STRATEGIC MANAGEMENT OF PAKISTAN STATE OIL (PSO)PRESENTED BY KHALID KHANM-10

INTRODUCTION• Pakistan State Oil, the largest oil marketing company in the

country • Currently engaged in the marketing and distribution of various

products, including Motor Gasoline, High Speed Diesel, Furnace Oil, Jet Fuel, Kerosene, LPG, CNG, Petrochemicals and Lubricants.

• Possess the biggest storage facilities representing 80% of the country’s total storage capacity

VISION• To excel in delivering value to customers as an innovative and

dynamic energy company that gets to the future first.

MISSION STATEMENT

We are committed to leadership in the energy market through a competitive advantage in providing the highest quality petroleum products and services to our customers based on: • A professionally trained, high-quality, motivated workforce

that works as a team in an environment which recognizes and rewards performance, innovation and creativity, and provides for personal growth and development.

• The lowest-cost operations and assured access to long-term and cost-effective supply sources.

• Sustained growth in earnings in real terms. • Highly ethical, safe, environment-friendly and socially

responsible business practices.

MISSION STATEMENT ANALYSISMISSION STATEMENT COMPONENT

PSO

CUSTOMERS “… our customers based on ...”. The term is quite vague and it does not identify the target customers of the company.

PRODUCT OR SERVICES “… providing the high quality petroleum products and services to ...”. This component is correctly defined in the mission statement

MARKETS The geographic market is not specified in the mission statement.

TECHNOLOGY This component is not specified in the mission statement of PSO.

CONCERN FOR SURVIVAL, GROWTH AND PROFITABILITY

“Sustained growth in earnings in real terms”. This component is specified in mission statement

CONTINUED…MISSION STATEMENT COMPONENT

PSO

PHILOSOPHY This component is not specified in mission statement.

SELF-CONCEPT “We are committed to leadership in the energy market through a competitive advantage in providing…” this component is defined in mission statement.

CONCERN FOR EMPLOYESS “A professionally trained, highly qualified…. For personal growth and development”. This component is specified in the mission statement.

CONCERN FOR PUBLIC IMAGE “Highly ethical, safe, environment-friendly and socially responsible business practices.” This component is specified in the mission statement.

PSO HISTORY• Created in 1974 as Premiere Oil Company Limited (POCL).• January 1st govt. took over and merged Pakistan Nation oil

(PNO) and Dawood Petroleum Limited (DPL)• On 3rd June 1974 Petroleum Storage Development Corporation

(PSDC) came into existence• On August 23rd 1976 PSDC was renamed as State Oil company

Limited (SOCL) On 30th December 1976 the Premier Oil Company Limited and State Oil Company Limited merged, giving way to Pakistan State Oil (PSO).

MANGAING DIRECTOR

EXECUTIVE DIRECTOR MARKETING

GM RETAIL FUEL

GM PROCUREMENT

GM INDUSTRIAL CUSTOMER

GM AVIATION, MARINE & EXPORT

GM LUBRICANTS

GM CNG & LPG

DGM NON-FUEL RETAIL

DGM CARDS

EXECUTIVE DIRECTOR SUPPLY

GM OPERATIONS

GM LOGISTICS

GM SUPPLY

GM CONSTRUCTION AND RETAIL FACILITIES

EXECUTIVE DIRECTOR (FINANCE AND IT)

GM INFORMATION SYSTEM

GM FINANCE

DGM HEALTH SAFETY & ENVIRONMENT GM HUMAN RESOURCE GM LEGAL GM SECURITY SERVICES AND

ADMINISTRATION

ORGANIZATION CHART OF PSO

PRODUCTS• Pakistan State Oil deals in both White Oil and Black Oil

markets. White Oil consists of High Speed Diesel (HSD), Gasoline (which includes the Retail Fuel and Gaseous Fuels), JP-1 (Jet Fuel) and Superior Kerosene Oil (SKO). Black Oil consists of Furnace Oil and Light Diesel Oil (LDO).

• Besides selling Gasoline, Furnace Oil, Jet Fuel and HSD, Pakistan State Oil also caters to the vast customer base of lubricants in the country. PSO sells two types of lubricants; Automotive Oils and Industrial Oils, catering both types of customers in this area as well.

