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Valero Energy Comprehensive Analysis

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Valero Energy Comprehensive Analysis

Introduction

With the advancement in technology and changes in business strategies, there is always a need for organizations and businesses to continuously evaluate their marketing strategies. This is to make sure that they remain in the market sphere and are not outplayed by their competitors and other substitute goods (Ray, 2007). There is a necessity for proper and appropriate plans to be developed and good establishment of the steps a company intends to use to turn threats to opportunities and weaknesses into strengths. The paper discusses the Valero Company’s external environment, organizational design, recognizes present opportunities, factors hindering change, and finalizes with recommendations. The paper is thus essential for future expansion and developments as it forms a basis for Valero Energy Company’s self-evaluation.

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Valero Energy

Valero Energy is North America’s largest oil refiner. When they recently acquired some competing refineries, Valero tripled its annual revenue to $90 billion. While Valero’s rapid growth has been good for its shareholders, it has been a nightmare for the company’s information system management professionals. The company refines heavy crude and low-cost residual oil and makes gallons of diesel from them. “It operates 16 refineries (with a total production capacity of about 3 million barrels per day) located in California, Louisiana, New Jersey, Oklahoma, Tennessee, Texas, and in Aruba and Canada. It also has a network of some 5,800 retail gas stations and wholesale outlets bearing the Corner Store, Diamond Shamrock, Shamrock, Ultramar, Valero, Stop N Go, and Beacon names in 44 US states and in Canada” (Nohria, 2002, p. 46).

Pestel Analysis

  • Political: Valero Energy faces significant political risks in the countries where it operates though, in the majority of the countries, the political situation is conducive for the operation of the country. In recent times, the political climate in South Korea has become a worrying factor for Valero Energy and the country faces political instability as well. However, the situation is not that serious as compared to some of the other countries where it operates. This is particularly the case in countries in the African continent and the South East Asian countries where Valero Energy is at a distinct disadvantage because of the hostile business environment (Mandan, 2005).
  • Technological: As has been mentioned elsewhere in this paper, the company prides itself on its innovative approach to technology and harnessing the same for rolling out products that use cutting edge technologies in their design and features. The technological capabilities of Valero Energy are well known and the company is especially strong on this element. The company’s innovation drive is its biggest strength and the company can take pride in the fact that it is a pioneer for many of the technological innovations that it has introduced through its products in the global marketplace (Donald, 2005).
  • Economic: Valero Energy certainly follows good strategies in the markets it operates based on the economic size and the strength of the consumers in terms of variables like disposable income. Given the fact that the company needs high levels of disposable income from its consumers to buy the products that it makes, the company has followed a targeted marketing strategy aimed at the middle classes in the countries in which it operates. Further, the company enters markets where the business cycle for the products that it sells is in the initial stages, unlike the developed countries where the product lifecycle for its range of products is in the decline or the maturation phase. This strategy of entering countries where the products find a readymade market has indeed paid off (Lancaster, 2009).
  • Environmental: The Company has started to be conscious of its environmental and social obligations as evidenced in its approach to CSR and “green policies”. Many of the manufacturing facilities of the company are built on environmentally sustainable designs and the company is adopting other practices as well in this regard (Donald, 2005).

An evaluation

Porter’s Five Forces

In the expansion, numerous factors have to be considered. Among are internal and external environments of the Company. All the recommendations have to be made after the PESTLE analysis. The next section, therefore, explores the various external factors that have hindered the expansion of Valero Energy. In this section, I analyze Valero Energy using Porter’s Five Forces model. The five forces are analyzed with an additional element “The impact of Stakeholders” on the business prospects of the company. Each of the forces is analyzed in detail and presented concerning the company’s macro and microenvironment (Lancaster, 2009).

