation of immediate organizational developmentprograms, is to improve the capacity of public agencies to adapt to theirchanging environments and new development needs. These efforts should bestrongly supported by each ministry's senior management. An inter-ministerialtask force might be formed to assist local governments to institute their ownmanagement development programs. Other inter-ministerial task forces mightaddress other policy and administrative reforms of national relevance, par-ticularly in pianning and budgeting, civil service policies, and regulatorypolicies. These task forces would ensure the participation of line managersand hence the commitment of all affected parties in formulating andimplementing organizational development. In addition they could help totransform abstract and general concepts into agency-specific manageabletasks. Technical assistance may be used to support these efforts. (seeparas. 8.17-8.20).

47. (iii) Promotion of Management Development Activities. Oncegovernment and business Leaders, managers and educators reach agreement onbroad policies and priorities, government could take a more active role inpromoting management education and development. Promotion might include apublic campaign to highlight management issues, public recognition ofoutstanding managers and educators, incentives for training in the public andprivate sectors, and support for promising management development activitiesby professional associations. Positive incentives, such as direct subsidiesand tax write-offs for training expenditures, might be considered. Measuresshould be devised to mobilize funding for management education and training,including public and private financial resources and foreign aid (see paras.8.21-8.22).

(b) Assistance for Management Development Institutions

48. The development of effective management education and traininginstitutions is clearly the foundation of any long-term strategy. Leadingeducational institutions should be transformed into management development

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agencies, with the capacity to provide management research and consultancyservice and to induce administrative reforms and environmental improvements.

49. Institutional development activities should give priority to: (i)the development of appropriate curricula, case studies and teaching materialsrelevant to Indonesia, (ii) selective upgrading of the Leading institutions,beginning with intensive development of the most promising which may have sub-sequent demonstration effects, (iii) creation of conditions conducive tohigher quality educational institutions, and (iv) gradual differentiation andspecialization of institutions within a national network to respond to diversedevelopment needs (see para. 8.23.)

50. Broad institutional development strategies are recommended tostrengthen university programs. Perhaps most important is the establishmentof faculties of management, including accounting, and public administration,independent from present faculties of economics, and social/politicalsciences. Corresponding consortia would be also developed and strengthened.In addition, undergraduate programs should stress practicaL learning in themain functional management areas, in contrast to their present theoreticalorientation. Master's Level programs in enterprise and public managemencshould be created, with an emphasis on interdisciplinary and experimentallearning. They should select mature students, preferably with work experiencewhich could offer a valuable source of curriculum -.richment. Given that suchprograms cannot accommodate all the young professionals who aspire to manage-ment careers, essenrial elements of management education should be offered inthe graduate curricula of other professional schools. Agricultural andindustrial management may be introduced to leading agricultural and engineer-ing schools such as Bogor Agricultural Institute (IPB) and Bandung TechnologyInstitute (ITB).

51. In addition, there is considerable scope for increased cooperationard communication among related university faculties and between educationalinstitutions and potential employers in business and government. Universitiesshould encourage their faculties to undertake short-term consultancies withenterprises and government and should expand their short-term training coursesfor practicing managers. This could help to ensure the relevance of univer-sity programs to actual problems encountered on the job. Within the univer-sities themselves, cooperation might include sharing of scarce resources (suchas faculty and teaching materials) among universities, development of inter-related fields (such as accounting), and dissemination of relevant informationand experiences by the leading universities to local universities, technicalinstitutes and professional organizations (see paras. 8.25-8.33).

52. Clearly assistance to universities will have to be on a selectivebasis, especially at the outset of the program. Only the country's bestuniversities already operating promising programs in business management orpublic administration and capable of showing significant near term improvementshould be selected. During the strategy's 10 year time frame, it should bepossible to assist about 50% of the public universities and about 10% of theprivate institutes. Immediately, it would seem feasible to begin with threeuniversities in Java (perhaps two public and one private) and two in the OtherIslands (perhaps one in Sumatra, and one in Sulawesi). For universities not

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selected for direct assistance, the management and public administration con-sortia and professional associations could play a useful role in disseminatingrelevant information on successful adaptation in other universities and newdevelopments from abroad.

