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Faculty of Business Administration 2

Internationale Betriebswirtschaft – Interkulturelle Studien

Business cases

PROJECT REPORT

International strategy analysis of Shell

Submitted to
Prof. Dr. Michael Erner

By:
Nguyen Viet Hoa (178121)
Parker Chan (178100)
Robin van Oosten (178161)
Tran Quynh Huong (178258)
Contents
CHAPTER 1 INTRODUCTION ...........................................................................................................1
CHAPTER 2 ANALYSIS .....................................................................................................................2
2.1 Five Forces of Porter ........................................................................................................2
2.1.1 Bargaining power of suppliers ..................................................................................2
2.1.2 Bargaining power of buyers ......................................................................................2
2.1.3 The threat of substitute products or services ..........................................................3
2.1.5 The intensity of competitive rivalry ...........................................................................4
2.1.6 The value system of petroleum industry ......................................................................4
2.2 SWOT ................................................................................................................................4
CHAPTER 3 THE OBJECTIVES OF THE SHELL GROUP ........................................................................4
3.1 Core values .......................................................................................................................4
3.2 Shell’s Strategic Aspects ..................................................................................................5
3.3. Portfolio Management (PM) Strategies..........................................................................5
3.4 Operational Efficiency Strategies (see appendix 5) .......................................................6
3.6 Sustainability strategies....................................................................................................7
CHAPTER 4 SHELL INTERNATIONAL STRATEGY – A REFLECTION FROM RESTRUCTURINGS
THROUGHOUT HISTORY .................................................................................................................9
4.1 The Shell Group from the start prior to 1960s ................................................................9
4.2 The Shell Group structure from 1960s until 1995 ........................................................ 10
4.2.1 Governance structure (Goverstruc) ........................................................................ 10
4.2.2 Management structure (Manastruc) ....................................................................... 10
4.2.3 Structure Observation.............................................................................................. 12
4.3 From 1996-2004. The restructuring. 4.3.1 Purpose.................................................... 13
4.3.2 New manastruc ........................................................................................................ 13
4.3.4 Structure Observation.............................................................................................. 15
4.4 From 2005 until now. ...................................................................................................... 15
4.4.1 Unification ................................................................................................................. 15
4.4.2 Further streamlining effort ....................................................................................... 15
4.4.3 Structure Observation.............................................................................................. 16
CHAPTER 6 IMPLANTATION SHELL OPERATIONS .......................................................................... 17
6.1 Functions and activities of Shell’s headquarter ............................................................ 17
6.2 Upstream ......................................................................................................................... 18
6.3 Down Stream................................................................................................................... 18
CONCLUSION ............................................................................................................................... 21
REFERENCE .................................................................................................................................. 22
APPENDIX .................................................................................................................................... 26
CHAPTER 1 INTRODUCTION
Everybody has heard of the oil company Shell. Shell is a global company of
energy and petrochemical. The aim of Shell is to meet the energy needs of
society, in ways that are economically, socially and environmentally viable, now
and in the future. 1

The Royal Dutch Shell is a British/Dutch company with its head quarter in The
Hague, The Netherlands and is founded by Marcus Samuel more than 100 years
ago. Shell is one of the 6 biggest oil companies in the world and takes the fifth
position in the largest companies in the world.23 At Shell there work around 93.000
in more than 90 counties. 4

This makes the company interesting for the international strategy analysis what is
the aim of this paper. For analyzing the international strategy first will be looked at
the company analysis, here in we discuss briefly the internal situation of Shell
through the 5 forces of Porter and the SWOT analysis.

Secondly there will be looked at the structure of the company what is the aim of
going global, and where is Shell at this moment according to the Bartlett and
EPRG model

The first part to analyze the international strategy is the company analysis. In this
report we discuss briefly the overview of Shell. The analysis deals with aspects
that make shell an international company.

As third the strategy will be analyzed here the main point of focus is the strategy
Shell uses at the moment. What makes Shell an international company and how
do they cooperate in different countries. Also there will be looked at the value

1
http://www.shell.com/home/content/aboutshell/who_we_are/
2
http://www.shell.nl/home/content/nld/aboutshell/who_we_are/history/
3
http://www.shell.nl/home/content/nld/aboutshell/who_we_are/locations/
4
http://www.shell.com/home/content/aboutshell/who_we_are/shell_worldwide/

1
chain and the 3 year strategy Shell uses. The strategy of Shell is like a pyramid
and we filter the important part so we have as a result the international aspects.

The story of an international company…..

CHAPTER 2 ANALYSIS

In this Chapter there will be looked at the internal situation of Shell. Through the
five forces of Porter and a SWOT analysis the internal situation will be clarified.

2.1 Five Forces of Porter


Shell through its innovation in tankers for shipment of petroleum products. Their
move upstream into exploration and production was designed to secure supplies
and effective operation of refineries.

Suppliers: suppliers of both equipment and services (rigs, pipeline, refining, etc)
Buyers: consumers (individuals & companies) (see figure 1)

2.1.1 Bargaining power of suppliers


While there are plenty of oil companies in the world, much of the oil and gas
business is dominated by a small handful of powerful companies. The large
amounts of capital investment tend to weed out a lot of the suppliers of rigs,
pipeline, refining, etc. There isn't a lot of cut-throat competition between suppliers.
Even the suppliers’ products are important input to the oil companies, the oil
companies still have significant power over smaller drilling and support companies.

2.1.2 Bargaining power of buyers


Oil is a standardized commodity therefore customers have opportunities to choose
from various oil companies based on the prices and contract terms. As a result
customers are believed to have power in this particular circumstance. The sales of
oil and gasoline have also been affected by the “green” trend – more and more
people have been aware of environment matters. “Hybrid” cars are one example of
many ongoing trends.

2
Also, the bargaining power of buyer comes from the buyer volume, consider the
case of taxi drivers, the association of taxi drivers usually have discounts due a
large group of customers of a oil company.

