The following report presents an analysis of Shell Oil, and the ways in which it incorporates team leadership concepts in balancing stakeholder needs. Stakeholders are defined in The Times 100 case study Balancing Stakeholder Needs as “anyone who has an interest in what a business does or an influence on the business”.
The case study continues on to identify Shell’s stakeholders as shareholders, employees, suppliers, customers, local communities, and interest groups. It is vitally important for large corporations such as Shell to balance the needs of these parties, in order to ensure profitable, safe and continuous operations. In order to do so, Shell must consider what the needs of each of these groups are, and how to use leadership to control the effects of conflicting needs. a) Making reference to appropriate theory what aspects of leadership and team dynamics may Shell have considered when considering their approach to balancing Stakeholder needs?
The leadership tactics employed by Shell in balancing stakeholder needs will be varied, but will no doubt include an assessment of its vision and principles, the corporate leadership style, and how to construct its teams to maximise performance. The statement “Begin with the end in mind” (Covey 2004 cited Benson and Rice 2009a, p.3), gives a fair indication as to the purpose and necessity of a corporate vision. Where is the business going, and how is it going to get there?
An essential element to leadership, a vision defines the goal that everyone in the company should be working towards. Kotter (1990, p.105) suggests that a key part of vision is “how well it serves the interests of important constituencies”. In other words, Shell should display balanced stakeholders needs in the company vision. According to Nanus (1992 cited Southwest Educational Development Laboratory, 1993), a vision should also display the following characteristics, which Shell would likely have taken into account for each group of stakeholders: * Attracts commitment and energises people
* Creates meaning in workers lives * Establishes a standard of excellence * Bridges the present to the future * Transcends the status quo. Shell publishes its vision, along with its core values and other operating principles in the Shell General Business Principles, which is widely communicated, and available for download from the company’s website. Shell has clearly recognised for quite some time the value and necessity for a vision in balancing needs, as the first set of principles was originally published in 1976 (Royal Dutch Shell plc 2005).
It is important to separate leadership from management. Kotter (1990, p.104) states that “Management is about coping with complexity”, and that “Leadership, by contrast, is about coping with change.” And what is a vision, if not an anticipated change to the company? The management of change is a key role of leadership. The recent corporate restructuring and appointment of a new CEO in July 2009 (Wighton 2010), shows that Shell’s leaders are required to consistently react to changes such as market conditions, and adjust its focus to ensure all stakeholder needs are still being met.
The study of leadership in general has led to many differing leadership theories, which can essentially be divided into two categories; Behaviour Models, and Situational Leadership. Behaviour Models tend to address the personal traits of the individual leader, and Situational Leadership addresses a customisation of style to each new situation. While it is possible to apply some Behaviour Model theories to an organisation, it is more likely that Shell apply Situational Leadership methods, altering the balance of task vs. relationship dependent on which stakeholder group is being considered.
Shell will also have spent considerable time finding the most effective teams for their business profile. Owing to the highly technical nature of Shell’s operations, there is a good possibility that it uses expert teams to ensure that shareholder needs are incorporated at every level of the organisation. For example, and expert in say, oil drilling, may not have the expertise to determine what effects a proposed course of action would have on the local community. It is worth noting however, that it may be time for Shell to re-evaluate the effectiveness of its teams.
Wighton (2010) reports that Shell has been “plagued by delays and budget overruns on big projects”, indicating that its teams are not performing. To ensure that stakeholder needs are being met, Shell will have incorporated ways in which to monitor and control performance within the organisation. Shell begins by reporting. It reports on several sectors of the business, to include annual financial reports, which are particularly relevant to shareholders, and sustainability reporting, which will be of interest to local communities and interest groups (Shell International B.V. 2010a).
It became apparent, through the annual reporting to their shareholders in May 2009 that Shell had misinterpreted its shareholders needs. This resulted in a tense annual meeting where the shareholders voted 60% against the proposed incentive scheme for executives, which would have seen top executives receive large bonuses, even if they failed to meet performance targets (Lindsay and Pagnamenta 2010) b) How may Shell’s approach to balancing Stakeholder need’s impact upon employee motivation? There are two major motivational theories which are widely used in the field of management; Herzberg’s Two Factor Theory (1959 cited Boddy 2008, p. 500-502), and Maslow’s Hierarchy of Needs (1970 cited Boddy 2008, p. 494-497).
