Allama Iqbal Open University

MBA (HR)

Business Policy and Strategy (887)

Assignment # 2

T O P I C

Strategy Formulation

Prepared By :
Submitted To :
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Acknowledgement

First of all I pray to almighty Allah who gave me wisdom and ability to do MBA and
especially this assignment.
Second to my parents and brother who provided me full help and cooperation in this
regard. Finally I owe my thanks to my tutor and the whole management of the
Company. The whole management was very much cooperative but especially I am
very thankful to my tutor, operations manager and site manager, who gave me a lot
of knowledge relating to my topic.

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Abstract

It is useful to consider strategy formulation as part of a strategic management

process that comprises three phases: diagnosis, formulation, and implementation.
Strategic management is an ongoing process to develop and revise future-oriented
strategies that allow an organization to achieve its objectives, considering its
capabilities, constraints, and the environment in which it operates.
Diagnosis includes: performing a situation analysis (analysis of the internal
environment of the organization), including identification and evaluation of current
mission, strategic objectives, strategies, results, and major strengths and
weaknesses; analyzing the organization's external environment, including major
opportunities and threats; and identifying the major critical issues, which are a small
set, typically two to five, of major problems, threats, weaknesses, and / or
opportunities that require particularly high priority.
Shell Pakistan Limited has a well developed and excellent strategy formulation
framework. It is a multinational company with its business stretched over all the six
inhabited continents. The major force behind the success of Shell Oil Company is its
strong and strategic planning. This strategy formulation network used by the shell in
Pakistan as well as in the world incorporates all the important principles of strategy
formulation. That is why the strategy evolved by the company well conforms to the
strategic objectives and goals of the Shell Pakistan Limited.
The important principles being highlighted and being used by the Shell Pakistan
Limited are: mission and vision statements, developing objectives, performing
internal and external analysis, and at last evaluating and selecting the strategy for its
operations as well as marketing, sales, HR departments. In this report I have
discussed the operational strategy of Shell Pakistan Limited which exactly dictates
the strategic objectives of the company.

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TABLE OF CONTENTS

Subjects Page no
Introduction to Strategic Management 5

Tasks of strategic Management 5

Stages of strategic Management 5

Steps involved in Strategy Formulation 6

Comprehensive Strategy Formulation Network 8

Practical Study – Shell Pakistan Limited 10

History of oil sector in Pkistan 10

Introduction to the Organization 10

Operations Strategy of Shell 12

Application of Strategy Formulation Concepts 17

Strategic options for the Shell 18

Data Collection Methods 18

SWOT Analysis of Shell Pakistan Limited 21

Conclude 23

Recommendations 23

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1. The Strategic Management

1.1 Introduction to Strategic Management
Strategic management can be defined as the art and science of formulating,
implementing, and evaluating cross-functional decisions that enable an organization
to achieve its objectives. The purpose of the strategic management is to exploit and
create new and different opportunities fro tomorrow; long range planning in contrast,
tries to optimize for tomorrow the trends of today.
1.2 Definition of Strategy: The dictionary meaning of strategy is
“planning in any field”. It means it is a carefully devised plan of action to achieve a
goal, or the art of developing and carrying out such a goal. Business strategies may
include geographic expansion, diversification, acquisition, product development,
market penetration, retrenchment, divestiture, liquidation, and joint ventures. The
importance of the strategy for an organization can be approximated from following
saying:-
“Without a strategy, an organization is like a ship without a rudder, going
around in circles. It’s like a tramp; it has no place to go.”
1.3 The Five Tasks of Strategic Management
The strategy making, strategy-implementing process consists of five interrelated
managerial tasks:
1.3.1 Deciding what business the company will be in and forming a strategy
vision of where the organization needs to be headed
1.3.2 Converting the strategic vision and mission into measurable objective and
performance targets
1.3.3 Crafting a strategy to achieve the desire results
1.3.4 Implementing and executing the chosen strategy efficiently and effectively
1.3.5 Evaluating performance reviewing new developments, and initiating
corrective adjustments in long-term direction objectives
1.4 Stages of Strategic Management: The strategic management
process consists of three stages: strategy formulation, strategy implementation, and
strategy evaluation. I, in this report shall discuss the first stage only i.e. strategy
formulation.
1.4.1 Strategy Formulation: It includes developing a vision and mission,
identifying an organization’s external opportunities and threats, determining

