The Transformation of Shell Oil Company

People have always been considered one of Shell's greatest assets. But the relationship between a company and its people is currently being reexamined not only within Shell but within every part of the global marketplace.

The prevailing model for several decades was captured in William Whyte's 1950s classic, The Organization Man, in which people turned themselves, their hopes, their dreams, and even their principles, over to the organization. In return for these sacrifices, people expected the organization to take care of them.

"The premise was that if I worked really

hard, I should have permanent employment

and rewards," says Michael Grasley, President of Shell Chemical Company. "The focus was on hard work when it should have been on measurable results--things that add value. We all have to find what adds value and take responsibility for creating that."

Today, Grasley says, there's a growing realization that individual security is bound up with corporate success. The heads of the other business units concur. "To provide as much job security and future opportunity as possible, we have to be the most cost effective at everything we do," says Jack Little, Executive Vice President of Exploration and Production. "The only people who can guarantee us jobs are our customers," says Jim Morgan.

Shell's new corporate compensation program, unveiled this past summer, was designed to recognize individual and team contributions, and to reinforce the very real link between pay and performance. To Bert Levan Vice President of Human Resources, variable pay programs and flexible work schedules are all part of moving Shell toward a less paternalistic structure in which employees have greater freedom and more responsibility for results.

Belief in people begins with believing in ourselves. And that means giving up fantasies of being saved by external forces. Phil Carroll recalls that when classical playwrights couldn't think of any other way to get their heroes out of a scrape, they used a complicated set of pulleys to lower a deus ex machina--literally, a "god out of the machine"--to save the day. "We can't expect our problems to be solved by oil prices, disarray in OPEC, Mother Nature, or any other outside force," Carroll says.

So who is responsible for helping Shell achieve its potential?

The last line of the vision statement puts it succinctly: "We, the people of Shell, are the key to achieving this vision." If

ever there was a statement of belief in people, this is it.

"The value of trustworthiness has several elements," Carroll says. "The first is concerned with ethical and honest behavior in dealings with customers and others. That's been part of our culture for a long time. No one is surprised that we want to keep it.

"There's also the dimension of delivering on our promises--doing what we say we're going to do," Carroll says. He notes how in recent years, individuals, departments, business units, and the corporation as a whole have all failed to deliver on many of the business plans they've laid out. The result, he says, is a credibility problem as well as a performance problem.

Carroll acknowledges that the cumulative effect of a number of actions--especially reductions in staff--have affected the trust that employees once vested in the company. He is committed to rebuilding that trust, although in a form befitting Shell's new culture, the competitiveness of the global marketplace, and the Company's attitude toward its people.

No value better reflects Shell's identity than its commitment to excellence. It's been responsible for some of the Company's proudest achievements: an impressive safety and environmental record, dominance in domestic gasoline sales, leadership in drilling programs in the Gulf of Mexico, and a reputation for technical excellence.

But in a changing world, excellence alone is no guarantee of success. To make the point, Phil Carroll delivers a little parable. "Many years ago there were companies that made great buggy whips," he says. "And today no one even remembers their names. But there were also buggy whip manufacturers who defined themselves more broadly as manufacturers of transportation-starting devices. Well before the death knell sounded for horse-drawn transportation, these companies began producing crank handles for automobiles. If they're still in business today, they're probably making electronic ignition systems."

The story illustrates an important point. A company has to be excellent at the right things. In the past, the availability of sophisticated technology was often the deciding factor in

whether or not it would be used for a given task. As a result, there were often imbalances between costs and results. "We want to preserve our commitment to excellence," Carroll explains, "but we want to see it accompanied by the recognition that the highest technology may not be the appropriate technology for a particular problem."

Many operations regularly wrestle with such dilemmas. A few years ago, a benchmarking study showed that E&P was doing an excellent Job in finding hydrocarbons. "The problem was our finding costs were not economic," Jack Little says. "We came face to face with the fact that although we were better than our competitors at finding hydrocarbons, no one was doing a good job when it came to making money."

One of the most serious obstacles to excellence is what some have termed an "inward focus" and others have labeled "a tendency toward corporate introspection." Whatever it's called, the idea that Shell possesses the answers to questions that have yet to be asked is a serious impediment to learning. Having identified learning as a key to growth, competitiveness and excellence, Shell is striving to encourage attitudes that encourage personal and organizational learning openness, intellectual curiosity, boundary crossing, and team spirit.

"Excellence goes beyond 'being the best' to 'being the best together'," Carroll believes. In the future, excellent performance will require people to step outside their respective silos and cross-fertilize their ideas with those from other parts of the Company, other industries, even other fields of knowledge. The result will be the kind of excellence that will pay dividends in a complex, competitive future.

