BP.doc

Pakistan State Oil Company Ltd.

OBJECTIVE

The objective of this report is to find out the practical application of strategic management concepts at Pakistan

State Oil Co. Ltd. (PSOCL). To analyze the integration of the various functional departments, we have examined the

internal environment of the company by conducting an in-depth value chain analysis. We have also conducted an

external analysis to find out how the external environment affects the company whether it anticipates changes in the

external environment and responds to it accordingly. As a result of these analyses, we have generated alternative

strategies, and have chosen the most appropriate one that the company should follow. Based on the above findings,

we will write a live case on the company.

ANALYSIS OF VISION

Company's vision statement emphasizes more on long-term marketing objectives rather than addressing the

company in a broad manner. It addresses about the company in a confined and limited manner touching only the

product and the market share position in the future. It does not highlight as to how the organization would like to be

perceived by all its stakeholders, and how it will be received by the world. The statement does not identify standards

set by the organization for itself. However, the vision statement clearly reflects creation of an environment through

the induction of professionally trained, committed and highly motivated work force leading to reward performance,

innovation, creativity and congruence of personal and corporate goals.

ANALYSIS OF MISSION STATEMENT

The organization as such does not have a mission statement. However, several departments have their own mission

statements, addressing specifically their own departmental objectives and challenges. This lack of organizational

mission statement is hampering the organization a great deal; the sense of shared values is no longer present in the

employees. The need for a proper mission statement becomes double important for the PSO. At present, it is passing

Pakistan State Oil—A Step towards sustainable National Growth & Healthy LifePage 1 of 17


through a transformational phase, not only in terms of its operations but also in terms of its Human Resources as

well as Corporate Culture.

FINANCIAL ANALYSIS

PSO has enjoyed a significant stable financial position over the last five years and this is evident from its Ratios and

after tax profits. The company earned accumulated after tax profits of Rs. 12.187 Billion, in the financial year 2001-

2002.1 For the fiscal year ended June 30, 2002 despite the revenue drop and a record provision of Rs. 2 Billion made

for taxes, PSO earned an all time record before tax profit of Rs. 5.1 B (up by 49%) while after tax profit rose to Rs.

3.2 B (growth of 42% over prior period). 1 In addition the company absorbed the balance financial impact of Rs. 408

M on account of Voluntary Separation Scheme offered in April 20011. The Operating profit of the company grew by

an impressive 32% over the prior year.

1. Liquidity Ratios

During the last five years there has been no major movement in the position of Current Assets and Current

Liabilities. However on account of individual items Stock in Trade (i.e. Inventories) showed an upward trend of

107%, Loans, Advances and other receivable went up by 136%, Dividend payable rose by 114%, while Current

portion of Leased Assets increased by 483% in the year 2002 as against the base year 1998. On the other hand Trade

Debts (Receivables) have shown a decrease of 55% and Current portion of Long Term Loan fell by 82% in the year

2002 as compared to the base year 1998. The movement of Current Ratio is in the range of 1.16 to 11.31; Quick

Ratio is between 0.79 and 1.03, Working Capital to Assets is between 0.12 and 0.20. This analysis shows that the

company has favorable liquidity position and can easily meet it short-term cash obligations. This is also evident

through company’s cash flow and Dividend Policy. (Appendix # IV)

2. Asset Management Ratios/Activity Ratio

The average collection period of the company improved over the last five years, which fell from approximately 81

days in 1998 to 21 days in 2002, whereas the inventory turnover ratio relatively stable between 20 to 24 days over

the same period. Hence the Operating Cycle of the company fell from 101 days in 1998 to 45 days in 2002, which

shows that the company has taken steps in improving its collection procedures. Likewise the average payment

period has also improved from approximately 95 days in 1998 to 44 days in 2002.

1 Company Annual Reports.



The Fixed Asset Turnover Ratio has remained stable, while Total Asset Turnover Ratio has almost doubled over the

same period from 2.66 in 1998 to 4.06 2002 showing better utilization of these assets by the company. (Appendix #

IV)

3. Debt Management Ratios

The Debt to Asset ratio and the Debt to Equity ratio have declined from 76 to 64 and 336 to 186 respectively, which

shows that the increase in the proportion of financing supplied by creditors is less than the increase in the proportion

of financing provided by shareholders and increase in Total Assets. On the other hand, Long- term Debt to Assets,

Long-term Debt Equity and Times Interest Earned showed insignificant movements over the five years period.

