shell as a learning organization

Final Case Study (Group Paper)

MOL 7323 (Organizational Learning)

Dr. NEO TSE KIAN

Royal Dutch Shell as a

Learning Organization

Prepared by:

Mohammad Yunesi 1092300122

Meisam Hamidi 1092300071

Table of Contents

History and Background ................................................ 01

Logo Evolution ............................................................. 03

Businesses .................................................................. 04

Shell as a learning organization ...................................... 06

• Scenario Planning .................................................. 06

• Double loop learning .............................................. 06

• an experience of Shell New Zealand ......................... 10

• Kolb learning cycle ................................................ 12

References .................................................................. 14

Royal Dutch Shell

Learning Organization Page 1

History and Background

Royal Dutch Shell plc, usually known briefly as Shell, is a multinational petroleum

company of Dutch and British origins. One of the six "supermajors" (which integrated

private sector oil exploration, natural gas, and petroleum product marketing companies,

in the past they was known as seven sisters, but after merging Mobil and Exxon, the

number of them became six), Shell was listed as the world's largest corporation for 2009

by Fortune and world's second largest corporation by Forbes. The company's

headquarters are in The Hague, Netherlands, with its registered office at the Shell Centre

in London, United Kingdom.

Shell operates in over 90 countries. In the United States, the Shell Oil Company

subsidiary, headquartered in Houston, Texas is one of its largest businesses.

The Royal Dutch Shell Company was created in February 1907 when the Royal

Dutch Petroleum and the “Shell” Transport and Trading Company of the United Kingdom

were merged together; the decision that made by the need to compete globally with the

then predominant US petroleum company, John D. Rockefeller's Standard Oil. The terms

of the merger gave 60% of the new Group to the Dutch arm and 40% to the British.

Royal Dutch Petroleum Company was a Dutch company founded in 1890 by Jean

Baptiste August Kessler, along with Henri Deterding, when a Royal charter was granted

by King William III of the Netherlands to a small oil exploration and production company

known as "Royal Dutch Company for the Working of Petroleum Wells in the Dutch Indies"

(now Indonesia).

The "Shell" Transport and Trading Company (the quotation marks were part of the

company’s name) was a British company, founded in 1897 by Marcus Samuel and his

brother. Initially the Company had eight oil tankers for the purposes of transporting oil.

Royal Dutch Shell


In 1919, Shell took control of the Mexican Eagle Petroleum Company and in 1921

formed Shell-Mex Limited which marketed products under the "Shell" and "Eagle"

brands in the United Kingdom. In 1932, in response to the difficult economic conditions

of the times, Shell-Mex merged its UK marketing operations with those of British

Petroleum to create Shell-Mex and BP Ltd. a company that traded until the brands

separated in 1975.

In November 2004, following a period of turmoil caused by the revelation that Shell

had been overstating its oil reserves, it was announced that the Shell Group would move

to a single capital structure, creating a new parent company to be named Royal Dutch

Shell plc, with its principal listing on the London Stock Exchange and the Amsterdam

Stock Exchange and its headquarters and tax residency in The Hague in the Netherlands.

The unification was completed on 20 July 2005. Shares were issued at a 60/40

advantage for the shareholders of Royal Dutch in line with the original ownership of the

Shell Group. (Wikipedia)

In November 2007 Shell acquired a the most of stake in some gas fields owned by

Regal Petroleum in Ukraine.

In March 2010, Shell announced selling of some of its assets, including its liquid

petroleum gas (LPG) business, to meet the cost of a planned $28bn capital spending

program. Shell has invited buyers to submit indicative bids, due by 22 March, company

will raise $2-3bn from the sale.

As mentioned the name Shell is linked to the Shell Transport and Trading Company. In

1833, the founder's father, also Marcus Samuel, founded an import business to sell

seashells to London collectors. When collecting seashell was doing in the Caspian Sea

area in 1892, the younger Samuel realized there was potential in exporting lamp oil from

the region and commissioned the world's first purpose-built oil tanker, the Murex (Latin

for a type of snail shell), to enter this market; by 1907 the company had a fleet.

Although for several decades the company had a refinery at Shell Haven on the Thames,

there is no evidence of this having provided the name.

The Shell brand is one of the most familiar commercial symbols in the world. Known as

the "pecten" after the sea shell Pecten maximus (the giant scallop), on which its design

is based, the current version of the brand was designed by Raymond Loewy and

introduced in 1971. The yellow and red colours used are thought to relate to the colours

of the flag of Spain as Shell built early service stations in the state of California which

had strong connections with Spain. In below you can see the evolution of logo.

Royal Dutch Shell


Logo Evolution:

1900: 1904:

1909: 1930:

1948: 1955:

1961: 1971:

Royal Dutch Shell


1999: Today:

The slash was removed from the name "Royal Dutch/Shell" in 2004, concurrent with

moves to merge the two legally separate companies (Royal Dutch and Shell) to the

single legal entity which exists today.

Businesses

One of the original Seven Sisters, Royal Dutch Shell is the world's largest private

sector oil company by revenue, Europe's largest energy group and a major player in the

petrochemical industry.

