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STRATEGIC CHANGE REPORT INTRODUCTION Strategic change refers to the alteration of the normal routine or way of doing things within an organization. In most cases, instances of strategic change are driven by the organization’s need to fit in the competitive market environment as well as to meet its growth agenda (Pournasir,2013). According to Merrel (2012), strategic change must be considered as a reality for any organization with the motive of prospering in volatile and unpredictable times. Merrel (2012) further stated that strategic change is “simply doing things in a way different from what you are used to or doing completely different things”. STRATEGIC CHANGE OVERVIEW Change in an organization can be classified as planned or emergent. Planned change involves an organization highlighting the different phases of change that will be passed through in the course of moving from an unacceptable position to a recognized desired status. The emergent change category supposes that change is an unpredictable and undesirable continuous process of organizations adjusting to varying circumstances that are either internal or external (Kuwada, 1998). Considering that most change occurrences are brought by the uncertainty of circumstances, emergent change is more significant. Changes within organizations are mostly instigated by legislation, incorporation, attainment, competition in the market, the world economy, structural change, control system, culture and power distribution (Hussey, 2001). Every growing organization must undergo periods of evolution, either in one aspect or many aspects; the initiation of the change process in one aspect leads to the instigation of a chain of change phases in more aspects of the organization. Change in organizations involves strategy, structure, frameworks, processes and the organization’s culture. The organization’s culture is the major hindrance to a smooth strategic change process since changing individual behavior of employees within an organization has never been easy. Resistance prevails as individuals try to maintain the status quo since organizational change creates a wave of stress, insecurity, and uncertainty, thus affecting the calmness of the employees working within the organization (Syynimaa, 2015). However, according to Antonacopoulou& Gabriel (2001), employees may resist change due to various reasons: misunderstandings inconveniences caused by the change, negative rumors, economic propositions, intolerance and fear of the unknown. To curb resistance, the management is expected to play a major role in enlightening employees and ensuring that they are well prepared for the change. According to Burnes (2004), change programs are reported to fail in most instances due to the lack of a conducive framework on how to conduct and manage such changes. Burnes further stated that current and available change theories and approaches are contradictory and confusing; therefore, relying on them would probably lead to failure. In this report, the focus is on organizational restructuring and strategic changes that occurred in the Shell Group, as of the year 2000. Change in Shell shifted from a geographical focus to a business structure; a process which involved the elimination of numerous corporate posts, the closure of Shell’s headquarters based in London and redesign of Shell’s overall management and control structure. Shell is one of the largest petroleum companies in the world and with the urge to keep the title, the restructuring was deemed mandatory. INTRODUCTION TO THE COMPANY PROFILE: SHELL The Royal Dutch Shell Group was formed after Royal Dutch Petroleum Company based in Netherland and the Shell Transport and Trading Company based in Britain merged in 1907. The merger occurred due to the fierce competition faced by the two companies from John D. Rockefeller’s Standard Oil company (Goey, 2002). Shell proceeded to engage in chemical business from 1929 to 1933, and the company’s interest in the United States of America was consolidated following the foundation of Shell Union Oil Corporation. The Shell company was majorly hit by the second world war after which it began rebuilding the war-struck refineries and tankers. It went a notch higher to build new oil fields in Africa that’s Nigeria, Sahara and Gabon, Asia that’s Iraq, Oman, and at America in Canada, and Colombia. In the early 1980s, Shell diversified its market offer by building metals and coal businesses, venturing in flower growing in the Netherlands, Forestry in Chile and New Zealand and biotechnology in the USA and all over Europe (Goey, 2002). Shell aimed at increasing its presence in the USA; this was evident after Shell acquired Belridge Oil of California, and invested over $5.4 billion in it. The structure of Shell is classified from the perspective of governance responsibilities and executive responsibilities (Welham, 1989). Governance responsibility perspective entails looking into the structure in terms of the companies that make Royal Dutch Shell Group as well as the links of ownership and control within Shell’s structure; while executive responsibility entails looking into the management perspective, considering day-to-day