9 Agustus 2019

A PROPOSED SOLUTION TO THE STRATEGY

OF INDONESIAN PORT, CASE STUDY AT PELINDO 3
Harimukti Wandebori, Herry Hudrasyah, Ima Fatima

Abstract
Pelindo 3, is the Indonesian State-Owned Enterprise (SOE) responsible for managing 43 ports in
Indonesia, comprising seven provinces. Monopoly practice was one of the reasons for the high
logistics cost. It spurred to the inflexibility, lack of control, lack of coordination, lack of synergy,
and ultimately burdened the dwelling time and the logistics cost.
Digital technology enables connectedness of the resources, activities, and stakeholders to
effectively implement the strategy based on the corporate governance principles. In order to
develop the effective digital-enabled technology, the port authority should be knowledgeable
about and manage the drivers of the unit cost of technology development. However, the
development of digital technology is not enough without being accompanied with the appropriate
business strategy and its implementation related to corporate governance.
The proposed business strategy of Pelindo 3 was Integrated Cost Leadership and Differentiation
with the core competencies of the fast turnaround, efficiency, minimal disruption, and
innovation. The current financial slack should be kept to invest in streamlining the connectedness
among the stakeholders by strengthening the infrastructure, restructuring the organization
(related to the corporate governance), developing the information technology, facility, improving
the knowledge and skills of human resources, and improving the reputation. The structure of the
organization of Pelindo 3 should be following the required level of diversification to a more
streamlined organization by eliminating complexity and enhancing efficiency and effectiveness.

Keywords: Port; Logistics; Business Strategy; Governance

JEL Classification Number: M10

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1. Introduction
Indonesia is an archipelago country strategically located between two continents and two ocean
with 262 million inhabitants and 17,500 islands. A stable GDP growth of about five percent
signifies a relatively stable consumption which continued to grow over the last three years. The
administration of President Jokowi had fully supported logistics industry growth through the
development of infrastructure. In this instance, The Ministry of Transportation revealed that in
2016-2030, the government intended to allocate US$ 35 billion to improve harbors.
Currently, Indonesia has 1,240 ports, consisting of 33 main ports, 217 collector ports, and 990
feeder port. Land transportation has still become a primary choice for logistics and create a low
national logistics performance that results in a high cost for logistics. A high logistics cost are an
issue for any economy as it makes items and services less competitive, while foreign will
reconsider before putting resources into the nation.
In spite of the Indonesian government being vibrant to push for infrastructure improvement,
Indonesia as Southeast Asia's biggest economy plummeted 20 positions in the World Bank's
2016 Logistics Performance Index (LPI), from 43rd position in 2007 to 63rd position. The LPI's
resolution was through an overall review, including worldwide cargo forwarders and express
carriers that give input on the logistics in countries where they operate and those with which they
trade. Unfortunately, Indonesia LPI was below Rwanda and Tanzania, having the cost of
logistics between 20-30% out of the GDP, compared to US (10.1%), Japan (10.6%), and South
Korea (16.3%).
From 134 countries, Indonesian port competitiveness was ranked 95, while the neighboring
countries, Singapore, and Malaysia, were in ranked 2 and 19.
Port of Tanjung Perak, as one of the ports at Pelindo 3 with the largest capacity of 1.5 TEUs
(Twenty-foot equivalent unit), is the second busiest seaport in Indonesia, located
in Surabaya, East Java. It is the main port for the eastern part of the island of Java. The access to
the port is from the North through the Madura Strait, a 25 mile long, 100 m wide and 9.5 m deep
channel between East Java and Madura Island.
Several factors in the infrastructure field hamper the process, making dwelling time takes longer.
Besides that, complicated and bureaucratic procedures have contributed to the low LPI. Based on
the data from Indonesian Logistics and Forwarders Association (ILFA), the potential market of
logistics in Indonesia was worth up to US$ 33.34 billion with hidden logistics potential about

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US$ 214.40 billion, making the total logistics inherent worth up to US$ 247.74 billion (Hanafi,
2015).
The logistics industry comprised several businesses, including shipping, agency, logistics, and
terminal. One of the critical measurements for LPI was dwelling time that had an average of 3.5
days, or even a few other ports were between five to six days. It was longer than those in
Singapore, which accounted for one day and in Malaysia of two days. Traffic jam and the
inefficient business process had also affected the efficiency of logistics operation over Indonesia.

Figure 1: Map of Tanjung Perak

Tanjung Perak (main port of Pelindo 3)

These facts need to be taken seriously since the logistics industry is pivotal to support the Gross
Domestic Product, along with its potential demand. Infrastructure as the leading supporter of
logistics industry development in Indonesia needs to be improved. It comprises a complicated
bureaucratic process, long-dwelling time, and inefficient transactions. The primary cause behind
Indonesia's low performance is due to the complicated bureaucracy and conventional technology,
which is consistent with Teo, Tan, and Wei (1997). For this paper, the focus was on the
improvements in seaports' logistics system using digital technology. Suitable solutions using
digital technology follows the descriptions of the analysis and design system of operational
efficiency. Finally, the recommendation is related to the most effective and cost-efficient design.
Pelindo 3, is the Indonesian State-Owned Enterprise (SOE) responsible for managing 43 ports in
Indonesia, comprising seven provinces. It was regarded as the representation of the ports in

