UNIVERSITY OF ZIMBABWE

FACULTY OF COMMERCE
GRADUATE SCHOOL OF MANAGEMENT
ASSIGNMENT
MODULE CODE
CHAPTERS COVERED
DUE DATE
TOTAL MARKS

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THE ROYAL DUTCH/SHELL CASE STUDY

MANAGING CHANGE MBA 543
30 April 2011
100

Lecturer
Email
Contact
Office
Location

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:
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:

Dr. Sam Ruturi

samruturi@yahoo.com
0734 371 341 / 2911905/750447/8
6th Floor Throgmorton House
Cnr. J. Nyerere & S. Machel

INSTRUCTIONS FOR COMPLETING AND SUBMITTING ASSIGNMENTS:

1)

You are required to submit TWO Individual Assignments and ONE Group Assignment for this subject.

2)

The individual and group assignments will each contribute 10%. Thus, a total of 30% towards the final examination
mark, and the other 70% will be made up from the examination, however the examination papers will count out of a
100%.

3)

Although your assignment will contribute towards your final examination mark, you do not have to earn credits for
admission to the examination; you are automatically accepted on registering for the exam.

4)

Read the question carefully: This is to test your APPLICATION of knowledge and THEORY.

5)

Note the mark allocation per section of the question and structure your output accordingly.

6)

Be careful to check your final submission for appearance, spelling, and grammatical errors remembering this is
your Masters Degree Level Assignment and as such, detail and presentation are important.

7)

Your answers to this assignment should be between 4 500 5 000 words, or between 15 - 18 typed pages. (Arial
font, 12 font size, spacing between lines must be 1.5).

8)

Number all the pages of your assignment and write your student number at the top of each page. Make sure that this
is done correctly before you bind the pages into the assignment cover.

9)

A separate assignment cover page, which indicates the University of Zimbabwe, GSM, Student Name, Student
Number, Course, Lecturer, Programme, Assignment Number and Title must be attached to the front cover of a
neatly bound assignment.

10) Retain a photocopy of the assignment before submitting, in case the original does not reach the GSM.
11) The assignment due date refers to the day up to which assignments will be accepted for marking purposes. Late
assignments will NOT be accepted.
12) If your fail to follow these instructions carefully, the University of Zimbabwe, GSM cannot accept responsibility
for the return of the assignment. It may even result in your assignment not being marked.

NOTES:
You will be penalized for copying the work of fellow learners, or simply copying passages from the text book,
study or other texts.
It is only when you use your own words that the Course Leader or Markers are able to establish whether you have
understood the concepts outlined in the study notes. The Markers are then in a better position to offer you constructive
feedback.
Students are reminded that Individual Assignments should reflect individual effort and group submissions will be
penalized.
Results will be available from the University of Zimbabwe, Graduate School of Management.
Deadline date: 2nd Year, 2nd Semester: Friday, 30 April 2011
Results Release Date:

Monday, 24 May 2011

NB!! PLEASE SEND ORIGINAL ASSIGNMENTS, NO FAXES OR E-MAILS WILL BE ACCEPTED

UNIVERSITY OF ZIMBABWE
FACULTY OF COMMERCE
GRADUATE SCHOOL OF MANAGEMENT
ASSIGNMENT ONE (1)
MODULE CODE
CHAPTERS COVERED
DUE DATE
TOTAL MARKS

:
:
:
:
:

THE ROYAL DUTCH/SHELL CASE STUDY

MANAGING CHANGE MBA 543
30 APRIL 2011
100

Lecturer
Email
Contact
Office
Location

:
:
:
:
:

Dr. Sam Ruturi

samruturi@yahoo.com
0734 371 341 / 2911905/750447/8
6th Floor Throgmorton House
Cnr. J. Nyerere & S. Machel

ASSIGNMENT ONE (1): THE ROYAL DUTCH / SHELL CASE STUDY

Read the case study below and answer the questions that follow:
Royal Dutch / Shell what does it take to bring change?
In a bid to improve growth and profitability, the worlds largest oil company Royal Dutch / shell announced
a radical reorganization in 1995 that it would sweep barons out of fiefdoms. In 1999, the companys
problems were unchanged and the barons the managing directors of its national companies were still
there. In 2004, the company had major corporate problems, which at last forced the company into action.
But would it be enough to bring change?
Background
Royal Dutch/Shell is one of the worlds great oil companies. It is based on a joint holding company set up
in 1907 between UK Company Shell Transport and the Dutch Oil company, Royal Dutch. Over the years,
the combined enterprise grew, becoming the largest oil company in the world in 1998, measured by
turnover. However, global leadership was lost in 1999 as we shall see.
Unlike other oil companies, which had become more centralized, the delicate balance between the UK and
Dutch interests was still perceived up to 1998. There was no overall holding company but two owners of all
the subsidiaries: Royal Dutch owned 60% of each subsidiary and shell owned 40%. This arrangement had
originally been negotiated when the group was founded. There was no strong central core, nor any
combined board of directors. The nearest that the company came to full co-ordination was the central
management forum called the conference. This was the meeting of the management boards of the two
operating companies but it had no legal existence. The obvious strategic weakness was that this massive oil
company could never use its shares since they did not exist to acquire another company.
Although managers and employees referred to themselves as members of the Royal Dutch/Shell, they were
in fact members of one of its various subsidiaries. This meant that all decision making was slow, laborious
and careful not necessarily a bad thing in an industry where time horizons for oil investment are typically
30 years. There is a committee culture, said Mr. Enst Van Mouvik, one of the senior human resources
managers in the company. The co-operative style extended around the world to the companys interests in
North America, Australia, Asia and many other areas. The company had been much admired over the years
for breeding the right corporate types and fostering a co-operative atmosphere. But by 1998 the structure
has become part of the problem reducing accountability, blurring responsibility and increasing costs,
commended stockbrokers BT Alex Brown.
Proposed Strategy and Organizational changes in 1995
The result of the companys consultative style was that it had no chief executive to take final decisions.
There was a committee of managing directors but decisions were achieved by consensus and its chairman
was simply the amongst equals. Decisions on capital expenditure were often decidedly odd. The national
companies were legal entities and demanded a share of capital budget, regardless of whether they could
make the best strategic case. Until 2002, the collegiate style of committee of managing directors had
limited powers to resist such demands.

