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Pakistan State Oil

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Title: Pakistan State Oil


1
Pakistan State Oil Case Analysis
2
Summary
3
WHAT WE ARE
  • Largest Company in Pakistan with turnover of
    around Rs 200 billion (US 3.4 billion)
  • Only Public Sector Company competing with 3
    multinational OMCs very effectively
  • Contributes approx. Rs. 55 billion (around US 1
    billion) to national exchequer
  • First Pakistani company to become a member of the
    World Economic Forum, Davos, Switzerland

4
OUR VISION
To excel in delivering value to customers as an
innovative and dynamic energy company that gets
to the future first
5
MISSION STATEMENT
6
OUR VALUES
EXCELLENCE Passion for Customers, Total Quality
Management, Corporate Leadership COHESIVENESS Tea
mwork, Effective Communication RESPECT Respect
for Individuals, Valuing Contribution, Equal
Opportunity INTEGRITY Business Ethics,
Honesty INNOVATION Creative ideas, New products
and processes CORPORATE RESPONSIBILITY Health,
Safety, Environment, Community Development
7
LONG TERM OBJECTIVES
  • Get recognized as an Energy Solutions Company
  • thru diversification integration
  • Retain market leadership in all key products
  • Maximize share holders wealth by sustainable
  • growth in earnings
  • Establish PSO as a brand of choice for customers
  • Utilize all available resources optimally
  • Fulfill corporate social responsibilities

8
MARKETING - RETAIL NETWORK
NUMBER OF RETAIL OUTLETS ALL PAKISTAN BASIS AS OF
JUNE 30, 2004
New Vision
Total
PSO Shell Caltex Total 3,880
1,270 499 5,629
PSO Shell Caltex Total 1,000
800 420 2,220
9
STATUS OF CNG DEVELOPMENT
20
80
PSO TOTAL June 30, 2001 26
168 June 30, 2004 105 521
10
ENVIRONMENTAL SCANNING (BACKGROUND)
RETAIL
  • Prior to 90 Caltex, Shell (PBS) and PSO had
    similar level of shabby products and services
  • In 90 Caltex started improving its retail
    stations
  • In 94 Shell embarked on its International
    Retail Visual Image project
  • In 97 Caltex launched its New Retail Image
    program
  • In 99 PSO built its first flagship retail
    outlet in Karachi

11
ENVIRONMENTAL SCANNING (BACKGROUND)
LUBES
  • From early 90s competitors focused on their lube
    business, introducing high-grade, high-priced
    lubricants in attractive plastic packages
  • In 97, Lube Marketing was established as a
    separate core business
  • All along PSO neither upgraded its retail network
    nor improved its range of products and services
    as no investment was made in modernization
  • PSO remained focused on low margin products and
    lost market shares in high margin products

12
PSO AILMENTS
INTERNAL
EXTERNAL
  • Obsolete Systems / Weak controls
  • Dearth of Quality professionals
  • Myopic Business Vision
  • Bureaucratic Management
  • Ineffective Organizational Structure
  • Profits dependent on Inventory Gains
  • Malpractice corruption
  • Aggressive Marketing Development by Competition
  • Political Intervention
  • Economic Factors
  • Highly Regulated Environment
  • Products Substitution
  • New Players
  • Tarnishing image declining market share

13
MULTIDIMENSIONAL 7S MODEL
14
MANAGEMENT HUMAN RESOURCE PHILOSOPHY
  • Consider Human Asset - the only asset which
    appreciates with the passage of time
  • Right Person at the Right Place
  • Make Organization lean flexible to become more
    responsive
  • Handle HR issues with all fairness transparency

15
MANPOWER STRENGTH
August 2004
January 1999
Professionals Others (mgmt) Non
Management Total Jan, 1999
260 608 1787
2655 Aug, 2004 475 382
1136 1993
The company is operating within the approved
manpower strength
16
MULTIDIMENSIONAL INITIATIVES (HR AREA)
  • Equal Opportunity Employer
  • All hiring approved by COED committee
  • Offered VSS in April01750 employees opted for
    the scheme on free will
  • Open Candid communication culture
  • Performance based system
  • Recognizing the smart work thru incentives
    awards, promotions, appreciation letters
  • Professional work environment with emphasis on
    extra curricular activities
  • Ongoing employee development program

17
MANAGEMENT INITIATIVES IN HUMAN RESOURCE AREA
(Contd)
  • Inducted high quality professionals (CAs, MBAs,
    Engineers, etc) to fill the vacant slots strictly
    on merit and stipulated policies procedures
  • Practicing Zero Tolerance for Corruption
    Malpractice
  • Promptly handled employees found in intellectual
    dishonesty and malpractice to discourage unfair
    practices
  • Promoted talented and outstanding employees
    strictly on performance
  • Accommodating employees request for transfer
    subject to vacant slot and genuineness of request

