PSO

Pakistan State Oil
Strategic Management 1

BAHRIA INSTITUTE OF MANAGEMENT & COMPUTER
SCIENCES, KARACHI

STRATEGIC MANAGEMENT REPORT

ON

PAKITAN STATE OIL

SUBMITTED TO:

SUBMITTED BY:

Pakistan State Oil
TABLE OF CONTENTS

VISION ................................................................................................................................ 6
MISSION ............................................................................................................................. 6
INDUSTRY STRUCTURE .................................................................................................. 7
INDUSTRY SWOT ............................................................................................................ 11
MACRO-ENVIRONMENTAL ANALYSIS & INDUSTRIAL ATTRACTIVENESS ........ 13
PORTER FIVE FORCES ................................................................................................ 14
1. THREAT OF NEW ENTRANTS ............................................................................ 14
2. BARGAINING POWER OF BUYERS ................................................................... 15
3. THREAT OF SUBSTITUTES ................................................................................ 16
4. BARGAINING POWER OF SUPPLIER ................................................................ 17
5. RIVALRY AMONG EXISTING COMPETITORS ................................................. 18
PEST ANALYSIS .......................................................................................................... 20
I. GOVERNMENT & POLITICAL ISSUE ......................................................... 20
II. LEGAL ........................................................................................................... 21
III. ECONOMICAL .............................................................................................. 21
IV. SOCIAL .......................................................................................................... 21
V. TECHNOLOGICAL........................................................................................ 22
KEY DRIVING FORCES AFFECTING THE INDUSTRY ............................................ 23
STRATEGIC ISSUES IN MACRO-ENVIRONMENT .................................................. 24
POLITICAL FORCES ................................................................................................ 24
THREAT OF ENTRY ............................................................................................. 24
BARGAINING POWER OF BUYER ..................................................................... 24
ECONOMIC FORCES................................................................................................ 24
THREAT OF ENTRY ............................................................................................. 24
THREAT OF SUBSTITUTE ................................................................................... 25
SOCIAL FORCES ...................................................................................................... 25
THREAT OF ENTRY ............................................................................................. 25
THREAT OF SUBSTITUTES ................................................................................ 26
TECHNOLOGICAL FORCES.................................................................................... 26
THREAT OF ENTRY ............................................................................................. 26
BARGAINING POWER OF SUPPLIER ................................................................ 27
RIVALRY AMONGST COMPETITORS ............................................................... 27
EFE MATRIX & STRATEGIC EVALUATION ............................................................ 28
MICRO-ENVIRONMENTAL ANALYSIS ........................................................................ 30
AND ................................................................................................................................... 30
INTERNAL COMPANY RESOURCES ............................................................................. 30
INTERNAL RESOURCES ............................................................................................. 31
TECHNOLOGY ......................................................................................................... 31
STRATEGIC COST MANAGEMENT PROCESS ......................................................... 34
KEY FINANCIAL TRENDS .......................................................................................... 35
IFE & STRATEGIC EVALUATION .............................................................................. 36
Pakistan State Oil
COMPANY AND COMPETITOR ANALYSISCOMPARATIJE STRENGTH ASSESMENT
........................................................................................................................................... 38
COMPARATIJE STRENGTH ASSESMENT........................................................................ 39
CPM 39
TOWS ............................................................................................................................ 41
BCG MATRIX ............................................................................................................... 46
ENERGY PRODUCTS ........................................................................................... 47
NON-ENERGY PRODUCTS ..................................................................................... 47
STRATEGIES FROM BCG MATRIX .................................................................... 47
STRATEGIC ANALYSIS AND RECOMMENDATION ................................................... 48
GENERIC STRATEGY .................................................................................................. 49
ANALYSIS................................................................................................................. 49
PROS: 50
CONS: 50
INPUT / MATCHING / DECISION MODEL ................................................................. 51
STRATEGIC EVALUATION .................................................................................... 52
STRATEGIC IMPLEMENTATION ................................................................................... 54
ROLE OF CORPORATE CULTURE AND LEADERSHIP FOR EFFECTIVE
STRATEGY EXECUTION ............................................................................................ 55
INTERNAL RESOURCES ............................................................................................. 57
PSO SUPPLY CHAIN ................................................................................................ 57
SUPPLIERS: ........................................................................................................... 57
DISTRIBUTION:........................................................................................................ 58
1.The Retailers: ....................................................................................................... 58
2. Industrial Consumers: .......................................................................................... 59
3. The Government: ................................................................................................. 59
4. Power Projects: .................................................................................................... 59
6. LPG Retailers: ..................................................................................................... 59
7. Lubricants retailers: ............................................................................................. 59
CUSTOMERS: ........................................................................................................... 60
BALANCED BUSINESS SCORECARD ....................................................................... 61
1. THE LEARNING AND GROWTH PERSPECTIVE............................................... 61
2. THE BUSINESS PROCESS PERSPECTIVE ......................................................... 62
3. THE CUSTOMER PERSPECTIVE ........................................................................ 63
4. THE FINANCIAL PERSPECTIVE......................................................................... 63
RECOMMENDATIONS .................................................................................................... 66
Pakistan State Oil

INTRODUCTION TO PAKISTAN STATE OIL (PSO) COMPANY LIMITED

Pakistan State Oil (PSO) is the oil market leader in Pakistan enjoying over 79 share oI
Black Oil market and 58 share oI White Oil market. It is engaged in import, storage,
distribution and marketing oI various POL products, including Mogas, HSD, Fuel Oil, Jet
Fuel, Kerosene, LPG, CNG and petro-chemicals. This blue chip company, the winner oI
"Karachi Stock Exchange Top Companies Award" and a member oI World Economic
Forum, has been a popular topic oI case studies in Pakistan and abroad based on its radical
corporate turnaround over the last Iew years.

Excellence in Customer Service
PSO serves a wide range oI customers throughout Pakistan, including retail, industrial,
aviation, marine and government/deIence sectors. ProIessionals at PSO strive Ior providing
unmatched and diverse services to the customers in line with best international practices. The
concept oI Quick Oil Lube Vans introduced by PSO, provides the lube change Iacilities at
customers' doorsteps. About 21 Mobile Quality Testing Units ensure top oI the line quality oI
products and services. As innovative customer service initiatives, PSO has launched Loyalty
Card, Corporate Card, Fleet Card and Prepaid Card. These cards provide added convenience,
Ilexibility and security to the customers while enabling them to earn redeemable loyalty
points and avail attractive discounts Ior purchase oI non-petroleum products at a large
number oI merchant outlets in various cities on use oI Loyalty and Corporate Cards.

Total Quality Control
PSO has been meeting the country's Iuel needs by merging sound business sense with
national obligation. In order to satisIy the customers' needs while ensuring the highest quality
oI products and services, PSO has introduced total quality management system in its
operational activities.

Pakistan State Oil
Health, Safety and Environment
Ensuring the health and saIety oI PSO employees, contractors, customers and members oI
public likely to be aIIected by the Company's operations is one oI the basic corporate
objectives, and as a priority it ranks equally with market share and proIit. Accordingly, it is
the Company's policy to perIorm work in the saIest practicable manner, consistent with best
industrial practices while adhering completely to the requirements oI health and saIety codes
and practices.

