Proceedings of 7th Global Business and Social Science Research Conference
13 - 14 June, 2013, Radisson Blu Hotel, Beijing, China, ISBN: 978-1-922069-26-9
Optimalizing Water Supply Business In Bandung, West
Java, Indonesia
Tezza Adriansyah Anwar1 and Muh. Riswandi2
There was a huge gap between the water supply potention and the water supply
infrastructure in West Java Indonesia. This great opportunities were try to
optimilized by the PT. Tirta Gemah Ripah (Tirta Jabar) as one of the West Java
public institution. But, the effort to optimilized the opportunities were failed
because the management of Tirta Jabar stacked in the ”think big and start big”
problem. The huge investment at the beginning and uninterested scheme on the
return on investment planning made this business failed in the real
implementation.
This research is designed to analyze whether the optimization of Agronesia
Deep Well meet the Timmons criteria as a potential business. The result of this
study is expected to contribute additional information that usefull for the related
party.
Descriptive analysis with the case study approach was used to find out the
describe the environment of water supply business and it has been conducted
in studying the conditions, process, characteristics, results of a variable that has
not known yet before and then compare them with the Timmons Criteria to test
whether the business is feasible or not.
The result shows that the optimalization of Agronesia Deep Well has a high
potention and deserves to be passed as the implementation of business
because it meets the high-potential criteria according to Timmons model. Even
though there are several indicators, for example lower IRR and payback periods
which is more than 2 years, but this business still is prospective in the long run.
The high investment caused this happen.
The scheme of profit sharing will benefit investors and business owners in. In
addition, an increase in water flow will increase the revenue, so the payback
period becomes shorter. Beside that, improvement in operational effectiveness
and efficiency can increased the net profit. This effort focused in administration
and general expenses.
Keywords: Optimalization, Reengineering, Water Supply, and Entrepreneurship
I. Introduction
West Java Regional Water Institution (PDAM) as the company that utilizing the raw
water, in fact, have not been able to provide the drinking water is adequate and
providing satisfactory service to its customers. PDAM service coverage in currently
only reached less than 25% of the West Java total population. Here is a PDAM service
coverage based on urban and rural population in 2005 :
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2
Tezza Adriansyah Anwar, Widyatama University, Indonesia. Email : tezza.anwar@widyatama.ac.id.
Muh. Riswandi, SE., MM., PT. Tirta Gemah Ripah, , Indonesia.
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Proceedings of 7th Global Business and Social Science Research Conference
13 - 14 June, 2013, Radisson Blu Hotel, Beijing, China, ISBN: 978-1-922069-26-9
Table 1: Coverage Area of West Java Regional Water Instituion in 2005
Rural Population
Total
Served
21 million
5 million
56%
13%
Urban Population
Total
Served
16,5 million
1,0 million
44%
3%
Source : Dinas TARKIM, West Java Province, 2005
This condition of course diametrically opposite to the availability of water in West
Java. Water source is relatively abundant in West Java, with the highest rainfall in
Indonesia, the average of 2000-4000 mm/year, surface water volume average of 45
billion m3/year, and only uses as much as 25% for raw water. In addition, the Lake
potential in West Java which has 456 Lake with the total area around 20.204 hectare.
Not to mention, potential reservoirs with a total volume of 10.408 billion m 3, including
plans to build 11 new reservoirs with a volume of 2.1 billion m3 plan (BPS 2000, PSDA
2004, Tarkim 2005 and SIMPAM 2000).
The gap between the availability of water resources and good water infrastructure,
was try to optimalize by PT. Tirta Gemah Ripah (TGR) as an potential and prospective
business opportunity. TGR was established since 2003, but due to various constraints
have not been conducting business as it should until the of 2005. Basically, before the
founding of PT. Tirta Gemah Ripah, the West Java Provincial government has
established cooperation with The South Australia Provincial Government, represented
by the SA Water, which is subsequently forwarded by MS Water. This cooperation is in
order to carry out the integrated plan of water management system development in
West Java. However, on its implementation, the system experiencing some constraints
that impact to the system implementation, namely :
1. Starting point of the system originated from the upstream which is focused on the
utilization of the water reservoir that could provide huge water sources which then
flowed to the reservoir taps. This concept requires huge investments and also
make the selling price to PDAM is higher.
2. The initial investment that is required to implement the system is Rp. 60 billion.
Most of this investment required to build the water infrastructure.
