Orgenisational Restructuring within the Royâl Dutch ShellGroop Executive Summâry At the beginning of 2000, the Royâl Dutch Shell Group was emerging from one of the most ambitious ând far reâching orgânisâtionâl restructuring of its 93 yeâr history. The restructuring had involved the shift from â geographically based to a business sector based strudure, the eliminâtion of over 1, O00 corporate positions, reshâping the corporate culture/ the sale of much of the heâdquârters properties andthe redesign ofthe system ofcoordinâlion and control. The restructuring had been precipitâted by the realisation that Shellwould need to change the wây it did business if it was to retain its position as the world's largest petroleum company that offers ên adequâte return to shârehold€rs in an increâsingly turbulent industry environment. Erief History ofthe Royal Dutch Shell Group The Royal Dutch shell croup is unique among the wortd's oil mâjors. lt was formed in the 19ih century merger of the assets ând operations of the Netherlands based Royal Dutch Petroleum Compâny ând the British based Shell Irànsport and Trading Company. However the two parents remàined legally separat€ corporations. lt is lhe world's biggest and oldestjoint venture- Both companies trace their origins in the Fâr Eâsl. Marcus Samuel inherited a half shâre in his father's seashell trading business. His business visits to the Far East mâde him awàre of the potential for supplying kerosene from the newly developine Russian oilfields to lârge mârkets in China. At that time, August Kessler wâs leâding e Dutch compânylo develop ân oilfield in the Dutch East lndies. Due to fierce competition, the two Biânts ended up coopeaâting leâding to the lormation of a single Group, with Royal Dutch owing a 60% share and Transpon ând trâding â 40% shere (â ratio thât has remained constant to this day). Shell's organisalion Structure end control Shell's uniqueness stems from its structure âs the lârg€st orgânisatioo in the world, and due to its internâtionâlity it has been described as one ofthe worlds'three lârgest internationalorEànisations, the other two being the Roman Catholic Chur€h and the United Nations. However its orgânisationâl structure is more complex than either of the diffe.enl compânies that comprise the Royal Dutch Shell ând their links of ownership ând control, which shell refers to as governence responsibilities. The group's structure may ako be viewed from a mànagement perspective; how is Royal Dutch Shel! actually mânâged? Managerial control of the Broup was vested in the committee of managing directors (CMD), which forms the group's top management teâm. The committee comprised of five Managing Director§. These were the three members Management Boârd of Royal outch Petroleum end the Chakman and the Vice Châirmân of Shell Transport and Trading. The Chairmanship ofthe CMD rotated between the president of Royal Dutch petroleum ând the Mànaging Director of Shell Transport and Trâding. The CMD provided the primary linkage between the formalstructure ând the management structure ofthe Group. lt also linkèd together the two parent compânies ând the Group holding companies. The combinâtion of diffused power at the top together with operating authority and financiàl responsibilily dispersed through 244 operating companies meant that, compared with every other oil major, Shell was highly decentralised. However the technicâl and economic reâlities of the oil business limited the autonomy ofea€h operâting company, with the help of McKinsey & company, shell created a matrix structure within its service companies âs â first step towards speârheàding change. This structu.e was viewed as a criticâl iflgredient of Shell,s ability to reconcile the independence of its operâting companies with effective coordinâtion of business, regional and COURSE AND ASSIGNMENT HANDBOOKi JULY 2012 TNTAKE 56 - functionalcommonalities. The three dimensions ofthe mâtrix were represented by the principâlexecutives of service compânies who were designated coordinators, Thus, the senior management team included the following: . Chairman . Vice Chai.mân . There other lvlenâging Diredors Forces for change and restructurinB The world petroleum industry was trânsformed by a number offundamentâl chânges in the 21't century' The growing power of the producer countries was seen not just in the sharp rise in crude oil prices during the oil shock, but even more fundamentally in the nationalisâtion of the oil reserves of international majors. By the nineties, the list ofthe world's top 20 oilând gas producers was dominâted bythe state owned companies and of late àlmost allthe world's oil mâjors underwent far reàching restructuring. Restructuring involved radical simultaneous changes in strâtegy ând in organisational structure in compressed time frâme. The key features ofthe restructuring by the oil majols were: . Reorientation of their goâls around shareholder vâlue maximisation . G reate r se lectivity in strategies . Cutting back on staff, especially at corporate level . ReducinC excess câpacitythrough closures ofrefineries and filling stâtions . Decentralisation of decision making from corporate to divisionâl levels . De laye rinc th rouch eliminâting administrative