Valero Energy

VALERO ENERGY

2006 Valero energy

I . Introduction

I have come across the term strategy ' at various occasions ranging from match-ups in English Premiere League , military attack on Iraq last year to the latest beauty contests like miss world in China few months ago . All need strategy to win a battle ' for each occasion . It is sure that that strategy ' has a deep meaning that just a way to reach or accomplish a thing

In Strategy : Definitions and Meaning ' Fred Nickols says that the concept of strategy has been borrowed from

the military and adapted for use in business . In business , as in the military , strategy bridges the gap between policy and tactics ' In many situations , we often use the word corporate ' and business ' exchangeable . However , when it comes to the corporate and business strategy , the meaning is quite difference .In Exploring Corporate Strategy ' Johnson G . and Scholes K . says that corporate strategy is concerned with the overall purpose and scope of the organization to meet the expectations of owners or major stakeholders while business strategy is about how to compete successfully in a particular market . In this , I will discuss about the Valero 's corporate strategic planning such as mission statement and its competitive advantage in the industry the Valero exists

II . Valero Energy : Mission Statements

In addition to strategy definition , companies are common to conduct strategic planning that is the way to identify and go towards desired future condition ( Strategic Planning . This kind of planning is important for companies since it becomes a step to develop , implement and achieve goals and objectives

Similar to the concept of strategy , the strategic planning also comes from military terminology . While in military the planning called HYPERLINK "http /www .answers .com /main /ntquery ?method 4 dsid 2222 dekey Military s trategy gwp 8 curtab 2222_1 " \t "_top " military strategy , in business it refers to HYPERLINK "http /www .answers .com /main /ntquery ?method 4 dsid 2222 dekey Strategic management gwp 8 curtab 2222_1 " \t "_top " strategic management

The strategic planning usually comes in three forms : goals and objectives , mission , and vision statements . However , in this , I will only analyze the Valero 's mission statement . Valero is a well-known company in the production of premium , environmentally save products including such as reformulated gasoline , California Air Resources Board (CARB ) Phase II gasoline , low-sulfur diesel and oxygenates

II .2 Mission Statements

Mission statement is the statement that explains what action a company will do in o achieve the company 's goals and mission . Considering the nature of a mission statement , therefore , a mission statement should be clear and concise and should avoid being verbose since it might lead to different implementation . However , the mission statement should clearly describe what will be done , by whom , for whom , and why

According to official website of Valero , I see that the company 's mission statement comes in eight actions as following

The safety of our employees and our operations as a core business value

Producing environmentally clean products in environmentally clean facilities

Aggressively pursuing growth opportunities , both domestically and internationally

Continued development of all employees , our number-one asset

Providing a challenging , rewarding environment that facilitates creative thinking , teamwork and open communications

Customer satisfaction by providing reliable and responsive products and services

Ensuring a positive retail experience for consumers by focusing on convenience , value and quality service

Taking a leadership role in our communities by providing company support and encouraging employee involvement

(Valero Marketing and Supply Company , 2006

Based on the definition of a company 's mission statement , what Valero says about its mission statement , in general , lacks of the sentence determining why the mission is done so . At some actions , Valero also do not mention for whom the action is intended such as in the point number 3 . In addition , some of Valero 's mission statement is also short of the about who does the action whether top managements or all employees of Valero

III . Suggestion of Valero Energy 's Mission Statement

Based on the analysis of Valero 's mission statement , the critical point is that the company is short of reasons of why the mission is done so and for whom the action is intended . In addition , the Valero 's mission also lacks of the about who does the action whether top managements or all employees of Valero

Under such circumstances , I suggest that Valero could set clearer mission statement . For example , the mission number 3 can be changed into following sentences to fulfill the criteria of a good mission statement that has who , whom , and why

Old sentence : Aggressively pursuing growth opportunities , both domestically and internationally

New sentence : Valero managements and staffs are committed to pursue growth both domestically and internationally to increase revenue and enhance employees ' benefits

IV . Valero and Vertical Integration

By definition , vertical integration is the practice to integrate various parts of business , upstream and downstream , in to increase the effectiveness of a company . For example , a oil company that deals with the exploration of crude oil might decide to do vertical integration by doing merger and acquisition with a refineries and distribution network companies

I see from historical text of Valero that the company has evolved from a gas exploration company into an energy company that does not only deal with the exploration but also the refineries and distribution of energy Below are some mergers and acquisitions that mark the development of Valero into an energy company

In 1981 , Valero commenced its first vertical integration through the expansion into energy sector . The expansion was recorded through the acquisition of a small crude refining operation in Corpus Christi Texas . In to speed up the production , at that time , Valero decided to spend over 1 billion to develop the state-of-the-art refining unit in the U .S

