Formulating a Collaborative Strategy to Develop Innovation in the Palm Oil Industry

FORMULATING A COLLABORATIVE STRATEGY TO DEVELOP INNOVATION IN THE PALM OIL INDUSTRY

KARIM ABDULLAH

GRADUATE SCHOOL

BOGOR AGRICULTURAL UNIVERSITY BOGOR

Strategy to Develop Innovation in the Palm Oil Industry” is my original work produced through the guidance of my academic advisors and that to the best of my knowledge. This thesis is also presented for the award of a degree in University of Adelaide as a double degree program between IPB and The University of Adelaide. All of the incorporated material originated from other published as well unpublished papers and are stated clearly in the text as well as in the references.

I hereby delegate the copyright of my paper to the Bogor Agricultural University

Bogor, July 2015

Karim Abdullah NRP F351137081

SUMMARY

Karim Abdullah, 2015. Formulating a Collaborative Strategy to Develop Innovation in the Palm Oil Industry (Aji Hermawan, Chairman and Yandra Arkeman, Member of Advisory Committee)

Indonesia is the biggest producer of palm oil in the world with 31.5 million tons in 2014 and had export value almost 21 million USD. On the other hand, the economic value of Indonesian palm oil is lower than Malaysia. It happened because innovation in the palm oil Industry is less developed. However, the development of innovation in palm oil industry is not only increasing the economic value but also creating new jobs for Indonesian. But, many problems happen in the developing process, one of them is the lack of collaboration among stakeholders.

Therefore, the aim of the study is formulating a strategy to develop innovation in the palm oil industry and a collaboration strategy among stakeholders to accelerate the development process. The research is using a case study strategy, with an inductive approach and interpretive philosophy. Data collection is using interviews with an expert from Industry, a researcher from University, and a researcher from research institution, a government officer from Ministry of Industry and an executive director of Indonesian Palm Oil Association. The data is analyzed by a triangulation method.

The result showed that the availability of the market becomes the main factor for an enterprise to develop innovation. Moreover, before conducting research, the industry categorizes their problems into four sections urgent-direct, urgent-indirect, less urgent-direct, and less urgent-indirect. Based on that, they can prepare a short-term and a long-term strategy.

The strategy to develop innovation is different between upstream and downstream industry, because the development of innovation in downstream industry is more complex rather than the upstream industry.

Furthermore, the government can help the industry to accelerate the development process by providing more incentive both for industry and research institution. For the industry, the incentive is in form of tax reduction and for research institutions and university is in term of more budget to buy equipment, laboratory instrument and machinery.

Keywords: Palm oil, innovation, downstream industry, market, collaboration

mengembangkan innovasi di industry kelapa sawit (Aji Hermawan, Chairman and Yandra Arkeman, Member of Advisory Committee).

Indonesia merupakan produsen terbesar kelapa sawit di dunia dengan 31,5 juta ton pada tahun 2014 dan memiliki nilai ekspor hampir 21 juta USD. Di sisi lain, nilai ekonomi minyak sawit Indonesia lebih rendah dari Malaysia hal ini terjadi karena inovasi di industry kelapa sawit nasional masih kurang berkembang. Padahal pengembangan inovasi di industri kelapa sawit tidak hanya dapat meningkatkan nilai ekonominya tetapi juga bisa menciptakan lapangan pekerjaan baru bagi masyarakat Indonesia. Namun pengembangan inovasi tidak bisa dilakukan dengan mudah karena banyaknya masalah terjadi dalam proses pengembangannya, salah satunya adalah kurangnya kolaborasi antara pemangku kebijakan.

Tujuan dari penelitian ini adalah merumuskan suatu strategi untuk mengembangkan inovasi di industri kelapa sawit dan juga strategi untuk meningkatkan kerjasama antar pemangku kepentingan untuk mempercepat proses pengembangan inovasi. Penelitian ini menggunakan strategi studi kasus, dengan pendekatan induktif dan filosofi interpretatif. Pengumpulan data menggunakan wawancara langsung dengan beberapa ahli, seorang ahli mewakili industri, seorang peneliti dari University, peneliti dari lembaga penelitian, seorang pejabat pemerintah dari Kementerian Perindustrian dan seorang Direktur Eksekutif dari Gabungan Pengusaha Kelapa Sawit Indonesia (GAPKI). Data yang diperoleh selanjutnya dianalisis dengan metode triangulasi.

Hasil penelitian menunjukkan bahwa ketersediaan pasar menjadi faktor utama bagi perusahaan untuk mengembangkan inovasi. Selain itu, sebelum melakukan penelitian, industri mengkategorikan masalah yang mereka hadapi menjadi empat kategori yaitu mendesak-langsung, mendesak-tidak langsung, kurang mendesak-langsung, dan kurang mendesak-tidak langsung. Berdasarkan dari matriks itu, mereka akan mempersiapkan strategi jangka pendek dan strategi jangka panjang.

Strategi untuk mengembangkan inovasi memiliki sedikit perbedaan antara industri hulu dan hilir, hal tersebut karena pengembangan inovasi di industri hilir lebih kompleks daripada industri hulu.

Selanjutnya, pemerintah dapat membantu industri untuk mempercepat proses pembangunan dengan menyediakan lebih banyak insentif baik untuk industri dan lembaga penelitian. Untuk industri, insentif dalam bentuk pengurangan pajak sedangkan untuk lembaga penelitian dan universitas insentif bisa dalam bentuk penambahan anggaran untuk membeli peralatan, instrumen laboratorium dan mesin-mesin.

Copyright ©2015, by Bogor Agricultural University

All Right Reserved

1. No part or all of this thesis excerpted without inclusion or mentioning the sources

a. Excerption only for research and education use, writing for scientific papers, reporting, critical writing or reviewing of a problem

b. Excerption does not inflict a financial loss in the proper interest of Bogor Agricultural University

2. No part or all of this thesis may be transmitted and reproduced in any form without a written permission from Bogor Agricultural University

KARIM ABDULLAH

GRADUATE SCHOOL

BOGOR AGRICULTURAL UNIVERSITY

BOGOR

2015

Thesis

Submitted to the Graduate School in Partial Fulfillment of Master Of Science

Degree In

Registration Number : F 351137081

Study Program : Agroindustrial Technology

Approved Advisory Committee

Dr. Ir. Aji Hermawan Chairman

Dr. Ir. Yandra Arkeman Member

Agreed Coordinator of Program

Agroindustrial Technology

Prof. Dr. Ir. Machfud, MS

Dean of Graduate School

Dr Ir Dahrul Syah, MSc. Agr

ACKNOWLEDGEMENTS

Praise and gratitude to Allah Subhanahu wa Ta‟ala, because of Him, the writer can finish writing a thesis as a requirement to get a Master Degree in Bogor Agricultural University (IPB). The title of the thesis is Formulating a collaborative strategy to develop innovation in the palm oil Industry.

The writer also wants to say thank you, especially for Dr Aji Hermawan as a chairman of the advisory committee, Dr Yandra Arkeman as advisory committee member, and Dr Wendy Lindsay as advisor from University of Adelaide whose gave positive criticisms and guidance shaped the outlook of this thesis.

Special thanks also send to Dr Berry Elsey, Ms Amina Omarova and Dr Allan O‟Connor from University of Adelaide for their guidance and help in writing this thesis. They guided me to write the thesis with a good structure from introduction until conclusion.

