Case Study 9

Revitalization of Pakistan State Qil

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On May 12, 2004, Tariq Kirmani, Managing Director and Chief Executive Officer, Pakistan State Oil (PSO) was in his office thinking about the turnaround strategy he had initiated at PSO, a public sector enterprise. He was assessing whether enough had been done to institutionalize the changes implemented at PSO to maintain and further improve its present market leadership position. He wondered if the same strategy would be enough to take the company to a higher level of operations, or if he would have to further modify it. Kirmani was also concerned that in this highly dynamic and intensely competitive environment, PSO's market leadership' position should be maintained. Furthermore, since he was unsure of the length of the tenure of an MD/CEO in a state enterprise due to political factors, Kirmani realized the urgency with which he had to move- forward to ensure that the changes already implemented were embedded in the culture of the company. He knew that without this, the changes already implemented would not be sustainable, especially since there were still a number of employees who had not moved with the change programme, whose mindset was still reactionary.. There was ,danger of the employees upsetting the change initiative.

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COMPANY PROFILE

Pakistan State Oil was one of the two major oil marketing companies in the country. It came into being on January 1, 1974 when the federal government took over the management of Pakistan National Oil (PNO) and Dawood Petroleum Limited (OPL), and renamed them Premier Oil Company Limited (POCL) under the Marketing of Petroleum Products (Federal Control) Act, 1974. On June 3, 1974 the Petroleum Storage Development Corporation (PSDC) was taken over by the government and was renamed the State Oil Company Umited. The government merged PNO arid POCL into the State Oil Company Limited (SaeL) and on December 30, 1976 renamed it the Pakistan State Oil Company T .imitpcL

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By 2003, the Government of Pakistan owned, either directly or indirectly; nearly 54 per cent shares of the Pakistan State Oil Company Limited. PSO also owned the following subsidiaries which have since been disposed of: Auto Oils (Pvt) Limited, Gizri Lubricants (Pvt) Limited, Mideast Oil and Grease Corp. (Pvt) Limited, Aremai Petroleum (Pvt) Limited, Salsons Lubricants (Pvt) Limited, Petro Lube (Pvt) Limited, Petro Chemicals (Pvt) Limited, Mohsin Lubricants (Pvt) Limited and Saliin Petroleum (Pvt) Limited.

PSO was the oil market leader in the country, enjoying a 79 per cent share of the black oil market and a 59 per cent share of the white oil market. It was engaged in import, storage, distribution and marketing of various POL products, including mogas, HSD, fuel oil, jet fuel, kerosene, LPG, CNG and petrochemicals.

PSG, now a blue chip company, member of the World 'Economic Forum and winner of the Karachi Stock Exchange's Top Companies Award, became a topic for case studies in Pakistan and abroad, largely due to its turnaround strategy over the past four years.

OIL INDUSTRY IN PAKISTAN

Pakistan, a modest producer of oil and gas, imported 70 per cent of its crude oil requirements. The country was self-sufficient in natural gas, although this status was likely to change with future demand increase.

The state-owned Oil and Gas Development Corporation (OGOC) was the most important player in Pakistan's oil industry. Pakistan Petroleum Ltd (PPL), established in 1950, pro~uced the bulk of the natural gas.

Foreign companies currently operating in Pakistan included British Petroleum (which produced approximately 50 per cent oil and 9 per cent natural gas); British Gas; Lasmo; OMV; Gaz de France; Shell and Unocal.

During the fiscal year 2003-4, the overall consumption of petroleum, oil and lubricants in Pakistan showed a negative growth of 5.8 per cent due to the reduced consumption of fuel oil. White oil (mogas, HSO, JP-I and SKO) recorded a growth of 1.4 per cent while black oil (Fa and LDO) registered a decline of -16.2 per cent.

The petroleum, oil and lubricants (POL) industry in Pakistan was made up of two major players, PSO and Shell Pakistan. Caltex came in third, Totale Parco was fourth and Attock Petroleum had the smallest share of the market. PSO was the largest oil marketing company, facing competition from these players.

