why is the world's most profitable company turning itself inside out? royal dutch/shell looked at the future and didn't like the view. now it is changing everything from the way its managers act to the way it does business. - overhead document projector

(
Fortune magazine)
-Royal Dutch Shell should sit on top of the world by all the usual measures.
For the third year in a row, its total profit exceeded $500, to an astonishing $8.
1996 9 billion.
Shares of the company have also been rising.
Since shell 1992, the average annual return has been 20%.
All of this surprised us to find that this thriving behemoth is in fact suffering from the soul --
Break the middle age crisis.
Like all these crises, this crisis is not just a matter of money.
Of course, Shell's return on investment-
A key indicator of the oil industry-
Has been lackluster.
Shawn Reynolds, oil analyst at Lehman Brothers in London, said: "They have not made profits to justify the stock price.
"Yes, the oil giant is sitting on $12.
4 billion of cash, it does not know how to invest.
But the real problem is this $128. billion-a-
The company is not satisfied with the past. -
No longer sure what kind of person it wants to be.
Of course, the shell is big.
It operates in 130 countries around the world, from ground to gas pumps, controlling all aspects of oil production.
Headquartered in London and The Hague, the company oversees 101,000 employees, 54 refineries and 47,000 gas stations. (
Shell is a group but has two listed companies: Royal Dutch Oil owns a 60% stake in the group in The Hague, while London-
Shell controls 40% of shipping and trading. )
Shell is also a closed company, overwhelmed by internal control frenzy, byzantine court-style organizational structure and the controversial public image.
Many of its managers rarely talk to ordinary employees.
Senior managers at headquarters are constantly vying for power with around 100 influential national CEOs running local businesses.
Then the bad news.
A few years ago, the company was linked to a Nigerian dictatorship that executed environmental activist Ken Saro.
Wiwa has sparked a global uproar that continues to plague it.
Shell chairman Hector strot said he wanted to get rid of the personality.
The indifferent Calvin allowed his company to open its doors to fortune in a rare series of top events
His company is undergoing the most dramatic reforms since 1959.
It was then that McKinsey designed a "matrix" structure that pushed shell to the top of the oil package.
Herkstroter, the most unlikely revolutionary organization, wants to create a fast, flexible and eco-friendly organization that is more efficient, innovative and able to move shell to profitable
To achieve this, Hector strler, with the help of a group of American advisers, actually put his executives on the couch of a psychiatrist.
He asked dozens of shell employees to take charge of the new era Consulting.
They helped each other climb the wall in the cold Dutch rain.
They dig dirt in the low.
Income housing projects and making video tapes of themselves walking around blindfolded.
They have tracked their time to determine if they are adding any value.
They even took miles.
Briggs personality test to see who fits the new shell and who doesn't.
If the great experiment succeeds, Shell executives say their profits could double to $17 billion by 2001.
But it is not easy to get there.
It means everything. -
Even Shell's most sacred practices, beliefs and traditions-Is to compete.
"I don't think it's touching to have any ideas or ideas right now," said Maarten van den Bergh, six member of Shell.
Board of Directors General Manager or CMD.
Mac McDonald, who runs shell, added
The spokesperson for the change of villas (
For leadership and performance operations)
"Transformation is messy.
We don't have a good plan.
The company released data on growth and profitability.
If we do not change our leadership style, our behavior and mentality, we will not be able to achieve results.
"It certainly won't get them soon.
It takes time for this huge reinvention. -lots of time.
It is only human nature to resist change, and many Shell employees, from executives to oil workers, do so.
Noel Tichy, one of the first US consultants to arrive at the scene, said Shell was only at the beginning of its third operationact play.
"Act 1 recognizes the need for change, Act 2 is developing a vision, and Act 3 is reactivating the organization," said Tichy, who teaches organizational behavior at the University of Michigan . ".
"The transformation of a big entity like this is a fiveto ten-year journey.