management activities which are complex. Shell’s current formal structure does not correspond to the management approach. Shell was structured from ownership and legal considerations, which were more focused on governance responsibility; thus, Shell Group was divided into four companies (Paz,2011). The parent companies are Royal Dutch Petroleum Company of Netherland and the Shell Transport and Trading Company of the UK, each owning company shares in the proportions of 60% and 40%, respectively. Each company had a separate Board of Directors and Stock exchange market listing in European and USA stock exchange markets; Group Holding companies included Shell Petroleum of the Netherlands and The Shell Petroleum Company Ltd of the United Kingdom. These held shares in both the service delivery wing of the companies as well as the operating companies of the Group. Shell petroleum is the parent of the current Shell Oil Company and held shares in the Shell Petroleum of the US; they also had Service companies. During the 1990s, before the strategic change took place, there were nine service companies located at the Hague and they were in charge of advising and offering various services to operating companies; however, they were never allowed to take part in the operation process (Spaght, 1993). Finally, there were the Royal Dutch operating companies also known as “opcos”. According to Shell’s 1993 annual report, Shell had over 50% shares in 244 companies located all over the world (Rands& Sayers,n.d.). The companies varied in size and therefore, leadership ranks since they had large companies like the Shell Oil Company Inc USA and small marketing companies like Shell Cambodia. Considering the fast progress and new state of the market, the Shell Group was convinced to initiate the change process in the early 1990s. Royal Dutch Shell Change Initialisation The change process which took effect in 1994 began with restructuring Shell’s operational structure; thus, eliminating the earlier three-matrix structure which was geographically based rather than focusing on Shell’s business interest. The earlier structure had advanced negative effects on Shell’s business performance as the company’s revenues were significantly degrading. Surprisingly, the Shell community had embraced their under-performance, an observation made by the then Vice Chairman, John Jennings, who stated, “We tolerated our own underperformance. We were technocratic and insufficiently entrepreneurial”. The change began by restructuring Shell’s management system to ensure higher performance; by cutting down the long chain of coordination as well as reducing powers vested in some units of the company. The Royal Dutch Shell Group’s top management power was vested in a committee of five Managing Directors (Kwee, 2011). During those days, Shell lacked strong leadership since power was vested in a committee, unlike their close competitors who had strong individual leaders such as Exxon oil and BP oil companies (Kwee, 2011). Shell had to find a matrix which would help in the organization’s coordination considering that there was interdependence among the different companies (Pocock, 1979). Therefore, with the help of McKinsey & Company, Shell managed to create a matrix within its Service companies to enhance the organization’s coordination. Its strategic planning responsibility was solely entrusted to the management system. The matrix created in the Service companies was based on geographical dimensions with the operating companies making it possible since they were in charge of planning at national and regional levels; a structure which is not recommendable for a private company like Shell as the business interests of the organization may not be valued. Shell’s first strategic change planning had a number of deficiencies which included (Schoemaker& Van der Heijden,1993): Focus on long-term goals in strategic planning: Shell made long-term plans of up to 20 years ahead, unlike most other companies who make only four to five years of planning. They based their plans on scenarios and not forecasts; thus, making it complicated for the management to consider future response in occurrences that may unfold in future. Non-focus on financial progress rather the planning was based on emphasizes on future generations: The planning team focused on concepts retrieved from economics, psychology, biochemistry, biology, mathematics, anthropology, and ecology; thus, Shell started management strategies ranging from several scenario analyses, business portfolio planning to cognitive mapping. Strategic change decisions mostly originated from lower ranks in Shell, whereby, change initiation was from the bottom upwards with the operating companies being the key instigators. The Committee of Managing Directors would receive the proposed changes and identify key issues, set the strategic directions and approve the projects. The Committee would then pass the strategic change project to Shell’s planning department which was in charge of formulating the change phases and procedures. CRITICAL ANALYSIS OF STRATEGIC CHANGE IN SHELL USING CHANGE FRAMEWORKS AND THEORIES Critical analysis of the strategic change that occurred in Shell Shell commenced its strategic