2.1.3 The threat of substitute products or services


Price of renewable energy technologies such as solar, wind energy, biomass are
declining in price for three main reasons:
First, once the renewable infrastructure is built, the fuel is free. Unlike carbon-
based fuels, the wind, the sun and the earth itself provide free-of-charge fuel in
amounts that are effectively limitless.

Second, while fossil fuel technologies are more mature, renewable energy
technologies are being rapidly improved. So innovation and ingenuity give us the
ability to constantly increase the efficiency of renewable energy and continually
reduce its cost.

Third, once the world makes a clear commitment to shifting toward renewable
energy, the volume of production will itself sharply reduce the cost of each windmill
and each solar panel, while adding more incentives for additional research and
development to further speed up the innovation process.
Ethanol: Corn and other organic materials, including agricultural waste, can be
converted into ethanol through the use of engineered bacteria and super enzymes
manufactured by biotechnology firms.
Besides the innovative sources of power mentioned above, sources such as
nuclear power and hydroelectric power are also regarded as threat of substitutes
5
to oil industry.

2.1.4 The threat of the entry of new competitors


Oil industry might be not very attractive to newcomers due to the large amount of
investment, requirement of specific high technology as well as difficulty in oil
exploration.

5
http://www.investopedia.com/features/industryhandbook/oil_services.asp

3
2.1.5 The intensity of competitive rivalry
The oil industry not only has high entry barrier but also high exit barrier. It might be
resulted from a matter of fact that oil companies have to invest a large amount
before they can get return. The companies themselves also have a concern of
limited availability of reserves.

2.1.6 The value system of petroleum industry


See appendix 2

Figure 2 shows the value system for the industry that serves end-users of
petroleum products. The value system model only considers the actors directly
involved in the discovery, development, production and distribution of petroleum
products.

Historically firms (the Majors) that were vertically integrated over the whole
petroleum value system dominated the petroleum industry. The integrated
petroleum firm has a manufacturing (chain) logic.

The implication is that we need to start with a clear understanding of not only the
industry boundary, but also of what kind of industry we are dealing with. This
requires an initial formulation of the firm’s value configuration.

2.2 SWOT
See appendix A

CHAPTER 3 THE OBJECTIVES OF THE SHELL GROUP6


Shell is a global group of energy and petrochemical companies with around
93,000 people in more than 90 countries and territories. The aim is to meet the
energy needs of society, in ways that are economically, socially and
environmentally viable, now and in the future.

3.1 Core values7


- long-term profitability is essential to achieving business goals and to
continued growth
6
http://www.shell.com/home/content/aboutshell/who_we_are/our_purpose/
7
http://www.shell.com/home/content/aboutshell/who_we_are/our_values/

4
- Shell companies insist on honesty, integrity and fairness in all aspects of
business
- Shell companies find ways to reduce the global environmental impact of
operations, products and services.
- Shell companies recognize that regular dialogue and engagement with
stakeholders is essential.
- Shell companies comply with all applicable laws and regulations of the
countries in which operate
When it comes to Shell’s objectives and values, it is easy to know that Shell is a
global company. As oil and gas are crucial to people around the world, creating a
global energy needs for economic development, therefore, Shell bases on its
purposes and values to develop global to meet this world energy demand, which
will be elaborate more in the latter parts.

3.2 Shell’s Strategic Aspects


According to the David, strategy is defined as “an overall long-term policy for a firm
that coordinates the business functions to achieve business goals”.8 As Shell is
facing different kind of challenges in the energy industry, explained in the analysis
part, we deducted Shell has followed four strategic aspects in order to reinforce
their leadership in the oil and gas industry. They are: Portfolio Management,
Operational Efficiency, Financial Management and Sustainability-of which the first
three are core operating strategies.9

3.3. Portfolio Management (PM) Strategies


Shell’s attempt to balance its portfolio has partly demonstrated by upstream capital
investment’s distribution. The projects in 2011-2014 have geographically
diversified more than in 2007-2010. In particular, the percentage of investment
accounted by projects conducted in America has a tendency to reduce in the near
future. In contrast, Asia-Pacific is likely to account more in Shell’s projects options
from 2011 till 2014.10 (see appendix 3)

8
David, R.D., (2011), Strategic Management: Concepts. Boston: Prentice Hall
9
Singh, A. (2010) Strategies for oil and gas companies to remain competitive in the coming decades of
energy challenges. Massachusetts Institute of technology.
10
http://www.investorshandbook.shell.com/2010/summaryreview/ourstrategy/next-
generationprojectoptions.html?cat=m

5
Shell utilizes its strengths such as geographic knowledge and advantages in
technology in order to reduce the cost of exploration. In 2010, Shell invested
approximately $ 3.0 billion in exploration and the cost reduced down to $2 per
barrel. Shell took part in 403 successful wells drilled outside proved fields during
2010. Also in this year, Shell gained the exploration right in many countries such
as Canada, China, Italy, and Russia with the total area of 53 thousands km2. 11

(see appendix 4)

3.4 Operational Efficiency Strategies (see appendix 5)

Operational Efficiency strategies refer to cost minimizations in order to deliver


quality products and services to customers. 12 Shell has adopted measures to
improve its profit margin through operational efficiency strategies. Referring to the
figure, in 2009, Shell had a top down reorganization from five structures to mainly
three structures.13 The organizational structure of shell has simplified its structure
by regions. For instance, the upstream division has been divided into “upstream
international” and upstream Americas” in order to have a simpler hierarchical
structure.

