| dc.description.abstract | A successful business strategy requires the development and maintenance of some form of
sustainable relative competitive advantage in addition to internal facts and figures, external
information is also necessary for a decision maker to gain up-to-date knowledge of the market
conditions, competition and customer expectations. To analyze the specific activities through
which firms can create a competitive advantage, it is useful to model the firm as a chain of value
creating activities. The Value Chain is a tool for diagnosing competitive advantage and finding
ways to enhance it, (Porter, 1985). The value chain framework is an approach for breaking down
the sequence of business functions into strategically relevant activities through which utility is
added to products and services.
The case study sought to determine the application of value chain in developing competitive
advantage in KPRL. The study examined how KPRL has broken down the sequence of its
business functions into strategically relevant activities through which utility is added to products
and services. This was done in order to understand the behavior of costs and the sources of
differentiation. The findings of the study indicate that KPRL has in place systems, processes and
structures that support value chain both at primary and support levels. Although there are
activities that create value in KPRL, operations and technology related activities stand out as the
ones through which significant value is either lost or not created. As a result of technological
limitations associated with the refinery configuration some key activities have not delivered the
much needed competitive advantage mainly due to high residual oil, excessive fuel usage and
loss. This in itself is a threat to the future of the refinery due to competition from modern and
complex refineries in the Middle East. Consequently the refinery technology requires urgent
upgrading.
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Issues of quality of products and services are important, however, it is not much the customer
perception that drives competition and therefore the appeal to differentiation is not very strong in
KPRL. The refinery does not directly serve the final consumers and petroleum products by their
physical characteristics are homogeneous global commodities. Refinery customers are largely
attracted to sources that provide better margins which come from complex refineries. It is the
margins that drive the pump prices at retail level. Therefore cost focus is more relevant
compared to differentiation as a tool of strategy in creating competitive advantage at KPRL.
The overall economics or value addition of the refinery depends on the interaction of three key
elements: the choice of crude oil used, the complexity of the refining equipment and the desired
type and quality of products produced. To survive in today‟s highly competitive business
environment an organization has to achieve at least temporary a competitive advantage. At
KPRL a low cost strategy focusing on providing goods and services at a lower cost than imports
or superior goods or services at an equal cost should be pursued. Merchant refining at KPRL
should be considered post the proposed refinery upgrade to ensure backward integration to crude
and products trading to enhance benefits within a wider value chain. These will enhance value
creation through cost reduction for greater margin realization. | en |