Corporate Social Responsibility
PSO is highly committed to IulIillment oI its corporate social responsibility and believes that
the beneIits oI the Company's progress and Iinancial gains must Ilow down to public at large
up to the grassroots levels, particularly to the under-privileged and deprived sections oI the
populace irrespective oI ethnicity, caste and creed. PSO has undertaken a wide range oI
initiatives to support several social, health and educational programs. Such initiatives include
instituting gold medals, cash awards and scholarships Ior top students oI leading proIessional
educational institutes.
Pakistan State Oil

VISION

To excel in delivering value to customers as an innovative and dynamic energy company that
gets to the Iuture Iirst.

MISSION

We are committed to leadership in energy market through competitive advantage in
providing the highest quality petroleum products and services to our customers, based on:
O ProIessionally trained, high quality, motivated workIorce, working as a team in an
environment which recognizes and rewards perIormance, innovation and creativity,
and provides Ior personal growth and development.
O Lowest cost operations and assured access to long term and cost eIIective supplier
sources.
O Sustain growth in earnings in real terms.
O Highly ethical, saIe, environment Iriendly and socially responsible business practices.
Pakistan State Oil

INDUSTRY STRUCTURE

Pakistan`s oil marketing sector is largely based on standalone marketing Iunction, with small
supply-side integration. The reIinery coverage among oil marketing companies is low and
only ~14 oI total marketed products comes Irom reIineries owned/controlled by marketers.
This independent business structure makes Pakistan`s oil marketing companies unique in the
regional context where the norm is integrated models (reIining plus marketing) providing
high reIinery coverage. In our view, government ownership and the ensuing separate policy
Iormulation explain the current Iragmented structure in the downstream industry.

Despite the presence oI 10 active companies, the industry structure is basically oligopolistic
with the two major companies, PSO and Shell Pakistan, commanding a combined market
share oI over 80 oI Petroleum products. PSO is the industry leader with total market share
oI over 65. APL posted a strong perIormance in 2006, improving its market share Irom 3
to 8 aIter the Attock Group acquired National ReIinery Limited, the second-largest reIinery
in Pakistan.

INDUSTRY ATTRACTIVENESS
O We do not see OMCs taking the price route to secure market share in the transportation Iuel
segment. Our rationale is as Iollows:

O Prices are rarely an attraction among quality-conscious retail Iuel consumers. The high
market share oI Shell Pakistan and Caltex in retail products, despite their relatively low
number oI retail outlets, Iully reinIorces this view.

O In the current standalone marketing model, retail products are the major earnings and
revenue drivers. While a new company would want to build its Iinancial muscles over the
medium term by relying on these products, existing companies in the sector are unlikely to
Ieel the need to lower margins to push through the products.
Pakistan State Oil

O Over the past Iew years, oil marketing companies have Iocused on branding transportation
Iuels by diIIerentiating products based on chemicals additive. This increasing trend oI
diIIerentiation leaves little room Ior a price war on these products. We expect OMCs to place
more Iocus on value-added products and service. Key value-added products to be introduced
are (1) ethanol blending (PSO has already embarked on a pilot project on 10 ethanol
blending), and (2) blending oI MOGAS and HSD with engine-cleansing chemical and/or
green Iuels.

O As Iurnace oil (FO) becomes increasingly treated like a commodity product, price cutting
to gain market share will become more prevalent.
Pakistan State Oil
MARKET SHARE

ENERGY PRODUCT
64%
21%
7%
2%
4% 1%1%
PSOCL
SPL
COPL
APL
TPPL
PARCO
ASMORE

Non-Energy Product
22%
21%
11%
45%
1% 0% 0%
PSOCL
SPL
COPL
APL
TPPL
PARCO
ASMORE

Pakistan State Oil
Due to international price hikes, consequently aIIecting domestic prices, a structural shiIt has
taken place in the energy consumption pattern oI Pakistan. While consumption oI petroleum
products is declining, the consumption oI other components oI energy is rising.

Consumption oI petroleum Iuel products in Pakistan showed a modest growth oI 0.4 during
FY`06. Consumption oI White Oil products decreased by 4.4 mainly owing to 4.6
decline in the major contributor HSD, coupled with a considerable decline oI around 10.5
in Mogas due to availability oI alternate cheaper Iuel.

During the year, CNG consumption recorded an increase oI around 47 over the same
period last year owing to substitution eIIect and ever-increasing growth in the vehicle
population.

New entrants in Iiercely competitive petroleum sector signiIicantly aIIected the market
composition and posed challenge to established OMCs. A Iew existing players lost their
market share to the new entrants while PSO maintained its leadership in key products.

OMCs suIIered a setback when the government changed the oil pricing Iormula eIIective
March 16, 2006, resulting in reduction oI OMCs margins by around 20. In addition, OMCs
Iaced a Iinancial burden as a result oI government`s subsidy to the consumers, through
OMCs, to protect them against oil price increase.

As a whole, downstream oil market in Pakistan had been quite competitive during FY`06
with a thrust on product diIIerentiation as the key to Iuture business growth oI OMCs, mainly
in Mogas and HSD. PSO took a lead in innovative strategies, including introduction oI
plastic-card technology, diIIerentiated Iuels, investment in technology-driven solutions, etc.
Pakistan State Oil
INDUSTRY SWOT

Strengths
Rising energy demand: Pakistan`s energy growth estimated at 7-8 pa.
O Healthy volume growth: Above-average economic growth rate and Iocus on
transportation inIrastructure plus higher consumption oI transportation oil will lead to
higher sales volume.
O Favorable marketing margin calculation: Current marketing margin calculation
mechanism (as oI end-product prices mechanism) beneIits the downstream
industry in view oI expected recovery in government taxes and PRs depreciation
against US$.
O Stable government policy: The key positive is the government's resolve not to
burden the sector with any subsidy provided to end consumers.
O Oligopolistic structure in the oil marketing industry: Two players dominate with
80 market share.

Weaknesses
O Lack of integration: Sector-wide integration is low as the largest marketing
company operates as a standalone player.
O Deregulation of product prices: The government has yet to deregulate the prices on
HSD and MOGAS.
O Reliance on imported products: The indigenous production oI petroleum products
is not suIIicient to meet domestic demand, thereby leading to heavy reliance on
imports.
O Subsidies not reflecting international prices: Since the government provides
subsidy to end consumers, the retail prices oI petroleum products do not necessarily
reIlect prices in international market.

Pakistan State Oil
Opportunities
O Benefiting from regional industry supply crunch: Firm product prices would
translate into healthy marketing margins Ior the industry.
O Possible delays in gas pipeline project: Furnace oil consumption would pick up as
the power industry shiIts to Iurnace oil Irom gas due to shortage oI gas supply.
O Strong electricity demand and higher-than-expected dependence on thermal
electricity may provide opportunity Ior higher Iuel oil growth.
O Investment opportunities in storage and pipeline: Volume growth would
necessitate investment in storage and pipeline.
O Focus on alternative fuel: Government Iocus on changing the energy mix may
create opportunities Ior the marketing players.
Threats
O Rise in exchange rate: Appreciation oI the PRs against US$ could lower earnings.
O Steep decline in oil prices: A higher-than-expected decline would negatively aIIect
earnings/valuations.
O Adverse revision of existing petroleum policy: No historical precedents. Any
change policy could adversely aIIect realized margins prices.
O Water availability: Higher water availability leading to higher hydroelectricity
generation and lower demand Ior Iuel oil.
O Slowdown in economic activity: This can potentially lead to lower volume growth
and aIIect our earnings and valuations estimates Ior PSO and APL.