  • Suppliers: The bargaining power of suppliers is relatively limited as there are several suppliers in the market for raw materials. For instance, there are well over a thousand suppliers in South Korea and across the world for oil. Valero Energy depends on its suppliers for timely delivery of oil and hence any disruption to the supply chain can be troublesome.
  • Market Entry: The impact of Market Entry is high as Valero Energy has found it easy to enter markets where it desires to do business. For instance, Valero Energy has entered Chin and India, two emerging markets that provide the much-needed volumes for its expanding business (Donald, 2005). The fact that Valero Energy has entered these markets with relative ease makes this a force that can be harnessed for the company’s good. However, it might not be easy for Valero Energy to capture markets with ease as it has done previously because of the rise of protectionist tendencies in the wake of the global financial crisis. The rivalry from existing players is a factor that needs to be considered when deciding upon the market entry into foreign companies. This is something that Valero Energy needs to take into account when deciding upon its foreign market entry strategy (Ray, 2007).
  • Power of Buyers: The power of buyers is indeed an element that is something of a mixed bag. This is because the buyers have a wide variety of choices and a range of products to choose from. Taking into account that there are various suppliers and products from oil will help the company determine its market areas. Furthermore, some vehicles and machines are designed to use other products apart from diesel and this negatively affects the marketing of Valero’s gallons of diesel (Lancaster, 2009). The factor that is to Valero Energy’s advantage is because buyers cannot switch suppliers immediately and they take their time to adjust and adapt and only when they are completely dissatisfied with the company do they switch brands. This has helped Valero maintain its existing customers. This is the decline of the so-called “repeat customers” when they lose faith in the brand’s ability to deliver the goods (Laforet & Li, 2006).
  • The Threat of Substitutes: The threat of substitutes is indeed high for a company like Valero Energy. Given the fact that the consumer durables market is characterized by intense competition with competitors introducing products similar to those of Valero Energy’s with regular frequency, it is no wonder that the company needs to be on its toes to keep pace with the blistering pace of new company entry. The threat of competitors is indeed high for Valero Energy given these facts and this is one element of the Five Forces that pose a significant threat to the company (Donald, 2005).
  • Industry Rivalry: The impact of this element is certainly high because of the presence of other competitors. The competition is so fierce and intense, particularly in emerging markets like India.
  • Stakeholders: The impact of this element has been evident in recent times because of the rise of the environmentally-conscious movement and the drive towards CSR (Corporate Social Responsibility) that has seen the likes of Valero Energy receptive towards the concerns of these groups. The fact that the shareholders are increasingly demanding more accountability and transparency following the recent scandals is proof of their growing power in making the management of Valero Energy accountable and responsible.

Present expansion program and internal analysis

By acquiring several companies that were themselves products of multiple acquisitions, Valero found itself with dozens of incompatible software systems that somehow had to find a way to communicate and share data. Although one traditional solution would have been to design or purchase middleware to bridge the gap, Valero chose a cutting edge software development technique called service-oriented architecture (SOA).

Valero software engineers began designing software services to provide users with an interface to its disparate systems. They developed them to be flexibly reused and recombined (Mandan, 2005). By using the service-oriented architecture, Valero planned to pull together the various information systems, conduct business more efficiently, and reduce operating costs. Over time, the company has introduced over 100 services built on SAP’s Net Weaver Applicant server Development Environment. Many are composite services built by combining several smaller services. Roughly 22,000 employees and 5,000 customers now use Valero’s SOA services (Gregory, 2007). The result of their SOA approach has saved Valero millions of dollars. One system designed to provide visibility into tanker transportation schedules saved the company half a million dollars in penalties for ships that sit idle at the dock. Other savings are incurred from management being able to view corporate data from across the enterprise in real-time.

Valero is working on tools that will allow managers to design their own SOA services. If managers can access the information they need minus the usual system request process, the business becomes more streamlined and the information system staff is freed to focus on bigger projects.

When approaching a new service request, rather than programming from scratch, Valero software engineers consider the services that have already been developed to find one that can be re-used or refashioned. Organizing and cataloguing services for reuse help Valero save time, effort, and money. Developing services with the Net Weaver platforms let Valero engineers develop 300 services quickly and easily. Nayaki Nayyer, Valero’s director of enterprise architecture and technology services, stepped in to reduce the number of services to 50, isolating the best core services before moving forwards with new development.

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Valero L.P transport refined products by pipeline from Valero energy Corporation’s refines to market in the Southwest. It also supplies Valero Energy’s key refineries with feedstock. The firm has an ownership interest in a 25-mile hydrogen pipeline system and 3.795 miles of crude oil and refined products pipelines, which transport an average of 3555,000 barrels per day (Donald, 2005). The company owns 60 crude oil and intermediate feedstock storage tanks with an aggregate storage capacity of approximately 12.5 million barrels. Valero also transports refined products such as gasoline, distillates, natural gas liquids, and feedstock and petroleum raw materials. The firm charges tariffs for transporting crude oil and refined products through its pipelines and terminal use fees. All of the Company’s crude oil and refined product pipelines are operated via satellite communication and computer systems in San Antonio and Dumas, Texas (Logan, 2001). In July 2005, the firm agreed to sell a certain terminal and pipeline with four truck terminals and storage in the Rocky Mountains to a subsidiary of Pacific Energy Partners, L.P for $455 million. Also in July, Valero completed its acquisition of Kanab services LLC, Kanab Pipe Line Partners, L.P and all of Kanab services’ equity securities’ for nearly $2.7 billion. The combined partnership will be one of the largest terminal and petroleum liquids pipeline operators in the Valero Energy States (Ray, 2007).