I have also to acknowledge the contribution of all respondent that already spent their time to conduct interview with the writer. Dr Erliza Hambali from IPB , Mrs Sri Hadisetyana from Ministry of Industry, Mr Indra Budi from Agency for The Assessment and Application of Technology, Mr Fadli Hasan from Indonesian Palm Oil Association, and also to Dr Tony Liwang from PT SMART Tbk.

Thank you to my mother and father who giving me kind words to support me when I was falling down. And also to my sisters who always share their thought with me, it gave me more energy to finish this thesis.

I have also wanted to say thank you to all my friends and comrades who have stood with me in this work time. I have to remember my friends Danang, Tri, Benny, Andar, Farda, Iwan, Nur Aini, Dwi, Syarifa, Aditya, Dickie, Ahmad Rudh, Koko, Nuni, Anin, and Yani for their moral support especially when we all lived in Adelaide.

Finally, proudly, big thanks for my beautiful wife, Niken Widyastuti, and my lovely daughter, Aisyah Mahabbah Fiddiini who always support me every days to write this thesis. This thesis is dedicated for both of you.

Bogor, July 2015

TABLE OF CONTENTS

TABLE OF CONTENTS iii

LIST OF FIGURES iv

LIST OF TABLES iv

DEFINITIONS iv

I INTRODUCTION 1

I. 1. Introduction 1

I. 2. Statement of theProblem 2

I. 3. Purpose of theStudy 2

I. 4. Research Questions 2

I. 5.Limitations 3

II LITERATURE REVIEW 4

II. 1. Introduction 4

II. 2. Innovation 4

II. 3. Strategy 7

II. 4. Triple Helix Model 9

II. 5. Conclusion 11

III METHODOLOGY 12

III. 1.Introduction 12

III. 2.Setting 12

III. 3.Participants 13

III. 4.Measurement Instruments 14

III. 5.Data Analysis 15

A. Interpretive Philosophy 15

B. Inductive approach 15

C. Case Study 15

D. Validity 15

IV RESULT AND DISCUSSION 17

Research Question 1: 17

Research Question 2: 21

Research Question 3: 23

1. Role of government 26

2. Role of Industry 26

3. Role of Research Institution 27

4. Role of University 27

5. Collaboration 28

V CONCLUSION AND RECOMENDATION 29

REFERENCES 30

APPENDIX 34

LIST OF FIGURES

Figure 1 Closed Innovation (Chesbrough 2003). 6

Figure 2 Open Innovation (Chesbrough 2003). 6

Figure 3 A Model of the Design Process (Carlopio 2010) 8 Figure 4 A statistic model of university-industry-government relations 9 Figure 5 A “laissez-faire” model of university-industry-government

relations 9

Figure 6 The triple helix model of University-Industry-Government

Relation 10

Figure 7 Organization Structure of PT SMART Tbk (PT Smart Tbk 2014) 13 Figure 8 Innovation Strategy in A Palm Oil Industry, Adapted from

(Carlopio, 2010). 17

Figure 9 Research Priority Matrix (Based on the interview) 18 Figure 10 Innovation Strategy for the Palm Oil Downstream Industry 23 Figure 11 Collaboration Strategy among Stakeholder to develop

Innovation in Palm Oil Industry 25

LIST OF TABLES

Table 1 Five generations of Innovation (Rothwel 1994) 5 Table 2 The principle paradigm of closed and open innovation

(Chesbrough 2003). 7

Table 3 The Respondents 14

LIST OF APPENDIX

Appendix 1 Quote in Bahasa 34

DEFINITIONS CPO : Crude Palm Oil

FFB : Fresh Fruit Bunch PPO : Processed Palm Oil PKO : Palm Kernel Oil

PT : Perseroan Terbatas/Limited Company RPO : Refined Palm Oil

I

INTRODUCTION

I. 1 Introduction

Palm oil (Elaeis guineensis Jacq) is one kind of hard plants which comes from Africa. It grows in land location 500 meters above the sea surface. The plant produces a first fruit after three years that can be harvested for 25 until 30 years (Pahan 2011). The palm oil fruit, called fresh fruit bunch (FFB), produces crude palm oil (CPO) with yield between 20 and 24 % and palm kernel oil (PKO) with yield from 3 to 4% (Sunarko, 2008).

The production cost of CPO is approximately 300 USD/ton, much lower than compared with the cost to produce one ton of soybean and rapeseed oil which are 400-800 USD and 500-700 USD respectively (Zimmer 2010). Furthermore, palm oil is the most economic commodity compared to other oil and fat resources. It is not only because of the price competitiveness but also the techno-economic superior attributes (both physical and chemical) of the palm oil. The superior attributes mean palm oil can be processed into different types of products on wider area (Basiron and Simeh 2005).

Palm Oil is the biggest and most important commodity in global trade. A palm oil contributes more than 32% of the total volume of oil and fat produced in the worldwide (Abdullah and Wahid 2010, Sime Derby Planation 2014) (Basiron, Balu et al. 2005).

Moreover, CPO can be processed into several kind of product that can be categorized into two groups: edible products and non-edible products. There are several edible products such as margarine, vegetable oil, shortening, cocoa butter substitute, and coffee whitener. There are also many non-edible products like soap, detergent, plasticizer, and biodiesel (Team 2009). So, the significant function of the commodity leads to the demand of palm oil in the world market rising significantly every year (Abdullah and Wahid 2010).

Palm oil is also one of the most important commodities for the Indonesian economy because it contributes high income and can empower many workers both in the upstream and the downstream industry (Sa‟id 2009). Furthermore, the production cost of Indonesian‟s palm oil is the lowest when compared with other palm oil producers in the world (Rifin 2009). In the last three decades, an Indonesian palm oil industry has been growing rapidly supported by a large areas of suitable land, good weather and availability of labor (Bangun 2006). They make Indonesia become the world largest producer of crude palm oil (CPO) in 2014, with total productions of approximately 31.5 million tons. For the coming years, CPO production in Indonesia is expected to increase gradually affected by the opening of new plantations in several areas (Indonesia 2015, Malaysian Palm Oil Board 2015).

However, opening new palm oil plantation in Indonesia should be stopped, because it will reduce the forest area. Tjut Suganda from University of Gajah Mada (UGM) says forest destruction in Indonesia has been massive in the last

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thirty year. The forest, majority, is converted to become the palm oil plantation (Grehenson 2014).

Even Indonesia is the biggest producer of Palm oil in the world, the economic value of Indonesian palm oil is a lowest when compared with Malaysia. It happens because Indonesia exports more CPO rather than Processed Palm Oil (PPO). Even Indonesia has been trying to develop the palm oil Industry, the process should be accelerated to gain more benefit sooner.

Innovation is one of the key factors to developing the palm oil industry. It can help enterprises to expand their market segment, increase the quality of product and decrease the production cost (Datta, Jessup et al. 2011). In term of palm oil industry, Innovation can help Indonesian gain more income by reducing the production cost, increasing the plantation productivity and adding value for the commodity.

However, developing innovation is not easy for enterprises; they need a good strategy to reach the goal. Furthermore, Enterprises should collaborate with other parties to reduce the development cost and accelerate the process.

I. 2 Statement of the Problem

Developing innovation in the palm oil enterprise is difficult to achieve since there are many problems in the developing process such as how to determine research targets, how to provide resources for the research and how to implement the research result in the field. Furthermore, enterprises also have problems when making collaboration with other parties in developing innovation such as a lack of coordination among stakeholders, how to delegate tasks for stakeholders and how to interact effectively among stakeholders.