Moreover, improving efficiency is a system wide effort. Shell has established Shell
Business Service Centers (SBSC) to improve overall operational efficiency.14 The
SBSC is a chain of six shared service centers: Cape Town; Chennai; Glasgow;
Krakow; Kuala Lumpur; Manila. They offer centralized finance, human resource, IT
and other business services to Shell companies globally. And each SBSC has its
own primary focus to support global Shell businesses. For instance, the SBSC in

11
http://www.investorshandbook.shell.com/2010/upstream/exploration/acreageadditions.html?cat=i

12
Henry, A., (2011), Understanding Strategic Management. Oxford: New York: Oxford University Press
13

http://www.shell.com/home/content/media/news_and_media_releases/archive/2009/new_management_
structure_27052009.html
14
http://www.shell.com/home/content/careers/business_service_people/

6
Kuala Lumpur mainly provide services to Shell’s business in Asian region, having
a cost-saving structure globally

3.5 Financial Management Strategies

In addition to the operational efficiency strategies, Shell has applied financial


management strategies as well. They include maintaining financial flexibility and
growing the business with a healthy balance sheet.15 According to Shell’s current
16
3-year strategies, cost reduction and operating efficiency are a key part of
Shell’s business. Regulatory and political uncertainties, explained in the analysis,
has made the industry become more volatile, Shell decided to sell non-core
businesses to enhance capital efficiency and launched programmes to streamline
the global downstream organization, which can generate surplus cash flows for
shareholders through this volatile environment.

Also, the Shell has continued to develop its business to acquire more potential
resources through joint venture. By participating in a number of strategic joint
ventures, Shell can open up new market opportunities and access to local market
knowledge. And in 2010, Shell has continued their long-history partnership with
three National Oil Companies, in China, Qatar and Saudi Arabia, covering new
natural gas potential. 17

3.6 Sustainability strategies


Nowadays, sustainability strategies for oil and gas companies become more
important, which are more driven by regulations, political and social pressures
rather than business needs. 18 As mentioned in the Shell’s purpose, which is to
help meet the energy needs of society in ways that are economically,
environmentally and socially responsible, Shell’s re-structuring in 2009 has
strengthened this approach by taking sustainable development into their decision

15
Rice, J.L., (2010), Strategic Management: A Dynamic Perspective: Concepts and Cases. Pearson Australia
16
http://www.shell.com/home/content/aboutshell/our_strategy/
17
http://www-static.shell.com/static/media/downloads/speeches/brinded_london_30102007.pdf
18
Wheelen, T. L., (2010), Concepts in Strategic Management and Business Policy: Achieving Sustainability.
Upper Saddle River, N.J.: Prentice Hall

7
making, such as governing the way that Shell develops new projects and run
facilities and managing their supply chains.

Shell has focused on three ways - performance in the near term; growth in the
medium term; and projects for the longer term - to deliver energy to customers in a
responsible way.19

First, for the performance in the near term, Shell has continuing to improve
operations performance sustainably for the workers. For instance, as Shell has
operations all over the world, Shell supports the UN Global Compact, a framework
for businesses to align operations and strategies with ten universally accepted
principles in the areas of human rights, labor, the environment and anti-
corruption.20

Second, for the growth in the medium term, Shell has developing more ways to
increase the production of environmental-friendly energy. Shell has increased the
production of cleaner-burning natural gas, investing in biofuels in Brazil and
strengthening the relations with communities, customers, governments and non-
governmental organizations (NGOs), whom have an important role in a
sustainable energy system.21

Lastly, for the projects for the longer term, Shell’s research and development
(R&D) program contributed a lot. Shell has established Shell Technology Center in
three countries: the USA, the Netherlands and India, and with other centers placed
in key market areas close to their resources where they provide support and
assistance to regional operations.22 The functions of these centers are to innovate
and develop new technologies and improve existing ones. And each center shares
knowledge among them to all Shell’s business operations. Plus, Shell has
partnerships with scientific institutes and other companies to develop sustainable
19
http://sustainabilityreport.shell.com/2010/operatingresponsibly/ourbusinessstrategy.html?cat=m
20

http://sustainabilityreport.shell.com/2010/servicepages/search.php?q=UN+Global+Compact&pageID=3865
9&cat=b
21

http://www.shell.com/home/content/environment_society/environment/climate_change/biofuels_alterna
tive_energies_transport/biofuels/biofuels_sustainability/
22

http://www.shell.com/home/content/globalsolutions/innovation/innovative_thinking/technical_centres/o
verview/

8
energy technologies for the future. For example, in 2010 Shell pledged $25 million
to support a five-year research partnership with Massachusetts Institute of
Technology.23

CHAPTER 4 SHELL INTERNATIONAL STRATEGY – A REFLECTION FROM


RESTRUCTURINGS THROUGHOUT HISTORY

4.1 The Shell Group from the start prior to 1960s


(see appendix 6)

The Group started by transporting oil from the Far East to Europe. Thereby, can
this conclusion be made: The Group was initially instilled the management
philosophy of international strategy – the one in Barlett/Ghoshall model. As a part
of the joint-venture with domestic companies which owned the oil-field, the Group
merely helped facilitating the export process from where the oil was produced to
where it was demanded. At the beginning, the market was basically a small
numbers of countries; organization of the group was simple – headquarter dictated
the whole business: from production tankers, delivery, oil-field exploration. The
Group, therefore, was first at the international strategy phase.

Along the century until 1960s The Group expanded by joint-ventures with
businesses in many countries in different continent. Until late 1950s and 1960s,
The Group had opened numerous operating companies of which operation was
independent and highly-responsive to the local market. The Group philosophy on
international management had shifted to the multidomestic strategy. That strategy,
meanwhile, had the weakness of lacking coordination and hierachial controlling
power. That explained the birth of matrix structure which is discussed in more
detail in the next part. In short, it is legitimate to say that Shell from the beginning
until early 1960s (before the arrival of matrix structure) had advanced it
international management strategy, according to Barlett/Ghoshal model, from
international strategy to multidomestic strategy.

23

http://www.shell.com/home/content/media/news_and_media_releases/archive/2008/biofuels_research_
agreements_17092008.html

9
4.2 The Shell Group structure from 1960s until 1995
The Group consists of numerous joint ventures internationally. The structure of
Shell may be seen from two point of views: governance responsibilities (formal
structure) and executive responsibilities. In regard of governance responsibilities,
the structure of the Group is the links of ownership and control between
companies that made up the Group. In regard of executive responsibilities, the
structure is viewed from a management standpoint, which included the daily
functions, is complex and not highly consistent to the formal structure.