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Pakistan State Oil 197

In 1928~ to enhance their distribution capabilities, the business interest of Royal

....... Dutch/Shell Group and the Burmah Oil Company Limited in India were merged, resulting in the birth of the Burrnah Shell Oil Storage & Distribution Company of India. After Independence in 1947~ the name was changed to the Burmah Shell Oil Distribution Company of Pakistan.

In 1970~ when 51 per cent of the shareholding was transferred to Pakistani investors, the company's name was changed to Pakistan Burmah Shell (PBS) Limited. Shell and the Burmah Group retained the remaining 49 pe:r cent in equal proportions. In February 1993~ as. economic liberalization began to take root and Burmah divested from PBS, Shell Petroleum stepped in to raise Its stake to 51 per cent. The years 2001~2 saw the Shell Petroleum Company successively increasing its share, and now had a 76 per cent stake in Shell

Pakistan Ltd (SPL). .

The deregulation of the industry in July 2001 had intensified the competition for oil marketing companies since inventory gains due to price fluctuations had disappeared after linking domestic prices with international ones. Due to this shift in the business environment, the performance of companies in the industry was contingent on technological advantage, efficient operations management, product innovation, proactive marketing and customer satisfaction.

Shell Pakistan

The Shell brand name enjoyed more than a 100~year history in this part of the world, dating back to 1899. This was the time when Asiatic Petroleum, the marketing arm of Shell Transport Company and Royal Dutch Petroleum Company, began importing kerosene oil from Azerbaijan to the subcontinent. The documented history in the Indo-Pakistan subcontinent dated back to 1903 when a partnership was struck between the Shell Transport & Trading Company and the Royal Dutch Petroleum Company to supply petroleum to Asia.

Caltex

Caltex was a part of Chevron Texaco Corporation, the third largest global energy company in terms of global oil reserves and the fourth largest in terms of global oil and natural gas production. Chevron Texaco operated in 180 counties with 51,000 employees, 12 billion barrels of oil reserves, 24,000 service stations, over 2.2 million barrels of refinery capacity and fuel product sales of 3.5 million barrels per day.

The company had been operating in the subcontinent since 1938 and had, apart from its main oil storage facility in Karachi, twelve depots throughout the country which included three inland terminals in Rawalpindi, Machike and Shikarpur. The company's .retail outlet consisted of 501 outlets located across the country as well as a widespread distribution network catering to the demands of the

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ind ustrial and agricultural sectors.

Caltex had greatly increased the level of its investment in Pakistan over the past decade. The most recent major investment had been in 'acquisition and further development of the LPG business of the Sui Northern Gas Company Limited (SSGCL). Caltex had also acquired 11 per cent equity in the White Oil Pipeline that was being constructed.

Attock Petroleum Limited (APL)

APL was granted a marketing license in February 1997 and a certificate of commencement of business in May 1997. APL was part of the Attock Oil Company which was incorporated with limited liability in the United Kingdom on December 1, 1913. APL's sponsors included Pharaoh Commercial Investment Group Ltd and Attock Oil Group of Companies (AOe).

The main objective of APL was to establish a group company in the downstream petroleum sector related to marketing of petroleum products in Pakistan, which had historically been restricted to the other three major players in this field.

After government approval, APL had been able to effectively penetrate the market by competing with established marketing companies in a short period " and had now achieved recognition in the market as an important player.

APL had successfully completed and commissioned a storage terminal in Morgah, Rawalpindi, in less than a year through its own resources. The terminal was connected to Attock Refinery Ltd through a pipeline. The APL terminal had storage for high speed diesel, premier motor gasoline, kerosene oil, solvent oil and mineral turpentine oil. Furnace oil was being added and was expected to be commissioned by the end of the current fiscal year.

At present APL owned 50 petrol pumps, 13 construction and 29 were awaiting goverrunentapproval. APL had also introduced its own brand of lubricants in the market. The company planned to eventually extend its business to new 'geographical areas with a view to expanding its market share.

