Introduction
The company chosen for this strategic management project is Abu Dhabi National Oil Company (ADNOC) Distribution.
ADNOC supplies fuel used for transportation, energy used for light and heat, lubricants for engines and petrochemical products for industries (ADNOC Distribution, 2015). Founded in 1973 as the first ever company owned by the United Arab Emirates (UAE) government that focused on marketing and distribution of energy products in the UAE and globally. Today, ADNOC Distribution is considered as one of “the largest and most innovative petroleum firm in the Gulf region” (ADNOC Distribution, 2015, p. 1).
It is recognized and valued for outstanding services, products and reliability. Given the strategic initiatives taken by ADNOC Distribution, the company has grown to include widely distributed network of “service stations, Oasis stores, standalone Autoserv car care centers, Salama vehicle inspections centers, multi-product depots and aviation fuel depots” (ADNOC Distribution, 2015, p. 1). Today, ADNOC Distribution has major areas of focus, including the following. First, the company focuses on revamping its retail activities with service stations and convenience stores. Second, ADNOC Distribution has established 24/7 aviation services to support the airline industry, including the military, passenger flights, cargo flights and general clients in the industry within the UAE.
Third, the company strategic targets corporate clients with its refueling services. Fourth, ADNOC Distribution offers high quality lubricants for the local, regional and international markets. Fifth, the company has strategically constructed a modern bunkering located at Zayed Port, Abu Dhabi to refuel ships at departure and arrival. This form of convenience has given the company an opportunity to gain competitive advantage at the Port. Finally, ADNOC Distribution also supplies and market Natural Gas for Vehicles. The reliance of product differentiation is strategic to support strategic growth of the company (Elbanna, 2010).
Mission and goals of the company
“ADNOC Distribution is the strategic partner for energy distribution and allied services, which is committed to provide value to our customers and shareholders, care for our employees, be socially responsible, environmentally conscious and maintain high standards of health and safety” (ADNOC Distribution, 2013, p. 8).
Vision
ADNOC Distribution vision is to be the most reliable energy and allied services provider (ADNOC Distribution, 2013, p. 8).
ADNOC Distribution constantly focuses on identifying new opportunities to advance the quality of its “services to the next level by adopting the best international practices in the petroleum industry” (ADNOC Distribution, 2015, p. 1). Consequently, the company has developed a strong client based through trust and confidence across the UAE.
External analysis
ADNOC Distribution conducts external analysis as a part of its strategic planning. Consequently, it has relied on alignment model of strategic planning to achieve its goals (McNamara, n.d). In this case, ADNOC Distribution aims to align its internal operation with attaining the overall mission and goal. For instance, in 2013, the company focused on profitability and shareholder value maximization, delivering customer expectation and enhancing capital expenditure efficiency. On this note, ADNOC Distribution focused on city gas distribution, composite cylinders, self-service within its current geography.
It also concentrated on market penetration in the UAE, opening 186 new service stations, and advancing its acquisition strategies. Finally, ADNOC Distribution also focused on the Kingdom of Saudi Arabia for growth. Through internal processes and alignment, the company focused on achieving these goals by positioning itself on a growth path and for much more success in the subsequent years. First, ADNOC Distribution strategic plan involves revenue growth and profits maximization. The company recognizes shareholders’ expectations and aims to achieve these vital objectives within the next few years. The company has noted that it can only attain profitability by reducing its total cost, consisting of operating costs and cost of sales. At the same time, cost control would allow the company to focus on competitive pricing of its products and services to ensure that it can acquire market share for revenue generation. Second, the alignment strategic planning also focuses on improved capital expenditure efficiency.
Through this strategic objective, ADNOC Distribution wants to manage and understand how it is optimizing and enhancing efficiency in the use of available capital. Thus, the management can focus on planning and management with the aim of improving capital expenditure ratio (ADNOC Distribution, 2013). Finally, the company also focuses on promoting customer intimacy. ADNOC Distribution wants several customers to believe in its quality products and services. The company believes that its products and services are better based on quality, prices and service deliver. Thus, it strives to respond swiftly to all customers’ complaints effectively within the stipulated time. For the second consecutive year, ADNOC Distribution has received “the ‘Superbrand’ title to show the brand strength and brand equity reflected in excellent customer experience and product quality” (ADNOC Distribution, 2015, p. 1).
Opportunities and threats
The company has grown its products and services by investing in new technologies to assist in streamlining the supply chain for its wide network of operations. At the same time, ADNOC Distribution has advanced customer service excellence to attain the ‘Superbrand’ title. Besides, the company has massive financial resources and support from the UAE government, which it can rely on for further investments in the Gulf region. The strategic planning is reflected in ADNOC Distribution network of service stations and convenience stores. Moreover, the company uses “advanced technology for automated car cleaning, fuel, vacuum cleaning, tire repair and lube” (ADNOC Distribution, 2015, p. 1). By offering services at the port, aviation services and focusing on regional and international markets, ADNOC Distribution is positioning itself as a regional leader and an important player in the globe market. Besides, ADNOC Distribution strives to enhance employee well-being, community responsibility and environmental conservation because it recognizes that modern corporation must focus beyond profits.