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Indonesia, endeavoring to enhance the operational excellence in the objective to reduce the
logistics cost and dwelling time. The vision of the Pelindo 3 was to be the leader in the business
port and committed to accelerating the integration of logistics by delivering prime port services.
The asset number was Rp 12.2 trillion or about US$ 1 billion with the profit of Rp. 200 million.
The dwelling time of Pelindo 3 was longer than that in Pelindo 2, its counterpart SOE, not to
mention neither the Port of Singapore nor Port of Malaysia. The implications to the long
dwelling time were the complaints from business entities, and industries towards the high
logistics cost in the Port Tanjung Perak, the main port which was managed by Pelindo 3. The
long dwelling time problems of the port composed of the pre-customs, customs, and post-
customs. Lack of willingness of importer or freight forwarder to accelerate the import
administrative issuance, the identification of container, and lack of coordination among the
related institutions; Port, Customs, Importer, and Freight Forwarder were the problems occurred
during the pre-custom time. In the next stage, a long period of physical assessment, the difficulty
of tracking container, short-period of daily assessment time, and manual submission of delivery
order were the obstacles during the custom time. Inventory time, old physical examination
machine, long-period container inspection, inadequate wages and benefits, and delayed the
entrance of the freight forwarders, were the hurdles during the post-custom time. The internal
research from the Customs Directorate, about the hierarchy of problems to the dwelling time,
revealed that pre-customs accounted for 57%, customs for 11%, and post-customs for 32%.

Table 1: Dwelling Time and Customs Clearance

Docking- Berthing- Customs Container Gate-out
Unloading Stacking clearance handling- system
handover
Dwelling time
Time
Pre-customs Customs
Stamp Post-customs clearance
clearance clearance
Red lane 0.01 days 6.38 days 1.14 days 0.52 days 0.03 days
Total: 8.09
days
Green lane 0.02 days 2.01 days 0.97 days 1.05 days 0.03 days
Total: 4.08
days

From Table 1, the dwelling-time of Pelindo 3 at Port of Tanjung Perak in the red lane was 8.09
days, while in the green lane was 4.08 days. In total, it was longer than the dwelling time of

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 Pelindo 2, which was 4.8 days. But, both dwelling times were longer than that in the ports of
Singapore of 1.5 days and Malaysia of 3 days.
Monopoly practice was one of the reasons for the high logistics cost. The organization structure
of Pelindo 3, as presented in Figure 2, was a functional structure. The directorates of operations,
engineering & ICT, general affair, and finance were directly below the President Director who
also manage and control the subsidiaries and affiliated companies. In total, Pelindo 3 has eight
ports, 23 subsidiaries comprising business units, and affiliated companies. From the fact, Pelindo
3 conducted a monopoly practice by diversifying its businesses outside the central business to
utility, freight forwarders, hospital, property, and inventory. Since, in this issue, the majority of
tenders in the port business were usually won by Pelindo 3 subsidiaries. It spurred to the
inflexibility, lack of control, lack of coordination, lack of synergy, and ultimately burdened the
dwelling time and the logistics cost. Therefore, the research has the objective to propose the
strategy of Pelindo 3 and determine the required competencies and resources to support the
strategy while at the same time avoiding the monopoly practice.

Figure 2: Organization Structure of Pelindo 3

President
Director

Commercial & Engineering & ICT Human Capital & Finance

Operational Director Director General Affair Director Director

Corporate Senior Vice Senior Vice Senior Vice Senior Vice Senior Vice
Secretary President President Port President Human President President
Marketing Equipment Capital System Accounting Procurement
Corporate and Strategy and Budget
Representative Senior Vice Senior Vice Senior Vice
President President Port Senior Vice President
Senior Vice
Head of Business Facility President Corporate
President Human
Internal Audit Development Corporate Strategic
Capital Services
and HSSE Finance and Planning &
Senior Vice
Senior Vice Treasury Corporate
Senior Vice President Port
President Port Performance
President Engineering Senior Vice
Subsidiary Operations Supervision Senior Vice
President Senior Vice
management President
General President
Share Service
Affair/Head Management
Senior Vice Center
Office System & Risk
President
Information and Management
Communication Senior Vice
Technology President Change Senior Vice
Management President
Legal

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2. Materials and Methods
The data for this paper sourced from a diverse number of sources. First, we conducted two-day
discussions about Pelindo 3 with the ten experts related to the dwelling-time during ITB summit
in Bandung in 2018. Second, one author visited one of the ports in Pelindo 3, Tanjung Perak, in
Surabaya and conducted interviews with Engineering & ICT Director, Operational Director, and
General Affair Director. The purpose was to learn about the problems of the port, the
organization, the resources, and its core competencies. The authors toured the port to study the
operation and collected the secondary data such as publication, annual report, and government's
report about the port in general. To secure the validity, this paper used the principles of multiple
sources of evidence and convergence of finding (Yin, 2003).

3. Theory
Determination of the company’s strategy and the supporting assets and skills used the Industrial-
Organization (I/O) Model (Hitt, Ireland, and Hoskisson, 2015). The industrial organization
model of above-average returns explains the external environment’s dominant influence on a
firm’s strategic actions (Hitt et al., 2015). The model suggests that the external environment has
a substantial impact on performance and ignites the firm to develop or acquire core competencies
to implement the strategy. In this model, the analysis of the external environment, consisting of
the general environment, industry environment, and competitor environment was the first step to
determine what attractive industry as the target. The model is adequate to formulate the strategy
of Pelindo 3. Knowing the characteristics of the industry and the requirement of the customers
are pivotal data for the development necessary core competencies by knowing the strategic
position of the port compared to the competitors. The second is obtaining the attractive industry
and the required characteristics to formulate the strategy (step 3). In step 4, developing the assets
and skills related to the aspired core competencies and at the same time, streamline and rectify
the activities that fit with the strategy (step 4). Step 5 is about preparing the implementation of
policy, such as setting up the organizational structure, the objective to reduce any gaps from the
vision and mission, and the target of the key performance indicators.