53. Systematic in-service training for practicing managers is urgentlyrequired. For the central government, LAN and the departmental trainingbodies are the key training agents. LAN wo-ald play a promotional and sup-portive role to departmental training institutes. Its direct training may belimited to the development of senior managers, and programs for instructors ofother departmental training centers. In addition, LAN should take the lead indeveloping new teaching materials and methods for use by the departmehtaltraining programs. Universities should encourage their faculties to undertakeshort term consultancies with government and should expand their short-termtraining courses for practicing administrators to ensure the relevance ofuniversity programs to actual job situations. LAN's role as the government's"think tank" on administrative issues and its management consultancy capabi-lity should be strengthened and focused on areas which could contribute to itstraining activities and which would address common performance problems of thebureaucracy. The training centers of key ministries should be strengthenedwith training programs for their instructors, the creation of full-timepositions and career ladders for such trainers, improvements in the qualityand relevance of teaching materials and pedagogy, and better planning, pro-gramming and management of training programs. This process may start with theMinistries of Education, Home Affairs and/or Finance.

54. For local government personnel, the focus should be on strengtheningthe Ministry of Home Affairs training center as the central institution tosupport planning, programming and evaluation of regional training needs. Itis also proposed to establish, in association with leading universities, sixor seven new autonomous regional training centers which would integrate allin-service management training for provincial government staff. Theseregional centers would manag/ all the provincial and (centrally-managed)regional training programs.- In a phased program, Yogyakarta's SELATPUDAmight be first selected to receive immediate intensive development; this mightserve as a model for other regional centers (see paras. 8.34-8.42).

55. In-service training opportunities for public and private enterprisemanagers should be increased. These efforts should include expanding in-housetraining by large enterprises; the development and re-orientation of sectoraltraining centers for public enterprises; and the development of effectivedecentralized outreach programs, and other and experimental approaches for theless organized sectors. The government should encourage and strengthen train-ing in all large public enterprises directly and through its personnel poli-cies. Concerned public enterprises should participate in the planning,finance and evaluation of the sectoral train-ng centers. The relatively suc-

3/ The local government in-service training schools (SELATPUDAs), APDNs,LAN's regional centers, PUSIDIKLATs, and the provincial planning board(BAPPEDA) courses.

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cessful agricultural training institute may offer some useful lessons fordeveloping other sectoral training institutions. Public policies andincentives in support of a national movement for management development shouldbe formulated; however these should support the private sector's initiativeand not obscure the self-help nature of such a movement (see paras. 8.43-8.47).

56. Given the present shortcomings of the university system, the limitedresources of existing private management education institutions, and the needto create models of excellence and national resource centers, it is proposedthat as a long term effort the Government would encourage and support some ofthe most promising private management development activities and/or newjointly-financed public-private institutes to evoLve into national institutesof management. This support may help these institutes to lead and assistother institutions in research and experimentation aimed at improvingmanagement education and practices. Some immediate poLicy measures by theGovernment could enhance the contribution of these institutes to national andbusiness management development: recognition and accreditation of theirgraduate programs while allowing for experimentation and autonomy to improvequality and diversification, exemption from taxes on imported textbooks, andprovision of student loans. These institutes should be encouraged toinfluence management practices directLy through action research and consult-ancy services. They should combine teaching, research and consultancy andshould phase their activities, beginning with enterprise management and thensubsequently moving to public sector management issues. They should focus onMaster's level programs for practicing managers. Similarly, these institutesshould focus initially on the needs of medium and large enterprises; as acriticaL mass of managers and educators is developed, small business andoutreach programs could then be developed. Each institute should be managedwith a high degree of autonomy and may seek financial support from a varietyof sources including government, public and private enterprises and the saleof its own services (see paras. 8.48-8.54).

