Leadership challenge in GAS Co - Essay Example

?Leadership Challenge in an Organization Outline Introduction The leadership challenge involves an organization, the principal competency of whichis threatened by technological obsolescence and regulatory changes. Thesis Statement: Technological imperatives that are backed by mandatory regulations tend to radically alter the competitive environment of a firm, creating serious challenges that effective strategic leadership must be ready to definitively address. 2. About the Organization 2.1. GAS Co. (not its real name) is a wholesale and retail petroleum distributor. 2.2. Products include diesel, gasoline, kerosene, biofuels, and lubricants. 2.3. Location is in the Asia-Pacific rim, with 500 retail stations and 30 depots located in Southeast Asia. 2.4. Is also owns 30 depots around the region to support both wholesale and retail supply. 2.5. GAS Co. is the first local petroleum dealer to establish a retail chain after deregulation, and the first to offer biofuels among its blends. 3. Primary stakeholders 3.1. The firm is a family corporation established by the parents of the present company executives; the family and a few close friends are the present shareholders. 3.2. The firm is presently a closed corporation, but is considering going public by listing on the stock exchange. 3.3. There are 800 directly-hired employees, not including the workers in the dealerships. 3.4. Several of the firm’s retail stations are franchised out to small entrepreneurs. 3.5. Its wholesale customers are comprised of large-scale industrial companies; its retail refilling stations service individual motorists. 4. Vision, mission, values and advocacies 4.1. The company envisions itself to be the leading petroleum fuel provider in the region. 4.2. Its mission is to provide clean, environment friendly, high quality petroleum fuels and lubricants at affordable prices. 4.3. Its core values as integrity, passion for winning, innovation, leadership, ownership and trust. 4.4. Its advocacies are free competition, environmental conservation, and empowerment of the small entrepreneur. 5. Challenges facing the organization’s leadership 5.1. New international regulations require the reduction of carbon dioxide emissions for all signatories to the international agreements. 5.2. Many car manufacturers have begun to convert their product designs to run on greener alternatives than petroleum fuels. 5.3. Cars and land vehicles using the green technologies will be in mass production by 2015 (three years from this report), in increasing volumes every year, pursuant to mandatory provisions in international agreements and EU directives. 5.4. At present, GAS Co. is still aggressively expanding its conventional gasoline stations which, while offering biofuels, are still designed primarily for petroleum fuels; there are no special design or system considerations yet for alternative fuels. 5.5. The firm’s executives still loyally pursue the original strategy of their parents to pursue the petroleum business which is its present competency; no new competencies are being developed beyond ethanol gasoline (E85). 6. Strategy to overcome the challenge to the leadership 6.1. The present leadership must resolve to break away from its traditional strategy and consider gaining new competencies in the alternative technologies. 6.2. Aggressive construction of refilling stations should be suspended, pending new designs pursuant to the new competencies. 6.3. Environmental scanning should be conducted to determine the technologies most likely to be adopted in their franchise areas. 6.4. Massive reorientation of R&D and engineering designs, followed by HRD, training, and operations, should follow the decision as to what innovative technologies to adopt. 6.5. New franchise contract should be revised and existing franchises renegotiated in accordance with the proposed technical changes. 7. Conclusion The leadership should assess the new technical, regulatory, and business environment and articulate their company strategies and plans to ensure the firm’s survival and greater competitiveness. Concluding statement: Effective leadership must vigilantly forecast the serious threats to the firm and boldly adopt strategies to ensure its continued survival, create new competitive advantages where the former are rendered obsolete, and overcome overconfidence and complacency based on past successes. Leadership Challenge in an Organization Introduction Technological imperatives that are backed by mandatory regulations tend to radically alter the competitive environment of a firm, creating serious challenges that effective strategic leadership must be ready to definitively address. This discussion shall focus upon an organization which has a track record of success, but which will soon face the threat of obsolescence unless it quickly adjusts to new regulatory and technological developments. About the organization The organization upon which this discussion shall centre is a petroleum company which, for confidentiality purposes upon the company’s request, this study shall be designated as GAS Co. The firm’s business is the wholesale and retail distribution of petroleum fuel and