Caltex Australia is a company that is listed on the Australian Stock Exchange. Headquarter of the company is located in Sydney, Australia. The company was incorporated in the year 1900 (Caltex, 2018). Caltex deals in petroleum products and as a part of its business it is engaged in purchase, refinement, selling and distribution of petroleum products across the Australian country as well in other countries like New Zealand and Singapore. The company operates through various segments such as supply & marketing segments, Lytton Segments (Caltex, 2017).
Part A: Value Creation
Value: Diagram of Value Chain Analysis of Caltex Limited
Value chain analysis:
It is the strategic management technique that can be used to analyse the internal activities of the company. The activities of the firm are primarily classified as primary and support activities (MBA Skool, 2018). These activities are discussed in details further:
Primary activities: These activities are undertaken to create and sell the product or service.
- Inbound logistics: These processes are concerned with procurement and storage of inputs required for the business.
- Operations: These are the processes that are used to convert the inputs i.e. raw materials into the final products.
- Outbound logistics: These are the processes that are implemented to collection and storage of the final products.
- Marketing & Sales: These processes are used to persuade the customers of the company and to distribute the finished goods in the market.
- Service: These services are the after sales services provided to maintain the value of product of the company.
Support Activities: These activities are undertaken to support the primary activities of the business.
- Procurement- This is related to the activities performed by the organization to arrange the resources it require to operate. It comprises negotiating the best price and identifying the vendors.
- Human Resource Management- This step of Value chain analysis talks about how organization hires, motivates, retains, recruits, rewards, and trains. Human are one of the essential source of value, so, organizations can gain a competitive advantage with effective practices of HR.
- Technological Development- These types of activities are associated with the processing and management of information, along with protecting the knowledge base of the company.
- Infrastructure- Infrastructure is the support systems of the company, and the functions that permit it to manage the day-to-day operations.
Vision and Mission of Caltex
Caltex Australia Limited has the vision to become the most leading oil refining company in the Australian market. Also, the company aims to evolve as the convenient market place for the delivery of fuel as well as other daily needs products of the customers of the company through its supply chain networks (Caltex, 2018).
The mission of the Caltex Australia Limited is to supply and to distribute the fuel as well as lubricant products to various sorts of market i.e. the industrial market, rural market and retail market by emphasising on the service that is designed to broaden the market share of the company and to increase the overall profitability of the business while maintaining a good relationship with its customers (Crokers, 2016).
Goals and objectives of Caltex
The goal of Caltex Australia Limited is to operate its business in such a way that it can minimise the severe negative impact of the business on the environment as well as the communities in which Caltex is operating and to become the market leader in the area of distribution of petroleum and other energy consumable products.
- To achieve strong and sustainable profitability of the business through the brand leadership
- To manage the cost of the business by reducing the unit costs of the products through the implementation of innovative techniques and technologies and the improvement in the work processes (Operational Report, 2015).
- To achieve the capital stewardship by way of investing in the project opportunities that are best for the company and to execute such opportunities in such ways that provides the company a strong competitive advantage over other firms of the industry.
- To achieve the operational excellence of the business through safe and reliable operating practices that are environmental-friendly
To connect with the employees and various other stakeholders of the business by adopting the theory of stakeholder engagement and by building such relationships with them that are mutually beneficial (IBIS World, 2017) .
Part B: Strategic Management:
Porter’s Five Forces Model
One of the key tools of strategic management that is used to analyse the industry and the forces that surrounds the industry is Porter Five Forces Model. The said model acts as the comprehensive framework that supports strategic decision making for the company. The managers of Caltex can also adopt this model to understand and analyse all the underlying forces of the w industry in which the company is operating its business. The use of Five Forces model will allow the top management of the company to formulate such strategy that will provide the company a competitive edge over other rival firms of the industry and it will also contribute positively to the long term profitability.
Threats of the new entrants:
This type of risk arises when it is easy for the new firms to enter into the energy industry in which Caltex is operating its business.
However, there are stringent barriers to the entry of new firms in the energy industry for Australia. Also, the firms in this industry require strong distribution channels which are not affordable by everyone. Even the customers of the industry are quite loyal with the existing brands and hence it is not easy for the businesses to enter in this sector. Hence risk of new entrants is low.
Bargaining Power- Suppliers:
There are certain raw materials that are consumed in the energy sector which are supplied by almost all of the vendors of the industry and for such raw materials the bargaining power of the suppliers is low. However, there are certain products such as petroleum, diesel, auto-gas, lubricant stores which are not easily available with all the suppliers of the energy industry and in such cases the bargaining power of limited suppliers is high.
