Petroleum and Shell free essay sample

Abstract Shell Oil is a global company in the oil industry. This long established company has withstood the test of time in this competitive market. Management practices have established the resources necessary to overcome the obstacles of a global company. This detailed analysis of Shell Oil focuses on management in order to provide an understanding of how the company is able to succeed. The organizational analysis provides insight into Shell’s goals, culture, and resources. An example of a specific problem that Shell faced, oil spills in Nigeria, continues off of the company analysis. Nigeria is a major extraction location for shell, but sabotage and oil leaks grew to be a major concern. Shell faced court cases in search of relief in Nigeria, but the majority of the oil leaks were a result of sabotage; therefore, shell was not responsible. However, people believed that it was shell’s responsibility to safeguard the oil lines and prevent sabotage in the first place. Shell funded the cleanup of previous oil spill sites along with a major advertising campaign to avoid a negative impact on its business. Some people still believe that Shell should be taking more responsibility for the oil spill crisis in Nigeria. Shell Company Analysis Oil is a resource that has been in great demand since the production of combustion engines, as well as other industrial machines. Royal Dutch Shell, commonly referred to as Shell, has been a dominant force in the oil industry for over 100 years. Shell management has enabled success and allowed the company to overcome any obstacles. An in-depth analysis of Royal Dutch Shell’s management techniques provides information on how it can conquer the challenges of change. A recent challenge that Shell faced in Nigeria indicates that Shell has the necessary resources to prevail. Shell continues to be a driving force in the oil industry from the business aspect, but just how prosperous is this global company. A man named Marcus Samuel founded an antique business in London. Seashells were among the products that he sold, which is how Shell acquired its name. Marcus grew fond of the oil exportation business during a trip to Japan. Before the invention of the combustion engine, oil was merely used for lighting and lubricating small components. Marcus and his brother Sam transformed the oil transportation industry with their company, Shell Transport. Expanding the business lead to a merger with Royal Dutch Petroleum in 1907. Royal Dutch Shell rapidly expanded production throughout the world, included places like Russia, Romania, Venezuela, Mexico and the United States. Today, Royal Dutch Shell operates in more than 70 countries. Shell is able to produce 3. 3 million barrels of oil in a single day generating $467. 2 billion dollars revenue annually. Organizational Overview: Shell Corporation has a website that addresses all the publicly known information about the organizational operations in the United States and throughout the global economy. The Shell website does not specify a specific mission statement. According to Mission Statement (2013), â€Å"The mission statement should be a clear and succinct representation of the enterprises purpose for existence. † While Shell. com does not specifically list anything labeled as a mission statement, it does identify a purpose to the organization. The corporate website under Our Purpose (n. d. ) states: The objectives of the Shell group are to engage efficiently, responsibly and profitably in oil, oil products, 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. The planning methodologies utilized by Royal Dutch Shell include: a vision, the mission, the strategy, the goals/tactics, and metrics (â€Å"Strategic Planning,† 2009). The vision leads to the mission. The mission in turn enables the creation of the strategy. Strategy gives a guideline for the goals/tactics and metrics. The vision is to provide for the future energy needs of the people while preserving the environmental health of the planet (Shell. com). The mission, or purpose, is identified and explained in the above paragraph. Shell states that their strategy is innovative and competitive. As recently as 13 January 2013, Shell released its strategy as innovative and competitive to the news and media. Shell CEO directly states, â€Å"Shell is competitive and innovative. We are delivering a strategy that others can’t easily repeat, with unique skills in technology and integration and a worldwide set of opportunities for new investment† (â€Å"Shell Delivering,† 2013). Robbins and Couter (2012) define competitive strategy as, â€Å"an organizational strategy for how an organization will compete in its business (es)† (p. 231) and innovative strategy, â€Å"aren’t necessarily focused on just radical, breakthrough products. They can include applying existing technology to new uses† (p. 238). Shell is not new to using both these strategies to survive the challenges with the very competitive oil market. Arie de Geus (1988) was head of planning for the Royal Dutch/Shell Group companies and employed with corporation for 30 plus years; identifies that out of survival for the Shell Transport and Trading Company in 1907 to compete with the Rockefeller’s Standard Oil it had to join with Royal Dutch Petroleum. This innovative idea of joining the two companies allowed the company the ability to continue to compete competitively and still going strong more than 100 years later. The customers of Shell are those people that purchase or use the products produced or shop the store locations around the world. Shareholders are those that have investments or hold shares in the corporation and either profit or lose from the businesses operations. The competitors to Shell are other major oil companies; this includes companies such as BP, ExxonMobil, Chevron, and many more throughout the globe competing for the oil market. Stakeholders are a much broader range of people or groups. All activities of the corporation that influence or affect those in or around it can be considered a stakeholder. The employees, shareholders, and competitors are all affected by the happenings and success of the company. The people and communities that surround where Shell is drilling for oil are also stakeholders due to the effects of the drilling and possible oil spills. Also any company that supplies or deals with is a stakeholder according to their interactions and future depend on the businesses