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 Figure 3: The I/O Model of Above-Average Returns

1. Study the external environment, The External Environment

especially the industry  The general environment
environment  The industry environment
 The competitor environment

2. Locate an industry with high An Attractive Industry

potential for above-average
 An industry whose structural
returns characteristics suggest above-
average returns

3. Identify the strategy called for by Strategy Formulation

the attractive industry to earn  Selection of a strategy linked
above-average returns with above-average returns in
a particular industry

4. Develop or acquire assets and Assets and Skills

skills needed to implement the  Assets and skills required to
strategy implement a chosen strategy

5. Use the firm's strengths (the Strategy implementation

developed or acquired assets and  Selection of strategic actions
skills) to implement the strategy linked with effective
implementation of the chosen
strategy

Superior returns
 Earning of above-average
returns

The research used the Port of Tanjung Perak as the object of investigation of the case study in the
operations of logistics. Tanjung Perak is the most dominant port at Pelindo 3 in terms of the
capacity and strategic location. In 2018, the capacity of Pelindo 3 was 5.3 million TEUs while
the Port of Tanjung Perak was 1.5 million TEUs. Because of its strategic position and the

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existence of surrounding advantageous hinterlands, the port constitutes the center of inter-island
shipping for Eastern Indonesia.

4. Results
4.1 The External Environment
4.1.1 General Environment
Political/Legal. Budi Karya Sumadi, Minister of Transportation, will regulate twenty regulations
regarding logistics within the economic reform package number 15. The deregulation will focus
on funding, non-tax revenue (PNBP), and the process of loading and unloading of the logistics.
The deregulation relates to the acceleration, reduction of time in terms of logistics stream, and
time of loading and unloading. The reformed economic package contains the improvement of the
system and Indonesian national single-window (INSW) of data processing. Besides that,
ultimately, it aims to improve the time of ports loading and unloading of logistics or the dwelling
time.
Economy. The logistics performance of Indonesia was still below those of the neighboring
countries. For instance, the logistics cost was 23.5% of the Gross Dometic Product/GDP
(Novianti, 2017).
Indonesian logistics was still higher than Vietnam (16%), Thailand (13.2%), Malaysia (13%),
and Singapore (8.1%).
Indonesia's Statistics Agency (BPS) announced that the GDP of Indonesia expanded 5.06 percent
year-on-year in the first quarter of 2018. This figure was in line with the expectations. Over the
past two years, Indonesia's economic growth was a slow pace, attributed to subdued household
consumption.
Sociocultural. Indonesian Association of Internet provider/Asosiasi Penyelenggara Jasa
Internet Indonesia (APJII) mentioned that the internet user of Indonesia reached 143.26 million
in 2017. This figure was equal to 56.48% of the total Indonesian population, which reached 262
million.

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Therefore, the business of logistics transportation service had a lucrative prospect. But, public
expectation of service quality performance to the various modes of transportation to both local
and international.
Technology. The Internet of Things (IoT) is the technology that allows devices to communicate
via an Internet infrastructure to one another, without a person initiating the communication. The
Internet of Things is the technology that drives fitness trackers, smart appliance, and automated
home security. For the logistics company, this is the technology behind machine-to-machine
technology that makes monitoring and managing equipment so much easier.
The logistics industry requires a variety of vehicles, and keeping tabs on those vehicles is a
challenge. GPS fleet tracking allows the logistics provider to know where the fleet is and what
each driver is doing in real-time. It helps to streamline the process and ensure that vehicles used
efficiently. GPS fleet tracking allows logistics providers to know whether vehicles are being used
without authorization or for unauthorized trips.
In today's supply chain management, artificial intelligence does more than making products.
Robotics for manufacturers is an excellent tool because it helps reduce costs and limit overhead.
It is also assisting computers to become smarter and better at making computer-based
predictions.
One of the problems that the logistics companies must overcome is the struggle to track their
assets throughout the supply chain process. Radiofrequency identification can help. RFID
technology helps companies keep tabs on assets and inventory, reducing the number of goods
that are lost or stolen, and ensuring that less money is lost.
Physical. Logistics service sector raced to provide services not only to safety, but also to fast
turnaround, and reliability. In consequence, the requirement of data precision was necessary for
the business.

4.1.2 Industry Environment

Logistics plays a huge role in the process of developing the economy. Unfortunately, in
Indonesia, the Port related to logistics were predominantly possessed by State-Owned
Enterprises (SOEs). Generally, the SOEs have the drawback characteristics, such as the
hampering infrastructure, long dwelling time, and bureaucratic process, which ultimately
burdens the cost of logistics. The weak performance of the logistics industry in Indonesia was

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related to the issues on commodity, infrastructure, regulation, as well as institutional matters.
Nevertheless, logistics plays a vital role in today's economy. Based on the data from Indonesian
Logistics and Forwarders Association (ILFA), the potential market of logistics in Indonesia is
worth up to US$ 33.34 billion with hidden logistics potential about US$ 214.40 billion, making
the total logistics inherent worth up to US$ 247.74 billion.
Currently, there are 72 seaports in Indonesia with Tanjung Priok as one of the busiest ports
which manage local and international logistics. In 2018, Tanjung Priok seaport was able to
handle 6.91 million TEUs annually, with 2.9 days dwelling time. Tanjung Perak, as the main port
in Pelindo 3, in 2018, managed 2.3 million TEUs. But, the leading regional competitor, Port of
Singapore, had a much bigger capacity of 33.7 million TEUs. The competencies of the Port of
Singapore contained Fast Turnaround, Efficiency, Minimal Disruption, and Innovation which
were backed-up with the latest technology and Information Technology to deliver more efficient
service (Gordon, Lee, and Lucas Jr., 2005).