(Appendix # IV)

4. Profitability Ratios

The Net Profit Margin, Gross Profit Margin and Operating Profit Margin ratios of PSO shows insignificant

movements during the five-year period, thereby indicating that no measures have been taken to reduce expenditures.

Earnings per Share and Dividend per Share have increased from Rs.18.6 in 1998 to 22.3 in 2002 and Rs.8 in 1998 to

Rs.13 in 2002 respectively making investment attractive in PSO. (Appendix # IV)

EXTERNAL AUDIT

1. Economic Forces

PSO as well as Oil marketing industry is heavily import dependent. PSO imports refined and finished POL products

through term contract from Kuwait Petroleum Company on biannual or annual basis, however spot contracts are

made, sometime on quarterly or monthly basis to cater seasonal demand. Government has linked the prices of

refined local petroleum to the mean Singapore FOB2 prices. Thus higher international prices mean higher local

prices – Government has formed Oil Companies Advisory Committee to review POL prices on a fortnightly basis.

The oil prices in the country are automatically hedged against any devaluation. If the Pak Rupee were to devaluate,

then the Government will revise oil prices upward to counter the loss in PKR value. This may not be very relevant

in the short term since the PKR is gradually becoming stable after the September 11 attacks.

2 Company Internal Sources.



A major portion of the POL demand is from the industries (IPPs, Textile & Cement)3 - if they were to suffer then so

would the PSO (being the largest supplier of Furnace Oil), this being especially true for the Power Sector. If more

IPPs switch over to using natural gas (to lower costs and hence tariffs), this will have a greater adverse impact on

the sales of Furnace Oil. PSO would be more exposed to this risk than would other OMC’s - since most of the Fuel

Supply agreements are with PSO. KESC is gradually being shifted to a gas-fired turbine. There are two more 2

large-scale power plants - HUBCO and KAPCO, which might shift to gas since they are currently having price

reduction talks with the Government. There is also a threat that the cement industry is also made to convert towards

using gas as the fuel component. The fuel is a major cost component in the cost of manufacturing. As stated above,

PSO is more exposed to this risk than any other oil marketing company.

With the recent pick up in the industries and expectations of higher growth and development in the future - as well

as rising international oil prices - the imports of POL products have gone up in the current year.

Leasing sector in Pakistan is growing rapidly owing to presence of liquidity in the market. Demand for Automobiles

has increased positively and thus providing greater opportunities for PSO to cater the incremental consumption of

POL products.

2. Social, cultural, demographic and environmental forces

The continuous increase of population in a country is foreseen as an increase consumption of POL product in the

future. High migration of people toward cities provides opportunities for PSO to open more retail outlet in mega

cities. The level of education in the country is increasing (especially in urban area) at a faster rate, which eventually

develops in awareness about products and brands. The greatest challenge for PSO is to provide quality products and

service on a consistent basis, as more and more people are becoming quality conscious. Also as our country is an

agricultural country more use of Agricultural machinery provides an opportunity for PSO to capitalize upon it.

One cultural perspective that hampers PSO most is the mindset of our people toward the local brands. Our people

perceive local goods and services as of second-rate quality at the first instinct before experiencing it. PSO have to

make top quality efforts to compete with multinationals in the market comprising mostly of the people having said

perception.

3 OCAC Annual reports 2001-2002.



3. Political, Governmental and legal forces

Until recently, the oil marketing companies were functioning under a strict regulated environment so much so that

for establishing new retail outlets, they have had to seek Government approval. These restrictions have been

removed so as to deregulate the market completely. The lubricant industry is very much deregulated and the Oil

marketing companies set the margins themselves. However, the strict licensing requirements required for setting up

an oil marketing company remains effective, for some reasons. However, with their policy of deregulation, the

Government is encouraging new entrants into the oil-marketing sector.

The oil prices in the country are still regulated to some extent and there used to be a fixed margin that both the

dealer and the distributor (the OMC) receive. Now, the average margin of Oil Marketing companies as well as

dealer has been raised. The regulated environment favors PSO, as their management is still able to reap in profits

but the professional management of Shell Pakistan Ltd. prefers a de-regulated environment where they can cut down

on costs to increase profitability.