lubricant products. The firm is based in an emerging Asian economy, and presently has some 500 retail stations located throughout the Southeast Asia and Pacific region, and about 30 depots that store quantities of downstream petroleum products (i.e., diesel, kerosene, unleaded, ethanol (E85), and premium gasoline). GAS Co. began in 1978 as a family corporation which offered mass storage facilities for petroleum and petrochemical based products; it then expanded into providing wholesale supply of petroleum products to industrial and manufacturing clientele. Thereafter it entered into a partnership with one of the world’s leading suppliers of lubricant additives, which enabled the company to undertake its own research and development in lubricants. Not long thereafter, when the downstream oil industry was deregulated by the national government, GAS Co. took the bold step of being the first local petroleum retailer to establish its line of refilling stations. It is now the leading local petroleum retailer in the country, and continues to expand by franchising its fuel refilling stations, which it began in the 1990s. Primary stakeholders The original company founders are a husband and wife team who have held control over the company’s operations as its sole investors. A short while after it commenced its retail operations, operational control of the family business was passed onto the eldest son of the founders who served as its operations manager, while the original owners remained the president and VP of finance in the firm. Other minor stockholders, all extended family members, were selectively invited to invest in the company but it remained a closed corporation under private ownership. At the start of the new millennium, the elderly couple retired and passed on full control of the corporation to their five children, who now occupy the executive positions. Spouses of the children also participate as senior managers in the various departments. As for its employees, GAS Co. has expanded from its initial 30-strong workforce to its present complement of 800 direct company personnel (i.e., franchisees hire their own manpower complement who are trained by GAS Co. under the franchise agreement). The workforce is not unionized, and majority have been with the company for at least 5 years. A significant percentage has been with the company for at least a decade, and the senior management and other executive positions, except for two or three, are occupied by individuals who have been working in the company since the 1990s. The firm’s suppliers are a combination of long-time and recent business contractors. Until the present, the firm continues to be a closed family corporation; however, due to foreseen expansion opportunities and to take advantage of favourable legislative provisions, GAS Co. is considering going public and listing on the stock exchange, first in its home country with the possibility of listing also in the countries where it maintains a presence. It plans to float initially 10 per cent of its authorized stock, which may slowly and eventually increase to 20 per cent, but not more. Vision, mission, values and advocacies The company’s vision is to be the leading petroleum fuel provider in the region. Its mission is to provide motorists with clean, environment friendly, high quality diesel and gasoline fuels and lubricants at affordable prices. Together with its mission statement, GAS Co. professes its adherence to the core values of integrity, passion for winning, innovation, leadership, ownership, and trust. The company also adheres to several advocacies. One of these is free competition among petroleum providers as a key to economic progress. This includes the values of fairness and good faith even while adopting an aggressive and competitive stance in the company’s performance. It embraces free market competition and renounces forms of political sponsorships or affiliations that may result in undue advantages for one company. The company also advocates environmental conservation and therefore takes an unequivocal stance towards the development of biofuels, of which it was one of the pioneers in the downstream petroleum industry in the Asia Pacific region. In 2005, it was one of the first in the region to offer for retail consumption E10, a blend of fuel containing 10 per cent ethanol which enhances efficiency in combustion. In 2008, it also pioneered in developing the E85 with 85 per cent ethanol and 15 per cent gasoline. Finally, the company advances empowerment of the small entrepreneur in the emerging economies in which it operates. Through its active pursuit of franchising, the firm hopes to build partnerships among individuals with sufficient savings who would wish to invest in a productive and worthwhile venture. In its franchise agreements, the firm generously provides the option to the franchisee to put up other businesses in their stations through locators, thereby enabling them to optimize returns on their investment. Challenges facing the organization’s leadership There are both internal and external challenges which the organization’s leadership has to resolve if it is to continue in its strong growth trend. For the purpose of this