Shell has five core businesses: exploration and production (the "upstream"), gas and

power, refining and marketing (the "downstream"), chemicals, and trading and shipping.

Shell's primary business is the management of a vertically integrated oil company. The

development of technical and commercial expertise in all the stages of this vertical

integration from the initial search for oil (exploration) through its harvesting

(production), transportation, refining and finally trading and marketing established the

core competencies on which the company was founded. Similar competencies were

needed for natural gas, which has become one of the most important businesses in

which Shell is involved, and which contributes a significant proportion of the company's

profits.

While the vertically integrated business model provided significant economies of scale

and barriers to entry, there has been much less interdependence recently between the

businesses, and each business now seeks to be a self-supporting unit without subsidies

from other parts of the company.

Royal Dutch Shell


The petroleum and gas business is increasingly an assembly of independent and globally

managed business segments, each of which must be profitable in its own right.

The downstream, which now also includes the chemicals business, generates a third of

Shell's profits worldwide and is known its global network of more than 40,000 petrol

stations and its 47 oil refineries.

Over the years Shell has occasionally sought to diversify away from its core oil, gas and

chemicals businesses. These diversifications have included nuclear power (a short-lived

and costly joint venture with Gulf Oil in the USA); coal (Shell Coal was for a time a

significant player in mining and marketing); metals (Shell acquired the Dutch metals-

mining company Billiton in 1970) and electricity generation (a joint venture with

Bechtel called Intergen). None of these ventures were seen as successful and all have

now been divested.

In the early 2000s Shell moved into alternative energy and there is now an embryonic

"Renewables" business that has made investments in solar power, wind power,

hydrogen, and forestry. The forestry business went the way of nuclear, coal, metals

and electricity generation, and was thrown away in 2003. In 2006 Shell sold its entire

solar business and in 2008, the company withdrew from the London Array which is

expected to become the world's largest offshore wind farm. (Wikipedia)

Royal Dutch Shell


Shell as a learning organization

According to Senge, a learning organization is one in which learning, in whatever form,

becomes an inescapable way of life for both managers and workers alike. The increasing

emphasis on the flattening of organizational hierarchies and the promotion of greater

empowerment of individuals has led many management authors to argue that

organizational learning should extend through the entire reach of a company – even as

far as customers and suppliers. Naturally, the learning must be of mutual benefit to the

organization and the individual concerned. (Britz & Harman, 2008) The ability to learn faster

than competitors may be the only sustainable competitive advantage. (De Geus, 1988)

Scenario Planning Institutional learning and employee commitment at RDS was facilitated by a “jobs for

life” policy that the company held. Learning was promoted by the use of scenario

planning at shell. Scenario planning is one way to gain insights that can later become

part of realistic strategies. It is best describe as creating stories of equally plausible

futures and planning as though any one of them could become true. The most cited

example of this comes from scenario guru Pierre Wock, who led Shell through scenario

planning in the late 1970s. These scenario in which control of oil was taken away from oil

companies, gave Shell insight into successful tactics. Other scenario planning successes

in Shell -which we will see more about it in continue- is anticipation of the fall of

communism in Russia and its effect on natural gas prices. (Denton, 2002)

Double-loop learning The kinds of learning we can do have a bearing on how effectively we can anticipate

changes, adapt to new situations, and generate novel solutions to the challenges we

face.

One kind of learning we are already very used to is that which helps us to continuously

refine and extend the capabilities of a given tool. This is also the kind of learning we do

to make work processes ever more efficient and reliable. But there is another very

powerful kind of learning which we use less commonly to solve problems and improve

processes.

This is the kind of learning through which we recognize the need to reorganize and make

wholesale systemic changes in our processes. Managing such changes is a much more

complex kind of activity, and it requires a more sophisticated kind of learning.

Most problem-solving efforts that focus on work processes are aimed at making the

processes more efficient and more reliable. This is a kind of single-loop learning in which

we are always trying to do the same things right. It is an activity precisely described by

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Royal Dutch Shell


The experience of Shell New Zealand and the Kolb’s learning cycle

In 1997, when John Fletcher became the director manager of Shell New Zealand, the

company was facing new competitive entrants in that area which was one the most

profitable Shell territories. By learning from experiments in other markets, something

that had improved as a result of Herkstroter’s [the manger of Shell at that time] global

restructuring, Fletcher knew what this would mean. “Competitors where opening a few

well-placed sites at our most profitable areas that could do enormous damage to our

margins. This would be death by a thousand cuts as they slowly squeezed us into a cost

competition that we couldn’t win and that would leave us with a highly unprofitable

margin mix.” he says.

Around this time, Fletcher happened to see a video created by Steel’s group which was

showing the result of FRD (Functional Research Development) in South Africa. As

Fletcher said, (Chowdhury, 2003)

In February 1998, a group of 17 senior leaders from Shell New Zealand joint their

colleagues in Australia for an FRD session. After crafting their TPOV and vision, the

participants decided to take FRD mainstream when they returned to New Zealand.

