Strategic planning in a Turbulent Environment: Evidence from the Oil Majors

Executive Summary In Strategic Planning in a Turbulent Environment: Evidence from the Oil Majors, Robert Grant looks at the characteristics of strategic planning systems of large, multinational firms in an attempt to provide insight into whether and how companies plan. Using in-depth case studies of the planning systems of eight of the world’s largest oil companies, Plant shows that strategic planning continues to play a key role in the management systems of large companies.

His analysis identifies the fundamental changes in the nature and role of strategic planning over the past two decades. In response to the difficulties faced in tumultuous and unpredictable environments, he notes that strategic planning processes have become more informal, less staff driven, and more decentralized and strategic plans have become less specific, more goal focused, and shorter term.

According to Grant, the role of strategic planning systems within company management has changed too as it has become less about detailed planning and more a method for organization and performance managing. Through interviews with company personnel, he came up with three trends common to all eight companies: shortening time horizons, a shift from detailed planning to strategic direction, and increased emphasis on performance planning (Grant 2003, p. 508).

Despite the successful change of strategic planning systems to unstable environments, the study shows the effectiveness of companies’ strategic planning may also have deteriorated. Evidence of this includes the limited impacts of strategic planning processes on the quality of strategic decisions and little proof that the systems were actually beneficial to strategic innovation. Critical Article Review The company I have chosen for my critical article review is Royal Dutch Shell.

Using Grant’s data on Shell’s strategic planning practices during the late 1990s, I will examine how the key points of the paper relate to the company and reflect upon the company’s strategy implementation since then. Royal Dutch Shell, commonly known as Shell, is an Anglo-Dutch multinational oil and gas corporation founded in 1907 (Shell, 2013). Shell was the largest oil and gas corporation in 1996 with sales revenue topping $12.8 billion and approximately 101,000 employees (Grant 2003, p. 497). While Shell has since fallen to the second largest company in the world in terms of  revenue (after ExxonMobil), it continues to rank as one of the world’s most valuable companies

. The Emergence of a New Strategic Planning Process While the planning systems of the 1970s and 1980s were highly formalized, these systems had become far more informal by 1996-97 as there was less emphasis on written documentation and formal presentations, and more emphasis on open discussion (Grant 2003, p. 507).

At the same time, strategic plans became less concerned with detailed planning and placed greater emphasis on more broadly defined goals. To communicate and guide their strategies, companies created mission and vision statements that helped establish long-term strategic objectives. In addition, increased emphasis was placed on performance planning as strategic plans shifted their focus away from forecasts and more towards financial and operational performance targets.

As companies became more concerned with performance goals, the role of short and medium planning in the strategic planning process grew as well. Because Shell is a multinational and multibusiness operation, the company has chosen to use a strategy statement instead of a mission statement.

Taken directly from the company’s website, Shell’s strategy is listed below: “Our strategy to generate profitable growth remains to drive forward with our investment programme, to deliver sustainable growth and provide competitive returns to shareholders, while helping to meet global energy demand in a responsible way” (Shell, 2013). As noted in Grant’s paper, this statement is indicative of strategic planning’s shift to broad strategic direction. Rather than focus on lengthy programs of action, resource deployments, and commitments to specific projects, Shell’s strategy concentrates on financial and operational performance targets.

One of the biggest challenges Shell faces is integrating shortterm performance targets with longer-term performance goals. With this in mind, the company developed short-term profit targets that were consistent with building a longer-term competitive advantage. In its upstream strategy, the company focuses on finding new oil and gas reserves and developing major value-adding projects. For 2013, Shell summarizes its upstream strategy in three main points:

1) profitable growth and price upside, 2) greater than 80% of total capital spending, and 3) sustained exploration investment (Shell, 2013). With its downstream strategy, its focus is on sustaining cash generation from its current assets and investments in growth markets. Shell lists stable capital employed, fewer refineries, and more concentrated marketing positions as its downstream goals for 2013 (Shell, 2013). Today, the common strategic planning objectives referred to in Grant’s paper—financial targets, operating targets, safety and environment objectives, strategic mileposts, and capital

expenditure limits—are still relevant, as highlighted in Shell’s strategic plan (Grant 2003, p. 509). While Grant listed financial targets as being the top priority for oil companies at the time, their priorities are starting to change. As climate change continues to cast a shadow on the global energy industry, companies like Shell are promising to meet global energy demand in a socially responsible and environmentally friendly way.

Shell is committed to improving energy efficiency in its own operations, helping customers manage their own energy demands, and continuing to invest in new technologies that increase efficiency and reduce emissions in oil and gas production (Shell, 2013). The Shift to Scenario Planning As the accuracy of macroeconomic and market forecasts declined abruptly during the 1980s, the dangers of using medium-term forecasts as the foundation for corporate plans were exposed.

During this time, companies reduced their forecasting efforts and downsized or even eliminated their economist staff in an attempt to better deal with changing market circumstances. In place of forecasts, many external analysts began using scenario planning. With scenario planning, companies were able to replace single-point forecasts with alternative scenarios of the future which allowed decision-makers to be more aware of and responsive to changing market circumstances.

Scenario planning has been at the heart of Shell’s business for over four decades. Since work began on the first Shell Scenarios document in 1972, scenario planning has helped Shell prepare for many eventualities and maintain business stability through even the most chaotic of times (Shell, 2013).

Of the eight companies surveyed, Grant found Shell to be the only one to base its entire strategic planning process on scenario analyses. Shell is so keen on scenario planning that its analysts list this planning process as the main reason for the company’s success over the past few decades. Considered by many to be the most important innovator with regards to scenario planning, the Shell Scenarios methodology has been adopted by many different companies and organizations worldwide. With Shell’s support, the Singapore Government starting implementing scenario planning in 1991 (Shell, 2013). Today, scenario planning is a central part of the Government’s annual strategic planning process. Shell’s latest scenarios, Shell Energy Scenarios to 2050, help us think about the future of energy.

Using two scenarios to look at the different ways it may develop, Shell will be better equipped to fulfill its goal of providing energy in responsible ways and helping its customers and investors as best it can. In the first scenario, called Scramble, little thought is given to more efficient energy use until supplies are scarce. Similarly, greenhouse gas emissions are not genuinely addressed until there is drastic climate change. In the second scenario, known as Blueprints, local communities start to tackle the challenges of environmental pollution, economic

development, and energy security. Using techniques such as a carbon tax, a price is given to a critical mass of emissions which spawns a huge economic stimulus to the development of clean energy technologies. This scenario would result in lower carbon dioxide emissions. While Shell is committed trying its best to achieve a sustainable future as shown in the Blueprints’ outcomes, the company acknowledges that clear thinking, significant investment, and strong leadership is needed. To that extent, Shell recognizes that everyone’s help is needed to achieve a more sustainable future.

Works Cited: Grant, R. M. (2003). Strategic planning in a turbulent environment: Evidence from the oil majors. Strategic Management Journal, 25, 491-517. doi: 10.1002/smj.314 Shell. (2013). About shell. Retrieved from http://www.shell.com/global/aboutshell.html