Shell Oil Company Case Study
Shell Oil Company is a worldwide group of petrochemicals and energy companies and a subsidiary of Royal Dutch Shell that was created in 1907.It is a multinational gas and oil company that has its origins from Anglo-Dutch and their headquarters is in The Hague, Netherlands.Shell is one of the biggest oil and gas companies worldwide and one of the most profitable.
3% of the world’s natural gas and 2.5 of its oil is insured by Shell. The company is employing more than 80.000 people in more than 80 countries around the world and 22.000 of these employees are based in the US where they have approximately 25.000 branded gas stations. According to its revenue in 2010, (285 129 million dollars) Shell is the second largest company in the world.
Shell Oil company has a wide range of activities by operating in regions such as America especially and also in the rest of the world. The activities of the company consist in exploring for and extracting crude oil and natural gas most of the time in collaboration with international and national oil companies. They provide liquefied natural gas to customers all around the world by cooling it and also convert natural gas into liquids in order to provide cleaner burning fuels. The multinational sells daily a quantity of petrol and diesel sufficient to fuel more than 16 million cars and to furnish electricity for 34 million home globally. Shell also converts bitumen, a thick and heavy oil extracted from mined oil sands into synthetic crude oil and develops wind power with the goal of generating electricity.
These activities are all part of the company’s Upstream businesses and it has interests in Europe, Asia, Middle East, Russia, Africa and Oceania. Shell also has a Downstream organization that is made up of a large number of businesses. These activities principally consist in turning crude oil into refined products, which are transported and sold worldwide for domestic, industrial, and transport purpose, fuels, bitumen and lubricants included. Refining, Distribution and Supply are the main activities of their Manufacturing business. Shell trades crude oil, oil products, and petrochemicals first to optimize raw materials for their Manufacturing business and to supply their Marketing business. The company also has a CO2 organization in charge of coordinating the activities of the CO2 management within the company. Shell Trading’s global network includes its activities in every important energy market around the world.
MANAGEMENT TEAM OF SHELL
He joined Shell in 1982 after his graduation in Business Administration from the Applied Science University in Zurich. He is the Chief Executive Officer of Shell since July 2009. He had occupied many positions such as Chief Financial Officer and had also been an Executive Director of Royal Dutch Shell before being CEO and has a lot of years of experience. He has also served in other companies such as the Asea Brown Boveri. He has been CFO of Shell Europe Oil Products as well from 1999 to 2001.
He is the Chief Financial Officer of the company and at the same time a member of the board of Royal Dutch Shell. He has joined it in 1982 after his graduation in Mathematics from Cambridge University. He is also very experimented for having held several positions before his appointment as CFO. From 2004 until his appointment he was occupying the position of Executive Vice President Finance for Exploration and Production.
2.0 How Shell is affected by its environment
The environment in business is considered as the forces that may affect the current or coming activities of an organization. The environment in an organization includes the specific environment also known as task environment and the general environment.
2.1 SPECIFIC ENVIRONMENT
The specific environment or internal environment is the one that can be controlled by the business. Its components that include the customers, the suppliers, the competitors and the pressure group can directly affect the business. 2.1.1 Customers:
Customer is the main point of any business. The success of any business depends on the importance given to the customers. The impact customers have on Shell vary according to the area. In some countries where people have low income the increase of the oil price that occur most of the time can be a major problem. Most of the people can’t continually afford the gas needed for their cars because of its high price. In some countries the quality of the service that leaves to be desired is part of the main complains of Shell customers. These factors resulted in a loss of trust of the customers and had an impact on the company’s image profit.
A number of various suppliers are needed in any business enterprise. Suppliers provide raw materials and components to the company. Shell suppliers are also its internal stakeholders and partners in the chain of production. Bringing petrol from the oil well to the petrol pump is their main duty. A lack of reliability or efficiency in this task can result in a succession of problems affecting directly the company well-being because suppliers are part of the organization’s internal environment.
Shell has always been in good terms with it suppliers, but the company is nevertheless preventive concerning its supply chain. Shell has various core values that are important in the way that the company runs. Its suppliers must adapt to these values for a continuous good partnership because any lack in the supply chain could be defective to the company’s good running.