ORGANIZATIONAL STRUCTURE OF PSO

The apex body at PSO was. a fully autonomous Board constituted with full statutory powers unde!" the Companies Ordinance, 1984. The non-executive Chairman of the Board was Pervaiz Kausar. Other members were Tariq Kirmani, Muhammad Iqbal Awan (Financial Advisor, Ministry of Petroleum & Natural Resources), Naeem Baig (Ioint Secretary, Ministry of Petroleum & Natural Resources), Tariq Iqbal Khan (Chairman & MD, National Investment Trust Ltd), Istaqbal Mehdi (President, Zarai Taraqiati Bank), Karnran Mirza (Chairman' and MD~ Abbott Laboratories), Arshad Said (Former Senior. Executive, Shell

Pakistan State Oil 199

Pakistan}, Iftikhar Ahmed Soomro (Chief Exec & Director, Sindh Fine Textile Mills Ltd) and Asad Umar (Senior Vice President, Engro Chemicals Pakistan Ltd). The Board was assisted by three committees in its work: Finance COmmittee, Audit Committee, and HR Committee.

PSO had adopted a hybrid structure that combined functional and matrix forms. Three executive directors were handling each of the following areas: Customer Services, Finance and IT, and HR and Services. In addition, a Corporate Planning function was added to the organization in 2001 headed by a general manager who directly reported to the MD/CEO. Four special organizational vehicles were also established to ensure a higher degree of integration, coordination, performance monitoring, and financial discipline.

The Management Committee was a smaller body and reviewed strategic issues and performance. It met on a weekly basis. The Executive Committee, on the other hand, was a much larger forum created for the purpose of internal communication and also to provide executives the opportunity to express their concerns of company operations which affected its performance. This committee also met weekly.

The third committee, more specialized in nature, was responsible for tackling issues relating to Compensation, Organization and Employee Development (COED). The fourth, an Internal Audit Committee, directly assisted the MD/ CEO in ensuring fiscal prudence and compliance to audit requirements (see Exhibit 1).

PROFILE OF TARIQ KIRMANI, CEO

Tariq Kirmani was an experienced professional with over 34 years of multifaceted experience in the petroleum marketing sector. Of these 34 years, seven were spent in the United States, the United Arab Emirates, and Australia in senior management positions with a multinational oil company.

Soon after completing his Masters in Business Administration, Kirmani embarked upon a rewarding career. His first assignment, which spanned almost three decades from August 1969 to December 1998, was with a multinational oil company of which he became the first Pakistani company director in 1991. He held senior level management positions in marketing (15 years), operations (10 years), and finance (7 years) in Pakistan and overseas.

Kirmani joined Pakistan State Oil as Deputy Managing Director, Marketing in April 1999, and took over as Managing Director in July 2001.

He was also serving as Director of several companies: Pakistan Refinery Limited (PRL), Pakistan Telecommunications Company Limited (PTCL), Pakistan Steel

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Mills (PSM), and Pak Grease and Asia 'Petroleum Ltd (APL). In addition, he was a Member of the Railways Board, Oil Companies Advisory Committee (OCAC), and the Board of Governors, Lahore University of Management Sciences (LUMS), Pakistan. He was also a member of the World Economic Forum (WEF), the National Committee of the World Energy Council (WEe) as well as the Pakistan Petroleum Institute (PPI), Pakistan Advertisers Society (PAS) and the Marketing Association of Pakistan (MAP).

'REVITALIZATION STRATEGY

Recognizing the Need According to Kirmani:

PSO was losing its market share due to a lack of a sound business model to follow. It was unable to undertake short and long term business planning supported by a proper capital budgeting system. 'The old capital budgeting system was antiquated and incapable of providing any meaningful information for quality decisions.

The overall performance of the company before the year 2000 had been declining. It was encumbered with several litigations, and had difficult dealers and transporters to deal with. These two group_s opera ted like a mafia and were able to manipulate and exploit the management most of the time.

The HR department, though experienced, lacked modern professional knowledge and tools. As most of the employees had been' working in PSO for a long time and the company was a state owned enterprise, they were reluctant to accept any changes in the status quo. Inductions and promotions were not based on merit and political and social influence was widely used to seek organizational favours. The parchi system, small slips of paper containing external political or social recommendations, had become the operationalnorm both for vacancy filling and career advancement. This approach had led to manpower redundancy in various functional areas and at different levels.