(c) Support Programs to Facilitate Management Uevelopment

57. Support programs and services are necessary to serve the commonneeds of the entire national network of management development institutions,beyond those selected for intensive development. They should facilitate themanagement development process on a national scale and broaden the constitu-ency for change. The main proposals are: ki) large scale faculty developmentprograms and personnel policy improvements to support excellence in teachingand research; (ii) funding and appropriate incentives for developing relevantteaching materials and methods, local case studies, and experimentation withsimple teaching material and modules to reach the small entrepreneur andsecondary vocational schools, and with experiential training methods such as"action Learning" and "Performance Improvement Programs"; (iii) development ofvarious mechanisms to ensure greater involvement of clients in the shaping oftraining programs; (iv) development of indigenous management consultancyservices and assistance to INKINDO, the association for consulting companies;(v) establishing a national fund for promoting management research in areas ofnational priority and encouraging dissemination and implementation of itsfindings; (vi) use of study tours abroad to expand the exposure and build the

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commitment of top officials, managers, and educators for improved managerialpractices; and (vii) support for professional and industrial associations injointly sponsoring a national management development and productivity movementand a variety of self-help activities and incentives to promote this movement(see paras. 8.55-8.71).

58. The promotion of a national movement for management developmentwhich could stimulate self-help and support initiatives at various Levels andforums would be an important step. The movement should be linked to nationalefforts to raise productivity and quality control. Government and the privatesector should cooperate in increasing the level of consciousness about manage-ment issues among government and enterprise leaders, using various communica-tion and mobilization channels, such as trade and professional associations,mass media, local and national workshops, and non-government organizations.It could also use various symbolic and cultural concepts, such as mutuaL helpto nurture grass roots activities by local businesses and institutions.Japan's management development movement may suggest some lessons forIndonesia. (See Annexes 1 and 2 to Chapter 8 and paras. 8.71-8.72)

(d) Policies to Improve the Managerial Environment

59. Improvements in the managerial environment are necessary for sus-tainable progress in management development and for widespread improvements inthe management of scarce national resources, including managers and institu-tions. Technical assistance may be provided to inter-departmental work teamsto formulate policies and programs in the following priority areas:

(a) Civil service policies and personnel management, particularly byrationalizing compensation to reward good performance and "full-time" commitment to the job; rotating managers through central andlocal level assignments, and among departments; developing careerstreams for trainers and strengthening government personnel offices(see Chapter 8, Section B, paras. 8.75-8.78).

(b) Administrative decentralization though further deconcentration ofdevelopment program management to the field units of centralministries (KANWILS), further devolution of selected functions tolocal government agencies (DINASES, BAPPEDAS); introduction of newINPRES-type functional programs to design, implement, and operatesimple projects at the local level; selective decentralization ofurban services to the increasingly competent district governments;and systematic review of personnel and financial policies requiredfor successful decentralization (see paras. 8.79-8.81);

(c) Planning, budgeting and financial management particularly bystrengthening long-term project planning and appraisal; introducingmedium-term sectoral programming; sharpening the focus on policyanalysis and determination of priorities; improved analysis ofrecurrent expenditures; delegating greater authority for budgettingand financial management to project managers, departments, andregional governments; integrating the funding channels for localgovernment functions, together with streamlined auditing of their

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finances; and generally improved accounting methods throughoutgovernment (see para. 8.82)

(d) Management information, monitoring and evaluation systems, so as toimprove communication between central and local organizations, andamong the central guidance agencies and the technical departments,and to support policy analysis, decentralization, coordination andtimely feedback (see paras. 8.83-8.85); and

(e) Deregulation of public and private enterprises, and institution ofpromotional policies including a review of measures which restrictprivate entry into production, including the various licensingrequirements, with the intention to abolish all but the mostessential; further development of financial institutions; upgradingthe capacity of the Ministry of Finance and the supervisingdepartments to introduce and support the development of corporateplanning and financial management at major public enterprises; andintroducing performance improvement programs and other vehicles toimprove accountability, communication and incentives for improvedperformance in public enterprises (see paras. 8.86-8.90).

AN ACTION PLAN

60. To phase implementation, an action program has been identified com-prising those measures or activities already proposed in the overall strategywhich can get underway immediately either because the issues they address lendthemselves to near term solution or because they represent prerequisite actionto other proposed long-term measures. The action program is estimated tocover activities of the first cwo years of the long-term strategy and to costabout $100 million (almost equally divided between training and technicalassistance). A list of these measures is presented below; they are dividedinto those concerning the public administration and those concerning publicand private enterprise management. (See Table 1 and Volume II, Chapter 8,Section D).