Bargaining Power- Customers:
Buyers of this industry are generally quite price and quality sensitive and this could impose high pressure on the company. If there are limited customers of energy products in the market the bargaining power of such customers increases and they become more powerful to seek for discounts from the company. However, it is generally observed that the Caltex is engaged in the business of petroleum products, oil products and other products of convenience stores that are consumed on the routine basis and by almost every class of the society and it can be said that the customers under this industry covers a wide base and hence they do not have the privilege of negotiating for the prices. Thus the bargaining power of the customer is low.
New Substitute product’s threat:
When an alternative product of the Caltex’s product is introduced in the market which has the potential of the satisfying the needs of the customers of the market at the same level as is done by the products of Caltex, the risk of substitute takes place. There are fewer substitutes of products and services of Caltex and hence the risk of new substitute is less. However, for convenience stores where daily consumables are sold, risk is high because of easy availability of substitutes.
Threat of rivalries:
There are fewer firms in the energy industry of Australia that are giving competition to the business of Caltex Limited. The major competitors of Caltex Ltd. are Ford Motor Company, Cenovus Energy, Mazda Motor Corporation etc. Hence, the threat from the rivalry firms in the energy sector of Australian economy is low (Fern Fort University, 2018).
External stakeholders of Caltex:
The external stakeholders are those parties that are associated with the company and are present in the external environment of the business. The governmental bodies which regulates the energy industry forms the key stakeholders of the company. Example: Australian Competition and Consumer Commission. The other external stakeholders of the business are its customers, suppliers, competitors, providers of finance such as banks and other financial institutions, shareholders etc. (Real World Drive, 2017). As these parties are not directly involved in the business operations of the company they are regarded as the external stakeholders of the company.
Part C: Performance Measurement:
Performance measures are the standards against which the performance of the company is measured. These are generally the quantifiable indicators that are used to determine as how well the company is performing its operations and functions towards the achievement of desired objectives. The performance measures of Caltex Limited for the financial year 2017 are derived from current year’s business plan of the company. These measures have been identified in line with the Board’s direction. Following performance measures have been identified in the annual report.
- The primary performance measure for the short term incentives is the RCOP NPAT (Replacement cost of sales operating profit (RCOP) NPAT as this element eliminates the impact of gains and losses related to the inventory and hence gives the true indication regarding the company’s underlying financial performance.
- Another performance measure that have been identified in the annual report of the company for long term incentives are the total shareholder’s return, strategic growth measure and the strategic convenience retail measure.
- The relative TSR measure is evaluated as against the comparator group of the ASX 100 companies. This performance measure of the company has been weighted at 60%.
- The strategic growth measure of the company is weighted as 20%. The return on average funds employed (RoAFE) is measured as Profit Before Interest and Tax/Average Funds Employed. The RoAFE is included as the strategic growth measure in order to ensure that the executive members of the board are rewarded only in the situation when Caltex Limited has invested in appropriate projects and has also created the value for its shareholders.
- Convenience retail measure is used to gauge the implementation of convenience strategy of Caltex. This measure is also weighted as 20%. The board of the company will assess this measure through quantitative as well as qualitative metrics which includes:
- A customer metric that uses the net promoter score methodology
- An average percentage of sales uplift for each store and
- The rollout of the new format throughout the new and existing Calstores network.
Reward system of top executives
The top executives of the company are its Managing directors and Chief Executive Officers, Senior Executives, non-executive directors etc. The STI opportunity of the MD’s and CEOs will increase by 10% from existing 60% of the basic salary. Further, EGM Fuels & Infrastructure will receive the hike of 13.8% in their fixed remuneration in the year 2018. For, the other senior executives the STI opportunity will increase from 50% to 60% of their total base salary from the year 2018 and onwards. The base fees of the non-executive directors will increase in 2018 by 2%. The Audit and Human Resources Committee Chairman will receive an increment of $10,000 in their sitting fees along with this the OHS & Environmental Risk Chairman will be receiving an increment of $4,000. Further all the committee members will receive the hike of $ 2000.
From the above report it can be concluded that Caltex Australia Limited is a leading dealer of petroleum and other consumables goods of the humans. The company is operating successfully through its overall strategic and ethical policies. As the energy sector of Australian economy is quite developed, there are various opportunities and threats available to the company in the market.
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Crokers (2016) Mission Statement [online]. Available from https://www.crokers.com.au/index.php/homepage/mission-statement [accessed 7 September 2018]
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Real World Drive (2017) Caltex retailers become explicit stakeholders for the latest Fuel Your School initiative [online]. Available from https://realworlddrive.wordpress.com/2017/06/30/caltex-retailers-become-explicit-stakeholders-for-the-latest-fuel-your-school-initiative/ [accessed 7 September 2018]
(Real World Drive, 2017)
Operational Report (2015) Delivering On Our Strategy [online]. Available from https://microsites.caltex.com.au/annualreports/2015/files/OPERATIONAL%20REPORT.pdf [accessed 7 September 2018]
(Operational Report, 2015)
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