"It was before Bendtner, before Welch, before Goizueta, before GE, before Coca-Cola, IBM. A NEW CULTURE.
On May 1994, when Herkstroter, who took over as chairman a year ago, called his top 50 men for an unprecedented gathering, the ground began to change. (
Yes, they are all men. )
Assembly on the 17 th-
Century British Manor is located in Hartwell Manor, buckin county, and these global executives know each other but have never met as a team.
Herkstroter, accountant at sea of Shell engineers, wants to know why the company's average return on capital-
Main measure of financial success in oil business--
Down to 7.
9%, far below Shell's capital cost, far behind 9.
The average return of other major oil companies was 3%.
He is also upset that over the past decade, Shell chairman has only expressed regret in a letter to shareholders about the lack of financial goals.
At Hartwell, herkstone found that Shell's mediocre financial performance was closely related to the company's corporate culture.
"We are bureaucratic, introverted, complacent, self.
Sir John Jennings, director and former vice chairman of Shell, said: "We tolerate our poor performance.
We are technology-centric and lack the spirit of starting a business.
"Two public incidents a year after the Hartwell meeting have calmed down doubts about the need to change.
Shell is trying to sink the abandoned Brent stone of offshore oil
The storage buoy was derailed by Greenpeace in Germany, which installed such a well
At some gas stations in Germany, Shell's gasoline sales fell by 50%.
A few months later, the Nigerian executed Ken Saro.
Wiwa, a famous Nigerian writer, has protested Shell's poor environmental record in Nigeria.
As a partner of the Nigerian military dictatorship, Shell has received a lot of oil revenue.
"We have to look deeply at ourselves and say, 'Are we all OK? '
Mark Moody said
Stuart, a managing director, will take over Herkstroter when he retires next year.
"Before, if you went to your golf club or church and said 'I work for Shell,' you would get a warm glow.
Some changes have taken place in some parts of the world.
"Unlike in the past, Shell has decided to publicly report its environmental records and defend human rights wherever it operates.
"This is very important," said Anne Simpson, director of pension and investment research consultants in the UK . ".
"They must now figure out what this means in practice "(see box).
Shell's unique governance structure makes it difficult for Herkstroter to drive change.
Technically, he is not the chairman of the company, but the chairman of Shell's Supreme Committee CMD ---
First in equality.
"Herkstroter is not in the command range because [AlliedSignal's]
Larry boxidi is in command, "said Steve Miller, the only one who didn'tAnglo-
Dutch member of CMD.
The Dutch must cheat others with the power of personality. -
He's not that attractive.
"He is one of the bravest and brightest people I know," said Robert Walvis, head of planning, environment and external affairs.
"But if you have to make a choice between Tom Peters and heckstrler and speak to a group of salespeople, I will choose Tom Peters.
"Herkstroter was unable to interview the article;
He was hospitalized for pneumonia and is still recovering.
Other CMD members and executives describe him as a person who likes to communicate through documents in a private, old world and is firmly committed to making Shell more open to external ideas.
"He's Shell's gorbacev," said Philip H . "
Mirvis, an organization consultant working with Tichy.
What kind of company does Herkstroter choose?
A country with a long history in Europe, where people with too much power triggered a World War.
Shell executives say the archival film that showcases the last strong single owner of Shell, Henri Deterding, for his birthday celebration is an eerie reminder of Hitler's rally.
It is true that the sympathy of the Nazis is deterred;
If he did not retire from Shell in 1936, the company's subsequent history may be different.
Van den Berg, managing director of Shell, said: "We in Europe have been afraid of this strong person . ".
Given Shell's history, it's not surprising that its culture tends to punish those who don't seek consensus.
Last year, David Wani, the director in charge of European refining and retail, tried to force Shell's European ceo to make a change, but he encountered resistance in all aspects.
"He jumped in and dictated rather than seeking an agreement," Shell U. K.
Months later, Varney was frustrated to realize that his style would never get him into CMD, that his style earned him the nickname "Napoleon" and that he resigned from BG (
British Gas Company. "I loved him.