The growing regional markets outside the UAE and partnership with related firms present new opportunities for ADNOC Distribution.
Major threats for ADNOC Distribution are volatility in the Middle East, specifically threats from ISIS, terrorists and other militant groups. Besides, the falling oil prices have negatively affected the company’s revenues while the strong dollar affects exchange rates and earnings.
Five Porter’s Forces
Threat of new entrants
There is no major threats from new entrants because of the UAE government controls, high capital requirements, customer loyalty to ADNOC Distribution and brand equity – the ‘Superbrand’ in the region.
Threat of substitute products or services
ADNOC Distribution controls such threats by adjusting its prices of products and services. Consequently, the company has attained a near monopoly status in the market.
Bargaining power of customers
ADNOC Distribution currently does not face any serious issues with bargaining power of buyers because of its sensitive pricing strategies and few substitute products in the Gulf region.
Bargaining power of suppliers
The costs of labor and supplies for support services and technologies have risen significantly. The company must work with qualified employees and reputable technology vendors.
Intensity of competitive rivalry
The company is noted as one of the most innovative oil and gas firms in the Gulf region. Consequently, it can deliver excellent products and services to its customers. Competition is therefore minimized through products and services like customized cards for fuel consumption management.
Internal analysis
Strengths
Strategic approaches deployed ADNOC Distribution reflect its strength in the market. The company believes that it has superior products and services than its competitors in the Gulf region. For instance, ADNOC Distribution has introduced specialized services and products for the aviation industry, high standard ship refueling services, Rahal for fleets, household gas, Oasis 365 and convenience stores. Recently, ADNOC Distribution has focused on improving its human resources and capabilities because the company believes that the happiness of its employees leads to operational excellence (ADNOC Distribution, 2013).
It can be noted that ADNOC Distribution focuses on growing its human resources to deliver excellent services while also investing in state-of-the-art technologies to automate service provision. The company can achieve favorable outcomes because of its massive financial resources.
Weaknesses
ADNOC Distribution has operated for some decades now. However, the company is still struggling to expand in the domestic market and the Gulf region where culture and geography have limited impacts on its operations. Thus, such deficiencies could originate from poorly skilled personnel who do not understand how regional or global markets operate. In addition, the company perhaps lacks robust innovative capacity supported by research and development (R&D) to drive its growth beyond the UAE and the Middle East.
Although ADNOC Distribution faces the challenge of slow growth, it has been able to create competitive advantage in the UAE and the Gulf markets. With new technologies, the company can now offer automated services, loyalty programs and self-service to its customers. At the same time, ADNOC Distribution has been able to create competitive advantage by relying on its human resources. The company aims to hire the best talents in the UAE although it still promotes Emiritization program. Besides, ADNOC Distribution offers regular employee training to ensure that its human capital is robust and can meet new demands in the market.
ADNOC Distribution has also been able to create competitive advantage through its financial resources. The company can acquire new technologies. For instance, under the UAE’s Smart Government and Smart Cities vision, ADNOC Distribution will ride on this Smart Program to transform all its stations into smart ones by the end of the year 2016 (Haider, 2014). The company will focus on RFID-based authorization and payment processing, Contact-less (NFC) Payment cards, B2C, Mobile platforms and e-commerce to enhance customer and affiliate convenience. At the same time, ADNOC Distribution relies on its financial strengths to create competitive advantage through mass opening of new service stations and revamping acquisition. It remains unclear what the company does in R&D to improve its products and services.
The Value Chain model
The value chain model for the ADNOC Distribution is reviewed to determine how it affects its strategic activities, costs and profits (Porter, 1985).
Primary activities
- Inbound Logistics – ADNOC Distribution has good relationships with its suppliers. Consequently, it receives all services as required.
- Operations – the company relies on various activities, including R&D to develop a wide range of petroleum products and services that are considered best relative to competition.
- Outbound Logistics – ADNOC Distribution has developed modern refueling services and convenience stores to enhance distribution of its products and services.
- Marketing and Sales – ADNOC Distribution almost dominates the oil and gas industry through its supply and distribution services. It strives to cover the entire UAE and the Gulf region while focusing on internationalization.
- Service – the company sells consumable products that require no after-sale service. ADNOC Distribution believes that its products and services are the best in the region.
Secondary activities include
- Procurement – ADNOC Distribution has a robust procurement method to ensure that all required resources are obtained for production of petroleum products.
