Letter of Authorization

August 22, 2010 Dear Reader: Being a student of Strategic Management course, our
course facilitator Dr. Fasihul Karim Siddiqui has authorized us to prepare a re
port pertaining to Strategic Plan of Pakistan State Oil Company (PSO) for Summer
Semester 2010. Sincerely, Rabia Jamal (ID # 2008-3-38-8319) Maqsood Ahmed (ID #
2008-3-39-8326)

Letter of Transmittal
Dr. Fasihul Karim Siddiqui Faculty of Strategic Management Institute of Business
Management Karachi. Dear Sir: The term report of Strategic Management on Strateg
ic Plan of Pakistan State Oil Company (PSO) is enclosed for your kind perusal. Th
is report is being prepared by applying strategic principles and conducting deta
iled analysis on the findings keeping in view the internal & external environmen
t of the company. Through this letter we would like to thank our instructor for
giving us the opportunity to prepare Strategic Plan for the largest Oil Marketin
g Company of Pakistan.
Sincerely, Rabia Jamal (ID # 2008-3-38-8319) Maqsood Ahmed (ID # 2008-3-39-8326)

Table of Contents
Executive Summary...............................................................
........................................................................ v 1. 2.
Business Balanced Scorecard ...................................................
............................................................. 1 Company Profile
................................................................................
.................................................... 2 2.1. 2.2. 2.3. 2.4. 3. Hi
story ..........................................................................
................................................................. 2 Equity Share
s...............................................................................
.................................................. 2 Products ..................
................................................................................
...................................... 3 Market & Customers ....................
................................................................................
................. 3
Vision, Mission & Corporate Objectives .........................................
...................................................... 5 3.1. 3.2. Vision.......
................................................................................
...................................................... 5 Mission Statement .....
................................................................................
................................... 5
Analysis of Mission Statement ..................................................
............................................................ 5 Improved Mission
Statement ......................................................................
......................................... 6 3.3. 4. Strategic Objectives .......
................................................................................
............................... 6
Internal Assessment ............................................................
.................................................................. 7 4.1. Manage
ment ...........................................................................
...................................................... 7
Board Audit Committee ..........................................................
.............................................................. 7 Board Finance a
nd Operation Committee .........................................................
................................... 7 Board Human Resource Committee ...........
................................................................................
.......... 7 Management Committee ..............................................
........................................................................ 7 Core
Leadership Team ................................................................
.......................................................... 7 Employee Leadership
Team ..........................................................................
........................................ 8 Executive Committee .................
................................................................................
........................... 8 4.2. 4.3. 4.4. 4.5. 4.6. 5. Marketing ............
................................................................................
.......................................... 8 Finances ..........................
................................................................................
.............................. 9 Operations ....................................
................................................................................
.............. 10 Management Information Systems ...............................
............................................................. 11 Internal Factor
Evaluation Matrix (IFEM).......................................................
............................. 12
External Assessment ............................................................
............................................................... 13 5.1. Consumer

Markets........................................................................
.............................................. 13

5.2. 5.3. 5.4. 5.5. 5.6. 5.7. 6.

Competitors ....................................................................
............................................................ 13 Suppliers.......
................................................................................
............................................... 15 Economic Condition ..........
................................................................................
.......................... 15 Regulatory Environment ...........................
................................................................................
.. 16 External Factor Evaluation Matrix (EFEM) .................................
................................................. 16 Competitive Profile Matrix.
................................................................................
......................... 16
Strategy Formulation ...........................................................
............................................................... 18 6.1. 5.2. 5.3
. 5.4. 5.5. 5.6. 5.7. 5.8. 5.9. TOWS Analysis Matrix ...........................
................................................................................
...... 18 Basket of Available Strategies .......................................
.............................................................. 19 SPACE Matrix..
................................................................................
............................................. 21 Grand Strategy Matrix..........
................................................................................
....................... 22 BCG Matrix ..........................................
................................................................................
........ 23 Internal-External (IE) Matrix ......................................
................................................................. 23 Decision Ma
trix ...........................................................................
................................................ 24 Qualitative Strategic Planni
ng Matrix ......................................................................
................... 26 Strategy Selection ......................................
................................................................................
. 27
6.
Strategy & Long Term Objectives.................................................
....................................................... 28 6.1. 6.2. 6.3. Strate
gy .............................................................................
.......................................................... 28 Long Term Objectiv
es .............................................................................
.................................... 28 Comparison of Long Term Objectives .....
................................................................................
.... 28
7.
Strategy Implementation ........................................................
............................................................ 29 7.1. Recommendat
ions ...........................................................................
........................................... 29
8.
Specific Objectives ............................................................
.................................................................. 30
Appendix 1 - Finances ..........................................................
....................................................................... 31 Balan
ce Sheet........................................................................

.................................................................. 31 Income Sta

tement .........................................................................
......................................................... 32 Appendix 2 Organiza
tion Chart .....................................................................
........................................... 33

Executive Summary
The purpose of this report is to develop strategic plan of Pakistans largest Oil
Marketing Company, Pakistan State Oil (PSO) by applying basic principles of Stra
tegic Management. This report covers Internal & External assessment of the compa
ny, Strategy Formulation, Selection, Evaluation and Long Term Objectives for the
period of 7 years (FY 2011 FY 2017) and its Implementation. A Balanced Business
Scorecard has also been developed for the company. Findings in this report indi
cate that the huge circular debt in the economy, unreliable source of supply fro
m Oil Refining Companies and decreasing profit margins are the major challenges
that PSO is currently facing. Another challenge faced by the company is the forw
ard integration by the various Oil Refining Companies. Pakistan State Oil has st
rong Research and Development department. Using their internal strength of resea
rch and development along with increasing energy demand and requirement of alter
nate energy fuel they can make use of their available resources to improve their
position in the market. We have suggested following strategies to Pakistan Stat
e Oil:
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 an
d convince government to facilitate PSOs debtors to pay off their liabilities to
PSO
v

1. Business Balanced Scorecard

Financial Perspective
Objective Target yr 1: 2% yr 2: 3% yr 3: 4% yr 4: 5% yr 5: 6% 7% per anum 40% of
existing Debts & Payables after 5 years Initiative
Profitability
Revenue Growth
Customer Perspective
Objective Customer Satisfaction and Retention Target 95% Satisfaction Initiative
- Cost effective and efficient alternate fuel - Customer Loyalty Programs - Cor
porate Social Responsibility
Decrease in Trade Debts and Payables
- Decrease in production cost - Work with Government to eliminate economic const
raints like circular debt
Internal Business Perspective
Objective Utilize Storage Capacity Use of IT and ECommerce Ensure Health and saf
ety of workers Target 90% capacity Order confirmation with in 24 hours 0% accide
nts Initiative - Improved distribution - Certified Equipments - Building Certifi
ed IT infrastructure
Market Share
70% of Retail consumers
Vision & Strategy
Innovation & Learning Perspective
Objective Increased Employee Satisfaction Enhanced Employee Competence Target Tu
rnover rate < 10% 2 trainings per year for each key employee Initiative - Employ
ee Development Program - Employee benefits and promotions
1

2. Company Profile
Pakistan State Oil, the largest oil marketing company in the country is currentl
y engaged in the marketing and distribution of various POL products, including M
otor Gasoline, High Speed Diesel, Furnace Oil, Jet Fuel, Kerosene, LPG, CNG, Pet
rochemicals and Lubricants. In addition to this we also import different product
s according to their demand pattern and possess the biggest storage facilities r
epresenting 80% of the countrys total storage capacity.
2.1.
History
The creation of Pakistan State Oil (PSO) can be traced back to the year 1974, wh
en on January 1st; the government took over and merged Pakistan National Oil (PN
O) and Dawood Petroleum Limited (DPL) as Premiere Oil Company Limited (POCL). So
on after that, on 3rd June 1974, Petroleum Storage Development Corporation (PSDC
) came into existence. PSDC was then renamed as State Oil Company Limited (SOCL)
on August 23rd 1976. Following that, the ESSO undertakings were purchased on 15
th September 1976 and control was vested in SOCL. The end of that year (30th Dec
ember 1976) saw the merger of the Premier Oil Company Limited and State Oil Comp
any Limited, giving way to Pakistan State Oil (PSO).It is considered as one of t
he most successful mergers in the history of Pakistan. After PSOs inception, the
corporate culture underwent a comprehensive renewal program which was fully impl
emented in 2004. This program over the years included the revamping of the organ
izational architecture, rationalization of staff, employee empowerment and trans
parency in decision making through cross functional teams. This new corporate re
newal program has divided the companys major operations into independent activiti
es supported by legal, financial, informative and other services. Inorder to rei
nforce and monitor this structural change, related check and balances have been
established by incorporating monitoring and control systems.Human Resource Devel
opment became one of the main priorities on the companys agenda under this corpor
ate reform.
2.2.
Equity Shares
18 28 54 GOP Institutions Individuals & Others
PSO has 200 million shares authorized for public offering and it has currently 1
71,518,901 shares floating in Karachi Stock Exchange. The stock price on August
02, 2010 was Rs. 282.54 making the total market capitalization of the company at
Rs. 48.43 billion. Apart from the public offering of the equity shares, Governm
ent of Pakistan holds 54% majority stakes in the company, including both direct
holdings of the Federal Government and indirect holdings through GOP owned insti
tutions.
Figure 1 - Shareholding Structure of Pakistan State Oil
2

