The purpose of this report is to conduct a strategic analysis of the multinational company Shell. The objective of the report is to evaluate the practicality of the company's current strategy and suggest any recommendations to the current strategy. The corporate strategy of the firm will be discussed, in relation to whether the firms' strategy is emergent or deliberate. Factors such as the purpose and mission have also been addressed and examined. Strategic tools such as Porters value chain and five forces have aided in the discussion of business strategy with an evaluative examination of internal and external analysis.
The SWOT analysis has been used to critically evaluate Shells existing strategy. The aim of the report is to outline the areas in which the current strategy could be improved. Recommendations have been made to try and assist Shell. Background of Shell Shell, a global group of energy and petrochemical companies is a multinational company with worldwide recognition. The "Royal Dutch/Shell Group," commonly knows as Shell, is a combination of over 1,700 companies all over the globe. 60% of the group is owned by Royal Dutch of the Netherlands, and 40% is owned by the Shell Transport and Trading Group of Great Britain.
These two companies have worked together since 1903. Shell is best known for its service stations and for exploring and producing oil and gas on land and at sea. In truth Shell deliver a vast range of energy solutions and petrochemicals to customers, produce and sell petrochemical building blocks to industrial customers on a global scale, invest in making renewable and lower-carbon energy sources, competitive for large scale use. Shell are also involved in transporting and trading oil and gas, marketing natural gas, producing and selling fuel for ships and planes and generating electricity and providing energy efficiency advice.
The organization is thriving to be the market leader and its main aim is to meet the energy needs of society, in ways that are economically, socially and environmentally viable, now and in the future. Corporate Strategy "Our strategy is: regaining upstream strength and delivering downstream profits; improving performance across all our activities; and creating what we call an 'Enterprise First' culture. It is reflected in our capital investment programme, which will increase to $19 billion in 2006 and will be targeted at the upstream.
It aims to reinforce our position as an industry leader providing investors with a competitive and sustained shareholder return". By being more upstream Shell aims to focus its investments on long term, high return projects to develop oil and gas resources, and grow the companies leading liquefied natural gas business. Downstream profits involves; generating more cash by reshaping integrated oil products and petrochemicals portfolio to enhance operations and focus on growth markets, particularly in Asia.
Shell believes that this strategy will improve their business performance and increase their contribution to sustainable development. "Stronger emphasis on our upstream activities and fast growing markets will help us deliver the energy the world needs for economic growth and poverty reduction". Shell aims to increase focus on producing cleaner burning natural gas, in so doing reducing dependency on coal. Shell is aware that the growing demand for oil and gas presents sustainable development challenges.
Producing and using this extra energy is only sustainable, and socially acceptable, if ways are found to combat the risks to the climate and avoid health, safety and environmental incidents. "We recognize that we will not achieve our strategy and improve business performance for our shareholders unless we respond effectively to these key environmental and social concerns". Shell wants to measure its success by competitive returns, cash generation and total shareholder return underpinned by top quartile operational performance and project management.
For Shell it is important to give concrete examples of their strategy in progress around the globe, to keep shareholders happy and to quell the fears of any government watchdogs and NGO's. Deliberate or Emergent "Deliberateness refers to the quality of acting intentionally. When people act deliberately they 'think' before they 'do'. They make a plan and then implement the plan. A plan is an intended course of action, stipulating which measures an organization proposes to take". (De-Witt & Meyer, 2004) Shell has a huge emphasis on its long term planning.
The company believes long-term strategic planning has served the company well in the past and will do so in the future. The planning process starts with the setting of objectives, followed by a systematic analysis of the internal and external environment of the organization. Based on this analysis, a long-term plan is then developed to enable the achievement of the company's objectives. Shells' planning does not take the form of complex and inflexible ten-year plans generated by a team of corporate strategists. Rather, the planning process generates a series of "what if" scenarios.
The function is to try and get general managers at all levels of the corporation to think strategically about the environment in which they do business. "Scenario planning is the process in which managers invent and then consider, in depth, several varied scenarios of equally plausible futures with the objective to bring forward surprises and unexpected leaps of understanding". The implementation of the planning process allows Shell to make strategic no matter what the future. The strength of this planning process was most evident during the early 1980's.