I. 3 Purpose of the Study

1. Formulating a strategy to develop innovation in the palm oil industry. 2. Determining the best collaboration strategy among Industry, Research

Institution and Government to develop innovation in the palm oil downstream industry.

I. 4 Research Questions

RQ 1 : What innovative strategies have business enterprises used in the palm oil industry?

RQ 2 : How successful have business enterprises been using those innovative strategies?

RQ 3 : What kind of collaboration is needed by Industry, Research Institution, and Government to develop innovation in the palm oil industry?

I. 5 Limitations

The research has been conducted in Indonesia and Australia from June 2014 until May 2015. The strategy to develop innovation is based on the best practice in PT SMART Tbk, one of the biggest palm oil enterprises in Indonesia.

Moreover, the collaborative strategy to develop the palm oil downstream industry in Indonesia is based on the researcher‟s interpretation of the expert‟s opinions. The experts answered the question from the researcher, after that the question is categorized into several groups to explore the strategy in every step.

However, the result of the research cannot be generalized for other palm oil enterprises in Indonesia because the sample was only one enterprise. The result, however, can be used as a base for further research to create a new model to develop innovation in the palm oil downstream industry.

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II LITERATURE REVIEW

II. 1. Introduction

Indonesian palm oil is a very competitive commodity in the world market, but the total economic value of Indonesian palm oil is lower when compared to Malaysia. It happens because Indonesia exports more Crude Palm Oil (CPO) rather than Refined Palm Oil (RPO). In contrast, Malaysia processes CPO to become Refined Palm Oil (RPO) before exporting to other countries, allowing Malaysia to make more profit when compared to Indonesia (Nakajima 2012). Because of that, the development of the palm oil downstream industry in Indonesia to process CPO become RPO is very important.

Furthermore, there are some influencing factors in developing palm oil downstream industry such as infrastructure; business climate policy; technology availability; market availability; Human Resource (Hambali 2010); technology adoption; funding; (Hambali 2005); domestic price of palm oil; and interest rate (Kurniadi 2013).

Widodo (2005) suggested several strategies to develop palm oil downstream industries such as improving the quality of Research and Development (R&D), increasing productivity, strengthening human resource competency and widening the market. Furthermore (Hambali 2010) recommended enhancing the research capacity both in university and research centers to create innovation, to commercialise the technologies for palm oil industries; to prepare a package plant for processing palm oil; to increase the budget for research both government institutions and private; and give tax incentives for enterprises conducting research for developing palm oil downstream product.

Based on the suggestion from Widodo and Hambali in the paragraph above, the fundamental aspect of developing the palm oil downstream industry is innovation. However, the research about preparing a strategy to develop innovation in Indonesian palm oil industry is still limited. Whereas, if we can create a good strategy to develop innovation in the industry, we can accelerate the process and gain more benefit.

II. 2. Innovation

There are three types of innovation which contribute to business development market innovation, product innovation, and process innovation (Johne 1999).

 Market innovation focuses identifying new markets and how to provide a best service.

 Product innovation is concerned with the identification of new products and how these are best developed.

 Process innovation is tried to identify new internal operations and how these are best performed

The term of innovation used in this thesis is concerned with two types of innovation which are product and process innovation.

Furthermore, Rothwel (1994) Suggested five generations of the innovation process, and the characters of each generation can be seen in Table 1

Table 1 Five generations of Innovation (Rothwel 1994) Generati

on

Period Characteristics

First- The Technology push

1950s – 1960s

Innovation to develop new products and production technique

Second - the market pull

1960s – Early 1970s

Providing new products based on market and customers needed.

Third - the coupling model

Early 1970s – mid-1980s

The process of innovation represents the confluence of technological capabilities and market-needs within the framework of the innovating firm

Fourth – The integrated model

Early 1980s – Early 1990s

Integrating suppliers into the new product development process at an early stage while at the same time integrating the activities of the different in-house departments involved, who work on the project simultaneously (in parallel) rather than sequentially (in series) The fifth

– The System integration and network Model

Early 1990s - now

Integration among strategic partner, supplier and customers with the strong system and has collaboration between marketing and R&D. Emphasis on flexibility and speed, and also focus on the quality

Innovation is very important for a firm to survive in their business, both by creating new products or by improving the existing products. With innovation, they can maintain or increase market share of products or drive new markets (Datta, Jessup et al. 2011). Furthermore, Innovation also can give impact to the social and economic Change (Sang-Hoon Kim a and Huarng 2011). In addition, innovation can increase economic growth and decrease a poverty rate. It will involve complex inter-linkages among industry, academician, and government

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within multiple overlapping "innovation ecosystems". The innovation can create new ways for the production process, more, better or previously unavailable products can be produced at prices that people can afford

Furthermore, in the beginning, innovation development used a closed innovation paradigm (figure 1), it means every activity to develop innovation in the firm just uses their own resource and do not involve an external party. However, there is a new paradigm for developing innovation in the firms, called an open innovation paradigm (figure 2). The new paradigm suggests a firm should collaborate with other parties to develop their innovation Chesbrough (2003).

Figure 1 Closed Innovation (Chesbrough 2003).

Moreover, based on Chesbrough (2003) there are several principles for closed and open paradigm, there are:

Table 2 The principle paradigm of closed and open innovation (Chesbrough 2003).

No Closed Open

1 Smart people in our field work for us

Not all smart people work for us but the firms need to work with smart people inside and outside the company

2 We must discover, develop and ship R&D to gain profit

We do not have to develop new research to profit from it

3 The company that gets an innovation to market first will win and the most and the best idea in the industry will win

A better business model is better than entering to market first

4 Companies should control their Intellectual Property, so that competitors will not gain profit.

The principles of the paradigms are and we should gain profit from others who use our Intellectual Property (IP) and we can gain profit by buying other IP

Based on open innovation paradigm, when a firm wants to develop innovation they should collaborate with other institutions. It can help them to optimize the process, reduce the cost and gain more benefit. Moreover, this study aims to develop a collaborative strategy among companies, government and research institution based on open paradigm innovation, so it can help them to accelerate the innovation process.

II. 3. Strategy

Carlopio (2010) says there are three definitions of strategy based on the approach used to describe it, there are:

 The Linear Mechanistic formally used in the planning school.

 The Entrepreneurial School which describes the strategy as metaphorically envisioned in the mind of the entrepreneur.

 The Cognitive School which constructs strategy in the senior manager‟s minds.

In traditional strategic planning, there are five steps to generate strategy for organization; Gathering information, evaluating information, evaluating strategy, selecting strategy and the last step is implementing the strategy. Carlopio (2010) refines a new model based on the traditional strategic planning, called as a

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model of the design process. The model has also five steps but with difference activities: the first is briefing; followed with research, after that is concept generation ideation, continued with developing a prototype, and the last is delivering the output. The model can be showed in figure.

Figure 3 A Model of the Design Process (Carlopio 2010)

Selecting a right strategy can help a firm to create innovation effectively. Pierre Loewe, Williamson et al. (2001) suggests five styles of strategy innovation there are:

 The Cauldron where leaders support their management team to create new models for both existing and new business.

 The Spiral Staircase where the managers innovate in their existing business consistently.

 The Fertile Field where managers focus on finding new uses for existing strategic assets.

 The Packman where the company creates many start-ups based on their Research and Development (R&D).

 The Explorer where a company invests in a new field where it knows it will take labor for many years before seeing profits. The style of strategies should be used in proper condition to gain an optimum result. All styles above can be implemented in the process of developing innovation in the palm oil industry. But this research tries to find which style is more suitable for developing innovation in the palm oil industry.

