Shell’s Future Strategies and Directions (2003-2005)
Introduction
From the years 1999 to 2003, Royal Dutch Shell, a multinational oil company engaged in oil and gas exploration and production, was haunted by certain operational, administrative and ethical dilemmas. While also being committed in the transportation and marketing of natural gas and electricity and marketing and shipping of oil products and chemicals, Shell ventured on several strategies in order to rekindle the image and reputation of the company. The paper discusses the main strategies at Shell: onward looking scenarios; more upstream, profitable downstream; and the energy challenge.
Onward looking scenarios
Shell defined scenarios, the primary strategy, as the providers of the alternative views of the future; identifying significant events, main actors and the motivations as well as conveying how the world functions. For Shell, scenarios are utilized in order to discover development possibilities of the future and to test whether strategies are aligned on the potential developments. With organizations which work under the pressure of uncertainties and discontinuities, scenarios are particularly useful for decision-makers in putting challenges on the scheme of strategies in a proactive manner. Over the last decade, the company develops forward looking scenarios that reflect the strategies Shell seeks to pursue.
In the early 1990s, the new frontiers and barricades emerged in light of the globalization and liberalization. High energy demand and supply, new priorities in rich countries, business being challenged and shift to the poor were named the new frontiers whereas the constricted market, ‘energy is bad’ notion, marginalization of the poor and politics of identity were perceived to be the barricades. Business, be it domestic or global, is being challenged from a number of directions and will increase the cost of capital. Through this, competition will be inescapable, driving the requirement to meet customers’ needs, desire and expectations of high quality products. The local communities too will expect private companies to reflect and take on greater corporate social responsibilities. On the other hand, private companies are threatened by liberalization and how they are going to contain it as well as contemplated on developing and maintaining own brand. Given that development will be inwardly-oriented, there will be markets that will embrace partial openness for new entrants, thus creating hostile business environments.
The implications of these scenarios lie on two varied reactions: to react with high hopes and seize the opportunities that the new frontiers are presenting or to react with fear on what they value most and create barriers to liberalization. For those who will choose the latter, advancing the interests and protecting families would mean to erect physical, mental and commercial barricades which could shield against the requirement to think outside their ‘comfort zone’; therefore, limited horizons. On the other hand, for those who will embrace the former, the willingness to observe self-interest in a broader sense would mean to exploit the new opportunities for businesses and accept the challenges that interdependence impose. In this sense, companies including Shell, could take advantages of the heightened interconnection and will have a wider, freer playing field while also assuming more responsibilities regarding the wellbeing of the global community.
The next onward looking scenarios Shell presented covers TINA (There Is No Alternative), assuming that the global business environment was driven by competitive advantage as afforded to countries and organizations that heeded the best practices of competition and hypercompetition, benchmarking across and between industries, free trade and liberalization, English, education and communications, and by global financial markets. For Shell, there are two specific learning scenarios to which the strategies could be patterned from Just Do It! by Americans and Da Wo (Big Me) by Asians. Americans believed in the principles of individualism, hypercompetition, dematerialization, value, blurring boundaries and rapid technological change. Asians, alternatively, embraces the idea of cohesion, increasing returns, sustained growth, balancing stakeholder pressures and building long-term advantage.
The succeeding scenarios considers the new game wherein existing organizations and institutions shall adapt to the new and evolving complexities that the competitive advantage are giving them and empowering people through diversification, institutional obsolescence, energy growth and saturation and volatility. Consequently, in the 2001 scenario setting, it was argued that the ‘core-poration’ will consist mainly of strategy and research, human resources, office support, training, distribution and employee benefits and an interplay between these elements will determine success in light of an consumer-driven energy world.
More Upstream, Profitable Downstream
Another strategy for Shell is the emphasis on the need to leverage a strong and wide-ranging energy portfolio in order to meet the challenge of providing more energy despite high energy prices and fierce competition. In the upstream business, the company is continuously committed in the development of new projects in long-term and with productive results. Sustained cash generation and continued reshaping of portfolio are the focus of the downstream business. For Shell, these could be carried out with the creation of value though managing portfolio, the leveraging of proprietary technology and the quality of our people as the foundation. To enhance the competitive position is the main purpose of the upstream and downstream business while also improving the quality, safety and competitiveness of refineries and further building presence in growth markets and new markets like the Asia Pacific. Combating the environmental and social impact of the global energy industry is also a strategy. Shell is strategically committed in improving energy efficiency in their operation and supporting customers to manage energy demands and consumption. Diversifying in the biofuels business, Shell is also committed in technology and innovation driven by technical expertise, development and application of technology and financial and project management skills. Further, Shell brand is a reason alone for governments and resource holders to be a preferred partner.
The Energy Challenge and Shell’s Contribution
As Shell claims, the world will going to need vast amounts of extra energy in the coming decades in order to reduce poverty. The energy challenge lies in keeping supplies free from disruption and dealing with greenhouse gas emissions (GHG), and producing energy in environmentally and socially responsible ways. There are three conditions that exacerbate such a challenge: 1) the demand for energy is growing rapidly since countries are now entering the most energy-intensive phase of economic development; 2) the supplies are diminishing and are predicted to be limited come 2015; and 3) carbon dioxide emissions are set to rise.
There are two scenarios for this situation. The first is the scramble scenario or “a world of intense competition between individual countries, which rush to secure more energy for themselves.” The second scenario is the blueprint scenario or which is “disorderly at first, as local initiatives result in a patchwork of different policies and approaches to deal with the challenges of economic development, energy security and climate change.” Then there is the third scenario whereby Shell strategies on managing GHG emissions as one of the long-term commitment with the help of government policies and new standards and taxes for the purpose of changing behavior and improving energy efficiency and CO2 performance of infrastructures and transport vehicles.
Conclusion
There are three main strategies that Shell is converging into: onward looking scenarios, more upstream, profitable downstream and the energy challenge and how the company could contribute. These strategies are both internal and external and are intended on upholding greater responsiveness on the demands of the future as well as the future consumers and the condition of the society, by and large. The purpose of the first strategy is to provide Shell with the alternative views and how Shell could strategize so that it will not lag behind technological and political changes. The second purports on leveraging energy portfolio to continuously strengthen the leadership position. Finally, the goal of the third strategy lies on ethical and corporate social responsibilities.
Credit:ivythesis.typepad.com
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