As major portion of the POL product distribution is through Road Network, and complexities associated with this

mode of transportation poses a potential threat for PSO to accept Unnecessary Demands of Oil Tankers Associations

(APOTOA) and compelling to convert mode of transportation from road network to Pipeline network.

4. Technological forces

As most of the independent power plants are turning towards gas from furnace oil, this is directly affecting PSO

furnace oil sales. As the car manufacturing companies are inclined towards fuel-efficient cars, this is a direct threat

to PSO’s retail fuel sales.



COMPETITIVE ANALYSIS

1. Rivalry Among Competing Firms

PSO is the largest Oil Marketing Company in the country. It caters to almost 65.9 % of the total POL needs in

Pakistan. Its main rivals in Oil Marketing Business are SHELL, CALTEX, PARCO/TOTAL and ARL 4. In the field

of Lubricant, Mobil is also a major competitor to PSO. PSO has enjoyed a major edge over its competitor, simply

because of the fact that it has got the largest infrastructure to receive store and dispatch POL product all over the

country. This fact that PSO enjoys the edge because of infrastructure becomes more evident, when we find that PSO

has got only 39 % share in the field of lubricants as compared to 44 % of SHELL and 20 % of CALTEX. In the

early 1990, CALTEX and SHELL embarked upon their international retail visual image projects by improving their

retail outlets (Petrol Pumps) to increase their market share in retail fuels. But PSO all along neither did not upgrade

their retail network nor improve the product and services. It was in 1999 when PSO first realized the need for

improvement in their image and services and tried to counter by building their own retail outlets. Despite being of

the fact that company has gone on to build 539 new vision outlets5, it has not been able to change the brand

perception and public image significantly.

2. Potential Entry Of New Competitors

Total market requirement of POL product in Pakistan is approximately 9000 M. Tones 1. Because of the favorable

government policies for new entrants in Oil Marketing business, several companies have showed their intentions to

enter into the field. Just recently in the last two years, TOTAL/PARCO and ARL have emerged as new entrants.

But, to pose a real threat to PSO’s share, a company requires strong infrastructure all over the country.

3. Potential Development of Substitute Products

Natural gas has been developed in recent years as a substitute for furnace oil in power generation and it has affected

the furnace oil sales of company. Similarly, CNG has also been developed as a substitute for petrol but the company

itself is also marketing CNG.

4. Bargaining Power Of Suppliers

4 OCAC Annual Report 2001-2002.

5 Internal Sources, Retail Deptt.



The two main sources of POL products for PSO are local refineries and imports. The bargaining power of local

refineries is quite high but often the government acts as a mediator between the local refineries and PSO. As the

local refineries supply POL products to all oil marketing companies, PSO has to keep an eye on its suppliers so that

its inventories and dispatches do not get affected.

5. Bargaining Power of Consumers

The Oil Company Advisory Committee (OCAC) sets prices of POL product and retail consumers have no

bargaining power over prices, which are same through out the country. However, this factor puts a challenge for the

company in industrial consumer market where industrial consumers does enjoy bargaining power due to the rebates,

concessions, credit limits and discounts offered by other Oil marketing companies. PSO also conveted the

bargaining power of importers by raising tenders and entering into short term & spot contracts on fixed price

formula basis.

INTERNAL AUDIT

1. PRIMARY ACTIVITIES

a) INBOUND LOGISTICS:

Product supply department is responsible to cater the requirement of necessary POL product by making

arrangements through either Refineries or Product Imports. Product supply department’s responsibilities include

planning of product from refineries, imports through tankers as well as International Bidding & contract

management for product imports. The department has to plan product receipt arrangement, in co-ordination with

distribution department (out bound logistics), in such a manner to maximize inventory turn over. Government

obligation to maintain 28 days6 reserves of POL product, however, makes it difficult to enhance inventory turn over

ratio. Maximum Inventory turn over is essential to assimilate the price fluctuation effect in International Market

accordingly. Use of information technology can help the planning process of department, but still manual processes

are in usual practice.

b) OPERATIONS:

1. Operations Department

6 OCAC Report 2001-2002



Core function of Operations Department includes receiving, storing and distribution of POL Product, as per plan

(priority) given by distribution department (outbound logistics). PSO’s strategic strength is its Operation

department, as it manages and maintains 71.1 %7 of country’s storage capacity. Competitive advantage lies in cost

effective and efficient inventory management, but PSO fails to undertake the challenges faced in this regard.