• Pakistan State Oil also exports JP-8 Jet Fuel to Afghanistan. It is being used by the DESC and NATO forces.

SWOT ANALYSIS (STRENGTHS)1. Highly managed company with set strategic objectives 2. Highly trained and motivated workforce 3. Storage capacity of 80% of the total country storage 4. Largest retail outlets network in the country 5. Market leader in all types of fuel product 6. Increasing sales revenue over the past 3 years 7. Sole provider of Furnace Oil to Power Companies 8. ISO certified Information Management System 9. Strong Research and Development 10. Largest market share in aviation business

SWOT ANALYSIS (WEAKNESS)

1. Low profit margins 2. Government interventions due to semi-government

structure 3. Declining market share to small competitors 4. Not a market leader in Lubricants sector 5. High financial charges incurred due to riskiness

SWOT ANALYSIS (OPPORTUNITIES)1. Operating in largest CNG consuming country in the world 2. Increase in the energy demands in the country 3. Deregulation of Oil Industry 4. Chevron is liquidating its aviation business 5. Search for alternate energy sources

SWOT ANALYSIS (THREATS)

1. Constantly growing circular debt 2. Unreliable sources of supply (Refineries) 3. Devaluation of Pakistani Rupee 4. Decline in consumption of White Oil Products 5. Fluctuation of oil prices in international markets 6. New alternatives to the industrial energy needs such as solar

energy 7. Deregulation of mechanism of setting fuel prices in Pakistan 8. Scarcity of CNG in Pakistan 9. Forward integration of oil refining companies (suppliers)

DISTINCTIVE COMPETENCE

1. Largest storage capacity almost 80% of the country total storage

2. Largest retail outlets network in the country 3. Market leader in all types of fuel product 4. Sole provider of Furnace Oil to Power Companies

INTERNAL FACTOR EVALUATION MATRIX OF PSOKEY INTERNAL FACOR WEIGHT RATING WEIGHTED

SCORESTRENGHTS

Highly managed company with set strategic objectives

0.05 4 0.20

Highly trained and motivated workforce 0.05 4 0.20

Storage capacity of 80% of the total country storage

0.10 4 0.40

Largest retail outlets network in the country 0.06 4 0.24

Market leader in all types of fuel products 0.10 4 0.40

Increasing sales revenue over the past 3 years (since 2007)

0.06 3 0.18

Sole provider of furnace oil to power companies

0.05 3 0.15

ISO certified IMS 0.05 3 0.15

CONTINUED…KEY INTERNAL FACOR WEIGHT RATING WEIGHTED

SCORESTRENGHTS

Strong R&D 0.10 4 0.40

Largest market share in aviation business 0.05 4 0.20

WEAKNESSES

Low profit margin 0.10 1 0.10

Government interventions due to semi-government structure

0.05 2 0.10

Declining market share to small competitors 0.10 2 0.20

Not a market leader in lubricants sector 0.03 2 0.06

High financial charges incurred due to risk 0.05 1 0.05

TOTAL 1.00 3.03

EXTERNAL FACTOR EVALUATION MATRIX OF PSOKEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED

SCOREOPPORTUNITIES

Operating in largest CNG consuming country 0.10 4 0.40

Increase in the energy demands in country 0.10 3 0.30

Deregulation of Oil Industry 0.08 2 0.16

Chevron is liquidating its aviation business 0.02 2 0.04

Search for alternate energy sources 0.05 3 0.15

THREATS

Constantly growing circular debt 0.15 2 0.30

Unreliable sources of supply (refineries) 0.05 2 0.10

Devaluation of Pakistani Rupee 0.05 3 0.15

CONTINUED…KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED

SCORETHREATS

Decline in consumption of white oil products 0.10 3 0.30

Fluctuation of oil prices in international markets

0.05 2 0.10

New alternatives to the industrial energy requirements such as solar energy

0.05 3 0.15

Deregulation of the mechanism of setting fuel in prices in Pakistan

0.05 2 0.10

Forward integration of oil refining companies (suppliers)

0.10 2 0.20

TOTAL 1.00 2.60

Firms strategic standing about environment• The Internal Factor Evaluation Matrix score for Pakistan State

Oil is 3.03. It represents that PSO’s response to the internal key factors is above average

