THE IMPLICATION OF BUSINESS PARTNERSHIP, COMPANY ASSET AND STRATEGIC INNOVATION TO BUSINESS VALUATION OF DIGITAL INDUSTRY IN INDONESIA.

Author:Witjara, Edi
Position:Abstract
 
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INTRODUCTION

Research Background

The rapid development of digital technology today has had a very broad impact. It only takes three decades for information technology and creativity to bring the digital age to its peak in revolutionizing industry and all aspects of human life. This digital revolution has fundamentally changed the efforts of many companies in managing their business. This change has forced companies to change business models that are commonly used to gain profits and massively further create an increasingly competitive industrial landscape full of uncertainty (Hitt et al., 2015).

A list submitted by Fortune 500 stated that the major digital players are now among the highest value growth that surpass the growth of existing historical giants (Fortune, 2016). This condition will require companies to transform their business to avoid disruption from new entrants (Christensen, 1997). Unfortunately, legacy products of Digital companies are among the high margin portfolio that currently sustain the company value (Statista, 2017). Therefore, today Digital companies should overcome the major challenge in entering digital business while maintaining their value to pertain their existence in the market and ensuring their sustainability. Regardless the high pace of transformation that has been initiated for years by Digital companies, Business Valuation of Digital Companies in Indonesia generally are not optimal. Our observation in major Digital companies in Indonesia in 2016 shows that the values are fluctuating within a nine-years period (Table 1) allegedly caused by several factors. The unclear implementation of Strategic Innovation is believed as one of the major factor.

The table shows the fluctuating business valuation of Digital companies in Indonesia over the last nine years from 2007 to 2015 that occurs by several factors.

This condition previously stated by Gupta & Shapiro (2014) that one of four main characteristic of Indian company that has been adopted as lessons learn in global business is favoring organic growth, partnership and value-chain innovation. A study conducted by Dauderstadt (2013), stated that according to Schumpeter (1942) Innovative Capability is a key determinant that enable company to secure its position in market. New innovation and technology lead the disruptions of the existing market. In the last decade, innovation and Research & Development (R&D) has incorporated by business strategy and become one of major part.

Fransman (2014) said there is a symbiotic relationship of elements within the Information Communication Technology (ICT) ecosystem. In the symbiotic relationship there are at least four dimensions involved: Financial Flow (flow of selling-buying), Material Flow (flow of goods), Information Flow (information flow) and Input flow into Innovation Process (input for improvement/innovation). In this Fransman theory, the journey of interaction between elements--the flow of money, goods and information can produce lessons learned that trigger further improvement of this relation. The ICT ecosystem theory contains elements of partnership, innovation, investment and a business environment where symbiotic relationships occur between these elements.

Problems in maximizing Business Valuation of the Digital Company in Indonesia are as follows:

  1. Non-optimal exploitation of their Assets particularly their intangibles, some indications including limited working capital and proprietary technology resources constraints that lead to this non-optimal condition. Miloud et al. (2012) suggest that firm resources, external ties and market opportunities jointly determine firm performance.

  2. Not yet maximizing the potential of Business Partnership to strengthen the Strategic Innovation such as the absence of close partnership with the lateral (e.g. Government) or even a competitor. In addition, internal partnership was not optimally implemented on cross-functional coordination. Some weaknesses in supplier relationship also come into surface that severely hit the valuation result.

    Literature Review

    Grand theory in this research was management strategic. According to Hitt et al. (2015) management strategic is a set of commitment, decision and action necessary company to reach competitiveness strategic and obtain the rate of return above average. The first step that company did is analysing external environment and environment internal core to determine resources, capabilities and competence the point as a source of input strategic.

    Hitt et al. (2015) suggest that capabilities and core competencies are the foundation for competitive advantage. Hubbard & Beamish (2008) suggest a definition of alliances as "a cooperative, non-controlling decision, making relationship between two (or more) organizations for the purposes of securing a competitive advantage'. Cravens & Nigel (2013) stated that partnership is an effort to cooperate with stakeholders, where strategic alliances are used by many companies that compete worldwide. Partnership includes the vertical relationship that comprises of relationships with suppliers and customers as well as horizontal relationship consisting of lateral and internal partnerships.

    Robinson & Richard (2012) stated that firms possess a unique "bundle" of tangible and intangible assets and the organizational capabilities to make use of those assets. Hubbard & Beamish (2008) also stated that company resources is consist of tangible asset that is easily to be identified such as land, building, tools, etc. and intangible asset that is non-easy to be identified such as organizational experience, brand, intellectual capital, etc. Hitt et al. (2015) stated that organization is a collection of unique resources and capabilities that form the basis of the formulation of the company's strategy and its ability to obtain results above average. Thompson et al. (2014) suggests that company resources are inputs or assets that are competitive for the company. Company Assets in this study is organized into a construct that is "a series of tangible assets and intangible assets as productive inputs for the company in formulating strategies to achieve competitive positions in the industry".

    Tidd et al. (2005) suggest that innovation is always associated with a change related to: Product innovation (changes in the things (products/services) that an organization offers), Process innovation (changes in the ways in which they are created and delivered), Position innovation (changes in the context in which the products/services are introduced) and Paradigm innovation (changes in...

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