4.1.3 Competitor environment

Comparing to neighboring countries, such as Singapore and Malaysia, the logistics performance
of Indonesia was still below its compatriots. According to Top 50, World Container Ports by
World Shipping Council, Port of Singapore can manage about 33.7 million TEUs annually, with
only one day dwelling time. Meanwhile, Port Klang of Malaysia has a capacity of 11.89 million
TEUs annually, with two days dwelling time. Consecutively, Singapore, Malaysia, and Indonesia
placed in 2nd, 12th, and 27th rank out 50, in terms of seaports performance and capacity.
In terms of the resources, Port of Singapore compared with other ports, such as Port Klang
(Malaysia) and Port Tanjung Priok (Indonesia), did not have any comparative advantages. The
resources of Port of Singapore, such as strategic location, nature, and deep harbor, financial
capital, IT, and human resources had been the common properties of the competitors (Gordon,
Lee, & Lucas Jr., 2004). Nevertheless, the bundled and combined resources created the core
competencies as the bases for the Port of Singapore's competitiveness (Gordon, Lee, & Lucas Jr.,
2004). It consisted of the fast turnaround, efficiency, and minimal disruption. These resources
were, in fact, common to the other competitors. In other words, despite similar resources
compared to the competitors, Port of Singapore was able to capitalize on forming the port's
capabilities and ultimately the core competencies as the bases for the competitive advantage.

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4.2 An Attractive Industry
Indonesia as the biggest archipelago in the world with 17.508 islands, the area of lands covers
1.922.570 km2 and much bigger area of seas of 3.257.483 km2.
Indonesian seas have not been utilized and exploited as the transportation infrastructure — any
other modes of long-distance transportation, including logistics transportation intra-islands,
which used the land road. Sea transportation is much cheaper when transporting logistics in a
long-range and high amount of quantity than the other modes, such as train and land road.
Besides that, it is much better than the logistics to be in the form of container.
According to Levinson (2007), the container made shipping cheap, and by doing so changed the
shape of the world economy. This perspective is in line with the situation in Indonesia; that
container is very much prospective to fulfill the requirement of logistics transportation.
The benefits of the container include good inter-modes since it fits with land-road, train, and
seas. The container has standardized shape and weight, therefore, avoid overloading, no-
requirement of a warehouse (can be stacked into seven layers of containers in the open field),
and fast loading and unloading. Therefore, containers transportation are in the forms of any
kinds of modes to connect services from door-to-door.
In line with the issue faced by Pelindo 3 in the introduction, the attractive industry in logistics is
related to the port, container, and its modes of transportation, i.e., ship, freight forwarder, and
train.

4.3 Strategy Formulation

As have been explored in the external environment (general, competitor, and industry), the
attractive and lucrative industry required speed and innovation to provide and cater the logistics
business to the customers. Therefore, the matched formulated business strategy to be defined in
Pelindo 3 was the Integrated Cost Leadership and Differentiation. The formulated business
strategy encompassed the competitive advantage in terms of lowest cost and distinctiveness. In
this regard, the core competencies to be developed and refined were related to lowest cost; Fast
Turnaround, Efficiency, Minimal Disruption, and to distinctiveness; Flexibility, and Innovation.
The core competencies were supported with the combined and bundled of resources (Barney,
1991); tangible (financial, organization, technology, and physical), and intangible (human

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resource, reputation, innovation, and reputation). Therefore, in this instance, the port should
refine and develop assets and skills. As presented in Figure 3, all the related and combined
resources, along with the core competencies aspired to the achievement of the company's vision;
world-class hub trans-shipment as it is in line with Teece, Pisano, and Shuen (1997).

Figure 3: Required bundled of resources and competencies to acquire the vision

The vision of Pelindo 3

Vision
World-Class Hub Trans-shipment

Formulated Business Integrated Cost Leadership

Strategy and Differentiation

Core
competencies

Minimal
Fast Turnaround Efficiency Innovation
Disruption

Assets &
Skills
Bundled with Resources
Human
Financial Organization Technology Physical Reputation
resource

4.4 Asset and Skills

Financial. Lack of political regulation, particularly between SOE in similar subsectors, thus
creating inefficient investment due to miscommunication. Therefore, the current economic slack
should be kept to invest in strengthening the infrastructure, regarding the organization (related to
corporate governance), information technology, facility, human resource, and reputation.