II. 4. Triple Helix Model

There are three models of Triple Helix system with different characteristic in conducting collaboration among stakeholders (Etzkowitz and Leydesdorff 2000)

 A statistic model in which the government encompasses academia and industry and directs the relations between them (Figure 3).

 A "laissez-faire" model in which academia, industry, and government are separated from each other with strong borders dividing them and highly circumscribed relations among the spheres (Figure 4).

 Generating a knowledge infrastructure in terms of overlapping institutional spheres, with each taking the role of the other and with hybrid organizations emerging at the interfaces (Figure 5).

Most countries and regions are presently trying to attain some form of Triple Helix III because it can generate an innovation environment among firms (large and small, operating in different areas, and with various levels of technology), government laboratories, and academic research groups (Etzkowitz and Leydesdorff 2000).

Figure 4 A statistic model of university-industry-government relations

Figure 5 A “laissez-faire” model of university-industry-government relations

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Figure 6 The triple helix model of University-Industry-Government Relation

There is a big issue in Indonesian innovation climate for implementing the triple helix model, which is the lack of communication among industry, government and Research Centre/University. For example universities or research centers usually conduct basic research as part of their daily activities; on the other hand enterprises need an applied research for their business. If the industry uses the research results from the universities, it will take a long time with high costs and risk for implementing it in their business (Trisniawaty 2007). Besides that, there are also some challenges to run collaboration among them such as conflicting missions, unsupportive organizational policies, and sustainability (Lee 2000, Jacobson, Butterill et al. 2004).

Perkman and Walsh (2007) said there are three types of collaboration between industry and university, there are:

 The first type refers to the transfer of intellectual property such as licensing, patenting and commercialization in which the interaction is relatively weak. In this type, the legal rather than the long term relational aspect is stronger.

 The second is mobility that includes academic entrepreneurship and human resource transfer, and this type has medium interaction.

 The third is a relationship both in research partnerships and research services. The interaction among them in this type are high, because they build a team consisting of the academics and the company employees, and they work together on specific projects and jointly produce certain outputs.

This research is trying to determine which type is best used in the palm oil enterprises for their cooperation with other parties. And the research is also preparing a formulation to improve the collaboration among them.

Implementing a triple helix model in developing countries, like Indonesia, needs a different approach. The technique used in developed countries, which have a long history in the practice of using triple helix model, need to be adjusted before they can be used in Indonesia. Because of that, in the last few years, the Indonesian Government tried another way to help the collaboration process between industry and university, such as allocating a considerable grant to finance university-industry joint-research. The government hopes the grant will accelerate the collaboration between them and will strengthen the national industry (Lee 2000).

The strategy described above, however, cannot run efficiently because there are still many problems in the implementation process. So, the government needs another strategy to strengthen the collaboration among stakeholder for developing innovation in palm oil industry.

Hence, this research is trying to formulate a collaborative strategy among stakeholders/P to accelerate the development of innovation in the palm oil industry. The triple helix model is used to see how effective the collaboration among stakeholder in the palm oil industry and how to improve the collaboration among them.

II. 5. Conclusion

Innovation is very important for enterprises to maintain or expand their business. This is especially true for the palm oil industry; innovation becomes one of the key successes to develop the palm oil downstream industry. However, developing innovation is a long journey for the enterprise, so it needs a good strategy to gain a good result.

Before creating a strategy, we need to analyse the situation in the field. After knowing the role of stakeholders, we also should identify the degree of interaction among them using a triple helix model as a benchmark. Finally, we will develop a collaborative strategy to develop innovation in the palm oil industry.

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III METHODOLOGY

III. 1. Introduction

The study is using a case study strategy because the research aims to find a phenomenon occurring in A Palm Oil Industry. Furthermore, PT SMART Tbk is chosen as a sample for the study, we will learn from them how the company formulates a short and long term strategy in order to develop innovation. Moreover, the respondents of the research also include Academics and Government Officials, who will explain the innovation climate in palm oil industry based on their expertise. The results of the interview will be analysed by a triangulation method to see the innovation condition in palm oil industry comprehensively (Saunders 2009). Furthermore, the research will formulate a strategy to develop innovation in the palm oil industry based on the best practice in PT SMART Tbk. Finally, the research will suggest a collaborative strategy among stakeholders to accelerate the process of developing innovation for the palm oil Industry.

III. 2. Setting

The location of the research is in Indonesia because Indonesia is the biggest producer of palm oil in the world. The strategy to develop innovation in the palm oil in the palm oil industry is based on the best practice in PT SMART Tbk. The research chose them because PT SMART Tbk is one of the biggest palm oil companies in Indonesia and they also have a good research and development (RnD) department.

PT Sinar Mas Agro Resources and Technology (SMART) Tbk is established in 1962 and listed on the Indonesian Stock Exchange in 1992. The company‟s primary activities range from cultivating and harvesting oil palm trees, processing fresh fruit bunches (FFB) into Crude Palm Oil(CPO) and Palm Kernel. The company also refines CPO into industrial and consumer products such as margarine, cooking oil and shortening. The Company cultivates 138,900 hectares of oil palm plantations in Indonesia, including plasma. Our CPO is processed further into value-added bulk, industrial and branded products through our own refineries, with a total capacity of 2.3 million tonnes per annum. SMART also distributes markets and exports palm-based consumer products. Besides bulk and industrial oil, SMART‟s refined products are also marketed under several brands, such as Filma and Kunci Mas (PT Smart Tbk 2014)

PT SMART Tbk has a Policy to improve their Yield and reduce the pressure to open New Land. The strategy is supported by a comprehensive management system and an internationally recognized Research and Development (R&D) Department. In 2013, they achieved a CPO yield of 5.10 tonnes per hectare while their plasma smallholders obtained 4.45 tonnes per hectare (PT Smart Tbk 2014).

In PT Smart TB, the Research and Development department is under the upstream operation unit. They combine research institute and sustainability in one

department; it shows they conduct research and development in their organization to make their business more sustainable for long term. We can see the organization structure of PT SMART Tbk in figure 7.

Figure 7 Organization Structure of PT SMART Tbk (PT Smart Tbk 2014)

Based on the information above, PT SMART Tbk is suitable as a sample to learn about developing innovation in the palm oil industry. RnD Department of PT SMART has important role in increasing the productivity in the field, reducing the production cost and also in developing new product.

III. 3. Participants

There are five respondents for the research who experts in their area. One respondent is a government officer; one respondent is an executive director of

14

Palm Oil Association, and one respondent is a researcher director in Enterprise and two respondents are researchers in research institutions.

The research selects them as respondents because of their expertise in the process of developing innovation in the palm oil industry.

1. Dr Tony Liwang from PT SMART tbk has experiences in conducting research in the palm oil industry, he knows the process of developing innovation in enterprise from the beginning until the implementing stage.

2. Ir. Sri Hadisetyana, M.Si from Ministry of Industry has knowledge about regulation in the palm oil industry.

3. Dr Erliza Hambali is a researcher from SBRC-IPB, she has knowledge in research to develop the palm oil downstream industry.

4. Fadli Hasan is an Executive Director of Indonesian Palm Oil Association, He has knowledge about the problems in the palm oil industry.