For Public Administration

(a) Forums to Guide and Promote Administrative Development

(i) Set up a National Advisory Forum on Public AdministrationDevelopment to formulate promotional policies and activitiesand advise the Ministry of Administrative Reform on civilservice management improvements (paras. 8.11-8.13).

(ii) Set up inter-agency working teams or task forces for proposednational support programs and policy studies, and intra-agencytask forces for organizational improvement programs at thecentral guidance agencies, selected ministries and localgovernments (paras. 8.17-8.20).

(iii) Initiate a public campaign to promote and reward excellence inmanagerial performance and management activities (para. 8.21).

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(iv) Mobilize public resources and foreign aid to promote managementdevelopment in areas of highest national priority (para. 8.22).

(b) Assistance for Public Management Development Institutions

(i) Assist public administration faculties at a few selected stateuniversities to unify their staff under one faculty, developcurricula and teaching methodology and improve staffincentives, with a view toward subsequent wider replication(paras. 8.25-8.33).

(ii) Upgrade LAN's senior management (SESPA) program and itsconsultancy and research capabilities based on an agreedorganizational developmenL strategy (paras. 8.37-8.39).

(iii) Establish full-time positions and career ladders for qualifiedmanagement trainers at the departmental training centers(PUSDIKLATs); assist selected centers (at Ministries ofFinance, Home Affairs and Education) to start an overallmanagement development program and, whenever possible, linkthis to the overall organizational development program andsector strategy of the ministry (para. 8.40).

(iv) Establish a pilot regional training center (perhaps atYogyakarta) that would integrate all local training programsfor provincial staff and field-level central staff of aselected region; strengthen the advisory and softwaredevelopment role of Home Affair's training center to serve theneeds of this and future regional centers (paras. 8.41-8.42).

(c) Support Programs to Facilitate Public Management Development

(i) Organize and fund a national program for public administrationfaculty development for state universities and departmentaltraining centers, starting in the first year with about 100teachers and 100 trainers (para. 8.56-8.59).

(ii) Organize and fund a national program for developing trainingmaterials and teaching methods that emphasize "action learning"and the development of local cases; support for a few leadingpublic administration faculties to become national resourcecenters for this program (paras. 8.60-8.62).

(iii) Expand in-country foreign language training programs, particu-larly in support of overseas training.

(iv) Develop a program to systematically identify managerial skillrequirements (managerial skill profile analysis) starting withthe highest managerial positions at the central agencies andministries, in association with LAN (paras. 8.37-8.40).

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(v) Initiate a senior executive development program for EcheLon Iand upper Echelon II (who are not reached by existing SESPA);this program may be organized by LAN, in coLlaboration with theDefense Staff CoLlege and a reputed foreign publicadministration school (para. 8.38).

(d) Policies to Improve the Management Environment

(i) Establish an inter-departmental working team under theleadership of the Minister of Adminiscrative Reform torecommend civil service policy improvements, starting withcompensation for key categories of civil servants; proposedreforms may be tested by select ministries and, as appropriate,expanded to other agencies; technical assistance may be neededto explore comparable experiences with reforms in neighboringcountries (paras. 8.75-8.78).

(ii) Establish an inter-departmental working team, perhaps under theLeadership of the Ministry of Finance or Home Affairs, toformulate a national program for selective decentralization(paras. 8.79-8.81).

(iii) Establish a national task force, under the Leadership of theMinistry of Finance or BAPPENAS, to examine furthersimplification in annual budgetary cycle, and to introducemedium-term investment programming at selected ministries andtheir enterprises (para. 8.82).

(iv) Strengthen the National Working Group on Automation of theState Apparatus to enable it to formulate policies formodernizing management information technology, starting withthe central guidance agencies (paras. 8.38-8.85).

For Enterprise Management

(a) Forums to Guide and Promote Enterprise Management Development

(i) Assist existing professional and business forums to organizepromotional activities and advise the Ministry of Finance(and/or Ministries of Administrative Reform, Education,BAPPENAS) on policies to influence enterprise management devel-opment and performance and generally, to promote communicationbetween business and government (paras. 8.14-8.16).