"He is a grenade thrower and is totally unusual," said a former Shell executive . ".
Without such a strong single vision as GE's Jack Welch or Microsoft's Bill Gates, how will shell gain a vision?
CMD members say they will solve the problem themselves.
"No Mortal," Moody said.
Stuart, "had the privilege of having the personal skills needed to lead this company single --handedly.
Throughout the organization, everyone works in the team.
You will get a very solid decision in many ways.
"So why does Shell need the brains of so many consultants?
It hired Noel Tich, who brought in Columbia business school professors Larry Serden and milvis, a bald, bearded, 1960 sensitive guy.
Also on the list are Coopers & Lybrand, McKinsey, Boston Consulting Group and LEAP, Shell's own internal consultants.
The army has been bringing Shell managers to a series of workshops.
At the beginning of February, teams from Thailand, Chile, Scandinavia and French gasoline retail operations spent six hours building the rope bridge in the pouring rain in the Netherlands, dragging each other through spider webs to help each other climb in their 20 sfoot walls.
Shell managers especially like Larry Selden.
He teaches people to keep track of their time and figure out if what they are doing directly contributes to the growth of returns and gross profit margins.
Selden calls it "point movement", a phrase he registers, which means moving the point on the growth chart and then returning to the northeast.
"This model is very powerful," said Luc Minguet, Shell's retail manager in France . ".
"This is the first time I have seen the connection between concept and practice.
I realized that my time was very poor.
"At a particularly high-profile event, Shell's top 100 executives took miles-
The Briggs personality test is a widely used management tool that classifies people according to 16 psychological types.
Interestingly, of its top 100 managers, Shell found that 86% were "thinkers" who made decisions based on logical and objective analysis ". Of the six-
Man CMD, 60% is the opposite ratio.
They are "tentacles" who make decisions based on values and subjective evaluations ".
It's no wonder that all these "thinkers" have a hard time understanding the emotions behind Nigeria and Brent SBO.
No wonder CMD is frustrated that subordinates cannot understand the need for change.
While all of these corporate remedies may help Shell in the long run, it has sparked debate and outright resistance here and now.
It is said that the rate of change is so fast that the place is on the edge of chaos.
At the same time, many people are wondering if they can really change as lifetime shell people. Myers-
The planning director, Walvis, says Briggs is one of them.
Of course, improving tools is completely wasted at 50-year-old males.
"He probably makes sense.
Many say the biggest executives in the transformation are Hans van Luijk, chief research and technology director for Shell's downstream operations)
Oil refineries and gas stations).
"This guy is a cold technocrat," said consultant Mirvis . "
"Now he is a passionate leader.
He said: "Perhaps so, but Van Luyk himself refuses to accept the idea that he has changed:" I am not a fool. ".
"If all the people around me speak Russian, I speak Russian.
But emotionally, I'm still struggling with these stupid games about leadership.
"A new organization.
President Herkstroter hopes that all this cultural discord will allow Shell to make the most of its new organizational structure.
So far, Shell's decentralized corporate structure has been key to its success.
Its two headquarters make up a contradictory word called "center", and CMD oversees services such as Shell's empire, research and planning to help guide the group's hundreds of local operating companies.
The real action, however, is not at the center, but at around 100 operations around the world in shell.
Under the leadership of a strong CEO, each company is good at operating all businesses from exploration to gasoline retail.
These local chiefs are more likely to run independent local oil companies.
They often build deep relationships with host governments-
In England, the Shell man was awarded the title of jazz.
Shell director Moody said this is our "basic localization"
This helped Shell grow and surpass Exxon.
But there is a price for devolution.
Shell executives themselves can find out some of the silly habits it produces.
Like making loyalty cards. -
Oil companies are frequent-flier cards--
Only in one country is good.
Or just because customers are French, they ship chemicals from France to Germany.
