What Kind of Corporate Entrepreneurship Exists at Valero Energy Corporation - Essay Example

Case Study: Valero Energy Corporation Critically discuss what kind of corporate entrepreneurship exists at Valero Energy. Evaluate how the company manages the innovation process and provide 3 examples of product innovation or process innovation at Valero Energy. 2. Critically evaluate whether Valero Energy is a learning organization. In your answer discuss 3 examples of how the companys leadership structure has affected the degree of learning that occurs within the company. 3. Critically evaluate the competitive dynamics of the industry Valero Energy is in. Provide 3 examples in your answer of how Valero Energy can utilize an entrepreneurial strategy to compete more effectively globally. 4. Critically discuss whether Valero Energy has diversified its products and services. Provide 3 recommendations with a timeframe included of how Valero Energy can create better value through diversification of its corporate-level strategy. 5. Critically discuss whether Valero Energy has created and sustained a competitive advantage through its business-level strategy. Provide 3 examples of different environmental influencers that have affected its business-level strategy. [1] Valero is a refiner of oil feedstock. It buys oil from companies that extract them from the ground and Valero turns the stuff into clean fuel and other products like plastics, asphalt, aromatics, etc. that it sells to other companies. Valero’s entrepreneurial philosophy is closer to that of a small family business where all who work for it feel that they have a stake in the success and profitability of the company. In a June 2006 interview with HR Magazine, Valero’s first CEO (who retired in 2005) admitted that the concern of management is basically how to take care of its people so that they improve their operations, increase refining capacity and yield, and help run the company better. Profits usually follow because the people are happy working for the company. Since 1980, the company has taken care of its people – it has not laid off a single employee in the last twenty-nine years – and so has the luxury of getting the best among those who apply for jobs there, rewarding them for their contributions to the company. Process and product innovations at Valero are managed by sharing the R&D expertise of researchers for its four fuel (gasoline, diesel, jet fuel and renewables) and eight specialty (aromatics, asphalt, propane, sulfur, base and process oils, petroleum coke, solvents and natural gas liquids) products following the basic guidelines of being environment-friendly, profitable, and capable of improving people’s lives. Researchers who come up with selected innovations are generously rewarded, and profits are shared with Valero’s over 21,000 employees. Three examples of innovation at Valero are: first, its capacity to process high quality fuels from a variety of high-sulfur crude stocks; second, its ability to more than double their production capacity of prilled or solid-form sulfur; and third, its diversification into ethanol production that is blended with gasoline. Valero makes huge investments into both manpower and technology resources and is reaping the fruits from these investments. [2] Valero Energy is a learning organization because it is constantly searching for new technologies that could improve products and processes and continuously adapts to the demands of these technologies. Valero’s managers, scientists and workers are guided by the basic principles that have existed since the company was founded in 1980: people are its number one asset and must be provided a challenging, enjoyable and rewarding work environment that fosters creative thinking, teamwork, open communication, respect and opportunity for individual professional growth and development. Three examples show how Valero walks the talk. First, its founding CEO Greehey admitted in HR Magazine that the management team is guided by only one thing: “care more about your employees than you care about yourself.” This means that Valero’s managers function like servant leaders whose job is to make it easy for every employee to perform at peak capacity and to give each one the opportunity to do so, spending money or time when and as needed. The workers, in turn, deliver the profits. Second, Valero’s 2008 Report (4) shows a Senior VP for Human Resources and an EVP for Corporate Development and Strategic Planning, but none for R&D. This means giving people strategic direction is important and clearly effective in coming up with products its customers want to pay for. This structure allows the company to continuously develop Valero’s strategic talent management system to provide the right labor force at the right time in the right place to achieve business objectives, integrating staffing, workforce planning, succession planning, training and knowledge management into a predictive, proactive and dynamic model (Sullivan). Third, Valero developed an e-Learning system to train its people and 1,100-plus retailers in coping with varied and changing product regulations that differ among the states where it does business. This system allowed workers to share best practices and learn from one another in an atmosphere of continuing education that leads to happy workers and profits (WBT Systems). [3] The past few years were turbulent for Valero and the petroleum industry as prices of feedstock, the raw materials refined into various products, has fluctuated like crazy, and state regulations have increased due to the outsized profits of oil companies during the recent boom years. Valero is not an oil exploration company and is merely an oil refiner, but it can benefit from lower prices due to lower demand, although the same lower demand could also lead to lower profits. Unleashing the entrepreneurial potential of Valero’s workers to take strategic advantage of the situation would allow the company to compete more effective globally. The following are examples of how Valero can pursue horizontal and vertical integration strategies. First, Valero must invest in alternative fuel and energy technologies to take