• The External Factor Evaluation Matrix score for Pakistan State Oil is 2.60. It represents that PSO’s response to the external environment is above average

• The score comparison of EFE and IFE matrix shows that PSO strategy makers are more bent towards internal factors while external factors are also of great importance and may be more important than external as by I/O assumptions

SWOT ANALYSIS MATRIX (SO-STRATEGIES)

• Increase CNG retail outlets in major cities and towns of the country (S4,S5,O1,O2)

• Acquire majority share in one of the existing Oil Refining Companies such as Pakistan Refinery Limited (S1,S3,S5,O2,O3)

• Build a new Oil Refinery (S1,S3,S5,O2,O3) • Invest in Chevron Pakistan’s liquidating business

(S1,S5,S10,O4) • Research and improve alternate energy products such as Bio-

Diesel and E10 (S1,S5,S9,O2,O5) • Diversify in alternate sources of energy such as Solar and Wind

Energy (S1,S9,O5)

SWOT ANALYSIS MATRIX (ST-STRATEGIES)

• Acquire majority share in one of the existing Oil Refining Companies such as Pakistan Refinery Limited (S1,S3,S5,T1,T2,T3,T4,T7,T9)

• Build a new Oil Refinery (S1,S3,S5,T1,T2,T3,T4,T7,T9) • Research and develop new products as White Oil substitute

(S5,S9,T4,T8) • Diversify in alternate sources of energy such as Solar and Wind

Energy (S1,S9,T6)

SWOT ANALYSIS MATRIX (WO-STRATEGIES)

• Acquire majority share in one of the existing Oil Refining Companies such as Pakistan Refinery Limited (W1,W2,W3,W5,O2,O3)

• Build a new Oil Refinery (W1,W2,W3,W5,O2,O3) • Research and improve alternate energy products such as Bio-

Diesel and E10 (W3,O2,O5)

SWOT ANALYSIS MATRIX (WT-STRATEGIES)

• Work out a formula and convince government to facilitate PSO’s debtors to payoff their liabilities to PSO (W2,W5,T1)

• Diversify in alternate sources of energy such as Solar and Wind Energy (W3,T6,T8)

AVAILABLE STRATEGIES• Acquire majority share in one of the existing Oil Refining Companies

such as Pakistan Refinery Limited (Backward Integration)• Build a new Oil Refinery (Backward Integration)• Invest in Chevron Pakistan’s liquidating business (Horizontal

Integration)• Research and improve alternate energy products such as Bio-Diesel

(Product and Market Development)• Diversify in alternate sources of energy such as Solar and Wind

Energy (Concentric Diversification)• Research and develop new products as White Oil substitute

(Product Development)• Work out a formula and convince government to facilitate PSO’s

debtors to pay off their liabilities to PSO (Generic Strategy: No Specific Strategy)

SPACE MATRIXSPACE MATRIX COMPONENT CALCULATION

FINANCIAL STRENGTH RATING

Return on AssetLeverage/Debt ManagementNet IncomeEarnings Per ShareInventory Turnover

3.0 2.0 3.0 4.0 2.014.0

INSDUSTRY STRENGTH

Growth PotentialFinancial StabilityEase of Entry in the IndustryResource UtilizationProfitability

3.0 3.0 3.0 5.0 2.016.0

CONTINUED…ENVIRONMENTAL STABILITY RATING

Rate of InflationTechnological ChangesCompetitive PressureBarriers of Entry

-4.0 -3.0 -4.0 -2.0-13.0

COMPETITIVE ADVANTAGE

Market ShareQualityCustomer LoyaltyTechnological KnowledgeControl over suppliers and distributors

-1.0 -2.0 -4.0 -2.0 -4.0-13.0

CONTINUED…CONCLUSION

Industry Strength Average is: 16.0/5 = 3.10

Competitive Advantage Average is: -13.0/5 = -2.60

Financial Strength Average is: 14.0/5 = 2.80

Environmental Stability Average is: -13.0/4 = -3.25

Directional Vector Coordinates: x-axis = IS + CA = 3.10 – 2.60 = 0.50 y-axis = FS + ES = 2.80 – 3.25 = -0.45

6543210

-1-2-3-4-5-6

-6 -5 -4 -3 -2 -1 1 2 3 4 5 6

The graph falls in 4th Quadrant of the space matrix which suggests that PSO needs to adopt Competitive Strategy

FS

ES

ISCA

GRAND STRATEGY MATRIXPakistan State Oil operates in a rapid growth industry, since the annual sales revenue grow by more than 5%. The company has a very strong competitive position as it is the market leader in almost all the areas of operation in the industry.