Pakistan State Oil

MACRO-ENVIRONMENTAL ANALYSIS &
INDUSTRIAL ATTRACTIVENESS
Pakistan State Oil
PORTER FIVE FORCES

1. THREAT OF NEW ENTRANTS

Yes M No
1) Do large Iirms have a cost or perIormance advantage is your
segment oI the industry.

2) Are there any established brand identities in your industry?
3) Do your customers incur any signiIicant costs in switching
suppliers?

4) Is a lot oI capital needed to enter your industry?
5) Is serviceable used equipment expensive?
6) Does experience helps you to continuously lower costs?
7) Does the new comer have any problems in obtaining the
necessary skilled people, materials or supplies?

8) Are there any licenses, insurance, or qualiIications that are
diIIicult to obtain?

9) Can the newcomer expect strong retaliation on entering the
market?

INTERPRETATION OF ANALYSIS

Threat oI entry is low or barriers to entry are very high. While potential new entrants may
Iocus on a particular segment, the current entrenched positions oI existing companies suggest
that broad-based entry into the sector would be diIIicult, to say the least. The possible niche
segmentations are in imports oI Iuel oil business and marketing oI lubes product.

Pakistan State Oil
Existing competition is getting broader and existing companies are expanding with the same
magnitude as that oI PSO. Hence they can be taken as an encouraging sign Ior potential new
comers. In this regard several new comers have entered in the market like Total and Parco.
But since a huge capital is required to enter in to the industry thereIore competing with the
existing brands would be diIIicult Ior newcomers and this Iactor overweighs all the
encouraging aspects. For instance, Total entered the market by making ventures with Parco
and Atlas simultaneously, Iorming Total Parco and Total Atlas. It exploited the existing
resources and inIrastructure oI these companies. Attock Petroleum uses its reIining capacity
to produce its own brands.
2. BARGAINING POWER OF BUYERS

Yes M No
1) Are there a large number oI buyers relative to the number oI
Iirms in the industry?

2) Do you have a large number oI customers, each with relatively
small purchases?

3) Your customers are not highly sensitive to price.
4) Your product is unique to some degree or has accepted branding.


Bargaining power oI buyers is 4.
The reason is that buyers cannot compete with the industry by Iorcing down prices, demanding
higher quality or more services, and playing competitors oII against each other at all the
expense oI industry proIitability.

The related Iactor is:
Industrial customers are demanding better quality and high perIormance products in order to
meet the requirements oI advanced equipments. Customers preIer cost eIIective products having
Pakistan State Oil
reliability and proven perIormance. They also look Ior better aIter sales service in terms oI
technical backup.
. THREAT OF SUBSTITUTES

Yes M No
1) Substitutes have perIormance limitations that do not
completely oIIset their low prices or their perIormance is not
justiIied by their respective price.

2) The customer will incur cost in switching to a substitute
because oI quality.

3) The customer has no real substitute.
4) Your customer is not likely to substitute.


Threat oI substitute is m4/erate t4 4.

Substitute products that deserve most attention are those that are subject to trends improving
their price-perIormance tradeoII with the industry`s product, or are produced by industries
earning high proIits. In the latter case, substitutes oIten come rapidly into play iI some
development increases competition in the industries and causes price reduction or
perIormance improvement.
Related Iactors on substitute`s threat are:

Most oI the power sector customers are switching Irom Heavy Iurnace oil and diesel
to natural gas. This trend is one oI the major threats Ior the business oI OMCs.

Coal is another substitute Ior the Iurnace oil, which is now becoming a source oI
energy. Recent example is Pakland Cement Ltd.
Pakistan State Oil

. BARGAINING POWER OF SUPPLIER

Yes M No
1) My inputs (materials, labor, supplies, services, etc)
are standard rather unique or diIIerentiated.

2) I can switch between suppliers quickly and cheaply.
3) My suppliers would Iind it diIIicult to enter my
business

4) I can substitute inputs readily.
5) I have many potential suppliers.
6) My business is important to my suppliers
7) My cost oI purchases has no signiIicant inIluence on
my overall costs.

Bargaining power oI supplier is high
This is proIitable to industry. The reason is that suppliers can exert bargaining power over
participants in the industry by raising prices or reducing the quality produced goods and
services. PowerIul suppliers can thereby squeeze proIitability out oI an industry unable to
recover cost increases in its own prices.
Number oI suppliers is very low thereIore they can dictate their in terms oI Raw material
provisions and availability.
Related Iactors on supplier`s threat are:
Companies search alternate suppliers Ior their packaging components requirements.
This counters the bargaining power oI the suppliers and also builds up healthy
competition among them. This ultimately reduces packaging cost.
ReIineries are the source oI base oils. This includes both local and Ioreign reIineries.
Pakistan State Oil
. RIVALRY AMONG EISTING COMPETITORS

Yes M No
1) Industry is growing rapidly.
2) There are signiIicant brand identities between the
competitors.

4) There are signiIicant product diIIerences
5) The competitors are diversiIied rather than specialized.
6) It would not be hard to get out oI this business because
there are no specialized skills and Iacilities or long-term
contract commitments.

7) My customers would incur signiIicant cost in switching to
a competitor

9) My competitors are all oI approximately the same size oI I
am.


Threat oI Competitor is m4/eratey high.
The product is not unique but has achieved accepted and distinguished branding.

Only govt. agencies will have a switching cost, as currently they are getting oil supplies Irom
PSO on credit basis, which they may not be able to enjoy otherwise, however, as government is a
risk Iree entity other suppliers may agree to supply oil to PSO on credit basis as well.

PSO and Shell are Iollowing very aggressive strategies to capture greater market share but
Caltex and Total are not doing enough to pose any threat to these two big competitors. Major
market share is dominated by PSO and Shell & Caltex are playing the roles oI challenger and
Pakistan State Oil
Iollower respectively. Total is a potential threat Ior Iuture but right now it`s presence in the
market is not signiIicantly critical.
Pakistan State Oil
PEST ANALYSIS

I. GOVERNMENT & POLITICAL ISSUE

O It is the national obligation oI PSO to maintain 28 days inventory and Ior that PSO incurs
high cost because oI the Iluctuations in the international oil prices. Pakistan`s oil marketing
industry oIIers lower risk in the regional context given the stability in government policy and
outlook Ior marketing margins. Prices set by the government guarantee a 3.5 margin to
OMCs (Oil Marketing Companies) on regulated products (65 oI total volume) and all
subsidies are borne by the government.

O During the FY 2006 even though the international prices were increasing, coupled with the
Pakistan rupee`s depreciation against the US$ government didn`t increase the oil prices and
bore the burden. The government did this by cutting back its own share oI taxes and levies
built into petroleum product prices called Petroleum Development Levy (PDL). In Pakistan,
the petroleum product prices carry a volume-based development tax apart Irom the general
sales tax and excise duty. The amount oI PDL imposed on per liter oI any product (generally,
high speed diesel, motor gasoline and light aviation Iuel) is a Iunction oI government revenue
requirement and government policy oI stabilizing domestic prices. As oil prices increase, the
government progressively reduces the PDL on domestic products.