Inventory losses of POL product increases operating expenses of PSO and hence affecting the overall performance.

Use of Modern Technologies i.e. Floating Covers and Floating roof tanks are imperative, but Top Management

seems reluctant to make heavy investment in these important projects. Furthermore, lack of Planning in operation,

adhocism, Job enrichment, lack of systems and procedures hinders the achievement of competitive advantage.

2. Lubricant & Chemical Division (Blending Plant Operations)

PSO has four Blending plants, among which three are in Karachi and one is located in Lahore. Despite rigorous

efforts, PSO’s share in Lubricant market has declined drastically, ultimately, responsible for closure of three of its

blending plants. PSO’s Korangi Blending plant is currently in operation to cater the requirement of lubricants. Core

function of the department includes imports of blending components, mainly Base Oils and additives, packaging,

labeling and warehousing. Lubricant & Chemical Division has recently started on the spot mobile quality testing

units and laboratories to assure right quality and quantity of the product. Since the inception of Lubricant marketing,

PSO remained dependant on franchised lubricant (Castrol Brand) and ignored the product development need, hence,

responsible for continuous decline in market share in Lube & Chemical Business.

c) OUTBOUND LOGISTICS

Logistics department is responsible for outbound logistics of POL Products. Road network, rails transport and

pipelines network are three modes of logistics. Core functions of department include utilization of available logistics

system, transport fleet management and co-ordination with Supply (Inbound logisitcs), Operations and marketing

departments accordingly. Road logistics is carried out through registered cartage contractors, rail transport through

Pakistan railway Wagons and through pipeline network in Karachi and upcountry. PSO plans to reduce POL

Logistic through Road movement from 55 % to 31 % in order to avoid complexity associated with the mechanism.

White Oil Pipeline Project (WOPP) will enable the all Oil marketing companies to convert their road network

logistics to pipeline logistics, being the safest and cost effective mode of transport.

7 OCAC Report 2001-2002



c) MARKETING AND SALES

1. Marketing (Brand Management)

Basic Marketing department is not present in PSO; however, Brand Management department is responsible for

managing marketing contract with advertising firms as well as for marketing and promotional activities. Core

function of department includes increasing brand image, customer loyalty and new customers. Corporate

advertising, Fuels/Lubes advertising and sales promotion, sponsorship and donations are some of the activities

undertaken by Brand management. Retail Planning is done on annual basis. Internet Kiosks, Super Stores (Shop

Stop), Auto Car Wash Plants, Easy Payments centers and customer Services department are some other glimpses of

the retail planning and marketing. It is worth mentioning that Brands are among company’s most valuable assets and

smart companies today realize that capitalizing on their brands is important. PSO does not seem to add value to its

brand premium. Brand Management department has also introduced Loyalty, Fleet & Corporate cards in order to

strengthen brand loyalty and adding value to its brand. This step will help to capture the business and corporate

segment of market.

2. Sales

PSO enjoys market leadership in sales of Light Diesel Oil, Furnace Oil, Kerosene and High speed Diesel with 86 %,

78.9 %, 68 % and 59.3 %8 share, respectively. But, PSO’s Overall Market share has declined from 74.22 % to 65.99

% during 1997-20028. Owing to the entry of new players like TOTAL/PARCO and ARL, market is turning to

perfectly competitive thus creating new set of challenges to sales department.

Core functions of sales department includes co-ordination with depot / Installation for prompt supply of fuels and

lubricants to outlets, implementing sales promotion schemes, identification of potential sites for new development

and remodeling and achievement of sales targets. There are twelve sales divisions, each headed by a Divisional

Manager. Sales department is a subset of marketing department and it seems that these two departments are

indifferent to each other.

3. Services (Customer Service Department)

PSO, being a service oriented organization, has identified the need to address customer related issues and recently

formed a customer service department. Core function of the department are to improve response time to customers,

8 OCAC Annual Report 2001-2002



to act as quality assurance agent for the company, to monitor the performance of the departments directly related to

customers and to bridge the gap between Internal & External Customers. Formation of such department is certainly

going to provide an opportunity to have an edge over its competitors.

