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Beethoven Phadael Strategic Management Phillips 66 __________________________________________ Professor Trottier MGMT-485-01 4/30/2015

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Page 1: Beethoven Phadael Phillips 66 Case

Beethoven Phadael

Strategic Management

Phillips 66

__________________________________________

Professor Trottier

MGMT-485-01

4/30/2015

Page 2: Beethoven Phadael Phillips 66 Case

Beethoven Phadael Strategic Management Phillips 66 Professor Trottier MGMT 485 Section 1 April 30, 2015

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Table of Contents:

Overview……………………………….….3-4

Strategy & Strategic Issues……………....4-6

Stakeholder Analysis………………….….6-7

Recommendations…………………….….7-8

Back-Up Data Report…………………….9-10

SWOT Analysis………………………..….11-12

General Environment Scan…………........13

Financial Analysis……………………..….14-15

Porter’s Five Forces Analysis………….....16-17

Value-Chain Analysis………………….….18

Company Resources……………................19

Works Cited…………………………….….20

PowerPoint Slides………………………21-26

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I. Overview:

Phillips 66 is an international energy company headquartered in Houston, Texas. The

Phillips brand has been around since 1875. With a 130 year history and experience, Phillips is a

leader in the refining, marketing, midstream and chemicals business. With over 86,000 miles of

pipeline, 40 billion pounds of chemicals processing capacity and 14,000 employees, Phillips has

strong brand recognition and has been a leading fuel brand name in the United States for

decades. In 2012, Phillips 66 became an independent downstream energy company. Operating

across the globe, Phillips 66 is one of the two stand-alone publicly traded companies that came

from the repositioning of their parent company, ConocoPhillips. Because of their highly

integrated portfolio, Phillips 66 is able to adapt to the changing energy landscape and that is why

they have been successful for so many years.

Phillips 66 has five strategic initiatives that are considered top priorities on all levels of

the corporation. These objectives are to maintain a strong operating excellence, deliver profitable

growth, enhance returns on capital, grow shareholder distributions and build a high-performing

organization. The company is committed to continue to improve their safety, environmental

stewardship, reliability and cost efficiency. Phillips 66 competes in the oil and gas industry. The

oil and gas industry is one of the largest in the world. For the United States, oil and gas accounts

for over 60% of total energy which is much more than many countries. The companies make

large revenues, but the operational costs of providing consumers with energy are also high.

Operational costs involve finding and producing oil and natural gas, refining those materials,

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distributing the products and marketing their supply. Among those costs are finding and

producing oil and natural gas, refining, distributing and marketing those refined products.

The money that today’s oil and gas companies earn goes directly towards new technology

as well as innovating their processes to improve environmental factors and product quality.

Phillips 66 can profit from a rich history and its many predecessor companies the most notably of

these is Conoco and Phillips Petroleum Company. Both of these companies had long successful

business prior to merging in 2002 to from ConocoPhillips. Phillips 66 was ranked No. 6 on the

Fortune 500 list and No. 19 on the Fortune Global 500 list in 2014. The company is engaged in

producing natural gas liquids (NGL) and petrochemicals. Phillips have seen many changes of

the years from changes in management or from the various mergers they were involved with

these changes can be seen in how many different times their slogans changed.

II. Strategy & Strategic Issues:

Strategy: Phillips 66 uses a specific strategic plan that has kept the company relevant and competitive

for years. They use five points and focus their efforts and assets to these points, deliver

profitable growth, enhance returns on capital, grow shareholder distributions, build a high-

performing organization, and maintaining a strong operating excellence. They work on

delivering a profitable growth by the usage of their manufacturing and logistics capacity

expansions in Midstream and chemicals have the potential to deliver significant growth earnings

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and cash flows. By processing lower cost crude oil and NGL feedstock’s, the company’s gross

margins and ROCE have improved in Refining and Chemicals.