Citing an example concerning loyalty to the company, Kirmani mentioned an incident involving his General Manager, Marketing. In 2000, Kirmani had a delegation from abroad attending a meeting in PSO. He invited the General Manager, Marketing to join him in the meeting and it was here that Kirmani heard him inform the delegation that, 'I never use my own company's petrol due to its substandard quality.'

This stunned Kirmani. He immediately issued a memo ordering all PSO employees to purchase only PSO petroleum products. According to Kirmani:

Pakistan State Oil 201

This showed the level of loyalty, especially amongst the senior managers of the company; and by this one could gauge their attitude towards improving the company's performance and impresstonin the marketplace. -

Kirmani described how PSO offices had dilapidated furniture with outdated computer facilities. In most PSO offices antiquated typewriters were still in use (see Exhibit 2). According to Amjad, General Manager, Corporate Planning:

The physical infrastructure was simply out of tune with the present day organization's work environment. Prior to 2000, PSO did not have a system ,of corporate planning, capital budgeting or rigorous performance review.

According to a mid-level manager:

The old approach of PSO was based on historical budget lines and box-like thinking. The attitude of the senior corporate members could be summed up as, 'since work has always been conducted in this way, it will continue to be done in this way'. This attitude clearly showed a lack of sensitivity to market and industry dynamics.

According to the Executive Director, Finance, the financial reporting system did not match the need of different constituencies. It was deficient in presentation, form and content and needed to be improved in the light of the Securities ~d Exchange Commission of Pakistan's good governance practices.

The opinion in the market was that Shell symbolized quality while PSO did not. PSO was not only lacking in its customer focus: it also had no concept of brand management. There was no emphasis on market research; and no attention paid to customer loyalty or customer feedback.

Under these circumstances, any mention of change within PSO generated negative vibes in the old guard. Many of the old employees were convinced, and persuaded the rest, that any new change would not affect the current situation. The opposition to revitalizing PSO was quite vocal at times.

According to Kirmani:

Most PSO employees were hesitant in openly discussing their opposition to the turnaround strategy I had initiated. So most resorted to sending anonymous letters of complaints to the Ministry of Petroleum, National Accountability Bureau (NAB) and the Federal Investigation Agency (PIA).

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THE BUSINESS MODEL

Kirmani joined PSO in April 1999 as Deputy Managing Director, Marketing. Shortly after that, Shaukat Mirza joined the c.ompany as Managing Director in 2000 and continued in this position till his death in July 2001. It was immediately recognized by both Mirza and Kirmanithat without developing a sound framework of strategic business planning, capital budgeting, investment evaluation, perfonnance monitoring and review, no meaningful change was possible.

According to Kirmani, Mirza took the first step to tum PSO around. One very important initiative undertaken by Mirza pertained to the creation of a corporate planning function in the company. He inducted a highly qualified and experienced professional to lead this function. This initiative was considered absolutely essential to disengage the company from its past business practices that had resulted in the loss of its market share, and also to design a new business model underpinned by best management practices.

The business model adopted to revitalize PSO consisted of strategic analysis, strategy development and strategy implementation. This triangular business modelled to the development of a corporate strategy which included: strategic plan, annual corporate business plan, individual business/product line strategies, competitive analysis, capital resource optimization plan, operational performance indicators, corporate social responsibility, and performance monitoring and review (see Exhibit 3).

In addition, the organizational principles guiding this model were based on the premise that PSO must be globally competitive, customer focused and innovative in its products, environmental friendly and socially responsible. It was also decided that internally, the workplace must present a modern work environment, professionalism, and youthful energy;

Lastly, it was felt by the leadership that in order to mobilize commitment to the -turnaround strategy a new, shared vision was of utmost importance.

IMPLEMENTATION STRATEGY

After a number of iterations and discussions, the company crafted a new vision and mission 'statement and set of values (see Exhibit 4). According to

Kirmani: '"

..

The new, shared vision was a perspective on both old endings and new beginnings at PSO. Many young managers at PSO felt that this new vision was the death of the old systems and business practices and the rebirth of a new social and organizational architecture.