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Organization. Lack of effective communication between customs and Pelindo had created a
misperception that long dwelling time is predominantly solely caused by Pelindo. To resume the
lack of effective communication, to both the internal corporate and to subsidiaries and the
affiliated companies, Pelindo required to restructure the organization. It should match with the
necessary level of diversification. Pelindo needed to only preserve the related companies to the
core business (logistics) and divested the unrelated companies to prevent excess diversification.
It had the potential to reduce the complexity of coordination, increase the efficiency of time
spent on coordination, and improve the effectiveness of its core business performance, i.e.,
related to dwelling time. Synergy with the subsidiary and affiliated companies through the
control and coordination from the headquarters requires to be developed and maintained.
Therefore, the matched organization structure in Pelindo 3 was the SBU form, where the
headquarters office managed and controlled the synergy with the SBUs to secure effective
communication and integration. The structure, mechanisms, and procedures in the SBU form
organization will also prevent the monopoly, and reduce the logistics cost.
Technology. The issue in terms of technology in Pelindo 3 was the lack of integrated automated
IT resources, consistent with Wade and Hulland (2004), thus making scheduling ineffective in
Pelindo 3. Technology and Process. The technology to be developed was by combining digital
technology with process improvement (within pre-customs, customs, and post-customs) to
effectively reduce the processing time. Two techniques were involved in reducing the dwelling
time. Automated Crane with integrated big-data-based artificial intelligence will reduce the
waiting time of TEU to be moved from side fields to the temporary storage area. In the
imported-goods-registration process, the importers must include the code of TEUs with their
imported goods before the ship arrives in the port. The port operator will categorize the TEUs to
green, yellow, or red based on the goods regulation. The three lines that already exist in the
harbor to help categorize the cargo into; pass directly (green), checked (yellow), and checked
further (red). When the ships arrive, the crane will scan the QR Code unloading it from the ship.
After detecting the code, the crane will know the category of the goods and tell it to the truck.
Crane will move the TEUs to the self-driving truck, and truck will move to the storage based on
the TEU's category that crane told before. The reasons to use artificial intelligence were;
efficient (saved time and money), conscientious (avoid mistakes and human error), effective

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(increased productivity and operational efficiencies), systematic (faster business decisions), and
adaptable (improved cost savings).
Self-Driving Truck. A self-driving truck can reduce the risk of a traffic jam as one of the
bottlenecks in the process inside the harbor. It can reduce traffic jam at pre-custom clearance
because each truck can communicate with each other real-time. The self-driving vehicle can do
communication with crane and CCTV through the Internet of Things (IoT) technology.
Furthermore, the self-driving truck also able to reduce the risk of a truck crash that can damage
the TEUs. To give a real number of self-driving vehicle needed, we took an example from
Tanjung Priok harbor that handles 5.4 million TRUs cargo in 2016 or 14,795 cargo daily
average. To inform that it takes 25 minutes to deliver each cargo from container yard to
temporary shelter or 50 minutes to back and forth. If a truck work for 12 hours, it will get 14.4
cargo in a day. By using the old truck, it needs 1,027 vehicles; a self-driving vehicle can get two
cargo in a go without having a traffic jam. Thus, it needs a fourth of old trucks or 256 self-
driving trucks.
Technology and People. The combination of technology and people created the solutions to the
problems by reducing human-error risk and making people make more practical efforts on their
job description.
Smart CCTV with Artificial Intelligence for Data Mining and Processing. The CCTV has
image processing feature that can learn the behavior of human and machine in the harbor. Based
on research, it takes 75 minutes for a truck to get into the harbor gate, load the cargo, and get out
from the harbor. With smart CCTV, a truck that gets into problems or stop could get help from a
harbor officer immediately. Moreover, the CCTV could be integrated with traffic sign to give the
optimum time for a red and green light to prevent traffic jam around the harbor. Artificial
Intelligence Chatbot Services. The importers will communicate with a chatbot to get new
information towards the ports, the payment of taxes information, important notification, and
cargo status. The chatbot also learns from the behavior and data of importers. It would help the
importers to get information immediately and accurately enhance the pre-custom and custom
clearance process. A chatbot will be available 24 hours and integrate with Indonesia National
Single Window (INSW) data of importers to meet importers needs. Process and People. The
port needs to develop an application for employees informing activity or to-do list aligned with

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the INSW system and the latest information. The application will help harbor officer to know
their list of activities.
A blockchain system developed to implement the communication system of the harbor.
Blockchain is a system of data storage in the form of a list, inter-related and protected by
cryptography. Blockchain itself was a system recently acknowledged in the society used as the
system to protect the most famous digital money, BitCoin. Blockchain stores every data in a
network of categorized as a block. Then, hash, the unique code and also hash pointer or a clue to
the previous block. If the content of data of a block changed, then it will change the hash of the
block. An unmatched pointer of a block with the previous hash block will result with error, to
make it easier to detect faked data. Blockchain system integrated inside INSW with several
stakeholders connected and to communicate smartly.
Facility. The facility was in line with the process within the customs of logistics — pre-customs
clearance. Smart Ship management (SSM) can help to notify the system on ship tracking,
provide alternative route finder, and offer the ship-berthing management. Smart CCTV to guide
self-driving truck, automated crane, and self-driving truck to reduce the risk of traffic jam and
reduce bottleneck time of the unloading process. Pre-customs clearance comprises two means;
document submission and container unloading. Document submission; one factor that prolonged
dwelling time was the complicated document submission. The importer should submit dozens of
documents manually to ask for ministries permission. By using Information Technology, dozens
of documents can be in one electronic reports where all related ministries and departments can
approve quickly. The system will cut document submission time from three to seven days to only
ten to twenty minutes. The phase of the unloading process requires an efficient operation of the
terminal. The Radio Frequency Identification (RFID) prevents the officers to manually input the
data since automatically it is stored in the database. Start from container movement from vessel
to yard and from the yard to inland transport. Things that could help to accelerate the process is
the using of automatic tool and proper container management. SCRM (Smart Container Robot
Management) use robot technology to determine and arrange containers in terms of position,
stacking yard, and others in the activity of warehousing. The objective is to achieve an effective
and efficient process of loading and unloading. Besides that, it uses Smart Automatic Crane,
artificial intelligence, and Internet of Things-based technology. Customs clearance. INSW in
blockchain system makes the importer, exporter, and government easily communicate in one