According to the Privatization Commission of Pakistan, Government of Pakistan is

in the advanced stages of divesting 51% of its stakes in PSO to a strategic inv
estor.
2.3.
Products
Pakistan State Oil deals in both White Oil and Black Oil markets. White Oil cons
ists of High Speed Diesel (HSD), Gasoline (which includes the Retail Fuel and Ga
seous Fuels), JP-1 (Jet Fuel) and Superior Kerosene Oil (SKO). Black Oil consist
s of Furnace Oil and Light Diesel Oil (LDO). Besides selling Gasoline, Furnace O
il, Jet Fuel and HSD, Pakistan State Oil also caters to the vast customer base o
f 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. Paki
stan State Oil also exports JP-8 Jet Fuel to Afghanistan. It is being used by th
e DESC and NATO forces.
2.4.
Market & Customers
PSO caters to POL (Petroleum, Oil and Lubricants) requirements of a wide spectru
m of customers comprising the retail consumer, various industrial units, governm
ent, power projects, aviation and marine sectors of Pakistan. PSO industrial con
sumer dominance in the government sector can be judged by the fact that all the
major government entities like OGDC, Pakistan Army, Pakistan railways, Navy, NLC
and PAF Wah have entrusted PSO to meet their POL needs. Besides supplying fuel
to national power utilities like WAPDA and KESC, PSO is the sole furnace oil sup
plier to all Independent Power Projects (IPPs) in Pakistan. PSO also supplies fu
el to industrial units like textile, cement, agriculture, transport etc. Its ind
ustrial consumer base includes prestigious entities like the Presidency and the
Prime Minister Secretariat, where PSO has developed consumer outlets for timely
refueling of their fleets. Furthermore, PSO also serves the fuel needs of both n
ational & international air carriers. It also provides jet fuel into-plane refue
ling facilities at 9 airports of Pakistan i.e. Karachi, Lahore, Islamabad, Pesha
war, Multan, Faisalabad, Turbat, Pasni and Sialkot. PSO also supplies fuel to sh
ips at Karachi Port, Korangi Fish Harbor & Port Qasim. Moreover, we cater to the
fuel requirements of Pakistan Navy, Maritime Security Agency, Karachi Port Trus
t, PNSC, Faisal Marine Oil Services (Pvt) Ltd. Pakistan State Oil also has strat
egic investments in related projects such as:
Joint Installation of Marketing Co
mpanies (JIMCo) PSO holds 62% stakes of the facility which is operated by PSO it
self. It has maximum daily throughput of 17,000 kilo tons. Asia Petroleum Limite
d PSO holds 49% stakes in the company which operates 82 kilometer pipeline as we
ll. It has a capacity of 3.6 million tons per annum.
3

Pak Grease Manufacturing Company PSO holds 22% stakes in the manufacturer of the
specialized grease catering to the requirements of many the customers including
Pakistan Steel and Armed Forces Pakistan Refinery Limited PSO holds 18% stakes i
n Pakistans third largest oil refining company. The annual capacity of this refin
ery is 2.2 million tons per annum White Oil Pipeline Project PSO holds 12% stake
s in this project which is a joint venture of PSO, Shell Pakistan (26%), Caltex
Pakistan (11%) and PARCO (51%). It is a 817 kilometer, 26 inch diameter pipeline
dedicated to transfer refined products from PARCO to the other regions of the c
ountry.
4

3. Vision, Mission & Corporate Objectives

3.1. Vision
The Vision of Pakistan State Oil is as follows: To excel in delivering value to
customers as an innovative and dynamic energy company that gets to the future fi
rst.
3.2.
Mission Statement
The existing Mission of the company is: We are committed to leadership in the en
ergy market through a competitive advantage in providing the highest quality pet
roleum 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.

Analysis of Mission Statement There are nine essential components of Mission Sta
tement of any organization. We will be analyzing the mission statement of the Pa
kistan State Oil to see if it has these components. Mission Statement Component
Customers PSO our customers based on .... The term is quite vague and it does not
identify the target customers of the company. Products 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 miss
ion statement of PSO. Concern for Survival, growth Sustained growth in earnings i
n real terms. This and profitability component is specified in the mission statem
ent. Philosophy This component is not specified in the mission statement. Self-C
oncept We are committed to leadership in the energy market through a competitive
advantage in providing This component is defined in the mission statement. Concern
for Employees A professionally trained, highly qualified. For personal growth and
development. This 5

Mission Statement Component Concern for Public Image

PSO component is specified in the mission statement. Highly ethical, safe, enviro
nment-friendly and socially responsible business practices..This component is spe
cified in the mission statement.
Improved Mission Statement We are committed to leadership in the energy market o
f Pakistan through a competitive advantage in providing the highest quality petr
oleum products and services to our retail and industrial customers based on:
A p
rofessionally trained, high-quality, motivated workforce that works as a team in
an environment which recognizes and rewards performance, innovation and creativ
ity, and provides for personal growth and development. Excellence in our core ac
tivities and a passion for satisfying our customers needs in terms of total quali
ty management. Innovative and technologically advanced systems and procedures. T
he lowest-cost operations and assured access to long-term and cost-effective sup
ply sources. Sustained growth in earnings in real terms. Achieving higher collec
tive and individual goals through teamwork Highly ethical, safe, environment-fri
endly and socially responsible business practices.

3.3.
Strategic Objectives
Maximize profitability in the Lubricants business through segmented marketing an
d brand promotion. Explore potential markets for the export of fuels and lubrica
nts. Expand the PSO Cards Business by enhancing the customer base, efficient dis
tribution and brand partnership. Enhance our reach and add to our network of New
Vision Retail Outlets (NVROs). Develop bio-fuels and expand the gaseous fuels b
usiness. Revamp the C-store network; introduce Quick Service Restaurants and dev
elop strategic alliances with local and international franchises. Revamp organiz
ational structure and various functions in line with the best corporate practice
s. Streamline systems and procedures in accordance with the changing business en
vironment. Ensure full HSE compliance in all our operations and try to meet a ze
ro accident objective through effective system development, training, inspection
s and audit. Reinforce quality assurance by acquiring the ISO 9000 quality manag
ement certification of various departments, and expansion of MQTU network.
The existing strategic objectives of Pakistan State Oil are as follows:
6

4. Internal Assessment
Internal environment is essential for any organization as it helps the company t
o formulate and adapt to the new strategies. Pakistan State Oil also needs to as
sess its internal environment before the formulation and implementation of any s
trategy. The internal environment consists of the way of management at the organ
ization, marketing and advertising, financial situation, operational processes a
nd the information management. In this section, we will first discuss the intern
al factors affecting Pakistan State Oil. Later, we will present an evaluation of
PSOs response to the key internal factors using the strategic management tool ca
lled Internal Factor Evaluation Matrix (IFEM).
4.1.
Management
Pakistan State Oil is managed by a Board of Directors called Board of Management
in PSO, headed by Mr. Syed Naveed Qamar, Minister for Petroleum. Mr. Irfan K. Q
ureshi is the Managing Director of the organization and the Board of Management
also have 8 directors. Apart from the Board of Management, there are seven other
committees headed by different directors. Board Audit Committee Board Audit Com
mittee is responsible for recommending to the Board of Management the appointmen
t of external auditors by the companys shareholders and it considers any question
s of resignation or removal of external auditors, audit fees and provision by ex
ternal auditors of any service to the company inaddition to the audit of its fin
ancial statements. The Board of Management is bound to act according to the reco
mmendations of this committee unless there are strong reasons to do otherwise. B
oard Finance and Operation Committee The Board Finance and Operation Committee p
rimarily review the financial and operating plans of the company and all matters
relating to them. It reviews the existing and proposed annual business plans, a
nalyzes the profit margins and approves major operating expenses and suggests ap
propriate measures and remedies to improve company s performance by analyzing th
e economic conditions of the country. Board Human Resource Committee The Board H
uman Resource Committee is responsible for making recommendations to the Board o
f Management to maintain a sound plan of organization of the company, effective
employees development program and sound compensation and benefits plans. Manageme
nt Committee The Management Committee, or Man-Com, is a business strategy commit
tee that meets on a weekly basis primarily to steer and review all key projects
from conceptualization to implementation. Man-Com also reviews budgetary proposa
ls and weeds out non-essential ones. Upon its approval, a final business plan is
prepared and sent for Board approval. It also reviews major business issues and
takes decisions accordingly. Core Leadership Team The Core Leadership Team comp
rises of the Executive Directors and General Managers of the company. It is chai
red by the Managing Director. In this meeting various company initiatives and pr
ogress on different assignments are discussed. 7