Pakistan State Oil 203

Strategic Shift

In order to improve and strengthen PSG's competitive position in the market, a number of new products had been launched since 2001 (see Exhibit 5). The company also embarked upon a proactive marketing strategy in the form of 'New Vision' outlets which in four years hadgr~wn to 833. The management approved a new logo for PSG in order to embed its transformation into the emerging culture (see Exhibit 6).

According to Kalim Siddiqui, Executive Director, Customer Service:

PSO Loyalty Cards were launched to facilitate customer convenience. An automated carwash service was also provided. Prior to the turnaround strategy, PSG had no market research orientation. Now a new function, Market and Media Research was established. PSG products became environmentally friendly and emitted less smoke. These changes converted PSO from a supply driven company to a customer focused organization.

GOVERNANCE AND LEADERSHIP

PSG was now governed by an mdependentBoard, the majo~ty of which was drawn from the private secfor, The Management Committee, as an integral part of the governance structure, was playing a vital role in consolidating strategic business plans and capital budgets, and approving investment projects based on thorough economic evaluation. The Committee met once a week to

monitor and review corporate performance against targets. '

In order to provide dynamism and vitality to the transition phase, a strong need for transformational leadership was felt by the senior management team.

According to Amjad, General Manager, Corporate Planning: .

This leadership style included confronting ground realities, modeling desired new behaviour, developing a shared new vision, reshaping the culture and environment, strengthening coordination and feedback mechanisms, communicating progress, and bridging transformational skill gaps.

Kirmani described his own leadership style:

I had to' be credible in the eyes of my people. If I did not 'walk the talk' then my people would label me a hypocrite. I was demanding, had a low tolerance for failure to meet commitment but I was always accessible, decisive, fair and judicious, energetic, and willing to make tough but humane calls. I was consistent without exception, gave and got .r-espect. and modeled best behaviour at all times. I, like all PSG employees, swiped my entry card to enter the company premises. I also disposed of the exclusive elevators and cafeteria for the' upper management. This move was quite unheard of in

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public sector enterprises.

Kirmani believed in constructive confrontation through direct and open com.m.unication with his staff. He cited an example to substantiate this claim:

An outside source informed me that a female PSO employee had complained of harassment in the workplace. This was extremely disturbing, as we now had a large number- of female employees at PSO. Such a situation, if true, could and would not be tolerated. I called an urgent meeting of the female staff and asked them about what I had heard. I asked them if such a complaint existed and if anyone would own up to it. I was assured by them all that such complaints were rumours and quite baseless.

Most of the younger managers had various views concerning Kirmani's leadership style: 'The MD's style was domineering and, at times, intimidating' and, 'It was Mr Kirmanis strong and decisive personality that turned PSO around.'

Leadership Succession

As part of the transition, a senior management team was inducted in PSO to build a strong coalition, essential for a successful transition, and to develop future successors for Kirmariis position. At the top of the hierarchy, three Executive Directors and a General Manager, Corporate Planning were inducted, who reported directly to the MD. This was an attempt by Kirmani to develop multiple leaders in the company. For this he had identified global competitiveness,

. result orientation, customer focus, cost consciousness and trust to be the 'foundations of the attitudes of successful leaders.

Systems Infrastructure

In order to develop a new social and organizational architecture and a systems infrastructure, PSO did not rely on external consultants. Instead, it developed the system on its own with Corporate Planning playing a key role. While deciding an organizational and operational approach to implement the new business model, PSO leadership felt that it needed .to provide a conceptual framework within which to carve out an .implementation strategy.

This framework emphasized the 'seven pillar' approach. The approach included concepts such as establishing strategic business units, matrix management, shared support functions, enhanced coordination and cost effectiveness, efficient and more rather than less communication, and enhanced accountability for results.

The implementation of the seven pillar approach had to be underpinned by a number of systems and processes. These systems-and processes were considered .essentlal to institutionalize the changes being implemented to tum PSO around.

Pakistan State Oil 205

Therefore, development of systems such as the Corporate Performance Reporting System (CPR) and the Capital Resource Planning, Management and Optimization System (CAPEX System) was undertaken.

CPR operated by way of obtaining and analyzing up-to-date sales and expense information relating to products and business units, translating it into comparable benchmarks and conducting comparisons of the present level of performance with past and planned levels.