4.2.1 Governance structure (Goverstruc)


The Group is a highly-decentralized corporation. (see appendix 7)

The Royal Dutch/Shell Group of companies was categorized into 4 types of


company. The first type was the parent companies which were Royal Dutch
Petroleum Company of the Netherlands (owned 60 percent of the shares) and the
Shell Transport and Trading company plc of the UK (owned 40 percent of the
shares). The group holding companies constituted the second type , under the
parents companies. This type comprised of 3 companies: Shell Petroleum NV of
the Netherlands, the Shell Petroleum Company Ltd of the UK, and the Shell
Petroleum Inc (USA). The service companies were in the third level of the
hierarchy. Their shares were held by the two group holding companies: Shell
Petroleum N.V (Neth) and Shell Petroleum Co.Ltd (UK). Lastly, the operating
companies included more than 200 companies in over 130 countries which
received advice, supporting services from the Services Companies. The shares of
operating companies were also possessed by group holding companies. 24

4.2.2 Management structure (Manastruc)

4.2.2.1 Key players


The Manastruc of The Group in this period had 4 type of key players: Committee
of Managing Directors (CMD), Operating Companies (opcos), Service companies.
CMD

24
http://www.blackwellpublishing.com/grant/docs/07Shell.pdf

10
In the late 1950s, the establishment of the Committee of Managing Directors to set
direction for the corporation constructed the Group’s top management team,
consisting of 5 Managing Directors. There of these were members of Management
Board of Royal Dutch Petroleum, the other two were the Chairman and Vice
Chairman of Shell Transport and Trading. The chairmanship of CMD was chosen
and replaced regularly between members of Royal Dutch and Shell Transport.
Being distributed amongst a group, executive power were diluted and the Group
lacked the individual leadership like in other majors that time. The top executive
power of Shell was characterized by consensus decision makings within a
collective management group.

Operating Companies (Opcos)


Opcos were mostly active within a single country and their functions could differ
from each others. For example, Shell Bahamas and Shell Cambodia were only
small marketing companies. Shell UK, Shell Canada, and Norske Shell, on the
other hand, were active in several sectors. Some other companies had operations
in only one sector, e.g. exploration and production (E&P), refining, marketing, coal,
gas. etc. Opcos were highly-independent in operations and financial responsibility,
thereby, contributing to the decentralization of the Group.
On the other hand, the nature of oil business created certain linkages between
opcos, for example: between upstream operation and downstream operation, the
common financial fund from the top, common technological needs. That
necessitated a need for coordination’s amongst opcos. That was the reason for
the birth of matrix structure, operating by services company.

Service companies
The third key players, service companies, each of which was led by a principal
executive who then appointed the coordinators to facilitate the coordination
between opcos. There were 3 types of coordinators: regional coordinators (of
Europe, South Asia, Middle East, etc.), sector coordinators (Upstream,
downstream, metals, etc).

11
4.2.3 The Matrix structure (see appendix 8)
In this Matrix structure, operations of opcos were coordinated by service
companies in accordance to 3 dimensions: regional, sectors, and functions. The
chief executive in each opcos reported the situation to 3 coordinators: their
regional coordinator, sector coordinator, and functional coordinator. For example,
a manager of an opco in France which operated in downstream sector who
needed a certain of input crude to manufacture fabricant, he would have to report
the situation to 1) his regional coordinator – which was the coordinator of West
European area, 2) his sector coordinator – which was the coordinator of
downstream oil manufacturing, and 3) a function coordinator in material, or
planning.
Even though the matrix structure had 3 dimension, the main emphasis in this
period was on the coordination between opcos in the same region; or in other
words, geographical coordination was more important than the other two
dimensions: sector, or function.

The planning process was done from bottom to the top. The coordinators of the
sector, of the region, and the planning staff (a function in the function dimension),
and the managers of the opco coordinated and proposed strategic plan for their
operating companies to the top, CMD for approval. In short, the structure was
highly decentralized between the CMD and the operation level. The opco in each
country had a high level of autonomy. Meanwhile, a certain level of integration in
activities between opcos to some extent allow The Group to have the flexible
needed to adapt with the changes in the volatile environment.

4.2.3 Structure Observation


Characterized by networks of joint-venture operating companies and matrix
organization, a certain level of integration, but still high independency of opco
against the CMD in accommodating to the country situation, the structure of The
Group this period could be put into Barlett/Ghoshall model in a quarter which half
is transnational and half is multidomestic. In short, from 1960s to 1995, The Group
strategy shifted from a multidomestic one to a more (but not completely)
transnational one. (see appendix 9)

12
4.3 From 1996-2004. The restructuring.

4.3.1 Purpose
In the 1990s, the 3 dimension structure came to reveal its drawback. With the drop
of oil price, the pressure to reduce cost was on the opcos. Managers at opco level
tried to reduce cost, and had seen potential for cost reduction through streamlining
the structure. However, with the increase of inefficiency in the bureaucratic 3
dimension coordination systems, the Group decided to changes. The Shell group
abolished the matrix 3 dimension structure and designed a new structure to
simplify the system, clarify the report relationship between the top and opcos, and
most importantly switch from a geographical emphasized structure to a structure
where sector coordination was the salient one.

4.3.2 New manastruc

Four core organizations.


Four core types of organizations in this new manastruc were Business
Organizations, Corporate Center, Professional Services, Operating companies
(Opcos).
Business Organizations were catalogued according to sectors. Each business
organization was in charge of one sector. At the head of each business
organization was a Business Committee, consisted of business directors
appointed by CMD. Each business director in a Business Committee was
responsible for a defined region. For example, exploration and production (E&P- or
upstream sector) Business Committee comprised of Regional E&P Business
Director for Asia-Pacific and South America and Regional E&P Business Director
for Middle-East and Africa, etc. Business Committees duties were to devise the
strategy for the business area, assess the performance of opcos, provide services
support for opcos, and examine the financial plan of opcos before suggesting for
approval at the CMD level.

