Change Management Strategies Of Royal Dutch Shell During The Period Of 2014-2016

Changes implemented by the Royal Dutch Shell

Royal Dutch shell which is also known as Shell, is a famous transnational oil company of Dutch and British origins. This organization is known as the second biggest private sector energy company in the world. It is also one of the six “super majors” (Vertically incorporated oil investigation, natural gas and petroleum product selling companies). In the year of 1907, this organization played a significant role in the global oil industry. During 20^th century, Royal Dutch Shell was either the largest or after standard oil/Exxon. Under the leadership of Henry Deterding, the organization experienced rapid growth after the Second World War. Royal Dutch Shell faced its biggest challenges during the period of 2014-16 when the oil prices dropped significantly. During the third quarter of 2015, Royal Dutch Shell reported a loss of $7.4 billion (Michael, Financial Impact of Price Volatility on the Oilfield Services Sector of the Petroleum Industry. In SPE/IAEE Hydrocarbon Economics and Evaluation Symposium., 2016). The impact of oil price was so significant, that the organization was forced to halt construction of their oil sand project named as Carmon Creek in the Canadian province. During the fourth quarter of 2016, Royal Dutch Shell experienced a 40 percent drop in their profit level because of a sharp drop in crude oil price (Sidortsov, 2016).

During the period of 2014-2016, shell was hit hard by weak gas price. In this situation, to survive, the management of the organization made some major changes in the workplace along with changes in its strategies and operations.

• The management of Royal Dutch Shell is sharing its work with other suppliers and downstream user organizations of which Shell may be a member with an interest in the manufacture and use of lubricants (Kedzierski, 2016).
• The management of Royal Dutch Shell wanted focus more on two strategic themes which are integrated gas and deep water.
• Royal Dutch Shell wanted to take long term future objectives such as exploring in Arctic, Iraq, Kazakhstan and Nigeria.
• The management of the organization wanted to sustain a robust management system
• As a result of a drop in oil prices, the organization was facing major losses. Therefore, the management wanted to reduce structural costs.

The Management of Royal Dutch Shell combined their three upstream businesses into two new geographically focused divisions which upstream intentional and upstream Americas. Royal Dutch Shell leadership did this restructuring to minimize the layers of management to boost decision making and ensure enhancement of projects execution (Rassenfoss & Henni, 2015).

Royal Dutch Shell management also aimed to lay off 10,000 employees when they merged with BG Group to deal with lower oil prices. This announcement came in the fourth quarter on 2015 when the organization suffered a 44 percent drop in earnings (Shaked, Plastino, & Dionne, 2016).

Royal Dutch Shell not only reduced its number of employees to cut down organizational cost, but also slashed down its investment. It is already mentioned that the organization halted its oil and sand operations in the Canadian province. Along with it, the company also abandoned its plans to spend nearly $7 billion on a petrochemical plant in Qatar (Salameh M. , 2015).

Steve Miller Marshaled transformed the operations in Europe in order to handle the issues related to oil price drop. He took the initiative and transformed organization’s 47,000 filling stations to selling lubricants to factories (Khan, 2017).

When the oil prices dropped, most of the organization in the oil and gas industry struggled to remain cost-effective and efficient. The primary concern of Royal Dutch Shell was whether short-term strategies will damage long-term growth. Therefore, the management of the organization implemented performance enhancement plans to address ongoing challenges and inefficiencies within a company. It helped the teams of Royal Dutch Shell to refocus on creativity and strategic initiatives (Skjærseth, 2016). On the other hand, the organization also executed efficient operations mobilization throughout the sites. It was assumed that the Royal Dutch Shell followed the programs and saved nearly $24m to $100m.

Objectives of change

  In order to deal with lower oil prices, Royal Dutch Shell aimed to enhance its engineering practices and project planning. The management of the organization also successfully broadened their supplier base to minimize supply chain costs. Royal Dutch Shell adopted a lean manufacturing mindset that involved figuring out certain operations that can be systematized by working with suppliers. It helped the management to understand inefficiencies.                           

If an organization is planning to reduce their operational cost, then it should look for new technology (Allan, 2016). It is also found that most of the oil gas companies are using inefficient methods for drilling and completing wells. That is the reason that the organization started to use latest technologies such as micro seismic sensors to monitor fracks a kilometer underground- in order to enhance production.

Before this issue related to oil price, in Royal Dutch Shell, the management used matrix organization method for organizational structure. However, in order to deal with the problem, the method was changed where the head of operations from each department started to report directly to the head of international division in London (Kossov, 2016). Decision making started to take place there by the top management.

After the drop of oil price, Royal Dutch Shell took the initiative and invested a lot in establishing low carbon energy strategies that includes solar power farms (González, 2017). The management started to consumer lesser amount of power and energy and beggar to utilize more renewable energies for achieving cost reduction goals.

Some major reasons behind the drop of oil price are growth in the production of the United States of America, sputtering demand from Europe and China and Mideast violence that threatened to hamper supplies. Other factors that drive the change in oil price are hereby mentioned below.

Since June 2014, production of Libya has tripled to about 900,000 barrels a day. On the other hand, war has not affected the production in Iraq and the country is producing nearly 3.1 million barrels a day. Besides, another higher amount of production was seen in The Organization of Petroleum Exporting Countries which was an 11 month high of 30.9 million barrels a day (Kedzierski, Royal Dutch Shell’s Journey to Strategic Competence Management., 2016).

OPEC started to face tremendous competition from the United States of America where technical breakthroughs along with hydraulic fracturing and parallel drilling enabled domestic manufacture to substitute imports at an extraordinary speed. In the year of 2014, output surged 14 percent to 9 million barrels per day. It was the highest since the United States Energy Information Administration’s weekly estimates started in 1982 (Robinson M. , 2014). The fabrication of the United States of America continued to improve without setting off a bear market.

