Table of Contents
2. Problem Analysis
Royal Dutch/Shell is a global group of energy and petrochemicals companies, with 104,000 employees in more than 110 countries; it is unique among the world’s oil majors and was formed from the 1907 merger of the assets and operations of the Netherlands-based Royal Dutch Petroleum Company and the British-based Shell Transport and Trading Company. In fact, it is the oldest joint venture. The business interests of the two companies were combined into a single group, with Royal Dutch owning a 60 percent share and Shell a 40 percent share. The expansion of both companies was supported by the growing demand for oil resulting from the introduction of the automobile and oil-fuelled ships. When Exxon was merging with Mobil, Shell was no longer the world’s biggest energy company. In addition, the merger of Total, Fina, and Elf Aquitaine in September 1999 had created the world’s fourth “super-major”, after Exxon Mobil, Shell and BP Amoco. The daily management activities of the Group are complex, and the structure through which the Group is actually managed does not correspond very closely to the formal structure. The managerial control was vested in the Committee of Managing Directors (CMD), which forms the Group’s top management team. This structure was viewed as a critical ingredient of Shell’s ability to reconcile the independence of its operating companies with effective coordination of business, regional, and functional commonalties. The CMD identified key issues, set strategic direction, and approved major projects, and the planning department formulated the scenarios. However, most of the strategic decisions and initiatives were originated among the operating companies. The role of the planning staff and the regional and sector coordinators was to coordinate the operating company strategic plans. Because of Shell’s management structure, in particular the absence of a CEO with autocratic powers, Shell was much less able to initiate the kind of top-down restructuring driven by powerful CEOs such as the one at Exxon, at Texaco, at Total, or at ENI. During the 1990s, a combination of forces was pushing the CMD towards more radical top-down change. The most influential of these pressures was dissatisfaction over financial performance. Investors and the financial community were putting increased pressure on companies for improved return to shareholders. The CMD was forced to shift its attention from long-term development to short-term financial results. So that, evidence of the potential for performance improvement through restructuring was available from inside as well as from outside the Group. Shell started a change process. The new structure allowed more effective planning and control within each of the businesses, removed much of the top-heavy bureaucracy that had imposed a costly burden on the Group, and eliminated the power of the regional fiefdoms. This new structure strengthen the executive authority of the Committee of Managing directors by providing a clearer line of command to the business organizations and subsequently to the operating companies, and by splitting central staff functions into a Corporate Center and a Professional Services organization. In place of the traditional “committee of equals”, the CMD more as an executive committee where individual members had clearly defined executive responsibilities. There was a clear consensus within the company that was much better able to respond to the uncertainties and discontinuous changes that affected the oil industry. The elimination of the regional coordinating staffs, and the closure of some of Shell’s biggest national headquarters not only reduced cost, but seemed to be moving Shell towards a swifter, more direct style of management. The new...
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