Corporate center supported the operation of CMD and provided services to parent
companies and holding companies. Corporate center assisted CMD in devising
corporate strategy, managing investment portfolio, human resources etc. To the
parent companies and the holding companies, corporate was of use in providing

13
counsel in legal issues, e.g.: Intellectual properties, taxations; or the reputation of
the Group, communication internally and externally.

Professional services made up the third type of organization. Professional services


provided support to operating companies and service companies within the group,
and also available for third-party customers. The services they provided were
finance, HR, legal…each of which was led by a relevant director from Corporate
Center (as mentioned above, the Corporate Center also had experts in similar
area of functions).

At the operating level, the operating companies, if operated in more than one
business area (for example: both downstream and upstream), would be divided
into operating units led by only one chief executive for each sector. This CEO had
to plan, set goal, and implement strategies in accordance to the guideline frame
worked from the Business Committee of that sector. The report procedure was
direct to the Group (CMD). (see appendix 10)

4.3.3 Further attempt for integration


In 1998, the Group took another attempt to further reducing cost and enhance the
integration between sectors. The intention was to replace the contemporary
consensus principle in decision making, or collective leadership by placing more
emphasis on the role of individual leadership, and power concentration.
The Business Committee were abolished, replacing by CEO for at the head of
each sectors. At the top management level, the role of each Managing Director in
CMD was clarified, limiting each Director authority within the range of one
geographical area.

Shell Oil operations in US, which might have been seen as a de facto Shell
Headquarter in America for its size and complexity, were integrated into the Global
Structure, to enhance the integration between sectors.25

25
http://www.deloitte.com/assets/Dcom-
UnitedStates/Local%20Assets/Documents/us_consulting_OilandGasJournal_New%20Partnerships_010311.pdf

14
4.3.4 Structure Observation
(see appendix 11)

This period, further attempts were made to enhance integration between opcos in
the same sector rather than the same region. The switch from geographical-based
coordination to business-area-based coordination was one worth-mentioning point.
The second point was the effort to reduce the level of decentralization in regional,
national opcos by define a clear line of report, directly between the top
management and the executives of each opco. The restructuring in 1996,
therefore, can be viewed as an attempt of The Shell Group to move it position
toward the Global Strategy quarters in the Barlett/Ghoshall model.

4.4 From 2005 until now.

4.4.1 Unification
Despite the efforts to integrate and construct a global structure making in the
restructuring in 1996, the Group still confronted with the problematic of dividing
corporate authority between headquarters in The Hague and in London. To
increase even more the simplicity and clarity in the management as well as
governance structure, between 2004 and 2005, The Royal Dutch/Shell group
made the decision to unify the two parents companies The Royal Dutch and Shell
Transport.
After the unification, the corporate authority and power line within in the
corporation was clearly defined. The corporation now has only one parent
company – The Royal Dutch Shell Plc, with only one board of directors. There is
only one headquarters situated in The Hague, Netherland. The Committee of
Managing Directors (CMD) was abolished, replacing to the root a system of
collective leadership. To be in the position left by CMD is now only one CEO who
are empowered the top executive authority. The chief executive of each business
area/sector now reports directly to the CEO of the group.

4.4.2 Further streamlining effort


In 2009, Royal Dutch Shell conducted another restructuring. This time, its sectors
were reorganized in order to streamline corporate functions. A new department
was established, Project and Technology Department, in order to achieve
economies of scale, and standardize the process. (see appendix 12)

15
4.4.3 Structure Observation
The main feature of Shell structuring strategy from 2005 (and even also from
1996) until now has been centralization and integration even more to realize cost
reduction. After the unification, executive power now is concentrated in only one
person, the headquarters now is the only one. All of that, plus the integration
process between sectors improves the decision making process to certain extent,
but also, saving the cost of having a bulky and heavy amount of staffs. It is,
therefore, possible to conclude that Shell is still moving forward to a Global
Structure with higher degree of integration and standardization in this XXL century.

CHAPTER 5 SHELL CURRENT STRUCTURE – AN OVERVIEW

The appendix 13 illustrates Royal Dutch Shell PLC structure from executive
perspective. Ture from executive perspective after the unification in 2005 and
another restructuring in 2009. CEO has the highest authority in the firm and is
monitored by a single board of directors with 10 members led by a non-executive
chairman. At the headquarters, corporate center comprises of personals in
financial, legal, Human Resources issues. They report directly to the CEO.
At the Business Level, after 2009 Shell separates its business into 4 major
sectors: Upstream International, Upstream Americas– both of which includes
Exploration and Production, Gas & Power, Oil Sands. Downstream sector is the
second major, concerning Oil Production, and Chemicals manufacturing. Project
and Technology is a new established business units. This unit is responsible for
developing and accelerating the standardization process, aiming for economies of
scale. The operating companies have insignificant changes in structure since the
restructuring in 1996.
Shell Business Services Center (or Professional Services as the old name) offer
centralized finance, human resource, IT and other business services to Shell
companies globally. And they are 100% Shell-owned operations that deal with
business activities across different functions and businesses, which bring them all
into one specialist location.

16
CHAPTER 6 IMPLANTATION SHELL OPERATIONS
To analyse the operation level and the translation of the upper strategies into
actions, first will be looked at the activities of Shell operating companies these can
be put into a value chain. The focus is on 4 big parts of Shell’s value chain. First
the functions and activities of Shell’s headquarter, secondly the upstream
activities, thirdly the downstream activities and as fourth logistic and transport.

