T

he quadruple whammy businesses have been wary of for some time has come to fruition. Whopping increases in wages, electricity costs, port handling fees and transportation costs hit monthly cash flows hard in January.

The full impact is slowly being digested and in some cases there is more pain to come.

For example, with a sharp increase in minimum wages, there is unease down the employee ranks and irrespective of 2012 performance or 2013 business outlook an expectation of substantial wage adjustments.

Since the majority of the businesses are renting their premises they are also facing an upward revision in service charges and rentals as and when their leases mature. Jakarta commercial and residential property has reached bubble proportions and contributed to this escalation.

Unfortunately, the picture on the revenues side does not look all that rosy. As the country’s trade deficit shows export markets remain difficult. The European crisis shows little sign of abating and the so-called green shoots of the US economy seem to be taking inordinately long to burst into life.

Growth in BRIC economies has also slowed down and while still healthier relative to developed countries, is insufficient to cover the slack.

The difficulties in international markets has resulted in an over-dependence on domestic Indonesian consumption. And while this consumption has remained quite robust most sectors are facing an oversupply situation with many companies competing vigorously for a piece of the pie. In some cases like telecommunications, airlines, electronics, etc, this has led to steep price wars that have drained cash flows of several players.

A combination of increasing political risk, economic strains and infrastructure woes indicates that the boom cycle for the Indonesian economy could be ending.

Thus, the quadruple whammy at this crucial juncture is all the more unfortunate. While some energies are being spent in trying to lobby the government to roll back some of the ill advised decisions, a better option is for companies to bring productivity front and centre of their management priorities for 2013.

This requires attention to the following four areas, with some practical suggestions provided for each.

Business Model Productivity: Often productivity issues are a function of the business model created. The organization has created huge capacities it is unable to service or created an assortment of unconnected businesses in which the whole is not necessarily the sum of all the parts. Often managements refuse to recognize such a situation and denial can only make matters worse. Internationally, Sony is facing such a challenge and is now undergoing a thorough re-examination of its business model to identify its game plan for future survival.

If your company is consistently missing targets and finding the cost increases unsustainable it is better to use the next six months to frankly assess options related to selling non-core assets, exiting unprofitable businesses and terminating projects that will not bring any significant synergy or upside in the immediate term.

If there is a debt overhang a serious plan to bring it down to manageable levels needs to be proactively developed. The alternative is a bank or creditor led financial restructuring that can be quite painful and long drawn out.

People Productivity: Having invested in people it is vital for organizations to make them productive. Often the causes of low productivity are related to the organizational culture – inconsistent communication on priorities, insufficient attention to strict performance management, elimination of duplicate tasks, inadequate investment in technology and a tendency to create bureaucracies in the back office or support teams that slows down business development.

HR managers in conjunction with departmental leaders need to reiterate the productivity mantra through internal road shows with proper data, comparative statistics and concrete suggestions regarding expected improvements.

Since February is both a month for completing appraisals and setting key performance indicators ensure productivity features prominently in these. Size up teams and identify alignment or coordination issues. Also identify specific skills needs and ensure proper training schedules are in place. Competencies drive productivity gains and require periodic upgrades.

Process Productivity: Organizations today are really a bundle of complex interacting process involving core operations, supporting units, the supply chain, distribution channels, marketing activities and a variety of critical stakeholders. Over time inefficiency and flab builds into processes.

A review of the 2011-12 financials of successful companies in Indonesia like PT Indofood Sukses Makmur, PT Kalbe Farma or PT Unilever Indonesia for example shows a tight discipline on cost of goods sold, administrative and selling expenses. These combined with manufacturing efficiencies results in the ability to absorb inflationary cost increases.

It is vital to examine each aspect of the core processes and identify areas of cost savings or improved synergy. Companies must also identify external partners and collaborators proactively since the option of doing everything in-house is becoming increasingly unfeasible.

Since better process quality also correlates positively with better product quality, streamlining processes across the organization should be an area of unrelenting focus.

Systems Productivity: Technology and systems provide perhaps the most tangible way today to boost organizational productivity. However, it is often seen that these are either under invested or their transformational impacts are not fully understood. It is vital to benchmark technology with industry standards and consumer trends.

Where critical investments are planned ensure the gains from technology are time bound and linked to cash flow increases. Systems also go beyond technology and cover processes and procedures that require tweaking to make them more responsive to customer delight, quick decision making and flexibility in the face of unprecedented change.

Faced with tough industry conditions Singapore Airlines has embarked on comprehensive productivity oriented reviews and actions related to its business model, people, processes and systems.

Other winning companies are doing the same for to get complacent or to be in denial can be highly risky. With the quadruple whammy having already struck productivity based survival has to become the rallying cry inside companies.

The columnist is President Director of strategic advisory firm IndonesiaWISE and a senior visiting faculty member at leading management institutes.