layers within hierarchicel structures The Change process Within Shell, proponents of organisational change, including the heâds of several of operating companies, the finance function, and the Group planning, hâd hâd little success in persuading the Committee of Managing Directors ofthe need for large scale change. Herkstroter, a Dutch accountânt who hâd spent his entire career at Shell, took over as Chaûman of CMD; he was ân unlikely pioneer ofchange. Fellow executives described him âs private, Old World personality without much charisma, and with preference for written communication. Nevertheless, he wâs w:dely respected for his intelligence ând courâge. Faced with growing eviden€e of suboptimal financial performance and over complex, inward looking organisational structure, Herkstroter called a meeting of Shell's 50 top managers. The meeting was a shock of the CMD. The request for frank discussion ofthe reasons for Shell's lagging return on capital provided â series of barbed âttacks on top management and sharp criticism ofthe service company organisàtions. Thè corporâte centre was castigated fortâking months to âpprove opeaâting compâny budgets and for the generâl lâxness of The New SheltStructure The central feature of the reorganisation plan meânt the dismantlin8 of the three way matrix through which the operâting companies had been coordinated. ln its plâce, four business organisations were created to âchieve closer inteeration within eâch business sector across all coontries. lt wâs intended thât the neu/ structure would allow more effective planning and control within eàch of the of the businesses, remove much of the top heavy bureaucracy that had imposed â costly burden on the Group, ând eliminate the power of the regional faefdoms. The new structure vÿould strengthen the executive authority of the CMD by providing clear line ofcommând to the business organisâtions and subsequentlyto the operating companies. COURS€ AND ASSIGNMENT tLANDBOOK: lUtY 2012 INTAIE Changing Culture and Behavioul Changes to the formal organisational strudure were only one dimension of the organisational chânges ofthe period. lf sh€llwas to improve its operational and financial performance and improve its responsiveness to the multitude of external forces that impacted its many businesses, then chânge needed to go beyond formal structures. The chânge in culture proved to be â tâll order fo. CMD. The criticism levelled ât Shell for belng bureaucrâtic, inwârd looking, slow, ând unresponsive were not about organisatjonal strudure, and they were about behaviour and attitudes. ln any organisational change, a new structure mây provide the right context, but ultimately it is the effects on individuâland group behaviourthat are critical The Future As Royâl Dutch Sheil âpproached the second century of its corpoÉte life, there wâs â clear consensus within the compâny thât the orgânisational changes made had creâted â structure thât wâs much better able to respond to the uncertâinties ând discontinuous changes thât affected the oil industry. Outside the company, Shellwatchers both in the investment community and in other oil companies had little doubt that the previous reorganisatioi hâd contributed substântially to the elficient mânegement of the group. The former vice chairman of CIüD outlined the way in which the changes in the organisâtion hâd impâcted Shell's business portfolio and its strategic management. The question in most people's minds was whelher Shell was moving ahead ofthe pack or playingcatch up. Eor allShell's pride in being pioneerof modem mânâgement ideâs from scenarao anâlysisto organisation learning created in the previous yeârs Source: crant.R.M (2009) Contemporâry strât€gic mânâgement câse studies 66 Edition question 1 (s0) Shell's uniqueness stems from its structure âs the lârgest orgenisâtion in the world, ànd due to its internationality it has been described as one of the worlds' three largest internationâl organisations, the other two being the Român Câtholic Church and the United Nâtions. lt is clear from the extract that qlg3ti§4iqlllzg and internationâliw of Shell presents potential challenges for top management. With reference to these reflections plus the use of relevânt theory critically discuss how Shell's senior manàgement could go about handlinB the following organisational development issues: . Strategic chânge/leâdership . Organisational chânge . Corporate culture . Resistâncemânâgement . Orgânisational transformation Guide to presentation on question 1 should be in subheàdings on each bullet point. Question 2 (10) (10) (10) (10) (10) one continuous essây format showing the relevant (2s) Organisâtional conflid can arise within ând outside the various units thât comprise an orgânisâtion for many reasons. ldenti6/ an organisâtion that is deeply entrenched in both internaland eKernalconflict matters ând utilise releva nt theories to critically anâlysethe sources ofconflict ând provide fieans through which managers can minimise such conflict. question 3 (25) ldentify an orgânisâtion you are familiar with that js currently going through €hânge and using relevant theories, discuss the posslble OD intervention strâtegies for the successful implementâtion of the change program.