CPR was a powerful analytical tool and control mechanism, which served as a watchdog to ensure that implementation of the Corporate Business Plan was on course and the performance milestones were being achieved on time. It also helped in better understanding the corporate business and establishing the primacy oJ the Strategic Business Units with clear allocation of responsibility and accountability.

Concurrently, matrix management was adopted to avoid duplication of resource

. deployment as well as to have shared support functions. This resulted in enhanced coordination and cost effective operations. Also, the Executive Committee served as a platform for wider communication with the executives, _ leading t.o operational efficiency.

The CAPEX System facilitated understanding, development and implementation of the Corporate Investment Plan as well as online management of capital resources. It also helped eliminate the irritants inherent in manual budget operations, including appropriation, re-appropriation, re-allocation, contingency utilization, record reconciliation, reporting, and periodic monitoring and review. This system was now available online to various relevant functional and business units.

HUMAN RESOURCES CHALLENGES

A number of other initiatives were taken to implement the revitalization strategy. Kirmani considered human resource the key resource for corporate transformation. First, the company offered. a Voluntary Separation Scheme in April 2001 and 750 employees opted for the scheme of their free will.

PSO was now recognized as an equal opportunity employer and al l appointments were approved by the Compensation Organization & Employees Development Committee. The company had adopted a performance-based system in which diligent work was recognized through incentives, promotions,

awards, and letters of appreciation. .

Enumerating the changes in the profile of present employees, J alees Siddiqi, Executive Director (HRM Management & Services), said that over the past three

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years of the transition, the employees' profile complexion had undergone a major transition (see Exhibit 7). He added that employee appraisal and development had also changed substantially.

Aside from new forms for this purpose, the band's classifying performers had also been changed to be liberal in providing incentives for sustained high performance (see Exhibit 8). The Executive Director, HR, and some other newly inducted managers claimed that compensation packages at PSO were now

- market driven and liberal in acknowledging employee contribution.

The work environment had been made more conducive and modern to encourage the use of IT (see Exhibit 9). A gymnasium had also been added for employees to maintain their physical fitness and to relax, with a view to be more productive organizational members. In this way PSO rewove its social fabric, and the I elitist' mentality prevalent in the past fast diminished.

Teamw_ork

The 'concept of cross-functional teams had been implemented to develop teamwork and -team spirit. In addition, a business process reengineering exercise was implemented to streamline work processes and remove redundant layers. As a result of greater stress on efficient processes and fewer organizational layers, team decision making had become more efficient.

Some managers, however, felt that the procedures were still bureaucratic and the approval process -cumbersome. Elaborating the importance of teamwork at PSO, Kirmani said, 'We believe teamwork and group dynamics produce miracles.'

FINANCIAL RESULTS

The financial results achieved over the past 3 years and more bore testimony to the above claim- of miracles (see Exhibit 10). Capitalized approximately US $ '742 'million as of June 2004, PSO posted a turnover of US $ 3.6 billion in 2003 and a profit after tax of US $ 70 million.

PSO's systems and procedures had been extensively reviewed and evaluated, by leading professionals. While acknowledging PSO's corporate transformation, the independent international Financial Advisory Consortium, JP Morgan, made special mention of the .~eforrn approach adopted by PSO in their Information

Memorandum. prepared for the Privatization Commission. '

According to Amjad:

Today PSO is recognized as a model of corporate turnaround in the world. The company is also one of the most sought after sources of corporate advice

Pakistan State Oil 207

and guidance in Pakistan. It has won global recognition of corporate excellence, made possible due to dedicated and hard work of the highest professional standards in different areas by many people. Undoubtedly, this would not have been possible without teamwork.

An internationally renowned management scholar, Professor Roderick Martin, acknowledged PSO's remarkable corporate turnaround as:

The direction of structural change has been identified, which has increased decentralization, management autonomy and the change from reliance on managerial authority to teamwork and the delegation of responsibility. The purpose of the structural change was to increase the flexibility of the firm and its ability to respond to different market conditions.

