![Royal Dutch Shell
The experience of Shell New Zealand and the Kolb’s learning cycle
In 1997, when John Fletcher became the director manager of Shell New Zealand, the
company was facing new competitive entrants in that area which was one the most
profitable Shell territories. By learning from experiments in other markets, something
that had improved as a result of Herkstroter’s [the manger of Shell at that time] global
restructuring, Fletcher knew what this would mean. “Competitors where opening a few
well-placed sites at our most profitable areas that could do enormous damage to our
margins. This would be death by a thousand cuts as they slowly squeezed us into a cost
competition that we couldn’t win and that would leave us with a highly unprofitable
margin mix.” he says.
I saw the energy and involvement of a big group of people making change happen. I
had been thinking that the horsepower of most companies’ people is so underutilized
and we were no exception. I immediately rang the head of Shell in Australia and said
we have to do this together.
Around this time, Fletcher happened to see a video created by Steel’s group which was
showing the result of FRD (Functional Research Development) in South Africa. As
Fletcher said, (Chowdhury, 2003)
In February 1998, a group of 17 senior leaders from Shell New Zealand joint their
colleagues in Australia for an FRD session. After crafting their TPOV and vision, the
participants decided to take FRD mainstream when they returned to New Zealand.
Twelve teams were organized and the leadership team held a series of meeting and town
halls to teach everyone the basic principles covered in FRD. Fletcher and his finance
director Ed Johnson, openly told employees that headcount had to shrink by 30% to
achieve the necessary cost structure. They also said that they had no concrete plan for
where cuts would be made. Assuming the leadership had a plan it was unwilling to
share, “… people just rolled their eyes when they heard that.” Fletcher says.
(Chowdhury, 2003)
Attitudes changed as Fletcher and his team utilized the FRD Process to drive the
organizational restructuring. One of the FRD teams was focused on organization,
Learning Organization Page 10](https://image.slidesharecdn.com/shellasalearningorganization-100810034952-phpapp02/85/Shell-as-a-learning-organization-12-320.jpg)
![Royal Dutch Shell
rewards, and employment contracts (ORE). Fletcher and the ORE team quickly agreed
that the existing organizational structure was unsustainable.
Between the first and second month of the FRD process, one woman from the ORE team
ran workshops that involved 70% of New Zealand workforce. Her FRD work yielded a
clear set of Shell New Zealand values that were endorsed by the employees and
consistent with Royal Dutch/Shell’s overall mission and values. The ORE team
recommended making the values part of every employee’s performance contract and
recruiting criteria. With the ORE team support, every job within New Zealand was posted
for placement. Reapplication interviews included the values and consequently some
people with inconsistent values were beaten out for job they once held. As Fletcher
noted, the FRD process gained enormous credibility when “people started seeing new
heads of teams and team members winning their positions, not the same old
organization. Leadership followed [the new recruiting process] to the letter to build
people’s trust.” (Chowdhury, 2003)
Three months after the FRD teams launched, the ORE team proposed a new
organizational structure of 23 flat teams with no more than two layers between Fletcher
and the front line. Staff members were invited to apply for up to five jobs in the new
organization ranked in order of performance.
“Wherever someone was unsuccessful with an application, they would get feedback so
that they could learn and improve their chances for next time.” - J. Fletcher
(Chowdhury, 2003)
As result of ongoing coaching and dialogue with those who were unsuccessful, the
company had only a handful of employees leave involuntarily. It achieved the 30%
reduction and had done so in a process that actually generated employee commitment
and belief in the organization’s underlying values.
Meanwhile other FRD teams focused on a range of commercial issues. A central group
was created to reorganize customer contacts to free up sales people for growth activities
and used process mapping to identify solutions for customer service center. As a result,
Shell customer representatives resolved over 90% of customer issues on the first call.