Their disciplined and rigorous capital allocation process ensures that we focus

investments in projects that generate competitive returns throughout the business cycle. Phillips

focuses a majority of their efforts on building a high performing organization to improve

efficiency and their overall cooperate image. Also implement shareholder distributions where

most dividends significantly grow within first two years of operation. The dividends are expected

to reach double-digit rates from 2014 to 2016. Last but not least Phillips main focus is to

maintain a strong operating excellence; they are able to this so by continuous improvements in

safety, environmental stewardship, and reliability and cost efficiency.

Strategic Issues:

At first sight if you take a macro or (big picture) view point of the company and its assets

it would seem as though the multinational company has everything under control. When one

takes a micro (small-picture) viewpoint of their company you can asset that Phillips has many

issues. In recent years they have taking a lot heat about their ability to supply their various

chains, many of their stores are outdated and some of their stores in Texas are usually unstock

and two were even reported running out of gas. PCF Saleco owns Phillips 66 gas stations and

PCF Saleco is having financial difficulties. Because of that, they’re choosing to close some of

their stores temporarily. For Phillips 66 to allow this to happen is absurd how could a gas

company who owns multiple gas stations around the country are not able to provide their stores

with the basic necessities and/or gas.

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Phillips is in a downward spiral basically abandoning the theory of supply and demand. If

they continue to neglected their stores and consumers there will most definitely be impacted

negatively either in sales or the company’s image which has already been negatively impacted

with environmental issues in recent years according to ( http://www.researchandideas.com/).

Not to mention the inefficiency shown by Phillips to perform task and their decision making

capabilities should be questioned in their upper ups to management all the way to the Board of

Supervisors. In April 16, 2014 Candidates for County Supervisor Spar Over plan to move crude

oil to Santa Maria Refinery by Rail. Many people argue that some safety issues may arise from

this even though Phillips representatives argue that the refinery could be a source of good jobs in

the district. Phillips has to be very careful how they go about business when it come to the

environment especially because of the numouerus law suits filed against them and fines the

company had to pay just is the span of April 9, 2012 to April 16, 2014 according to

(http://www.researchandideas.com/) .

III. Stakeholder Analysis

Shareholders: In 2013, Phillips 66 was able to return more than $3 billion of capital to its

shareholders. Their quarterly dividend was increased by 25% over the past year as well. Their

shareholder return percentage was 48. Some of their short-term goals for the future are to

continue their share repurchase program and to continue steady dividend growth.

Employees: Phillips has great benefits for not only their employees but their families as well.

They are treated very well. Some of the benefits that come with working for Phillips are a

savings plan, flexible spending plan, dental insurance, employee assistance plans and support

services in case of terminal illness or death. A good way to sum up the programs that Phillips

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offers their employees are benefits for today, tomorrow and for the unexpected.

Customers: Phillips 66 continues to be a top performer in safety compared to its competitors.

The company offers customized products for their consumers. By being available in all 50 states

in the United States as well as over 50 countries, they serve a large portion of the oil and gas

market. All of their products, from fuels to lubricants are high-quality and they ensure that

excellent customer service is delivered before, during and after the purchase is made. Phillips 66

prides itself on creating relationships with their customers in order to better understand their

needs.

IV. Recommendations:

Phillips has a strong recognizable brand and I feel as though they rely a little too heavily

on their image and brand loyalty. Any other company that would neglect their stores and not

provide them with the essential supplies needed to perform daily transaction would be

committing cooperate suicide. But somehow Phillips financials shows little signs of this being a

major immediate threat. That being said the long term results of this constant negligence can be

extremely costly if left unattended. I recommended that Phillips updates their stores and

facilities, and if they intend to continue to rely on other vendors such as PCF Saleco to supply

their stores then management at Phillips should implement a method to ensure that these

companies are able to meet Phillips demands and vice versa with Phillips and its consumers.

While on the subject on management I also feel as though Phillips should look into

shorting or cutting their upper level management force. One of the issues Phillips face is the

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different channels of communication information has to travel to for task to be completed. If

Phillips cut down their management this could help them work more efficiently, the circle of

information and the decision making would be given to a smaller group of individual. This

would ensure less confusion and filter the information directly to the ones in charge. If Phillips

66 takes initiative to make these tweaks to their assembly lines, suppliers, and shrink their

management I feel as though this would ensure a more successfully ran company.