6.1 Functions and activities of Shell’s headquarter


Despite the fact that Shell´s headquarter is officially in the Hague, the Netherlands,
Shell has also important offices in Houston (America), London (England),
Rotterdam (The Netherlands), Dubai and Singapore. Due the fact that this are
important locations for Shell to carry out their activities.26

The headquarters of Shell is located in The Hague, The Netherlands. At Shell’s


headquarter there work around a thousand employees in all kind of departments.
Shell’s headquarter deals mainly with five segments; upstream International,
upstream America, Down stream, Project & technology and other business unites
and corporate. Segment downstream is at this moment defined in five smaller
unites, 3 are located in Rotterdam and 2 in The Hague. In the beginning of 2012
Shell will move its headquarter from The Hague to Rotterdam. This due the fact
that protections locations mainly in Rotterdam are, also a big part of the staff lives
in Rotterdam or close to Rotterdam.27

Shell’s headquarters mainly focusing on controlling the value chain. They are
focusing on major projects around the world for gaining more materials and
keeping customers satisfaction. (see appendix 14)

Shell’s HR-Practices
Shell Human Resource (HR) is responsible for optimizing the business by
effectively managing and managing and deploying their employees. HR designs

26
http://www.shell.com/home/content/shipping_trading/about_shell_trading/
27
http://vorige.nrc.nl/economie/article2556819.ece/Shell_keert_terug_in_centrum_Rotterdam

17
and implements the policies, processes and practices that achieve the Shell core
objectives.

Shell is using a framework that would is gives a more holistic view of the HR
professions in Shell. In the past, every location had his own Human and Resource
department. To give it a structure and that every location is going in the same
direction Shell introduced a HR software. 28

6.2 Upstream
The upstream oil sector is a term commonly used to refer to the searching for and
the recovery and production of crude oil and natural gas. The oil industry has three
levels: upstream, midstream, and downstream, this analysis will mainly focus on
the upstream and downstream activities of Shell. The upstream level includes the
exploration, drilling, and production of crude oil and the midstream level includes
the transportation and trading of crude oil to refineries.29

Shell’s upstream businesses explore for and extract crude oil and natural gas.
Shell is using joint ventures with international oil companies around the world.
Shell liquefies natural gas by cooling and transporting it to their customers across
the world. They are also converting natural gas to liquids to provide cleaner
burning fuels. The upstream business are grouped into two organizational unites.
First the Upstream America, covering the Americas and Upstream international,
covering the rest of the world with major projects in Europe, Asia, Middle East,
Russia, Australia and Africa. 30

6.3 Down Stream


The upstream level of Shells activities includes refining of crude oil into finished
products, the storage of crude oil, and the distribution and marketing of crude oil to
wholesalers and retailers.31

28
http://www.shell.com/home/content/careers/professionals/job_areas/commercial/human_resources/
29
http://www.duke.edu/web/soc142/team9/GVC.html
30
http://www.shell.com/home/content/aboutshell/our_business/
31
http://www.duke.edu/web/soc142/team9/GVC.html

18
Shell’s Downstream organization is made up of a number of businesses.
Collectively these turn crude oil into a range of refined products, which are moved
and marketed around the world for domestic, industrial and transport use. These
include fuels, lubricants and bitumen. Shell benefits from tremendous scale
through their global integrated network of refine using chemical plumes they are
turning 4 billion bails of crude oil per day into valuable transport fuels, base
chemicals and other products. Their worldwide supply distribution infrastructure is
complemented by their global trading capabilities together they allow Shell to
make the right make or buy decisions. And optimize earnings. Shell’s branded fuel
retailed network is the world largest. Shell has more than 45.000 service stations
in more than 90 countries. Everyday Shell is selling more than 315 million liters of
fuel to approximately 10 million customers. Shell’s lubricants products are
available in 120 countries and have a 13% share in the global lubricants market.
Our Downstream organization is made up of a number of businesses. Collectively
these turn crude oil into a range of refined products, which are moved and
marketed around the world for domestic, industrial and transport use. These
32
include fuels, lubricants and bitumen.

Their manufacturing business includes Refining, Supply and Distribution.


Marketing includes our Retail, Business to Business, Lubricants and Alternative
Energies. Their Chemicals business has dedicated Manufacturing and Marketing
units of its own. Shell also trade crude oil, oil products and petrochemicals
primarily to optimize feedstock for their Manufacturing business and to supply our
Marketing business.
The global network of Shell Trading companies encompasses Shell’s trading
activities in every major energy market around the world. They also manage one
of the world's largest fleets of liquefied natural gas (LNG) carriers and oil tankers.
Their industrial and heating fields marketed by their commercial fields business
count for 20% of all Shell fuels sold worldwide.

Shell is creating a strong portfolio through investing in key markets and


disinvesting non strategic assets. Over the last 5 five Shell has invested 23 billion

32
http://www.shell.com/home/content/globalsolutions/about_global_solutions/our_business/downstream/

19
dollars in their oil products chemical businesses. Shell is investing in big projects
in several countries and reduces cost through letting businesses go that are not
profitable. By this, their build a strong brand, the Shell brand. 33

The implementation of Shell’s strategy will see their actively manage around three
themes in Downstream:
 operational excellence and cost efficiency:
Shell is striving to maximize the uptime and operating performance of their
assets base, and to reduce costs and complexity through a series of
continuous improvement programmers.
 portfolio concentration: Shell mainly focus on the refining their portfolio on
the most efficient facilities, those that best integrate with crude supplies,
marketing outlets and local petrochemicals.
 selective growth: Shell aim to maintain their grow, their margins in their core
heartland regions, with selective expansion in countries such as China,
India and Brazil, which have high growth potential. This includes
researching, developing and marketing biofuels. 34

6.4 Trading
Shell trading is a section of the shell business and controls the distribution across
the world and with external customers.35

Shell has more than 300 distributions facilities with more than 3,000 storage tanks
in 70 countries. With this, Shell moves their products through USA and Europe.
Shell owns around 7,000 trucks and these trucks travel around the world and
deliver every seven seconds.36

An overview has been giving of the most important locations where Shell materials
gains and trade. (see appendix 15)

33
http://www.youtube.com/watch?v=PVHAraYx_ho&feature=relmfu
34
http://www.shell.com/home/content/aboutshell/our_business/
35
http://www.shell.com/home/content/shipping_trading/about_shell_trading/
36
http://www.scribd.com/doc/33211461/Company-Analysis