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internal strengths and weaknesses, establishing long term objectives,

generating alternative strategies, and choosing particular strategies to pursue.
The strategy formulation issue includes deciding what new businesses to
enter, what businesses to abandon, how to allocate resources, whether to
expand operations or diversify, whether to enter international markets, whether
to merge or form a joint venture, and how to avoid a hostile takeover.
1.4.2 A Means to Allocate the Resources: Because no organization has
unlimited resources, strategies must decide which alternative strategies will
benefit the firm the most. Strategy-formulation decisions commit an
organization’s to specific products, markets resources, and technologies over
an extended period of time. Strategies determine long-term competitive
advantages. For better or worse, strategic decisions have major
multifunctional consequences and enduring effects on an organization. Top
managers have the best perspective to understand fully the ramifications of
strategy formulation decisions; they the authority to commit the resources
necessary for implementation.
1.5 The Strategy Formulation Process: The process of strategy
formulation consists of five
steps, out of which three are
the main and two are the
analysis of external and
internal factors which affect
these strategies. Fig 1.1 is
showing these steps. Now I
shall describe these steps one
by one in detail.

1.4.1 Step 1 – Development of Vision and Mission Statement: It is the first step
in the process of strategy formulation as well as strategic planning. These
statements are in fact the answers to the questions like; “what do we want to
become?” and “what is our business?” clear vision and mission statements are
needed before alternative strategies may be formulated and implemented.
1.4.1.1 The Vision Statement: The vision statement is the answer to the
first question stated above. Many vision statements are the single sentence,

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for example the vision statement of Shell Pakistan Limited is: “To Be the Top
Performer of First Choice.” Likewise the vision statement of a renowned eye
clinic is: “Our vision is to take care of your vision”
1.4.1.2 The Mission Statement: It is defined as “The enduring statements
of purpose that distinguish one business from other similar firms. A mission
statement identifies the scope of a firm’s operations in product and market
terms.”
It addresses the basic question of that faces all the strategists: “what is our
business?” A clear mission statement is a constant reminder to its employees
of why the organization exists and what the founders envisioned when they
put their fame and future at risk to breathe life into their dreams. Here is an
example of the mission statement of Habib Bank Limited Pakistan: “To
become the preferred provider of quality financial services in the country with
profitability and responsibility and to be the best place to work.”
1.4.2 Step 2 – Perform External Audit: The purpose of the external audit
is to develop a finite list of opportunities that could benefit a firm and threats
that should be avoided. The term finite suggests that it is aimed at key
variables that offer actionable responses. Firms should be able to respond
either offensively or defensively to the factors by formulating strategies that
take advantage of external opportunities or that minimize the impact of
potential threats. These external forces can be divided into five broad
categories as follows:
a. Social, cultural, natural and environmental forces
b. Economic forces
c. Political, governmental and legal forces
d. Technological forces
e. Competitive forces
1.4.3 Step 3 – Internal Audit: the organizations have strengths and weaknesses
in the functional areas of business. No enterprise is equally strong or weak in
all the areas. Maytag, for example is known for excellent production and
product design, whereas Proctor & Gamble is known for its superb marketing.
Objectives and strategies are established with the intention of capitalizing
upon internal strengths and overcoming weaknesses. The key internal forces
are different for different types of the organization as fallows:

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a. In a hospital, functional areas may include cardiology, hematology, nursing,

maintenance, physician support etc.
b. The functional areas of a university include athletic programs, placement
services, housing, fund raising, academic research, counseling etc.
1.4.4 Step 4 – Establish Long-term Objectives: The long term objectives
represent the results expected from pursuing certain strategies. Strategies
represent the actions to be taken to accomplish long-term objectives. The time
frame for these objectives and strategies is usually from two to five years.
1.4.4.1 Nature of Long-Term Objectives: Objectives should be
quantitative, measurable, realistic, understandable, challenging, obtainable,
and congruent among organizational units. Each objective should also be
associated with a timeline. Objectives are commonly stated in terms such as
growth in assets, growth in sales, profitability, market share, earnings per
share, degree and nature of diversification etc.
1.4.5 Step 5 – Generate, Evaluate, and Select Strategies: The last of the
five steps in strategy formulation is the strategy analysis and choice. In fact the
firm’s present strategies, objectives and mission, coupled with the external and
internal audit information, provide a basis for generating and evaluating
alternative strategies.
1.4.5.1 The Process of Generating and Selecting Strategies: Strategies
never consider all feasible alternatives that could benefit the firm because they
infinite in number. Therefore, in the process of generating and selecting the
strategies; a manageable set of most attractive alternative strategies is
developed and the advantages, disadvantages, tradeoffs, costs, and benefits
of these strategies are determined.
2. A Comprehensive Strategy – Formulation Framework
Important strategy formulation techniques can be integrated into a three stage
decision-making framework, as shown in fig 2-1. The tools presented in this
framework are applicable to all sizes and types of the organizations and can help
strategists identify, evaluate, and select strategies.

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2.1 Strategy Formulation Framework. The three stages of this framework

can be seen in the fig1.2.
Stage 1 is also known as
the input stage and
summarizes the basic
input information needed
to formulate the
strategies. Stage 2 or the
matching stage focuses
upon generating feasible
alternative strategies.
And stage 3 or the
decision stage provides the objective basis for selecting specific strategies.
2.2 Stages of Formulation Framework: Let’s now discuss each stage in
detail:
2.2.1 The Input Stage: This stage consists of EFE matrix, the IFE matrix, and the
competitive profile matrix (CPM). The information derived from these three matrices
provides basic input information for matching and decision making. The input tools
require strategists to quantify subjectively during early stages of the strategy
formulation process. Making small decisions in the input matrices regarding the
relative importance of the internal and external factors allows strategists to more
effectively generate and evaluate alternative strategies.
2.2.2 The Matching Stage: Strategy is sometimes defined as the match an
organization makes between its internal resources and opportunities and risk created
by its external factors. This stage consists of five techniques that can be used in any
sequence. These are SWOT Matrix, the SPACE Matrix, the BCG Matrix, the IE
Matrix, and the Grand Strategy Matrix. These tools rely upon information derived in
the input stage.

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PRACTICAL STUDY
SHELL PAKISTAN LIMITED
3.1 History of Oil Industry in Pakistan
At the time of independence there were few oil companies. There was no oil refinery
in Pakistan except a very small at Rawalpindi. At that time the total requirement of
Pakistan was 0.4 million tons. There were four foreign and one local company in
Pakistan these were:
• BURMAH OIL Market Petroleum Products
• BURMAH OIL Oil Extracting Company
• CALTEX Market Petroleum
• ESSO Marketing
• ATTOCK OIL Oil Exploration Company
In 1952, Burmah discovered natural gas at Sui in Baluchistan named as Sui gas.
Before partition Railways was on coal, but at the time of partition India refused to
provide coal, so railways had to shift to diesel oil. The consumption of oil shot up by 3
million tons in 1955. Consumption in East and West Pakistan shot up by 4.2 million
tons OGDC was established. Government asked the foreign companies to set up a
refinery, they agreed with following conditions namely: Refinery should be in Karachi,
Capability will be 1.5 million tons and they will provide crude to refinery only.
Government also permitted a Pakistani company, Pakistan National Oil. Later in
1962, Pakistani refinery came into being with the name of Pakistan National Oil. In
1973 there were energy crises throughout the world. Almost all the countries
nationalized the oil companies. PSO was found in December 1976 as a result of
merger of three oil companies namely: Pakistan National Oil, Premier Oil Company,
ESSO. In 1974 Pakistan storage Development Corporation was established. In
February of 1993, as a result of a decision by Burmah oil to invest in Pakistan and
the deregulation policy of the government, the shell petroleum company bought the
shares of Burmah Oil Company and 2% shares from the market and become the
major shareholder in the shell Pakistan limited (SPL).
3.2 Introduction to Shell Pakistan Ltd
Shell is a multinational company and in Pakistan it is operating as a public limited
company by the name “Shell Pakistan Ltd. Shell is in possession of a fuel storage