Several major business enterprises had approached PSO to replicate its corporate planning model. Due to its corporate excellence, PSO ranked among the top global companies and became a member of the World Economic Forum. This membership was given to PSO based on stringent and innovative criteria, and was a unique distinction for PSO as a Pakistani company. When asked to explain how this unprecedented turnaround was achieved, Amjad said:

The achievement at PSO and its international acclaim as a Pakistani state company was the outcome of professional teamwork and the foresight of its

leadership. .

INSTITUTIONALIZING CHANGE

The basic framework for corporate reform, in line with modern concepts and practices, was in _place. This included streamlining the investment planning process, developing a model for business-wise and product-wise profitability analysis and also developing a comprehensive corporate plan.

The role of PSO's Management Committee had been redefined. This committee now became a vehicle to provide shared strategic direction to the company, and to monitor PSO's corporate renewal and market success. Presentations to the Committee utilized numeric and graphic depictions of how the company measured up, not only against the industry but also against itself. Committee meetings provided useful corporate exposure and learning opportunity to young professionals, who were encouraged to participate in the deliberations of this forum.

At the time this case was written, every department in the company, particularly each business unit, had a robust Annual Business and Investment Plan. Together, the Corporate Plan and Departmental Business and Investment Plans formed a cohesive and dynamic strategic planning framework supported

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by processes which had helped in adopting sound corporate governance practices. Most processes had been reengineered and were now well documented.

With0llt a well-established and competitive framework of corporate systems, no company could achieve what PSO had been able to by relying on its inhouse expertise. The GM Corporate Planning and his team played a key role here. The in-house systems development enabled PSO professionals to internalize the systems essential to institutionalize changes.

Corporate ~lanning developed a corporate model to work as a capstone on PSO's transformation initiatives. This model tracked success from corporate policies and management behavior through employee attitude to customer satisfaction and financial performance. It provided an effective framework to analyze various elements of PSO's corporate renewal programme in context of classical and modern research.

This corporate model triggered and facilitated various landmark studies on PSO as well as consideration andrecogrdtion of the company's achievements by international forums.

SUSTAINABILITY CHALLENGE

First, the inhouse systems development enabled PSO professionals to internalize the systems which became instrumental in effective implementation of the strategy. Second, the orientation at PSO had moved away from its previous characteristics before the transition to a new revitalized state. This transition meant that PSO had moved from a company directed by state orders, striving for government support and funding, low employeeproductivity, and high debt and fiscal imprudence, to a company driven by market forces, striving for market share and earnings, with emphasis on operational efficiency and higher

profits. -

According to Kirmani:

PSO has moved away from what was typical of a public sector company to a market-driven company. The distinguishing features between these are: from distribution oriented to customer focus; from large and centralized to lean and decentralized; from government control to managerial autonomy; from operational myopia to strategic shared vision; from diffused responsibility to ownership and accountability; and finally from petroleum sale only to a broader business base, business diversification and vertical integration.

Kirmani ranked PSO's current institutionalization efforts as 7.5 on a scale of 1 to 10 (pre-turnaround it was -3) for he felt that the attitude of some employees

Pakistan State Oil 209

still needed to be changed. About 10 per cent of the employees were not convinced about the viability of the company's turnaroundbut, in Kirmani's opinion, they were convincible.

SHALL HISTORY REPEAT ITSELF?

During PSO's turnaround many small victories had been celebrated on the journey to revitalize the company. He and his team were extremely satisfied over how PSO had journeyed from an obsolete, struggling company to a market leader.

However, Kirmani wondered if all this was enough to sustain PSO's transformation. The question of whether enough had been done to embed the changes in the culture of PSO to ensure its sustainability after he was gone, especially when the company was still a state enterprise, continued to haunt Kirmani. He wondered if the same strategy would be enough to take the company to a higher level of operations, or if he would have to further modify it. He was also concerned about maintaining PSO's market leadership position in this highly dynamic and intensely competitive environment. At times while sitting in his office, Kirmani would try to respond to these questions and an inner voice would ask: shall history repeat itself at PSO?