Pakistan State Oil is located in the 1st Quadrant of the Grand Strategy Matrix. PSO is in the excellent position according to the GSM. Continued concentration of the markets as well as products (intensive strategies) is an appropriate strategy for Pakistan State Oil. Pakistan State Oil can also adopt integrative and related diversification strategies.

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK COMPETITIVE POSITION

STRONG COMPETITIVE POSITION

PSO

BCG MATRIX

Pakistan State Oil is the overall industry leader among all Oil Marketing Companies. Its growth has also been good over the past 4 years. industry leader among all Oil Marketing Companies. Its growth has also been good over the past 4 years.

According to the BCG Matrix, Pakistan State Oil is a Star company which higher growth and highest market share. Considering the fact that it is a market leader, any slowness in growth may only push it down to become a ‘Cash Cow

MARKET G

ROW

TH RAG

E

RELATIVE MARKET SHARE

LOWHIGH

HIGH

LOW

STARSQUESTION MARKS

CASH COWS DOGS

PSO

INTERNAL-EXTERNAL (IE) MATRIX

Pakistan State Oil is located in 4th Quadrant of IE Matrix. The company should adapt grow and build strategies which include integrative and intensive strategies.

EFE MATRIX TO

TAL WEIG

HTED

SCORE

IFE MATRIX TOTAL WEIGHTED SCORE

WEAK1.0-1.99

AVERAGE2.0-2.99

STRONG3-4

HIGH3-4

MEDIUM2.0-2.99

LOW1.0-1.99

PSO

DECISION MATRIXSTRATEGIES SPACE

MatrixGrand

Strategy Matrix

BCG Matrix

IE Matrix TOTAL

Forward integration Y Y Y Y 4

Backward integration Y Y Y Y 4

Horizontal integration Y Y Y Y 4

Market penetration Y Y Y Y 4

Market development Y Y Y Y 4

Product development Y Y Y Y 4

Concentric diversification N Y N N 1

Conglomerate diversification N N N N 0

Horizontal diversification N N N N 0

Joint venture N N N N 0

Retrenchment N N N N 0

Divestiture N N N N 0

Liquidation N N N N 0

CONTINUED…• According to the decision matrix, Pakistan State Oil must

adopt integration and intensive strategies. Concentric diversification strategy is not recommended by the decision matrix at the moment.

STRATEGIES• Strategy A • This strategic option will consist of the backward integration

strategies along with the strategy to overcome the debt problem of the company. The following strategies will be a part of this strategic option.

• Acquire majority share in one of the existing Oil Refining Companies such as Pakistan Refinery Limited

• Build a new Oil Refinery for the long term competitive advantage

• Work out a formula and convince government to facilitate PSO’s debtors to pay off their liabilities to PSO

CONTINUED…• Strategy B • This strategic option will consist of the market penetration

strategies along with the strategy to overcome the debt problem of the company. The following strategies will be a part of this strategic option.

• Increase CNG retail outlets in major cities and towns of the country

• Increase marketing of lubricant products to capture more market share in lubricants sector

CONTINUED…• Strategy C • This strategic option will consist of the product and market

development strategies along with the strategy to overcome the debt problem of the company. The following strategies will be a part of this strategic option.

