STRATEGY ANALYSIS – ROYAL DUTCH SHELL

Background

Royal Dutch Shell is a global group of energy and petrochemical companies, employing around 101,000 people in more than

90 countries and territories worldwide. Shell is currently listed as the world’s eighth largest corporation. Shell is broadly divided

into its ‘Upstream’ and ‘Downstream’ businesses.

Shell provides 2.5% of the world’s oil and 3% of its natural gas. Oil and gas are non-renewable resources, but remain essential

for powering the world’s needs and their demand is continuously increasing. Shell sells enough petrol and diesel a day to fuel

16 million cars and enough liquefied natural gas to provide electricity for 34 million homes around the world. However, energy

use is increasing due to a growing world population and higher standards of living. This means more demand not only for oil

and gas but also for other energy sources. Shell is therefore faced with an enormous challenge to help meet the needs of the

present and future generations, while creating as little negative impact as possible to the environment. Shell aims to provide

energy in responsible ways and serve all its stakeholders, customers and investors, effectively. These aims have been referred

to in their vision-mission statement.

The purpose of this report is to analyse and critique Royal Dutch Shell’s 2011 business strategy using the eleven strategy

dynamic and international business models but mainly addressing three main questions:

      • identify is Shell’s current business strategy? What is this strategy?

      • How is Royal Dutch business strategy developed and articulated?

      • Is the strategy appropriate for success?

Business Strategic formulation is a combination of three main processes: Performing a strategic positioning analysis, internal evaluation (including stakeholders) and competitor analysis: both

internal and external; both micro-environmental and macro-environmental. Concurrent with this assessment, objectives are set. These objectives should be parallel to a time-line; some are in

the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.

These objectives should, in the light of the strategic positioning analysis, suggest a strategic plan.

Business Strategic Planning is a systematic process envisioning a desired future, and translating this vision into broadly defined goals or objectives and a sequence of steps to achieve them. Strategic planning begins with the desired-end and works backward to the current status. At every stage of long-range planning the organisation asks, "What must be done here to reach the next (higher) stage?" Strategic planning looks at the wider picture and is flexible in its choice of decision-making on allocating its resources to pursue this strategy, including its capital and people. To identify and analyse the business strategy formulation and planning of an organisation the following models will used: SWOT, PESTLE, Porter’s Five Forces ,Ansoff Matrix, BCG Matrix, 7S Model, GE/McKinsey Matrix, 3C’s Model, Ward- Rival Model ,GAP and Ashridge Portfolio Display model

For the purpose of this assignment one business organisation (Royal Dutch Shell Petroleum Group) will be examined in more detail to identify its business strategy formulation and planning. This shall then be compared and related to the different theories, methods and models studied within business strategy to demonstrate that businesses apply such models and theories in practice. To illustrate how all the parts are inter-related, internal and external. So any given organisation will value these analysis and procedures as crucial tools for the company to identify if it is reaching its short-long term objectives in success, growth, profit, innovation, competitive advantage and decide if it is meeting the corporations’ vision.

Shell’s Primary ObjectivesVision statement from Jeroen Van Der Veer, Chief Executive of the Royal Dutch/Shell Group as of 2nd March 2010: “Shell is a

global group of energy and petrochemical companies. Our aim is to meet the energy needs of society, in ways that are

economically, socially and environmentally viable, now and in the future.”

Mission statement - The most recent mission statement for Shell as a whole organisation dated 30th October 2009: “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. WE BELIEVE THAT OIL AND GAS WILL BE INTEGRAL TO THE GLOBAL ENERGY

NEEDS FOR ECONOMIC DEVELOPMENT FOR MANY DECADES TO COME. OUR ROLE IS TO ENSURE THAT WE

EXTRACT AND DELIVER THEM PROFITABLY AND IN ENVIRONMENTALLY AND SOCIALLY RESPONSIBLE WAYS. WE

SEEK A HIGH STANDARD OF PERFORMANCE, MAINTAINING A STRONG LONG-TERM AND GROWING POSITION IN

THE COMPETITIVE ENVIRONMENTS IN WHICH WE CHOOSE TO OPERATE. WITH OVER 102,000 PEOPLE IN MORE

THAN 100 COUNTRIES, WE’VE LEARNED THAT BEING AN INCLUSIVE BUSINESS IS AN ADVANTAGE. WE MAKE A

POINT OF HIRING PEOPLE FROM ALL WALKS OF LIFE BECAUSE WE KNOW THAT THE MORE DIFFERENT

PERSPECTIVES WE HACE ON BOARD, THE GREATER OUR CHANCES OF SOLVING THE PROBLEM AT HAND. WE

VALUE PEOPLE WITH THE AMBITION AND CREATIVITY TO INJECT FREASH THINKING AND BRING ABOUT CHANGE.

THIS IS WHY WE ENCOURAGE THE EXCHANGE OF IDEAS AND REWARD INNOVATION WHEN WE SEE IT. WE AIM TO

WORK CLOSELY WITH OUR CUSTOMERS, OUR PARTNERS AND POLICYMAKERS TO ADVANCE MORE EFFICIENT

AND SUSTAINABLE USE OF ENERGY AND NATURAL RESOURCES.” (www.shell.com)

A strategic vision is a statement describing the route a company intends to take in developing and strengthening its business. It

lays out the company’s strategic course in preparing for the future (Thompson, et al, 2008).

Comparing Shell’s vision and mission statements it is evident that they are related and the mission statement is an extension of

the vision statement. Both mention core objectives of “meeting energy needs of society/customers” the mission statement

expands on this statement and explains how it is intending to carry out this function. Both statements mention “now and the

future” the mission statement elaborates by explaining what the organisation is doing “now” and how its objectives are aiming to

meet this “efficiently, responsibly.” The vision-mission statements also explain its intentions for the “future” and the mission

statement continues to express how it aims to meet this “in the search for and development of other sources of energy.” There

is also a direct relation in both statements referring to profit the vision statement mentions “economically” while the mission

statement develops this further and talks about “profitability.” Furthermore the mission statement links the four key areas: it

states its purpose “to engage efficiently, responsibly and profitably in oil, oil products, gas, chemicals and other selected

businesses.” It states its values “We value people with the ambition and creativity.” It states its standards “We make a point of

hiring people from all walks of life… encourage the exchange of ideas.” It states its strategy (strategy meaning long-term plans

to make the mission achievable) “search for and development of other sources of energy… finding responsible ways to meet

that demand.”

The above information relates to the core/primary strategic objectives of the organisation and is transmitted through the

construction of the vision and mission statements. There is a need to devise strategies that enable the primary objective to be

achieved. The company continues to the next stage of ‘the hierarchy of objectives’ and set medium-term secondary objectives

which develop beneath the primary corporate objectives. Therefore secondary objectives involve ‘Functional/Team objectives’

these refer to departments, sections and teams. Such as Finance, Operational including Human Resources, Marketing, Sales,

Research and Development, Logistics, Multiple etc. Objectives are key factors to the organisations strategic formulation and

planning, they provide several functions; clear statements of what needs to be done at each level, what action needs to be

taken, targets for departments, groups, teams and individuals, they facilitate the control of performance and are a basis for

evaluating how successfully the plans are being implemented.

The secondary/functional objectives of Shell’s various departments shall be examined to determine if the organisation has

based its secondary objectives to assist in the achievement of the primary objectives. Shell has produced general limited data

regarding its departmental objectives, however through various research methods (such as analyst reports) the following

objectives have been identified and classed into the following categories, note that these are broad general objectives for the

company as a whole, detailed individual units and team objectives are constrained and confidential to the organisation.

Shell’s Secondary Objectives

Financial objectives as of February 2010

Plans to sharpen up performance and reduce costs Reduce operating costs by $1 billion by year end Feb 2011 Current projects that come on stream, the company expects cash flow to increase by

50%

35 New projects to generate 8 billion barrels of oil equivalent resources to underpin growth to 2020

The dividend for Q1 2010 is expected to be $0.42/share, and is expected to be unchanged from 2009 to 2010

Marketing objectives

Promotion: position Shell as a company with a point of view; a company that is positive about energy and rejects complacency; one that listens and responds to the views of key stakeholders on issues that are relevant both to its own business and the energy industry as a whole. To focus on providing tangible examples of the way in which Shell is helping to secure a responsible energy future.

Product: To be the global market leader in premium differentiated fuel products. Attach a brand image that expresses cleaner, quality, with improved engine and environmental performance. To apply creative, persistent problem-solving to the challenges the world currently faces; by continuing search and development for existing and new sources of energy.

Price: to ensure our prices are competitive in the market and can adapt quickly to market conditions. To focus on costs and earnings, increase capacity and production on key business products.

