Change Management

In
Pakistan state oil (PSO)
By M.S.Afridi
MBA University of Wales

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 Table of contents.

1 Table of
contents……………………………………………………………………….2
2 Preface Change management……………………………………………………
3
3 Company profile………………………………………………………………………
.4

2 Change in
PSO…………………………………………………………………………….5

2.1 Why change was needed in

PSO…………………………………………………5

2.2 Internal
Problems…………………………………………………………………………5

2.3 External
Problems…………………………………………………………………….…5

3 Transformation Strategy of
PSO………………………………………………….6

3.1 New
Vision…………………………………………………………………………………..6

3.2 Mission
statement………………………………………………………………………..6

3.3 Long term

Objectives…………………………………………………………………….6

4 Implementation of new strategy

………………………………………………….7

4.1 Restructuring
………………………………………………………………………………..7

4.2 Employee Empowerment and Development

………………………………..7

4.3 Efficiency & transparency in decision

making………………………………..8

5 Results of
Transformation………………………………………………………………8

6 The System approach to change in

PSO………………………………………….9

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 6.1 The intervention
strategy……………………………………………………….........10

7 Critical analysis
……………………………………………………………………………..11

7.1 Matrix structure of

PSO…………………………………………………………………...11

7.2 The Top Down approach

………………………………………………………………..11

8 conclusion
………………………………………………………………………………..........12

9 References
……………………………………………………………………………………...12

Preface.

Change Management.

We live in a world full of change. The ability to change even became a platform
on which the 2008US presidential election was fought. It is a continue process,
we could not stop it, because of the evolutionary process in our environment,
technology, knowledge, social value etc. good knowledge of change is a key of
survival in 21st century. In my opinion every organisation need to adopt the
environmental changes (internal and external) in order survive and grow.

Change management is a systematic approach to deal effectively with change,

from the perspective of an organisational and individual level. In the real world
change must be defined, sold and control on some level. For the successful
implementation of change an organisation we have to examine tens elements of

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change which are 1 defining vision, 2 mobilisation, 3 catalysing the change
process, 4 steering the change, 5 delivering change, 6 obtaining participation,7
handling emotions, 8 training and coaching for new environment ,9 handling
power issue and 10 communicating pro-actively. These are the main basic
elements of any change management process.

In this report we will examine the practical change process an organisation, the
strategy they used, the process of implementation, the model they adopted for
the change process, the impact of change on organisation, the result of the
change process on organisation and the critical analysis of the process.

Pakistan state oil (PSO).

1 Company overview.

Pakistan state oil (PSO) was found in the mid-70s when the Government
integrated three “Oil Marketing Companies”: Pakistan National Oil (PNO),
Dawood Petroleum and premiere oil company limited (POCL), (official website). The
government of Pakistan initially had maintained a 54 percent stake in the
company, but in 2000 government start its privatisation and reduced its stake,
down to 25.5 percent in 2005. PSO is the market leader of Pakistan`s energy
sector and largest oil marketing company in the country, currently engage in
storage, distribution, and marketing various POL products. The company enjoy
the largest 3600 retail outlets to serve the customers across the country. PSO
also provides Jet Fuel to Refuelling Facilities at 9 airports in the country and ship
fuel at 3 ports. The company has 82.3% share in black oil market and 61.8%
share in white oil market and with overall 71% market share. PSO also enjoys
around 36% market participation in lubricants with its own brand name Castrol.
The company contribute 80% share in imports of oil products in the country. It
has one million storage capacity (76% of the total national storage) in 13 storage

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depots all over the country. Major competitors are shell Pakistan, Caltex, total
Parco and attock petroleum.

1.1 Products.

➢ Oil
• HSD
• Fuel oil
• Jet fuel
• Kerosene
➢ Natural Gas
• LPG
• CNG
• LNG
➢ Petrochemical

2 changes in PSO.

From 2001 to 2004 PSO has gone through radical changes, both internal and
external, and has emerged with a new outlook. PSO’s comprehensive and far-
reaching corporate reform programme which resulting in dramatic corporate
transformation has been widely appreciated at various national and international
forums. This transformation programme covers the following three main areas.

1. Organisation restructuring.
2. Employee empowerment and development.
3. Efficiency and transparency in decision-making.

2.1 Why change was needed in PSO.

The newly inducted professional management scanned the environment of the

organisation and analyze the factors (internal and external) that had been
affecting the organization’s performance and its business. After the detailed
study of the corporation`s past performance, they come up with the suggestions
that the following problems, have to be resolved for the sack of corporate
productivity.