change process in the 1990s following the pressure to adopt a top-down change planning structure and replace the ineffective bottom-up approach (Waskey, n.d.). The pressure was due to the organization’s low financial performance. Oil prices, refining, and chemicals were facing a large wave of excess capacity in the market, thus leading to the price decline. The Shell’s Committee of Managing Directors was forced to adopt short-term financial result goals and forego the former long-term strategy. Shell’s first strategic change trial was initiated in May 1993 after Cor Herkstroter took over as Chairman of the Committee of Managing Directors. The new Chairman was more aggressive to see the change process through and save the organization from the financial crisis, thus he called a surprise meeting of 50 top Shell managers in May 1994 at Hartwell House, at a minor English country (Rumpf,2000). This meeting led to the formation of a team tasked with the role of checking into Shell’s structural problems and coming up with redesign options. The group prepared a draft of proposed adjustments to be done in Shell’s structure; the organization conducted a series of workshops held in London where all possible steps and outcomes of the changes were explicitly discussed. The main proposed action of the draft was to make Shell’s structure simpler with a clear reporting system; enabling the management to have more effective control over operating companies of the Shell Group. This would also cut the cost and resistance that had developed around Shell’s Committees over the past years, hence making coordination easier and more streamlined. The draft faced very little dissent; an indicator that a higher percentage from the 50 managers were up for the change. However, two unexpected events occurred which led to the failure of Shell’s first strategic change trial. Firstly, there were boycotts of Shell’s products, especially in Germany, which were influenced by environmental groups led by the Greenpeace movement (Rands& Sayers, n.d.). This prompted Shell to evaluate and dispose of a giant North Sea oil platform in the depths of the Atlantic after incurring massive losses. Secondly, the Nigerian military executed a prominent anti-Shell author, Ken Saro-Wiwa. These two incidents sparked a wave of negativity amongst consumers; thus, Shell’s public relation was under siege. Therefore, Shell was forced to reconsider reversing its decision and strategy change plan to cater to immediate developments. The two shortcomings slowed down the change process, however, their benefits were crowned by increasing the organization’s agitation to implement the change. Application of theories Theory of Kurt Levin’s Change Model This theory applies a change in three different steps which includes unfreezing, changing and freezing (Schein, 1996). Unfreezing Shell considered this step in their calculation from the moment of initiating the change process. That’s when the new Chairman of the committee convened a surprise meeting for all 50 managers; they were the ones in charge of proposing the pressing issues within Shell which required adjustment. This indicates that everyone involved with the change process was well informed of the possible outcomes and terms to be met to make the strategic change process a success. Changing This step involves proceeding with the change process; the implementation of the change. Shell attended to the central subject of the discussion held on May 1994 and dismantled the three-matrix structure which its operating companies had been coordinating since the 1960s. Consequently, Shell created a four-unit structure to create closer integration. It was in the interest of the change that leaders came up with a structure that would allow effective planning and control; cutting off top non-essential ranks in order to reduce cost and remove the power of top managers in their regional operations. Freezing This stage involves solidifying, stabilizing and reinforcing which helps ensure that people don’t return to systems employed in the olden days. Shell restructured its management, therefore the organization also had to adopt a new formal structure. The freshly implemented corporate center and professional service department were located at Shell International Ltd in London and Shell International in The Hague, while service companies housed the new business organization. The central feature of the new structure was business organizations led by Business Directors appointed by a Committee of Managing Directors. Other units introduced following the change were The Corporate Centre which assisted the main companies, the Group Holding companies which managed their financial and corporate affairs and also supported the Committee of Managing Directors, as well as the Professional service unit which provided technical support to operating companies and service companies within the Group. Dunphy and Stance’s Framework for Corporate Change This theory deals with a contingency model that handles change in the environment, resulting in business strategy changes. It also describes the styles of leadership: consultative, collaborative, directive and coercive (Dunphy& Stace, 2009). Initially, under the Chairmanship