5. Indra Budi from Agency for The Assessment and Application of Technology, He also has experience in developing innovation in the palm oil downstream Industry

Table 3 The Respondents

Respondent’s

name

Institution Position

Ir. Sri Hadisetyana, M.Si

Ministry of Industry Deputy Director of Forest Product Industry

Dr Tony Liwang PT SMART Tbk Researcher Director

Indra Budi Susetyo Agency for The Assessment and Application of Technology

Senior Researcher Dr Erliza Hambali Surfactant and Bioenergy Research

Center (SBRC)-IPB

Leader

Fadli Hasan Indonesian Palm Oil Association Executive Director III. 4. Measurement Instruments

The data is collected by interviewing the experts. There are four main questions for each respondent:

1. What is your opinion about the current state of the palm oil Industry in Indonesia?

2. How does your company formulate a strategy to develop innovation? 3. What is your opinion about current government regulations for

developing the palm oil industry in Indonesia?

4. What do you expect from both government and academics in terms of developing innovation in the palm oil industry in Indonesia? (When

the respondent is the government, Government is changed with enterprise).

There are also other questions based on the situation in the interview process, so we can gather comprehensive answer from the respondents.

III. 5. Data Analysis

The data from interviews is categorized into several groups based on themes. After that, the data will be analysed by triangulation method, so it can describe the situation in palm oil industry comprehensively.

A. Interpretive Philosophy

The philosophy is based on human sense with the world around us. It needs good understanding of the fundamental meanings attached to organizational life. With this philosophy, we can capture the uniqueness of the events (Saunders, Levis et al. 2009). The research is interpreting expert‟s opinions about innovation in the palm oil industry.

B. Inductive approach

The research is based on collecting data in the first stage after that develop a theory as a result of the finding form data. So in this approach the theory would follow data. With this approach, it just needs a small sample of subjects compare with a deductive approach which needs a large number of samples (Saunders, Levis et al. 2009)).

C. Case Study

A case study research is a study to understand a phenomenon in its real world context. Robson defines case study as a strategy for doing research that involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence (Saunders, Levis et al. 2009)). The case is based on best practice in PT SMART Tbk, a one of the biggest palm oil companies in Indonesia.

D. Validity

Validity of data is important in research both quantitative and qualitative approach. But, ensuring validity in qualitative research is different with quantitative research. It is more challenging because the validity of qualitative research dependent upon an individual‟s interpretation in particular context (Golafshani 2003) In qualitative study, researcher effects and bias are well acknowledged and become part of the study itself. As a consequence, the concept of validity within qualitative studies cannot be seen as fixed but is dependent on how the research process itself unfolds (Golafshani 2003). A qualitative approach may be considered valid if it retains a level of integrity and quality and is an accurate and truthful account of an individual‟s experience

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Furthermore Maxwell (1996) offers seven techniques to validate the result of qualitative research, there are: Intensive long-term [field] involvement; Rich data; Respondent validation; Search for discrepant evidence and negative case; Triangulation; Quasi- statistics; and Comparison. In this research, I validate my findings using two technique; Respondent validation and Triangulation method.

Respondent validation is a method to obtain feedback from the people studied, so it will reduce the misinterpretation of their self- reported behaviours and views. I send my findings to the respondent, and he sends back to me the confirmation.

Triangulation is a method to see a point from the different point of views. The principle of the method is seeking at least three ways of verifying or corroborating a particular event, description, or fact being reported by a study. Such corroboration serves as another way of strengthening the validity of a study. The ideal triangulation would not only seek confirmation from three sources but would try to find three different kinds of sources. (Yin 2011)

IV RESULT AND DISCUSSION

Research Question 1:

What innovative strategies have business enterprises used in the palm oil industry?

To answers the first research question, the research will use the model of the design process from Carlopio with several adaptations. The model of the design process is suitable with the situation in developing innovation in the palm oil industry. Even though, I made several adjustments to the model especially about the name of steps.

There are five steps in developing innovation, starting with idea generation, idea selection, research and development, prototype creation and implementation steps. This paper will describe the activity in each stage based on interview result with experts.

Figure 8 Innovation Strategy in A Palm Oil Industry, Adapted from (Carlopio, 2010).

1. Idea Generation

The first step in developing innovation is idea generation, which defines the problem and questions the basic assumptions which surround it (Carlopio, 2010).The Company generates ideas to solve problems or to improve their system or products. In this study, ideas are generated from problems in the market. Moreover, there are two types of market; Internal and external market. Innovation for Internal market includes reducing production costs and improving product quality. Innovation for external market usually provides new products which have high demand in the market. The research director of PT SMART Tbk said about internal market:

(1)“However, we are in the plant (company), we know where we go. I want to how (using) fertilizer as low as possible. So, we set a target first. How to use fertilizer as low as possible, but with productivity as high as possible. (a) Change the plant, (b) Change the application, (D) Change the time (Liwang, 2015)”

Idea Generation Idea Selection Research and Development

Prototype

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And about the External market:

(2)"Now, we should open that market. (Do not like nowadays) We just think about monetary, let's develop the downstream industry. The question is where we should sell (the product). It is still a long process after that. As a trader, we must calculate the trading aspect first, who will buy (the product)? (Liwang, 2015)”

Furthermore, they make a list of problems and also possible solutions based on their discussion. After that, they use it as a basis for the second step of innovation management.

2. Idea Selection

There are many problems collected at an idea generation stage, but they also have many ideas to solve them. So, to make it more manageable, they divide the problems into four categories based on priority, urgent-non urgent and direct - indirect. It can be seen in figure 1

Figure 9 Research Priority Matrix (Based on the interview) P1: Direct and Urgent

P2: Indirect but urgent P3: Direct but Less Urgent P4: Indirect and Less Urgent

The ideas in group P1 are high priority ideas to be implemented in the research stage because they can solve the short term problem. The example of this type of research is a fertilizing scheme:

(3) “We want a plant that has efficient fertilizer, back again to direct and indirect. The direct solution is in Fertilizing (Technique) (Liwang, 2015)”

In Group P2 the solution has not direct interaction with the problem but it can solve the problem in a different way. An example is research about microbes that effects the absorption of fertilizer in the plant.

(4)"So, what is the indirect solution? Oh, fertilizing is not only chemical, but also need microbe (Liwang, 2015)”

The research in group P3 and P4 needs more time to get results; it cannot finish just in a year. But the research is still important because it can solve the fundamental problems in the industry.

(5)"There is also a less urgent aspect, for example, how to make the plant more efficient? It needs a long time sir. The research needs years from beginning until get the result (Liwang, 2015)"

The research priority is used as a base for the R&D department to conduct their research. Which problems need to be solved in the short term and which ones for the long term.? What kind of resources is needed for the research, do they already have it? Or do they need to make collaboration with other parties to solve the problems? Thus, matrix priority is very important for the company to optimize their resources.

Furthermore, research in the palm oil industry has moved from the first generation of innovation, technology push, into the third generation of innovation, the coupling model. Based on Rothwell (2003), the coupling model is a combination of technological capabilities and market needs. It can be showed from their strategy that divides the period of research based on urgent and less urgent. Urgent research is usually based on the problem in the market both internal and external, while less urgent research is a combination both the market problems and providing new technologies. Furthermore, the coupling model has a gate in every stage of activities. It is used to determine the output already meets the requirements or not. If the result is already satisfactory, it will be brought to the next stage. If the result does not pass the requirements, the stage must be repeated. The strategy helps the company to minimize big failure in the last stage because a failure in the beginning stage is better rather than in the last stage.