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tank since 1899. However, the documented history of the Royal Dutch / shell group
the Indo-Pak subcontinent dates back to 1903 when a partnership was struck
between the shell transport and trading company and the Royal Dutch petroleum
company to supply petroleum products in Asia. In 1928 to enhance their distribution
capabilities, the marketing interests of the Royal Dutch / shell group and Burmah Oil
Company limited in India were merged and the Burmah shell oil distribution and
storage company of India was born. After the independence of Pakistan in 1947, the
name was changed to the Burmah shell oil distribution company of Pakistan.
In 1970, when 51% of the shares were transferred to Pakistani invertors. The name
of the company changed to Pakistan Burmah shell (PBS) limited. The shell and
Burmah groups of retained the remaining 49% in equal proportions. In February of
1993, as a result of a decision by Burmah oil to divest in Pakistan and the
deregulation policy of the government, the shell petroleum company bought the
shares of Burmah Oil Company and 2% shares from the market and become the
major shareholder in the shell Pakistan limited (SPL).
Shell launched a change programme, which will transform the company by the turn of
the century, with major implications for the petroleum industry in Pakistan. More
subtle, but equally uncompromising, has been the change in the company’s culture to
reflect the values which shell internationally believes will bring commercial success
through a greater focus on the customers.
3.3 Company Profile
Mission
“You can be sure of Shell”
Objective
Shell is focusing on retailing, providing better facilities to customers, clean petrol
pumps constructing international standard petrol filling stations, good advertising
campaigns and mini markets (select).
Vision of Shell
To Be the Top Performer of First Choice

Aim of Shell
Creating a secure business environment, minimizing economic losses, and business
disruptions safeguarding the group’s integrity and reputations

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Goal of Shell
The goal of the company is to position itself as the preferred oil company in Pakistan,
leading the field in its commitment to safety, customer service, quality and
environmental protection.
3.3.1 Strategies of Shell
A strategy of corporation forms a comprehensive master plan stating how the
corporation will achieve its mission and objectives. It maximizes competitive
advantage and minimizes competitive disadvantage. The strategy of Shell is to
grow internally by expanding its operations through acquisition and strategic
alliances. Shell focuses to differentiate its products from competitors in the
area of quality and services.
3.3.2 Policies
A policy is a broad guideline for decision – making that links the formulation of
strategy with its implementation. The policy of Shell is to make sure that the
employees throughout the firm make decisions and take actions that support
the corporation’s mission, objectives, and strategies.
3.4 Shell Operational Strategy
Shell operates its sites with an efficient management to improve the quality and
quantity of fuel and provides the better customer satisfaction services. For this
purpose shell follows its strategic objectives, plans, strategy and policies. Given
under are the important aspects of Shell’s site control strategy, pursued by
management:
• Site Take-over
• Product receipt procedure
• Bank accounts
• Indenting and Payment procedures
• Credit sales
• Product testing
• Imprested account operation
• Price change operation
• Wet stock management policy
3.4.1 Site Take-Over
3.4.1.2 Purpose and Responsibility