activities. Shell’s website, under the frequently asked questions tab, states, â€Å"Our stakeholders include local and national environmental groups; Fisherman’s Associations; key government agencies; National and Local Government; Unions; Industry Bodies and Academics. We have a large database of over 100 stakeholders who are included in our engagement. † Organization: A formal structure as organized by a chart on cogmap. com (2012) shows that the Royal Dutch Shell Corporation is organized in functional departments as well as geographical departments. The geographical design is necessary because Shell has operational locations throughout the world. McDermott (2001) suggest that when groups have common interests, insight, experiences, and tools tend to form an informal structure out of common interest. McDermott (2001) states: Shell Oil Co. ’s New Orleans operation, which is organized into cross-functional teams, formed them around key disciplines and topics that cross individual teams. Communities of practice have always been part of the informal structure of organizations. They form spontaneously as people seek help, try to solve problems, develop new ideas and approaches. Specific information regarding the decision-making process of the Shell Corporation was not able to be found through their web page, searches in scholarly articles, or be means of searching the Internet. Organization manages change: Considering the Shell business has been around for more than hundred years, it does not seem that they have too much of a problem with making changes to adjust to the needs of the people and the flows of the economy. The main way that the organization has been dealing with change or expecting change is through the use of scenarios. A statement made on Shell. com addresses that: Scenarios consider a range of plausible futures and how these could emerge from the realities of today†¦Our scenarios team considers changes such as in the global economic environment, geopolitics, resource stresses such as water, greenhouse gases, and energy supply and demand to help business leaders make better decisions. † De Geus (1998) backs this statement up with his over 30 years of personal work experience with the company. The initial use of scenarios helped identify that the company was no longer optimizing or highly integrated and new management methods were necessary for the survival of the corporation. Leadership, Motivational Environment, and Communications: No specific leadership style was identified or found on the Shell’s website but an interview with the CEO does describe how he views leaders. Peter Gumbel (2009) writes that Voser states, â€Å"Leaders should have vision and conviction. Leaders should set targets. Leaders should develop people. Leaders should be willing to take risks and be themselves. In a job like mine you must have all these qualities. † He also encourages getting the best out of every team member, foster accountability, and â€Å"empower people and foster localized entrepreneurialism† (Gumbel, 2009). According to Robbins and Couter (2012), â€Å"strong cultures- Organizational cultures in which the key values are intensely held and widely shared† (p. 53). The Shell website defiantly gives off a strong sense of organizational culture. It contains information pertaining to the history of the company, up and coming projects, the company’s stated values and code of conduct, a call help line just for employees and stakeholder to inquire about concerns and possible wrong doings. Gumbel(2012) wrote in his article that when Voser took over as CEO he sent out a, â€Å"memo announcing some important organizational changes and the need for a strong performance culture at Shell. † An article called Balancing stakeholders needs: A Shell case study (n. d. ) addresses the motivational outcome of Shell’s employees: As stakeholders, employees are influenced by Shell but also affect how Shell operates. The employees standard of work and commitment to health and safety and excellence is vital in order to keep Shell as a leader in the energy field. Mistakes can be costly in terms of reputation and the livelihood of other employees. A priority at Shell is to respect people. It seeks to provide its staff with good and safe working conditions and competitive terms of employment. This has a positive influence on employees as it keeps them safe and motivated. Shell utilizes all aspects of communication with its organization. Formal communication is used in regular business actions such as meetings. Their use of informal communication through their web site gives more opportunity for people to assess the company. The website is user friendly for employees, shareholders, stakeholders, and anyone with Internet access. There are numbers for help lines specifically for employees with questions, comments, or concerns; as well as for customers that may need help. â€Å"Ongoing communication and dialogue with all of these groups is essential. In this way it is possible to take account of everyone’s needs and expectations in making decisions for today and the future,† (Balancing Stakeholders Needs, n. d. ). Processes for Control: Shell has control methods established for determining if company goals are being met or not, whether the goals are financial or operational. Shell’s website labels its financial control as Shell Financial: At Shell Finance, we provide a range of professional services, advice and products to Shell companies globally. Our support covers everything from Management and Financial Accounting, Consultancy and Business Controls to Mergers Acquisitions, Insurance and Treasury options (Royal Dutch Shell, 2013). Shell. com also identifies its operational control as the Health, Safety, Security, the Environment (HSSE) Social Performance (SP). These controls outline the best possible methods during all the operational processes including health, personal safety, process safety, social performance, transport, etc. Innovative Managerial Practices: Shell corporation is subdivided into three categories: Upstream, Downstream, and Projects and Technologies. While Upstream consists of extracting oil around the globe and Downstream consists of creating finished products, Products and Technologies is able to drive innovation in both Upstream and Downstream operations: Our Projects and Technology organization provides technical services and technology capability in upstream and downstream activities. It manages the delivery of