O Due to deregulation oI the oil industry by the government we see improved operational and
pricing Ireedom Ior OMCs.

O This stability in policy comes against the backdrop oI an oligopolistic structure in the
downstream industry where over 65 oI market share is in the hands oI the state-owned
Pakistan State Oil. The only direct impact oI end-consumer subsidy on the OMCs has been
the interest cost they have to bear to Iinance the receivables which are generally compensated
by stretching their tax payments (corporate and sales tax) to the maximum allowable time
Pakistan State Oil
period. The indirect cost has been the potential loss oI marketing margins (linked with end-
product prices) which did not increase in proportion to oil price inIlation.
II. LEGAL
Because oI deregulation threat oI entry is high in the industry. AIter getting license the
government provides the companies 3 years to develop inIrastructure.
III. ECONOMICAL
Pakistan being a developing country is exhibiting accelerated economic growth. The trend is
more pronounced in GDP growth Iigures oI recent past. To Iuel the impetus growth any
developing economy needs increasing quantum oI energy supply. The crude oil runs like
blood in the vein oI developing economy.
The consumption oI POL products has shown exponential growth over the years in general
and during the recent past in particular. The ediIice oI this spur in consumption/ sales are:

O INDUSTRIAL SECTOR

Industrial growth has attained a new height right Irom the new millennium. This is consistent
with the government policy oI increased investment opportunities and congenial business
ecology to increase nations output and to dilute the reliance oI imports. ThereIore the
demand oI petroleum has also increased.

O TRANSPORT SECTOR
Due to expanded economic and trade activity and development oI logistic inIrastructure
transport sector has taken quantum leap in recent year which in turn has increased the need oI
POL products in general and HSD in particular.
IV. SOCIAL
Standard oI living in Pakistan has increased tremendously during the past 5 years; better
economic conditions have resulted in high cost oI living. There has been an increase demand
oI car purchases which stems Irom soIter loan terms oIIered by banks, a persistent inIlow oI
home remittances and the easy availability oI car Iinancing schemes.
Pakistan State Oil
V. TECHNOLOGICAL

O The new technological advancement in the energy sector has created a lot oI competition.
Every Iirm is copying each other`s technology to become cost eIIicient and provide same
value as others.
O The use oI technology helps in tracking the logistics and in preventing oil theIt during the
transaction.

Pakistan State Oil
KEY DRIVING FORCES AFFECTING THE INDUSTRY

Pakistan State Oil
STRATEGIC ISSUES IN MACRO-ENVIRONMENT

POLITICAL FORCES
THREAT OF ENTRY

Barriers to entry are high due to deregulation by the government the threat oI entrant has
been stretched Irom low to moderately low status.

BARGAINING POWER OF BUYER

Bargaining power oI buyers has been increased due to various subsidies that have been given
by the Government.

ECONOMIC FORCES
THREAT OF ENTRY
Since the industry is in its growth phase thereIore more and more companies would like to
become associated with it and hence the threat oI new entry will increase Irom moderate
level to moderately higher level.

5 6
1
10
1 10
1
10 5
7
2
Pakistan State Oil

Economic Iorces cause the inIlation level to rise thereby reducing the bargaining power.

THREAT OF SUBSTITUTE

Hydel power is on oI the key substitutes oI Thermal power and due to excessive rain
continuation there has been an excessive amount oI water availability thereIore Hydel Power
sector has witnessed a signiIicant growth. In light to this growth, the threat oI substitutes has
increased.

SOCIAL FORCES
THREAT OF ENTRY
Since the market possesses well accepted brand identities and customers are loyal to them
thereIore it will be very diIIicult Ior a new comer to come into the industry and take away the
share Irom existing giant oI the industry. Hence a huge investment in the initial phases will
be required; this will discourage entry oI new Iirm.

6
1
10
2
1 10
1
10
Pakistan State Oil
THREAT OF SUBSTITUTES

Threat oI substitute will increase because oI the awareness oI the consumer about the
environmental harm. They demand those products that are environmental Iriendly and these
days more Iocus is on corporate social responsibility because customers preIer those
companies that are socially responsive.

TECHNOLOGICAL FORCES
THREAT OF ENTRY

In order to compete with the giants in the industry a new comer needs to have a good
controlled distribution network, Ior that they will have to acquire new technology. But the
technology can only be implemented once you have a sound inIrastructure where the
technology could be incorporated. These all Iactors can be taken as a de-motivating Iactor Ior
the new Iirm to enter.

1
10 6
1
10
2
Pakistan State Oil

Due to the increased use oI technology, the order delivery network becomes more eIIicient
which in result has increased the bargaining power oI buyer and they demand more and more
services Irom the Iirm.

BARGAINING POWER OF SUPPLIER

With better technology the cost oI purchasing the raw material can be reduced. Since
suppliers are relatively low in the market and a supplier with better technology can supply
better quality raw material at low cost, thereIore the bargaining power oI supplier is high to
those who have such technologies.

RIVALRY AMONGST COMPETITORS

With the use oI better technology the competitors will have competitive edge over others.
New technologies are coming in the market but rivals are copying it in no time. Currently
PSO has better use oI technology over other competitors. But due to copying oI such
technology has kept the rivalry Irom moderate to high level.

2
8 7
6
1
10
1
10
1 10
8
Pakistan State Oil
EFE MATRI & STRATEGIC EVALUATION

Weight Rating
Weighted
Score
OPPORTUNITIES
Market Ior environment Iriendly Iuel products is growing 0.05 4 0.20
Energy requirement oI the country will increase by 40 in the
next 10 years 0.10 3 0.30
Consumers demand Ior better quality and high perIormance
products at low cost 0.06 3 0.18
agriculture growth 0.07 2 0.14
higher then expected dependence on thermal electricity 0.08 3 0.24
Gawadar Port- government is trying to develop new industrial
zone in order to boost the economy 0.10 3 0.30

THREATS
Possible delays in gas pipeline project 0.11 3 0.33
Smuggled oil 0.05 2 0.10
New entrants are Iorming joint ventures 0.06 4 0.24
Rise in exchange rate 0.08 3 0.24
higher water avalability/ growth in hydel power 0.07 2 0.14
Volatile oil prices 0.09 2 0.18
Market growth and de-regularization is encouraging new
entrants 0.08 3 0.24

TOTAL 1 2.8

Pakistan State Oil
STRATEGIC EVALUATION

The overall score is above average oI 2.5. This means company is utilizing the opportunities
over threats moderately.
However some oI the important opportunities company is not managing well like
Agricultural Growth, dependence on thermal electricity, also some oI the threats like
volatility oI oil prices and higher water availability is not being Iully managed by company.
It can also be inIerred that company iI avails the existing opportunity at Iullest can strengthen
its base and will become more competitive.
PSO can grab the opportunity oI agriculture growth by making its presence in the rural areas.
It can start loyalty programs exclusively Ior the Iarmers like loyalty cards etc.
Pakistan State Oil

MICRO-ENVIRONMENTAL ANALYSIS
AND
INTERNAL COMPANY RESOURCES
Pakistan State Oil
INTERNAL RESOURCES

TECHNOLOGY
PSO extensively exploited technological opportunities in attaining low cost operations. For
the purpose it installed the Iollowing 2 systems:

1. ProCurve networking
ProCurve networking (by HP) this installation:
O Greatly expanded PSO`s capability to perIorm its operations cost eIIectively
O It authenticated the inIormation received, which Iurther enhanced the perIormance oI
the employees in the sense that the work perIormed by them was productive.
Supplier ReIineries (PRL
National ReIinery, ETC,) ,
Imports

PSO
Distributors - Direct,
Dealers, Agents, Distributors
Consumers Industrial, Power
Projects, Individual (via retail
division), Avaition & marine
Pakistan State Oil

2. ERP System (Enterprise Resource Planning)
This IT inIrastructure contributes to PSO`s paperless oIIice policy by complete automation oI
business operations thereby reducing the chances oI redundancies.
Pakistan State Oil
Firm Infrastructure
Organizational structure, control systems, company culture.