For a business competitors are the companies that are in the same industry and deliver same products or services to customers. Shell main competitors include Exxon Mobil, PETRONAS, Chevron and CITGO, Total. These companies represent a danger for Shell because they provide the same services and products and often with substantial discount on their price.In the early 90’s Shell was the most profitable company in Europe but it had been in the process of restructuring.
The main reason was that the R.O.C (Return of Capital of the company) was lagging behind Exxon the company’s main competitor. Shell had approximately 117,000 employees in 1993 and it decreased to 106,000 in 1994. The net income of the company also decreased to 36% from 1993 to 1994. All these facts occurred because of competition.
2.2 GENERAL ENVIRONMENT
The general environment is also known as nonmarket environment, it is composed of the Economic, socio-cultural, political, demographic, technologic and sometimes global factors that can affect the business performance. It includes the interactions between the firm and the government or global entities.
2.2.1 Political factors
Political factors include the legislations of a government businesses are obliged to respect.. Government policies on Shell have a big impact on Shell Oil Company, because the production’s rate in Oil business is affected by these policies. Taxes on petroleum applied in the countries where refineries are built also affect the business. Political instability of countries where Shell has its refinery can also be a factor that affects the business. In Nigeria Shell’s profit were higher than elsewhere, but the political instability that occurred in that country in the past years has really impacted the business and its profit in that particular area.
2.2.2 Economic factors
For a business the economic environment refers to the economic factors that can have an effect on the business well-being. These factors include economic systems, policies, resources, nature of economy and the economic legislation. The high unemployment rate in countries where Shell operates is an unfavorable factor. The Gross National Product Trend and the inflation rate are also factors that affect Shell Oil Company. In the last five years the joint venture of the Shell Oil Company in Nigeria has participated about more than $38million to the economy of the country, tax and royalty included and is receiving annually 95% of the profit from the company’s onshore production in the Niger Delta. This is economically affecting the business in terms of income. The corruption pertaining in Nigeria which is one of the most corrupted countries in Africa has its impacts and is preventing the company to do its business ethically.
2.2.3 Socio-Cultural factors
Shell is operating in almost all the parts of the world, so the company has to deal with the cultural and societal differences. Society and culture influence all the aspects of an overseas business, the business has to be aware of the opinions, feelings and attitudes in the local environment. In Nigeria most of the young people living in the delta where Shell is operating are uneducated and are living in the misery.
In 1999 military youths hijacked sixty four Shell staff and blocked all access roads. This violent culture of Nigerians isn’t a good factor for the company that made of this country one of its more important areas of operation. The military youths spilled the oil near the SPDC; Shell Petroleum Development Company areas. The company has been obliged to pay compensation for spoiling the environment and prevent the crash of local social infrastructure. This is one of the multiple socio-cultural factors faced by the Shell worldwide.
2.2.4 Technological factors
A business enterprise in order to have competitive advantage over others has to make action plans on time to adjust with technological advancements. Aware of that Shell has over the years tried to accommodate his services according to the technological advancements. They have introduced the Shell Oil Card for payment at Shell station and this was a great innovation. But since technology isn’t available in all the regions of the world there were some drawbacks with the use of the card, for example it is not accepted in some countries or worst people don’t have access to it. Shell is providing his services in a lot of African countries and most of the time it is in that part of the world that a consequent technological lack is noticeable.
2.2.5 Environmental factors
Oil companies like Shell have to take particularly care of the environment because they are using substances that can damage the environment. Shell has been accused in the recent years of pollution by farmers in the Nigerian delta where it has one of its most important operations. Even if the court has acquitted the company in that case, that event made people doubting of the social responsibility of the company.
Farmer in the Nigerian Delta .