Furthermore, dividing the research into two groups based on period, short and long period, is a good strategy for conducting the research. It will produce innovation that solves both the urgent and less urgent problems. Finally, If we compare the strategy described above with theory from Rothwel (1994), The strategy to develop innovation in the company is similar with the third generation of Innovation. They do not only conduct research to solve the problems from the market but also produce new technology to improve the quality of products.

3. Research and Development

The research and development activities are conducted in laboratory and plantation. The company also can make research collaboration with

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other parties such as universities and research institutions, it depends on the situations. Nowadays, the company already collaborate with the university so that a student from the university does a part of research. However, the focus of research is selected by the company, and it is usually a part of research that is contained in P3 or P4 group of Research Priority. With this strategy, the result of research can be used by the company to develop their innovation.

(6) “We usually get stuck, our researchers, they do what they already know. They do not want the challenge, why? I also do not understand. If they do that kind of research (challenger research), they will not graduate (easily) (Liwang, 2015)”

However, the collaboration with other parties is very important especially to develop innovation in the downstream industry. Because, it needs a lot of money for conducting that kind of research.

(7)"But if we are reckless, there should be an institution that deal with the development of palm oil downstream industry. I saw Malaysia, and it is simple. The important thing is compact. For example, there is a budget, 10 trillion, for five years. So we use students. Developing from University, LIPI and BPPT is also support (Liwang, 2015)”

4. Prototype Creation

There are two types of research based on the industrial area: upstream and downstream. There are several examples of research in the upstream area such as efficiency in fertilizer, pesticide, and human resource. The palm oil industry is already established in this area of research because they already have a site to develop a prototype from their research. However, the industry still struggles in developing innovation for the downstream industry, such as developing equipment to process CPO into oleochemical or other downstream products. The problems happen because creating that kind of equipment need a lot of money. Indra from BBPT says:

(8) “Rule of thumb says that scale up can only maximum up to 100 times. When entering that scale, there is no budget possibility anymore (Susetyo 2015).

Hambali (2015) from IPB says about the problem of creating a demonstration plant for palm oil downstream industry:

(9)"Biodiesel, we are starting from industrial scale, but it must be observed. For example, we want to make 100.000 ton a year. It is big, isn't it? Who want to

finance it? The industry does not want to do that, so government should finance it (Hambali 2015).

5. Implementation

Finally, the result of the research is applied in real conditions. It divides into two groups, upstream and downstream. The result in the upstream area is applied in the plantation and the result in downstream area is used in the plant. For example research in developing a new seed, can be categorized as upstream research. The new seed is used to for re-planting old trees in plantation; so it can reduce the cost of re-planting. When they can produce more seeds and already fulfil the internal market, they will start to sell their seed to other companies or farmers by creating a subsidiary company. Furthermore, the example of research result in downstream area is the optimum condition to produce Biodiesel. The result is applied in plant to produce biodiesel with high yield but low cost. However, even their strategy is already successful in the upstream area, but it does not work well in the downstream area. There are many challenges in developing innovation in the downstream area, such as financial aspect, market demand, human resource and regulation. It makes research in downstream area need a different strategy.

Based on the finding on our case study, we can see the process of developing innovation has specific activities in every stage with different kinds of resources. After one stage is finish, they continue the process to the next stage. When they gain negative result in one stage, they will back to previous stage to refine their strategy. The development of innovation for one product is ended when they already gain the good result and implement it in the market. So the model of design process from Carlopio is suitable to describe the strategy in developing innovation in the palm oil upstream Industry.

Moreover, based on theory from Loewe, Williamson et al. (2001) about style of strategy innovation, the most suitable style for develop innovation in this situation is the Cauldron style. Because creating new models for both existing and new business can help company to reduce the production cost and also improves the quality of product. The cauldron style has similar characteristic with the coupling model in the generation of innovation, it not only solve the customer problems but also provide a new technologies.

Research Question 2:

How successful have business enterprises been using those innovative strategy?

The research result in the upstream area can be implemented directly in the company especially in their plantation. For example research in developing a new seed. They will use the new seed for re-planting their old trees; so it can reduce the cost of planting. When they already fulfil the internal market, they will start to sell their seed to other companies or farmers by creating a subsidiary company. In

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this case, PT SMART Tbk applies their research result on PT Dami Mas Sejahtera.

“The success of PT Dami Mas Sejahtera can be attributed to the strong R & D backup by SMART Research Institute as well as Plant Production and Biotechnology Division (PT Dami Mas Sejahtera 2015)”

Furthermore, PT SMART Tbk is a subsidiary company of SinarMas group, one of the biggest corporations in Indonesia. The corporation has large area of palm oil plantation. So innovation in PT SMART can be used in other subsidiary company under SinarMas group. It makes them feel confident to conduct research because they know who will use their innovation.

The strategy described above has been successfully implemented for developing innovation in the upstream areas, but it is not yet success to develop innovation in the downstream industry. Based on the finding, it happens because the development of innovation in the upstream industry already has a clear market and the company can access it easily. Moreover, innovation in the upstream industry can be used directly in their internal or subsidiary company such as research about fertilizing technique to improve the adsorption efficiency

In other hand, even the downstream industry has large market but the company cannot access it easily. The company feels struggle to find the market for their downstream product, because the market is not in Indonesia. If they want to enter that market, they might compete with other companies who already exist. Furthermore, the market becomes the driving factor for the company to develop innovation. Zedtwitza and Gassmannb (2002) says that the establishment of new R&D units is influenced by two principal factors: access and support of local markets, and access to local science and technology."

The research in the downstream area still has many problems, such as financial aspect, market demand and regulation. So, it causes the company to buy existing technology rather than develop new technology in their laboratory (Liwang 2015). Dr. Tony Liwang from PT SMART Tbk argues about the innovation in the palm oil downstream industry

(10) "After produces CPO and other downstream product, we just buy the technology because the technology does not change any more. If we want to change it, which research institution can do that? If we want to make a prototype, how much the budget needed? It is impossible (Liwang 2015)”

So, the strategy should be adjusted in the downstream industry. It needs to add one more step after prototype creation, namely, to create a demonstration plant stage. The stage is suggested by Susetyo from BPPT

(11) “From Laboratory scale to pilot plant, continues to demonstration plant. After that, it is tested to produce plant (Susetyo 2015)”

However, the development of innovation for the downstream industry still has many problems such as market obscurity. Susetyo (2015) says that the market for palm oil downstream industry is already occupied by multinational corporations which have established their position. They already have a lot of money for investment, technology to process the commodity and also distribution chain to sell the product. So, when a new company tries to compete with them, they need more money and also a good strategy.

Figure 10 Innovation Strategy for the Palm Oil Downstream Industry

Research in the downstream industry needs a different strategy with research in upstream industry. Because, research in the downstream industry cannot just use a small scale capacity but needs to use a demonstration plant that has the similar capacity with the real plant. This means the research not only needs a lot of money but also has a high risk.

The development of innovation in the palm oil downstream industry needs one more step compare with the strategy in the upstream industry, the additional stage is called as demonstration plant stage. In that stage, the industry should optimize their collaboration with other parties, the University and Research Institutions. The collaboration can help the company reduces the research cost and also divides the risk to other stakeholders.

Research Question 3:

What kind of collaboration is needed by Industry, Research Institution, and Government to develop innovation in the palm oil downstream industry?