Place/Location: we operate in over 100 countries, our highest concentration being Europe then North-Africa & Middle-East, smaller concentration in Central America and South America and parts of the Far-South East of Asia. We aim to move into more markets in the search for more resources and expand trade into more countries. (see map below)

Map of Royal Dutch Shell indicating their location in over 100 countries

Human Resources objectives

Defining and delivering team development programs Leading projects in staff planning, compensation and benchmarking Designing and implementing performance management systems Promoting diversity and inclusiveness Safe working environment, zero risk

Shell companies manage these matters as critical business activities, set standards and targets for improvement, and measure, appraise and report performance externally.

Research and Development

R&D programmes continually strive to develop new and better fuels and lubricants, to satisfy growing customer requirements for energy efficiency, with improved engine and environmental performance. The overall aim is enhanced mobility for more efficient operation and superior performance.

To enhance the expertise of our staff and identify emerging technologies. Develop and deliver technology that is shaping the future of energy.

Investing in the future to improve our extraction techniques and technologies that will be needed to produce more cleaner energy and efficient fuels and products for our customers

Sales objectives

For 2014, I expect further production growth, with the final outcome driven by shorter term investment choices such as license extensions, increase volume of output, rise to 3.5 million barrels of oil per day to meet increasing demand

Total product sales volumes in 2009 were 1% lower than 2008 Shell will try to raise an average of $3 billion a year by selling 15 percent of its

refining assets, 35 percent of its retail outlets Logistic objectives

Increase the existing network of organized and methodological supply base making the transportation and moving of its products from oil producing countries to the market faster and efficiently, reaching the end customer quickly.

Health and Safety objectives

To keep our employees and contractors safe by focusing on compliance and tackling the cultural issues that can lead to unsafe behaviour.

Identifying the main objectives of the organisation assists with the internal analysis; however to complete the internal analysis more research should be conducted and investigated on the organisations stakeholders. Stakeholders and their objectives will affect the organisations strategy formulation and planning. Any strategic planning that has NOT taken into account its stakeholders is NOT likely to succeed. Stakeholders obtain power to influence operations, customers and government politics and so on. Another example: September 2000, UK’s Fuel Strike organised by Taxi drivers and Farmers across the country, the stakeholders here formed a pressure group to stop the government tax increases on fuel prices. They were primarily demonstrating against the government, but the blockage succeeded and the whole country almost came to a standstill. No doubt this will have a knock off effect on petroleum companies such as Shell. Here the stakeholders are the end user (taxi-drivers) and the government. It is important to identify and balance the needs and expectations of these groups, and to act responsibly in view of all of them in order to avoid conflict and ensure the business is as prosperous as possible and keeps its ‘licence to operate’. Balancing the needs of all stakeholders is particularly important for large energy

companies like Shell, one of the world’s largest and most profitable multinational companies.

Stakeholders can be categorised into three areas:

Internal: employees, managers (shareholders depending on their power and influence)

Connected: shareholders, customers, suppliers, financial lenders External: community, government, pressure groups and other organisations

To fully conduct an internal analysis of Shell its stakeholders and their objectives need to be identified before proceeding to the next stage. Identifying and understanding stakeholder objectives will assist the business in achieving its overall objectives. As the business strategies can be matched to stakeholder values to check for any resistance or support. For example certain stakeholder roles and objectives may add value to the end product or service.

Shell’s Internal Stakeholders

ShareholdersInternal stakeholders are seen by the wider community as reflecting Shell and how it works.

Shell’s main internal stakeholders are its shareholders and employees. Shareholders play a crucial part in the life of the business. They provide a sizeable part of the capital required to set up and run the business. They take a reward from a share of the profits in the form of a dividend. This varies according to how many shares they own. The shareholders choose a Board of Directors to represent them and provide a direction to the company. This is set out in a long-term plan which is called a strategy. (See diagram below)

An example of the importance of shareholder objectives can be noted under the section ‘Financial objectives’ Freeze management salaries until 2011 after shareholders objected last year when executives were awarded bonuses even after performance targets were missed. (http://royaldutchshellplc.com/category/oil-company-profits/)

Employees Another important internal stakeholder group are employees. Shell employs over 100,000 people worldwide. These include senior international managers specialising in finance, marketing, sales, oil and gas exploration and other aspects of the business. Other employees include geologists, market researchers, site engineers, oil platform workers, office administrators, business analysts and many more. 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’s Connected Stakeholders

SuppliersSuppliers are connected stakeholders who are Shell’s partners in the chain of production for example in bringing petrol from the oil well to the petrol pump. Other suppliers are those with machinery and equipment, in Shell’s case the equipment needed for deep sea oil drilling requires advanced specialised technological equipment. Information Technology, Communication, control and monitoring of its enterprise requires sophisticated computer software, suppliers for this is Microsoft.

CustomersWithout customers a business would not exist. One of Shell’s major objectives therefore is: ‘To win and maintain customers by developing and providing products and services which offer value in terms of price, quality, safety and environmental impact, which are supported by technological, environmental and commercial expertise.’

Achieving this objective is challenging. Customers want value for money which involves providing the highest quality fuels at competitive prices. Research drives this process. Safety and environmental impact are key ingredients of the research and development process. Increasingly customers, concerned about pollution and environmental damage, require cleaner, more efficient fuels such as bio-fuel. There is global interest in liquid bio-fuels for transport as people travel more. Bio-fuels also offer the potential to slow the rate of growth in the world’s CO2 emissions. Shell responds to present changes in customer views and seeks to anticipate future customer expectations. It aims to help customers use less energy and emit less CO2. Shell products include fuels and lubricants for all forms of transport such as, cars, ships, aeroplanes and trains. Shell has a set of global environmental standards/expectations for all of its companies. Topics include: managing greenhouse gases, energy efficiency, control of waste and the impact on water.

Shell’s External Stakeholders

Shell needs to work with a range of interest groups. These are decision makers and opinion formers. People and organisations in positions of influence make decisions and form opinions that can affect Shell. These include academics, government, media, non-governmental organisations (NGOs) business leaders and the financial community. They interact with Shell in different ways:

GovernmentsShell has operations in many countries across all regions of the globe. To gain approval to operate in these countries it has shown the host governments that it is operating in the right way. This includes creating jobs, paying taxes and providing important energy supplies. Shell is also working with governments to promote the need for more effective regulation on CO2 emissions.

The business communityShell supplies to and buys from hundreds of other businesses.

Other oil companies Shell works in partnership on projects with many other oil companies. These include both competitors such as BP and Texaco, and partners such as government owned oil companies in the countries in which it operates. Partnership activities have included building new oil or gas supply lines and new refineries.

NGOs (Non-Government Organisations)NGOs are important bodies that influence decision-making. For example, Shell was considering drilling in 2008 for gas in British Columbia’s Sacred Headwaters (the source of three important rivers). These rivers provided a source of wild salmon and other natural resources. A number of organisations were set up to protect the Headwaters including ‘Friends of Wild Salmon’. Shell listened to their concerns and postponed further drilling work.

The mediaIt is essential for competitive companies like Shell to continue to operate in ways that receive positive press coverage from newspapers, television and magazines. This reinforces its position in the market and can help to attract new customers through a positive reputation.

Pressure groupsA pressure group is a group of people with specific aims and interests which tries to influence major decision makers like businesses and governments and raise public awareness about issues.

Community/Local community

Shell’s oil and gas operations aim to create economic and social development while minimising negative impacts. It seeks to invest in lasting benefits for the community Local communities living close to oil refineries have raised concerns over their safety. Shell seeks to overcome these fears by earning the trust of people by taking all the necessary safety measures. This includes operating the plant safely and making people aware of plans and emergency procedures.

The organisations stakeholders and their values are important indicators to a firm’s internal analysis. An organisation will continue to exist and grow if it can balance the needs of stakeholder groups and incorporate them within the company’s objectives to assist in the formulation of business planning. Companies reduce operational and financial risk by listening to local communities and addressing their expectations, cutting the chance of project delays, approval failures or disruption to operations. Further research needs to be conducted in line with stakeholder analysis before an organisation proceeds with its ‘Business Strategic Planning.’ The findings from performing an external environmental investigation may overlap with stakeholder influences and interests. A good business strategic plan is likely to be successful if it has collected information of both the internal and external environments in which it operates. All organisations whether private or publicly owned will be affected by its general environmental trends, methods used to extract external data are the PESTEL analysis and for the competitive environment: Porter’s Five Forces analysis.

External Environmental Analysis for Shell

Good business strategic planning will only take place if the organisation has detailed knowledge of both the internal and external environments in which it operates in. The PESTEL framework together with Porter’s five forces model provides a checklist of the most important and major factors that affect an organisation. The external environment can be split into three layers with the organisation as the core. (See diagram below of Aspects of the external environment).