(ii) Through professional associations, the Chamber of Commerce,and/or special task forces, sponsor a national managementdevelopment movement and mobilize private and public resourcesand foreign aid to initiate and support high priority manage-ment education and development activities (paras. 8.21-8.22).

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(b) Assistance for Enterprise Management Development Institutions

ti) Consolidate faculties for management at selected stateuniversities, with a view towards integrating all relatedprograms within a university under one faculty and reformingtheir structures, policies and content (paras. 8.25-8.33).

(ii) Through a national program, assist the most promising privatemanagement education institutions with a view that some of themost promising ones may evolve into full-fledged nationalinstitutes of management; assist the development of new privateinstitutes outside Jakarta (paras. 7.28-7.31, 8.32-8.33 and8.48-8.54).

(iii) Develop the management program (training, consultancy) at theagricultural public enterprise training center (LPP); study ofthe management needs of public enterprises in other prioritysectors and use the LPP experience to formulate plans for othersectoral training centers (paras. 8.44-8.45).

(iv) Study alternatives for meeting the entrepreneurial and manage-ment development needs of small enterprises, including variousmeasures to improve the effectiveness of existing programs andthe involvement of non-government organizations. Also prepareand introduce a national supervisory training program (para.8.47).

(c) Support Programs to Facilitate Enterprise Management Development

(i) Organize and fund overseas training for management faculty witha phased coverage of selected state universities, privateinstitutes, and sectoral training centers, starting with about200 teachers and 100 trainers; develop mechanisms to provideaccess to foreign-aided overseas training to private enter-prises, private management education institutes and other NGOs(paras. 8.56-8.59).

(ii) Recruit and train suitable public enterprise managers who areabout to retire to become trainers at the sectoral trainingcenters (para. 8.58).

(iii) Organize and fund a national program for developing trainingmaterials and teaching methods that are action-oriented andlocally adapted (paras. 8.60-8.62).

(iv) Support the national consulting association (INKINDO) informulating and initiating a national program to suppport localmanagement consuLtancy firms, possibly including training atreputable international consuLting firms, and improving pubLicpolicies for contracting and compensating managementconsultants; build a management consultancy capability withinthe Ministry of Finance for public enterprises (paras. 8.64-8.65).

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tv) Establish a national fund for promoting management research,the initial agenda of which might be drawn up by a nationalconference (paras. 8.66-8.68).

(vi) Initiate a national program for developing senior executives inpublic and private enterprises, at some leading Indonesianmanagement education institutes in collaboration with areputable international business school; supportexperimentation with a variety of educational andorganizational development methodologies such as "actionlearning" and "Performance Improvement Programs" (PIP) at fewmajor public enterprises (para. 3.62).

(vii) Support the national management development movement throughpublic recognition and other incentives for managerialexcellence; support management development activities sponsoredby professional associations such as PERMANIN; organize andfund study tours for about 200 senior managers and businessleaders from public and private enterprises to observemanagement systems and practices at some leading foreigncorporations with commercial interest in Indonesia (paras.8.69-8.71).

gd) Policies to Improve the Managerial Environment

Ci, Examine Goverment control systems of public enterprises. Inparticular, measures should be taken to strengthen: the rolesof the public enterprise units at the Ministry of Finance andat the supervising ministries (according to decree number 3 of1983); the setting of corporate objectives and the monitoringand evaluating of corporate performance (multi-year corporateand financial planning systems might be considered in thelarger enterprises); and personnel policies, particularlyconcerning selection, transfer, compensation and development ofmanagers and commissioners. The task force may focus first onfew priority sectors, perhaps industrial enterprises, financialinstitutions and/or agricultural estates (paras. 8.68-8.90).

(ii) Review the regulatory policies governing private and publicenterprises. Priority areas for reform might be policies andprocedures which hinders exports, discourage privateinvestment, and inhibit competition in domestic and exportmarkets. The task force may start with several nationalconferences involving poLicy makers and private businessleaders to identify those policies with major long-term impactand options for reforms (paras. 8.87-8.89).