Twelve teams were organized and the leadership team held a series of meeting and town

halls to teach everyone the basic principles covered in FRD. Fletcher and his finance

director Ed Johnson, openly told employees that headcount had to shrink by 30% to

achieve the necessary cost structure. They also said that they had no concrete plan for

where cuts would be made. Assuming the leadership had a plan it was unwilling to

share, “… people just rolled their eyes when they heard that.” Fletcher says.

(Chowdhury, 2003)

Attitudes changed as Fletcher and his team utilized the FRD Process to drive the

organizational restructuring. One of the FRD teams was focused on organization,

I saw the energy and involvement of a big group of people making change happen. I had been thinking that the horsepower of most companies’ people is so underutilized and we were no exception. I immediately rang the head of Shell in Australia and said we have to do this together.

Royal Dutch Shell


rewards, and employment contracts (ORE). Fletcher and the ORE team quickly agreed

that the existing organizational structure was unsustainable.

Between the first and second month of the FRD process, one woman from the ORE team

ran workshops that involved 70% of New Zealand workforce. Her FRD work yielded a

clear set of Shell New Zealand values that were endorsed by the employees and

consistent with Royal Dutch/Shell’s overall mission and values. The ORE team

recommended making the values part of every employee’s performance contract and

recruiting criteria. With the ORE team support, every job within New Zealand was posted

for placement. Reapplication interviews included the values and consequently some

people with inconsistent values were beaten out for job they once held. As Fletcher

noted, the FRD process gained enormous credibility when “people started seeing new

heads of teams and team members winning their positions, not the same old

organization. Leadership followed [the new recruiting process] to the letter to build

people’s trust.” (Chowdhury, 2003)

Three months after the FRD teams launched, the ORE team proposed a new

organizational structure of 23 flat teams with no more than two layers between Fletcher

and the front line. Staff members were invited to apply for up to five jobs in the new

organization ranked in order of performance.

“Wherever someone was unsuccessful with an application, they would get feedback so

that they could learn and improve their chances for next time.” - J. Fletcher

(Chowdhury, 2003)

As result of ongoing coaching and dialogue with those who were unsuccessful, the

company had only a handful of employees leave involuntarily. It achieved the 30%

reduction and had done so in a process that actually generated employee commitment

and belief in the organization’s underlying values.

Meanwhile other FRD teams focused on a range of commercial issues. A central group

was created to reorganize customer contacts to free up sales people for growth activities

and used process mapping to identify solutions for customer service center. As a result,

Shell customer representatives resolved over 90% of customer issues on the first call.

In sum, Shell New Zealand reduced costs by more than 25%. “Margins did fall when

competition came in,” Fletcher said, “but [the competitors] got burned because they

thought they were coming into a market with healthy margins. Of three who had

planned to enter, one turned around and never came, another is struggling, and the

third has been acquired.” (Chowdhury, 2003)

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Royal Dutch Shell


Watching the video made by Steel’s group showing the result of FRD in the South Africa

and reviewing experiences of Shell in other markets, is the third step, Abstract

Conceptualization. At this step, Shell New Zealand tries to see and use the others

experiences.

The fourth step, Active Experimentation, for the company started with the journey to

Australia. Then organizing twelve teams and conducting courses for teaching the FRD to

organization’s members was the next step. Gathering employees support was, maybe,

the most crucial action which finally caused Shell’s winning.

After all these steps, Shell New Zealand got a new Concrete Experience.

Royal Dutch Shell


References:

Boyle, E. (2002) A Critical Appraisal of the Performance of Royal Dutch Shell as a Learning Organization in 1990s, Emeral www.emeraldinsight.com_Insight_ViewContentServlet_contentType=Article&Filename=_published_emeraldfulltextarticle_pdf_1190090101.pdf.pdf

Choo, C. W. (2002) Information management for the intelligent organization: the art of scanning the environment (pp. 13‐15) Information Today, Inc. , Medford, NJ 08055

Chowdhury, S. (2003) 21 C, (pp. 169‐172) Upper Saddle River, New Jersey 07458

De Geus, A. P. (1988) Planning as Learning (pp. 70‐74), Harvard Business Review

Denton, K. (2002) Empowering intranets to implement strategy, build teamwork, and manage change (pp.51,52) Praeger Publishers, 88Post Road West, Westport, CT 06881

Dooley, J. (1999) Problem‐Solving as a Double‐Loop Learning System, Adaptive Learning Design

Harman, K. & Britz, J. (2008) Knowledge management: research and application (pp. 6‐16) Information Science Press, California 95409

Hart, D. N. (2005) Information systems foundations: constructing and criticising (pp.100‐102) ANU E Press , Canberra ACT0200, Australia

Strategic Direction (2002) Learning at Royal Dutch Shell (pp. 10‐12), Adaptive Learning Design http://www.emeraldinsight.com/Insight/viewContentItem.do;jsessionid=9041BD8817B4FA61B2B125AC7B04CEF4?contentType=Article&hdAction=lnkhtml&contentId=869248

Wikipedia, Royal Dutch Shell. Retrieved May 20, 2010, from http://en.wikipedia.org/wiki/Royal_Dutch_Shell

Royal Dutch Shell


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