The diagram shows the various aspects of the external environment and how all the different functions and business aspects are interrelated and have an impact on each other. The PESTEL factors can be identified and illustrates why the organisation has to conduct an environmental analysis and take the findings into consideration. Each component shall be examined in more detail and extract information that is important and relevant to Shell.

TechnologyPolitical & Legal

Competing Organisations

Source adapted from Business Essentials, Business Strategy, BPP learning media, pg 25 “Aspects of the external environment”

2nd Layer

Economic Social & Cultural

3rd Layer

PollutionMaterials

EcologicalPhysical Environment

Shell

Competitive Environment

1st Layer

BPExxon Mobil

TotalChevron

Goods to customers

Profit to Investors

Wages to Labour

Capital

Labour

Suppliers

‘PESTEL’ Factors

Political and Legal

Political and legal factors can have an impact on business strategy. As can be noted in the diagram above the political and legal aspects are placed in the 2nd layer because political and legal policies and laws will affect how the organisation operates with its suppliers, labourers, capital, customers, investors and other components mentioned in the 3rd layer.

Government, European Union, International laws, trade legislation all affects the way a company conducts business. For example the US, UK and Europe placed an embargo on trade with certain countries such as Iraq, which is rich in oil supplies. Therefore Shell is unable to extract, supply, or operate any kind of business operations in Iraq. Should Shell have any intentions to develop market growth strategies into this region such restrictions would impact the company’s business plan and Shell should neglect this as a possible objective. “We did not; for example, operate in Iraq when it was under UN sanctions.” http://www.shell.com/home/content/environment_society/society/business/politically_sensitive_regions/

politically_sensitive_regions.html. (There is also a political check list that companies could follow)

Employment law varies from country to country differences such as wages, health and safety standards, redundancy policies etc.

More recent legislation on Co2 emission is an important factor and should be taken seriously by Shell; this will have an immediate and direct effect on their core business.

In countries such as the UK, Italy, France, Germany, Holland and others, governments have placed congestion and toll charges for two reasons, first to encourage the general public to use the public transport system to reduce pollution levels and second to encourage the use of alternative engines such as battery operated cars. Where vehicles are battery operated they are omitted from the congestion and toll charges. Therefore the demand for diesel will increase and petroleum to decrease.

In 1997, 176 governments from around the world gathered to set and agree targets for reducing emissions of harmful gasses. (source adapted from Business Studies, Marcouse, 3rd edition, pg 632)

Competition law affecting business decisions such as mergers, acquisitions. Or the reduction on restricting competition can open up opportunities for an organisation. For example if the UAE government shifted its petroleum ownership to privatisation Shell could take advantage of this and start trading its fuel supply in that country. Another example: as airline tickets were subject to more competitive practices and ticket prices reduced, airline travel increased and the demand for the supply of fuel also increased.

Social and Cultural

Social and cultural factors include population, lifestyle, values, education, demographics, population rates and social trends. Factors that are likely to affect Shell are:

Population changes, the more population that exists and population increases the more likely the demand for petrol consumption will increase.

Lifestyle for example in the US they possess are more luxury lifestyle and require cars which have larger engine sizes and therefore consume more petrol.

In third world countries and developing countries public transport If a countries population consists of a large number being educated they will have

different preferences towards a more healthy society and ethical environmental issues will determine there requirements. For example in Japan it is estimated that 75% of Japans population are university graduates. Hence there strategic positioning on the worlds technological advances. A country such as Japan will require and raise standards in vehicle production to become more fuel efficient and economical. Thus affecting the demand for alternative sources of fuel and reducing the demand in the supply of petroleum.

Trends may include for example in the UK, many cities and major towns are pedestrianizing busy areas, for example Oxford has a park n ride system and encourages the use of bicycles. This trend is starting to spread across the UK.

Technological environment

Technological advances have proved to be a vital source for the success, growth, cost- reduction of businesses.

Computers and I.T networks have assisted with the improvement towards machinery, logistics, stock-ordering, supplies, communication etc. It also helps in the delayering of organisations hierarchical structures.

Improvement in manufacturing (such as the process from crude oil to petroleum) has benefited from such technological advances.

Cost savings on labour, storage, payments and time. Time being a crucial element in business terms, for example communication

improvement. One office in Amsterdam can have a virtual meeting with another office in China.

Sales and stocks are easily monitored, recorded and reported faster and easier.Economic environment such as macro indicators

Third world economies where unemployment is high and income levels are low private vehicles are not in high demand which will affect the demand for fuel.

Developing economies are important indicators and should be closely monitored as petrol demand is likely to increase.

Government fiscal and monetary policies will also affect Shell’s operation for capital investment, should interest rates fall investors will spend and not invest in share ventures. High exchange rates will affect product prices.

Taxation also affecting wages, profit levels, suppliers prices, tariffs on imported goods etc.

Currency and exchange rates need to be addressed as Shell’s competitors are also global organisations and petrol prices are affected by the dollar, Euro etc.

Physical environment and ecology is a major concern for companies like Shell since their business is reliant on natural resources. Materials such as oil cannot be replaced once used

up. These materials are of limited supply. The burning of oil gives off harmful emissions and damages the environment. Main areas that will affect Shell are:

Natural conditions such as weather, floods, earth quakes, volcanic eruptions. The limited resources caused by extraction of raw materials. Logistical issues such as transportation how quickly can Shell supply fuel to their

customers (customers being the countries that they sell to). The infrastructure of countries also affect how efficiently they can reach their

customers and end-users, third world countries have less advanced transportation systems

Environmental legislation and government permission and licenses. Shell must follow the bureaucratic procedures and apply for licenses and permission from the government’s authorities before they can perform any drilling in the search for natural resources, such as fossil fuels.

Breaking down a firm’s external influences into PESTEL categories helps to identify key issues, for the organisation to consider the implications of each external factor and assists the business formulation process towards strategic positioning. There are weaknesses to this type of analysis the outcome is not full proof. The above diagram showing “Aspects of the external environment” the 1st layer has not been analysed using the PESTEL framework. Other external analysis need to be carried out such as Porter’s Five Forces model which analysis in more detail the 1st layer being the competitive environment. Organisations need to position themselves at a more competitive advantage over there competitors; an evaluation of this model will determine the firms position in the competitive market before it creates any strategic policies.

Porter’s 5 forces model

Potential Entrants

Suppliers Customers

Industry Competitors

Rivalry among existing firms

Bargaining Power of Suppliers Customer

bargaining power

Threat of New Entrant

This model helps the firm to understand how fierce or how favourable the competitive environment is. The overall strengths and weaknesses of a firm’s position depend on the above factors. As Shell is a European based organisation, BP (British Petroleum) will be taken as its nearest European competitor to compare and contrast the external competitive environment to assess its strategic position.

Intensity of rivalry among existing firms for example a shopping mall may have Starbucks, Nero, Costa, Caribou etc. They all offer the same products, serviced in a similar way and roughly charging the same price for a cup of coffee. The idea of this analysis is to identify what makes one firm standout from the others. How is the organisation different? Shell has managed to differentiate itself through the following methods:

The company has a large number of specialists and specialised employees in the areas of scientist for their Research and Development divisions. They have devised a unique program called “Enhanced Experimentation (EE) accelerates research and development projects by allowing higher performance testing efficiency for new products, which translates into shorter development phases and ultimately quicker routes to market.”

Shell’s response and adaption to new technology advances and special ordering techniques has made it possible for them “to meet its customers' requirements for speed, responsiveness and quality assurance in an increasingly competitive market.” Speed of delivery is essential in a consumable market, if petrol pumps run dry customers will drive to the next available petrol station. h ttp://www.shell.com/home/content/chemicals/aboutshell/media_centre/news_briefs/news_brief_archive/2007/ nb_online_delivers_speed_responsive_20032007.html)

Shell produces 3.1 million barrels of gas and oil every day compared to BP rivalry firm produces 2.3 million barrels per day. This gives Shell another advantage over its competitor as it can reduce its prices when supplying more markets and add to its reserves. Economic theory states that when supply is more then price is reduced.

Substitutes

Threat of substitute

products or services

Shell currently has 44,000 service stations world wide compared to BP’s 22,400 service stations worldwide. Therefore the reach and spread of Shell’s customers are much larger this gives off the image to customers that Shell is more accessible and at the same time presenting and maintaining its brand image. Customers are less likely to switch to BP.

Experience is also a key advantage to organisations, the fact that Shell has been operating in the oil industry since 1833 compared to BP since 1908. Has enabled Shell to benefit from longer experience, move into new markets quicker, build up customer loyalty, and build up profits sooner so that it can invest in new ventures.