study, focus shall be placed on one particular external challenge, which is the threat to the viability of businesses providing petroleum for land transportation in light of the near-to-long-term conversion of automobiles and other land transport vehicles to hybrid and alternative fuel technologies. There are significant and far-reaching changes that will soon be adopted, based on the Kyoto Protocol and subsequent multilateral agreements effecting a reduction in carbon dioxide (CO2) emissions. The standards, adopted on an international basis, will affect all major OEM (original equipment manufacturers) particularly manufacturers of automobiles, transport vehicles, and their parts and accessories. In particular, OEM strategies are focused upon: Improving fuel efficiency and reducing carbon and pollutant emissions Developing of alternative fuel vehicles, powered by fossils (natural gas) or renewables (biofuels) Electrification technologies by enhancing the cost-effectiveness of hybrid and electric vehicles (KPMG, 2010). The following diagram shows the regional carbon dioxide emission levels specific countries are committed to. It is interesting to note the ambiguity with which the U.S. views future emission targets it should commit to. Sourced from KPMG (2010) p. Asia is expected to play a significant role in the conversion of technologies. As may be seen from the preceding graph, at present Asian stalwarts Japan and China are far ahead of the United States and Canada, and while their emission reduction targets approximate those of Europe, Asian countries have generally been spared the more harmful repercussions of the financial crisis and subsequent economic recession, and continue to exhibit strong growth prospects. Japan has been pioneering in start-stop technology for the new generation of automobiles, and China is poised to be the leading producer of New Energy Vehicles (NEV) and battery development, which OEMs there have chosen to develop rather than compete with the West in the traditional internal combustion engine (ICE) technologies. Forecasts indicate that the most attractive mergers and acquisitions transactions would likely be between North America and Asia, followed by Europe and Asia, a trend already exhibited by the cross-border alliances and mergers between Volkswagen and Suzuki, Bosch and Samsung, PSA and Mitsubishi, among others (KPMG, 2010). The challenge to GAS Co. may be expressed in the following observation: In the future, the hardest-hit suppliers may well be those with undifferentiated products that do not meet the demand for increased fuel economy or emission control. On the other hand, numerous others that are savvy enough to reposition themselves today could benefit from regulations that threaten to become increasingly stringent in the future (KPMG, 2010, p. v). From the company background, it is evident that the imperative to develop more environmental friendly fuels is understood by the company leadership; from 2005, it has pioneered in the development of ethanol blended fuels. Unfortunately, the firm to date has continued its strategy of aggressive expansion of conventional refilling stations and petroleum fuel depots in the home country and in the region. The company’s leadership appears oblivious to the fact that in some places such as in Europe, emission targets will become mandatory as of 2015 with the imposition of penalties for non-compliant manufactures (DieselNet, 2010). At this point in time, with 2012 beginning, only three years remain until the industry may expect a new technology of land transport vehicles to flood the market. With the tie ups being formed between Asia and both the U.S. and Europe, it is reasonable to expect that Asian automobiles will follow the standards and technology being adopted in other parts of the world. These same automobiles comprise the very market that GAS Co. intends to serve for the long term, and for which it is currently expanding. Strategy to overcome the challenge to the leadership Before a strategy may be formulated, it is necessary to understand the role leadership is to play in the above challenge. Strategic leadership is defined as “the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary…[it involves] coping with change that continues to increase in the global economy” (Hitt, Ireland & Hoskisson, 2011, p. 352). Paramount in strategic leadership is taking cognizance of impending change and forming a vision of how the firm may cope with such change, or even take advantage of it. There are three types of problems commonly hindering effective strategic leadership. These are: (1) the lack of strategic clarity and focus; (2) the employment of poorly aligned tactics; and (3) the limitation of perspective (Beatty & Hughes, 2005, p. 14). In this particular case, it appears that GAS Co., long into the business of petroleum and petrochemical products, may be prone to all three types of problems. First, the lack of strategic clarity and focus, is evident in the mission statement of the firm which still specifies petroleum and petrochemical fuels when clearly the emphasis of the industry is shifting towards alternative fuels. The firm’s reliance on biofuels, while considered towards