210 CaseStudy9

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Exhibit 3 Revitalization of Pakistan State Oil

New Corporate Planning Document

Preamble
Vision
Values
Industry Overview - FY
Opera ting Plan
• Corporate Objectives &: Strategies
• Performance Targets
• Expense Budge
Capital Budget
• Capital Budget and Appropriation Report
• Capital Budget and. Expenditure Report
• Status Report on Projects Carried Over
• Break-Up of Carryovers
• Capital Budget
- ~-~ - - -_ -_
• Comparison of Capital Budgets &: Carryovers
Business-Wise Inveshnent Plans
• Retail
Aviatiort & Marine -- -

• Lubricants &: Chemicals
• Industrial Consumers
• LPG
• Operations
Information Systems _

• Administra tion
• HSE·
Appendices
• Project Economics
• Business-Line W'i!Ie Volume Projections
'. Business-Line Wise Profitability Projections Source: Company documents

.... :

Pakistan State Oil 213

Exhibit 4 Revitalization of Pakistan State Oil -

New Shared Vision, Mission Statement, Values _

VISION

To excel in delivering value to customers as an innovative and dynamic energy cotnpany that gets to the future first

MISSION STATEMENT

We are committed to leadership in energy market through competitive advantage in provid ing the highest quality petroleum products and services to our customers, based on:

• Professionally trained, high quality, motivated workforce, working as a team in an environment, which recognizes and rewards performance, innovation and creativity, and provides for personal growth and development

• Lowest cost operations and assured access to long-term -arid cost effective supply sources

• Sustained growth in earnings in real terms

• Highly ethical, safe, environment friendly and socially responsible business practices.

VALUES

Exceltence: Passion for Customers, Total Quality Management, Corporate Leadership .

Cohesiveness: Teamwork, Effective- Communication

Respect: Respect for Individuals, Valuing Contribution, Equal Opportunity

Integrity: Business Ethics, Honesty

Innovation: Creative ideas, New products and processes

Corporate Responsibility: Health, Safety, Environment, Community Development

Source: Company documents

214 Ca~ Study 9

i

Exhibit 5 Revitalization of Pakistan State Oil

List of New Products Launched by PSO (Small Packs)

Castrol Range

PCMO (Passenger Car Motor Oils)

Product Name API Level
GTX Magnetic SL/CF
GTXPlus SJ/CF
GTX SG/CD
XL SF/CC
DEO (Diesel Engine Oils)
Product Name API Level
CRUltra CH:-4/SG
CRPlus ...... CF/SF
CR40 &50 CC/SD
Motorcycle Oil
Product Name API Level
Activ4-T SG&JASOMA
PSORange
PCMO (Passenger Car Motor Oils).
Product Name API Level
Carient Plus SC/CD
Carlent Extra SD/CC
Carlent . ~ SC/CC
PSOCNGOil SF/CD
DEO (Diesel Engine Oils)
Product Name API Level
DE08000 CH-4/SG
DE03000 CO/SE
DE01000 CC/SC
....
Motorcycle Oil
Product N arne API Level
Blaze-7 SF&JASOMA
PSO 2-Stroke Oil JASOFB Source: Company documents

Pakistan State Oil 215

Exhibit 6 Revitalization of Pakistan State Oil

The different logos of PSO

Old Logo of Pakistan State Oil

New Logo of Pakistan State Oil

Pakistan State Oil

Source: Company documents

216 Case Study 9

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~ ~ en co I"'- co I.r.I o;;t ~ N ~ Exhibit 8 Revital'izationof Pakistan State Oil

Appraisal Analysis

0ut8taI'ICIlng

Inadequate

Pakistan State Oil 217

year 2OCJQ:2001

Outstanding ·5%

Above Average 20%

Average 50%

Below Average 20%

Inadequate 5%

Year 2001·2002

OUtstanding 5%

Above Average 20%

Average 50%

,Below Average 20%

Inadequate 5%

Olllllhlnding

A_,.ge

..... :

Outatandlng

Source: Company documents

Inadequate

year 2OO2·20Q3

Outstanding 5%

Above Average 20%

Average 55%

Marginal/ }

Inadequate 20%

218 Case Study 9

Exhibit 9 Revitalization of Pakistan State Oil New PSO - Maintaining a Professional Workplace

Source: Company documents

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