Potential Entrants

Market industries that generate large profits are a target for new entrants. The number of likely new entrants will depend on whether the barriers to entry are high or low. Although Shell is one of the largest companies in terms of revenue they still fear competition with threats of new entrants mainly in the form of local suppliers:

"With the increasing number of local suppliers you have to be very responsive to your customers' needs to maintain your competitive edge," explains Herbert Ho, the company's Operations Supervisor. "

Shell’s barriers to entry include:

Economies of scale where they benefit from reductions in output costs due to their large scale of production.

Capital investment is high so new entrants will have difficulty raising the capital needed to start such a large corporation in order to meet the existing competition of such big oil company’s. The need for specialised equipment, employees, land etc.

Business relations and partnerships are already established and the market is already mature, Shell already occupies many areas for the extraction of raw materials this makes it difficult for new entrants to compete.

Infrastructure, such as logistics and transportation that Shell already acquires is vast spread and took years to build. New distribution channels are difficult to establish.

Experience is one of Shell’s advantages; the expertise that they acquire is not so easily available.

For the case of BP their barriers to entry are equal to that of Shell. Except Shell possess more of each of the above statements.

Bargaining power of customers

As mentioned before the oil industry is an unusual market as demand for fuel remains high, it is more of a necessity rather than a luxury. Economies/Countries rely on the supply of energy. However switching costs, price-awareness and product quality are issues to be considered for organisations in the oil industry. Barriers that Shell are capable of are as follows:

Customers choosing to fill-up at Shell or BP stations will make little or no difference to the consumer. However using pricing strategies has proven to be a major success. The consumer buying pattern of fuel (especially in European countries) has shown

that people will drive for miles and miles in order to receive cheaper petrol down to the pence. Price wars over petrol pump prices have hit the headlines between competitors.

For Shell accomplishing brand awareness relating to quality and fuel efficiency in their advertising slogan “You Can Tell When its Shell.” The Shell logo of yellow and red is easy to identify and locate. They maintain standardisation globally (like McDonalds).

Other marketing strategies that offer the customer pay at the pump, 24 hour stations, convenience shops at their stations, fuel cards for businesses, loyalty rewards, money vouchers, air-miles etc.

Bargaining power of Suppliers

Although Shell is a supplier of energy they also need supplies to conduct their business. Suppliers can control/increase prices. The following points are issues that would concern Shell:

If suppliers have other customers outside the industry and do not rely on Shell as their prime customer. For example specialised machinery such as oil tankers, refinery and drilling equipment.

If their suppliers are few (monopolistic, oligopolistic) and can charge high prices. For Shell, their I.T software solutions are supplied by Microsoft. The bargaining power of Microsoft is high; they operate in a global monopolistic environment and most if not all businesses rely on Microsoft for their software.

If switching costs are high between suppliers. Suppliers of raw materials

To create barriers to entry for the bargaining powers of suppliers the following strategies can be deployed by Shell:

The department of Supplier Management needs to focus on managing supplier relationships to enhance the overall value created between Shell and the suppliers through disciplined coordination and alignment of key interests and capabilities. Key processes focused on relationship management, performance management, supplier development and value-chain optimization. This creates greater mutual value for suppliers and for Shell. The Supplier Management operations announced “One of the best examples of this approach has been our work with Microsoft. We’ve developed a collaborative relationship where our people have advised on the technology they develop and the way they go to market. Shell works with a diverse group of suppliers in a complex operating environment.” http://www.shell.co.uk/home/content/gbr/aboutshell/shell_businesses/e_and_p/supply_chain/

For hardware equipment/machinery the strategies involves outsourcing, partnership agreements and contractors. Shell has set up a unique division for suppliers and contractors if they are interested conducting business. Prospective suppliers must proceed and complete the pre-qualification standards test.

Further strategies have included Shell developing and buying into manufacturing their own machinery and building their own plants of oil refineries around the world. They have strategies of ‘Backward Vertical Integration.’

Suppliers of raw materials are countries that obtain the natural resources in oil and gas. Therefore Shell is subject to the agreement of the countries authorities to issue

licenses allowing them to drill and extract oil and gas. Strategies for this especially for third world countries include; convincing the government that bringing and operating business in the country will achieve a stronger economy for its government and people. Business creates jobs.

The benefits of Porter’s five forces help the organisation to analyse whether the business is in a strong or weak position overall in its external competitive environment (the first layer of the diagram above ‘Aspects of the external environment’). All the above analysis so far has been concentrated on the external analysis with reference to the primary objectives and the identification of stakeholders. The next procedure is to apply strategic positioning techniques to the internal analysis of the organisation allowing the firm to identify its strategic position and planning framework. Methods and business models used for internal strategic positioning are SWOT, GAP, BCG and Ansoff matrix analysis.

Internal Analysis and Strategic Positioning

This further investigation provides information that will assist the organisation in answering the following questions:

Where does the organisation stand? What internal factors are decisive for survival, failure or success? Where do our core products stand? How are/should we add value in relation to the value system and chain? What are our future products and developments going to be? What and where are our competencies?

Internal Analysis

Strategic Positioning

SWOT

Value Chain

Ansoff Matrix

BCG Boston Consulting

Group

GAP

To examine the key aspects of the organisation’s current position the next steps will explore any limiting factors, its value chain and review its product portfolio (BCG)

Limiting Factors:

The main limiting factor for the manufacturing oil industry is the natural raw materials of fossil fuels available in the planet. For Shell in particular a European operating business has to search for these natural resources which are in the possession of foreign countries. They cannot therefore rely on their home country for these resources. Also it has been estimated fossil fuel will diminish over time and bearing in mind customers (stakeholders) demand for better and alternative energy sources.

To combat these limiting factors it is important to understand and analyse the ‘Value Chain.’

Value Chain/Model:

The value chain analysis identifies how the business adds value to the resources it obtains and how it organizes these resources to satisfy customers and the stakeholders of the foreign country in which it receives its resources. In other words its connection to its value system.

Support

Activities

Margin

Primary Activities (Michael Porter, Competitive Advantage, 1996)

Strategies practiced by Shell to achieve added value:

Firm Infrastructure

Human Resource Management

Procurement

Technology Development

Inbound Logistics

ServiceMarketing

&

Out - bound

Logistics

Opera -tions

Firm InfrastructureShell uses decentralized methods (delegate responsibility to Units and individuals) business worldwide especially in the “downstream” operations with companies operating in over 100 countries with a considerable degree of independence. The downstream operations refer to refining oil into fuel, producing petrochemicals, developing bio-fuels, trading, retail sales, managing Co2 emissions, supply and distribution.

Shell uses centralized methods (where concentration of management and decision making power is at the top of the hierarchy), for its “upstream” operations receiving detailed technical and financial direction from the central offices in The Hague. Upstream refers to exploring oil and gas, developing fields, Converting gas to liquid products etc.

The combination of both methods helps to add value to the business and its products by allowing independence where needed and focusing on strong management input, financial support and expertise for areas of development such as research and development and innovation.

Human Resource ManagementShells employs over 100,000 people worldwide around 1/3rd are “30,000 technical staff in centres across the world. From scientists to business experts, our employees and contractors work to deliver our research and development programme – finding innovative solutions to the world’s energy challenge.” http://www.shell.com/home/content/innovation/about_us/

The employment strategy also assists with critical success factors, without the correct human resources Shell would not be able to develop and add value to its products and services. The talents of the individuals in the organisation are key determinants to its strategic positioning when compared to its rivals.

Technology DevelopmentAs mentioned above Shell’s strategy to add value to its technology advancement they have created partnerships and agreements with Microsoft. They also own several plants and manufacturing industries for their supplies cutting out the need to rely on suppliers. This also allows for reduction in costs, which also adds value to the end products and services.

ProcurementStrategies for this have been discussed above under Supplier management tactics for Porter’s five forces analysis.

Inbound Logistics

The company has a large network of organized and methodological supply bases, making the transportation and moving of its products from oil producing countries to the market faster and efficient.

OperationsOperations include the tasks of transforming resources into desired goods through processing, inspection, transport and storage. Shell has highly sophisticated operations from the people it employs to the assigned tasks, programs to meet quality, efficiency, standards combined with its logistics, technologies and infrastructure strategies to provide additional value to its system.

Marketing and SalesThe strategies devised by Shell to add value towards its marketing and sales activities are to engage directly with more than 1,000 global opinion leaders such as government and business leaders, NGO officials, academics and the media at over 30 events across the world, via through-the-line media partnerships.

ServiceShell adds value by providing a variation of fuels, offering different pricing strategies, card and credit services and at a corporate level offering consultancy services to provide solutions for businesses.