4. Aviation Sales Department

PSO has aviation stations at eight major Airports and 2 Ports in Pakistan responsible for providing Jet fuels to fulfill

the requirement of National/International Airlines and Pakistan Airforce. Core functions of Aviation Department

include timely receiving, storing and dispatching the Jet fuels. PSO has enjoyed dedicated Jet Fuel Business so far,

however, deregulatory policies of Government of Pakistan has paved the way for other Oil Marketing companies in

business. In order to retain its position, PSO has constructed Modern “Into plane facility” at New Airport Terminal

Complex, Lahore.

5. Industrial Consumers Department

Core function of Industrial consumer department includes attracting business Tender business, contractual business

and general trade activities. Department has seven divisions geographically segmented to cater the requirement of

Power plants (IPPs, KESC & WAPDA), Defense sector, Pakistan railways and general consumers (Textile, Sugar &

Sugar sectors). PSO has enjoyed significant market share in industrial consumers’ sales, but Deregulation scenario

and presence of alternate fuels pose a potential threat and challenge to Industrial Consumers department. Industrial

consumer department seems helpless to formulate the strategies to address the issues regarding outstanding

payments in the power sector. The department has started advance payment method, in order to avoid further

accumulation in receivables; however, the importance of regular follow-ups for past receivables is neglected.

Increasing general trade market volume is a challenge for the department, as this area has been given least priority

by the department.

SUPPORT ACTIVITIES

a) Human Resource Management



Human Resource department’s core function includes HR Planning, performance management, staffing and

resourcing, compensation and benefits, and industrial relation management. HR management is in view of

decentralization, open communication, empowerment and leadership opportunities, but regrettably to note that

neither there is visible decentralization in organizational structure nor any empowerment criteria set for employees.

HR department seems unsuccessful in retaining best employees, as salary raise and irrelevant training opportunities

are not enough to meet the criteria. HR department proclaims that employees are their valuable assets, but contrarily

on the other hand company offers Voluntarily Separation Schemes (VSS) to employees. PSO has recently raised

salary structure of employees, however, salary raises are only satisfiers, and their absence may lead to

dissatisfaction, as this raise may be long over due as well as to serve the purpose of few. Job enrichment is the

essence of motivation for employees and its absence is also the cause of difficulty in retaining employees.

b) Procurement & Services Department

Procurement and services department’s core function includes purchasing all the items required for smooth

operation of company, Services contracts, and negotiations with the suppliers for minimum possible price and

timely delivery of supplies and services. It is surprising to note that department seems functional on Ad hoc basis, as

General Manager Human Resources heads it. Procurement department is an important support activity, which is

being managed without specialized skilled people, ignoring the cost effectiveness criteria requisite for competitive

advantage.

FIRM INFRASTRUCTURE

1. Industrial Relations Department

Industrial relations department’s core objective includes handling labor unions, compliance with labor laws and

company protection from legislations. Due to illiterate labor force it is difficult to communicate procedures and

problems rising out of their own irregularity and non-compliance with laws. Department is trying to overcome these

problems to improve over all efficiency of labor force.

2. Finance & Accounting

The department is involved in maintaining books of accounts, reporting variances, managing taxation and providing

timely management information. It figures out ways to record and disseminate information in a manner that will



facilitate understanding, interpretation, and decision making in a timely manner. PSO has recently restructured the

department and inducted qualified Chartered Accountants and Finance professional in order to increase efficiency

and effectiveness of Finance and accounting procedures of the department. This step would definitely improve

departmental working.

3. Corporate Structure

The functional structure is horizontally expanded into various activities within a division. This disaggregating of

activities is resulting in cost accumulation and spread-out of overhead cost allocation. There’s no philosophy of job

enrichment, fulfillment of higher order needs and emphasis on core and relevant activities. This is also resulting in

long inefficient coordination time among various departments. There is a great room for more strategic fit in the

company’s structure, as managers at functional level are now directly analogous to tasks facing business level

managers as well as availability of fewer positions for top management in a flatter organization.