Employee Leadership Team The employee leadership team meets on a regular basis a
nd reviews all matters pertaining to human resources including recruitment, tran
sfers, disciplinary actions, promotions and employee benefits. The committee als
o reviews succession plans and organizational developments. Executive Committee
The Executive Committee is another high level committee which meets once in a mo
nth to review dayto-day company affairs. The committee members share their probl
ems as well as key accomplishments with other committee members. It is chaired b
y the Managing Director and it comprises of EDs / GMs / DGMs / Departmental Head
s of the company. An important thing to note is that Pakistan State Oil is a sem
i-government institute while government is having the majority stake of 54% in t
he company, therefore one of the directors is the Joint Secretary (EF&P) and fin
ancial advisor on petroleum and natural resources to the Ministry of Finance. Th
is is one of the reasons that the company has been under influence of various fi
nancial matters such as the issue of the circular debt.
4.2.
Marketing
Pakistan State Oil has introduced various new ways to market the POL (Petroleum,
Oil and Lubricants) products. They were the pioneers of introducing the cards b
usiness in the OMC industry. The customer loyalty cards product is a way to prepay for the future fuel consumption. This product proved beneficial also for the
Fleet and Corporate Card customers. The corporate customer base has increased t
o more than 10,000 corporate accounts serving more than 100,000 customers. Pakis
tan State Oil has also joined hands with United Bank Limited as a corporate part
ner. UBL is the third largest bank in Pakistan having a good customer base in cr
edit card business. UBL has issued Pakistans first Auto Credit Card named; UBL PS
O Auto Credit Card. UBL and PSO are offering high value incentives and discounts
on fuel and other automobile related products on the usage of the Auto Credit C
ard. PSO had also successfully introduced yet another technology-driven initiati
ve for large corporate fleet accounts, namely the Vehicle Identification System
(VIS) that confines the delivery of fuel to authorized vehicles only. Pakistan S
tate Oil also puts greater emphasis on the Non-Fuel Retail (NFR) Business in ord
er to diversify and strengthen the bond with its customers in a bid to provide c
onvenience and services that distinguish it from the competition. Providing a di
versified range of services at strategically selected locations, NFR aims to enh
ance PSOs brand image and generate supplementary revenue for the Company by utili
zing the capacity of PSOs valued retail space and by leveraging the advantage of
a captive target market. Collaborating with renowned local and international ban
ks, PSO has launched financial facilities such as ATMs and Banking Centers that
provide the ease of 24-hour banking services in a secure environment.
8

Customers can also find Pizza Hut and Dunkin Donuts outlets available at selecte
d PSO retail outlets in Lahore and Karachi. As an additional revenue stream, NFR
has also introduced advertising platforms at the retail forecourt and provides
opportunities for distinguished brands to establish in-store alliances for PSOs S
hop Stops. PSO is lagging behind in marketing its Lubricants to the automobile a
nd industrial customers which is proving to be a minor weakness. Despite being a
market leader in the fuel sector, PSO is lagging behind its competitors in the
sales of lubricants.
4.3.
Finances
Pakistan State Oil has a very strong balance sheet if we only go by numbers as i
t has Rs. 182.5 billion assets. In reality, the balance sheet has a huge amount
of receivables and payables. Various government institutions and autonomous bodi
es owe more than Rs. 41 billion to PSO. Power companies like HUBCO and KAPCO als
o owe about Rs. 60.4 billion to PSO. On the other hand, Pakistan State Oil is un
der a heavy debt of Rs. 136 billion to various domestic and foreign suppliers. T
he weak economic condition of Pakistan is clearly shown on Pakistan State Oils ba
lance sheet. The heavy debt incurred by PSO has made the company a very risky pr
ospect for the investors and it has to pay higher financial charges due to the i
ncreased risk of defaults despite of strong revenue stream. The 3-years Balance
Sheet and Income Statement of Pakistan State Oil can be found in Appendix 1.
Table 1 - Financial Ratio Analysis of Pakistan State Oil
Financial Ratios Liquidity Ratios Current Ratio Quick Ratio Activity Ratios Rece
ivables Turnover Average Collection Period Inventory Turnover Total Asset Turnov
er Fixed Asset Turnover Leverage Ratios Debt-to-Asset Ratio Long Term Debt-to-As
set Ratio Debt-to-Equity Ratio Times Interest Earned Profitability Ratios Gross
Profit Margin Operating Profit Margin Net Profit Margin
2010
2009
2008
1.1183 0.8338
1.0666 0.7536
1.2362 0.5709
8.1011 45 20.3132 4.8068 67.8153
8.9341 41 17.6736 4.6882 48.4168
17.2016 21 9.3523 4.5883 51.9274
84.65% 1.61% 5.5164 2.7655
86.40% 1.65% 6.3510 75.64% 1.90% 3.1050 16.4128
3.33% 3.11% 1.03%
0.42% (0.77)% (0.93)%

5.15% 3.85% 2.41%

9

Financial Ratios Return on Asset Return on Equity Earnings Per Share Price-Earni
ngs Ratio Growth Ratios Sales Net Income Earnings Per Share
2010 4.96% 31.20% 52.76 4.9317
2009 (4.36)% (32.09)% (39.05) 2008 11.06% 45.38% 81.94 5.1434
21.92% 235.10% 235.10%
23.33% (147.66)% (147.66)%
41.88% 199.67% 199.70%
The revenues of Pakistan State Oil increase to Rs. 877 billion. The chairman of
Pakistan State Oil has set his sight on the sales target of Rs. 1 Trillion by th
e end of 2012. The cost of goods sold is generally high and about 96% revenues e
arned go to the sales Tax, IFEM and the cost of goods sold. The net profit margi
n is merely 1% in 2010 as the financial charges have increased due to the increa
se of riskiness of Pakistan State Oil. Pakistan State Oil incurred heavy invento
ry losses during 2008-09 due to the fuel prices crashed by 75% from US$ 141/barr
el to US$ 33/barrel. We can also observe that Pakistan State Oil have started to
maintain lesser inventory as the fuel price fluctuation increased. The inventor
y levels have come down from Rs. 62.36 billion in 2008 to Rs. 43.18 billion in 2
010. The decreased inventory levels have helped Pakistan State Oil to increase t
he inventory turnover ratio; but the ever increasing Accounts Receivables have n
ot helped them and the Average Collection Period has doubled to 45 days in 2010,
which was 21 days in 2008. The liquidity ratios for the company do not have any
impact because the major portion of current assets and current liabilities cons
ists of the receivables and payables respectively. Pakistan State Oil has devise
d a strategy of matching the maturities of the current assets and current liabil
ities in order to maintain the liquidity ratios. The little mismatch is covered
by short-term borrowing by the financial institutions. An important point to not
e here is that Pakistan State Oil reported a growth in Sales Revenue over the pa
st 3 years.
4.4.
Operations
Pakistan State Oil is currently engaged in the marketing and distribution of var
ious POL products. In addition to this, it also imports different products accor
ding to their demand pattern and possess the biggest storage facilities represen
ting 80% of the countrys total storage capacity. The company has the largest dist
ribution network comprising of 3,620 outlets out of which 3,384 serve retail cus
tomers, 53 outlets cater to the agriculture sector and 183 outlets serve the bul
k customers. Out of a total number of 3620 outlets, 1,735 have been upgraded as
per the New Vision Retail Program with the most modern facilities. Moreover, the
re are 37 company owned and company operated (Co-Co) sites to serve PSOs retail c
ustomers. The idea of setting up Co-Co sites is to make these stations flagships
under maximum 10