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V. Exhibits

Exhibit A: Back-Up Data Report

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Exhibit B: SWOT Analysis:

STRENGTHS

Fifth largest private energy company.

Ranked in Fortune 500 companies.

Brand recognition.

Operates 19 refineries around the world.

High stock prices.

First company to join US climate action

partnership.

WEAKNESSES

Projects are very expensive and very complex.

Profits are decreasing.

Operational costs are increasing.

Energy sources difficult to identify.

OPPORTUNITIES

Enhance profitability.

Use assets more efficiently to discover

new energy sources.

Expand to Asian market.

THREATS

Energy supply.

Security measures.

No control over oil prices and tax rates.

Economic slowdown.

Pollution factors.

Phillips 66 has many strengths, weaknesses, opportunities and threats. A good thing for

the company is that their strengths definitely outnumber their weaknesses and their opportunities

hold promise for the future.

Phillips is ranked as the fifth largest private energy company in the world. They can be

found on the list of Fortune 500 companies as well. These are both solid corporate strengths. In

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addition, Phillips has great brand recognition and they are well-known globally. Philips 66

operates 19 refineries worldwide. Their stock prices are high, which is great for their

shareholders. To add to the company’s strengths, Phillips was the first corporation to join the

United States climate action partnership which shows that the company takes pride in its social

responsibility.

Phillips doesn’t have many weaknesses as a company, but the ones they do have can be

devastating. The projects that Phillips undertakes are extremely complex and are very expensive.

This is most likely an industry trend, but it definitely can cause mistakes to be made. In recent

years, Phillips has seen a decline in their profits as well as an increase in their operational

spending. Lastly, Phillips is having a difficult time identifying new energy sources. As one of the

biggest companies in the industry, they must lead the pack and constantly be innovating. This

seems to be an issue, but can be remedied once more research and development is done.

The opportunities that Phillips has as a company include enhancing profitability. In order

to do this, they will have to use their assets more efficiently and discover new energy sources to

attract new customers and get their existing customers to make more purchases. A big

opportunity for Phillips is to expand to the Asian market. Countries in Asia have huge oil

demands and they are only increasing with time. If Phillips dipped into this region, it could result

in huge profits.

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Exhibit C: General Environmental Scan

Economic:

Interest rates

Inflation rates

Budgets

Exchange rates

Physical:

Energy consumption

Efforts for finding new sources

Protocols for emergencies

Decreasing environmental impact

Sociocultural:

Balancing career and personal life

Diverse workforce

Global:

Cultural differences

Market expansion

Technological:

Product innovations

Communication methods

R&D tools

Politics/Legal:

Government regulations

Industry regulations

Tax laws

Labor laws

Demographic:

Population size

Ethnic mix

Geographic location

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Exhibit D: Financial Analysis

Income Statement

View: Annual Data | Quarterly Data All numbers in thousands

Period Ending

Dec 31, 2014 Dec 31, 2013 Dec 31, 2012

Total

Revenue 161,212,000 171,596,000 179,290,000

Cost of Revenue

140,183,000 152,451,000 158,446,000

Gross Profit 21,029,000 19,145,000 20,844,000

Operating Expenses

Research Development - - -

Selling General and Administrative 16,703,000 15,597,000 15,443,000

Non Recurring 150,000 29,000 1,158,000

Others 1,019,000 971,000 931,000

Total Operating Expenses - - -

Total Assets 48,741,000 49,798,000 48,073,000

Liabilities

Current Liabilities

Accounts Payable 10,252,000 12,907,000 12,469,000

Short/Current Long Term Debt

842,000 24,000 13,000

Other Current Liabilities - - -

Total Current Liabilities 11,094,000 12,931,000 12,482,000

Long Term Debt 7,842,000 6,131,000 6,961,000

Other Liabilities 2,277,000 2,219,000 2,380,000

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Deferred Long Term Liability Charges

5,491,000 6,125,000 5,444,000

Minority Interest 447,000 442,000 31,000

Negative Goodwill - - -

Total Liabilities 27,151,000 27,848,000 27,298,000

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Exhibit E: Porter’s Five Forces Analysis

Threat of Entrants: The threat of new entrants in the oil and gas industry is low. Some of the

barriers for entry into the industry include large capital requirements, patents, product

differentiation and government regulations. The big oil and gas businesses that are at the top of

the list have been there for quite some time and it would take an immense amount of resources

for a new company to capture a prominent market share percentage.