In practical terms this meant that the key strategic decisions either took lengthy periods to emerge or were
lower down in the organization by the powerful national companies that made up royal Dutch/Shell
Empire, namely the barons referred to above.
It also meant that there were large numbers of staff in London and Rotterdam whose job was to coordinate
the national policies associated with the regional barons. For many years, this had served the company well.
However, by mid 1990s, the companys return on capital was stuck below 10% and was set to decline
further.
The 1995 reorganization was supposed to sweep away such a decision-making structure and its
consequences in terms of poor investment decisions based on national company interests rather than global
good of Royal Dutch/Shell. The national companies would report to series of global operating companies
and some 1170 coordinating jobs would go at the centre. The aim was to save costs and focus decisions on
regional and global decision-making.
But the reorganization quickly ran out of steam. Although some 900 staff jobs were cut, there was
considerable resistance to the proposed changes. The consultation culture of the company led to laborious
negotiations with staff, especially in Netherlands. Moreover, the barons were still in power through their
membership of the new business committees and the companys profitability was declining. According to
many outside observers, much more drastic change was required.
The 1998/99 Strategic Reorganization
By the late 1990s, it was much more difficult for all the worlds oil companies to make profits than earlier
in the decade, there were four main reasons to this.
Higher environmental standards meant that the capital investment in oil refineries was much higher
than in earlier decades.
Oil prices had declined from US$15 per barrel in early 1990s to around US$10 in the late 1990s
because supply worldwide outstripped demand.
Political uncertainty was higher in some leading oil-producing countries such as Russia and Indonesia.
Rival companies like Esso (US), BP (UK) and Total (France) were requiring or merging with rivals in
order to gain further economies of scale. Exxon had acquired Mobile; BP had acquired Amoco,
Atlantic Richfield had Castrol-Burmah; Total had merged with Fina and then with Elf. The subsequent
success of these moves made Royal Dutch/Shell look weak strategically.
Royal Dutch / shell realized that new and more drastic strategies were required, so it announced the
following:
Closure of its national company headquarters in the UK, Germany, France and the Netherlands.
Write-off the US$4.5 million assets.
Sale of underperforming subsidiaries, especially 40% of its chemical business.
Cutbacks in annual capital investment from US$15 billion to US$11 billion per annum.
Several substantial acquisitions around the world that had been made earlier in the 1990s would be put
up for sale.
The chairman of the committee of managing directors would be given new powers to take final
decision on capital expenditure. It was expected that, over time, his position would emerge as that of
the dominant chief executive.
The annual cost savings from reorganization were projected by the Royal Dutch/Shell as being US$2.5
billion by year 2001. I am absolutely clear that our groups reputation with investors is on the line, said
the chairman of the committee, Mr. Mark Moody-Stuart. He also used a phrase that in the past has been
rarely heard at senior executive levels in Royal Dutch/Shell: he stressed the importance of executive
accountability when commenting on the 1998 reorganization. He also said that the company had immense
financial strength and flexibility to withstand further falls in the price of oil, even below US$10 per barrel.

The 2004 Strategic Problems

In 2004, the companys chairman resigned, the financial officer lost her job and Royal Dutch/Shell was the
subject of major investigation by the US Securities and Exchange Commissions (SEC) it is difficult to
imagine a more serious situation in one of the worlds largest companies. During 2004, the company had
been forced to cut its proven oil and gas reserves by 23%.
The seeds of the difficulty were sown in the years around time of the 1998 reorganization and its related
cost savings. In the period 1996 99, the invested US$6 billion per year exploring for new oil and gas
deposits when it should have been spending around US$8 billion. It was not until 2000 that Royal
Dutch/Shell raised its level of investment to US$9 billion per year, much closer to that of its rivals.

Assessment Questions
Question 1
Critically analyze the failure of the change efforts at RDS.

[30 Marks]

Question 2
Those that are in charge of change are themselves tied to the old culture Define the concept of
organizational culture discuss the approaches to changing culture with part reference to this case.
[30 Marks]
Question 3
According to Lynch, 2 specific strategies driving organizational change in the 1990s were de-layering and
business process re-engineering. With relevance to the case, explain the elements of these techniques.
[20 Marks]
Question 4
Discuss the human resource aspects of strategic change that can be drawn from this case.

[20 Marks]

Assignment Format
Word Limit: Your assignment (excluding index, cover page and appendices) must not exceed 5000
words.
Your assignment should include a Table of Contents page.
Text: Font: Arial or Times New Roman (12), Spacing: 1 lines.
Your answers must include any theories, charts, tables or exhibits necessary to support your analysis
and recommendations.
References At least 15 sources of reference (textbooks, journals, press reports, internet, etc) must be
included in your bibliography.
The Harvard system of referencing and bibliography must be used.
You MUST use theory/literature to support your discussion/observation and opinions. Do not merely
extract informat from the case Study.
Ensure that readings are not merely reproduced in the assignment without original critical comments
and views.