supervision and intense scrutiny to maintain the highest level of efficiency, se

rvice and customer care. In addition to retail customers, more than 2,000 indust
rial units & business houses, power plants and airlines are being catered to by
PSO s different departments. PSO possesses huge infrastructure facilities from K
arachi to Gilgit. This entails 9 installations and 12+1 depots with a storage ca
pacity exceeding 1 million metric tons, representing over 80% of the total stora
ge capacity owned by all oil marketing companies. To optimize storage utilizatio
n, the company has recently also provided hospitality to refineries and other oi
l marketing companies that include Chevron, Total PARCO and Hascombe. The modes
used for the product movement of POL products by PSO include tank lorries, tank
wagons and pipeline. PSO has a fleet of around 6,000 tank lorries. Around 1,200
tank lorries, equipped with tracking and pilfer proof systems, have been upgrade
d as per international standards which are engaged in delivering quality fuels a
cross the country. With the inception of the White Oil Pipeline Project (WOPP) f
rom Karachi to MehmoodKot via Shikarpur& the MFM (MehmoodKot / Faisalabad / Mach
ikey) pipeline, the pattern of supplies from Karachi has drastically changed as
the entire white oil movement from Karachi has been switched over from tank lorr
ies to pipeline. PSO has an equity partnership in this project with a 12% shareh
olding. PSO has set up a state-of-the-art Lubricants Manufacturing Terminal (LMT
) at the Korangi Industrial Area in Karachi to cater to all kinds of lubricant c
ustomers including automotive, hi-street and industrial consumers by meeting the
national demand through products of international standards. PSO is working at
a fast pace for the commercial launch of Ethanol Blended Petrol E10 Gasoline in ma
jor cities of the country. The new fuel E10 Gasoline formulated by blending ten pe
rcent ethanol with petrol has been introduced as part of the governments strategy
to promote alternate energy resources. PSO initiated research and development w
ork on bio diesel in 2008. Tests have been conducted on vehicles and generators.
PSO is now in consultation with the Government of Sindh, the Government of Balo
chistan, the Ministry of Petroleum & Natural Resources, the Ministry of Food Agr
iculture & Live Stock, the Alternate Energy Development Board, the Pakistan Agri
culture Research Council, and the Small and Medium Enterprise Development Author
ity to make further inroads in this important area which has the potential to sa
ve precious foreign exchange for the country
4.5.
Management Information Systems
A state-of-the-art Computerized Maintenance Management System (CMMS) has been de
ployed to integrate all maintenance activities for retail outlets. This system h
as been implemented to ensure complete traceability of complaints regarding all
breakdown issues at retail outlets. It also provides realtime data regarding all
pending complaints along with any repetitive defects in any equipment. The syst
em also serves as an information hub and helps in quick and accurate decision-ma
king. During 2009, PSO was also awarded the ISO/IEC 27001: 2005 Information Secu
rity Management System certification in recognition of its secure multi-site pro
vision of IT Services to PSO offices and Departments. PSO is the first Company i
n the Oil & Gas Industry in Pakistan that achieved this milestone. 11

ISO 27001:2005 reflects the quality certification as per the latest internationa
lly recognized standards that should be implemented by the Information Systems d
epartments of any organization. The objective of ISO 27001 is to provide organiz
ations with a common basis for maintaining information security and assurance fo
r the confidentiality, integrity and timely availability of information assets.
In Pakistan, only 11 organizations including IT companies/software houses mostly
affiliates of foreign companies, are ISMS certified.
4.6.
Internal Factor Evaluation Matrix (IFEM)
Internal Factor Evaluation (IFE) matrix is a strategic management tool for audit
ing or evaluating major strengths and weaknesses in functional areas of a busine
ss. IFE matrix also provides a basis for identifying and evaluating relationship
s among those areas.
Table 2 - IFE Matrix for Pakistan State Oil
Key Internal Factor Strengths Highly managed company with set strategic objectiv
es Highly trained and motivated workforce Storage capacity of 80% of the total c
ountry storage Largest retail outlets network in the country Market leader in al
l types of fuel products Increasing sales revenue over the past 3 years Sole pro
vider of Furnace Oil to Power Companies ISO certified Information Management Sys
tem Strong Research and Development Largest market share in aviation business We
aknesses Low profit margins Government interventions due to semi-government stru
cture Declining market share to small competitors Not a market leader in Lubrica
nts sector High financial charges incurred due to riskiness Total
Weight 0.05 0.05 0.10 0.06 0.10 0.06 0.05 0.05 0.10 0.05
Rating 4 4 4 4 4 3 3 3 4 4
WS 0.20 0.20 0.40 0.24 0.40 0.18 0.15 0.15 0.40 0.20
0.10 0.05 0.10 0.03 0.05 1.00
1 2 2 2 1
0.10 0.10 0.20 0.06 0.05 3.03
The Internal Factor Evaluation Matrix score for Pakistan State Oil is 3.03. It r
epresents that PSOs response to the internal key factors is above average.
12

5. External Assessment
The external environment is always important for a companys performance; as it al
so helps in setting the tone for any organizations future strategies. Pakistan St
ate Oil is no different than other organizations. It has always been affected an
d influenced by the external environment that consists of Consumer Markets, Comp
etitors, Technology, Suppliers, Labor Market, Economic condition and Regulatory
Environment. In this section, we will first discuss a few of the external factor
s which are affecting Pakistan State Oil. Later, we will present an evaluation o
f PSOs response to the external environment using the strategic management tool c
alled External Factor Evaluation Matrix (EFEM).
5.1.
Consumer Markets
Pakistans retail consumer market is much diversified. Customers are not loyal to
any OMC product and they use any available fuel or lubricant. There is also perc
eived low product quality among the retail customers. Retail customers have star
ted to prefer Gaseous fuel over White Fuel which has helped Pakistan in becoming
the largest Gaseous fuel market. The power companies are the major consumers of
the industrial fuel in Pakistan. Apart from these companies other industries li
ke textile also use industrial fuel such as furnace oil and Light diesel oil. Av
iation and Marine sector is also one of the major fuel consuming sectors of Paki
stan.
5.2.
Competitors
Pakistan State Oil is the largest Oil Marketing Company in Pakistan, currently e
ngaged in storage, marketing and distribution of various POL (Petroleum, Oil and
Lubricants) products. It possesses market share of 50.5% in White Oil and 85.9%
in Black Oil markets. Pakistan State Oil has 68.6% of total market share of the
country. Pakistan State Oil is facing fierce challenges from its competitors in
the White Oil market. The market share of PSO is declining constantly from 61%
in 2008 to almost 50% in 2010. PSO, however, is being able to maintain and incre
ase its market share in Black Oil market over the years. PSOs Industry market sha
re had decreased from 71% in 2008 to 68.6% in 2010. The loss of market share in
While Oil industry is sighted as the major cause of decline in the industry mark
et share over the years. PSO lost its market share to AttockPatroleum, TOTAL/PEA
RL and Bosicor (Now Byco Petroleum).
13

0.60%
Industry Market Share
0.50% 0.30% PSO Shell
3.20% 0.70% 4.20% 4.10% 6.40% 11.60%
Attock Patroleum TOTAL 68.60% Caltex Bosicor Hascombe OOT Company Ltd
Figure 2 - Industry Market Share of OMCs as of June 2010
Bosicor has rebranded itself as Byco Petroleum earlier in 2008. It was an oil re
fining company which has also started marketing the petroleum products. It has c
arried out a major marketing campaign within the major cities. It is posing a ma
jor threat to PSOs White Oil retail customer business. Considering that PSO has b
een in the market for more than 35 years and has the biggest storage, distributi
on and selling network in the country, Byco Petroleum will have to work hard for
capturing their share of market from PSO.
100.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Mot
or Gas HSD SKO JP1 LDO FO
PSO Shell Caltex Attock Patroleum TOTAL Hascombe Askar Oil OOT Company Ltd Bosic
or
Figure 3 - Product-wise Market Share of OMCs
On the other hand, TOTAL/PEARL is an OMC of Pak-Arab Oil Refinery (PARCO), which
is a major supplier of the petroleum products to various OMCs in Pakistan. A si
milar trend of Forward Integration by the other oil refining companies might als
o emerge as a threat to Pakistan State Oil.
14