Human Resource Management
'ProIessionally trained, high quality, motivated workIorce, working as a team in an environment,
which recognizes and rewards perIormance, innovation and creativity, and provides Ior personal
growth and development

Technology Development
Plant continuously being expanded and updated based on advanced technology - increases eIIiciency
State oI the art technology increases products quality

Procurement
Multiple suppliers reduce the chance oI getting volume based discounts
Long term relation with suppliers and list oI preIerred suppliers ensures raw materials quality.

S
U
P
P
O
R
T

A
C
T
I
V
I
T
I
E
S

PRIMARY ACTIVITIES
Inbound
Logistics
It includes placing
demands and
arranging upliItment
oI Base Oil Irom
NRL through Tank
Lorries, making
payments to NRL,
maintaining a record
oI receipts and
consumption oI
Lube Base Oil and
maintaining an
optimum inventory
level oI Lube Base
Oil at Lubricants
ManuIacturing
Plants A & B.
Operations
Activities, costs and
assets associated
with covering inputs
into Iinal product
Iorm. PSO core
business is oil
marketing, so it does
not indulge in any
manuIacturing
activities, except Ior
the packaging oI
lubricant products
which are purchased
in bulk and then
packaged into small
units Ior
distribution.

Outbound
Logistics
The basic notion
oI this service is
to provide better,
timely, eIIicient
and eIIective
services to its
customers
through dedicated
trucks/Vans with
corporate color
scheme and PSO
logo showing its
product range to
retail outlets,
industrial
consumers and
distributors/lube
shops.

Marketing
& Sales

The identiIication oI
customer needs and
generation oI sales. PSO
pioneered the concept oI
loyalty cards, corporate
cards, Ileet cards and
prepaid cards.

Service
The support oI customers aIter the
products and services are sold to
them.
These primary activities are supported
by:
O The inIrastructure oI the Iirm
O Human resource management
O Technology development
O Procurement
VALUE CHAIN
Pakistan State Oil
STRATEGIC COST MANAGEMENT PROCESS

PSO is managing its Strategic cost in Iollowing ways.

O Long term agreement with ReIineries to improve its business operations.

O It has biggest storage capacity 80, and it has used it capacity by providing storage
and handling Iacility to Attock ReIinery and PARCO Ior their surplus Mogas
Naphtha.

O PSO has added value to its value chain by eIIicient use oI technology that is by
employing online ordering & tracking system, online capital management system,
ERP system, Pro-Curve Network.

O TransIormation process across all the Iunctions oI PSO has been completed Ior SAP
implementation. This will mark the successIul implementation oI SAP involving the
setup oI Iinancial, human resource, inventory, and sales and distribution modules.
Pakistan State Oil
KEY FINANCIAL TRENDS

Pakistan State Oil
IFE & STRATEGIC EVALUATION
Weight Rating
Weighted
Score
Strengths
Storage capacity 0.05 4 0.20
InIrastructure & technology 0.03 4 0.12
Transportation Fleet 0.10 2 0.20
Retail outlets 0.06 3 0.18
Broad customer base 0.05 4 0.20
Online ordering system Irom Retailers 0.04 4 0.16
Loyalty cards & Fleet cards 0.03 4 0.12
Financial Stability 0.04 3 0.12
High market share in Energy prod. (Diesel, petrol, CNG) 0.11 4 0.44

Weakness
High inventory Levels 0.06 3 0.18
Product Promotion 0.08 2 0.16
Reliance on imported products 0.06 4 0.24
Transportation ineIIiciencies 0.07 2 0.14
Sale on credit (government, aviation industry) which locks
up resources 0.08 3 0.24
Slow response and resistance to market changes 0.03 4 0.12
Low market share in Non-Energy Prod. (Lubricants) 0.11 2 0.22

Total 1 .10

The overall score oI strength and weakness is above average. Company is utilizing its strengths
very well. Company has problem with the transportation Ileet which is not being managing very
well. In addition to that weaknesses such as product promotion and transportation ineIIiciencies
Pakistan State Oil
have great impact on company`s operational eIIiciency. By incorporating the strengths with
weakness company can Iurther reduce its operating costs and build strong position in market.

The score also shows that there is a great potential Ior company to grow and Iurther expand its
business.

PSO owns 80 oI transportation service with respect to industry. It is managing it in-eIIiciently
because the problem lies with the theIt oI the inventory during the transportation process.
Transportation Fleet is very important Ior PSO and theIt is increasing the operational cost Ior
company, thereIore company must pay attention to transportation Ileet and make investment in it
to be more competitive.

One oI the major weaknesses oI PSO is with the promotion oI its products. PSO is not
advertising its brand image Irequently to build brand equity in market. Its importance is very
high and management must manage it well. ThereIore to overcome this weakness Iirm must
promote its product to reposition its brand.
Pakistan State Oil

COMPANY AND COMPETITOR ANALYSIS
Pakistan State Oil
COMPARA1IJE S1REAC1H ASSESMEA1
CPM
Key Success Factors
PSO Caltex Shell Total
Weight Rating Scores Rating Scores Rating Scores Rating Scores
Market Share 0.11 4 0.44 2 0.22 3 0.33 1 0.11
Customer loyalty 0.1 4 0.56 2 0.28 3 0.42 2 0.28
Quality of Products 0.09 3 0.27 3 0.27 4 0.36 2 0.18
Quality of Services 0.1 3 0.39 2 0.26 4 0.52 4 0.52
Financial Position 0.10 4 0.40 3 0.30 3 0.30 2 0.20
Management 0.09 3 0.27 3 0.27 4 0.36 3 0.27
Advertising 0.18 2 0.36 3 0.54 4 0.72 2 0.36
Distribution
Channel 0.0 2 0.1 3 0.15 4 0.20 3 0.15
Efficient use of
Technology 0.11 2 0.22 3 0.33 4 0.44 2 0.22

14ta 1.0 .01 2.6 .6 2.29

As shell has a better company image than PSO and consumers generally perceive that Shell
provides high quality products and is the market leader. So PSO should increase its
advertising in order to build a better image oI its products and services.

Though PSO has the state oI the art technology but it has not been utilized to its optimum
level because the employees are reluctant to adapt to the new technology. This is a culture
problem.