18
MULTIDIMENSIONAL INITIATIVES
  • Conducted Business Process Reengineering (BPR) to
    streamline processes and remove unnecessary
    layers
  • Revamped corporate architecture and implemented
    business unit concept
  • Instituted business planning and reporting
    system PSO to enter online real-time Enterprise
    Resource Planning (ERP) regime
  • Developed team work group dynamics thru
    empowered Cross Functional Teams (CFTs)
  • Continuously introducing innovative products and
    services
  • Aggressive marketing with rapid expansion of New
    Vision outlets over 1000 outlets in 5 years
  • Built Business partner concept with all
    stakeholders
  • ISO 14000 9000 Certification of key storages,
    retail outlets, offices etc.

19
MULTIDIMENSIONAL INITIATIVES
BRAND IMAGE ENHANCEMENT
  • Launched successful aggressive marketing
    campaigns
  • Highly cost-effective company as compared to
    Shell despite its sheer size and market share
  • 24 Hours Customer Care department established
    with Toll Free number
  • Company-Owned Company-Operated (CoCo) sites
    network expanded to 30
  • Launched new product lines in improved
    packaging free delivery thru c-tracked
    vehicles

20
MULTIDIMENSIONAL CHANGE PROCESS (Contd)
Key Accomplishments for Brand Image Enhancement
  • Leader in innovative products services
  • Plastic card technology in Pakistan (Loyalty,
    Corporate, Fleet Prepaid cards)
  • 800 Internet Kiosks dotted across the country
  • 19 Mobile Quick Testing Units to ensure the best
    quality product
  • Oil change facility at the customers door step
  • First-ever auto car wash plants in all major
    cities
  • Monolith price displays at retail outlets
  • Pioneer in installing Tallest Signs / Largest
    Hoarding in Pakistan
  • Business centers at retail outlets
  • First OMC to install Easy Payment Centers at
    gas stations (19)

21
MULTIDIMENSIONAL CHANGE PROCESS (Contd)
22
FINANCIAL PERFORMANCE
23
SHARE PRICE TREND
27 Jul 2001
30 June 2004
Daily Share Price Trend
24
PSO TRANSFORMATION
from a typical public-sector company to a
market-driven company
Distribution oriented Large and
centralized Government control Operational
myopia Diffused responsibility Technical
orientation Risk averse Hierarchical
and bureaucratic setup Reliance on
managerial authority Petroleum sale only
Customer service oriented Lean and
decentralized Managerial autonomy Strategic
vision Ownership and accountability Commercial
orientation Entrepreneurial attitudes Task
driven organization Teamwork and delegation of
responsibility Broader business base Business
diversification vertical integration
25
Key issues…
26
Key Issue 1 Image of PSO was badly affected
specially in the consumer market
  • Caltex got success in its retail image program
    and specially general consumers were attracted to
    the new look and services, offered over there
  • Shell started an aggressive marketing in response
    with its International Retail Visual Image
    project.
  • Shell spent more than Rs 5 billion on building
    new and improving existing outlets.

27
Key Issue 1 Image of PSO was badly affected
specially in the consumer market
  • Strategic Moves…
  • Mr.Tariq Kirmani brought systematic change in
    corporations culture and processes. New
    management, in the direction of Tariq Kirmani,
    took some major crucial steps to transform the
    organization
  • PSO also introduced its additized diesel Green
    XL plus to ensure greener and safer environment.
    Along with this they offered easy payment through
    cards into four categories.
  • Prepaid card Loyalty Card
  • Fleet Card Corporate Card

28
Key Issue 1 Image of PSO was badly affected
specially in the consumer market
  • Strategic Moves…
  • In 1999, built its first flagship retail outlet
    in Karachi. Then targeted to renovate or rebuild
    at least 200 outlets per year.
  • This change was not confined to the civil works
    but they introduce many distinctive facilities to
    their outlets, some of which are still their
    competitive edge on the competitors

29
Key Issue 1 Image of PSO was badly affected
specially in the consumer market
  • Strategic Moves…
  • For example Internet kiosk (at 800
  • Outlets), 15 business centers, auto car wash,
    electronic dispensing units, convenience stores,
    easy payment center for utility payments,
    Citibank credit cards bills, and most recently
    launched a co-branded card with UBL.
  • Offering JAZZ recharge on the outlet. PSO signed
    a corporate MoU with Pizza hut to establish
    their Deco Outlets to provide their
    Take-away and Home Delivery services.