Chevron Pakistan has recently decided to divest its aviation business in Pakista
n and they are seeking bids from the existing OMCs in Pakistan. It can become an
opportunity for PSO to increase the market share of Jet Fuel supply to its avia
tion customers.
5.3.
Suppliers
Pakistan State Oil gets the POL products from many of the major Oil Refining com
panies in Pakistan. The major suppliers are Pakistan Refinery Limited, National
Refinery Limited, Attock Refinery Limited, PakArab Refinery and Byco Petroleum.
PSO holds 18% stakes of the Pakistan Refinery Limited, so are the other OMCs. Th
e three suppliers, in Attock Refinery Limited, Byco Petroleum and Pak-Arab Refin
ery Limited, have their own OMCs as well. Therefore the reliability on these sup
pliers has been reduced and they pose a major threat to PSO.
5.4.
Economic Condition
Pakistans macroeconomic environment faced massive challenges of the war on terror
, the deepening of the financial crisis which pierced into the domestic economy
through a substantial decline in the countrys exports, the return of expatriates
due to layoffs in international markets, a visible slowdown in foreign direct in
flows and the devaluation of the Pakistani Rupee. The oil prices remained stable
between US$ 60 to 80 per barrel, but there was an increase in domestic fuel pri
ces. This increase leads to a decrease in the consumption of the White Oil throu
ghout the country and an upward trend of using CNG (Compressed Natural Gas) in t
he domestic vehicles. Pakistan has become the worlds largest CNG consuming countr
y with around 2.5 million CNG vehicles on the road. The circular debt problem ha
s assumed alarming proportions, threatening Pakistan s future. The IMF and the U
S officials in their recent meetings with Pakistan government have described the
circular debt as a significant threat to the countrys economy. Former finance mi
nister Saukat Tarin quoted that in real terms the circular debt has swelled to R
s. 108 billion which mainly includes non-payment of Rs. 42 billion by KESC, Rs.
21 billion by the government of Sindh and Rs. 15-16 billion from commercial cons
umers to the Pakistan Electric Power Company (Pepco). Unless the government deal
s with the economics of power generation by boldly tackling the issue of growing
circular debt quickly, it will be almost impossible to get the IPPs to fully ut
ilize existing installed capacity, much less attract new investments in the powe
r sector. The economic condition of the country has also slowed down the automob
ile industry in the country. There are still enough vehicles on the road because
the easier automobile financing facility before the global financial meltdown.
The trend of purchasing old cars is increasing as well and the energy demands wi
ll increase in Pakistan. The industrial sector is worst affected by the existing
economic condition, many industries have closed down which is a reason of decli
ne to HSD sales in Metric Tons terms. The demand of Fuel Oil, also 15

known as Furnace Oil, has increased due to its use in energy sector companies su
ch as WAPDA, KESC and IPPs.
5.5.
Regulatory Environment
The fuel prices in Pakistan are regulated by the Oil and Gas Regulatory Authorit
y (OGRA). It reviews the fuel price fortnightly and adjusts the domestic prices
according to the international prices. The Ministry of Petroleum has decided to
deregulate this mechanism earlier this year. Government is planning to transfer
the rights of setting the fuel prices to the Oil Refining companies. It might be
come a threat for PSO because many of its competitors are the forward integratio
n of some of Oil Refining companies.
5.6.
External Factor Evaluation Matrix (EFEM)
External Factor Evaluation (EFE) matrix method is a strategic-management tool of
ten used for assessment of current business conditions. The EFE matrix is a good
tool to visualize and prioritize the opportunities and threats that a business
is facing.
Table 3 - EFE Matrix for Pakistan State Oil
Key External Factor Opportunities Operating in largest CNG consuming country in
the world Increase in the energy demands in the country Deregulation of Oil Indu
stry Chevron is liquidating its aviation business Search for alternate energy so
urces Threats Constantly growing circular debt Unreliable sources of supply (Ref
ineries) Devaluation of Pakistani Rupee Decline in consumption of White Oil Prod
ucts Fluctuation of oil prices in international markets New alternatives to the
industrial energy requirements such as solar energy Deregulation of the mechanis
m of setting fuel prices in Pakistan Scarcity of CNG in the country Forward inte
gration of oil refining companies (suppliers) Total
Weight 0.10 0.10 0.08 0.02 0.05 0.15 0.05 0.05 0.10 0.05 0.05 0.05 0.05 0.10 1.0
0
Rating 4 3 2 2 3 2 2 3 3 2 3 3 2 2
WS 0.40 0.30 0.16 0.04 0.15 0.30 0.10 0.15 0.30 0.10 0.15 0.15 0.10 0.20 2.60
The External Factor Evaluation Matrix score for Pakistan State Oil is 2.60. It r
epresents that PSOs response to the external environment is above average.
5.7.
Competitive Profile Matrix
Competitive profile matrix is an essential strategic management tool to compare
a firm with the major players of the industry. Competitive profile matrix shows
the clear picture about a firms strong and weak points relative to its competitor
s. The Competitive profile matrix for PSO will compare the firm with three impor
tant competitors Shell Pakistan, Chevron (Caltex) Pakistan and BycoPetroleum.
16

Table 4 - Competitive Profile Matrix for OMC Industry

Critical Success Factors Market Share Product Quality Customer Service Customer
Loyalty Storage Capacity Social Responsibility Environmental Issues Marketing &
Advertisement Profit Margins Number of Outlets Total
W 0.20 0.10 0.10 0.10 0.10 0.10 0.05 0.05 0.12 0.08 1.00
PSO Rating WS 4 0.80 3 0.30 3 0.30 2 0.20 4 0.40 3 0.30 4 0.20 3 0.15 2 0.24 4 0
.32 3.21
Shell Rating WS 3 0.60 4 0.40 4 0.40 3 0.30 2 0.20 3 0.30 3 0.15 3 0.15 2 0.24 3
0.24 2.98
Chevron Rating WS 2 0.40 4 0.40 3 0.30 3 0.30 2 0.20 3 0.30 3 0.15 3 0.15 1 0.12
2 0.16 2.48
Byco Rating 1 3 2 1 3 1 1 4 1 1
WS 0.20 0.30 0.20 0.10 0.30 0.10 0.05 0.20 0.12 0.08 1.65
Pakistan State Oil certainly has a competitive edge over its competitors. Shell
is the closest competitor of Pakistan State Oil. Byco Petroleum has recently sta
rted its campaign to acquire the retail customers market share. It will take a lo
t of hard work to Byco to beat the already established OMCs in the industry such
as PSO and Shell Pakistan. Chevron/Caltex Pakistan also poses minor competition
to Pakistan State Oil.
17

6. Strategy Formulation
6.1. TOWS Analysis Matrix
1. 2. 3. 4. 5. 6. 7. 8. Strengths Highly managed company with set strategic obje
ctives Highly trained and motivated workforce Storage capacity of 80% of the tot
al country storage Largest retail outlets network in the country Market leader i
n all types of fuel product Increasing sales revenue over the past 3 years Sole
provider of Furnace Oil to Power Companies ISO certified Information Management
System Strong Research and Development 1. 2. 3. 4. 5. Weaknesses Low profit marg
ins Government interventions due to semi-government structure Declining market s
hare to small competitors
Not a market Lubricants sector
leader
in
High financial charges incurred due to riskiness
9. 10. Largest Opportunities 1. Operating in largest CNG consuming country in th
e world 2. Increase in the energy demands in the country 3. Deregulation of Oil
Industry 4. Chevron is liquidating its
market aviation business
share
in
WO Strategies Acquire majority share in one of the existing Oil Refining Compani
es such as Pakistan Refinery Limited (W1,W2,W3,W5,O2,O3) Build a new Oil Refiner
y (W1,W2,W3,W5,O2,O3) Research and improve alternate energy products such as Bio
-Diesel and E10 (W3,O2,O5)

aviation business
5. Search for alternate energy sources

Threats 1. Constantly growing circular debt 2. Unreliable sources of supply (Ref

ineries) 3. Devaluation of Pakistani Rupee 4. Decline in consumption of White Oi
l Products 5. Fluctuation of oil prices in international markets 6. New alternat
ives to the industrial energy needs such as solar energy 7. Deregulation of mech
anism of setting fuel prices in Pakistan 8. Scarcity of CNG in Pakistan 9. Forwa
rd integration of oil refining companies (suppliers)

SO Strategies Increase CNG retail outlets in major cities and towns of the count
ry (S4,S5,O1,O2) Acquire majority share in one of the existing Oil Refining Comp
anies such as Pakistan Refinery Limited (S1,S3,S5,O2,O3) Build a new Oil Refiner
y (S1,S3,S5,O2,O3) Invest in Chevron Pakistans 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 Ene
rgy (S1,S9,O5) ST Strategies Acquire majority share in one of the existing Oil R
efining Companies such as Pakistan Refinery Limited (S1,S3,S5,T1,T2,T3,T4,T7,T9)
Build a new OilRefinery (S1,S3,S5,T1,T2,T3,T4,T7,T9) Research and develop new p

roducts as White Oil substitute (S5,S9,T4,T8) Diversify in alternate sources of

energy such as Solar and Wind Energy (S1,S9,T6)

WT Strategies Work out a formula and convince government to facilitate PSOs debto
rs to payoff their liabilities to PSO (W2,W5,T1) Diversify in alternate sources
of energy such as Solar and Wind Energy (W3,T6,T8)
18