Threat of Substitutes: The threat of substitutes is high. New energy sources are being identified

and the oil and gas giants are trying to find alternatives. An example of an alternative source that

has been discovered is using biofuels for transportation purposes. This has chipped away at the

crude oil business and if more similar discoveries are made, the industry could plummet.

Power of Suppliers: Oil and gas companies serve as suppliers. The power of the suppliers is

moderate. By expanding globally, these companies are giving power to the countries through

integration. By putting money into the business, oil and gas companies are able to enhance their

supply levels and ensure that their customers get what they want.

Power of Buyers: Buyers have a moderate level of power. Most of the big oil and gas

companies are global, meaning that their services and products can be purchased from countries

all over the world. By expanding internationally, the oil and gas companies are giving their

buyers the freedom to choose.

Rivalry amongst Competitors: The rivalry amongst the competitors in the oil and gas industry

is moderate. If there is too much competition, there would definitely be a slowdown in

production because each company would try to outsmart the other and it could negatively impact

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market share. Oil and gas companies are setting goals that are beyond economic performance,

they are trying to improve all aspects of the corporation.

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Exhibit F: Value-Chain Analysis:

Phillips 66 adds value to their company in many different ways. The organization is

constantly upgrading, delivering and selling refined products. One of the big things that Phillips

takes pride in is their marketing activities. They do an extensive amount of research and

development to leverage marketing information. In optimizing operations, Phillips has highly

integrated their transportation part of their business, relating to distribution. Phillips 66 is starting

to invest more money in their logistics to create an opportunity for the company to expand into

the petrochemical market. Expanding into other markets will mean expanding the manufacturing

segment of Phillips 66 which will also add value. In the technological segment, Phillips is always

innovating their processes they use to find new energy sources and are always looking for ways

to improve their equipment in the refineries. All of these things add value for Phillips 66 and is

the reason why they are one of the leading oil and gas companies in the world.

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Exhibit G: Company Resources

Phillips 66 organizational resources are plentiful. The resources include the

company’s refineries, which are located worldwide, along with the equipment utilized by

Phillips. Along with other companies, their monetary assets along with their brand image are also

big resources for Phillips 66. When the brand name is attached to products, consumers will be

more likely to purchase it. Phillips 66 is dedicated to finding new ways of finding alternative

energy sources, and in doing so; they use their advanced technology to get a leg up on their

competition. Other resources include the company’s research and development efforts, marketing

capabilities and their employees. Specifically their engineers and salespeople, Phillips would not

be as successful as they are without them to create and sell their products.

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Works Cited:

2014 Annual Report. (n.d.). Retrieved April 12, 2015, from

http://investor.phillips66.com/files/doc_financials/annual/2014/Phillips-66-Annual-

Report-2014.pdf

Environmental Issues at Phillips 66. (2014, April 19). Retrieved April 16, 2015, from

http://www.researchandideas.com

McDowell, S. (2012, August 27). Financial Troubles Shut Down Refueling at Some Phillips 66

Gas Stations. Retrieved April 30, 2015

Phillips 66. (n.d.). Retrieved April 30, 2015, from

http://www.phillips66.com/EN/about/Company_Overview/Pages/BusinessStrategies.aspx

Phillips 66 Stock. (n.d.). Retrieved April 21, 2015, from

https://www.google.com/?gws_rd=ssl#q=phillips 66 stock

Stock Quote. (2014, December 31). Retrieved April 12, 2015, from

http://investor.phillips66.com/investors/financial- information/annual-reports/default.aspx

Yahoo Finance - Phillips 66. (2014, December 31). Retrieved April 17, 2015, from

http://finance.yahoo.com

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PowerPoint Slides:

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