major projects and helps to improve performance across the company. We deliver differentiated technical information technology for Shell and drive research and innovation to create tomorrow’s technology solutions. Projects and Technology also houses Safety Environment and Contracting Procurement, as these are integral to all our activities (Royal Dutch Shell, 2013). A Problem: In Nigeria, oil is readily available and Shell takes advantage of this source of income. According to Jolly and Reed (2013), Nigeria accounts for twelve percent of Shell’s source of oil and fuel, Shell’s largest source. However, oil spills have been a reoccurring problem throughout the Niger Delta. According to Sergi (2012), â€Å"Oil pollution has transformed the Niger Delta into one of the dirtiest places on earth,† which is no understatement. Duffield (2010) states that there were more than 7,000 spills between 1970 and 2000. Environmentalists believe spills large and small happen at a rate of 300 every year. † Local activists started to pressure Shell towards reducing oil spills while mediating previous spills following a major leak in 2009. Sergi (2012) declares that Shell claimed that 70% of oil spills were a result of sabotage. Under these circumstances, Shell is not responsible for cleanup. However, Shell managers should be taking the necessary measures to prevent sabotage. Whether the oil leaks are a result of pipes breaking or thieves who open lines and steal oil, Shell has to be held partly responsible. Shell’s Solution: Shells solution consists of two components to oil leaks in Nigeria: remediation, and advertisement. It is important to understand that these solutions did not fix the actual problem of oil leaked throughout the Niger Delta. Shells model of the solution seems to be much different than the activists’ model, which is that very little was fixed. Oil spills still continue and people remain uncompensated for the negligence of Shell’s operations. Following the major oil spills in 2008 and 2009, Shell was forced to initiate cleanup. This is the remediation component of Shell’s solution. Shell’s Upstream branch focuses on the operations of extracting oil, and everything else that pertains. Cleanup of previous sites also falls under this category. Shell. com declares, â€Å"The Shell Petroleum Development Company of Nigeria Limited is committed to minimizing oil spills to the environment and to cleaning up all spills in the Niger Delta when they occur, as fast as possible, no matter what their cause (Royal Dutch Shell, 2013). † However, Vidal (2012) reports that very little cleanup has been done despite four years that Shell has been responsible: Shell said it had started pilot cleanup schemes in five affected areas, but claimed it had been refused access to several other polluted sites. It said good progress had been made; adding that the vast majority of oil spilt in the Bodo area was the result of criminal activity including theft, sabotage and illegal oil refining by villagers. The impoverished Ogoni fishing and farming communities say they still cannot return to work and have received no compensation. They have accused Shell of applying different standards to clean-ups in Nigeria compared with the rest of the world. Unfortunately, claiming responsibility and taking little remediation action does not help publicity for Shell. Yes, cleanup is costly and avoiding this financial burden is why Shell remains a financial leader in the oil industry. In May 2010, Shell introduced an international advertising campaign. According to Bush (2010): The effort touts the dawn of a future that will be powered by new and multiple energy sources and cleaner fossil fuels that Shell is unlocking. It also expresses the notion the world will soon be on the road to sustainable mobility and that Shell is ready to help tackle the challenges of the new energy future. Ms. Singer would not disclose the cost of the campaign but said it would keep the companys ad spending in line with 2009. It is important to understand the stakes in the global oil industry during this time. British Petroleum (BP) just received negative public feedback for the significant oil spill in the Gulf of Mexico. Perhaps Shell wanted to promote the intentions of an environmentally friendly company while BP was under criticism. People around the world would be able to see Shell as the good â€Å"green† company. Attention of consumers would be swayed from the spills in Nigeria while BP was caught by the world for its major oil spill. With reference to the New York Stock Exchange (NYSE) (n. d. ), the price of stocks for Shell can be used as evidence for how successful Shell has been throughout the process. In 2009, stock prices were at a low of $46. 82 per share, the time that Shell admitted responsibility for the two oil spills in Nigeria. Just before the advertisement campaign, stocks showed a slight rise from 2009, at $50. 01 in early 2010. The proof that the advertisement campaign worked is evident immediately after, when stocks rose to $74. 13. Interestingly enough, Shell invested very little into the cleanup of the oil spills in Nigeria, but still managed to promote enough business to grow. Although the current stock price remains approximately $15 less than before the oil spills, Shell has bounced back from the plummet. Shell has been a global dominance in the oil industry since its early form in 1907. Marcus Samuel established Shell Transportation, and with the help of Royal Dutch Petroleum, Royal Dutch Shell became a leader in oil production. Strong organizational culture and innovative management help drive the company forward, even through conflicts. Nigeria posed a threat to Shell as it faced an oil spill crisis. Shell asserts that they are not at fault for the majority of oil spills, as thieves sabotage their lines. Nigeria is home to Shell’s biggest extraction of oil, yet Nigeria’s environment suffers drastically. Activists who fought Shell over the devastation won a case in 2009, which dropped stock prices down almost 50%. Shell agreed to claim responsibility and initiate remediation on spill sites, but efforts were limited. During the British Petroleum oil spill in the Gulf of Mexico, Shell launched a global advertising campaign that promoted sustainability. Despite the lack of cleanup in Nigeria, the world bought into Shell’s green campaign and business rose immediately. Shell may not be the most environmentally responsible company, but business is good.