It can be distinguished that Shell adds value and makes use of its value system by combining the activities, efficiently and effectively by placing various strategies that manage the linkages. Shells value chain analysis provides information on how the different functions act and interact as a business as a whole. Further studies are needed to position its products, a method using the Boston Consulting Group Matrix (BCG).

The BCG is a product portfolio analysis that examines the existing position of a firm’s products. This allows the firm to plan what to do next. It shows the market share and growth of each product.

The Product Portfolio Boston Matrix

Stars

Shell’s main product that sits in the star gradient is its Gas-to-Liquid fuel it is an innovative product that meets demands in fast growing societies (China & India). Also economies that seek alternative cleaner more fuel efficient products to meet their innovative products, such

Petroleum Products

Alternative Energy products

Bio-fuel

Coal - gasification

Gas-to-Liquid fuel

Plastics

Coatings

Detergents

Nuclear

Metals Electricity generation

as the Japanese technology car industries searching for new inventive fuels to match their latest car inventions.

It could be argued that Shell’s main petroleum products can be placed between the Star and Cash cow gradient. The petroleum products are a Star because it has a high share in countries that are experiencing population and economic growth i.e. China. But the petroleum product is not in need of high capital expenditure to maintain its market position. Also the petroleum product is a Cash cow because it generates high levels of cash income since the market for petroleum fuel is already mature.

Question Marks

Shell is developing and researching on alternative energy products such as biofuel and coal-gasification to meet future demands as the worlds natural resources are scarce and will eventually diminish. The Question Mark products require high capital expenditure in the hope of increasing their market share. The issue for concern here is whether they should continue to use up large amounts of retained earnings to fund such projects bearing in mind that their competitors are investing in research and development of the same products. Shell claimed “We are finding innovative ways to help meet rising energy demand, as we squeeze more from existing resources and develop new and unconventional energy sources.” h ttp://www.shell.com/home/content/environment_society/nef/e_diversity/

Dogs

For Shell the products that fit into the Dog gradient are nuclear, plastics, coatings and detergents, this is not their core or prime source of business but an area that requires funding and provides little or no return on the investment, rather it just expands the organisation into different areas. These products have low market share and low growth.

Product portfolio analysis examines the existing position of the firm’s products. The next stage is for the firm to identify the extent to which it has managed to acquire a fit with the environment, it needs to identify its strengths, weaknesses and external opportunities and threats. (SWOT)

Conversion

Internal to the

Strengths:

*Largest in size & revenue in the global oil industry

*Trademark & brand globally recognised

*Products that ranges from oils, lubricants, diesel fuel, jet fuel, & petroleum

*Oil refinery plants in over 45

Weaknesses:

*Oil spillages

*Core business activities still relies on oil products

*Scarce natural resources

*Increasing demand for cleaner, cheaper, efficient energy sources

company

M

A

T

C

H

I

N

G

Exist

independently

of the

company

Strengths:

*Largest in size & revenue in the global oil industry

*Trademark & brand globally recognised

*Products that ranges from oils, lubricants, diesel fuel, jet fuel, & petroleum

*Oil refinery plants in over 45

Weaknesses:

*Oil spillages

*Core business activities still relies on oil products

*Scarce natural resources

*Increasing demand for cleaner, cheaper, efficient energy sources

Opportunities:

*Exploring other potential oil fields

*Innovation into alternative energy conducting research and development linking with Universities and Colleges and government research departments

*Partnerships with manufacturers of complimentary products such as the

Threats:

* New oil players

*Stakeholder pressure groups advocating environmental issues

*Government blockages

*National government owned oil companies such as OPEC setting

The idea of the SWOT analysis is to convert the identified Weaknesses and Threats into Strengths and Opportunities. This will help to form part of the business strategy plan. Recommendations for this are discussed below under the ‘Recommendation’ heading.

The GAP analysis can be used for this process.

Sales Target Sales

Gap filled by diversification

Product development strategies

Total sales

Market development strategies gap

Market penetration strategies

Forecast

TIME

The gap analysis is a comparison of the ultimate objective with the current plans and position an organisation is currently in. So that strategies can be devised to fill the gap.

Market penetration strategies are the percentage of the market that the product can capture.

Market development strategies involve moving into new markets either to supply to or extract resources from.

Product development strategies involve the research and development that Shell currently undertakes to reach its target fuel energy diversification products.

Recommendations for the GAP analysis are identified below under ‘Recommendations’. To combine the firm’s activities in the current and new market, with existing and new products known as the product-market-mix it is beneficial to use the Ansoff Matrix:

Shell’s Products plotted on the Ansoff Matrix

Present New

Present

Market

New

Market penetration:

For growth

Maintain position for: oil products in petroleum, diesel, lubricants etc.

Market development:

Continue with current products

Enter new markets e.g. Australia

Diversification:

For Shell this may involve vertical integration

Product development:

Invest in research and development

Continue with innovation search for alternative sources of energy e.g. biofuel, plant, palm oil, compressed

Where are we now? Where do we want to be?

From the findings of the information collected using the Business Strategic Positioning techniques; that are primary and secondary objectives, stakeholder influences, environmental audit and the internal analysis – GAP, SWOT etc. This will form a kind of statement for the company revealing the core competencies and weaknesses to use as a base for the business strategic planning framework.

Business Strategic Planning Process for Shell

The major steps in the strategic planning process are complex and will vary according to the organisation. One plan will not work for another organisation. It depends on the type and size of the organisation and its current activities and where it intends to be in the future. There are three main distinct areas that need to be addressed:

1. Strategic analysis: a full assessment that the organisation must undertake, covering objectives, resources, capabilities, external influences and its future potential.

2. Strategic choice: devising different strategic options that need to be considered for solutions to weaknesses and to place the organisation at a more competitive edge.

3. Strategic implementation, in which the selected strategy is developed and put into action.

The organisation can achieve this through understanding the planning gap, scenario planning, and hierarchy of plans, planning horizons and devising strategic options for weaknesses and areas that require development.

Planning GapPlanning means deciding what should be done, how and when is should be done and who should do it. What objectives need to be achieved and how to meet them. (This should be related to the primary objectives).

The planning gap involves applying the competencies, strengths and resources into the planning process in the most efficient manner to answer two vital questions:

The planning Gap

Macro Scenario planningThis is an essential method for oil companies like Shell, because they rely on and are affected from macro-economic politics. There distribution channels, pricing, extraction occupancies, legal requirements and standards, embargo’s etc. All depend on political factors. The environmental analysis helps to determine the key factors and identify the most important issues. By performing scenario planning, strategies to prepare and overcome such issues can be developed. Recommendations are mentioned below.

Hierarchy of plansMany plans need to be formulated; one plan for a large organisation such as Shell is unrealistic. Shell may even have several plans for just one group or team of people. Looking at the macro issues concerning Shell; focus shall be made on a broad scale rather than individual teams and sub-group divisions. Therefore the hierarchy of plans within the organisation needs to be identified and understood; which will incorporate the whole organisational.

Hierarchy of Plans MISSION

OBJECTIVES

STRATEGIES

POLICIES

PROCEDURES & RULES

PROGRAMMES

BUDGETS

This hierarchical structure of plans shows that the most important level is the mission as we have already looked at the Mission for Shell as a primary objective and other objectives such as the secondary objectives of Shell. Then planning strategies need to be designed. These describe the actions that must take place so that the objectives can be achieved which will complete the planning gap. Policies, procedures, rules and programmes are the activities that need to be carried out, all within a budget and estimated time frame. Time frame is associated to planning horizon sections of the strategic plan will be divided into short, medium and long-term courses of action to meet the objectives.

The stages of the key planning techniques should be associated and incorporate the primary, secondary objectives, internal and external analysis (already conducted) so that each stage has a strategic plan and strategic choice of options that refer back to the vision and mission (why the company exists and how it aims to meet its vision). A strategic planning flow-chart is a useful model for organisations to view its issues and relate them to strategy and the options available.

From the flowchart below we can examine Shell’s main components of the strategic planning process together with the findings already analysed (above) such as core competencies and weaknesses of the organisation identified through the Environmental audit, internal and external analysis, Value Chain System, BCG model, SWOT, R&D, Human Resources, Experiences, Logistics, Financial state, size and locations of the organisation. Following on from these recommendations can be made for the strategic plan.

Strategic Planning Flow-chart

Vision & Mission

Why does the organisation

Objectives

How can the mission be achieved?

The Internal Environment

What are the resources?

The External Environment

What are the external influences on the organisation?

Corporate Analysis

What are our Strengths and Weaknesses?

What are the Opportunities and Threats likely to be?

How do we need to improve in order to

Reconsider & adjust as necessary

Strategic Analysi PESTLE &

PORTER’S 5 FORCES

Strategic

Choice

Steps in the strategic planning process of the flow-chart

Corporate Analysis

What are our Strengths and Weaknesses?