The Two Factor theory suggests that there are two elements to motivation, Motivating Factors, and Hygiene Factors. Motivating Factors contribute to an employee’s satisfaction, and Hygiene Factors contribute to their dissatisfaction. The theory identifies these factors as: Motivating Factors| Hygiene Factors|
Achievement| Company Policies| Recognition| Supervision| The work itself| Relationship with Supervisor and Peers| Responsibility| Work conditions| Advancement| Salary| Growth| Status| | Security|
Herzberg went on to conclude that satisfaction and dissatisfaction are not opposites. The opposite of satisfaction is no satisfaction, with the opposite of dissatisfaction being no dissatisfaction. In other words, the absence of Motivating factors does not create dissatisfaction, and the existence of the Hygiene Factors does not create satisfaction.
On the other hand, in the Hierarchy of Needs, Maslow speculates that everyone has a prescribed set of needs that must be met in a certain order, as follows:
Maslow maintains that employees begin by looking to fill Physiological needs, for example a properly heated/cooled workplace. Only when Physiological needs are met, or mostly met, will an employee seek to fulfil their Security needs, for example a permanent contract. And so on through the other needs.
Both of these theories have identified common areas of motivation relating to security (job security, salary), recognition (status, advancement, self-esteem, rewards), and job development (growth, achievement, self actualisation, responsibility). Regardless of which theory, if any, that Shell has chosen to adopt, these are the basic employee needs that they will need to have taken into account.
It is a widely held belief that employees are a company’s greatest asset, which means that their role as stakeholders is an important one. If Shell is getting the stakeholder balance right, they will have addressed their employee’s needs, which should result in positive levels of employee motivation.
As we saw in Question a) however, it is not always that easy to get the balance right. If Shell has favoured its shareholder needs, this could potentially lead to employee pay cuts and a reduction in safety costs, in order to maximise profits. If interest groups and local communities are favoured, this could potentially lead to the cancellation of new and innovative projects that would have allowed employees to develop new skills and achieve new discoveries. All of these outcomes would have a noticeably negative effect on employee motivation.
If we are to believe Shell, it recognises this need for balance, and goes to great efforts to ensure that employee’s needs for recognition and job development are met (Shell International B.V. 2010b). It professes on its website: * “Joining Shell means getting more out of your working life than you thought possible.” (Shell International B.V. 2010b) * “ [We make] every effort to provide the kind of rewards and benefits that will complement your own particular lifestyle and needs” (Shell International B.V. 2010c) Certainly, the testimonials offered by Shell employees, from every facet of the organization, seem to support these statements (Shell International B.V. 2010d).
It is worth noting however, that nowhere in the literature published in the Jobs & Career section of the Shell website, does it address the subjects of job stability, employee safety, or personal security. It was reported by Wighton (2010) that within weeks of his taking over at the helm of Shell in July 2009, Peter Voser had cut 5000 jobs. Combine this with the inherent safety risks of the petrochemical industry, and the security risks associated with operations in locations such as Nigeria, and some doubt is cast on Shell’s ability to meet all of their employee’s needs.
c) What conflict situations may Shell have needed to consider and manage in order to successfully achieve its balance towards Stakeholder needs? Shell has five main stakeholder groups, shareholders, employees, suppliers, customers, local communities, and interest groups (The Times 100 ca.2009, p. 133-136). The nature and the needs of each one of these groups differs to such a degree that conflict is nearly inevitable.
“Conflict frequently has its roots in difference” (Benson and Rice 2009b, p.2), this statement supports the idea that conflict management can also be regarded as the management of differences. Shell’s balancing of stakeholder needs could essentially be redefined as management of the differences in stakeholder needs; or conflict management. With a multinational company such as Shell, listing potential conflicts could be a daunting task.
To begin with, the shareholder’s need to earn the greatest dividends possible is obviously at odds with the employee’s desire for greater remuneration and benefits packages. The shareholder’s and employee’s dedication to innovative new technologies and projects may oppose the goals of interest groups who strive to protect the environment and human rights, and local communities who are stretched to accommodate a new industry. The customer’s desire for a reprieve from the ever increasing cost of fuels is in direct opposition to a supplier’s objective of selling their product at the most profitable price.