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The purpose of this procedure is to ensure that when a site is taken over as a
company operation site (COP) the working capital taken over at the site is
correctly valued. This procedure applies to existing dealer sites which are to
be taken over as COS. The territory manager is responsible to ensure
compliance with the procedure.
3.4.1.3 Procedure and Standards
Following procedure for stock taking is adopted:
The dealer agrees to a target date for handing over the site which is called that
“hand over date”. When taking-over the site, two options are available.
3.4.1.3.1 Initial Working Capital
Working capital requirement at a site is determined keeping in view the
sales of the site. A copy of the invoice of the initial fill to be sent to RSO
for recording and the original is to be retained at the site.
3.4.1.3.2 Outstanding Bills
All outstanding bills for utilities etc. incurred by the site before the hand
over date have to pay by the dealer.
3.4.2 Product Receipt Procedure
3.4.2.1 Purpose and Responsibility
The purpose of this procedure is to ensure that, the quantity and specification
of the product received match with the order. The site manager is responsible
to ensure compliance with the procedure.
3.4.2.2 Procedure and Standards
Fuels The site manger should be present at the site during the decantation of
the product. Before decantation the site manager should tally the product
specification with the grade ordered. All seals should be checked for integrity
and numbers matched with those on the invoice.
Lubes: At the time of receipt of lubes, the site manager should check the
quantity ands specification mentioned on the invoice with that of the indent
placed. It should be made sure that the product received is not damaged or
leaking.
3.4.3 Bank Accounts

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In case of authorized bank signatories name of the Site manager may be included in
operating deposit account. However, site mangers are not authorized signatory to
operate Imprest account.

3.4.4 Indenting and Payment Procedures

3.4.4.1 Fuel
After the initial fill, all products will be financed by the cash proceeds from the
initial fill. Payment of fuel made under following Process:
• The price for fuels is the indent price and invoices must be prepared on this
basis
• All supplies are to be made as per arrangement with the depot/installation
• All cheques / DD’s must be made out for exactly the same amount as the
invoice and drawn in favor of shell Pakistan Ltd
3.4.4.2 Lubes
After the initial fill, all products will be financed by the cash proceeds from the
initial fill. Payment of fuel made under following Process:
• Indent should be placed on telephone at the nearest supply point
• Details of cheque / DD number and date should be noted on the invoice
when precut is delivered at the site
• Site of the company has a copy of the invoice, the site manger red band
copy returned to the truck driver on which all cheques details will have to
be recorded

3.4.5 Credit Sales

3.4.5.1 Purpose and Responsibility
Credit is extended to the customers in a manner that the exposure of the
company is minimized. It is the responsibility of the territory manager to ensure
that all credit accounts are approved by the regional manger. Approval of the
credit terms and operation lies with the regional manager on recommendation
of the territory manager.
3.4.5.2 Procedure and Standards
The customer should apply in writhing to RRM for opening a credit account
with the site. The application should contain the following basic details:
• Customer name

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• Customer address
• Number and type of vehicles etc
3.4.5.3 Credit Limits
• In case of the default of payment by the customer the site will stop
extending credit to the customer
• The site will first try to recover the credit amount form the customer. In
case the customer does not pay the balance with in the month, the balance
amount will be deducted from the security deposit and the account will be
closed
• The site will send a security deposit deduction note to specify the
deduction of the security deposit for a particular customer and send the
amount to the site to balance off the credit sales
3.4.6 Product Testing
3.4.6.1 Purpose and Responsibility
Product testing is a process of taking fuel product from the nozzles for the
purpose of testing that dispensers are dispensing the right quantity of the
product. It is the responsibility of the site manger to ensure that all the product
testing is conducted in his presence.
3.4.6.2 Procedure and Standards
• To conduct testing of the product it is mandatory that the measuring
cylinders kept at the site should be vetted by the quality control unit.
• The amount of the product withdrawn from each nozzle is noted and after
the completion of testing the product if decanted in the tank
• All the necessary testing should be conducted in the presence of the site
manger
3.4.7 Imprest Account Operation
3.4.7.1 Purpose and Responsibility
Its purpose is to ensure that all Territory Managers are aware of the imprest
account operating procedures. This procedure is to be followed whenever, the
imprest account is operated and claims for reimbursements are made. It is the
responsibility of the Regional Manager and the Territory Manager to ensure
that the Imprest Account is operated and claims for reimbursements are made
in accordance with the requirements given in the procedures.