5.2.
Basket of Available Strategies
The following strategies can be formulated form the TOWS Matrix. We will discuss
each strategy and its rationale in this section. Strategy 1: Acquire majority s
hare in one of the existing Oil Refining Companies such as Pakistan Refinery Lim
ited (Generic Strategy: Backward Integration) This strategy will be useful for P
SO in many ways. There is an increase in the energy requirement in the country e
specially for the furnace oil. Pakistan State Oil imports the furnace oil at hig
her cost and supplies it to the various industrial consumers such as Independent
Power Projects (IPPs) and other industries. This strategy will help in reducing
this cost of goods sold since the refinery will be producing the furnace oil an
d other petroleum products from the crude oil; and crude oil prices are consider
ably low in the international market. The freight charges on the imports will al
so be cut when furnace oil will be produced in the country. It will also help in
increasing the profit margins of the company and improve the credit risk profil
e of the company. It will also help in averting the circular debt problem betwee
n the domestic oil refining companies and Pakistan State Oil to some extent. Gov
ernment of Pakistan is also deregulating the oil industry and the rights to sett
ing the POL products are going to be set by the Oil Refining Companies rather th
an the Oil and Gas Regulatory Authority (OGRA). It will prove beneficial to have
majority share in an oil refining company as it will give Pakistan State Oil so
me control in setting the POL products prices. Pakistan State Oil is also facing
unreliable supply of petroleum products from their existing oil refining compan
ies. Most of Pakistan State Oils competitors are forward integration of these oil
refining companies which prefer their own distribution more than Pakistan State
Oil. Pakistan State Oil has been surviving the challenge because of the Governm
ent majority share in the company. Strategy 2: Build a new Oil Refinery (Generic
Strategy: Backward Integration) This strategy is an alternate to strategy 1. It
has all the benefits similar to strategy 1 but it is more of a longer term solu
tion since developing an oil refinery takes 5 to 7 years, depending on its size
and capacity. Strategy 3: Increase CNG retail outlets in major cities and towns
of the country (Generic Strategy: Market Penetration) There is a huge potential
of increasing Revenues by selling more CNG. Pakistan has now become the largest
consumer of CNG and it has more than 20 million CGN vehicles on the roads. This
strategy might not be as effective as should be because of the scarcity of natur
al gas in the country and Governments inability to acquire new sources of natural
gas. Strategy 4: Invest in Chevron Pakistans liquidating business (Generic Strat
egy: Horizontal Integration) Pakistan State Oil is the largest supplier to JP-1
Jet fuel to the domestic and international airlines but the sales have decreased
in Metric Tons terms during the FY 2009-10. Shell Pakistans market share had mar
ginally increased with Chevrons market share decreased to 1.5% from 3.0% in previ
ous year. Investing/acquiring this business will increase Pakistan State Oil Jet
Fuel market share marginally. 19

Strategy 5: Research and improve alternate energy products such as Bio-Diesel an

d E10 (Generic Strategy: Product& Market Development) There is an increase in th
e energy requirement in Pakistan for both industrial and retail customers. Pakis
tan is the largest CNG consuming country but natural gas is scarce. Alternate fu
el solutions are extremely necessary. Pakistan State Oil can bank upon its stron
g research and development facility to improve its two alternate fuel products n
ames Bio-Diesel and E10 retail fuel. This strategy will help Pakistan State Oil
in two ways. One, it will help them in catering to the increasing energy require
ments and two, it will help them in consolidating the White Oil market share whi
ch they have been losing to small competitors. Pakistan State Oil can use their
market leadership characteristic in developing new markets as well as in penetra
ting the existing markets for these new products. Strategy 6: Diversify in alter
nate sources of energy such as Solar and Wind Energy (Generic Strategy: Concentr
ic Diversification) The strong research and development department can also help
Pakistan State Oil to diversify the business to other related energy products s
uch has Solar and Wind energy. It will help in catering to the increasing energy
requirements in Pakistan. Strategy 7: Research and develop new products as Whit
e Oil substitute (Generic Strategy: Product Development) The scarcity of natural
gas in the country and declining trend of White Oil brings out another opportun
ity to develop a new substitute for the white oil. Pakistan State Oil has the re
search and development team which have been developing new fuel products. Strate
gy 8: Work out a formula and convince government to facilitate PSOs debtors to pa
y off their liabilities to PSO (Generic Strategy: No Specific Strategy) The circ
ular debt has caused the major problems for the whole Pakistan economy. Pakistan
State Oil is worst affected by the circular debt as many debtors owe around Rs.
108 billion to PSO. On the other hand, PSO also owes around Rs. 136 billion to
various creditors such as domestic and international oil refineries and various
financial institutions. Pakistan State Oil needs to work out a formula so that t
hey can convince government to facilitate their debtors to pay off liabilities t
hey owe to PSO. It will not be an easy task but mid-term strategy of 3 to 4 year
s can be devised where Government can pay off its on debt to PSO which is about
Rs. 41 billion. They can also facilitate the entities like KAPCO and PEPCO to pa
y off their bills of around Rs. 60 billion over a certain period of time. Pakist
an State Oil can use this cash stream to pay their debts to various other ORCs a
nd financial institutions to bring debt-related ratios of their books down. Othe
r Strategies There are some other strategies which Pakistan State Oil can adopt,
Increase marketing of lubricant
which were not present in TOWS analysis matrix.
products to capture more market share in lubricants sector (Generic Strategy: M
arket Penetration) 20

5.3.
SPACE Matrix
The SPACE matrix is a management tool used to analyze a company. It is used to d
etermine what type of a strategy a company should undertake. The Strategic Posit
ion &ACtion Evaluation matrix or short a SPACE matrix is a strategic management
tool that focuses on strategy formulation especially as related to the competiti
ve position of an organization.
Table 5 - SPACE Matrix Components Calculation
Financial Strength Return on Asset Leverage/Debt Management Net Income Earnings
Per Share Inventory Turnover Industry Strength Growth Potential Financial Stabil
ity Ease of Entry in the industry Resource Utilization Profitability Environment
al Stability Rate of Inflation Technological Changes Competitive Pressure Barrie
rs of Entry Competitive Advantage Market Share Quality Customer Loyalty Technolo
gical Knowledge Control over suppliers and distributors Conclusion Industry Stre
ngth Average is: 16.0/5 = 3.10 Financial Strength Average is: 14.0/5 = 2.80 Dire
ctional Vector Coordinates: x-axis = IS + CA = 3.10 2.60 = 0.50
Rating 3.0 2.0 3.0 4.0 2.0 14.0 3.0 3.0 3.0 5.0 2.0 16.0 -4.0 -3.0 -4.0 -2.0 -13
.0 -1.0 -2.0 -4.0 -2.0 -4.0 -13.0 Competitive Advantage Average is: -13.0/5 = -2
.60 Environmental Stability Average is: -13.0/4 = -3.25 y-axis = FS + ES = 2.80
3.25 = -0.45
21

-6
-5
-4
-3
-2
6 5 4 3 2 1 0 -1 -1 0 -2 -3 -4 -5 -6
1
2
3
4
5
6
Figure 4 - SPACE Matrix for Pakistan State Oil
The graph falls in 4th Quadrant of the SPACE Matrix which suggests that Pakistan
State Oil need to adopt competitive strategies. The competitive strategies incl
ude all the integrative and the intensive strategies. The SPACE Matrix also sugg
ests that the company should bank upon the industry strength rather than on the
environmental stability while making its strategies.
5.4.
Grand Strategy Matrix
Grand Strategy Matrix has become a popular tool for formulating alternative stra
tegies. Any organization can be positioned in one of the Grand Strategy Matrixs f
our strategy quadrants. The Grand Strategy Matrix is based on two evaluative dim
ensions: competitive position and market growth. Pakistan State Oil operates in
a rapid growth industry, since the annual sales revenue grow by more than 5%. Th
e company has a very strong competitive position as it is the market leader in a
lmost all the areas of operation in the industry.
Rapid Market Growth
PSO Weak Competitive Position Strong Competitive Position
Slow Market Growth
Figure 5 - Grand Strategy Matrix for Pakistan State Oil
22

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 o
f the markets as well as products (intensive strategies) is an appropriate strat
egy for Pakistan State Oil. Pakistan State Oil can also adopt integrative and re
lated diversification strategies.
5.5.
BCG Matrix
The BCG matrix is a chart that helps corporations with analyzing their business
units or product lines. This helps the company allocate resources and is used as
an analytical tool in brand marketing, product management, strategic management
, and portfolio analysis. While analyzing an industry, this Matrix can also be u
sed to place various companies according to their relative market share with res
pect to the industry leader and the companys growth in the industry. Pakistan Sta
te Oil is the overall industry leader among all Oil Marketing Companies. Its gro
wth has also been good over the past 4 years. 1 20 PSO 0.5 0
STARS
0
QUESTION MARKS
Market Growth Rate
CASH COWS
DOGS
-20
Relative Market Share
Figure 6 - BCG Matrix for Pakistan State Oil
According to the BCG Matrix, Pakistan State Oil is a Star
rowth and highest market share. Considering the fact that
any slowness in growth may only push it down to become a
matrix suggests integrative and intensive strategies for

company which higher g

it is a market leader,
Cash Cow. Currently, BCG
Pakistan State Oil.