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order with high-security technology. This phase is similar to the pre-clearance phase, which is
about document management. If that phase is processed fast, a notification letter will be fast-
published. The reason that information technology will be useful in this phase, it cuts the
document management process. Post-customs clearance. Chatbot with Artificial Intelligence
will give dedicated personal service to the importer with fast response. It can reduce the time of
the customer service queue. Smart CCTV will help trucks around harbor avoid stuck in a traffic
jam of the last process of container. The main problem is a lack of information flow about the
item and port gate traffic so that the time of the item in a port is getting longer. By using
information communication technology, information flow will be fast and seamless, including
arrival time of container, container tracking location and condition, and congestion at the gate.
Human Resource. The characteristics of human resources to be developed were in line with the
core competencies of Pelindo 3, which were related to speed, efficiency, and innovation. The
superior training of personnel to enhance the knowledge, skill, and innovativeness orientation.
The training technology integrates the contents, through Information Technology, with the
intended innovation in terms of services and business process, core competencies, and the
strategic direction of the port.
Reputation. The proposed reputations were in line with the core competencies of Pelindo 3,
which were related to speed, efficiency, and innovation. To pursue the desired reputations,
consistent innovation in terms of services and business process through the integration, linkages
among the activities including the external stakeholder and interrelationships with the
subsidiaries through the information technology based on the blockchain, artificial intelligence,
GPS, RFID, and IoT.

Table 2: Drivers of the Unit Cost of Technology Development and Corporate Governance
Cost Driver Cost Driver Applied to Technology
Development and Corporate Governance
Economies of IoT and blockchain link all business processes within
Scale the value-chain activity both in the internal organization
and with the external stakeholder to secure the
economies of scale. GPS, AI, and RFID help speed up
the process in the operations, including the pre-customs,
customs, and post-customs, supported by the effective
implementation of the internal mechanism of corporate
governance which secures the economies of scale.
Linkages The IoT, INSW, Chatbot, and blockchain technology
that link all means comprising the primary and support
activities and with both internal and external
stakeholder. The practical implementation of the
Description
The volume of activities and containers
confirms the efficiency and fast turnaround
process of the logistics handling, inventory,
and transport
Coordination and synergy with all divisions
within the organization and with the external
stakeholder (customs, freight forwarder,
maintenance, and train) related to the logistics

16
Cost Driver Cost Driver Applied to Technology Description
Development and Corporate Governance
internal mechanism of corporate governance which activities can reduce total costs and increase
secure the linkages across different divisions and the speed
activities
Interrelatedness The IoT, Chatbot, and blockchain technology connect Combining activities and resources with
the headquarters with the subsidiaries and with the subsidiaries and the strategic business units can
strategic business units. The practical implementation of reduce total cost and spawn the innovation
the internal mechanism of corporate governance which
secure the interrelatedness between the headquarters,
subsidiaries, and the strategic business units
Integration The IoT, Chatbot, and blockchain integrates the Integration can reinforce the management,
headquarters with the strategic business units and the control, and governance throughout the
subsidiaries to confirm that the governance, strategy, corporate to reduce the cost by emphasizing
management, and strategy have been in the right efficiency and enhancing the innovativeness
direction Better technology improves logistics delivery
reliability, reduces damage, etc.
Timing History of partner relationships Historical loyalty to or problems with partners
may affect the logistics performance in terms
of speed and cost
Policies Customs practices Understanding about customers so that the
customized products of logistics can be
recognized to reduce the pre-customs and
customs time
Location Partner location The closer site, the higher its implication to
reduce the cost
Institutional Government and customs relationships On-line integration along with the help from
Factors the implementation of cutting edge technology
of IoT, INSW, Chatbot, blockchain, and RFID,
and AI can significantly improve the speed of
customs comprising pre-customs, customs, and
post-customs

17
 Figure 4: Proposed Technology-based Value-chain
activity
FIRM Information System Technology
INFRASTRUCTURE Planning and Budgeting Technology
Office Technology

Stable Workforce Policies

Margin
Training Technology Extensive Training of
HUMAN RESOURCE Quality of Work-Life Motivation Research Service Technicians
Programs Information System
MANAGEMENT Program to Attract the Best Technology
Scientists and Engineers

TECHNOLOGY
DEVELOPMENT

Information System Technology

PROCUREMENT Communication System Technology
(Chatbot)

Pre Customs Post Customs

Transportation Port registration and Transportation System Communication System
Technology scheduling technology Technology (GPS) Technology
Material Handling
Technology
(INSW, Chatbot) Rapid and Timely Information System Margin
Marine communication Delivery Technology
Storage and Preservation technology (GPS, Accurate and
Technology Berthing communication Responsive Order
Communication System technology Processing
Technology Customs and Post Customs Handling that
Information System Loading and unloading Minimizes Damage
Technology technology (RFID, QR Code, Communication System
Artificial Intelligence, Smart Technology (Chatbot)
CCTV, IT) Information System
Information System Technology
Technology (Chatbot)

18
Superior Training of Sales Incentives to Retain Best
Personnel Salespersons
Recruiting Better Qualified
Sales and Service Personnel

Superior Material Software Development Tools Unique Vehicle Applications Engineering Advanced Servicing
Handling & Sorting Information System Scheduling Support Techniques
Technology Technology Software Superior Media Research
Proprietary Quality Automated Inspection Special Purpose Most Rapid Quotations for
Assurance Equipment Procedures Vehicles or Containers Tailored Models

