ASSIGNMENT #2 Describe Porter’s Five Forces Model and

Porter’s Value Change using real organization example (s)

PETRONAS OIL & GAS

Prepared by:Nor Azura Bt Pandi |

GP02155

Outline • Who is Petronas?• What is Porter 5 forces Model?• What is Porter’s Approach to Industry Analysis?

i. The threat of entry of new competitors (new entrants) ii. - The threat of substitutes iii. - The bargaining power of buyers iv. - The bargaining power of suppliers v. - The degree of rivalry between existing competitors

• What is Porter’s Value Change• Conclusion

Who is Petronas• PETRONAS, short for Petroliam Nasional Berhad, is a

Malaysian oil and gas company that was founded on 17 August 1974.

• Core Business are vested with the entire oil and gas resources in Malaysia and is entrusted with the responsibility of developing and adding value to these resources.

• Subsidiaries are PETRONAS Dagangan Berhad, PETRONAS Gas Berhad, MISC Berhad, KLCC Properties Berhad, PETRONAS Chemicals, Malaysian Marine and Heavy Engineering and Other principal subsidiaries.

• PETRONAS provides a substantial source of income for the Malaysian government, with 45% of the government's budget dependent on PETRONAS' dividend.

• PETRONAS Gas Berhad• Involved in the provision of gas processing and

transmission services to PETRONAS and its customers as a throughput company. Owns and operates the Peninsular Gas Pipeline which is 2,550 kilometres in length and runs from Kerteh in Terengganu to Johor Bahru in the South and Kangar in the North of Peninsular Malaysia.

Porter 5 forces

• The most influential analytical model for assessing the nature of competition in an industry is Michael Porter’s Five Forces Model. Porter, a Professor from Harvard University, explains that there are five forces that determine industry attractiveness and long-run industry profitability.

• These five “competitive forces” are: (1) threat of entry of new competitors (or new entrants); (2) threat of substitutes; (3) bargaining power of buyers; (4) bargaining power of suppliers; and (5) degree of rivalry between existing competitors.

Threat of New EntrantsFactors that can limit the threat of new entrants are known as barrier to entry. Barrier to enter this industry are enough to scare away. Nowadays, there is no new entrance in Malaysia. Rivalry among existing competitorsThis describe the intensity of competition between existing firms in an industry. Those are some of the competitors of Petronas which are Hess Oil and Gas Sdn Bhd, Genting Oil & Gas Limited, Syarikat Borcos Shipping Sdn Bhd, Ranhill Berhad, Mitra Energy Limited, Shell, Caltex, Esso, Petron, etc

Power of BuyerThis is how much pressure customers can place on a business. Petronas’s buyers include Japan, South Korea, Taiwan and China.Threat of Substitutes What is like the likelihood that someone will switch to a competitive product or service? If the cost of switching is low, then this poses a service threat. In Malaysia, there one substitute of Oil & Gas industries, which is still new and under development. It is hybrid electric vehicle.

Power of SuppliersThis describe the intensity of competition between existing firms in an industry. Those are some of the competitor of Petronas which are Hess Oil & Gas Sdn Bhd, Genting Oil & Gas Limited, Syarikat Borcos Shipping Sdn Bhd, Ranhill Berhad, Mitra Energy Limited, Shell, Caltex, Esso, Petron etc.

Petronas Porter’s Value Chain

• Michael Porter discussed this in 1985 book, “Competitive Advantage,” in which he first introduced the concept of the value chain.

• A value chain is a set of activities that an organization carries out to create value for its customers.

Elements in Porter’s Value Chain• Primary Activities – Inbound logistics: Four core operations which are Gas

Processing, Gas Transmission, Utilities and Regasification.

• Primary Activities - Operations: Transformation activities that change inputs into outputs that are sold to customers

• Primary Activities - Operations: Transformation activities that change inputs into outputs that are sold to customers

• Primary Activities - Outbound Logistics : Deliver products to customers, Things like collection, storage and distribution systems ; may be internal or external to PETRONAS

• Primary Activities - Outbound Logistics : Deliver products to customers,

Things like collection, storage and distribution systems ; may be internal or external to PETRONAS.- PETRONAS EP’s Project Management System is a

structured approach to ensuring project delivery is safe, cost effective and competitive. Regardless of project complexities, PETRONAS comply with stringent Health, Safety and Environment (HSE) standards, PETRONAS technical standards and global best practices.

