CULTURAL FRAMEWORK

OF
BUSINESS

Assessment 1
 Lakshika Sonali Gamage
GALSD91

Student Name-Lakshika Sonali Gamage

Student ID – GALSD91

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 Lakshika Sonali Gamage
GALSD91

Shell’s Reorganization
Case 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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GALSD91

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

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

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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.
Shell continues to work on the development and deployment of enhanced oil recovery
technologies that can extend field life

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 Lakshika Sonali Gamage
GALSD91

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

• Giving a Separate department for Technical and technology improvements

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• 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”

 “The integration of the oil products and chemicals businesses into one
downstream organization”

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GALSD91

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GALSD91

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