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3.4.7.2 Procedures and Standards

• The imprest account should only be used to meet all the expenses of
business nature such as salaries housekeeping, bank charges, etc.
• Imprest limits for sites are set by RSO on the recommendation of the
concerned RRM. All the operating expenses of the site are detailed in the
imprest approval form and the total of all the expenses makes up the
imprest limit of the sale.
3.4.8 Price Change Procedure
3.4.8.1 Purpose and Responsibility
The purpose of this procedure is to ensure that the changes in the working
capital status as a result of the price change of the product are recorded and
reported accurately. This procedure applies to the change of prices for all
grades of fuels and lubricants sold at the site. It is the responsibility of the
RRM to ensure that price change takes place at a COS in the presence of a
representative of shell Pakistan limited.
3.4.8.2 Procedure and Standards
Following procedure is to be applied at the COS in case of price is change:
• The new prices are notified by RSO to FNC/12 supply points and
regional offices to update their record accordingly
• Only the concerned territory manger is authorized to change the prices
on COS
• At the time of the price change, the sale is temporarily stopped and site
manager and the territory manager representative take a dip of the storage
tank and note the meter readings of all dispensing units jointly
3.4.9 Wet stock Management Policy
Due to very nature of petroleum, loss being an inherent characteristic plays an
important role in the efficiency of petroleum business. The potential of cost saving by
improving the controls and reducing the losses is considerable. A primary
responsibility in the site operation is to ensure that the physical losses are kept at
minimum so that maximum, quantity of the product received is delivered to the
customer.
3.4.9.1 Monitoring of Losses
Effective monitoring of losses at shell COP is carried out in following way:

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• Accurate measurement and accounting for all the deliveries

• Proper calibration of the tank lorries, dispensers and storage tanks
• Good product safety with low risk of undetected theft
• Periodic physical measurement of the actual product stacks and
comparison with the corresponding book stock
• Assessment of the loss control performance against the targets
• Random spot-checks to ensure compliance to procedures and
performance of the equipment

4. Application of Strategy Formulation Policy and Tools

4.1 Shell Pakistan Limited has deliberately carried out the study and formulated its
operational strategy. In formulating this strategy shell has incorporated all the steps
of strategy formulation e.g., developing vision and mission statement, establish long-
term objectives, perform internal and external audits, and generate, evaluate, and
select strategies. I now relate the above explained operational strategy of shell with
the strategy formulation network explained in the 1st chapter.
Step – 1 Vision and Mission Statements
As already narrated the mission and vision statements of shell Pakistan
limited, the mission is explaining the quality and quantity assurance of the
shell’s products, the wording is “You can be sure of Shell”. Secondly the vision
of shell is elaborating the intent of the company that where it wants to head,
the wording says “To Be the Top Performer of First Choice”. All the strategies
namely operational, marketing, production and HR strategies are conforming
to this mission and vision statements.
Step – 2 Company’s Long Term Objective
• The objective of the operational strategy of Shell Pakistan limited is
focused on well managed retailing, provision of better facilities and clean
petrol pumps to customers, and constructing international standard petrol
filling stations
• The goal of the shell to position itself as the preferred oil company in
Pakistan is pursued by the operational strategy by providing better
customer service and quality to the customers