20
CONCLUSION

To conclude, Shell comes from the position of a big corporation, and still is a giant.
It can be described as a big octopus with multitudes of arms, each of which as one
operating companies. Throughout history, that complexity and sophistication has
helped Shell create the needed flexibility to accommodate to the environment. The
trend by time, however, does not favor the complexity and vastness of a giant like
Shell. In environment which grows more and more volatile, competition fiercer and
fiercer, Shell is urged to change: local flexibility now does not suffice, multinational
company like Shell also needs the effects of standardization which, in the end,
helps benefit from economies of scales leading to cost reduction and learning
effects. That is all Shell trying to do currently, although there might be many
strategies, approach: restructuring, merging sectors, streamlining, unification etc.
All of those strategies is to come toward a more integrated system, with
standardized process, balancing between responsiveness and power-
concentration. However Shell tries to integrate its system, this will always prevail:
Shell will never be completely integrated or power-centralized. The nature of its
business has always been susceptible to regional environment: political, legal,
social, economic. Therefore, it would be interesting to see how Shell manage to
balance between these two orientation, pursuing a more integrated system while
harnessing the advantages of a responsive chain of operating companies in a
circumstance of the rising state backed national oil company and scarcity of oil in
the future.

21
REFERENCE

Books

 8. David, R.D., (2011), Strategic Management: Concepts. Boston: Prentice


Hall
 12. Henry, A., (2011), Understanding Strategic Management. Oxford: New
York: Oxford University Press
 15. Rice, J.L., (2010), Strategic Management: A Dynamic Perspective:
Concepts and Cases. Pearson Australia
 18. Wheelen, T. L., (2010), Concepts in Strategic Management and
Business Policy: Achieving Sustainability. Upper Saddle River, N.J.:
Prentice Hall

Annual Reports and Fact Books:

 23. & 29. Shell Press Release, Shell announces six new biofuels research
agreements, 17 September 2008
www-
static.shell.com/static/media/downloads/press/biofuels_research_agreemen
ts_17092008.pdf

Shell websites (accessed on 15 December 2011)

 1. Who we are
http://www.shell.com/home/content/aboutshell/who_we_are/
 2. History
http://www.shell.nl/home/content/nld/aboutshell/who_we_are/history/
 3. Locations
http://www.shell.nl/home/content/nld/aboutshell/who_we_are/locations/
 4. Shell worldwide
http://www.shell.com/home/content/aboutshell/who_we_are/shell_worldwide
/

22
 6. Purposes
http://www.shell.com/home/content/aboutshell/who_we_are/our_purpose/
 7. Values
http://www.shell.com/home/content/aboutshell/who_we_are/our_values/
 10. Next generation project options
http://www.investorshandbook.shell.com/2010/summaryreview/ourstrategy/
next-generationprojectoptions.html?cat=m
 11. Acreage additions in Exploration
http://www.investorshandbook.shell.com/2010/upstream/exploration/acreag
eadditions.html?cat=i
 13. New senior management structure (2009)
http://www.shell.com/home/content/media/news_and_media_releases/archi
ve/2009/new_management_structure_27052009.html
 14. Shell Business Service Centres
http://www.shell.com/home/content/careers/business_service_people/
 16. Strategy
http://www.shell.com/home/content/aboutshell/our_strategy/
 17. National and international oil companies: a sum not a balance
http://www-
static.shell.com/static/media/downloads/speeches/brinded_london_301020
07.pdf
 19. & 25. Sustainable development and Shell’s business strategy
http://sustainabilityreport.shell.com/2010/operatingresponsibly/ourbusinesss
trategy.html?cat=m
 20. & 26. Introduction from the CEO of Shell
http://sustainabilityreport.shell.com/2010/servicepages/search.php?q=UN+
Global+Compact&pageID=38659&cat=b
 21. & 27. Biofuels and sustainability
http://www.shell.com/home/content/environment_society/environment/climat
e_change/biofuels_alternative_energies_transport/biofuels/biofuels_sustain
ability/
 22. & 28. Technical centres
http://www.shell.com/home/content/globalsolutions/innovation/innovative_thi

23
nking/technical_centres/overview/
 32. Unification of Royal Dutch and Shell Transport
http://www.unification.shell.com/shell_proposal/general/proposals/press2
 30. & 34. Shell Business
http://www.shell.com/home/content/aboutshell/our_business/
 26. & 35. Shell trading
http://www.shell.com/home/content/shipping_trading/about_shell_trading/
 28. Human resources
http://www.shell.com/home/content/careers/professionals/job_areas/comme
rcial/human_resources/
 32. Downstream
http://www.shell.com/home/content/globalsolutions/about_global_solutions/
our_business/downstream/

Online Articles (accessed on 15 December 2011)

 5. The Industry Handbook: The Oil Services Industry


http://www.investopedia.com/features/industryhandbook/oil_services.asp
 9. Singh, A. (2010) Strategies for oil and gas companies to remain
competitive in the coming decades of energy challenges. Massachusetts
Institute of technology.
http://dspace.mit.edu/bitstream/handle/1721.1/59130/658961439.pdf?seque
nce=1

 24. Grant M.Robert. Cases to Accompany Contemporary Strategy Analysis.


Case seven: Organizational Restructuring within the Royal Dutch/Shell
Group. Blackwell Publishing.UK.2005.
http://www.blackwellpublishing.com/grant/docs/07Shell.pdf
 25. Oil and Gas Financial Journal. New Partnership rules shake up shale
deals: Price volatility fosters changing business models for gas players.
http://www.deloitte.com/assets/Dcom-
UnitedStates/Local%20Assets/Documents/us_consulting_OilandGasJourna
l_New%20Partnerships_010311.pdf
 27. Shell keert terug in centrum Rotterdam

24
http://vorige.nrc.nl/economie/article2556819.ece/Shell_keert_terug_in_centr
um_Rotterdam
 29. & 31. Global Value Chains
http://www.duke.edu/web/soc142/team9/GVC.html
 36. Shell Company analysis
http://www.scribd.com/doc/33211461/Company-Analysis

Video
 33. Downstream - Royal Dutch Shell plc 2009 strategy update
http://www.youtube.com/watch?v=PVHAraYx_ho&feature=relmfu

