CULTURer Asssignment

CULTURAL FRAMEWORK OF

BUSINESS

Assessment 1

Student Name-Lakshika Sonali Gamage

Lakshika Sonali Gamage GALSD91

Student ID – GALSD91

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Shell’s ReorganizationCase Study 9.1

1. How would you characterize, in cultural terms, the nature of shell when it was a cohabitation of Royal Dutch petroleum and Shell transport and trading?

The Royal Dutch Shell Group was created in February 1907; this had been a joint

venture for almost a century. The terms of the joint venture gave 60% of the new

Group to the Dutch arm and 40% to the British. This cohabitation had given the

two companies to combine unique experiences and expertise, being able to take

on larger business ventures like taking control of the “Mexican Eagle Petroleum

Company” in 1919, Agreement between shell and British petroleum .However,

this feature created decentralized decision making and overlapping of resources.

The company's headquarters are in The Hague, Netherlands, with its registered

office at the Shell Center in London, United Kingdom. Shell’s management team

was organized in a hierarchical fashion, with the top being the Committee of

Managing Directors (CMD). The CMD provided coordination between Shell’s

structure and management. The governance responsibilities of CMD lead the

general direction of the company while executive responsibilities of the

management of the Service Companies handle day-to-day operations.

Shell’s structure was geographically organized, with 200 plus businesses located

in over 140 countries. These businesses were similar in terms of function, either

in single or multiple sectors, but only operated within a single country. They were

supported centrally by the Service Companies located in London and The Hague,

and executed strategies according to the direction of CMD.

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2. What changes in the culture of shell are the ‘marriage’ of

the two companies expected to bring?

Shell’s formal present structure was not well suited for the changing conditions

in the industry and economy. Several downfalls are listed below:

Bureaucracy: The top heavy and hierarchical system represented the Shell’s

bureaucracy. The structure featured many levels of command, duplication of service

companies. Information had to be processed through many layers of management.

Because of this multi layered management system, it was unprepared to face to the

current economy.

Duplication of jobs: since Shell’s formal structure was geographically organized,

many companies in each country have similar functions. With duplicated resources

that could be trimmed down to cut costs. This creates too much decentralization and

increases overhead.

Vertical integration: Shell, like many other oil majors, owns all of the upstream,

downstream and other businesses. Besides the large financial overhead and human

resources needed for operation, the additional control needed creates management

hassle, making the company’s structure more bloated and less flexible.

Joint venture: the joint venture between two companies created decentralized

decision making and overlapping of resources. As other smaller oil companies

merged, expended and captured industry share, Shell suffered from this defect and

was unable to respond rapidly to the market

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This is how The Royal Dutch shell plc has changed their structure of the company to get

rid of above downfalls.

The Chief Executive now reports to a single Board comprising 10 Non-executive

Directors and five Executive Directors. The key advantage of this single, smaller Board is

that it provides a very clear and direct line of accountability to shareholders. Royal Dutch

Shell now has a single headquarters in The Hague (the Netherlands). The centralization

of a number of activities in the headquarters is Helping to reduce duplication and helping

to operate in a more streamlined and efficient way. The structural changes are also

helping to reinforce work to simplify and standardize many of company business

processes. In particular, the integration of the Oil Products and Chemicals businesses into

one downstream organization has so far been very successful in creating a more dynamic,

responsive and effective organization. By sharing services and integrating their activities

company can operate much more efficiently and also can share and adopt best practice

more quickly and so improve operational performance.

The appointment of a senior manager to lead the Developing and implementing new

technology. This shows the shell’s commitment to driving the development of technical

solutions in this area. Developing and implementing new technology plays a key role in

maintaining the competitiveness of shell’s existing business activities and in helping to

secure new business opportunities. New technology plays a particularly important role in

helping to find new resources and in maximizing the recovery of oil and gas from

existing resources. It is also fundamental to realizing the potential of unconventional

hydrocarbons and of new transportation fuels. Equally it will be a significant element in

work to develop ways of managing the CO2 emissions related to energy production and

use.

Royal Dutch Shell plc has recruited skilled professional 1,000 additional engineers in

place to meet the energy challenges shell has also appointed eight Chief Scientists who

will lead the technological developments within their fields of expertise. In future, new

oil will be more difficult to find and to produce. Shell’s research and development effort

is focused on developing new innovative technologies and providing technical solutions.

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Shell continues to work on the development and deployment of enhanced oil recovery

technologies that can extend field life

3. What were the reasons for the strategic decision to merge the two companies?

According to the case analysis there are several reasons identified for the two

companies to merge. They are as follows;

Bureaucracy: The top heavy and hierarchical system represented the Shell’s

bureaucracy. The structure featured many levels of command, duplication of service

companies. Information had to be processed through many layers of management.

Because of this multi layered management system, it was unprepared to face to the

current economy.

Duplication of jobs: since Shell’s formal structure was geographically organized,

many companies in each country have similar functions. With duplicated resources

that could be trimmed down to cut costs. This creates too much decentralization and

increases overhead.

Vertical integration: Shell, like many other oil majors, owns all of the upstream,

downstream and other businesses. Besides the large financial overhead and human

resources needed for operation, the additional control needed creates management

hassle, making the company’s structure more bloated and less flexible.

Joint venture: the joint venture between two companies created decentralized

decision making and overlapping of resources. As other smaller oil companies

merged, expended and captured industry share, Shell suffered from this defect and

was unable to respond rapidly to the market.

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4. How did the reserves crisis precipitate the changes?

The shell has overstated the company's proven reserves of oil and gas by 30 per cent in

2004 mid. This had occurred a crisis of oil and the price of oil has boom up for a level

which can’t afford. What has hit for the shell was the instability of the company

management. In these time period the chairmen of the company Sir Philip Watts has

resigned and even worse when the situation got bad, the company's finance chief Judy

Boynton has ncalso resigned from his post. There was a fear of collapsing of two

companies. Because of this turmoil they have speed up the process of changing the

company’s structure and got those two companies in to one parent company.

5. What do you consider to have been the key managerial and cultural factors in involved in the merger process?

Changing of dual board system to single board comprises with 10 Non-executive

Directors and five Executive Directors. Because of this simple top board, it has

opened the path to chief executive officers to report directly to the board and

there won’t be any necessary long process to reach the top level management.

Having one place as the head quarters and it is in The

Hague(Netherlands).Choosing of parent base means the system is centralized and

not like in 90s.From centralized system there won’t be any misuse of recourses

and wasting of resources.

Changing structure categorizing the departments

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Giving a Separate department for Technical and technology improvements

Appointing eight Chief Scientists who will lead the technological developments

within their fields of expertise.

Considering about Green of the world and giving a high priority to that.

6. What evidence can you find in the text to suggest the possible emergence of a ‘third culture’ within the new company?

Referring to the case study analysis their are several statements which the case

analysis states about a possible emergence of a ‘third culture’

According to the case study these are some of the evidence you can find after

referring the case study.

“under the new plan, however, the merged company will be incorporated

in Britain and listed on the London stock exchange”

“The Chief Executive now reports to a single Board comprising 10 Non-

executive Directors and five Executive Directors.”

“Royal Dutch Shell now has a single headquarters in the hague”

“The structural changes are also helping to reinforce our work to

simplify and standardize many of our business processes”

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“The integration of the oil products and chemicals businesses into one

downstream organization”

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CULTURer Asssignment