At 1994 Hartwell House meeting, Shell found that the relationship between the ceo and the center had declined.
Full risk-
The center is opposed to bureaucracy and takes months to approve the budget;
At the same time, local CEOs did not meet their goals.
The allegations were so swift and furious that Shell's director of exploration and production, Robert schplatg, raised the issue with the group, who threw a blank transparency on the projector.
"I don't know what to report," he said . ".
"This is a mess.
After that, CMD called on McKinsey to reform the central bureaucracy. By mid-
1995, McKinsey proposed a plan that cut 30% of the 3,000 jobs in the center and flattened the matrix.
Many of the work in the regional and functional sectors has been excluded and five committees have been formed to take charge of Shell's main operations: exploration and production; oil products; gas and coal; chemicals;
Central staff functions such as law and personnel.
One CMD member was assigned to each committee.
The National CEOs were shocked by the power race at the center. The so-
The European Baron, who is in charge of some of Shell's biggest businesses, will never be reduced to the chair of the cocktail party, and they are delighted --
Government officials.
"McKinsey's research is said by some to be the center of our business from now on," retired by Slechte president Shell Group in January this July.
"For me, the concept will subtract value, not add value. " Maybe so.
But in terms of global operations, Shell is gaining new efficiencies.
It pays a lower price as a single giant rather than a group of small companies buying stuff like gasoline additives.
For example, the center's full control of chemicals has led Shell to set up a new polymer plant in Geismar, Los Angeles.
Instead of being close to existing factories in the UK.
The factory was automatically added to the United States two years ago. K. fiefdom.
There have been some such situations in the company's finances.
The return on capital has increased to 11.
From Anemia of 9%.
9% four years ago. A NEW STRATEGY.
Now that efficiency-driven has begun, Shell must turn its attention to its most pressing problem: growth.
On June, Herkstroter warned troops to put forward investment ideas for the company's $12.
Cash reserves 4 billion
Herkstroter's internal memo reads: "The growing" now Kingsoft "is a charge of our collective failure to bring enough investment or acquisition opportunities . ".
Shell admitted that with the money, it could buy almost any oil company that saved Exxon.
As Union Pacific's recent bid for Pennzoil suggests, the oil buying market is hot.
But if Shell is to achieve its ambitious growth goals, it needs to do more than just acquire another oil company.
This is because downstream business is not the way to prosperity.
Refining and marketing outside the US in the first quarterS.
Return on capital is only 9. 5%.
Shell's downstream assets are third in Europe, but worse: the average return on capital last year was only 3%.
A trip to France illustrates the danger of selling gasoline.
Large French supermarkets sell gas as a loss leader, down 8% to 10% from Shell gas stations.
These large supermarkets now account for 60% of the French auto-gas market.
In emerging markets such as Asia and Latin America, the situation is not bad.
But Miller believes refineries are being built in South Korea and other places, which will eventually be similar to France.
So shell needs a new strategy.
A new plan: selling hot dogs and T-shirts.
In France, Shell's Escapade restaurant has a gross profit margin of more than 70%, while the gross profit margin for gasoline is 10%.
The practice varies from country to country: Shell's Argentina station sells croissants worth $11,000 a month, while Australia is the main franchisee for Burger King.
Over the next few years, Miller plans to launch Shell's selection of branded convenience stores, which are usually attached to gas stations, worldwide.
In June, the oil company opened its first Helsinki selection that doesn't even sell auto gas.
Miller is creating an independent retail group led by newly hired retail executives to test the idea of becoming a global convenience retailer.
Re-invent the drive-
At the food store, it is a commendable radical idea for a company based on a fascinating oil business.
It is far from obvious whether Shell really brings something special to the business of selling hamburgers, toothpaste and coffee.
Apparently shell is still trying to answer all the questions
Important question: how to grow?
So far, all it has is a work in progress, a frenzy of activity, and its purpose is still uncertain.
As Shell's Springer said, "We are moving briskly into the fog.