the right direction, is still undertaken from the point of view of improving what is basically a gasoline fuel, when the future direction is one that marginalizes the use of gasoline. Second, GAS Co. is apparently employing poorly aligned tactics. In a bid to be the leading fuel supplier, it is aggressively expanding its gasoline refuelling stations, and therefore the widespread investment in more and more traditional gasoline stations may be a tactical error in the medium term (i.e., investment horizon at 2015). Finally, there is apparent limitation in perspective, because while placements being currently made may prove to be productive in the next two years, the lack of flexibility that should have been built into the design to allocate for alternative fuels other than petroleum may render these investments increasingly untenable from 2015 onwards. It is not certain, but it is possible that the fact that the family orientation of the firm’s leadership may have a bearing on its strategic direction. Although the present leadership are the founders’ children and therefore are more contemporary, in a tightly knit Asian family the views of the parents, which are anchored in the petroleum business, may possible exert some influence on the decisions of the younger generation. The leadership must decide as to how it expects to ride the new technologies, if and when they become widely used. With the foregoing in mind, the following recommendations are made to address the challenges to the leadership of GAS Co.: (1) The aggressive construction of refilling stations should be suspended for the meantime until a reassessment of the design for refilling stations be made. It is important for the leadership to factor in how its new stations may be easily converted to dispensing or recharging stations for alternative or hybrid vehicles when the time is right. (2) An environmental scanning should be conducted to provide management an idea of the likely technologies to be widely adopted in its franchise areas. As mentioned earlier, Asia may be more inclined towards the use of electric vehicles rather than modifications of the internal combustion engine. Of the alternatives, therefore a market assessment should be made using the PESTEL or similar model to create a picture of the new environment. (3) An inventory should be conducted concerning the present capabilities of the company as to the design of its stations, its equipment, the knowledge and training of its personnel, and the orientation of its R&D which until the present is focused on petroleum and petrochemicals. Then plans should be drawn if and how conversion may be undertaken to align these capabilities to the new technologies. These may include possible adjustments in the franchise contracts the firm has entered into which may need to be renegotiated with the franchisees. First and foremost, however, the firm must reconsider its vision and mission statement, to align its orientation from being principally a petroleum company to being a provider of fuel for retail consumers, while maintaining its business selling fuel wholesale for industrial purposes. It should also be aware that the wholesale business may need to evolve in due time as more stringent emission reduction measures are applied to industry. Conclusion GAS Co. (an alias) is one firm where a gap in strategic leadership had rendered it apparently oblivious to fast changing technological and regulatory changes in the environment. There is urgent need for the firm to reorient its strategies to address these impending changes. It may do this be conducting a radical and exhaustive environmental scanning of the directions being taken by automobile and land vehicle manufacturers, in so far as the choice of alternative fuels and green technologies their target markets are likely to adopt. The firm then has to make a studied decision as to which technologies it will be providing for and the strategic goals for which the firm must aim. Thereafter, tactical objectives must be set and organized teams assigned to attain them, including the adoption of measures to adjust existing capabilities towards the new strategy. There are profound implications on the firm’s leadership culture in adopting the aforementioned plan of action. The patriarchal management style that appears to pursue a filial attachment to the earlier orientation of the business (i.e., focusing on petroleum products), in which the former management exhibited a greater competence. A rethinking of this direction will be difficult because the petroleum and petrochemical processes comprised the foundation of the firm’s success. The new management will therefore be relying on the building up of new organizational knowledge which will be vital to its future success. Effective leadership must vigilantly forecast the serious threats to the firm and boldly adopt strategies to ensure its continued survival, create new competitive advantages where the former are rendered obsolete, and overcome overconfidence and complacency based on past successes. References Beatty, K. & Hughes, R. (2005) “Reformulating Strategic Leadership” European Business Forum. 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