Although the Shell group had an emphasis on simplicity, accountability, and clear lines of authority, compared with its leading competitors Shell’s structure remained complex.
Thus, no matter how much restructuring the group undergoes the coordination will be hard to improve. However, Shell being such a large multinational organisation can actually gain from its complex structure. In the way that can enable the Shell Group employees to share the functional expertise, product related knowledge and side specific know how between the organisational divisions as well as sharing certain activities. Not only can this reduce costs of production and research, but also improve general performance, as well as create a long term competitive advantage.How feasible it is to implement change to the organization’s North American operations? We will first discuss the major issues that need to be considered here and then we will analyze them to make a reasonable conclusion. The first point here is that the two parent companies that is Royal Dutch petroleum company and the Shell transport company, each have their shares separately listed on the stock exchanges of Europe and USA and have separate board of directors.
So USA operations are not managed by the parent company in the UK. Also according to the shell’s three-way matrix, geographical dimension has been the most important consideration and most of the strategic planning was at national or regional levels. Planning at shell was almost bottom up meaning that operating companies in each country had their own strategic plans and the role of the planning staff and regional coordinators was just to coordinate these plans.Therefore these factors definitely indicate that any sort of change that needs to be initiated must be originated by the operating companies themselves due to the bottom up process and too much decentralization at Shell and therefore any change from the top management will be difficult to administer or implement. The management structure of shell gives the CEO of the company very less powers and makes it even more difficult to initiate any sort of change. what is needed here is a more systematic method and approach and giving more powers to the CEO of the company or to the committee of managing directors.
There are other universal factors that can be viewed for any change to take place and need to be considered for effective change management. The change should be done in a systematic and planned way and must be done gradually. No one likes change and there is always resistance to it but if the people of the company are made to believe a certain change is going to benefit the organization and is necessary and essential then any sort of change will be welcomed. There needs to be a culture of accepting change and that can be only achieved due to effective communication between the staff and the top management. The attitude of the employees must be progressive and acceptable of development and changes in the way business is conducted.Coming back to the original argument is change feasible???? Whether it is or is not depends on why that change is necessary and this needs to be weighed with the hassles and costs of not undergoing change.
Yes change is definitely possible and can be implemented if done in planned way but the feasibility can only be done by weighing the pros and cons of change that we will consider in the next paragraphReasons for change can be varied and is dependent on two issues: the first one being the benefits and reasons for change and the second one being the practicality of change. Another point that should be considered is the length of the change process. All this will help us in our discussion of feasibility.
We will now consider the organizational structure of shell which we have mentioned in previous sections and will get to the changes but before that I would like to make some things clear.Between the 1970’s and 1990’s, the World’s biggest oil companies, Shell inclusive had to witness a drastic change to the petroleum industry and its operations. The growing power of the oil producing countries and the additional fundamental change with respect to the nationalization of oil reserves, gave oil companies like Shell enough reason to doubt their organizational structures. The whole structure of vertical integration was based around the idea of minimizing risk via controlling downstream facilities needed to provide secure sources for crude oil. Unfortunately for Shell, major oil companies saw this need for change early enough and underwent far reaching restructuring involving reorientation of goals, greater selectivity of strategies, staff lay offs and delayering.
Shell was the only major oil company not to undergo a similar restructuring process.The failure to do so could have stemmed from the fact that Shell’s belief in its flexibility had allowed coping with the industry shift without the need for a discontinuous change. Also because the absence of autocratic powers residing with the CEO of other oil majors, the scale of top down restructuring needed were unattended to at Shell. Eventually, during the 1990’s a mixture of various reasons brought this aspect of restructuring the organizational setup into light.The most demanding reason was dissatisfaction over poor financial performance as compared to other oil majors. The cost of capital was barley covered by the return on equity, the long term rates of return were below stated targets and its margins were under pressure.
This is when Shell began its restructuring process which eventually led to getting rid of its old matrix structure. Even though initial efforts, i.e. restructuring among the operating companies in the Canada, US and UK provided evidence of cost savings, the final result was still far from evident.During 1995-1998 Shell created a new structure, where Formal setup was not really affected.
The major changes took place in management structure. Shell created four new elements: Business Organizations, Corporate Centers, Professional Services and Operational Units- all of which were interconnected and supported each other. Multiple reporting among these business organizations and the power of regional sectors were eliminated. That allowed Shell to tighten the control processes and made the communication system less complex, thereby making the line of command clearer. Shell has also undertaken the process of global integration of its businesses, moving from local responsiveness and regional business divisions.Despite cost-cutting, downsizing and global integration, any performance gains from the reorganization and restructuring were offset by the continuous change in the oil and gas industry environment. This showed that making Shell less complex, less bureaucratic and more flexible did not help it to stand up to the huge influence of the external factors it faced. The continuous and regular rotation of the CEO did not help the company to build a good platform for better functioning of the top-management.
As a result, the company could not possibly have long-run plans taking into account future business environmental changes. Since each new CEO would preferably argue his or her own view of the company’s future to the CMD. It also shows that Shell was operating just according to its short-run plans rather than following the long-term path.
On the other hand, by splitting company on divisions and areas those divisions are operating at, Shell became more sensitive to external environment, because since businesses have there own environment they can adopt to these changes quicker without having any affect on other divisions as well as on the whole Group. The most important change in this new structure according to our views is for Shell to make the CMD redundant and choose a single CEO, giving autocratic power to one individual. This would allow greater flexibility and quicker decision making which is a very important aspect in this dynamic oil industry. The company’s employees call for guidance by one leader, who must device both the long term goals and the short term strategy. This is very evident from the example of BP’s John Browne, who has single handedly been changing the rules of operations of the petroleum industry.