There are many strategies to develop innovation for the palm oil downstream industry. The most important thing is the government should give that process their support. Erliza (2015) suggests several strategies to accelerate the development process:

Idea Generation Idea Selection Research and Development

Prototype Creation

Demonstration

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1. The government should provide a sufficient fund for the university to buy new equipment. So the university can help companies to develop their innovation in downstream industry

2. The government should reduce the tax for a company who has a research in downstream industry.

In other hand, Susetyo (2015) a researcher from BPPT, suggests government should implement the regulation that Private Company should participate in the research activity; venture and insurance also should enter the process. Moreover, the government should reduce a tax for companies who do research in developing innovation.

Moreover, Liwang (2015) Director of Research and Development of PT SMART Tbk, argues that the research depends on the availability of industry (market demand) and industry will grow up when the money (Incentive) is available because it can increase their profit. However, this incentive depends on government regulation.

Based on the opinions from three points of views, the development of innovation in downstream industry depends on incentive from the government. So, the government should give more incentive for university in forms of cash or research facilities. And the government also should add incentive for the industry that has research in developing innovation.

Moreover, Sri Hadisetyana from Ministry of Industry says about the strategy to develop innovation and also the interaction among stakholders in the development process:

(12) “For technology, we do FS in the first step, FS is a Feasibility Study. It uses to determine the study is feasible or not. After FS is DED (Detail Engineering Design). After DED is developing a laboratory scale. The laboratory scale is a construction, industrial shape. After Industry (scale), we collaborate with BBKK (Balai Besar Kimia Kemasan/ Center for Chemical and Packaging) because it already in operational scale. Laboratory scale (Research and Development (RnD)) is with BBKK. From BBKK, the result of the research is in form of patent. After patent, it continues with B to B, Private to Private. How about the economic scale, economic scale, production cost, the cost includes in Private to Private (Hadisetyana 2015)

Furthermore, Fadli Hasan from Indonesian Palm Oil Association talks about the importance of collaboration among stakeholders to develop innovation in the palm oil industry

(13) “There should be a common vision and a tight collaboration (among stakeholders), because the development of the downstream industry is based on

innovation, innovation is based on R&D. So, Doing R&D needs investment. When investment works, it needs time. So when there are no intensive from government to companies who do innovation, they will not interest to do that. There should be a collaboration among government, company and university. Research in university should be scaled up, not just doing research based on Laboratory (scale), but should be implemented in wider contexts such as industry. In the farming context, it is called as on farm (Hasan 2015).”

We can see clearly from his statement that the collaboration among stakeholders is very important in term of developing innovation. Each stakeholder has different role such as the government provides incentive, research institution improves their research scale and industry provides place to implement the research result.

Based on the finding in from the interviews with the experts, the research suggests a collaboration strategy among stakeholder for developing innovation in the palm oil Industry. It can help stakeholders to accelerate the process of development innovation.

Figure 11 Collaboration Strategy among Stakeholder to develop Innovation in Palm Oil Industry

The collaboration strategy suggested in figure 6 is adopted from the triple helix model with several adjustments. In Academia position, it divides into two organizations, university, and research institution. The model shows positions of internal and external market as driving factor for an enterprise to develop innovation. Each stakeholder has a different role in the process of developing

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innovation, but they interact with each other's to accelerate the development process.

1. Role of government

The government has two roles in the process of developing innovation, providing a suitable regulation and giving incentive for research institution and university. About a suitable regulation, Susetyo (2015) suggests the government implement a regulation that Private Company should participate in the research activity; venture and insurance also should enter the process. Furthermore, as feedback, the government should reduce the tax for companies who do research in developing innovation.

Moreover, the government also should provide a wider market for the palm oil downstream products both in local and overseas market. For the local market, the government should accelerate the implementation of regulation from The Ministry of Energy (Number 25 year 2013) about using biofuel as blend in fuel. The implementation of the regulation will increase the consumption of biodiesel from palm oil in the local market. If the consumption increases, the company will try to optimize the production process of biodiesel by doing research in that area. Furthermore, for the export market, the government should expand the palm oil market in other countries. They can use the Commercial Attaché in every country to find market opportunities that need products based on the palm oil commodity.

The government also should provide a bigger budget for research institution and university. The money can be used to buy new equipment for the laboratory or to conduct research. Research in downstream industry needs a large budget especially to buy a demonstration plant. Moreover, the industry and research institution can use the demonstration plant to find the optimum composition to produce the downstream products before implemented in the real plant.

2. Role of Industry

The role of industry in developing innovation is conducting research in their laboratory to solve their internal problems and provide a new product to solve the people problems. The industry also should make collaboration with research institution and university in their development process.

Furthermore, Industry has direct interaction with customer both internal and external market, so they know the real problems of the customers. After they know the problems, they can prepare strategies to solve them. If they do not have resources for the development process, they can collaborate with other institutions.

Industry also should promote their research project to the research institution and the university. They also should describe their problem in conducting that project, so researchers and lecturers can help them to solve that problem. When researchers want to help the industry, the industry can open

their laboratory for them. Finally, the industry should provide sufficient fund for the researchers to finish the project.

3. Role of Research Institution

Nowadays, many researchers from research institutions conduct research based on their perspective; they are making research to provide new technology for the industry. However, based on Rothwel (1994) their activities are similar with the first generation of innovation, called as technological push. This approach makes the research result cannot be used directly in the industry because the result does not match with industrial needed.

Furthermore, the major task of a research institution, ideally, is providing suitable technology for a specific industry based on their expertise. When they want to do that, they shall know the newest technology in their research area. Moreover, the research institution should also has good interaction with industry, it will help them to know the real problem in the industry and finally they can conduct research based on the industrial problems.

In this collaboration strategy, research institution does not has direct interaction with market but they have direct connection with the industry. It means, when the research institution wants to conduct research to develop innovation in palm oil industry, the research shall contact the industry first to determine the research focus.

Furthermore, based on suggestion from Susetyo (2015) the research institution can help the industry to develop the palm oil downstream product by providing a demonstration plant that has a suitable specification with their needs. For example a demonstration plant for producing Biodiesel from palm oil.

Moreover, when the industry wants to improve their product quality or reduce their production cost, they can make a joint research with the research institution. The research institution provides the demonstration plant, and the industry brings the raw material to be tested and funds for the researcher and operators. With this strategy, the industry can reduce the cost of research; in other hand researcher from research institution can write paper based on the research result.

4. Role of University

The university in Indonesia not only provides a class lecture but also conducts research both in the laboratory and in the field based on their expertise. Nowadays, the research climate in university is still stuck in the first generation of Innovation, technology push. It makes the result of research cannot match with industrial needed. Furthermore, Moeliodihardjoa, Soemardib et al. (2012) finds that many academicians find it difficult to find partners from industry who have similar interests. It happens because there is lack of mutual understanding and trust between university and industry.

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Even the university is still struggling to make joint research with industry, but university still can help industry by sending their students to conduct research in an industrial laboratory. The students, usually from the final years, conduct research under two directions, his lecturer and researcher from industry. The focus of research is provided by the industry, usually as part of their long term research. This strategy gives a win-win solution for industry and university because industry can use the research result directly in their company, and student from university do not need to spend money to conduct the research.

Furthermore, Indonesian University should use German University as a model to create collaboration between University and Industry. The university provides a schema called as Paid PhD Position in Industry. In this schema, PhD student involves research in industry and usually writes their thesis in collaboration with the company where they are employed. In particular, companies cooperate with universities and offer doctoral candidates work contracts and support on their way to a doctorate. The subject of doctoral thesis must suit the company needed. Even though, the university still provides a supervisor who ha entitled to award doctorates (Lasch 2015).