What are the Opportunities and Threats likely to be?

How do we need to improve in order to

Strategic Choice

What are the options for strategic development?

How do the options compare?

Strategic Implementation

What are the best strategies for design, production, marketing etc?

Review & Control

Assess actual performance in the light of the plans

Strategic Positioning

Step 1

Vision/mission (see vision and mission statements of Shell already noted)

Step 2

Goals in relation to the stakeholder analysis (as identified and mentioned above)

Step 3

Objectives, identified and considered above. (under stakeholder section)

Step 4

Environmental analysis, identified and concluded above (under PESTLE factors)

Step 5

Strategic positioning analysis, identified and conducted through internal analysis using various business models

Step 6

Corporate Appraisal, is combining step 4 environmental analysis and step 5 strategic positioning analysis (internal analysis)

Step 7

Gap Analysis compares the outcome of step 6 with step 3 objectives.

Following the above procedure recommendations can be made for the planning process and /or changed. If an organisation is already implementing a plan then it should be monitored and changed if necessary. On completion of the major steps it is possible to summarise the

main competencies and weaknesses of an organisation before developing any strategic plan.

Summary: Core Competencies

Financial

A collective multi-billion dollar turnover and major manufacturing facilities around the world.

Delivering bulk petrochemicals to large industrial customers, through simpler organisational structures and at the lowest total delivered cost.

Benefit from economies of scale. Produces 1.2million barrels of oil more than its competitor. Billions of dollars owned through its world wide assets

Product

Brand Image, globally recognised

Already improved Co2 emission output to meet all global governments legal requirements

All Shell Aviation fuels are produced to stringent manufacturing specifications. At every stage between refinery and aircraft tank, sampling and laboratory analysis check fuel quality. Supplying transport, heating and industrial fuels to corporate and distributing companies in many industries across the world. Supplying specialised fuels, lubricants and technical support services to the marine industry.

Other products such as natural gas, liquefied petroleum gas, jet fuel, different types of chemical feedstock, gasoline, electricity and bio-fuels.

Lubricants and greases for motorists, bikers, transport, construction, agriculture and industrial applications.

Location

Operating in over 100 countries more than any other oil company, mainly Europe, North Africa, Far East and Central America

Human Resources

Highly specialised and professional employees especially in Research and Development, Engineers, Scientists, Managers etc.

Other Resources

Equipment and machinery, Shell owns manufacturing plants all over the world and relies on itself for the majority of its supplies.

Customers, Partnerships and Agreements

Shell has a number of large customer bases, some include well known airlines, marines and countries as customers

Agreements with Microsoft, Educational and Financial institutes. Shell is a partner of the Energy Technologies Institute (ETI), a UK-based private sector

partnership formed between global industries and UK Government. Partnerships with transportation manufacturing industries.

Organisational competencies

Shell has already devised and implemented strategies such as centralised and decentralised span of control to improve competencies, they have a range of strategies to maximise the theory and method of the value chain to differentiate themselves from their competitors. (strategies already mentioned above under the value chain analysis)

Experience is also a key competence for Shell, in business, innovation, partnerships etc.

Summary: Main Weaknesses

Financial

The current global economic slow down, recession in developed countries and the credit crunch has some financial impact on the company. Such as shareholder

interest and investments. The stock market has seen slowdown in the trading of shares and less business travel means less demand for fuel.

Stakeholders – shareholders protest against the increase in salaries for certain employees, as of last year’s financial statements in the annual report.

Product

Product extraction and shipping has caused major oil spillages and leakages Meeting the increased demand for energy presents shipping with quite a challenge. Increases in population and standard of living; means Shell needs to increase the

amount of supply of energy (petroleum) to meet demand Products identified on the BCG matrix under the ‘DOG’ gradient Plastics, Coatings,

Detergents, Nuclear, Metals, Electricity generation etc. Products identified on the BCG matrix under ‘QUESTION MARKS’ Alternative Energy

products, Bio-fuel, Coal - gasification Improvements need to be made on existing products to meet the vision, customers

searching for more efficient, cleaner fuel. New product sources and alternative products for the future.

Human Resources

Health and safety issues are a main concern for petrol-chemical industries, accidents at oil refinery sites, deaths at extraction drilling sites, shipping problems etc.

PESTLE Factors

All PESTLE factors are not necessarily a weakness but should be regarded as warning indicators. Should Shell be unable to address any of the factors it then becomes a weakness. (Already discussed above under environmental audit). These factors must be tackled and when devising the strategic plan the objectives and strategies must clearly state how the organisation deals with each of these factors.

Stakeholders

As discussed above, stakeholders that have a negative impact on the organisation results as a weakness of the organisation. The main weaknesses are shareholders as mentioned above under financial weaknesses, pressure groups, communities/local communities, customer demands and suppliers that Shell rely on.

Location

Shell has little influence and business operations in the US, Russia, Australia and East-Asia. The Middle-East not a customer but a supplier of natural resources to Shell.

Recommendations for Shell’s Strategic Plan

The following recommendations are suggested/possible strategies for Shell to incorporate in their strategic plan based on all the above analysis and identification of the primary and secondary objectives. The main stages of planning can be incorporated into a ‘planning cycle’

Financial Strategies to meet objectives:

Staff Reduction of 1,000 employees Freeze management salaries until 2011 after shareholders objected last year when

executives were awarded bonuses even after performance targets were missed. Conduct business in selective areas where oil producing is maximised Reduce product portfolio

Establish Objectives

Plan the Strategy

Decide Tactics

Implement the Strategy

Review Progress

Investment to enhance the quality of manufacturing and marketing The company will continue to focus on trimming the market portfolio and selling

non-core activities to maintain price sustainability.http://royaldutchshellplc.com/category/oil-company-

profits/

Use core financial competencies mentioned above to implement these strategies such as use retained turnover to invest in improving the quality of manufacturing and marketing.

Marketing Strategies to meet objectives:

Promotion

Setting up partnerships with Shell’s corporate advertising, media partnerships and associated engagement programme position Shell as a company with a point of view; a company that is positive about energy and rejects complacency; one that listens and responds to the views of key stakeholders on issues that are relevant both to its own business and the energy industry as a whole.

In 2007, Shell engaged directly with more than 1,000 global opinion leaders such as government and business leaders, NGO officials, academics and the media at over 30 events across the world, via through-the-line media partnerships. Above-the-line communications focused on providing tangible examples of the way in which Shell is helping to secure a responsible energy future. A new website – www.shell.com/dialogues features an interactive element which provides an opportunity for consumers to discuss energy issues with major players from Shell and other relevant organisations.

Shell changed its slogan from “You Can Tell When Its Shell” to “Taking Action to meet the energy challenge” giving off a new kind of promotional message.

Current Product

All automotive fuels and lubricants are not the same and Shell’s extensive R&D programmes continually strive to develop new and better fuels and lubricants, to satisfy growing customer requirements for energy efficiency, with improved engine and environmental performance. The overall aim is enhanced mobility. Shell’s advanced fuel technologies include developments in deposit control, improved combustion and friction control, for more efficient operation and superior performance. Shell Helix motor oils employ active cleansing technology, designed to prevent dirt building up in the engine, so enabling it to operate to its full potential.

New Products

Maximise on human resources and continue to employ and reward those who add value to the products. Invest heavily in research and development for alternative sources of energy.

Work closely with Governments, government institutions, educational institutions such as research universities and colleges of science and technology. Continue to

establish such links and partnerships world wide, not just in Europe but spread this investment to developing countries.

“We partner with other companies to benefit from shared know-how.” http://www.shell.com/home/content/innovation/alternative_energy/

Pricing

For Shell to remain price competitive it needs to manufacture output at a higher rate so that the volume of units increase and thus increase supply. When supply is higher prices are reduced.

The Middle-East and members of the OPEC organisation set to control prices as the natural resources for oil are founded in these areas. Shell needs reconciliatory talks and discussions must be established with the members of the OPEC in relation to the current prices of oil and petroleum based products. To further reinforce these steps, the company must assign area/regional managers in these countries who have a significant understanding and immersion in the local Islamic culture.

Location

Nigeria is one of Shell’s strategic plans for the development of the Bonga oil field will represent an increase of around 10% in Nigeria’s oil production.

Places such as Russia and Far East Asia have restrictions as well as other government oil producing countries such as Saudi and the UAE.

Develop programmes that benefit the people and the government of the third world countries that are rich in oil. Programmes of educational value and projects that include employing local suppliers and human resources. Such benefits are welcomed from under developed countries as this helps their economy to grow.