Pakistan State Oil
The distribution channel oI PSO is the biggest in the industry (80 oI the industry), but is
not managed well. Because oI this the company incurs higher distribution costs. So the
company should outsource its distribution.
Pakistan State Oil
TOWS

T

IFE

EFE
Strength (S)
1. Storage capacity
2. nfrastructure & technology
3. Transportation Fleet
4. Retail outlets
5. Broad customer base
6. Online ordering system from
Retailers
7. Loyalty cards & Fleet cards
8. Financial Stability
9. High market share in Energy
prod. (Diesel, petrol, CNG)

Weaknesses (W)
1. High inventory Levels
2. Product Promotion
3. Reliance on imported
products
4. Transportation inefficiencies
5. Sale on credit (government,
aviation industry) which locks
up resources
6. Slow response and
resistance to market changes
7. Low market share in Non-
Energy Prod. (Lubricants)

SO

O S1, S4, O4:

O S2 S5 O3
WO

O W4 O4
ST

O S1 T4 T6

O S2 T2

O S8, T3
WT

O W4, T2
Opportunities (O)
1. Market for environment friendly
fuel products is growing
2. Energy requirement of the
country will increase by 40% in
the next 10 years
3. Consumers demand for better
quality and high performance
products at low cost
4. agriculture growth
5. Higher then expected
dependence on thermal electricity
6. Gawadar Port- government is
trying to develop new industrial
zone in order to boost the
economy

Threat (T)
1. Possible delays in gas pipeline
project
2. Smuggled oil
3. New entrants are forming joint
ventures
4. Rise in exchange rate
5. Higher water availability/
growth in hydel power
6. Volatile oil prices
7. Market growth and de-
regularization is encouraging new
entrants

Pakistan State Oil
SO
S1,S4, O4: PSO should penetrate and develop new markets in the rural areas to cater the
consumption oI POL in agriculture sector.

S2, S5, O3: PSO should improve their inIrastructure and make use oI latest technology so
as to provide customers with high quality and perIormance products and thus be able to serve
a broader range oI customers.

The government estimates that energy demand will grow at 7.5 CAGR (1.2x GDP). Future
energy growth would come against the backdrop oI historically low consumption oI energy.
We believe the downstream oil industry is poised to enjoy an uptrend in volume (Iour-year
CAGR oI 5 over 2007E-10E). PSO has suIIicient capacity and adequate inIrastructure to
cater such a high demand to increase its market share.

WO

W4 O4 Develop eIIective distribution network to cater rural areas

ST

S1 T4 T6: PSO should overcome the volatility in oil prices by better managing its storage
capacity so that it may not incur losses when there are changes in the prices oI oil
internationally or whenever there is an increase in exchange rates.

S2 T2: PSO should come with superior technology that may be able to monitor all
operations regarding the transportation activities ranging Irom inbound logistics till delivery
to customers.

Pakistan State Oil
PSO should do backward integration by doing strategic alliance with reIineries. In this way it
would be able do lower its cost. (S8, T3)

WT

W4, T2: Making the eIIicient distribution network system Ior eIIectively competing in the
market. In this way it would also be able to lower the threat oI smuggled oil.
Pakistan State Oil
SPACE MATRI

Pakistan State Oil

Through our analysis we have Iound that PSO`s directional vector is located in the aggressive
quadrant oI the SPACE matrix, PSO is in an excellent position which use its internal
strengths to:

O Take advantage external opportunities
O Overcome internal weakness
O Avoid external threats

ThereIore, market penetration, market development, product development, backward
integration, forward integration, hori:ontal integration, conglomerate diversification,
concentric diversification, or a combination strategy all can be Ieasible.

Pakistan State Oil
BCG MATRI

Relative Market Share

High Medium Low
1.0 0.50 0.0
20

-20

2
I
n
d
u
s
t
r
y

G
r
o
w
t
h

R
a
t
e

5tar ":08tInn Mark

a8 cnw

Dng8
Energy
Products
Non-
Energy
Products
Pakistan State Oil
ENERGY PRODUCTS
Energy products include petrol, JP 1, Iurnace oil, high speed diesel etc. Industry recorded a
growth oI 2.2. The market share oI PSO in energy products declined Irom 76 to 65
because Shell took its market share by improving its quality and services.
NON-ENERGY PRODUCTS
Non-Energy products include lubes, greases, auto oil, marine oil etc. and it showed a growth
oI approximately 4 in the petroleum industry. Relative share oI PSO has improved Irom
19 to 22, while market share oI non-energy products, APL has declined Irom 45.5 to
44.1.
STRATEGIES FROM BCG MATRI

O PSO should invest in non-energy products through product promotion and advertising
to increase its market share.

O PSO should expand its retail outlet especially in rural areas to cater the growth oI
Agriculture sector. In this way the industry will become more attractive and as PSO is
the market leader in energy products it will be beneIited higher than any oI its
competitor.
Pakistan State Oil

STRATEGIC ANALYSIS AND
RECOMMENDATION
Pakistan State Oil
GENERIC STRATEGY

Lower Cost Differentiation

ANALYSIS
In our view, PSO is the key beneIiciary oI such a development as the company enjoys strong
inIrastructure and pipeline support Ior product logistics. It stands to beneIit Irom (1) pricing
power over other players, (2) cost savings through its current inIrastructure, and (3)
hospitality charges on usage oI its inIrastructure by other OMCs.
ThereIore Iocusing on the Low cost strategy is providing success to PSO to gain competitive
edge.

Focused Low-cost
Strategy
Focused Differentiation
Strategy
M
a
r
k
e
t

T
a
r
g
e
t

N
a
r
r
o
w

B
u
y
e
r

B
r
o
a
d

R
a
n
g
e

o
I

S
e
g
m
e
n
t

B
u
y
e
r
s

Broad Differentiation
Strategy
Low Cost Strategy
Pakistan State Oil
PROS:
O High EIIiciency
O Low overhead
O Limited perks
O Intolerance oI waste
O Intensive screening oI budget
requests.
O Wide spans oI control
O Rewards linked to cost
containment
O Broad participation in cost
control eIIorts.
CONS:

O Competitors may imitate the
strategy and overall proIits may
decline Ior the whole industry.

O Technological breakthroughs may
make the strategy ineIIective
Pakistan State Oil

INPUT / MATCHING / DECISION MODEL

Pakistan State Oil
According to our analysis oI past and present trends it has been Iound that about a Iew
years back PSO enjoyed a greater market share and greater market domination but since 3
or 4 years we have seen a gradual decline in its percentage market share. The market
share slice has been curtailed by shell and other new small entrants (collectively).
However Shell has contributed to the most signiIicant extend. Shell did it by not only
competing PSO in terms oI product quality and delivery styles but also by introducing
many Lubricant varieties. At that time, considering the lubes market to be a Ilank, PSO
leIt a Ilank open and now Shell is considered to be a giant in terms oI lubes provider and
enjoys a huge market share. As a matter oI Iact in making Shell enjoy a gradually
developing petroleum market share, its lubricants are playing a very important role.

In this regard we would suggest that PSO should diversiIy its product range in Lubricants
and try to challenge Shell. There is a general tendency to trust such brands Ior Iuel that
you trust Ior your car maintenance and car perIormance, although PSO is present in the
lubes market but still they have not been able to capture the top oI the mind position in
the minds oI customers. By intensiIying their eIIorts and coming up with strong lubricant
brands, PSO can certainly regain the lost market share Irom Shell. Alongside
diversiIication they also need to communicate it to consumers in a more strong and
penetrative manner. In this regard doing Integrated Marketing Communication and
intensiIying promotional campaigns can play a vital role.