4. Corporate Governance

The top management includes experienced people, but general management personnel have not been in the

organization for long. The decision-making and strategy formulation is centralized and is the prime responsibility of

the top management consisting of Board of Director. The middle and lower level management can only look up to

them for passing of order and have no say in it, therefore, no empowerment space for general management.

Management has initiated a procedure for employee feedback and suggestions, but due to bureaucratic style of

management prevailing in the organization, employees are reluctant to share their views. Each department has their

own vision & mission statements specifying their own objectives and goals, which sometimes are not quite in line

with corporate objective.

5. Corporate Culture and Leadership

The culture and environment prevailing in PSO is largely dominated by the thought of top management and based

on old norms. There’s a high degree of complacency, cognitive dissonance and laid-back attitude. Management

approach is job-centered, instead of Employee-centered, which is imperative to increase productivity. Top



management shows directive behavior in order to affect subordinate perceptions of paths and goals, however,

supportive and participative behavior could help to increase motivation, involvement and job satisfaction.

Employees have very casual attitude towards their job and assignment and it seems that either they are over

burdened or they posed to be busy. There is a slow response to the environmental changes and significant resistance

to adopt new values and culture. Aligning human energy with the corporate vision is the biggest challenge foreseen

by the management of PSO.

6. Information technology

IT department is primarily engaged in the computer systems implementation and maintenance, computer operations,

data control and business analysis & procedure development. IT department has started to implement industry

standards system solutions to meet internal & external challenges. This department has made 16 computerized

applications/soft wares in-house as per requirement of concerned department. Future plans include completion of

WAN system set up, business process re-engineering and implementation of Enterprise Resource Planning (ERP,

“SAP”) solution. It is worth mentioning that department requires dedicated leadership, instead of co-headed by

General Manager Finance.

7. Internal Audit Department

Core functions of Audit department are conducting departmental and control systems reviews, station examinations,

corrective actions on audit findings, reviewing contracts and other agreements with outside firms and preparation of

annual audit plans. Previously, audit department had been involved in few of the routine activities i.e. procurement

appraisals and review of construction activities mainly, thus, neglecting the core function and responsibilities of the

department. Though, the department has recently been strengthened by Induction of new personnel, but it will not

serve the purpose of achieving organization goal and objective unless there is good working relationship among

employees.

SWOT ANALYSIS



STRENGTHS

1. Largest storage infrastructure i.e Terminals and

Depots.

2. Operational Flexibility via Pipe Line Network.

3. Technical collaboration with CASTROL in

Lubricants.

4. Largest Cartage Contractors fleet for POL

dispatches through Tank Lorries.

5. Strategic Terminal Locations all over the country.

6. Nation Wide network of sales and distribution

through maximum number of Retail Outlets.

WEAKNESSES

1. No formal strategic Management process.

2. Ineffective Public relations and lobbying.

3. Slow response to market changes.

4. Less experienced staff due to voluntary separation

scheme introduced in 2001.

5. Infrequent training programs for employees.

6. Marketing research and intelligence at its initial

stages.

OPPORTUNITIES

1. Growing POL market.

2. Prospects to export PSO brand lubricants in Gulf

region and Petroleum to Afghanistan.

3. Unexplored 34 % market share of Competitors.

4. Growing Aviation Business.

THREATS

1. Smuggling of Iranian POL products in the country.

2. Shifting of Power Plants from Furnace Oil to

Natural Gas and Coal.

3. General trend of Pak. Rupee depreciation.

4. Supply dearth due to war in gulf.

5. Better services offered by competitors.

MAJOR PROBLEM



The major problem being faced by the company is its bureaucratic style of management. The strategic planning

process is centralized and carried out by the top-level authorities. The decisions are then communicated downward

to lower lever management. Since the strategic management process is not being carried out in the company, we see

a lack of ownership of strategy and hence difficulties in implementing these strategies at lower level. Also the

attitude of top management towards the old employees has created a cultural conflict between the old and new

management. This harsh attitude of considering the old employees as second-rate citizen has resulted in

demotivation among certain factions.

MINOR PROBLEMS

Improper utilization of human resources has led to inefficiencies at functional and operational level. Employees are

also de-motivated due to lack of involvement and empowerment thus lacking cohesiveness in striving for the

common goal. This has also led to a stiff problem in the retention of professional employees. Although the salary

structures have just recently been revised but this has not achieved its desired results.