Shell therefore will have recruitment policies to employ local people and contractors. Shell stated: “The Shell Petroleum Development Company (SPDC) and the Shell Nigeria Exploration and Production Company (SNEPCO) employ around 6,000 direct staff and contractors. More than 90% of them are Nigerian. This supports the government drive to increase Nigerian involvement in major projects. It also makes sense for us – by developing a skilled Nigerian workforce we can lower our operating costs over the long term.” http://www-static.shell.com/static/nga/downloads/pdfs/briefing_notes/nigerian_content.pdf

Shell will only operate in countries where it is able to follow its business principles. These principles set out what Shell stands for and define its behaviour and are published on its website. The Diagram displays how Shell can benefit the community in the foreign country that it is extracting its raw material resources from.

Shell, in its commitment to improve the wellbeing of local communities, has created local partnerships. It has provided health facilities and supported the development of local schools and universities. Shell is dedicated to protecting human rights and helping communities. The search for oil and gas can take energy companies to places with poor human rights records. It treats each case separately using decision-making methods set out by the Danish Institute for Human Rights.

Health & Safety strategies to meet objectives

Our Goal Zero programme and supporting company-wide initiatives are helping to strengthen our safety culture.

Employ management at our locations worldwide to ensure that we manage safety systematically and have the right resources, skills, tools, standards and procedures in place

PESTEL factors identified to formulate the following strategies

For Shell the main strategies that need to be deployed as part of the strategic plan are strategies to take advantage of situations that arise from the PESTEL analysis, for example technological advances, Shell implemented strategies such as building up partnerships with Microsoft to develop and create specialised software and hardware for such a large global corporation.

Using technology to improve delivery, machinery, working conditions and manufacturing plants.

Social and cultural strategies can be formed as part of the plan and consider factors where population increases in developing countries like China that require more transportation usage will lead to an increase in demand for more supply of fuel. Shell can boost its current supplies from new markets such as Nigeria to supply oil to new market growth areas such as China. Extract from one source to sell and supply in another.

Physical, ecological environment is an important factor when considering strategies for the business strategic plan. For Shell this is where their main strategies take place for the future, their strategies on innovation. Funding and investing for new alternative sources of energy to move from fossil fuels to bio-fuels, gas-to-liquid etc.

Other strategies for this area are: Shell talks regularly with major pressure groups such as Friends of the Earth and Greenpeace about key issues such as how best to dispose of old oil rigs to minimise damage to the environment. It deals directly with specific pressure groups that are campaigning on local issues such as the preservation of animal and plant life in a particular area. For instance, it has invested over $800,000 (over £500,000) in establishing a research laboratory in Louisiana, USA, to help restore coastal erosion. This will preserve endangered bird and plant life both there and across America.

SWOT factors the following strategies recommended below are for Shell to convert its Weaknesses and Threats into Strengths and Opportunities. Some strategies have already been mentioned above regarding weaknesses and threats.

Oil spills happen at Shell’s facilities – those we cannot control, for example due to hurricanes or sabotage; and those from factors we can control, like corrosion or operational failure. Strategies such as - Improve and increase focus on process safety.Developed extra guidelines for the inspection and repair of all our distribution pipelines.

Product Portfolio strategies

Shell has formulated an elaborated strategy of the BCG Matrix called A Nine Celled Directional Policy Matrix. The Shell Directional Policy Matrix is another refinement upon the Boston Matrix. Along the horizontal axis are prospects for sector profitability, and along the vertical axis is a company's competitive capability. As with the GE Business Screen the location of a Strategic Business Unit (SBU) in any cell of the matrix implies different strategic decisions.

Leader – major resources are focused upon SBU

Try harder - could be vulnerable over a longer period of time, but fine for now.

Double or Quit – gamble on potential major SBU’s

Growth – grow the market by focusing just enough resources here.

Custodial – just like cash cow, milk it and do not commit any more resources

Cash Generator – milk even more for expansion

Phased withdrawal – move cash to SBU’s with greater potential

Divest – liquidate or move these assets on as fast as you can.

Based on this matrix the strategy to deploy for Shell would be to use the Phased withdrawal for its products in Plastics, Coatings, Detergents, Nuclear, Metals Electricity generation.

Conducting an internal and external analysis of Shell provides information about the company’s strategic positioning so that it can compile a business strategic plan to bridge the gap that ensures the primary objectives are being met. It is a complex operation organisations use business models, tools and techniques to assist the analysis procedure. The Flowchart indicates the necessary steps for the planning framework. Using the SWOT analysis can facilitate corporate management to compare and contrast their positioning to competitors. Awareness of competitors SWOT will enable Shell to incorporate strategies in the plan to position itself at a competitive edge.

Shell’s competitors have been mentioned in the ‘Aspects of the physical environment in the first layer.’ For a comparison focus will be made on BP; its neighbouring competitor since they compete in similar markets, unlike Mobil which mainly dominates the US.

Statistical Comparison

Shell BP

+ 100 countries where we operate +90 countries operate in102,000 number of employees 80,300 number employees3% amount of world’s oil we produce 2% world’s oil4% amount of world’s gas we produce 3% gas produced3.1 m barrels of gas and oil we every day 2.3 million of barrels44,000 Shell service stations worldwide 22,400 service stations145 billion litres of fuel sold ---------------------------44 refineries and chemical plants we own 16 refineries1 ranking by Fortune 500 in 2009 ---------------------------

SWOT Analysis for BP

Strengths:

*4th Largest in size & revenue in the global oil industry

*Trademark & brand globally recognised

*Products that ranges from oils, lubricants, diesel fuel, jet fuel, & petroleum

*Owns & manufactures few supplies

*Specialised employees i.e. scientists, engineers, contractors,

Weaknesses:

*Oil spillages

*Core business activities still relies on oil products

*Scarce natural resources

*Increasing demand for cleaner, cheaper, efficient energy sources

*Foreign countries that possess natural resources for oil tend to be in political unstable environments

*Competitors reducing prices

Strengths:

*4th Largest in size & revenue in the global oil industry

*Trademark & brand globally recognised

*Products that ranges from oils, lubricants, diesel fuel, jet fuel, & petroleum

*Owns & manufactures few supplies

*Specialised employees i.e. scientists, engineers, contractors,

Weaknesses:

*Oil spillages

*Core business activities still relies on oil products

*Scarce natural resources

*Increasing demand for cleaner, cheaper, efficient energy sources

*Foreign countries that possess natural resources for oil tend to be in political unstable environments

*Competitors reducing prices

Opportunities:

*Exploring other potential oil fields

*Innovation into alternative energy conducting research and development

*Partnerships

*Acquisitions and Mergers

Threats:

* New oil players

*Stakeholder pressure groups advocating environmental issues

*Government blockages

*National government owned oil companies such as OPEC setting prices

*Existing competitors moving into new markets

http://www.bp.com/subsection.do?categoryId=2317&contentId=7060028

Compare and Contrast Shell to BP Competitor

The statistical indicators show that Shell is at a more competitive advantage in terms of its size, spread, locations and output. Both companies possess similarities in their strengths, weaknesses, opportunity and threats.

The main issues for the weaknesses identified are that BP only seeks diversification in two other sources of energy: bio-fuels and solar power. To meet the needs, demands and climate changes there is a need for search into a variety of alternatives.

Another main weakness is the continuing poor safety and pollution standards. In the 2005 explosion 15 people were killed.

Creating poor public relations, bad press and raising concerns with all forms of stakeholders. Also shareholders view this as unnecessary clean up costs that otherwise could be used for dividends.

Comparing the two data analysis, it can be identified that a major strength of BP is it aggressive strategy towards expansion. Rather that using its human resources to obtain organic growth, BP is active in mergers. This strategy has proved to be a success for BP especially in the early 2000 years. (See graph)

Evaluating the graph, it shows BP’s strategy towards growth in active aggressive mergers led to the sharp rise in the prices of shares.

“Shell, it seems, is playing catch up. While the oil industry embarked on a period of intense consolidation between 1998 and 2000, Shell stood curiously aloof. This may have been a strategic decision, but it seems more likely to have come about from the lack of one.

Now the Anglo-Dutch energy giant, after a few false starts, has finally managed to notch up a couple of takeovers. BP has the tremendous advantage of being seen as a mean, aggressive company, while Shell just plods on, Shell-like. Acquisitions tend to be easier than organic methods, if the cash is at hand that is, and so Shell has finally headed down that path.