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• The points discussed above in the operational strategy are amply

verifying the objectives of the company
o For example, site takeover procedure dictates that the site to be
taken over should be correctly valued so that the company may not
face the extra burden of the overvalued property. Moreover the site
selection is carefully done in order to maintain competitive advantage
o Similarly, product receipt procedure and product testing
procedure is also an elaborate system to ensure the better quality and
quantity to be provided to the customer
o Again the provision of oil and fuel to the customers on credit is a
good facility and most of the people will prefer to come on the shell
outlets for refueling even if no cash is available with them at the
moment. Therefore, customer satisfaction is improved by this strategic
move
Step – 3/4 Internal and External Audits The internal and external audits
have been carried out by the company before formulating its operational
strategy. Thus all the
weaknesses of the company are
addressed promptly and
strengths are benefited from at
the best. Also other external
factors as discussed earlier as
the PEST analysis is also carried
out in the process of strategy
formulation and development.
The process of external analysis
carried out in the company is evident from the figure given here.
Step – 5 The Evaluation and Selection of Strategy. The company is
evaluating the strategy as discussed in the next two sections.
4.2 Strategic Options
There are two separate aspects, which need consideration for developing alternative
strategies; first the alternative direction in which the organization may choose to
develop, second the alternative methods by which the direction of development might

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be achieved. Now I shall discuss the direction in which the shell Pakistan limited has
chosen to develop.
4.2.1 Selling Out. In selling out if the company feels any danger about the
survival of company; the company would like to dispose of its assets. Shell is
one of the biggest companies of world. It has a strong financial position.
Therefore it has not chosen this direction.
4.2.2 Consolidation In such direction, the company will change the way of
operations but concentrating on present state of business. Shell is waving on
this direction. The shell is waving by following factors:
• Maintaining a share in a growing market
• Competing in a declining market
• Improving quality
• Increasing market activity
• Imposing productivity through capital investment
4.2.3 Market Penetration. “Opportunities often exist for gaining market
shares as a deliberate strategy”, this is called market penetration. The shell is
also working in this direction by providing better services at its company
operation sites.
4.2.4 Product Development. Shell feels that the consolidation in their
present market does not have adequate opportunities. Therefore, Shell
developed the product of CNG. This shows that shell is also working in this
direction.
4.2.5 Market Development. In market development, the company locates
any new areas where it could start its business to minimize the risk. Market
development can include new market segment. Shell has no capital problem
that is why Shell is working on the direction of market development. The proof
of this is that Shell has expanded its business more than hundred countries.
Now Shell is expanding its business in all small and big cities of Pakistan
4.2.6 Diversification. Diversification means new product and new market.
The two broader concept of diversification are:
4.2.6.1 Related Diversification. Related diversification means
development beyond the present product and market, but still within the

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broad confines of the industry in which the company operates. Shell has
introduced CNG that is the best example of related diversification.
4.2.6.2 Unrelated Diversification. It is the development beyond the
present industry into product / mkt, which have not clear relationship with
present product / mkt. Shell is interested in other business e.g.,
petrochemicals, coal and metals.
4.3 Evaluation of strategic options. I have selected two strategic options
for improvement of shell performance as to maintain the leader of quality in the
customer services. For this purpose I evaluated them, to find out that which is better
to achieve the organizational objectives. There are three steps involved in evaluation
of strategy option.
Suitability Shell is one of the biggest multinational companies dealing in
Pakistan. As such there is no financial problem faced by shell. By market
development shell can cope with aggressive competitors. By product
development (CNG) Shell can decrease its dependence on particular supplier
(Greave Pakistan Ltd.) By market development the company can capture the
market of CNG. Use of CNG reduce the environmental pollution and save the
consumption of fuel. Developing market (establish new and upgrade existing
outlets) increase growth rate and market share simultaneously
Feasibility In product development shell has not sufficient resources to cope
with existing requirement. In market development shell has sufficient
resources to meet the current needs of the customers. Shell is also capable of
performing the services in the field of new market. Therefore:
• Shell can achieve market position by developing the new outlets and
improving the services of existing outlets
• Shell can cope with reaction of competitors by market and product
development
• Shell has sufficient technology to fulfill the current requirement of
market development
4.3.3 Acceptability Through acceptability we will try to assess weather the
consequences of proceeding with a strategy are acceptable.
• Shell can increase its profit, market share, and growth rate by
established and upgrading outlets

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• There is a great financial risk to develop a new product but there is no

such risk in market development
• Shell has strong culture so there is no affect on new strategy for
developing new market
4.3.4 Selection There are two issues which needs consideration, first a way
in which an organization’s circumstances will dictate which methods of
evaluation are most useful at the time of selecting future strategies. Secondly,
the process by which selection of strategies occurs since how the information
from evaluation is used in strategic decision making.
After the evaluation of the strategic options I have concluded that the market
development is the best option so, my selection is market development.
Because it provide a chance to earn more profit and competitive advantage
and has a low risk as compare to other options.