1. The bad debts of the company against single major industrial customer KESC amounts to Rs. 4,414 Million.1

Top management is facing difficulties in recovering this enormous amount, which is hinging upon the liquidity

of the company.

2. Despite extensive marketing efforts to enhance the image of the company, the results are not up to the mark.

Basically most of these marketing efforts are in response to their competitor’s activities and secondly some of

them are misdirected as well. One prime example in this regard is that of the company’s sponsorship of Cricket

Tournament in Tangier in 200210. The slackness of marketing efforts can be recognized by the fact that

CASTROL considered to be the number one lubricant oil in World market has failed to achieve the same

position in Pakistan, marketed by PSO in the country.

3. Although the overall environment has tilted towards the use of Information Technology at Terminals and

Depots in other Oil marketing companies for better productivity PSO did not come up with an effort until

recently. Though the management has now realized its weaknesses in this area, yet the efforts put up by the

company in this regard do not show its true concern towards the issue. A prime example in this regard is the

dispatch of Furnace Oil from Pakistan Refinery where all three major oil-marketing companies have their

19 Annual Report 2002.10 Case against PSO has been filed in Federal Ombudsman court.



offices. Whereas the other two oil marketing are being able to perform the job through only one person PSO has

deputed three personnel for the execution of the same.

4. Despite extensive efforts by PSO to improve its image in the eyes of its customers it has not been very

successful in achievement of this goal. For years and years people have not considered PSO as a company

providing Petroleum Products of right quality and in right quantity at its retail outlets. Although the company

has gone on to build 533 New Vision Outlets, the image in the eye of consumers has not changed as much as it

would have been desired.

5. The Company has a inbuilt a complex hierarchical structure that is a hurdle in fast decision-making. As the

Government has now de regulated the export of Furnace Oil and High Speed Diesel, the slow and centralized

decision-making often results in loss of opportunities in case of Industrial Consumer.

STRATEGIC ALTERNATIVES

1. Privatization:

Privatization can be regarded as one of two options directed towards overcoming the problems at PSO. The new

management might take more strategic steps and initiatives to improve motivation and inspiration of employees. As

their intentions would be involved with the company, they would consider present human resources as an asset to

them and would take steps to empower them more, which often results in synergy and improved efficiency.

On the other hand, fear of layoff can not be written off, associated with privatization. If the new management does

not take steps towards strategic planning & management. The situation may result in further demotivation and

demoralization for the employees.

2. Retrenchment & reorganization:

Another strategy to counter the present situation is retrenchment of employees and reorganization. If the top

management is not in view of Old employees, and also it does not want to change its attitude towards them then,

there is no point in hanging along with them for too long.

Voluntary separation scheme may be a fruitful idea in this regard. As most of the older employees have openly

expressed their willingness to accept Voluntary Separation Scheme (VSS), in case it is offered. Major removal in

the hierarchical layer i.e. senior manager and senior executives will result in flatter, productive and cost effective

organization. To overcome the loss of experienced employees, fresh persons can be hired to take up the



responsibility. This is the end would result in an organization of one culture and one set of values. Also, the newly

inducted may be able to work with more enthusiasm and zeal, which may turn in even more profitability for the

organization.

5. Strategic Management / Empowerment / Employee Development:

The third strategy would be to adopt strategic management measures at all level of organization, allowing more

empowerment to the employment so that they could develop a sense of ownership with the organization. Also, some

concrete steps must be taken to enhance the sense of belongingness of old employees. No organization can prosper

for a longer period of time and it keeps two different groups in its ranks, having conflict of attitude, vision and

behavior. Even if the management feels some slackness in older management, it should devise plans to develop the

required skills in the employees through frequent and proper training progress. Management should take measures

to take both old and new management people along with it rather than creating sense of isolation in one faction of

employees.

RECOMMENDED STRATEGY

After discussion and taking into consideration the results of IFE, EFE, QSPM and TOWS matrix analysis, we

recommend strategic management / empowerment strategy for PSO. There are also various other reasons for our

recommendation. Detaching people from organization never helps in building the employees morale. People are the

real asset of an organization and they should not be considered as an expense. Also, we have not seen privatization,

resulting in a good shape at many organizations. Third strategic alternative is the best choice for PSO.


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