(iii) Accredit the graduate programs of private management educationinstitutes, exempt them from taxes on imported books andteaching materials, facilitate access to student loans, andaLlow for adequate experimentation and autonomy to promoteinnovation and diversification.

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Managing the Implementation Process

61. The total set of interventions proposed is wide ranging and complex,and calls for vital inputs from a variety of sources. Therefore, managing thefurther design and implementation of the long-term program will require care-ful planning and phasing, taking account of the interrelationships among thefour main elements. Early actions should lay the foundation for longer termmeasures by building widespread commitment, establishing forums for dialogue,mobilizing resources, and accumulating relevant experience through pilotefforts. These early interventions should secure the climate for sustainablechange and generate a broad concensus for the more difficult subsequentreforms. As implementation proceeds and innovations are tested, it will bepossible to involve a larger number of institutions and reach out to the lessdeveloped regions and less organized sectors. Implementation progress shouldbe regularly reviewed and policies and programs adapted and reshaped as deemedappropriate. The following are some broad guidelines for organizing theimplementation of the proposed strategy (see Chapter 8, Section C, para.8.91).

(a) Administrative coordination of all the relevant agencies by a single"super agency" is neither necessary nor feasible. Rather, coordina-tion should be achieved through joint planning of policies andactions, and monitoring of progress. The early establishment of aNational Advisory Forum on public administration development and thequality and style of its leadership will determine its effective-ness. Similarly, professional and business forums shouldparticipate in shaping those aspects of the strategy concerningenterprise management. Given the large number of institutionsinvolved here, strong commitment and incentives, coordination in theuse of scarce resources, and frequent communication among allconcerned organizations will be important. "Working teams" or "taskforces" may be formed to provide a flexible organizational means toaddress organizational development programs at the central agenciesand line ministries while inter-ministerial task forces wouldaddress the external environment.

(b) Adequate local collaboration and decentralization will be impera-tive. Education and training institutions in the public and privatesectors should seek common solutions to common problems wheneverpossible and economize on the use of scarce resources through mutualcollaboration. Administrative and financial support for institu-tional cooperation should be deliberately created to ensure theviability of the new forums and consortia. Professionalassociations should be encouraged to participate in the nationalforums. Decentralization will be particularly important inorganizing training activities for the less organized sectors suchas small business, trade and cooperatives.

(c) The management of the proposed support programs, such as overseastraining, will require considerable administrative coordination,responsibility for which should be pinpointed very early in the

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action program. The recently established "national steeringcommictee on utilization of foreign aid for overseas training" couldprovide the necessary mechanism, provided it is adequately staffedand strengthened and it is used primarily for promotional andcatalytic roles.

(d) All new or emerging institutions or programs, to be developed aspart of the strategy will need special attention in their formativeperiod to demonstrate success, to evaluate experience and to ensuretimely adaptation and replication.

(e) A quarterly review of progress may be necessary during implementa-tion of the Action Plan. As long-term actions are initiated,possibly at the end of the first two years, the review processshould thoroughly examine the achievements, failures, and gaps ofall ongoing efforts. In subsequent years, activities may be dividedinto those which need quarterly review and those to be monitoredonly annually. The progress of institutional development should beassessed over reasonably longer periods, for example, at the end ofevery five years. The review process, in other words, must betailored to fit the nature of the programs and institutions to bemonitored.

Technical Assistance for Management DeveLopment

62. Aid agencies play an important role in supporting the nationalforums and Local organizations in their efforts to develop managementsystems and skills. This role may be pursued through: (i) dialogue with andtechnical assistance to the various national forums and task forces on overallnational policies, strategies and systems which influence the development andperformance of public and private institutions; (ii) overall assistance todepartmentaL and sectoral training centers, LAN and both public and privateinstitutes/faculties of management and public administration, and to otherresource instiutions to provide the learning experiences, consultancy servicesand research (local adaptation) necessary to support management developmentactivities in various organizations and to prepare future managers; thisassistance may be carried out under specialized management development pro-jects; (iii) assistance to ministries, core agencies, and large publicenterprises in formulating their own comprehensive organizational develop-ment/performance improvement programs and then in implementing them; thisassistance may take the form of "process consultation"; and (iv) addressingmanagement improvement needs in the context of development projects andsectoral programs to build particular management capacities in support ofpriority programs and sectoral needs.