of J. S. Jennings, the Managing Director of Shell Transport and Trading, Shell’s organizational change proponent efforts to convince the Committee of Managing directors on the need for change were futile. That’s until Cor Herkstroter took over as chairman and collaborated with the organization’s stakeholders to initiate and see the change process through. After prompt meetings and consultations with all 50 Directors, Cor Herkstroter managed to win the support of the entire Shell community in going for a new system that would suit the organization more appropriately. Cracking the Code of Change (Theory E & O) This change is based on the economic value of the organization and its capabilities. The theory attempts to explain how organizations should thrive to adapt to the economy and its capabilities in order to succeed (Beer&Nohria, 2009). Shell was facing financial under-performance and a complex organizational structure. That’s why Cor Herkstroter initiated the change process which later led to Shell replacing its three-matrix structure coordinated by operating companies with a four business organizations structure led by Business Directors. The structural change shortened Shell’s reporting system, thus ensuring more effective command line for the Committee of Managing Directors as well as eliminating some office posts which were ruining Shell’s performance and depriving it of a lot of its revenues. In 1998, Mark Moody-Stuart, Cor Herkstroter’s successor, announced the continuation of the restructuring process to reduce Shell’s cost base even more.

Quin and Voyer's Logical Incrementalism Theory Quin and Voyer'slogical incrementalism theory suggests that “rational” planning would be effective considering that most organizations make a change after iteratively trying several approaches and thus, they are able to come up with the best planning for strategic change (Kippenberger, 1998). Basically, this theory supports the challenges of the strategic change process as it helps in making the change plan better and more comprehensive. Shell’s change process began at a high pace, considering the full support of the planned change from the Shell community and the organization’s financial potential to facilitate workshops, benchmarks as well as hire companies like McKinsey & Company to help in the interview process. However, the Nigerian PR problem and the closure of Germany’s market made the organization reconsider its plan. Additionally, the competition was also becoming stiff since most governments were investing in petroleum and the chemical industry, thus tightening the race. Challenges are not entirely a bad omen to the change process as sometimes resistance helps in making better and concrete decisions since change may not always be useful to the organization. With the challenges, Shell was able to formulate the best structure to fasten their coordination process, hence easing business activities. STAKEHOLDER’S OVERVIEW The Directors of the various companies under the Shell group were the key proponents of the strategic change. Though their urge to ensure the change process took place were not well considered by the Committee of Managing directors, they kept putting forth their concerns. That’s why Cor Herkstroter had an easy task in initiating the strategic change process as there was very little resistance considering that the management was all for the change. Following the Hartwell House meeting, a high-level team was appointed to investigate Shell’s segments that required change. The team came up with a report which was read to company employees by the Chairman, Herkstroter, in January 1995 to prepare them for the change. The management was the most affected unit of Shell due to the alterations as there was the introduction of new posts like CEO and executive posts for each Shell business (Rumpf,2000). The reporting structure also varied since the three-matrix structure, which was based on geographical consideration, was replaced with business organizations. The new system focused more on supporting the various Shell companies, unlike the former structure which had put a lot of weight on supporting the Committee of Managing Directors. Therefore, the apex unit (the Committee) was stripped from some power. RECOMMENDATIONS Shell has made quite a progress in ensuring that an effective system is in place and their business interests are well catered. However, even in the new structure, some of the old three-matrix model features have also been maintained. Shell should, therefore, consider stripping away more of the administrative posts to reduce the cost of operation and to ensure a more direct style of management. Additionally, in the process of minimizing administrative positions, Shell should further ensure that available personnel is in a position to effectively handle their roles without stressing the system. Some committees, such as the Committee of Business Directors, may also need to be dissolved considering that they are lengthening the reporting structure since what Shell needs is to ensure that the Committee of Managing Directors has direct power over the Directors of each individual business under the Shell Group.

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