2.2 Internal problems

• Out dated system.

• Lack of automation.
• Lack of quality professionals.

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 • No sound Business vision.
• Bureaucratic management culture.
• Ineffective organisational structure.
• Heave reliance on inventory gain.
• The company losing its market share due to decline products quality and
bad customer service.

2.3 External problems

• Political intervention.
• Aggressive marketing and development by competitors
• High regulated environment.
• Rapid products substitution in the market.
• New players in the market.

3 Transformation strategy of PSO.

It was realized some years ago that PSO need some changes at the management
level. The first step was taken by the PSO to recruit some professional market
experts from out side the organisation. This was result in the appointment of new
Deputy Managing Director (Marketing). In early 2000 the ministry of petroleum
and natural resources took the bold initiative and restructured PSO`s board of
management, they selected the good reputed professionals. They separated the
position of CEO and non-executive chairman of the board. The board of
management is assisted by three sub-committees; the Human resource
committee, the Audit committee, and the finance committee. The main purpose
of these committees was to review both policy and implementation of new
initiative.

This organisational restructuring of PSO made it possible to successfully lunch

the implementation of new initiative in all its operations. But before to lunch
new strategy they redefined the vision, mission and both short and long-term
objectives. The summery of which is below.

3.1 Vision.

To excel in delivering value to customers as an innovative and dynamic

energy company that gets to the future first.

3.2 Mission.

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 Committed to leadership in the energy market through competitive
advantage in providing the highest quality petroleum products and services
to our customers, based on

• Professionally trained, high quality, motivated workforce, working

as a team, which recognizes and rewards performance, innovation
and creativity, and provides for personal growth and development.
• Lowest cost operations and assured access to long-term and cost
effective supply sources.
• Sustained growth in earnings in real terms.
• High ethical, safe, environment friendly and socially responsible
business practices.

PSO management has effectively conveyed its vision to all employees.

3.3 Long term objectives.

PSO management set the following long-term objectives for the organisation.
They emphasis on future direction as an energy solution as well as non fuel
retail, the main objectives are:

• Establishing reputation as an energy company.

• Non fuel retail (NFR) establishment.
• Retain market leadership in all keys products.
• Establishing PSO as a brand of choice for customers.
• Utilization of all available resources.
• Adopting culture of social responsibility.

4 Implementation of new strategy.

4.1 Restructuring.

The implementation of new policy and initiatives was really tough challenge for
PSO. Now this is a place where an organisation can succeed or fail to deliver the
real change. In 2000 PSO was started the change process with the
restructuring of organisation and its corporate structure has evolved in to a
matrix, which has divided the organisation majors operations in to independent
activities supported by the financial, legal, information and other services. They
introduced the business unit concept, these units are performing in an
independently and responsibly in the form of strategic business units, based on
clear and transparent allocation responsibility and accountability. (According to
General Manager Interview of PSO)

They reduced the unnecessary layers making PSO more lean and flexible. In this
regard they introduce Voluntary Separation Scheme (VSS), due to the
confidentiality and sensitivity of the project, VSS was handled by General
Manager Training & organisational development and the MD (at that time
shaukat Raza Mirza) it self, to avoided interference from other people in the

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organisation. The main reason of VSS was to down size the company or to get
ride of those who not fit in new setup, 30% workforce was reduced i.e. 750
employees opted by VSS (312 management 438 non management). As we can
see from the name of the scheme “Voluntary Separation” it’s mean that they not
putting any kind of pressure on employee to opt or not. This scheme was
successfully completed and major bunch of employees separated who was
seeing themselves as not fitting in to new culture and organisational structure of
PSO.

4.2 Employee empowerment and development.

There was no strict control and check on employee, they never fulfil their
responsibilities and even most of them not stay full time at offices (according to web
sit). The training and organisational development department started training
and development of the employees. They adopted a strict policy for change in
attitude of employees quite intensively by creating a sense of participation,
openness, integrity, and keeping in focus the company`s vision, values and long-
term objectives in all training activities. In order to keep more strict check and
control on employee, they introduce a hand scan system in offices, which mean
it will record the exact time employee has been worked. PSO was set a pace in
order to bring change in all aspects of the organisation and its system. During
the implementation phase, PSO was updated and revised the Human Resource
policies. They adopted a proper performance management system, which was
based on bell curve methodology. PSO not only successfully implemented this
new strategy and but employee also accepted it (According to G.M.T.PSO interview). In
order to establish productivity and high performance culture, they introduced
Proper reward system; they announce two awards yearly “performance award”
and “Excellence award for best performer. They also focus on employee salary
and benefit, accordance with market based pay and benefit structure.