SWOT ANALYSIS
Shell has the quality control and quantity control team visit and inspect the quality
and quantity of motor gasoline of their petrol pump regularly.
Strengths
• Shell confirms its position as a leader in the gas and power business with a
deal to design the world's first large scale Gas to Liquids plant
• Shell is using effective means for the promotion of its products. It is heavily
emphasizing on advertisement and other promotional tactics
• Shell provides in time delivery to their petrol pumps
• The HRM policies of Shell are its strengths; its incentive based policies are
motivating for employees
• Shell gives proper attention to their customers, has international standard
petrol pump
• Mobile training units’ side keeping staff up to date on a whole range of topic
including most important issues of health safety and environment
• All tankers are fitted with special tamper-profit seals to ensure that only the
highest quality fuel is delivered to all company operation sites
Weakness

Strategy Formulation
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• They have no proper shades and sitting arrangements at the filling stations
because people who came for oil changing and car washing face difficulties in
this regard
• There is no proper drainage system at filling stations
• There is very little empowerment of employees
• Shell has eight regional retail managers who are watching the activities of
petrol pumps all over Pakistan; it is insufficient to handle the problems.
Opportunities
• Shell has maintained a tradition of introducing new innovation as compared to
its competitors. The example being the mobile, training unit, quality and
quantity unit, Mini-market, Lubricants (Rumila C.D.X,) Helix that is opportunity
for Shell to maintain these facilities
• People’s perceptions are changing and they prefer digital pumps. So they
should renovate their petrol pumps. Shell also has an opportunity to enter in
the nice market
• Shell has strong financial position so it has opportunity to avail a new market
share in CNG business
• Shell is the market leader due to innovation so it can easily win the customer
confidence
Threats
• The smuggling of petrol in Baluchistan form Iran is one of the greats threats to
the company
• The fake oil makes up a large share in the market, if such practices are not
prohibited it will create a disastrous effects on sale
• PSO is also servicing in profitable areas
• Shell is charging few paisas more than their competitor and also it is facing
stiff competition with PSO and Caltex
• Entrant of new companies in the refinery sector

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Conclusion
Business strategy is concerned with broad decisions about an organization's scope
and direction. It is defined as "the pattern of decisions in a company that determines
and reveals its objectives, purposes, or goals, produces the principle policies and
plans for achieving those goals, and defines the range of business the company is to
pursue, the kind of economic and human organization it is or intends to be, and the
nature of the economic and non-economic contribution it intends to make to its
shareholders, employees, customers, and communities”. This rule of strategy
formulation is well observed in Shell Pakistan Limited where the operations strategy
is formulated keeping in view all the pros and cons.
Recommendations
• There should be proper shades and sitting arrangements at the filling stations
because people who come for oil change and car wash face difficulties
• Lubricants should be disposed of in a proper way to protect the environment
form being polluted
• Shell should provide incentives through different schemes to its customers,
e.g. schemes like “Buy 50 liters of super and get a come free or a cola drink free”,
should be kept introducing time to time by shell
• Shell should make company operation site in every city to capture new market
• There is only one thing that is constant – CHANGE; shell should invest more
on research and development to cope with dynamic environment
• Shell should develop modern retail outlets. These outlets should have all
possible facilities for customers because one of the reasons behind decreasing
market share is modernized competitors
• Shell should develop effective marketing programs that will help the company
increase sales that will lead to increase market share. In these market programs
emphasis should be given to advertising, which is most effective and efficient tool
for promotion of this business.

Strategy Formulation