63. A review of experience with technical assistance for management andinstitutional improvement (in the context of development projects) suggests anumber of factors which have limited its effectiveness. The most importantare: (i) the failure to take a sufficiently broad and long-term view oftechnical assistance; (ii) the exclusive focus on immediate and tangibleresults from individual projects and physical facilities, and relying onspecial project units for implementation; (iii) lack of top management

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capacity and support for institutional development; (iv) inadequate involve-ment of various levels of management of the target institution in thediagnosis and design of solutions; (v) complex administrative procedures forhiring consultants and weak supervision of their work, particularly in thearea of institutional development; (vi) ignoring the broad environmental andpolicy constraints which frustrate institutional performance, and (vii) thelack of cultural adaptation in technical assistance for management development(see Chapter 9, Section A).

64. Specific recommendations for improving the effectiveness of futuretechnical assistance for institutional development include: (i) ensuringrecipients commitment to the objectives and means of assistance; (ii) arealistic phasing of implementation; (iii) improving central agencies' capa-city to define, monitor, coordinate and evaluate such assistance; (iv)associating local training and consulting firms with these activities; and (v)systematic adaptation of promising management tools and institutional develop-ment approaches to take account of important cultural and behavioralaspects. The Provincial Development Program and the Indonesian fertilizercompany (PUSRI) provide examples of useful approaches to ensure effectivetechnical assistance for management and institutional development in thecontext of regular development projects. In general, institutional develop-ment efforts require long-term commitment and adoption of collaborative andlearning approaches which permit continuous adaptation in light of localconditions and experience.

65. With increasing awareness of the limitations to whoLesale transferof foreign managerial technology and administrative solutions, the value ofinvesting in indigenous manageriaL resources and learning systems has becomemore apparent. In this context, the roLe of technical assistance should beextended beyond solving specific organizational problems, and should aim atbuilding a self-sustaining local capacity for problem solving and continuousorganizational development.

66. The report suggests a number of countries and international agencieswhose experience in management development is relevant to Indonesia. ConcernedIndonesian managers and educators should familiarize themselves with the widespectrum of services and various country experiences so they can make informedchoices. Meanwhile, aid agencies may wish to participate, with technicaland/or financial assistance, in the proposed management development stra-tegy. They might focus first on areas of immediate relevance, such as studytours and overseas training, advisory services to the forums and task forcesproposed for organizational development programs and policy reforms,experimentation with workshops to raise awareness of senior managers andpolicy makers, and generally, promotion of a climate that supportsorganizational and managerial excellence. While the responsibility forfollow-up rests with the Indonesian government and business leaders, donoragencies could facilitate the implementation process through informalcoordination among themselves and dialogue on the proposed strategy withdesignated government agencies. There are many indications that this processhas already started (see Chapter 9, Sections B and C).

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Update

67. Since this survey has been compLeted, the Government has takenimportant measures to improve the regulatory environment for the privatesector, the supervision systems of the public enterprise sector, and thepolicies and programs concerning civil service training and compensation.Among these measures are: the Presidential Instruction No. 4 of 1985 tosimplify various regulatory policies concerning imports and exports, DecreeNo. 3 of 1984 to improve supervision of state-owned enterprises, the reformsof private investment procedures and the Investment Coordination Board (BKPM),the recent initiatives and reorientation of LAN, the creation of a managementtraining center for public enterprises at the Ministry of Industry, the initi-ation of a management training program for the administrators of the Ministryof Education, the overall expansion of overseas training for managers, and therecent improvements in the salaries of civil servants, including the inte-gration of some in-kind payments into the basic salary structure.

68. Based on discussions on the draft of this report, the Government hasestablished its priority list of projects for management development and hasinvited all the donor countries and aid agencies to support its efforts inimplementing these projects (see table 2). This list is concerned with theearly phase of the proposed long-term strategy and will be adapted and updatedin light of the Covernment's own experience with implementation of theseprojects and its continued dialogue with interested aid agencies.