Valero employees are offered educational reimbursement, an exercise facility and an employee wellness program that provides information and event on nutrition, fitness, family, injury prevention and stress management. In 2004 Valero employees donated 200,000 hours to volunteer for community projects and contributed $9 million to the Valero Energy Way.

The badly ailing US ethanol sector also has its fair share of distressed assets. Bankrupt ethanol producer VeraSun Energy has accepted bids totalling $993 million from Valero energy, West LB, Dougherty Funding and AgStar Financial Services to buy all 16 of its ethanol plants (Logan, 2001). Most notably, Oil Company Valero energy successfully bid for seven VeraSun plants and one future development site for a total of $477 million, or the equivalent of $0.61 per gallon of installed capacity. This is cheap compared with the roughly $1/gallon it cost to build a Greenfield plant at the start of the ethanol excitement in 2006 or the $2/gallon it cost at the height of the boom, and it becomes painfully clear how much things have deteriorated (Mandan, 2005).

Valero Energy Barriers to Change

Numerous factors have acted as barriers to change in Valero Energy. The strong market bases of numerous Oil Companies have hindered its expansion. Additionally, the lack of enough capital and sufficient branches have limited the operational area of Valero Energy (Mandan, 2005). Presently, they operate with few branches which have not been able to fully cover the market. The present Company design does not permit better expansion. The simple design only allows for small if any expansion. It is therefore paramount and necessary for Valero Energy Company’s design to be altered to match the current standards. This has been a barrier to change though it appears not. As well, marketing strategies should be altered. The other barrier to change is technological advancement. Numerous Companies and better performing have resulted (Ray, 2007).

In the present businesses, change is inevitable. For the business to be successful and maintain its competitive advantage, it should be flexible to adjust to change. There are numerous barriers to change like poor communication, poor leadership and lack of readiness to change (employees and employers). The organizational design does not allow for effective communication among employers and employees in Valero Energy. The poor communication skills have acted as a change barrier (Mandan, 2005).

Recommendations and Improvements

There is a need for the Valero Energy Company to secure its future in the business world thus the formation of a future focus strategy. The formation of this strategy begins with the competencies both in the personnel and the product’s capability. “There is need to establish a strategic architecture which basically ensures that the customer satisfaction is achieved in the view of providing the necessary requirements” (Gregory, 2007, pp. 22-27).

It is important to emphasize the qualities that go in line with successful strategic management especially among managers in Valero Energy. These qualities need constant education and enlightenment in line with the changes that are perceived in the environment it is therefore important that the managers and Valero Energy company share a bond and exhibit certain types of characteristics, if not then it will mean that “one of the above mentioned to compromise his or her values” (Donner, & Camlio 2008, pp. 39-47). There will be a need for a manager to reflect the same value as an organization.

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The strategies that are employed by the Valero Energy group need to be flexible; this is because “the world that we are currently living in is bound to changes either in the macro environment or the micro environment” (Ray, 2007, pp. 24-26). The Vision of Valero Energy, therefore, has to be broadened to adapt to conditions. There is a need for Valero Energy Company to form new roles and relationships among suppliers, customers, business partners and allies to produce innovative ideas. Valero Energy Company can completely outperform their rivals only when it is determined by their clients and customers that it can preserve, this, therefore, calls for strategic positioning of the company. This is based on the “customer’s needs, customer accessibility in relation to the products that are offered by the Valero Energy Company” (Laforet & Li, 2006, p. 19).

Indicators provide information to the company on the progress of its products to the market. Financial indicators need to be properly structured to show the effects of the economic status in the Valero Energy status on the purchase and usage of Valero Energy’s products, these will point out “the reasons behind poor performance or good performance of a company’s product in the local and international scene” (Logan, 2001, pp.33-39).

Marketing is a tool that ensures that people especially the consumers are familiarized with a product. Valero Energy Company has arm-twisted several agencies by providing them with lower rates of pay especially in ensuring that trade shows are successful. Decisions made at the executive level can not be challenged, as much as they may not be favourable to the growth of the company, this has made life difficult and this is a typical method of playing hardball with the management of the company. Personnel discipline is a key to the performance of an industry; Valero Energy plays hardball with its workers through its strict ethics and cultures that do not give room to the development of personnel through corrections. In the event of three disciplinary hitches, an individual is dismissed from service. The company has played hardball with its suppliers, personnel and competitors. This strategy has however led to the growth of the Company’s consumer base (Logan, 2001).