In sum, Shell New Zealand reduced costs by more than 25%. “Margins did fall when
competition came in,” Fletcher said, “but [the competitors] got burned because they
thought they were coming into a market with healthy margins. Of three who had
planned to enter, one turned around and never came, another is struggling, and the
third has been acquired.” (Chowdhury, 2003)
Learning Organization Page 11](https://image.slidesharecdn.com/shellasalearningorganization-100810034952-phpapp02/85/Shell-as-a-learning-organization-13-320.jpg)
Shell as a learning organization
- 1. Final Case Study (Group Paper) MOL 7323 (Organizational Learning) Dr. NEO TSE KIAN Royal Dutch Shell as a Learning Organization Prepared by: Mohammad Yunesi 1092300122 Meisam Hamidi 1092300071
- 2. Table of Contents History and Background ................................................ 01 Logo Evolution ............................................................. 03 Businesses .................................................................. 04 Shell as a learning organization ...................................... 06 • Scenario Planning .................................................. 06 • Double loop learning .............................................. 06 • an experience of Shell New Zealand ......................... 10 • Kolb learning cycle ................................................ 12 References .................................................................. 14
- 3. Royal Dutch Shell History and Background Royal Dutch Shell plc, usually known briefly as Shell, is a multinational petroleum company of Dutch and British origins. One of the six "supermajors" (which integrated private sector oil exploration, natural gas, and petroleum product marketing companies, in the past they was known as seven sisters, but after merging Mobil and Exxon, the number of them became six), Shell was listed as the world's largest corporation for 2009 by Fortune and world's second largest corporation by Forbes. The company's headquarters are in The Hague, Netherlands, with its registered office at the Shell Centre in London, United Kingdom. Shell operates in over 90 countries. In the United States, the Shell Oil Company subsidiary, headquartered in Houston, Texas is one of its largest businesses. The Royal Dutch Shell Company was created in February 1907 when the Royal Dutch Petroleum and the “Shell” Transport and Trading Company of the United Kingdom were merged together; the decision that made by the need to compete globally with the then predominant US petroleum company, John D. Rockefeller's Standard Oil. The terms of the merger gave 60% of the new Group to the Dutch arm and 40% to the British. Royal Dutch Petroleum Company was a Dutch company founded in 1890 by Jean Baptiste August Kessler, along with Henri Deterding, when a Royal charter was granted by King William III of the Netherlands to a small oil exploration and production company known as "Royal Dutch Company for the Working of Petroleum Wells in the Dutch Indies" (now Indonesia). The "Shell" Transport and Trading Company (the quotation marks were part of the company’s name) was a British company, founded in 1897 by Marcus Samuel and his brother. Initially the Company had eight oil tankers for the purposes of transporting oil. Learning Organization Page 1
- 4. Royal Dutch Shell In 1919, Shell took control of the Mexican Eagle Petroleum Company and in 1921 formed Shell-Mex Limited which marketed products under the "Shell" and "Eagle" brands in the United Kingdom. In 1932, in response to the difficult economic conditions of the times, Shell-Mex merged its UK marketing operations with those of British Petroleum to create Shell-Mex and BP Ltd. a company that traded until the brands separated in 1975. In November 2004, following a period of turmoil caused by the revelation that Shell had been overstating its oil reserves, it was announced that the Shell Group would move to a single capital structure, creating a new parent company to be named Royal Dutch Shell plc, with its principal listing on the London Stock Exchange and the Amsterdam Stock Exchange and its headquarters and tax residency in The Hague in the Netherlands. The unification was completed on 20 July 2005. Shares were issued at a 60/40 advantage for the shareholders of Royal Dutch in line with the original ownership of the Shell Group. (Wikipedia) In November 2007 Shell acquired a the most of stake in some gas fields owned by Regal Petroleum in Ukraine. In March 2010, Shell announced selling of some of its assets, including its liquid petroleum gas (LPG) business, to meet the cost of a planned $28bn capital spending program. Shell has invited buyers to submit indicative bids, due by 22 March, company will raise $2-3bn from the sale. As mentioned the name Shell is linked to the Shell Transport and Trading Company. In 1833, the founder's father, also Marcus Samuel, founded an import business to sell seashells to London collectors. When collecting seashell was doing in the Caspian Sea area in 1892, the younger Samuel realized there was potential in exporting lamp oil from the region and commissioned the world's first purpose-built oil tanker, the Murex (Latin for a type of snail shell), to enter this market; by 1907 the company had a fleet. Although for several decades the company had a refinery at Shell Haven on the Thames, there is no evidence of this having provided the name. The Shell brand is one of the most familiar commercial symbols in the world. Known as the "pecten" after the sea shell Pecten maximus (the giant scallop), on which its design is based, the current version of the brand was designed by Raymond Loewy and introduced in 1971. The yellow and red colours used are thought to relate to the colours of the flag of Spain as Shell built early service stations in the state of California which had strong connections with Spain. In below you can see the evolution of logo. Learning Organization Page 2
- 5. Royal Dutch Shell Logo Evolution: 1900: 1904: 1909: 1930: 1948: 1955: 1961: 1971: Learning Organization Page 3
- 6. Royal Dutch Shell 1999: Today: The slash was removed from the name "Royal Dutch/Shell" in 2004, concurrent with moves to merge the two legally separate companies (Royal Dutch and Shell) to the single legal entity which exists today. Businesses One of the original Seven Sisters, Royal Dutch Shell is the world's largest private sector oil company by revenue, Europe's largest energy group and a major player in the petrochemical industry. Shell has five core businesses: exploration and production (the "upstream"), gas and power, refining and marketing (the "downstream"), chemicals, and trading and shipping. Shell's primary business is the management of a vertically integrated oil company. The development of technical and commercial expertise in all the stages of this vertical integration from the initial search for oil (exploration) through its harvesting (production), transportation, refining and finally trading and marketing established the core competencies on which the company was founded. Similar competencies were needed for natural gas, which has become one of the most important businesses in which Shell is involved, and which contributes a significant proportion of the company's profits. While the vertically integrated business model provided significant economies of scale and barriers to entry, there has been much less interdependence recently between the businesses, and each business now seeks to be a self-supporting unit without subsidies from other parts of the company. Learning Organization Page 4