Most Reliable High-Quality Replacement

Transportations for Parts
Inbound Deliveries

Media Technology
Audio & Video Recording
Technology
Communication System
Technology
Information System
Technology

INBOUND OPERATIONS OUTBOUND MARKETING & SERVICE

LOGISTICS LOGISTICS SALES

19
4.5 Strategy Implementation
4.5.1 Organization structure
Based on Chandler (1962), the structure of the organization of Pelindo 3 should follow the
necessary level of diversification. As the exploration mentioned that the organization of Pelindo
3 tends to conduct a monopoly practice since it comprised the over-diversified businesses
towards unrelated businesses. This situation had produced burdened of control, time, and
resources of the corporate to manage and control the vast arrange of companies, which
ultimately resulted in poor performance of dwelling time. In this situation, Pelindo 3 needs to
restructure the organization to a more streamlined organization. Complexity needs to be
eliminated, while efficiency and effectiveness need to be enhanced. Therefore, the
restructuration comprised divesting unrelated businesses which consist of supporting
subsidiaries (Pelindo Husada Citra and Rumah Sakit Pelabuhan Surabaya; both are hospitals).
Besides that, restructuration involves folding in the related businesses into the headquarters,
including cargo handling and logistics and port services. The companies are Berlian Jasa
Terminal Indonesia and Terminal Petikemas Surabaya as the service companies, and Pelindo
Daya Sejahtera as well as Tanjung Emas Daya Sejahtera as the electric utility companies. The
restructured organization was in the form of Strategic Business Unit (SBU), under which the
SBUs were managed and controlled by the headquarters, a new entity developed along with the
merger with the supporting related-businesses. The new entity of headquarters consisted of
corporate commercial, corporate engineering, corporate operational, corporate ICT, corporate
human capital & general affair, corporate finance, corporate supporting services, and corporate
utility. The new entity is more prevalent in terms of holding company. It was expected to spark
new governance to the corporate to effectively manage and control the ports. In this scheme of
organization, Pelindo 3 will become one of the SBUs managed and regulated by the
headquarters. Corporate commercial secures the innovativeness and corporate engineering
where the corporate commercial continuously scans the shifts of customers' requirement,
perception, and competition. The output from the corporate commercial is the input for the
corporate engineering to create alternative innovation on services and activities. Furthermore,
the corporate strategy screens the production of alternative innovations from corporate
engineering to analyze the match with the business strategy, core competencies, existing
resources, and capabilities of the functional organization.

20
 Figure 5: Proposed structure of the organization

Headquarters President
Director
‘Manage, plan, and control’
Corporate Corporate

Corporate Corporate Corporate Corporate Corporate Corporate SBU

Strategy ICT Human Capital & Finance Supporting
General Affair Services
Operational Utility

SBU

SBU SBU SBU SBU SBU SBU SBU SBU SBU

Port Port 1 Port 2 Port 3 Port 4 Port 5 Port 6 Port 7 Port 8

4.5.2 Governance mechanisms

The governance perspectives have attained substantial attention in assessing and designing port
systems of developing economies as well as their ongoing port reforms (Baltazar & Brooks,
2001; Wang & Slack, 2002; Wang & Olivier, 2003; Brook & Pallis, 2008).
The proposed organization structure, as presented in the previous section, was aimed to secure
effective corporate governance supported by adequate internal and external mechanisms. In
terms of internal mechanism, the composition of the board of directors should follow the
heterogeneous issue, experiences, and insider or outsider. Ownership concentration as one of the
internal mechanisms should be in such a way that there is the majority of a shareholder
(Cullinane & Song, 2001). Besides that, executive compensation should align with performance.
In terms of external mechanism, in the upcoming future, the company should conduct an initial
public offering (IPO), so that shareholders in the stock exchange can control performance (Cass,
1999; Baird, 2002; Tongzon & Heng, 2005; Hitt et al., 2015). The proposed governance
mechanisms will secure effective coordination, control, and communication with the help of
information technology based on blockchain among the stakeholder of Pelindo 3. Through this
governance mechanism supported by blockchain technology combined with the hashgraph, it
creates fairness (no manipulation of data), efficiency (no waste of computation), speed,
provable, time-stamped, and inexpensive. New Board of Directors and Board of Commissioners,
the top management and staffs, need to be assigned in the headquarters office where they design

21
and construct the new mechanisms of corporate governance. Each SBU is an autonomous entity
having its Board of Directors, top management team, and personnel. Functional organizations
(commercial & operational, engineering & ICT, human capital & general affair, finance, support
services, and utility) managed and controlled by the headquarters. Each SBU has its functional
organization with the related managers and personnel, but they are coordinated and regulated by
the office of Commercial. Each of the SBUs has its governance mechanism, both internal and
external.
The proposed organization comprises the headquarters having roles to manage, plan, and control
all activities and resources as well as the SBU being the executor from the orders of the
headquarters. This organization is in line with the port development governance as proposed by
Zhang (2003).

5. Conclusions

Digital technology enables connectedness of the resources, activities, and stakeholders to

effectively implement the strategy based on the corporate governance principles. In order to
develop the effective digital-enabled technology, the port authority should be knowledgeable
about and manage the drivers of the unit cost of technology development as mentioned in Table
2. The proposed technology-based value-chain for the Port is as presented in Figure 4. However,
the development of digital technology is not enough without being accompanied with the
appropriate business strategy and its implementation related to corporate governance.