3. Because of the high initial investment, the selling price to the PDAM is expensive
when compared with the prevailing rates that is used by the PDAM.
4. With the expensive selling price, causing the financial projections in business plan
not attractive for the investor because it is unlikely to be realized.
In 2010, according to that situation, Riswandi conduct a research and apply the
reengineering concept in that water supply business. Starting point for the concept
came from consumer spending which then adapts to the technology used, making the
selling price of bulk water in accordance with the purchasing power of consumers. The
concept was developed by utilizing the existing water source in the area of Bandung
which then flowed into the reservoir which has been owned by the City Government.
The concept of reengineering itself could lower the level of investment because the
concept is not needed huge funds to build the infrastructure that it will eventually lead
to the expensive selling price. This concept also has a high potential opportunity as a
business according to Timmons criteria (Riswandi; 2010:125).
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Proceedings of 7th Global Business and Social Science Research Conference
13 - 14 June, 2013, Radisson Blu Hotel, Beijing, China, ISBN: 978-1-922069-26-9
In this paper, we intend to implement these concepts in one of a spring which located
in Bandung. One of the springs that exist in Bandung is Agronesia Deep Well in
Lembang. The springs can produce water with a volume of 30 liters / sec at 1,154 feet
elevation. This well is located approximately 4 kilometers from the Barulaksana
Reservoir which owned by the local government.
The purpose of this study was to analyze whether the optimization of Agronesia Deep
Well meet the Timmons criteria as a potential business. The result of this study is
expected to contribute additional information that usefull for the related party.
II. Literature Review
Reengineering is the fundamentally rethingking and radically redesign of business
processes of an organization that brings the organization to achieve dramatic
improvements in business performance (Hammer and Champy, 1993). Reengineering
an also be interpreted as a process innovation or strategic vision and planning of new
competitive strategies and the development of new business processes that support
the vision.
Reengineering application is promising a drastic changes in organization and business
processes. If reengineering success then the company will be able to improve
organizational performance and their employees (Davidson, 1993). But conversely, if it
is failed then the risk faced by the organization will arise.
Coulthard (1995:2) says that to start a new business or develop the old business,
business plan is an essential guide, which is a map that helps in achieving the goal.
Peter (1998:226) defines planning as a process that never stops in running a
business. Planning will be the benchmark for the entrepreneurship in view market
conditions, product or service to be marketed, team management and financial needed
by the company. So, business plan is a written document prepared by the
entrepreneur which illustrate the elements of internal and external company
associated with the establishment of a business. While Timmons (1999:368) argues
business planning is a very important tool or an entrepreneur or company decision
maker because it is a way to determine the blueprint of strategy, resources and team
required for a business.
Timmons (2004:373) has developed a model that can be used for feasibility analysis
for a business. The process of entrepreneurship states that the underlying strength of
a succesful new venture, which started from an opportunity, then the team and
resources. Most business opportunities, the strength is more bigger than the team
ability or available resources that are available as a beginning of business (Timmons;
2004:38). The following is the entrepreneurial process model proposed by Timmons :
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Proceedings of 7th Global Business and Social Science Research Conference
13 - 14 June, 2013, Radisson Blu Hotel, Beijing, China, ISBN: 978-1-922069-26-9
Figure 1: Entrepreneur Process of Timmons Model
Communication
Sources
opportunity
Business Plan
daya
ambiguity
Out side Forces
Fit and Gap
Team
Creativity
Uncertainty
Leadership
Financial Market Context
Source : Timmons, 2004:16
Hypothesis
Based on the framework above, the hypothesis proposes as follow : “The optimization
of Agronesia Deep Well meet the Timmons criteria as a potential business”.
This hypothesis tested by comparing the data obtained with the Timmons criterias.
Method
The goals of this study will be revealed by using descriptive qualitative method with a
case study approach.
III. Result and Discussion
The results of the overall analysis can be seen from the quick screen below :
Table 2: Criterias and Level of Potential Business Model Based on Timmons
Criterias
Higher
Lower
Potential
Potential
1. Market & Margin Related Issues
PT. Tirta Gemah Ripah
Bulk water with standard quality and low
price has been identified by the TGR as
the consumer demand. In addition, The
TGR also has a concept that would be
very attractive for the investor and
customer.
PDAM, which is the only customer for
TGR. TGR utilizing reservoir that owned
by PDAM to deliver bulk water to PDAM.