"Innovation was not one of the driving forces of the old Shell culture," Phil Carroll says. "Even when we paid lip service to creativity and innovation, we were often using code for the 'Shell way of doing things'." But if innovation was viewed with suspicion in the old culture, it holds a place of honor in the new.

Although there's a tendency to see innovation as different ways of doing things, innovation is actually about different ways of thinking and seeing. As Nobel Prize-winning physician Albert Szent-Györgyi once said, "Discovery consists of looking at the same thing as everyone else and thinking something different."

Would-be innovators should regularly ponder this question: "What forces are operating in this industry--or my part of it--that have the power to radically change the future?"

Would-be innovators must also be willing to take risks. While Shell's old culture frowned on mistakes, the new culture encourages people to take well-thought-out risks. "People will not try to do things differently if the personal downside is too great," says Michael Grasley. "They'd rather do things the same old way that risk making a mistake." Grasley believes that managers have to encourage risk-taking. "If it goes wrong, we ought to say, 'That's okay. Let's learn from it.' If it goes right, we ought to celebrate the success and reward the risk-takers. The only reason to blame people is if they fail to learn from their mistakes--if they make the same mistake over and over"

"We don't do enough grand experiments," Jim Morgan says. "We don't fail enough." He makes it clear that he's not talking about taking chances when it comes to safety or the environment. And he's not talking about making rash decisions on multi-million or billion dollar investments. He's simply talking about doing things in new ways. Thinking differently. Moving faster. In other words, combining innovation with a sense of urgency.

In yesterday's organizations, change took a number and waited its turn. By the time a new idea was studied, turned into a written proposal, and sent "upstairs" for review, weeks, months, or even years could have elapsed. In fact, there was a good chance that when and if it were ever approved, the window of opportunity would already have closed.

But that was then, and this is now. If there is one thing Phil Carroll is passionate about, it is a sense of urgency. At a Learning Conference in late June, the 44 managers in attendance were asked to identify some aspect of their operations that, if changed, could reduce costs or generate additional revenue Then they were given four months in which to make things happen and report on the results.

Carroll's sense of urgency is driven by an awareness of the gap between where Shell has been, where it is now, and where it is capable of going. It's also driven by a realization that to move more slowly than one's competitors is to be left far behind. For a company aiming to be the leader, keeping pace is not good enough.

The driving force behind this sense of urgency is not fear but optimism. A belief in the achievability of the vision. A belief in the ability of the people of Shell to achieve it A belief that the time is now.

The business model

If a vision captures the possibilities inherent in the future, a business model lays out in concrete terms exactly what is needed to convert those possibilities into reality.

Many people, especially those wearied by cost-cutting, view financial models as a source of possible distress. But they can be liberating.

Larry Selden, a professor at Columbia University's Graduate School of Business, considers the business model "a blueprint for achieving business excellence." It is, he says, a practical way for a company to integrate its mission, vision and values with day-to-day operational realities. Selden is working with Shell on the creation of business models for its operating segments as well as for the corporation as a whole.

To Phil Carroll, any discussion of a new business model begins with a hard look at operating performance, particularly the gap between Shell's potential and its actual return on investment in recent years. Carroll believes that gap makes the case for change better than high-sounding rhetoric ever could. But what kind of change?

For starters, Carroll makes it clear that Shell cannot save itself to prosperity. After having reduced costs nearly 30 percent since 1991, the Company would have to cut costs by another 50 percent to approach the 12 percent return on investment that he considers a reasonable goal.

Why 12 percent? The number is not arbitrary, Carroll insists. While several years of low returns may make it appear high, it is not high when measured against the performance of world-class companies. Nor is it high when measured by Shell's competitors, its own historic performance of its shareholder, Royal Dutch/Shell. In fact, Carroll believes a 12 percent return on investment actually understates Shell's potential. But it is the goal Shell is keeping squarely in its sights for the next few years.

"Those who invest in our Company have a right to expect a return at least as robust as they would have received by investing in Exxon, Amoco, Microsoft, or GM," Carroll says. "And that's true whether we're talking about a single shareholder or many individual investors."

The business model is a way of encouraging a company that built its success on its prowess in science and technology to create an equally strong commercial sense. As people in every part of the Company build and dissect these models, the result will be a deeper understanding of what is needed for business success.

As with so many other things, the key to making it work is the degree to which each person in the Company understands--at a very deep personal level--just what it takes to make his or her unit operate as at peak performance.

The vision shows the way. The values offer guidance for the journey. The business model integrates the Company's mission, vision, and values with its performance. But success is in the hands of the people of Shell.