25
APPENDIX

A) SWOT analysis

Strengths Weaknesses
 Shell’s current investments in  Shell’s strong focus on oil and
exploration will help ensure gas requires it to search
continued activity over coming continually for replacement
decades. supplies, and exploration is a
 Research into biofuels, solar high-cost element of its
power, wind power and energy operations.
from hydrogen helps the  Shell still uses the technique of
organization diversify in a market flaring and burning gas from oil
where ecological issues are of extracting sites as a way of
increasing concern, and also dealing with unwanted by-
addresses issues of the longevity products of its operations: this is
of fossil fuel reserves. considered to be environmentally
 Diversification into products such unacceptable by many.
as fuel cards and credit cards  Shell has a strong presence in
helps Shell maintain a wider Nigeria, but this area is politically
portfolio of products, spreading volatile and operations have
risk. been fraught with security
 Shell pioneered the use of problems for staff and attacks on
scenarios, a planning tool where production. The company may
a range of possible future be forced to withdraw,
situations are explored and compromising its network of
strategy adapted to ensure future resources and threatening its
demands can be met. ability to meet production
 The organization has worked obligations.
hard to improve its general  The company is reported to be
reputation and believes it is now reviewing involvement with a
seen more positively than it used wind power development near
to be. Blackpool, raising questions
 Shell has utilized opportunities to regarding its commitment to
develop strategic partnerships, alternative energy sources.
for example, supplying CO2,
which is a by-product of its
refinery process, to Dutch tomato
farmers who had previously used
heaters (higher CO2
concentration in greenhouses
accelerates tomato growth).

Opportunities Threats

26
 New oil and gas reserves are still  Fuel prices in recent months
being found, and there is the have been particularly volatile,
potential to discover more. initially rising quickly but
 Shell has been able to move into subsequently falling sharply,
areas rich in reserves which were reducing potential profit
previously too risky to operate in,  Political issues in some regions,
for example Iraq. Nigeria in particular, threaten
 Shell’s active response to operations. A court order has
criticisms of environmentally demanded Shell hand over a site
unfriendly activities may lead to on the Niger Delta to local
less antagonistic relationships ownership.
with environmental groups.  Summer 2008 saw strikes by
 Emerging economies have a tanker drivers working for Hoyer,
large and growing demand for suppliers of Shell, resulting in
fossil fuels. negative publicity, criticism of
 Diversification into new products Shell’s high profits and a supply
and alternative fuels may open problem for Shell forecourts.
up new markets  The economic downturn has led
to a decrease in demand for
fossil fuels, possibly aggravated
by changes in driving habits in
response to high fuel prices
earlier in 2008.
 Weather can have significant
effects on production, with
refineries particularly hit recently
by Hurricane Ike.

Source: http://www.businessteacher.org.uk/business-resources/swot-analysis-
database/shell-swot-analysis/

1) Figure showing Shell participated in the whole value chain

27
Source: Stabell, C. (2001) New Models for Value Creation and Competitive
Advantage in the Petroleum Industry. Norwegian School of Management BI.

http://web.bi.no/forskning/papers.nsf/0/d67350db496df7b1c1256e7600401074/$FI
LE/fr2001-01.pdf

2) Figure showing the value chain of petroleum industry

Source: Stabell, C. (2001) New Models for Value Creation and Competitive
Advantage in the Petroleum Industry. Norwegian School of Management BI.

http://web.bi.no/forskning/papers.nsf/0/d67350db496df7b1c1256e7600401074/$FI
LE/fr2001-01.pdf

3) Figure showing Shell’s upstream capital investment’s distribution

Source:http://www.investorshandbook.shell.com/2010/summaryreview/ourstrategy
/next-generationprojectoptions.html?cat=m

4) Map showing Shell’s key projects under development

28
Source:
http://www.investorshandbook.shell.com/2010/upstream/exploration/acreagead
ditions.html?cat=i

5) Figure showing the top down reorganization of Shell in 2009

Source:page 6, Voser, P. Royal Dutch Shell Plc Fourth quarter & full year 2009
results. 2010.

29
http://www-
static.shell.com/static/investor/downloads/financial_information/quarterly_results/2
009/q4/q4_2009_analyst_presentation.pdf

6) Shell until 1960s in Barlett/Ghoshal model

7) Figure showing Shell’s governance structure

Source: page 121. Grant M.Robert. Cases to Accompany Contemporary


Strategy Analysis. Case seven: Organizational Restructuring within the Royal
Dutch/Shell Group. Blackwell Publishing.UK.2005.

8) Shell’s matrix structure

30
Souce: page 122. Grant
M.Robert. Cases to Accompany Contemporary Strategy Analysis. Case seven:
Organizational Restructuring within the Royal Dutch/Shell Group. Blackwell
Publishing.UK.2005.

9) Shell from 1960s to 1995

10) Figure showing Shell’s four core organizations

31
Source: page 138 Grant M.Robert. Cases to Accompany Contemporary
Strategy Analysis. Case seven: Organizational Restructuring within the Royal
Dutch/Shell Group. Blackwell Publishing.UK.2005.

11)Shell from 1996

12)Figure showing the top down reorganization of Shell in 2009

32
Source: Oil and Gas Financial Journal. New Partnership rules shake up shale
deals: Price volatility fosters changing business models for gas players.
[http://www.deloitte.com/assets/Dcom-
UnitedStates/Local%20Assets/Documents/us_consulting_OilandGasJournal_N
ew%20Partnerships_010311.pdf] Accessed on 15 December 2011.

13)Figure showing Shell’s current structure

Source: Oil and Gas Financial Journal. New Partnership rules shake up
shale deals: Price volatility fosters changing business models for gas
players.] Accessed on 15 December 2011
http://www.unification.shell.com/shell_proposal/general/proposals/press2/

14)Figure showing the oil supply chain

33
Source: http://www.duke.edu/web/soc142/team9/GVC.html (accessed on
16 December 2011)

15) Figure showing Shell’s trading locations

Source http://www.shell.com/home/content/shipping_trading/about_shell_trading/

34