5. Collaboration

Based on the collaborative strategy described above, the process of development innovation in palm oil industry is started with gathering problems in the market, both internal and external, by industry. After that, they categorize the problems into four groups based on priority. Moreover, the industry goes to the research institution and university explaining their project and also opening opportunity for conducting collaboration among them. This activity can be done in reverse direction, research institution and university go to industry and ask them what they can do to help them. Furthermore, when they have similar focus, they can make joint research to solve that problem. University and research institution provide knowledge and tools, in other hands the industry provides funds. Finally, the industry can implement the result in their company, and researchers from University and research institution can produce papers to be published in a journal.

Furthermore, the government can accelerate the process of developing innovation by providing a sufficient budget for research institution and university to buy equipment, machinery, and laboratory instrument. The government also can give incentive for a company who conduct research to develop innovation, for example reducing tax. Finally, the government can help the company by promoting a new market for the downstream product in overseas. So it can make the company have more interest to develop downstream products.

V CONCLUSION AND RECOMENDATION

V. 1 Conclusion

The finding from the research shows that the industry generates ideas based on market demand both internal and external, and they also tries to provide a new technology for their customer. It shows that the industry already in the third generation of innovation. Moreover the industry categories their ideas into four groups: direct-urgent, direct- less urgent, indirect-urgent and indirect-less urgent. This strategy can optimize their resources, which one the priority and which one for the long term research.

In the research and development stage, industry can do the research with their resources or make collaboration with other parties, it depends on the situation such as the availability of human resources, machinery or laboratory instruments. Furthermore, the research in upstream area is easy to be implemented by company because the company already have their own market. In contrast, research in downstream area needs more support from the government and other research institution because the development of innovation in that area has a high risk and also needs more budgets. Furthermore, each stakeholder has different role in developing innovation, University and Research Institution provide human resources and equipment, the industry funds the project and the government can accelerate the process of development innovation by providing more incentive both for industry and research institution.

V. 2 Recommendations

a) Practical: Researchers in universities or research institutions should have a good communication with industry. So they can help industry to develop innovation. Moreover, when they want to make collaboration with industry, the research focus is selected by industry.

b) Strategic: A company should prepare and implement a strategy to develop innovation in their place.

c) Policy-making: The government should provide a proper regulation to accelerate the development of innovation in the palm oil downstream industry, such as giving tax incentive.

d) Further research might involve more samples from industry, so the research can build a stronger model about developing innovation in the palm oil industry.

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APPENDIX

Appendix 1 Quote in Bahasa

(1) Sementara kita dipabrik diperusahaan kita tahu kita mau kemana, saya mau gimana pupuk serendah mungkin. Jadikan tentukan target dulu nih, bagaimanakah untuk memberikan pupuk serendah mungkin, produksi setinggi mungkin, a tanamannya di rubah, b. cara aplikaasinya di rubah, c. waktunya di rubah.

(2) Sekarang kan seharusnya pasar itu kita buka, nah kita hanya memikirkan moneter, ayo hilirisasi hilirisasi, pertanyaannya lantas jualnya ke siapa? Nah itu kan panjang pak setelah itu, Sebagai pedagang, kita mesti itung dagang terlebih dahulu, yang mau beli siapa nih?

(3) Kita maunya tanaman yang paling efesein pupuk, nah tadi lagi, direct and indirect. Yang direct pasti langsung mupuk.

(4) Indirect nya apa nih, oh ternyata memupuk bukan cuma kimia nih, harus ada mikrobanya

(5) Ada yang tidak urgent, misalnya bagaiamana tanamannya semakin efesien, itu lama pak. Penelitiannya bertahun-tahun lah.

(6) Kita biasa terjebak,peneliti kita nih, apa yang dia tahu, itu yang mau dia teliti. Dia ga mau challenge, kenapa saya juga ga ngerti, kalau ga kan ga lulus-lulus pak.”

(7) Tapi Kalau kita nekat, kan seharusnya ada dong institusi yang menangani hilirisasi sawit. Caranya kalau saya lihat di Malaysia sederhana, Yang penting kompak pak, nih dana total katakanlah satu dulu lima tahun dananya 10 triliyun misalnya. Lah kita kan genjot mahasiswanya, jadi terbentuk dari kampusnya ada, dari LIPI, BPPT juga mendukung.

(8) Rule of thumb mengatakan scale up itu bisa 100 kali maksimum, begitu masuk sekala itu, pendanaan udah tidak mungkinkan.

(9) Biodiesel, kita bikinnya mulai sekala industry. tapi itu diamati, Misalnya kita mau bikin 100.000 ton setahun, gede kan? Siapa yang biayai itu?, industry kan gam au kan, perlu pemerintah membiayai itu.

(10) Setelah keluar cpo ke bawah, teknologinya beli saja. Karena teknologinya tidak bergerak banyak. Kalau mau kita ubah, lembaga penelitian mana kita yang mampu kesana. Kalau mau bikin prototype, berapa milyar, pasti ga mungkin.

(11) Laboratorium scale, pilot plant, pilot plan ke demonstration plan. Dari situ untuk demonstration plant, diuji lalu menghasilkan plant

(12) Kalau teknologi seperti itu, pertama kita FS, FS itu feasibility study, apakah studi itu layak atau tidak, setelah FS kemudian DED (Detail Engenering

design), setelah DED nanti bentuk skala lab, skala lab itu konstruksi, bentuk industry, setelah industry itu kita dengan BBKK karena itu kan sudah operasional, skala lab (rnd), dengan BBKK. Dari BBKK itu nanti kalau dia sudah komponennya yang itukan rnd nya riset ini bentuk paten, setelah paten itu baru B to B, Private to Private, bagaimana dia dari ekonomi scale, skala ekonominya, biaya produksinya, biaya itu dia masuk Private to Private. (13) Harus ada kesamaan visi lah dan kerjasama yang erat karena pengembangan

industry hilir itu basisnya itu adalah inovasi, inovasi itu kan berdasarkan RnD, nah untuk melaksanakan RnD itu perlu Investasi. Nah investasi itu berjalan, membutuh waktu, oleh karena itu kalau misalkan tidak ada insentif yang diberikan oleh pemerintah kepada perusahan perusahan yang melakukan inovasi itu tidak akan tertarik, mereka untuk melakukan itu. Antara pemerintah, perusahaan, universitas harus berkolaborasi. Riset-riset di universitas juga perlu di scale up, bukan research berdasarkan istilahnya itukan lab, namun harus di implementasikan dalam konteks yang lebih luas misalkan industry. Kalau dalam pertanian namanya on farm.

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AUTOBIOGRAPHY

Karim Abdullah, the author of this thesis was born on 28th September 1986 in Bogor, Indonesia. He completed his elementary education in 1998 and joined MTs Husnul Khatimah forjunior education and got the certificate of secondary education in 2011. He later joined Bogor Chemical Analytic High School and finished in 2005. He graduated from Bandung Institute of Technology major in chemistry in 2009.

He has been working in ministry of Industry as a researcher since 2009. As a researcher in Ministry of Industry, he tries to solve the problem in industrial area by conducting research in laboratory.

In June 2013, he was awarded scholarship for Master‟s Degree program by Ministry of Industry of Republic Indonesia and joined Bogor Agricultural University. It was a double degree program between IPB and The University of Adelaide. So he stayed a year in Bogor and also a year in Adelaide. He is graduated from Bogor Agricultural University with a Master of Science Degree in Agroindustrial Technology.