advantage of lower prices so it would be ready to offer more attractive alternatives when the economy recovers. There are many oil exploration companies that are suffering because the price of oil does not justify the investments they are making to extract that oil. Valero can move in and invest in these companies so it could have a ready and cheap source of oil for future use. The recent move in March 2009 to ethanol production, with Valero buying several ethanol factories from a bankrupt company, is one such example of a strategic move in this direction. Second, Valero can also adopt entrepreneurial solutions on the retailing side of their business, buying dealerships or investing in them, using available funds or equity stocks that could be swapped in exchange for ownership. It could buy these fuel retailers at low prices and benefit from the profits once the economy recovers. It benefits by having a buyer for its refined fuel products and sharing the earnings of these retailers in a recovering economy. Third, Valero can invest in hybrid vehicle research, selecting the best among the industry players to gain an ownership stake. It does not have to choose an American company and may invest instead in a foreign brand like Toyota to gain first mover fuel technology advantage. [4] Valero has two major product lines: fuels and specialty products. The fuel product line has four extensions, while the specialty product line has eight from oil refining by-products sold to industrial companies that manufacture everything from diapers to plane engines. Valero looks like it has diversified products and services but can widen its diversification strategy, which serves to ensure the company’s value is affected minimally by downturns in the economy, whether local or global. Since the current recession is global, a diversified company should sell products to consumer markets that suffer the least. Several of Valero’s customers are suffering from the downturn: automotive, airline, fuel retailing, construction, and semiconductor electronics. On the other hand, the plastics, consumer goods, clothing and food processing industries that use Valero’s products would continue buying these products unless they go bankrupt. Valero can adopt these strategies to create better value through diversification: First, branch out into environmental and safety businesses based on its experience to take advantage of government stimulus funding in these sectors. Global recessions usually mean government is a major fund source, so Valero must learn to exploit that in the next year or so. Second, unleash its R&D and learning organization expertise to help struggling industries look for new products in shrinking global markets. This would involve finding new applications for its specialty products, even investing in these new businesses such as designer plastics or aromatics. This is urgent and has to be achieved within the next two to three years. Third, it must exploit its newly purchased ethanol processing facilities. Given its R&D ability, Valero can find a way, in the next three to four years, to produce alcohol for human consumption and enter the specialty beverage industry. The previous Great Depression became an opportunity for the liquor industry as people who wanted to forget their economic problems resorted to drinking. Besides, liquor is also a high value added product and a good cash source. [5] Valero Energy has created and sustained a competitive advantage through its business level strategies over the last thirty years. One obvious proof is being the number one company to work for in America for two consecutive years, and its being included in the list for nine years now, which confirms that its business strategy of treating its human resource as its main asset is working. Another proof is Valero’s profitability in 2008 despite the global economic downturn, which shows that its current diversification and cost leadership strategies are also effective. Among the many environmental influencers that have affected its business-level strategy, it could be said that the following have been among the more important ones: First, the cost dynamics of its raw materials opened an opportunity that Valero exploited to take advantage of cheaper high-sulfur crude to maximize its profits. Using advanced R&D technologies, Valero was able to extract cleaner and less polluting low-sulfur fuels that fit the next important external factor, the concern for environmental-friendly fuel products. Second, the environment lobby has demanded from and gotten government to increase its intervention in regulating the quality of petroleum products. Valero was therefore properly positioned to supply markets with products that were popular and at a price that was competitive compared to other brands. This also enhanced Valero’s image as a responsible corporate citizen that was as concerned as the environmentalists in taking care of the earth, helping increase sales. Third, Valero’s Golden Rule of taking care of its employees conforms to the current concern of the general population for the practice of good corporate social responsibility, not only from healthy products but, more important, from happy employees. The image of a good corporate citizen is a powerful marketing tool, and this an important factor in differentiating one fuel product from another. It is well known that fuels are a commodity product, so a good image can help differentiate, and sell more, of what is essentially a similar product. Works Cited Leonard, Bill. “Taking Care of Their Own: Under Chairman Bill Greehey, Valero Energy Demonstrates How A Commitment to Compassion and Community Service Can Lead to Success.” HR Magazine 51.6 (June 2006). Sullivan, John. “Valero Energy Corporation: Predictive Labor Needs and Talent Pipeline Automation.” Best Practices Institute Case Study: Five-part Series. Dr. John Sullivan & Associates. Pacifica, CA: October 2005. Valero Energy Corporation. Annual Report 2008. San Antonio, TX: 2009. WBT Systems. “Valero Energy Corporation Case Study.” December 2006. WBTSystems.com Accessed 25 April 2009. http://www.wbtsystems.com/downloads/success-stories/ValeroUK.pdf Read More