- Human Resource management – the company is now focusing on human resource development to boost its human capital for competitive advantage. ADNOC Distribution must improve on its recruitment, selection, hiring, training and development, compensation and dismissal processes.
- Technological Development – ADNOC Distribution focuses on developing smart programs mentioned above to enhance customer experience and satisfaction. For sustained growth, innovation and automation, the company should continuously improve its technological development for enhanced outcomes.
- Infrastructure – ADNOC Distribution has created different departments such human resources, Internal Audi, Retail Sales, Operations Division, Plants Division, Maintenance and Technical Division, Logistics Division, Natural Gas Division, Technology Division and Finance Division among others to meet its needs of strategic growth and realization of the overall goal (ADNOC Distribution, 2013).
ADNOC Distribution should focus on developing various aspects of its value chain to create competitive advantage required for growth and internationalization.
Strategies in action
ADNOC Distribution has currently adopted the growth strategy. It focuses on growing its investment, increasing revenue and profitability. This implies that ADNOC Distribution is striving to outdo competition and control the UAE and the Gulf markets.
ADNOC Distribution market penetration is now concentrated in the King of Saudi Arabia and the UAE where it intends to increase distribution network and number of convenience stores. At the same time, the company focuses on internationalization in selected countries in Africa, Asia and Europe.
ADNOC Distribution focuses on selected markets because it believes that such markets are not current saturated with petroleum products and services, particularly in Africa and Asian countries. It also recognizes that such emerging markets offer greater opportunities for growth because the customer base is still growing. The company may be able to rely on its growing economies of scale to create competitive advantage through massive distribution and lower prices in competitive markets.
Market development noted in the company activities, for instance, ADNOC Distribution now wants to introduce its current products beyond the UAE and the Gulf region. The company is developing new distribution channels by acquiring and opening new service stations while relying on existing ones to penetrate the market. ADNOC Distribution believes that it is the best in the region and can therefore tap new opportunities in the Gulf region and unsaturated markets in Africa and Asia. Currently, ADNOC Distribution has the financial strength and human capital to support its expansion strategies. Besides, it may also have excess production capacity and can expand to the rapid growing international markets.
ADNOC Distribution has embarked on revenue growth and profitability to meet its shareholders’ expectation. As such, the company aims to increase sales by improving its services through technologies and smart services by strategic planning (Al‐Shaikh, 2001). ADNOC Distribution now has successful products that are in the maturity stage of the product life cycle while its competitors also have the same products at competitive prices.
Innovation is also noted at ADNOC Distribution. The company continuously focuses on creating new products from petroleum products while focusing on emerging technologies to improve its quality of services and customer experience. However, ADNOC Distribution must invest in R&D, invest in the right human capital and promote a culture of creativity to realize this goal.
Strategy implementation and review
SWOT Matrix
Grand Strategy Matrix
ADNOC Distribution can use any of these two tools enhance strategic decision-making (Pearce & Robinson, 2004). However, by using these two tools simultaneously, ADNOC Distribution can gain synergies for improved opportunities. Information contained in the SWOT Matrix and the Grand Strategy Matrix would help ADNOC Distribution to leverage its strength with rapid growth strategies for its internationalization efforts (Pearce & Robinson, 2004).
Conclusions
Strategic management presents valuable tools that executives can use to explore their strategic activities and positions in the market. Internal analysis shows that ADNOC Distribution has strengths, including capital and products. However, the lack of sustained development can be attributed to perhaps weaknesses in human resources and slow pace of innovation. Externally, the company must face competition and learn to invest wisely in the volatile Gulf region.
Recommendations of future strategies to be adopted
- ADNOC Distribution should focus on best practices in human resources, including hiring, selection, training, development and promotion
- The company should invest in R&D to promote product developments
- New technologies should give the company new opportunities but end users must learn how to use them
- While internationalization is good, it restricts the company to only Gulf, North Africa and certain Asian countries. ADNOC Distribution should focus on the global market.
- Improve strategic planning activities
References
ADNOC Distribution. (2013). 2013 Sustainability Report. Web.
ADNOC Distribution. (2015). Our Company. Web.
Al‐Shaikh, F. N. (2001). Strategic planning process in developing countries: the case of United Arab Emirates business firms. Management Research News, 24(12), 7- 16. Web.
Elbanna, S. (2010). Strategic planning in the United Arab Emirates. International Journal of Commerce and Management, 20(1), 26 – 40. Web.
Haider, H. (2014). Adnoc Distribution smart service stations by 2016. Khaleej Times. Web.
McNamara, C. (n.d). Basic Overview of Various Strategic Planning Models. Web.
Pearce, J., & Robinson, R. (2004). Strategic Management. New York: McGrawHill Companies.
Porter, M. E. (1985). Competitive Advantage. New York: The Free Press.