5.6.
Internal-External (IE) Matrix
The Internal-External (IE) matrix is another strategic management tool used to a
nalyze working conditions and strategic position of a business. The Internal Ext
ernal Matrix is based on an analysis of internal and external business factors w
hich are combined into one suggestive model. 23

4.0
3.0
2.0
1.0
EFE Matrix Total Weighted Score
3.0
PSO
2.0
1.0
IFE Matrix Total Weighted Score
Figure 7 - IE Matrix for Pakistan State Oil
Pakistan State Oil is located in 4th Quadrant of IE Matrix. The company should a
dapt grow and build strategies which include integrative and intensive strategie
s.
5.7.
Decision Matrix
The decision matrix method is a quantitative technique used to rank the multi-di
mensional options of an option set. It is frequently used in engineering for mak
ing design decisions but can also be used to rank investments options, vendor op
tions, product options or any other set of multidimensional entities such as str
ategic options from a basket of strategies.
Table 6 - Decision Matrix for Pakistan State Oil
Generic Strategies Forward Integration Backward Integration Horizontal Integrati
on Market Penetration Market Development Product Development Concentric Diversif
ication Conglomerate Diversification Horizontal Diversification Joint Venture Re
trenchment Divestiture Liquidation
SPACE Matrix Y Y Y Y Y Y N N N N N N N
Grand Strategy Matrix Y Y Y Y Y Y Y N N N N N N
BCG Matrix Y Y Y Y Y Y N N N N N N N
IE Matrix Y Y Y Y Y Y N N N N N N N
Total 4 4 4 4 4 4 1 0 0 0 0 0 0
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. The following sets of strategies may then be
considered as the one strategic option for the company in next 5 years to 7 year
s. 24

Strategy A This strategic option will consist of the backward integration strate
gies along with the strategy to overcome the debt problem of the company. The fo
llowing strategies will be a part of this strategic option.
Acquire majority sha
re in one of the existing Oil Refining Companies such as Pakistan Refinery Limit
ed Build a new Oil Refinery for the long term competitive advantage Work out a f
ormula and convince government to facilitate PSOs debtors to pay off their liabil
ities to PSO
Strategy B This strategic option will consist of the market penetration strategi
es along with the strategy to overcome the debt problem of the company. The foll
owing strategies will be a part of this strategic option.
Increase CNG retail ou
tlets in major cities and towns of the country Increase marketing of lubricant p
roducts to capture more market share in lubricants sector
Strategy C This strategic option will consist of the productand market developme
nt strategies along with the strategy to overcome the debt problem of the compan
y. The following strategies will be a part of this strategic option.
Research an
d improve alternate energy products such as Bio-Diesel and E10 Research and deve
lop new products as White Oil substitute Work out a formula and convince governm
ent to facilitate PSOs debtors to pay off their liabilities to PSO
Now we will evaluate these three strategic options using the Qualitative Strateg
ic Planning Matrix (QSPM).
25

5.8.
Qualitative Strategic Planning Matrix
W Strategy A AS TAS 2 4 4 1 3 4 3 2 2 4 2 4 4 4 2 3 2 4 2 2 4 4 4 0.20 0.40 0.32
0.05 0.45 0.20 0.15 0.20 0.10 0.20 0.10 0.40 0.20 0.40 0.12 0.30 0.12 0.20 0.20
0.20 0.20 0.40 0.20 5.31 Strategy B AS TAS 4 2 1 2 1 1 1 3 1 1 1 1 1 1 4 2 4 1
1 1 2 2 2 0.40 0.20 0.08 0.10 0.15 0.05 0.05 0.30 0.05 0.05 0.05 0.10 0.05 0.10
0.24 0.20 0.24 0.05 0.10 0.10 0.10 0.20 0.10 3.06 Strategy C AS TAS 1 3 3 4 2 3
2 4 3 3 4 3 2 3 3 4 3 2 4 4 3 3 3 0.10 0.30 0.24 0.20 0.30 0.15 0.10 0.40 0.15 0
.15 0.20 0.30 0.10 0.30 0.18 0.40 0.18 0.10 0.40 0.40 0.15 0.30 0.15 5.25
Key Factors Opportunities Operating in largest CNG consuming country in the worl
d Increase in the energy demands in the country Deregulation of Oil Industry Che
vron is liquidating its aviation business Search for alternate energy sources Th
reats Constantly growing circular debt Unreliable sources of supply (Refineries)
Devaluation of Pakistani Rupee Decline in consumption of White Oil Products Flu
ctuation of oil prices in international markets New alternatives to the industri
al energy requirements such as solar energy Deregulation of the mechanism of set
ting fuel prices in Pakistan Scarcity of CNG in the country Forward integration
of oil refining companies (suppliers) Strengths Highly managed company with set
strategic objectives Highly trained and motivated workforce Storage capacity of
80% of the total country storage Largest retail outlets network in the country M
arket leader in all types of fuel products Increasing sales revenue over the pas
t 3 years Sole provider of Furnace Oil to Power Companies ISO certified Informat
ion Management System Strong Research and Development Largest market share in av
iation business Weaknesses Low profit margins Government interventions due to se
mi-government structure Declining market share to small competitors Not a market
leader in Lubricants sector High financial charges incurred due to riskiness To
tal
0.10 0.10 0.08 0.02 0.05 0.15 0.05 0.05 0.10 0.05 0.05 0.05 0.05 0.10 0.05 0.05
0.10 0.06 0.10 0.06 0.05 0.05 0.10 0.05 0.10 0.05 0.10 0.03 0.05 2.00
26

5.9.
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, we recommend strategic option C
to Pakistan State Oil which stands second in QSPM with the score of 5.25. Strate
gic option C consists of Market Development and Product Development strategies o
f alternate fuel products of Pakistan State Oil. The company has already been wo
rking on the two new products namely, E10 which is blended fuel targeting the ef
ficient performance of the retail customers vehicles and Bio-Diesel which is prod
uced 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. The company may still be facing the threat from its suppliers f
or unreliable supply of POL products and it may also not have an upper hand in s
etting the fuel price despite being an industry leader, but the 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 compet
itive advantage to the company and more control on setting the fuel prices, but
it cannot be adopted for various reasons. Pakistan State Oil has very high debt
ratios and very low net income margins we do not recommend strategic option A to
the company because this option is more capital intensive. PSO will already be
working with the Government of Pakistan to convince them to facilitate its debto
rs to pay off their liabilities to PSO; therefore they cannot expect the Governm
ent to rise funding for any new acquisition or construction of the Oil Refining
Company. 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 comp
any may, however, adopt this strategy after resolving the debt issues and bringi
ng down its financial costs; by that time the company must focus on acquire more
market share in the alternate fuel business.
27

6. Strategy & Long Term Objectives

6.1. Strategy
Pakistan State Oil needs to adopt the combination of following Low-cost Leadersh
ip, Market and Product development strategies.
Research and improve alternate en
ergy products such as Bio-Diesel and E10 Research and develop new products as Wh
ite Oil substitute Work out a formula and convince government to facilitate PSOs
debtors to pay off their liabilities to PSO
6.2.
Long Term Objectives
To work with Government of Pakistan to reduce companys portion of circular debt b
y 60% by FY 2017. To increase profitability to at least 6% by end of FY 2015 To
have at least 25% revenue in FY 2016 from the alternate fuel products To have re
venue growth of at least 7% per annum till FY 2017 To enhance the E-10 blending
facility at 60% storage facilities by FY 2013. To improve and launch Bio-Diesel
as a substitute of White Oil by FY 2014. To train employees to adapt to technolo
gy advancements in alternate fuel by FY 2015.
Here are the long term objectives for Pakistan State Oil.
6.3.
Comparison of Long Term Objectives
The existing strategic objectives of the company, given in section 2.3, are also
related to the intensive strategies of Market Development, Market Penetration a
nd Product Development. The proposed Long Term objectives back the strategies ad
opted by the company at the moment of increasing its market share by using Inten
sive strategies.
28