Potention
Customer
needs and
wants
identified
unidentified
Customer
Reachable and
accept the
service
unreachable
< 1 year
> 3 years
60 months
Low
IRR 40% +
IRR < 20%
Medium
+ 20%
< 20%
Gross Profit
> 40%
2. Competitive Advantage
Fixed Cost
High
and Variable
< 20%
24,30%
Potential market for this business reaches
more than 70%. Not to mention the
growing and rapid population.
89.72%
Payback
Period
Added Value
Level of
Market Growth
Low
Production costs only 10,28% of the sale
price was a proof that TGR can control the
High
High
High
High
High
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Proceedings of 7th Global Business and Social Science Research Conference
13 - 14 June, 2013, Radisson Blu Hotel, Beijing, China, ISBN: 978-1-922069-26-9
Criterias
Higher
Potential
Cost
Level of Price
and Cost
Control
Networking
Lower
Potential
High
Low
Wide and
strong
Narrow
3. Value Creation and Realization Issues
Profit after Tax 10-15% / more
< 5%
Break Even
< 2 years
> 3 years
Point
Positive Cash
< 2 years
> 3 years
Flow
40-70% or
IRR
< 20%
more
PT. Tirta Gemah Ripah
fixed and variable cost.
Pricing strategies based on customer
prices is one of the evidence that TGR
can regulate the price and cost.
As one of Privat enterprises that owned by
the West Java Province, TGR of course
has a extensive network and strong,
especially in the area of West Java itself.
Potention
High
High
19,76%
High
60 months
Low
th
5 years
Low
24,30%
High
The above table shows that the optimization of Agronesia Deep Well using
reengineering concept show high potential to run as a business. There are some
indicators that low for the potention this is because the value of the investment is quite
high. But the economic cycle is very long and has a clear market share and large so
that it remains profitable as a business.
IV. Summary and Conclusion
Based on this result, the optimalization of Agronesia Deep Well has a high potention
and deserves to be passed as the implementation of business because it meets the
high-potential criteria according to Timmons model. The results also demonstrate that
the reengineering concept that already offered by Riswandi also suitable for this
optimalization. The implementation of concept in the Agronesia Deep Well also by
itself can lower the level of investment because the concept is not very large funds
needed to build the infrastructure that it will eventually cause prices to consumers
would be high.
Because of high investment, then the concept of profit sharing will benefit investors
and business owners. In addition, an increase in water flow will increase the revenue,
so the payback period becomes shorter. Some efforts could also implemented to
decrease operational cost and get higher profit. For example to supervise and control
the operations and maintaining existing pipelines could then hire workers who are
experts in the maintenance of such networks with a contract system. With the contract
system is able to maintain professionalism and efficiency of the company's work since
the contract system will not burden the company.
Refferences
Burch, John G., 1986. Entrepreneurship. New York : John Wiley & sons.
Clemons, E.K., 1995. Using Scenario Analysis to Manage the Strategic Risk of
Reengineering, Sloan Management Review, Summer : 61-71.
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Proceedings of 7th Global Business and Social Science Research Conference
13 - 14 June, 2013, Radisson Blu Hotel, Beijing, China, ISBN: 978-1-922069-26-9
Coulthard, Max., Howell, Andrea., and Clarks, Geoff. 1995. Business Planning: The
Key to Success
Davidson, H.W., 1994. Beyond Reengineering: The Three Phases of Bussines
Change of Mythic Proportions, MIS Quarterly, June, p. 121-127.
Hamer, M., 1990. Reengineering Work: Don’t Automate Obliterate, Harvard Business
Review, Nov-Dec, p. 191-231.
Hamer, M. & Champy, J., 1993. Reengineering the Corporation, John Wiley & Sons.
Khoong, CM., 1995. A Framework for Second Wave Reengineering and Intelegent
Systems, IEEE International Conference Systems, Man, and Cybernetic, Oct.,
p. 2239-2244.
Riswandi, Muhammad. 2010. Reengineering The Water Supply Business in PT. Tirta
Gemah Ripah : An Overview of Entrepreneurship. Thesis. Magister
Management Program, Economic and Business Faculty, Padjadjaran State
University, Bandung.
Timmons, Jeffry A., Andrew Zacharakis, Stephen Spinelli. 2004. Business Plans That
Work : A Guide for Small Business. New York : McGraw Hill.
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