ROYAL DUTCH SHELL GROUP

Royal Dutch Shell Group

Royal Dutch Shell Group

Q.1

Ans

At the beginning of 2000, the Royal Dutch/Shell Group of Companies (Shell) was emerging from one of the most ambitious and far-reaching organizational restructurings of its 93-year history. The restructuring had involved the shift from a geographically-based to a primarily business sector-based structure, the elimination of over 1,000 corporate positions, the sale of much of its London headquarters, and the redesign of its systems of coordination and control. The restructuring had been precipitated by the realisation that Shell would need to change the way it did business if it was to retain its position as the world's largest energy and chemicals company and offer an adequate return to shareholders in an increasingly turbulent industry environment (Cibin and Grant 1996, 14-18). By the end of 1999, it was clear that the changes were bearing fruit. Head office costs had been reduced and the increased coordination and control that the new sector-based organization permitted were helping Shell to control costs, focus capital expenditure, and prune the business portfolio. Return on capital employed (ROCE) and return on equity (ROE) for 1999 were their highest for ten years. However, much of the improvement in bottom-line performance was the result of the recovery in oil prices during the year. Once the benefits of higher oil prices were stripped out, Shell's improvements in financial performance looked much more modest. At the same time, Shell's competitors were not standing still. BP, once government-owned and highly bureaucratized, had become one of the world's most dynamic, profitable, and widely admired oil majors. Its merger with Amoco quickly followed by its acquisition of Atlantic Richfield had created an international giant of almost identical size to Shell. In the meantime, Shell's long-time archrival, Exxon, was merging with Mobil. Shell was no longer the world's biggest energy company - its sales revenues lagged some way behind those of Exxon Mobil. Other oil and gas majors were also getting caught up in the wave of mergers and restructurings. In particular, Shell's once-sluggish European rivals were undergoing extensive revitalization. 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). Also asserting itself on the world stage was Italy's privatized and revitalized ENI S.p.A.

The reorganization that had begun in 1994 under chairman of the Committee of Managing Directors, Cor Herkstroter, and continued under his successor, Mark Moody-Stuart, had transformed the organizational structure of Shell. From a decentralized confederation of over 200 operating companies spread throughout the world, a divisionalized group with clear lines of authority and more effective executive leadership had been created. Yet, Shell remained a highly complex organization that was a prisoner of its own illustrious history and where corporate authority remained divided between The Hague, London, and Houston. Had enough been done to turn a sprawling multinational empire into an enterprise capable of deploying its huge resources with the speed and decisiveness necessary to cope with an ever more ...