Consolidated out:

Shell has bought the independent oil producer Enterprise for $6.2bn, and the US motor oil company Pennzoil-Quaker State for $1.8bn. But while the size of those purchases might sound impressive, they're tiny when compared with the mega-mergers of days gone by. BP bought Amoco for a cool $110bn, before following it up with a $30bn takeover of Arco. Once mergers of that scale have already occurred, then the whole industry is pretty much consolidated out. Meanwhile, BP - the wise company - is busy trumpeting its past and future ability to hit 5.5% growth. While Shell's acquisition strategy may be questionable, at least buying Enterprise will ensure it does not fall short of its latest goal and be outdone by BP.” (Statement made by BP chairman Lord Brown, http://news.bbc.co.uk/2/hi/business/1906963.stm Tuesday, 2 April, 2002).

Additional strategies recommended for ShellIn response the competitor analysis Shell should devise extra strategies to include as part of the strategic plan. Strategies that take up opportunities from the weaknesses and respond to competitor strengths such as:

Technological frontiers such as the deep water of the Gulf of Mexico and the Arctic are seen as vital sources of future production for companies such as Shell, which have found it increasingly hard to secure access in countries with fewer technical difficulties. Mr Henry described the Gulf of Mexico as a “very important region” for Shell, saying that three new exploration wells drilled in the area had identified a potential for more than 350m barrels of oil equivalent. Royal Dutch Shell has sent six boats to help clean up the oil slick created by last week’s fatal accident on board the Deepwater Horizon drilling rig in the Gulf of Mexico. Simon Henry, Shell’s chief financial officer, said the oil industry was working together to limit the damage caused by the leak from a well drilled for BP. (source, By Ed Crooks Published: April 28 2010)

Shell companies participate in a number of strategic joint ventures. Complementary strengths, shared long-term visions, consistent business principles and an equal commitment to sustainable development are the potential keys to successful alliances. For Shell companies, joint venture partnerships open up new market opportunities and access to local market knowledge. For our partners, the benefits include gaining access to world-leading technologies and to proven experience in delivering large-scale projects. For customers, joint ventures bring into play new sources of product, with the advantage that they are likely to be manufactured using proven technologies and delivered against familiar specifications. http://www.shell.com/home/content/media/newsandlibrary/pressreleases/2008/q32008resultsnewsitem30102008.html

Shell Technical Partnership with Ferrari is regarded as the most successful partnership in the world of Formula One, with 12 Drivers' titles and 10 Constructors' titles together. Shell works alongside Ferrari to further establish an ongoing legacy of success in motorsport.

To improve on innovation Shell has teamed up with Toyota to work together to develop automobiles that work on alternative sources of energy. This is an important strategy for Shell. It is pointless to develop innovative products if the transport industry are not ready to manufacture transportation to support the alternative energy sources.

ConcludeConducting business strategy formulation using appropriate business models and tools enables an organisation to identify its main competencies and weaknesses and view how its organisation fits within its operating environment. Taking advantage of methods such as these also allows corporations to apply competitor analysis. This provides grounds on which to base and form a business strategy plan. The plan should to monitored and changed if necessary and conveyed throughout the organisation. The strategic plan should be devised and implemented in order to achieve the company’s long-term vision and mission.

References:

http://money.cnn.com/magazines/fortune/global500/2009/

http://www.businessdictionary.com

http://www.shell.com/home/content/media/newsandlibrary/pressreleases/2008/q32008resultsnewsitem30102008.html

http://royaldutchshellplc.com/category/total/

http://www.exxonmobil.com/Corporate/news_releases_20100506gulf.aspx

The_Economist-business-admin@news.economist.com

http://www.hoovers.com/free/co/burn.xhtml?ID=50019

http://www.shell.com/home/page/aboutshell/whoweare/shellworldwide/mapapplication.html

www.thetimes100.co.uk

http://www.kyivpost.com/news/business/bus_general/detail/65983/

http://www.guardian.co.uk/business/2008/nov/12/oil-gas-companies-credit-crunch

http://www.search.shell.com/search

http://www.newworldencyclopedia.org/entry/Royal_Dutch_Shell

Books:

Title: Business Essentials Business Strategy

Edition: 1st, September 2007

Publisher: BPP Media

Author: Permission from Edexcel

Title: Dictionary Business & Management

Edition: 2nd, 2004

Publisher: Bloomsbury Publishing Plc

Author: Fiona Pike

Title: Complete A-Z Business Studies Handbook

Edition: 5th, 2006

Publisher: Hodder Education

Author: Professor David Lines, Ian Marcouse, Barry Martin

Title: Business Studies for Advanced Level

Edition: 3rd, 2008

Publisher: Hodder Education

Author: Ian Marcouse, Malcolm Surridge, Andrew Gillespie

dentification-and-analysis-of-the-Business-Strategy-formulation-and-planning-according-to-Shell-Group-Plc

STRATEGY ANALYSIS – ROYAL DUTCH SHELL

Royal Dutch Shell is a global group of energy and petrochemical companies, employing around 101,000 people in more than 90 countries and

territories worldwide. Shell is currently listed as the world’s eighth largest corporation.[1] In Australia, Shell employs around 2500 people and is

broadly divided into its ‘Upstream’ and ‘Downstream’ businesses. The ‘Upstream’ business finds, develops and supplies overseas and domestic

customers with raw fuel. The ‘Downstream’ business manufactures petroleum products for retail throughoutAustralia.[2]

The purpose of this report is to analyse the business strategy of Royal Dutch Shell. The report will address three main questions:

      • What is Shell’s business strategy?

      • How is Shell’s business strategy developed and articulated?

      • Is Shell’s strategy appropriate for success?

The answers to the first two questions will be brief and descriptive in nature. To answer the final question, the report will analyse the Shell’s

strategy using a framework of ‘the four common elements of successful strategy’, as detailed by Robert M. Grant; simple, consistent, long-term

goals; a profound understanding of the competitive environment; an objective appraisal of resources; and effective implementation.[3]

Shell’s strategy is outlined in its 2009 Annual Report. The stated objective, or mission, is “to reinforce our position as a leader in the oil and

gas industry in order to provide a competitive shareholder return while helping to meet global energy demand in a responsible way.” Shell plans to

achieve this through a focus on exploration for new oil and gas reserves in its ‘Upstream’ businesses and sustained cash generation in

‘Downstream’ businesses. Shell acknowledges that technology and innovation are at the core of its strategy and reinforces its commitment to

minimise the environmental and social impacts of the growing worldwide demand for energy.[4]

Royal Dutch / Shell Global SWOT AnalysisStrengths

Shell’s current investments in exploration will help ensure continued activity over coming decades.

Research into biofuels, solar power, wind power and energy from hydrogen helps the organisation diversify in a market where

ecological issues are of increasing concern, and also addresses issues of the longevity of fossil fuel reserves.

Diversification into products such as fuel cards and credit cards helps Shell maintain a wider portfolio of products, spreading risk.

Shell pioneered the use of scenarios, a planning tool where a range of possible future situations are explored and strategy adapted to

ensure future demands can be met.

The organisation has worked hard to improve its general reputation and believes it is now seen more positively than it used to be.

Shell has utilised opportunities to develop strategic partnerships, for example, supplying CO2, which is a by-product of its refinery

process, to Dutch tomato farmers who had previously used heaters (higher CO2 concentration in greenhouses accelerates tomato

growth).

Weaknesses Shell’s strong focus on oil and gas requires it to search continually for replacement supplies, and exploration is a high-cost element of

its operations.

Shell still uses the technique of flaring and burning gas from oil extracting sites as a way of dealing with unwanted by-products of its

operations: this is considered to be environmentally unacceptable by many.

Shell has a strong presence in Nigeria, but this area is politically volatile and operations have been fraught with security problems for

staff and attacks on production. The company may be forced to withdraw, compromising its network of resources and threatening its

ability to meet production obligations.

The company is reported to be reviewing involvement with a windpower development near Blackpool, raising questions regarding its

commitment to alternative energy sources.

Opportunities New oil and gas reserves are still being found, and there is the potential to discover more.

Shell has been able to move into areas rich in reserves which were previously too risky to operate in, for example Iraq.

Shell’s active response to criticisms of environmentally unfriendly activities may lead to less antagonistic relationships with

environmental groups.

Emerging economies have a large and growing demand for fossil fuels.

Diversification into new products and alternative fuels may open up new markets.

Threats Fuel prices in recent months have been particularly volatile, initially rising quickly but subsequently falling sharply, reducing potential

profit

Political issues in some regions, Nigeria in particular, threaten operations. A court order has demanded Shell hand over a site on the

Niger Delta to local ownership.

Summer 2008 saw strikes by tanker drivers working for Hoyer, suppliers of Shell, resulting in negative publicity, criticism of Shell’s

high profits and a supply problem for Shell forecourts.

The economic downturn has led to a decrease in demand for fossil fuels, possibly aggravated by changes in driving habits in

response to high fuel prices earlier in 2008.

Weather can have significant effects on production, with refineries particularly hit recently by Hurricane Ike