7. Strategy Implementation
7.1.
Recommendations
Board of Management must purse with the Government of Pakistan on a formula to r
educe the companys portion in the circular debt of the country. The Ministry of P
etroleum, Ministry of Finance, the Finance Department of Pakistan State Oil and
the related finance departments of the debtors and creditors of the PSO need to
sit together to reach on an agreement to discharge their liabilities to each oth
er. A 5-year plan must be devised in this regard before the end of FY 2012 and t
he implementation of this plan need to start from FY 2013 till FY 2017. The decr
eased debts and receivables will help stabilize the company and the economy in g
eneral. This stability will translate into higher net profit margin. Increase th
e supply of alternate fuel, especially E-10 blended fuel, to all the retail outl
ets of the country by FY 2014. It can be achieved by installing Fuel Blending fa
cility at 20 out of 30 storage facility of the country by the end of FY 2013. Th
e E-10 fuel can be carried in the existing modes of transport of fuel such as ta
nk lorries, therefore its availability at all the retail outlets is possible. Th
e increased availability of alternate fuel at the retail outlets will in turn in
crease its portion in the total revenues. The lower production cost will help in
increasing the gross profit margin. Research, in collaboration with Singaporean
and Malaysia OMCs, on Jatropha fruit (edible) oil to produce more cost-efficien
t, environment-friendly fuel as a substitute of White Oil and CNG. Pipri Marshal
l Yard is being used as the research facility at the moment. Plantation of Jatro
pha seed is recommended on large scale in order to produce sufficient Bio-Diesel
for launching the product and maintain uninterrupted supplies. Arrange for trai
nings in Singapore and Malaysia for having the basic knowledge and innovative wa
ys of extracting fuel-oil from the non-edible seeds. It will help to produce alt
ernate fuels more efficiently.

29

8. Specific Objectives
Table 7 - Specific Objectives for Pakistan State Oil Departments
Operations 2011-12 2012-13 Logistics 2011-12 2012-13 Supply 2011-12 2012-13 2013
-14 2014-15 2015-16 Construction & Retail Facility 2011-12 2012-13 2013-14 Each
Year Procurement 2011-12 2012-13 2013-14 Each Year Retail Fuel 2011-12 2012-13 2
013-14 2014-15 2015-16 Legal 2012-13 2014-15 Finance 2011-12 2012-2017 2012-2017
Arrange for stand-by tank lorries in the country, 70 in Punjab, 50 in Sindh, 15
in Khayber Pukhtunkha and 15 in Balochistan. Arrange for additional stand-by ta
nk lorries in the country, 100 in Punjab, 75 in Sindh, 30 in Khayber Pukhtunkha
and 20 in Balochistan Ensure the import of 15,000 metric tons extra HSD for E-10
fuel Ensure the import of 40,000 metric tons extra HSD for E-10 fuel Ensure the
import of 70,000 metric tons extra HSD for E-10 fuel Ensure the import of 100,0
00 metric tons extra HSD for E-10 fuel Ensure the import of 140,000 metric tons
extra HSD for E-10 fuel Install fuel blending facility at the 8 major storage fa
cilities in large cities of the country (4 in Punjab, 2 in Sindh, 1 in Khayber P
ukhtunkha and 1 in Balochistan). Install fuel blending facility at the 12 storag
e facilities in the country. (4 in Punjab, 4 in Sindh, 2 in Khayber Pukhtunkha a
nd 2 in Balochistan)
Ensure the availability of storage tanks for E-10 at 800 retail outlets in the c
ountry. Ensure the availability of storage tanks for E-10 at addition 1200 outle
ts (2000 in total) Ensure the availability of storage tanks for E-10 at addition
1600 outlets (3600 in total) Ensure that any new retail outlet has storage tank
for E-10 fuel Ensure the procurement for the dispensing units for E-10 fuel for
800 retail outlets Ensure the procurement for the dispensing units for E-10 fue
l for additional 1200 retail outlets Ensure the procurement for the dispensing u
nits for E-10 fuel for addition 1600 retail outlets Ensure that there are dispen
sing units available in inventory for new retail outlets Achieve alternate fuel
sales equal to 2% of total annual sales Achieve alternate fuel sales equal to 5%
of total annual sales Achieve alternate fuel sales equal to 11% of total annual
sales Achieve alternate fuel sales equal to 18% of total annual sales Achieve a
lternate fuel sales equal to 25% of total annual sales Get the patent for E-10 f
uel for the next 15 years Get the patent for Bio-Diesel for the next 15 years En
sure to have an agreed plan for circular debt removal in collaboration with the
Government ministries and related parties such as debtors and creditors Ensure t
hat the agreed plan is being carried out Ensure that the Net Profit Margin is in
creased by 1% each year.
30

Appendix 1 - Finances
Balance Sheet
as of ASSETS Non-Current Assets Property, Plant and Equipment Intangibles Long T
erm Investments Long Term Loans, Advances and Receivables Long Term Deposits and
Prepayments Deferred Tax Current Assets Stores, Spare Parts and Loose Tools Sto
ck in-trade Trade Debts Loans and Advances Deposits and Short Term Payments Othe
r Receivables Taxation Net Cash and Bank Balance Net Assets in Bangladesh EQUITY
AND LIABILITIES Share Capital Reserves Non-Current Liabilities Long Term Deposi
ts Retirement and Other Service Benefits Current Liabilities Trade and Other Pay
ables Provisions Accrued Interest/Markup Short Term Borrowing Taxes Payable 136,
532,117 688,512 391,404 12,918,724 1,015,614 151,546,371 182,484,554 110,123,702
688,512 556,380 18,654,526 130,023,120 153,421,643 81,067,565 726,116 217,928 1
0,997,908 726,703 93,736,220 127,110,020 931,837 2,002,363 2,934,200 854,718 1,6
73,020 2,527,738 834,598 1,574,148 2,408,746 1,715,190 26,288,793 28,003,983 1,7
15,190 19,155,595 20,870,785 1,715,190 29,249,864 30,965,054 109,182 43,182,366
108,277,693 756,822 320,341 13,630,913 3,263,488 169,540,805 182,484,554 112,143
40,698,209 80,509,830 418,015 551,803 12,806,779 709,627 2,883,118 138,689,524
153,421,643 115,814 62,360,067 33,904,728 396,220 401,433 15,681,790 3,018,640 1
15,878,692 127,110,020 6,312,778 40,324 2,390,408 289,979 90,721 3,819,539 12,93
4,749 6,987,025 68,872 2,153,514 405,870 83,655 5,033,273 14,732,119 March 2010
June 2009 June 2008 (Rupees in 000)
7,460,549 105,502 2,701,097 477,745 79,098 407,337 11,231,328
31

Income Statement
Jul09 to Jun 10 Gross Sales Sales Tax and IFEM* Net Sale Cost of Products Sold Gro
ss Profit Other Operating Income Operating Expense WPPF & WWF Other Income Profi
t/(Loss) from Operations (EBIT) Financial Costs Share of Profit of Associates Pr
ofit/(Loss) before Tax Taxation Profit/(Loss) after Tax (Net Income 877,173,254
(134,415,303) 742,757,951 (713,591,707) 29,199,244 1,479,054 30,645,298 (8,080,5
68) (1,331,317) (9,411,885) 6,095,348 27,328,761 (9,882,010) 17,446,751 516,401
17,963,152 (8,913,556) 9,049,596 Jul08 to Jun 09 719,282,176 (106,586,587) 612,695
,589 (609,685,478) 3,010,111 1,451,666 4,461,777 (10,815,121) (10,815,121) 776,6
86 (5,576,658) (6,232,056) (11,808,714) 451,850 (11,356,864) 4,658,329 (6,698,53
5) Jul 07 to Jun 08 (Rupees in 000) 583,213,959 87,935,426 495,278,533 (465,254,907
) 30,023,626 1,396,527 31,420,153 (9,283,021) (9,283,021) 313,860 22,450,992 (1,
367,898) 21,083,094 294,318 21,377,412 (7,323,617) 14,053,795
*IFEM = In-Land Freight Equalization Margin
32

Appendix 2 Organization Chart

Managing Director
Executive Director (Finance & IT)
Executive Director Supply
GM Information System
GM Finance
GM Operations
GM Logistics
GM Supply
GM Construction and Retail Facilities
Executive Director Marketing
GM Procurement
GM Retail Fuel
GM Industrial Customers
GM Aviation, Marine & Export
GM Lubricants
DGM CNG & LPG
DGM Non-Fuel Retail
DGM Cards
GM Alternate Energy & New Business Dev.
GM Quality Assurance
DGM Health Safety & Environment
GM Human Resource
GM Legal
GM Security Services and Administration
33