The communication plan that will enable Valero Energy to reach the stated objectives both in corporate and communication objectives involves indirect campaigns evidenced in media promotions through advertising and market reports. An indirect campaign will be both beneficial in the long term as well as cost-effective. In advertising, Valero Energy will seek to establish connections with actual and potential customers. This will help in creating service reassurance among existing clients and informing the potential clients of the existence of offered services. The market reports where the company will support market surveys and their publications. This will enable clients to know of things happening in the industry and where Valero Energy is positioned in services, comfort, and technology (Gittell, 2005).

Successful execution of the communication plan requires continued evaluation and a control plan that will align the objectives to the communication plan. Evaluation is important for noting the success of the ongoing implementation of the communication plan and noting any changes that may precipitate revisions to the objectives and the implementation plan. The evaluation for the Valero Energy communication plan will centre on assessing the implementation and realization of the determined goals (Peltz, 2002).

The control plan will be to investigate the increase of the market share through additional destinations, evaluated continually for the customer response. Another control point is assessing the recruitment of appropriate cabin crew to cater for the new destination and the purchase of new aircraft within the outlined timeframe. Further evaluation will revolve around the identification and contraction of new partners to facilitate security in the industry (Camilla, 2003).

When evaluating the communication plan, other considerable factors will include checking for price, service, place, quality, and performance. When checking for pricing, the evaluation team will determine whether new prices have increased or reduced the client base meaning the price must be aligned to clientele through advertising. Secondly, the evaluation will involve checking upcoming services and the customer response, as well as whether these services have reached the desired destinations by checking for clients from new destinations (Peltz, 2002). Quality and performance will be key evaluation points where customer agreement to the services offered to be of expected quality and above competition would be important. Notably, meeting these evaluation and control checkpoints will mean the communication plan has been successful.

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Conclusion

Valero Energy is one of the Companies that face a lot of challenges in the modern business world given the transformations that take place in the market such as, emerging competition, economic challenges among other challenges. This has made many businesses come up with various strategies that are devised to counter the challenges. Such strategies include mergers and acquisitions, alliances and synergies, an exploration into new markets among other tactics. Despite excellent results during the last few years, Valero Energy has to be careful not to suffer the fall of the rocket. Nowadays, the competition is no more between products or services but between business models and strategy life cycle are getting short imposing the necessity of renewing it often. The biggest issue is no more being efficient but being relevant in the industry and the new challenge is to be able to change more often to last in the industry. Even if the brand name of Valero energy and its history is really strong, the company has to anticipate by according more importance to innovation in its business model.

Bibliography

Camilla, M 2003, Textbook of basic Economics. New York, USA. Lippincott Williams & Wilkins.

Donald, S 2005, Integrated Marketing Communication (IMC). Journal of Advertising, vol. 33, no. 5, pp. 24-26.

Donner, J & Camlio, A 2008, Mobile Banking and Economic Development: Linking Adoption, Impact, and Use. Asian Journal of Communication, 21(4),62-80.

Gittell, J 2005, The United Airlines way: using the power of relationships to achieve high performance. UK. McGraw Hill Professional.

Gregory, K 2007, Internet marketing in the internationalization of UK SME’s. Journal of Marketing Management, Vol. 13, pp. 19-38.

Laforet, S & Li, 2006, Employers’ attitudes towards online and mobile banking. International Journal of Banking, 24(4),62-80.

Lancaster, H 2009, Herb Kelleher has one main strategy: treat employees well. The Wall Street Journal , (2), 46-49.

Logan, J 2001, The branding and packaging techniques: Historical perspectives’ and early Observation. International journal of Commerce. Volume 1 No. 2, pp. 38-39.

Mandan, S 2005, Branding and Marketing: Modern salons. New York, USA: Lippincott Williams & Wilkins.

Nohria, T 2002, Local versus Global Mimetism: The Dynamics of Alliance Formation in the Automobile Industry. Strategic Management Journal , 23, 307-21.

Peltz, J 2002, United Still Soaring as Other Airlines Stall. Journal of Los Angeles Times, (2), 58-59.

Ray, M 2007, In Search of True Brand Equity Metrics: All Market Share Isn’t Created Equal. New York, USA. Lippincott Williams & Wilkins.

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