• Research and improve alternate energy products such as Bio-Diesel and E10

• Research and develop new products as White Oil substitute • Work out a formula and convince government to facilitate

PSO’s debtors to pay off their liabilities to PSO

QUALITATIVE STRATEGIC PLANNING MATRIXKEY FACTORS (EXTERNAL)

STRATEGY A STRATEGY B STRATEGY C

OPPORTUNITIES W AS TAS AS TAS AS TAS

Operating in largest CNG consuming country in the world

0.10 2

0.20 4 0.40 1 0.10

Increase in the energy demands in the country

0.10 4 0.04 2 0.02 3 0.03

Deregulation of oil industry

0.08 4 0.32 1 0.08 3 0.24

Chevron is Liquidating its aviation business

0.02 - - - - - -

Search for alternate energy sources

0.05 1 0.05 2 0.10 4 0.20

CONTINUED…KEY FACTORS (EXTERNAL) STRATEGY A STRATEGY B STRATEGY C

THREATS W AS TAS AS TAS AS TAS

Constantly growing circular debt

0.15 3 0.45 1 0.15 2 0.30

Unreliable sources of supply 0.05 4 0.20 1 0.05 3 0.15

Devaluation of Pak Rupee 0.05 3 0.15 1 0.05 2 0.10

Decline in consumption of white oil products

0.10 2 0.20 3 0.30 4 0.40

Fluctuation of oil prices in International Market

0.05 2 0.10 1 0.05 3 0.15

New alternatives to the industrial energy requirements

0.05 - - - - - -

Deregulation of the mechanism of setting fuel prices (Pakistan)

0.05 4 0.20 1 0.05 3 0.15

Scarcity of CNG in the country 0.05 2 0.10 1 0.05 4 0.20

Forward integration of oil refining companies

0.10 4 0.40 1 0.10 3 0.30

CONTINUED…KEY FACTORS (INTERNAL) STRATEGY A STRATEGY B STRATEGY C

STRENGTHS W AS TAS AS TAS AS TAS

Highly managed company with set strategic objective

0.05 4 0.20 1 0.05 2 0.10

Highly trained and motivated work force

0.05 - - - - - -

Storage capacity 80% of the total country storage

0.10 4 0.40 1 0.10 3 0.30

Largest retail outlets network in country

0.06 2 0.12 4 0.24 3 0.18

Market leader in all types of fuel products

0.10 3 0.30 2 0.20 4 0.40

Increasing Sales Revenue over the past 3 years

0.60 2 0.12 4 0.24 3 0.18

Sole provider of furnace oil to power companies

0.05 4 0.20 1 0.05 2 0.10

ISO Certified MIS 0.05 - - - - - -

Strong R/D 0.10 2 0.20 1 0.05 2 0.10

Largest market Share in aviation business

0.05 - - - - - -

CONTINUED…KEY FACTORS (INTERNAL) STRATEGY A STRATEGY B STRATEGY C

WEAKNESS W AS TAS AS TAS AS TAS

Low profit margin 0.10 2 0.20 1 0.10 4 0.40

Government interventions due to semi-governmental structure

0.05 4 0.20 2 0.10 3 0.15

Declining market share to small competitors

0.10 4 0.40 2 0.20 3 0.30

Not a market leader in lubricants sector

0.03 - - - - - -

High financial charges incurred due to riskiness

0.05 4 0.20 2 0.10 3 0.15

TOTAL 2.00 5.31 3.06 5.25

STRATEGY SELECTION• The strategic option A turns out to be more favorable for Pakistan State Oil as it has the

highest QSPM score of 5.31, however, I recommend strategic option C to Pakistan State Oil which stands second in QSPM with the score of 5.25.

• Strategic option C consists of Market Development and Product Development strategies of alternate fuel products of Pakistan State Oil. The company has already been working on the two new products namely, E10 which is blended fuel targeting the efficient performance of the retail customers’ vehicles and Bio-Diesel which is produced using the natural seed oil. It will also enable PSO to price these products accordingly after the deregulation of oil industry since they will be producing these products.

• Strategic option C provides the company a unique competitive advantage of introducing efficient and environmental-friendly fuel in the market.

• Strategic option A gives a competitive advantage to the company and more control on setting the fuel prices, but it cannot be adopted because of the following reasons:

1. high debt ratios and very low net income margins

2. more capital intensive

3. PSO will already be working with the Government of Pakistan to convince them to facilitate its debtors to pay off their liabilities to PSO; therefore they cannot expect the Government to rise funding for any new acquisition or construction of the Oil Refining Company

4. The financial costs incurred by the company are also very high and more borrowing will be more costly and only add to the risk of the company.

• The company may, however, adopt this strategy after resolving the debt issues and bringing down its financial costs; by that time the company must focus on acquire more market share in the alternate fuel business.