Moreover , the process to achieve the vertical integration objectives of Valero also happened in 1998 when the company decided to acquire Mobil 's Paulsboro refinery . By completing the transaction , Valero became the U .S . second-largest independent refining company with a about 735 ,000 BPD

The vertical integration process continues in 2000 when Valero acquired ExxonMobil Corporation 's Benicia , California . The acquisition gave Valero with additional 270-store retail distribution chain and 80 company-operated retail sites . This acquisition is the example of the integration that enriches the process of the company 's sales and distribution network

Moreover , in June 2001 , Valero also committed to buy a refinery in Corpus Christi , previously owned by subsidiaries of El Paso Corporation

Dec . 31 , 2001 became the historical date for Valero as the company completed its largest transaction by doing a merger with San Antonio-based Ultramar Diamond Shamrock Corporation . The `married company greatly adds Valero strengths as a company that grows through a series of vertical integration since Valero became one of the nation 's top three refining and marketing companies at that time

V . Diversification of Valero Energy

Concerning the diversification of Valero , I notice that company is pursuing the related diversification by acquiring another energy companies that are in line with Valero core competencies . Historically Valero evolves from a natural gas gathering subsidiary , crude oil refining operation , and distribution and marketing of refined oil and other crude oil derivatives such as aviation gasoline , petroleum coke kerosene etc

By pursuing related diversification , I notice that Valero gains many benefits since the company has opportunities to increase their revenue while sticking on its competence . To dat , for example , Valero has about 18 refineries with per day (BPS

In addition , by conducting related diversification , Valero gains benefits of reducing costs that are incurred from one operation . Since Valero have their own distribution and marketing division , they can reduce costs of distribution , resulting in the competitive price to customers . This is because the distribution of gasoline composes of 3 major components as shown in the figure 1 . Since Valero have two of three components , they can minimize unnecessary costs

Figure 1 Flow of Oil Distribution

Strategic Alliances of Valero Energy

By definition , strategic alliance is defined as an agreement between two or more individuals or entities stating that the involved parties will act in a certain way in to achieve a common goal

In this kind of agreement , usually involved parties intend to take benefits of their partner to complementary their strengths . In case of Valero , I see that Valero has conducted a strategic alliance with a natural gas-related company named with PG E Corporation . Through the action , Valero in 1997 became a company that own four refineries in Texas and Louisiana and had a 530 ,000 barrel-per-day (BPD ) throughput capacity

In addition , Valero has also conducted strategic alliances with Enterprise Products Partners L .P . The strategic partnership aims at delivering domestic crude oil production to several big oil refineries in the Texas Gulf Coast via the Cameron Highway Oil Pipeline System

This 390-mile pipeline is the longest offshore oil pipeline in the U .S and is the first offshore link between the deepwater developments located off the coast of Texas and Louisiana

The partnership gives benefits for both parties since the long pipeline effectively generates value for both the deepwater producers (Valero and Enterprise Products Partners L .P ) since they are able to deliver their production to refiners seeking new sources of supply

This situation suggests that such partnership will achieve efficiencies for both parties since building their own pipeline to deliver crude oil will cost Valero a lot of money . The partnership also enable Valero and Enterprise Products Partners to larger and higher valued markets

Valero 's Division and Its Competitive Advantage

Discussing Valeros ' competitive advantage should address what the market needs . Current market situation is very tough since the rising in the oil price will lead to negative impacts on a country 's economy

The rise of oil prices has increased industrial costs . As a refiner Valero needs to consider the impact of oil price rising since cannot change their products ' price more often so that any increase in the oil price will badly affect their profit margin

In to maintain the targeted profit margin , Valero should develop their divisions that have competitive advantage over their rivals . One of competitive advantage of Valero is its refineries division in which Valero become the largest refiner in North America with extensive throughput capacity about 3 .3 million barrels per day

In addition , Valero 's marketing division also shows competitive advantage over their rivals since it has become a leader in its respective market with over 5 ,000 retail sites branded as Valero Diamond Shamrock , Ultramar , Beacon and Shamrock in major states in the U .S , Canada , Latin America and the Caribbean

In addition , Valero 's competitive advantage can be seen from the company 's achievement as following

Listed as the world 's top refiner in 2005 and 2004 Platts Top 250 Global Energy Company Awards

Listed in the World 's 100 Best-Managed Companies by IndustryWeek Magazine . This recognition is derived by the company 's excellent performance

Acknowledged as the company who conduct best Points of Light Foundation Excellence in Corporate Community Service Award (one of just nine U .S companies honored ) in 1999