The list is virtually inexhaustible. Shell has incorporated measures throughout its organization to mitigate potential conflicts, which centre on ensuring balance, communication and involvement. The first and foremost of these measures is Shell’s decision making criteria (The Times 100 ca.2009, p. 136), which is specifically designed to achieve a good balance of stakeholder needs and provide a transparency by assessing: * the economic impact of the activity is likely to yield a good return for shareholders * the social impact will be suitable for employees and communities * the long-term effect of its activity will harm the environment As mentioned in Question a)
Shell report openly and honestly on its activities and their effects, through financial and sustainability reporting. According to Shell, they have “voluntarily reported on our environmental and social performance since 1997 because this performance matters to our stakeholders and to our business success” (Shell International B.V. 2010a). This provides a consistent avenue for communication with stakeholders. The greatest volume of resources dedicated to mitigating conflict can be found in Shell’s social programmes. A brief review of its website reveals that it has no fewer than seven separate social programmes, which focus on a myriad of topics, from sustainable development, to road safety, to HIV/AIDS (Shell International B.V. 2010e).
There is an underlying conflict however that is not so easy to identify, and which is not evidently addressed in the mitigation measures. It is the diversity of the stakeholders that presents Shell with perhaps the biggest challenge of all. In order to truly balance stakeholder needs, Shell must consider the cultures in which it operates, and strive to understand “the richness and strength of the many different facets of diversity, including age, gender, colour, race, ethnicity, religion, differing abilities (physical and cognitive), sexuality, socio-cultural and economic background” (Benson and Rice 2009c, p.2). This will not only affect the way in which it must represent itself in each region, but it will also have a great impact on the internal development of its teams in order to maximize performance.
Again, the management of differences between cultures becomes the management of conflict. d) Conclude by taking the key elements of your observations in steps a-c regarding Shell in order to make a recommendation for other organisations to consider implementing the approach of balancing Stakeholder needs as a means to business success? Shell Oil began as an antiques dealer in London, who diversified into importing shells from the Far East in 1833 (Shell International B.V. 2010f). This is a far cry from the multinational petrochemical company of today that is a recognized symbol around the globe.
The business success that has propelled Shell from local antiques store to global giant will not have happened by accident. It will be well calculated and methodically achieved. This outstanding business success will certainly provide many other organizations with insight regarding balancing stakeholder needs which will be beneficial. First and foremost is the need for vision and leadership.
Business success on the scale of Shell Oil cannot be achieved without establishing a vision of what that success will look like, and how to get there. A properly composed and communicated vision will essentially be the battle cry that enlists all of your stakeholders to joining in and making the increased business success a reality. To accompany this, it is necessary to embrace the ideas of leadership over management, after all, “No one yet has figured out how to manage people effectively into battle, they must be led” (Kotter 1990, p.104). Once a vision has been communicated, it will quickly lose momentum if the stakeholders are not informed of its progress.
Tools to measure and disseminate the organisation’s and individual’s performance to the vision should be developed. No matter how inspiring the vision and enthusiastic the leadership, effective teams who are able to perform will be essential. Dependent on the type of organization, and its particular stakeholders, the team dynamic required to meet expectations will be different. For example, the approach to technical innovation required by Shell will not be needed in a non-profit organization that gives support to individuals through social programming.
Research into effective team structures for the desired outcome is highly recommended. While no one group of stakeholders should overshadow the rest, it is perhaps the employees who will have the most complex needs to balance against the other stakeholders. Every organisation should ensure that the balance of stakeholder needs promotes positive employee motivation in order to achieve its envisioned business success.
A study of motivational theories should be undertaken to understand the various factors, before assessing them within the organisation. As concluded in Question b), Shell has heavily promoted its ability to meet the job development and recognition needs of its employees, though it may have fallen down on fulfilling needs such as job and personal security. This will in part be owing to research and feedback directly from their employees.
The employees most valuable to Shell and achieving its vision may be those who are eager to participate in the innovative and technical projects that Shell has to offer, and are willing to sacrifice in other areas as a result. Every organisation should work with its employees to determine what their needs are against the desired outcomes of the company, before assessing how these needs will fit into the balance of stakeholders. An organisation who is striving to achieve business success would benefit from approaching the balancing of stakeholder needs as if it were the management of differences in needs, in other words, conflict management. Consistent communication will be required with each stakeholder group in order to identify and discuss potential conflicts.
This will allow the introduction of appropriate mitigation measures within the balance. It is acknowledged that not every organisation will be conducting multinational business; however careful research into the diversity of the stakeholders is recommended. This will allow the organisation to harness the differences within its stakeholder groups, with a view to maximising potential for performance. This report has summarised some of the key areas addressed by Shell Oil in its balancing of stakeholder needs, and has made some high level recommendations for other organisations to consider. Any organisation that is keen to achieve business success will no doubt find value in research regarding Shell’s approach.
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