According to PSO general manager(interview on website) “at PSO today, human

resource is seen as the single most important factor that can, and does, bring
about change, it is only a fully empowered, satisfied and motivated professional
workforce that guarantee success”. Before the new reform strategy there was
no practically implemented policy for the development and training of employee
in the organisation. Because of the organisation highly centralise and
bureaucratic structure employee was feeling little responsibility. PSO developed
and brought the share value culture among the employee, through collective
efforts, they have been able to develop among employee the value of integrity,
health & safety, environmental concern, customer satisfaction, quality and
productivity, leadership and team work and respect for the individual and
employee growth and development. (According to G.M. of PSO, interview) They
lunched a training programme for the employee to develop their skill,
competence and productivity according to fulfil the need of the organisation.
They had been trained more then 10000 employees since 2000 and 7000 PSO
driver have given Defensive Deriving Training to carry POL product safely, in
addition more then 10000 were trained on customer service courtesies. The

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training programme was consist on teambuilding, presentation skill, sale and
marketing, leadership, computer based project management, ethic, customer
service etc.

4.3Efficiency and transparency in decision-making.

PSO has adopted Mix Matrix strategy (according to GM, PSO interview on website). They
emphasize and want to see not only quick decision making ability in their
management but also transparency in them. They gave more attention to
teamwork, formation of many cross functional team to help decision making and
implementation of new policy. Before the change there was a bureaucratic style
of management and decision making process was not so transparent. To achieve
efficiency and transparency in decision making process, they enhance the
empowerment of employee through commissioning of authority and the
participation of employee has been encouraged at all level. This way a
bureaucratic and hierarchic setup was ended and a new task driven organisation
evolved.

PSO has come from Sami-computerise to a fully computerised organisation

where SAP (German software) has been selected to integrate the whole PSO, in
order to make sure that all business decisions are based on accurate and up to
date data from more then 50 locations was great achievement for PSO. (According
to G.M. of PSO interview)

5 Results of transformations.

Over all transformation policy was successful. According to PSO official website
“effective implementation of corporate reform and consistent application of the
best industrial practices and business development strategies, that PSO has
been able to maintain its market leadership in a highly competitive business
environment”. The summary of the result is following.

∗ Customer serves is improved

∗ The organisation became decentralized from centralization.
∗ Managers became more autonomous.
∗ More check on transparency and accountability.
∗ Task driven organisation, stress on team work and share responsibilities.
∗ Improved brand image, (by improving products quality and by good
customer service).
∗ Introduction of new vision outlets, equipped with all modern facilities e.g.
auto car washing
∗ More focus on training and development of employee.
∗ Market share increase from 65% to 71%.
∗ Profitability increased.

Rs.million

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Years. 2005 2004 2003 20002 2001 2000

Sales 253,77 195,13 206,37 182,323M 195,039 135,040M

Revenue 7 0 6 M

Profit after 5,656 4,212 4,030 3,188 2,251 2,231

Tax
(Source official web site)

6 The system Approach to change in PSO.

A system –based intervention strategy is a powerful change management tool.

“The intervention strategy model(ISM) is based on the premise that messy
change situation may be effectively manage through the application of system
thinking” (Ackoff,1999). This is hybrid model which is firmly based on the
traditional investigation techniques associated with the school of operational and
system management.

By definition system is an organized assembly of various components which are

related in such way that the behaviour of one individual component will effect
the overall status of the system. Its mean any process or activity could be a
system, so we can take PSO as a system. A system approach provides clarity,
understanding and sense of direction. More importantly it provides a mean of
tackling knowledge management related change events and gets things started
(McLaughlin et al., 2006). A system must have a predetermined objective that
the interrelated components strive to achieve. In case of PSO, they had clear
objectives.

6.1 The intervention strategy.

An intervention strategy may be regarded as the procedural methodology for

successfully intervening in the working processes of the original system. The
ultimate result should be a stable new environment, which in incorporates the
desired change. After the analysis of PSO intervention strategy, it seems and fit
to some extent in intervention system model(ISM). Intervention system model
share the following three basic phases approach.

• Definition phase.

In this phase we define our strategy of change, its nature, impacts and
formulization. Identification of problems is must important part of this phase. In
case of PSO they did the same, first they scanned and analysed the whole
system (organisation) and identified the problems which they were facing and
then they formulized the change strategy.