At this time the price of barrel of oil were around $30 and development costs were $11 per barrel, allowing most oil companies to reap record profits. Shell were conscious to the fact that oil gluts and drop in oil prices could prevent record profits from being made. Shell instructed the managers of its operating companies to indicate how they would respond to drop in oil prices and to be conscious of how this would be dealt with were it to become a reality. When oil prices dropped Shell was in better shape than its rivals as it had gained a head start in cost cutting efforts.
For a company like Shell it is necessary to have a deliberate strategy as well as emergent. Plans need to be outlined and addressed in order to set company objectives. Large oil spills or uncontrollable air emissions are never planned, for this reason it is important Shell pays attention to being emergent as then it can encounter any problems that may arise. Being able to combat and rectify problems as they occur will benefit the company hugely as damage will be limited resulting in less costs and a greater public image.
Below is a model showing the distinction between deliberate and emergent strategy. Purpose "The purpose of the shell group is to engage efficiently, responsibly and profitably in oil, gas, chemicals and other selected businesses and to participate in the search for and development of other sources of energy to meet evolving customer needs and the world's growing demand for energy" Shell believes that oil and gas will be integral to the global energy needs for economic development, for many decades to come.
Having established the importance of gas and oil, Shell's role is to ensure that they extract and deliver them profitably and in environmentally and socially responsible ways. The organization puts a lot of emphasis on being environmentally conscious whilst trying, at the same time, to maximize shareholder wealth. This purpose fits in well with the strategy of the company; whilst engaging profitably in oil and gas it will be meeting the sustainability standards set by international regulators.
BP has a similar purpose to provide products that satisfy human needs, fuel progress and economic growth and to maintain and invest in a sustainable environment. Mission Statement "To safely market and distribute energy and petrochemical products while offering innovative value added services". Every organization has a mission, a purpose, and a reason for being. Shell's mission statement accurately explains why the organization exists and what it hopes to achieve in the future.
It articulates the company's essential nature, (energy and petrochemical products), its values (safety and value for money), and its work (the distribution of energy). The mission statement expresses the organizations purpose in a way that inspires commitment, innovation and courage. The mission statement helps to provide Shell with direction to pursue strategic goals. It also helps to motivate staff and inspire employees to work together in order to achieve the desired mission. A mission statement forces you to clarify and express succinctly your deepest values and aspirations.
A mission statement imprints your values and purposes firmly in your mind so it becomes a part of you instead of something you might have thought about just casually in passing. Business Strategy Business strategy is concerned with "how firms should go about creating a sustainable competitive advantage in each business in which they operate" (De-Witt & Meyer, 2004) Internal Analysis Michael Porter identified the 'value chain' as a means of analyzing organizations strategically relevant activities in order to understand the behaviour of costs.
Competitive advantage results from carrying out those activities in a more cost-effective way than its competitors. The value chain tool is a great technique to employ in order to single out the firm's specific competitive strengths and weaknesses. Porter identified primary and support activities as shown in the following diagram: As it can be seen above Porter has distinguished between the primary and support activities. For the purpose of this report focus will be given to the primary activities whose direct concern is with the creation and delivery of a product or service.
Inbound Logistics "Activities associated with receiving, storing and disseminating inputs to the product, such as material handling, warehousing, and inventory" Due to the size of Shell, and to ensure the smooth running of the many processes involved in a company of its size, there are strict rules to follow. The 1st step of the inbound logistics is receiving. At Shell the initial step would be to find the oil. This is of huge importance and the company invests a lot of money to use statistical analysis to determine the location of oil.
Once locating the oil it is essential for Shell to draw up exploration contracts with the countries within whose boundaries the oil was first established. Once the contracts have been approved and negotiations agreed the company can then start its drilling process. Shell's subsidiary company "Shell Shipping" is used to ship oil to relevant locations. After the distribution of the oil to its desired location the next process is for it to be stored. This is done so on a temporary basis, either in refineries or reserves.