The proposed business strategy of Pelindo 3 was Integrated Cost Leadership and Differentiation
with the core competencies of the fast turnaround, efficiency, minimal disruption, and
innovation. This study provides strong support for the knowledge-based view, in such a way that
the proposed core competencies and resources should support the strategy of Pelindo 3. The
required bundled of resources to establish the aspired competencies discerned into tangible and
intangible, and consist of Financial, Organization Structure, Process and People, Facility, Human
Resource, and Reputation (Peteraf & Barney, 2003).

Financial. Because of the lack of regulations, particularly between SOE in similar subsectors, it
had created inefficient investment due to miscommunication. Therefore, the current financial

22
slack should be kept to invest in streamlining the connectedness among the stakeholders by
strengthening the infrastructure, restructuring the organization (related to the corporate
governance), developing the information technology, facility, improving the knowledge and
skills of human resources, and improving the reputation. Pelindo 3 requires to restructure the
organization matching with the necessary level of diversification. Pelindo 3 needed only to
preserve the related companies and divested the unrelated companies to prevent excess
diversification.

Organization structure. The structure of the organization of Pelindo 3 should follow the
required level of diversification. The exploration mentioned that the organization of Pelindo 3
tends to conduct a monopoly practice since it comprised the over-diversified businesses towards
unrelated companies. This situation had produced burdened of control, time, and resources of the
corporate to manage and control the vast arrange of the companies, which ultimately resulted in
the poor performance of dwelling time. In this situation, Pelindo 3 needs to restructure the
organization to a more streamlined organization. Complexity needs to be eliminated, while
efficiency and effectiveness need to be enhanced (Brooks, 2004). Therefore, the restructuration
comprised divesting the unrelated businesses and folding in the related companies into the
headquarters. The restructured organization was in the form of Strategic Business Unit (SBU),
under which the SBUs managed and controlled by the headquarters, a new entity developed
along with the merger with the supporting related-businesses. The organization structure is in
line with the corporate governance to support the effective implementation of the port’s strategy.
Through the alignment of the stakeholder, whether they are external or internal, there will
common objectives and values among the stakeholder (Hitt et al., 2015). Besides that, the
alignment among stakeholder to common objectives and values (Notteboom & Winkelmans,
2001; Lam, Ng, & Fu, 2013) will prevent the problems in the organization, such as over-
diversified businesses leading to monopoly practices (Winkelmans, 2008; Hitt et al., 2015).

Process and People. A blockchain system required to implement the communication system of
the harbor.

23
Facility. The facility was discerned into the process within the customs of logistics, along with
the processes. Through all the means, Pelindo 3 required to install the Smart CCTV with
Artificial Intelligence for Data Mining and Processing.

Pre-customs clearance. Smart Ship management (SSM) can help to notify the system on ship
tracking, provide alternative route finder, and give the ship-berthing management. Smart CCTV
to guide self-driving truck, automated crane, and self-driving truck to reduce the risk of traffic
jam and reduce bottleneck time of the unloading process. Pre-customs clearance comprises two
means; document submission and container unloading. Document submission; one factor that
prolonged dwelling time was the complicated document submission. The importer should submit
dozens of documents manually to ask for ministries permission. Using Information Technology,
in such a way that dozens of documents can be in one electronic record so that all related
ministries and departments can approve quickly. The system will cut document submission time
from three to seven days to only ten to twenty minutes. The phase of the unloading process is
identical with an efficient operation at terminal. The Radio Frequency Identification (RFID)
prevents the officers to manually input the data since automatically it is stored in the database.
Start from container movement from vessel to yard and from the yard to inland transport. Things
that could help to accelerate the process is the using of automatic tool and proper container
management. SCRM (Smart Container Robot Management), is the use of robot technology to
determine and arrange containers in terms of position, stacking yard, and others in the activity of
warehousing. The objective is to achieve an effective and efficient process of loading and
unloading. Besides that, it uses Smart Automatic Crane, artificial intelligence, and Internet of
Things-based technology.

Customs clearance. INSW in blockchain system makes the importer, exporter, and government
easily communicate in one order with high-security technology. This phase is similar to the pre-
clearance phase, which is about document management. If that phase is processed fast, a
notification letter will be fast-published. The reason that information technology will be useful in
this phase, it cuts the document management process.

Post-customs clearance. Chatbot with Artificial Intelligence that will give dedicated personal
service to the importer with fast response. It can reduce the time of the customer service queue.

24
Moreover, Smart CCTV will help trucks around the harbor to avoid stuck in a traffic jam at the
last process of container. The main problem is a lack of information flow about the item and port
gate traffic so that the time of the item in a port is getting longer. By using information
communication technology, information flow will be fast and seamless, including arrival time of
container, container tracking location and condition, and reduced congestion at the gate.

Human Resource. The characteristics of human resources to be developed were in line with the
core competencies of Pelindo 3, which were related to speed, efficiency, and innovation. The
superior training of personnel to enhance the knowledge, skill, and innovativeness orientation.
The training technology integrates the contents, through Information Technology, with the
intended innovation in terms of services and business process, core competencies, and the
strategic direction of the port.
Reputation. The proposed reputation should be in line with the core competencies of Pelindo 3
related to speed, efficiency, and innovation. There should be consistent innovation in terms of
services and business process through the integration, linkages among the activities including the
external stakeholder and interrelationships with the subsidiaries through the information
technology based on the blockchain, artificial intelligence, GPS, RFID, and IoT.

The value-chain activity of the Port enhanced through information network and artificial
intelligence to secure the integration, synergy, and support the core competencies of the Pelindo
3; speed, efficiency, and innovativeness.

25
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