Along with this option PSO can also expand to rural markets Ior Hydel Power
consumptions. The agriculture sector oI Pakistan is a very dominant sector and is a big
potential Ior Iuture growth. PSO has membership cards like FLEET CARDS and
LOYALTY CARDS but they directed towards executives and various other urbanized
classes. By bringing such membership cards Ior the agriculture related consumers could
be a very positive move. PSO can enjoy early market growth and rapid market coverage
since there is no current competition in the concerned sector.

Pakistan State Oil
II we look at the QSPM values that have been derived Ior both strategies i-e Ior
diversiIying in lubes market and expansion to rural market being 5.32 & 5.36
respectively, we can get an impression that both oI these two techniques are very much
pragmatic and lucrative hence any one oI these two can be implemented to increase the
market share.
Pakistan State Oil

STRATEGIC IMPLEMENTATION
Pakistan State Oil
ROLE OF CORPORATE CULTURE AND LEADERSHIP
FOR EFFECTIVE STRATEGY EECUTION
PSO has changed its corporate culture where even employees were de-motivated and not
wanted to be a part oI it. Now, based on its corporate excellence, PSO ranks among top
global companies by way oI its membership oI the World Economic Forum.
This unprecedented level oI corporate accomplishment and such a high international
ranking achieved by a Pakistani company is a product oI proIessional teamwork and
outstanding corporate leadership.
The legendary rise oI PSO to global horizon, duly decorated by global recognition oI
corporate excellence, involved dedicated hard work oI highest proIessional standard in
the Iollowing broad areas:
Establishment oI a robust Iramework oI the state-oI-the-art systems and procedures oI
corporate planning, and PSO has achieved competitive Iramework oI corporate planning
system through turnkey basis by external consultants, based on payment oI heavy Iees
and expenses.
PSO has a unique distinction oI developing and putting in place systems through in-house
teamwork. CP played a key role in this regard. The in-house systems development
enabled PSO proIessionals to internalize the systems Ior eIIective implementation.

Analysis
oI
environment
Analysis
oI
resources

Constant Monitoring

Constant Monitoring

Strategies
Development &
Implementation
s
Vision
&
Objectives
Strategic Analysis Strategic Development &
Implementation
Pakistan State Oil

Three Iactors contributing to PSO strong culture are:
1. Strong Leader who establishes values, principles and practices that are consistent
and sensible in light oI customer needs competitive conditions and strategic
requirement.
2. A sincere, long standing company commitment to operating the business
according to these established traditions, thereby creating an internal environment
that supports decision making and strategies based on cultural norms.
3. A genuine concern Ior the well-being oI the organization`s three biggest
constituencies customers, employees and shareholders.
Pakistan State Oil
INTERNAL RESOURCES
PSO SUPPLY CHAIN
The company has strengthened its internal controls speciIically in supply chain area by
implementing computerized load acknowledgement system, which is aimed at preventing
misappropriation oI products in transit and ensures prompt delivery oI products to
customers and depots. To ensure proper supplies to local retail outlets, Ileet management
plan has been implemented at Karachi, Lahore and Islamabad, which would be extended
gradually to other major cities oI the country.
PSO`s value chain network comprises oI
O Suppliers
O Distributors
O Customers
SUPPLIERS:

PSO is an oil marketing company, so its core business is not into oil extraction and
reIining PSO`s major supplies come Irom two sources: reIineries and imports Irom other
countries.
a) Refineries
PSO has signed long-term Sale and Purchase agreements with National Refinery and
Bosicor Refinery in addition to the existing agreement with PRL and PARCO. With the
execution oI these agreements, the company has made an access to assured and cost-
eIIective supplies.
b) Imports
The company has successIully negotiated with Kuwait Petroleum Company Ior the
supply oI 0.5 per cent Sulphur Gas Oil Ior the period 2003-2007 on attractive rates. In
Fuel Oil, the company signed the term contract with 3 international suppliers Ior 2.4
million tons oI High Sulphur Fuel Oil and 0.4 million tons oI Low Sulphur Fuel Oil. PSO
imports gas oil and Iuel oil to the tune oI 3.3 and 4.2 million tons respectively.
Pakistan State Oil
DISTRIBUTION:
For the distribution oI all its products, PSO has a separate logistics department. It is the
duty oI this department to deliver the products to the customers eIIiciently and
eIIectively.
The operation oI logistics is one oI the main businesses oI PSO. They have the largest
Ileet oI transport available to them in Pakistan Ior the purpose oI delivering their
products.
The logistics department which is headed by the General Manager Logistics has Iurther 7
divisions Ior its 7 major clientele categories.
1) The Retailers
2) Industrial Consumers.
3) The Government
4) Power Projects
5) Aviation and Marine
6) LPG retailers
7) Lubricants retailers
1.The Retailers:
PSO has the largest network oI retailers across Pakistan and it runs its operations almost
in every part oI the country. For this purpose they need a highly coordinated Iunctional
capability.

Their retail network is so strong that there is no need oI running their own company
operated retail outlets. That is why they have very Iew number oI company-owned retail
outlets in major cities (only 5). In Iar Ilung areas they preIer privately Iranchised retail
pumps. PSO delivers its products to these pumps through their tankers.

Recently the company has introduced an online ordering system. This system has brought
much improvement in timely deliveries and the company can keep track oI the progress
oI the deployed tank lorry through a tracking system.
Pakistan State Oil
2. Industrial Consumers:
PSO has huge Nation wide industrial clients as well. PSO supplies to them through
their Nation wide depots. Again the logistics department plays a vital role in carrying out
such operations.
. The Government:
Government is the PSO`s biggest client. Almost all the energy needs oI the government
are IulIilled by the PSO.
. Power Projects:
Major power project plants like WAPDA and KESC also turn to PSO in order to run their
operations. A high degree oI coordination exists between PSO and these power project
units.
.Aviation And Marine
For power, aviation, marine and industrial consumers, which buy large quantity PSO,
uses a direct channel oI distribution. To the aviation industry supply oI POL products is
on advance booking basis. To the armed Iorces special payment terms are given. These
are on credit basis. Aviation Iuel Ior PIA and Ior Pakistan Air Iorce and Marine Iuel Ior
Pakistan Navy, Karachi Port Trust and Ior PNSC is also supplied by PSO. For the Iilling
in ships and aircraIts PSO has special Iilling tankers at their disposal which Iills these
ships and aircraIts on the spot.
6. LPG Retailers:
LPG is a petrol gas known as Liquid Petroleum Gas. Most oI the retail networks oI LPG
providers in Pakistan obtain this product Irom PSO which is supplied to them in a special
containers specially made Ior this purpose.
7. Lubricants retailers:
Almost all PSO`s dealers also carry PSO lubricants apart Irom the petrol and diesel. For
the delivery oI lubricants and chemicals PSO has special vans equipped with chemical
testing units. Previously PSO maintained exclusive dealer networks Ior the sale oI their
lubricant product, but now there is an increasing trend towards supplying in the high
Pakistan State Oil
street through independent distributors who sell competitors products as well (cartridge
contactors).
CUSTOMERS:
Following are the customers oI PSO;
O Retail Division individual customers
O Industrial Customers Railways
O Power projects WAPDA, KESC, etc
O Marine & Aviation
PSO and WAPDA entered into hospitality agreement, consequent upon WAPDA's
decision to import a portion oI its annual Iuel oil requirement, that would Iacilitate the
power utility to store its imported product at ZulIiqarabad Oil Terminal Ior onward
shipment to power generation units. With the new hospitality arrangement with WAPDA
previously done with Shell, PSO would generate certain assured and guaranteed ancillary
proIits. Parallel to this, PSO became the Iirst Oil Company in Pakistan to win the Iirst
ever-international tender Iloated by WAPDA against international competitions Ior the
supply oI 110,000 MTs oI Iuel.
Pakistan State Oil
BALANCED BUSINESS SCORECARD