Demand is still growing and the supply is growing with that. However, the magnitude in the increase in supply does not reflect this 25 percent alteration in the market (Harris & Gibb, 2016). Saudi Arabia started to tolerate lower prices to protect its market share. However, they made sure that higher cost production of the US remains profitable.

Combination of businesses

 Along with all the points that are mentioned above stronger U.S dollar is also not helping the price. During 2014, U.S dollar hit a 4 year high as assessed by the Bloomberg Dollar Spot Index that tracks the greenback against 10 worldwide trading associates (Frynas & Mellahi, 2015).

A successful change in an organization entirely depends on its leaders who have straight power with people going through transformation. Some major roles of leaders in an organization’s change management are hereby mentioned below.

Leaders play the role of advocates in change management at their level in a company. Leaders also act as representatives who keep the change in front of his subordinates. Leaders play a major role to keep the methods of change intact and they also use their political assets to make the transformation occur (Kunisch, Menz, & Ambos, 2015).

Leaders display the behaviors and attitudes that are anticipated from every individual. Workers follow the leaders for reliability between worlds and events to find out if they should keep their faith in the change.

Leaders, such as managers of an organization generally control the resources such as people, budget and equipments. Therefore, they have the ability to make decisions that influence the scheme. Throughout the process of change management, leaders must control their decision-making power and select the option that will maintain the system.

Leaders are responsible for communication in order to distribute knowledge and keep the employees simplified and motivated. Leaders also poise interpreting the alteration message to be pertinent for their reports, while still matching the entire message.

Leaders are also responsible for delivering inspiration to change. They develop wisdom of necessity and significance about the change. Leaders show assurance and excitement about getting things done properly. Gratitude is offered by the leaders to them who are appropriately participating and doing well (Hayes, 2014).

Leaders use their influence to hold people in an association responsible for the change. They endorse agreements and ensure others do the similar thing.

During the change management in Royal Dutch Shell, Steve Miller was the managing director of the organization. He observed efforts of the organization to transform itself on layer of management at a time. He also concluded that he would have to reach around the resistant bureaucracy and involve those at the front lines of the organization. However, as the operation was enormous, the path was extremely tough. Therefore, he devoted more than his 50% time to work directly with grass root workers to deal with the situation. He found ways to empower these front line employees by challenging them, delivering them the resources they need and then holding them responsible (Robinson 2014). If employees struggled with the challenges, Steve worked as a coach, teacher and facilitator. Steve adopted this program as the management was not sure how to deal with the lower oil price issue. The management planned to downsize is number of employees and that is why; Steve decided to empower the remaining employees so that performance of the organization remains same.          

Job Cuts

Several internal and external factors are there that put serious impact on an organization’s objective and strategic decisions. Some of those internal and external factors are hereby mentioned below.

Leaders: In any organization, leaders are responsible for developing objectives and strategies in a way that it can provide competitive advantage over its rivals (Michael, 2016). In the case of Royal Dutch Shell, Steve was responsible for bringing the change in the organization and helped the organization to deal with oil price drop.

Resources: The available resources are also another key influence on the type of strategy that is pursued (Robinson, 2014). For example, if resources are available then a business organization can follow an aggressive business strategy to gain higher amount of profitability.

Cultural values: Internal dynamics of an organization that includes organizational culture, power and political beliefs also influence and shape organizational objectives and strategies.         

Market: In oil and gas industry, demographic and socio-cultural factors such as who the customers are and what they believe are critical to gain market share (Salameh, 2015). It is highly important to understand the requirements and preferences of these markets to develop organizational objectives and goals.

Economy: Economic decline and booms are likely to affect spending habit radically. For example, currently oil prices are significantly low and that is why; all the oil and gas organization including Royal Dutch Shell are forced to change their conventional objectives and goals.

Supplier market:  In this oil and gas industry, suppliers have a great power as they control the vital inputs in operational processes. For example, oil and gas companies are dependent on its suppliers for the machineries and equipments that are vital for drilling operations.                     

Rethink, reset and relocate:

Royal Dutch Shell must review their portfolios, reevaluate competitive core strengths and must look at divestment of assets. Royal Dutch Shell and all other organizations that are hit by low oil price can prepare themselves for a fundamental structural shift (Kuipers, Higgs, Kickert, Tummers, Grandia, & Van der Voet, 2014).

Companies like Royal Dutch Shell should look at their distribution structure to find out whether they can take advantage of lower transportation cost. It will help the organization to reduce their operational costs.

As the production of oil is currently high the market, the prices are low. Sooner or later, prices will go up when the production will be reduced as a result of low profitability. Therefore, it will be useful to buy stocks in integrated organizations, those that both produce and refine oil. In this way, one art of the business will get benefits from the misfortune of the others.

It is already mentioned that nearly 10,000 employees of Royal Dutch Shell lost their jobs during the time of 2014-16 (Beck & Cowan, 2014). This was faulty decision taken by the management.

In order to properly deal with the issues related to oil price drop, it is recommended that the management of Royal Dutch Shell must follow McKinsey’s 7-S model.

Conclusion: 

In the end, it can be stated that Royal Dutch Shell can change some of its change management methods while dealing with the problem related to oil price drop. The major fault in their strategy was to downsize 10,000 employees that are bound the hurt the organization when the oil prices will come up again. On the other hand, the management did not follow any proper change management model. However, still Royal Dutch Shell is the leading organization in the oil and gas industry. But if they do not change their approach, the chances are high that they will lose their position in the near future.

Slashing down investments

References 

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