Valero 's Division that Reduce the Company 's Competitive Advantage

Despite the competitive advantage that Valero has , unfortunately , Valero also possess some drawbacks . The drawbacks are obvious in their knowledge skills inventory that is included in human resource division This is because Valero needs to have human resource (HR ) that meet the challenge in fast-changing Valero 's business

In this situation , HR division of Valero should understand that corporate labor supply chain department is key actor in supplying hybrid labor solutions that will include the likes of full-time employees , both US citizens and foreigners

Bibliography

Coulter , Mary K . Strategic Management in Action . Prentice Hall . 2002

HYPERLINK "http /www .la .utexas .edu /depts /gov /home .htm " Department of Government . Vertical Integration ' 1996 . HYPERLINK "http /www .utexas .edu " University of Texas at Austin

G , Johnson and Scholes K . Exploring Corporate Strategy . Prentice Hall 1999

Musa , Michael . The Impact of Higher Oil Prices on the Global Economy ' International Monetary Fund 8 December 2000 . Retrieved February 24 , 2006 from HYPERLINK "http /www .imf .org /external /pubs /ft /oil /2000 http /www .imf .org /external /pubs /ft /oil /2000 / Hybrid Cars Explained - What is a Hybrid Car

Nickols , Fred . Strategy : Definitions and Meaning ' Retrieved March 18 , 2005 from HYPERLINK "http /home .att .net nickols /strategy_definition .htm http /home .att .net nickols /strategy_definition .htm

Strategic Planning ' Answer . Retrieved April 4 , 2006 from HYPERLINK "http /www .answers .com /strategic-planning http /www .answers .com /strategic-planning

Strategic alliance ' Retrieved April 4 , 2006 form http /www .investorwords .com /4772 /strategic_alliance .html

Valero Marketing and Supply Company . About Valero ' 2006 . Retrieved April 4 , 2006 from HYPERLINK "http /www .valero .com /About Valero http /www .valero .com /About Valero

Valero Marketing and Supply Company . Mission Statement ' 2006 Retrieved April 4 , 2006 from HYPERLINK "http /www .valero .com /About Valero /Mission Statement http /www .valero .com /About Valero /Mission Statement

Valero Marketing and Supply Company . Valero through the Years ' 2006 Retrieved April 4 , 2006 from http /www .valero .com /About Valero /History

Valero Marketing and Supply Company . Valero 's History of Achievement ' 2006 . Retrieved April 4 , 2006 from http /www .valero .com /About Valero /Awards

Valero Marketing and Supply Company . Valero and Enterprise Announce First Deliveries of Domestic Crude Oil to Texas Gulf Coast via Longest Offshore Pipeline ' 2005 . Retrieved April 4 , 2006 from HYPERLINK "http /www .valero .com /NewsRoom /News Releases /NR_ .htm http /www .valero .com /NewsRoom /News Releases /NR_ .htm

Valero Marketing and Supply Company . About Valero ' 2006 . Retrieved April 4 , 2006 from HYPERLINK "http /www .valero .com /About Valero http /www .valero .com /About Valero

Strategic Planning ' Answer . Retrieved April 4 , 2006 from HYPERLINK "http /www .answers .com /strategic-planning http /www .answers .com /strategic-planning

Valero Marketing and Supply Company . Mission Statement ' 2006 Retrieved April 4 , 2006 from HYPERLINK "http /www .valero .com /About Valero /Mission Statement http /www .valero .com /About Valero /Mission Statement

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HYPERLINK "http /www .la .utexas .edu /depts /gov /home .htm " Department of Government . Vertical Integration ' 1996 . HYPERLINK "http /www .utexas .edu " University of Texas at Austin

Valero Marketing and Supply Company . Valero through the Years 2006 . Retrieved April 4 , 2006 from http /www .valero .com /About Valero /History

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Strategic alliance ' Retrieved April 4 , 2006 form http /www .investorwords .com /4772 /strategic_alliance .html

Valero Marketing and Supply Company . Valero and Enterprise Announce First Deliveries of Domestic Crude Oil to Texas Gulf Coast via Longest Offshore Pipeline ' 2005 . Retrieved April 4 , 2006 from http /www .valero .com /NewsRoom /News Releases /NR_ .htm

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Valero Marketing and Supply Company . Valero 's History of Achievement ' 2006 . Retrieved April 4 , 2006 from http /www .valero .com /About Valero /Awards

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Valero Energy Page PAGE 7

PAGE

APR . 4 , 2006

Crude Oil Exploration

Oil Refining

Marketing and Distribution

Crude Oil

Customers

Valero Line of Business ...