• Primary Activities - Marketing and Sales: Processes PETRONAS use to

Persuade clients to purchase from instead of other competitors.- Customer Management- Order Taking- Promotion- Sales Analysis- Market Research- Increasing product Value by create demand for the

company by inventing oil which have specialities.

• Primary Activities - Marketing and Sales: Processes to persuade clients to

purchase from PETRONAS instead of others competitors- Annual General Meeting, which was held on 16 May

2013, coupled with our various engagement with numerous fund managers and analyst.

• Primary Activities - Service : Maintaining the value of product or service to

customers, once it’s been purchased.- Innovative Project Delivery- PETRONAS EP employs innovative workflow and

processes for effective development design and planning. These efforts have earned significant cost savings, enabled projects to be delivered ahead of time, while providing a greater return on investment.

- amongst the world’s first in maximising recovery of discovered fields with Enhanced Oil Recovery (EOR) efforts.

• Primary Activities - Service : Maintaining the value of product or service to

customers, once it’s been purchased.- Cutting-edge technologies are applied alongside new

strategies to rejuvenate brownfields, extracting maximum value from existing reservoirs.

- In consistently delivering some of the world’s first - pipelines, platforms and projects, they have brought oil and gas on-stream ahead of schedule - providing rapid return on investment for partners, stakeholders and investors.

• Support Activities – also supports marketing and sales with other activities- Procurement (purchasing) : What organization does to

get the sources it needs to operate includes finding vendor and negotiating best price.- eProcurement process for registered Malaysian-

based contractors and suppliers who are currently doing business with PETRONAS.

- Consists of Indent Management, eTendering, eAuctioning, Vendor Management, Catalogue Management, and Contract Management.

- eProcurement is done with a software application that includes features for supplier management and complex auctions for best price

• Support Activities - Human Resource Management: Company Recruit, hires,

trains, motivates, rewards its workers

• 'Chain Effect' initiative which looked into the development of executive staff, as well as getting the commitment of line managers to assist with their career path development.

• Line managers are also further empowered through the 'HR in Me' programme, which exposed them to their various roles and responsibilities in managing their staffs career and personal growth, as well as the relevant policies and procedures that govern human resource management within the PETRONAS Group.

• Support Activities - Technological development: Relate to managing and

processing information, minimizing information technology costs, staying current with technology advances and maintaining technical excellence.

• In the short term, Petronas focus on improving operational excellence through better plant and Health, Safety and Environment (HSE) performance. For the longer term, Petronas aim to develop niche technologies to enhance the performance of core businesses.

• Support Activities - Technological development: - PETRONAS' Research and Technology (R&T) initiatives are aimed at

harnessing new and improved technology that will add value to business, enhance competitive advantage, and sustain operational excellence.

- Introduction of portable video conferencing devices.- Enterprise Cloud-Based Storage Service.

• Support Activities - Infrastructure: These are company’s support system and

it is maintain daily operations, Accounting, legal, administrative, and general management

- Several ICT related solutions introduced in PGB during the year include:

- Introduction of Electronic Permit to Work (ePTW) at Utilities Kertih (UK) plant, which allows for a significant time reduction for permit generation to work at plants, as well as strengthening overall governance.

- Introduction of portable video conferencing devices.- Enterprise Cloud-Based Storage Service.

Conclusion • Porter 5 forces is the strategy for analysis and planning in business. This

strategy help organizations and industries to make long term planning. It works by breaking an organization’s activities down into strategically relevant pieces, so we can see a fuller picture of the cost drivers and sources differentiation and then make changes appropriately.

References:• https://4sent.wikispaces.com/Porter+5+Forces(Final)• http://en.wikipedia.org/wiki/Petronas#PETRONAS_Gas_Berhad• http://marketpublishers.com/report/business_finance_insurance/business_services/

petronas_gas_bhd_swot_analysis_bac.html• http://www.petronasgas.com/Pages/Investor-Relations.aspx• http://www.petronas.com.my/aboutus/milestones/Pages/year/2011.aspx• http://www.petronas.com.my/partnering-us/eprocurement/Pages/default.aspx