The balance scorecard is a management system (not only a measurement system) that
helps organizations to clariIy their vision and strategy and put them into action. It
provides Ieedback around both the internal business processes and external outcomes in
order to continuously improve strategic perIormance and results.

The balanced scorecard suggests that we view the organization Irom Iour perspectives,
and to develop metrics, collect data and analyze it relative to each oI these perspectives:

Learning and Growth: How can we continue to improve our processes and
systems in order to create value? How does our organization and employees
continue to learn and grow?
Internal Business Processes: What processes - both long and short term - must we
excel at, to achieve our Iinancial and customer objectives?
O Customers: How do we become our targeted customers most valued supplier?
O Financial: How do we look to our shareholders?
1. THE LEARNING AND GROWTH PERSPECTIVE

Pakistan State Oil Company culture is still in the transition stage aIter the introduction oI
new vision by Shaukat Mirza. This new culture oI empowerment, decentralization,
equitability & non discrimination has Iostered productivity and transIormed a loss
incurring company to one oI the most proIitable government owned organization.
Maintaining such a culture has helped the company tremendously. The company has an
extremely low turnover rate. Ninety percent oI the current employees have worked Ior
more than 5 years in the organization.

Pakistan State Oil
Innovation and Learning Perspective
Goals Measure
Market Leader in Lubricants Quality perception in the minds oI the
target market

EIIective and EIIicient Employees Key PerIormance Indicator

2. THE BUSINESS PROCESS PERSPECTIVE

This perspective reIers to internal business processes. Metrics based on this perspective
allow the managers to know how well their business is running, and whether its products
conIorm to customer requirements (the mission). These metrics have to be careIully
designed by those who know these processes most intimately; with our unique missions
these are not something that can be developed by outside consultants.
This may be beneIicial to PSO as they may be concerned with trying to maximize
production capacity to try and pursue a low cost strategy.

Internal Business Perspective
Goals Measures
ManuIacturing Excellence Unit cost
Market share
Customer Service Average time Ior solving complaints
relative to the industry average.
Technology capability EIIicient procurement and distribution
network.

Pakistan State Oil
. THE CUSTOMER PERSPECTIVE
PSO has taken the Iirst step by introducing the Toll Free Number Ior Customer Ieedback
and queries. In order to satisIy their customers and be the market leader in lubricants they
have to build a quality image in the target market minds.

Customer Perspective
Goals Measures
Customer Loyalty Repeat sales Irom Ileet and loyalty cards.
Customer SatisIaction Ior non-energy
products
Customer Ieedback through toll Iree
numbers.
Market share in non-energy products.
Compare the quality oI your products with
that oI competitors through lab tests.
Customer Ieedback Iorms.
. THE FINANCIAL PERSPECTIVE
PSO main Iinancial perspective is to gain largest market share in the lubricants segment
which is the most lucrative segment.

Financial Perspective
Goals Measures
Maximize Shareholders` wealth NPV oI Cash Ilows
Market Price oI Stock
ROI

Pakistan State Oil

Some oI the beneIits the company can gain Irom implementing Balance Business
Scorecard are:
Assurance that corporate strategies will be clearly communicated throughout
the enterprise
It provides a common Iramework Ior strategic planning
It provides key inIormation by measuring the results oI strategic plans and
assessing the quality oI tactical plans
The management Iocuses on cause and eIIect relationships between process
and key perIormance indicators
It creates a balance between Iinancial and non-Iinancial measures and how
they impact organizational health
It instills a high perIormance culture creating value Ior customers, employees,
suppliers, and stakeholders
SoItware automation provides the means to closely monitor the status oI the
organization and perIorm interactive analysis oI underlying data elements

Pakistan State Oil
The Iollowing are potential pitIalls that should be avoided when implementing the
Balance Business Scorecard:
Lack oI a well deIined strategy: The Balance Scorecard relies on a well deIined
strategy and an understanding oI the linkages between strategic objectives and the
metrics. Without this Ioundation, the implementation oI The Business Scorecard is
unlikely to be successIul.
Using only lagging measures: Many managers believe they will reap the beneIits oI
The Balance Scorecard by using a wide range oI non-Iinancial measures. However,
care should be taken not to identiIy only lagging measures that describe past
perIormance, but also leading measures that can be used to plan Ior Iuture perIormance.
Use oI generic metrics: It is usually not suIIicient to simply adopt the metrics used by
other successIul Iirms. Pak Suzuki Motor Company should work towards identiIying
the measures that are appropriate Ior its own strategy and competitive position.

In short, the Balanced Scorecard (BSC) is a multidimensional Iramework Ior describing,
implementing, and managing strategy at all levels oI an enterprise by linking objectives,
initiatives, and measures to an organization`s strategy. The scorecard provides an
enterprise view oI an organization's overall perIormance by integrating Iinancial
measures with other key perIormance indicators around customer perspectives, internal
business processes, and organizational growth, learning, and innovation. The BSC is not
a static list oI measures, but a Iramework Ior implementing complex programs oI change
and indeed, Ior managing a strategy-Iocused organization.

Pakistan State Oil
RECOMMENDATIONS

LIkeIy strategIes of key partIcIpants
PSD (market share 65X) - competItIveIy pIaced Ieader

With a network oI over 3,800 outlets and strong brand recognition, we believe Pakistan
State Oil will emerge as an aggressive competitor in the Iuture landscape. We expect the
company to be more Iocused on its market share by:

O Launching marketing initiatives (quality and service plus loyalty cards) to protect
its position in the retail Iuel product categories. While competition Irom existing
and new companies will heighten, we believe PSO`s renewed Iocus on retail
products and wide outlet reach will support its market share.

O Revamping existing outlets and opening new ones. In the past three years, PSO
has reIurbished over 700 outlets and we expect this strategy will continue to be
implemented over the next 2-3 years.

O Optimizing product portIolio with greater Iocus on high-margin products such as
auto lubricants, CNG and LPG.

O Finding a stable oil supply source (backward -integration) in Iuture. Having been
denied participation in the privatization oI Pakistan`s second-largest reIinery, we
see a high possibility oI PSO developing a joint venture in the reIining business
with any oI the new companies in the industry. In our view, such a venture will
create a win-win situation Ior both parties. While PSO will gain a supply source
to support its market share, the reIinery company will have the advantage oI large
buyers with high marketing volume (over 10mn ton volume per annum).

PSO

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