30
Key Issue 2 Sales were declining drastically
  • The rapid changes in business scenario, affected
    the image of PSO and at time it was considered as
    an in efficient, stagnant and obsolete
    organization, which is failed to serve the
    customer according to their changing requirements
  • Steps in key issue 1 also helped in solving this
    issue

31
Key Issue 3 Market share was declining
  • Sales of PSO start declining in the facet of its
    strong products i.e. Petrol and Diesel from 47
    to 39 and 73 to 60 respectively.
  • Sales of PSO, although started declining after
    1993 but in 1996 it was drastically dropped down
    from 48 to 39 in MoGas (1994-2000), and 76 to
    60 in HSD (1994-2000)

32
Key Issue 3 Market share was declining
  • Strategic Moves…
  • Competition analysis is the system to monitor and
    analyze the competitive environment of the
    industry.
  • These people are responsible to collect current
    information of market insights and competitors. ,
    Analyzing economical, legal situations of related
    industries.
  • On the basis of in-depth analysis, PSO is
    successful in sustaining its competitive
    advantage over its rivals

33
Key Issue 4 Organizational Structure was not
able to compete with rapidly changing environment
  • Shell launched huge promotion through media and
    emphasis more on its Lubricants.
  • Shells lubricants have already a strong position
    in the market and along with new image of their
    retail outlet Shell offered improved services,
    while developing a network of Company-operated
    sites.
  • Another customer service, the 'Shell Genie' fast
    and free oil change facility was introduced at
    their outlets

34
Key Issue 4 Organizational Structure was not
able to compete with rapidly changing environment
  • Strategic Moves…
  • The new management adopted the system of
    conducting weekly meetings on two levels. One is
    MANCOM (Management Committee) and the other is
    EX-COM (Executive Committee).
  • EX-OM is responsible to discuss all current
    issues regarding policy of the company at the
    executive level, while MANCOM is the platform for
    all employees to participate at their department
    level

35
Key Issue 4 Organizational Structure was not
able to compete with rapidly changing environment
  • Strategic Moves…
  • Besides these psychological practices, the team
    of DMD Tariq Kirmani, formulated the corporate
    planning framework.
  • First they renewed Vision, Mission, and The
    Values. Instead of vertical Hierarchy, developed
    cross-functional teams and delegate them
    authority to device their own strategies to
    achieve their targets.
  • With the help of these cross-functional teams,
    processes were analyzed and organization started
    moving towards lean operation.

36
Key Issue 4 Organizational Structure was not
able to compete with rapidly changing environment
  • Transfers the whole manually handled data on the
    computers and designed a strong database system,
    which was accessible for all employees. The
    Corporate plan was started from FY 2003.
  • It contains operational plans, capital budgeting,
    Business-wise investment plans, and
    profitability.
  • This projections Corporate Plan of PSO is widely
    appreciated by national and international
    institutions and regarded as the key to success
    for PSO

37
Key Issue 5 There was a need for skilled and
trained people to work efficiently
  • Strategic Moves…
  • Organizational culture of PSO was as typical as
    the govt enterprises have. To bring change in it,
    management devised strategy to gain the
    confidence of employees first.
  • Corporate Planning department developed a
    corporate transformational model to keep an eye
    on flow of policies and behavior from top to
    lower level employees performance

38
Key Issues for Future
  • Shell has an edge in Lubricants market over PSO.
  • Issue solved Castrol GTX has taken over the
    market share from Shell through increased
    marketing efforts.

39
Key Issues for Future
  • Uncertain supply network (Shell, Caltex and Total
    have their own Refineries while PSO rely on the
    contracts).
  • Reason Government put restriction on PSO to buy
    its own Oil refinery because there is a condition
    that any Public limited company cant buy another
    Public limited company. After Privatization they
    may become able to buy an oil refinery ( if new
    management agree to do it). While Shell, Total,
    and Caltex have their own refineries like NRL,
    PARCO.
  • Solution One possible remedy for this is the
    privatization of the company, which is in
    process. Another can be a creation of stronger
    relationship with suppliers, help the suppliers
    by making joint ventures in building their
    infrastructure etc.

40
Key Issues for Future
  • A huge network all over the country (especially
    in remote areas) is the burden on PSO because in
    some areas, providing oil products is more
    expensive to the company but being a public
    limited company they have to bear it.
  • Solution Reduce costs by making centralized
    storage system in different regions/ territories.
    Find innovative ways of distribution (perhaps
    setting up a distribution pipeline).

41
Business Balanced Scorecard BBS
42
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43
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44
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