• Evaluation phase.

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This phase involved in generation of options and potential solution to the
problems. A wide range of techniques are available for option generation, e.g.
attitude survey, brainstorming, Delphi, interview, desk research etc. There is no
clear picture about the option generation in the case of PSO, but solution to the
problem is obvious. e.g. restructuring of organisation, empowerment and
development of employees etc.

• Implementation phase.

This is the practical phase of our intervention strategy, our objectives are clear
and current, options selected and review, and the system well defined and
understood. Now all that is left is to introduce the change to the system, but for
this we need a sound strategy. There are three basic implementation strategies
available which are:

1. Pilot studies: it gives opportunity to review the change.

Assumption and procedure can be tested. Future acceptance of the
fully implemented change will increase, but it also delays full
implementation process. PSO was not adopted this strategy.

2. Parallel running: Slow phase out old system, as the new becomes
more reliable and understood. We can not really see this strategy in
PSO.

3. Big bang: this strategy maximizes the speed of change but it can
also generate maximum resistance to the change. This is the
strategy which PSO was adopted.

System approach to intervention strategy in PSO.

Phases PSO

Definition phase. Identified problems e.g internals and

external problems.

Evaluation phase. Solution to the problems e.g.

restructuring, employee development
etc.

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 Big bang strategy. e.g. restructuring,
Intervention phase. recruitment of experts etc.
Parallel strategy. e.g. empowerment and
development of employees etc.

7 Critical analysis of PSO.

7.1 Matrix structure of PSO.

Bartlet and Ghoshal (1990) made the point that the strategies that are followed
by leading corporations have outstripped the abilities of organisational structures
to support them. They suggested that there is a ‘structural-complexity’ trap that
paralyses the ability of companies to react quickly to market needs. According
to Saint Luke who wrote ‘no man can serve two masters’.

The main objection to the matrix structure concern its ability to create confusion
over who reports to whom, loss of accountability and ineffective information
management. There is also danger of evolving unproductive power struggles as
priorities shift toward self-interest and political posturing. Matrix structures do
not have to apply to an entire organisation and so may only apply to one part of
it. So the adaptation of matrix structure by the PSO was not wise decision at all.

7.2 The top down approach.

Change in an organization can be introduce by two ways “top down or bottom up

approach” (according to Ston 1998). When the top management make the
decision and then they try to implement in organization, it could be the faster
one but at the same time it could be more resistible. Top down approach
dominates the mind of positional leader. This is no longer an appropriate mindset
in a world which requires adoptable and real time change. Equal priority need to
be given to the other dynamic of change if the organization is to remain viable
(changezone.com). In the case of PSO they totally ignore the lower level employee
even the middle management, they were not included in the change process or
were not communicated with them the change process properly. They just
implemented in the big bang style which was resisted by the lower and middle
layer management.

8 Conclusion.

The real change process was started in PSO when the government decided in
2000 to privatize the company and started selling its share in stock exchange, as

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global privatization trend get more and more popularity. It is believe that Private
sector can be delivered more efficient goods and service then public sector and
we can see clearly in this case study. The market will be more competitive due to
free market instead of monopoly. This strategy can be adopted and can be apply
in all other similar organisation. For PSO to maintain its market share it was vital
to transform the whole organisation according to the business objectives and
market demand. There for PSO successfully delivered the change strategy at all
level, according to the need of organisation.

9 References.

1. A.Paton & J.McCalman (2008) change management A guide to effective

implementation third edition, London; sage publication Ltd.
2. Hugh Davenport, Jon Stephens and Stephen Swailes (2003) organisational
Behaviour individual, Group and organisation, second edition, London ;FT
Prentince Hall.
3. http://www.pafkiet.edu.pk/dnnbeta/LinkClick.aspx?fileticket=
%2FomxhrcZPWo%3D&tabid=150&mid=703 date 06/03/09 (time
21:00)
4. http://www.psopk.com/investors/pdf/ar_2008_overview.pdf. access
Date 06-03-09 (time: 21:00)
5. http://www.sharespk.com/index.php/2007/12/10/psoc-pakistan-
state-oil/ access date 07-03-09 (time 1400)
6. www.privatisation.gov.pk/oilgas/PSOTeaser06.pdf. access date
25/03/09
7. www.changezone.co.uk/dynamics/topdown.html access date27-
03-09 ( time:11:30)
8. searchcio-midmarket.techtarget.com/sDefinition.html (access
date 10-4-09)
9.
10.

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