3.0 How Shell adapted to the changes in its environment? 3.1 Adaptation to the changes in the specific environment
For customer satisfaction, speed of service is an important value that needs to be taken in account by organizations. Technology has made it easy for businesses to meet the customer needs in a very quick way which is connectivity. Aware of that Shell has set up the Shell Customer Lounge that is a website which makes easy the business between Shell and its customers. This service according to Peter Voser has brought a lot of satisfactions to Shell’s customers and allowed the company to handle some problems that occurred in recent years due to a lack of promptness and speed by the company. Shell is trying somehow to make the price of their services meet the income of their customers according to the area by trying to make it affordable.
Relative to its competitors Shell’s performance was very weak and in order to avoid what happened in the 90’s when the company’s return on capital lagged behind Exxon the former head of the company decided to change the strategies. The company realized that the real purpose of effective planning is to change the way the decision makers think. Shell, in order to gain competitive advantage over its main competitors is implementing a strategy that others can hardly repeat. The company came up in the last years with unique skills in terms of technology and integration, and a worldwide set of opportunities for future investments. According to Peter Voser the CEO of the company, Shell’s efforts to expand its pipeline of possible energy projects are already successful and this can be a real way to get competitive advantage over the company’s competitors.
For a business it is of a capital importance to develop long term and quality relationships with those taking part in the business process such as suppliers. Shell forces its suppliers to be in accordance with its business principles and core values for a good relationship and good terms of work. The company has made clear in its code of conducts report that they will stop all activities with any supplier that does not match all these qualifications. This is a way to shift any potential changes relative to its supply chain.
3.2 Adaptation to the changes in the general environment
3.2.1 Adaptation to the political factors
To face the political factors that affect its business Shell has revised its
business strategies in hostile and turbulent environment particularly in Nigeria. The company made planning to be able to face any identical scenario that could occur in the future by focusing on medium term planning instead of long term planning. Shell has set up a discussion with workshops for a better interaction with the local communities in Nigeria and also pressurized their workers for radical changes in turbulent environment.
3.2.2 Adaptation to the economic factors
To adapt to the economic problems faced in certain of their operating areas, Shell has set up a lot of strategies particularly in Nigeria. The company is facing a lot of problems in that area due to the difficulty of the economy such as the taxes imposed on their business and the corruption. The head of the company said that they have to keep on making huge profit every year because the taxes and government regulations on the company are unavoidable. Shell identifies its own core values as honesty and respect for people to fight against the corruption which is affecting its activities in Nigeria. Shell communicated its anti-corruption principles by providing training programs and also made its workers aware of the importance of having legal and non-corruptive activities. The company has implemented various policies and initiatives to do its business properly without any kind of corruption, illegal or unethical practices.
3.2.3 Adaptation to the socio-cultural and technologic factors
For a company it is of a capital importance to know how to deal with the social and cultural factors in the area of operations. Shell faced a lot of socio cultural factors that affected its business in the past years. These factors had a negative impact on Shell running but the company aiming to cover a bigger area to implement its activities is still continuing to adapt itself in hostile and violent environment like Nigeria. Since the world knows a fast technological advance businesses must know how to adapt to these changes. This can help to get a competitive advantage on others. Shell is trying to make its oil card available in regions where there is a technological backwardness such as certain parts of Africa.
Knowing that without customers a business can’t run in the long term Shell major objectives is to win and maintain customers by providing to them products and services that offer value in terms of price and quality. The company is also aiming to meet customers want value for money that is to provide the highest quality of services at competitive prices. Shell’s people knowing that this can give a quick stop to the achievement of the company’s goals are trying to find solutions to allow the use of the card everywhere in the world. Shell has various core values that are important in the way that the company runs. Its suppliers must adapt to these values for a continuous good partnership because any lack in the supply chain could be defective to the company’s good running. Shell’s main objectives are to extract and deliver oil profitably by respecting the social and environmental norms. The company is looking forward to get a bigger standard of performance and maintain their position in terms of competition in the areas they operate.
The company should work closer with its customers its partners and its policymakers to proceed to more sustainable use of energy. In Nigeria Shell should go further in their strategies to fight the bad impact the political and economic factors have on the company because the general environment is as important as the specific and all these factors can be really harmful to the good running of the company. Shell Group must engage responsibly and profitably in oil and other businesses of their choices, participate in the research of other sources of energy to keep on satisfying customer needs.