- 7. Royal Dutch Shell The petroleum and gas business is increasingly an assembly of independent and globally managed business segments, each of which must be profitable in its own right. The downstream, which now also includes the chemicals business, generates a third of Shell's profits worldwide and is known its global network of more than 40,000 petrol stations and its 47 oil refineries. Over the years Shell has occasionally sought to diversify away from its core oil, gas and chemicals businesses. These diversifications have included nuclear power (a short-lived and costly joint venture with Gulf Oil in the USA); coal (Shell Coal was for a time a significant player in mining and marketing); metals (Shell acquired the Dutch metals- mining company Billiton in 1970) and electricity generation (a joint venture with Bechtel called Intergen). None of these ventures were seen as successful and all have now been divested. In the early 2000s Shell moved into alternative energy and there is now an embryonic "Renewables" business that has made investments in solar power, wind power, hydrogen, and forestry. The forestry business went the way of nuclear, coal, metals and electricity generation, and was thrown away in 2003. In 2006 Shell sold its entire solar business and in 2008, the company withdrew from the London Array which is expected to become the world's largest offshore wind farm. (Wikipedia) Learning Organization Page 5
- 8. Royal Dutch Shell Shell as a learning organization According to Senge, a learning organization is one in which learning, in whatever form, becomes an inescapable way of life for both managers and workers alike. The increasing emphasis on the flattening of organizational hierarchies and the promotion of greater empowerment of individuals has led many management authors to argue that organizational learning should extend through the entire reach of a company – even as far as customers and suppliers. Naturally, the learning must be of mutual benefit to the organization and the individual concerned. (Britz & Harman, 2008) The ability to learn faster than competitors may be the only sustainable competitive advantage. (De Geus, 1988) Scenario Planning Institutional learning and employee commitment at RDS was facilitated by a “jobs for life” policy that the company held. Learning was promoted by the use of scenario planning at shell. Scenario planning is one way to gain insights that can later become part of realistic strategies. It is best describe as creating stories of equally plausible futures and planning as though any one of them could become true. The most cited example of this comes from scenario guru Pierre Wock, who led Shell through scenario planning in the late 1970s. These scenario in which control of oil was taken away from oil companies, gave Shell insight into successful tactics. Other scenario planning successes in Shell -which we will see more about it in continue- is anticipation of the fall of communism in Russia and its effect on natural gas prices. (Denton, 2002) Double-loop learning The kinds of learning we can do have a bearing on how effectively we can anticipate changes, adapt to new situations, and generate novel solutions to the challenges we face. One kind of learning we are already very used to is that which helps us to continuously refine and extend the capabilities of a given tool. This is also the kind of learning we do to make work processes ever more efficient and reliable. But there is another very powerful kind of learning which we use less commonly to solve problems and improve processes. This is the kind of learning through which we recognize the need to reorganize and make wholesale systemic changes in our processes. Managing such changes is a much more complex kind of activity, and it requires a more sophisticated kind of learning. Most problem-solving efforts that focus on work processes are aimed at making the processes more efficient and more reliable. This is a kind of single-loop learning in which we are always trying to do the same things right. It is an activity precisely described by Learning Organization Page 6
- 9. Roya al Dutch Shell the cyb bernetic loo in the p op previous se ection. But what if, d t due to indu ustry or ec conomic change we begin to shift f es, from doing the right things righ to doing the wrong things g ht g right? F instance, imagine a manufac For cturer of bu uggy whips around th turn of the 20th s he Century In such a company workers w y. y would be cleverly refin ning their p processes to make t ever finer, more consistent, and ine expensive buggy whi ips. Because they are only focused on the e d existing pro ocess, and on trying to improv its perfo ve ormance, they are missing the strate g egic issue o the impe of ending obso olescence o their pro of oduct. Clearly they need ad dditionally to be doing another k g kind of learn ning. Double-loop learning is exem mplified by the kind of divergent thinking a o t and action that led scenario planning teams at Royal Dut g tch Shell to anticipat both the fall of oi prices t te e il during the mid 1980s and t the demise of the So e oviet Union well befo n ore the rest of the t world c could even imagine t them. Shell saved hu uge amounts of mone by shav ey ving the capital required to develop a large Nor Sea oil field in ord to stay competitiv when o rth der ve oil price fell, and by waiting until this price drop occurred to go forw es d g s p ward with major oil m field ac cquisitions.10 This was an example of co ontinuing t do the right things, even to though Shell’s bu usiness an geopolit nd tical enviro onment in the mid 1980s was highly s unstabl and complex. (Dooley, 1999) le Single‐loop Double‐loo op Geler a and van de Heijden (2001) rec er cognise The Shell Gro e oup as a pioneer of scenario s plannin The fram ng. mework approach to s scenario planning was part of a long term process s with the purpose of providin a structu ng ured way to become aware and learn mor about t re orld in wh the wo hich The S Shell Group operate. Framewo p ork scenarios were typically t published present ted and cir rculated throughout the organis t sation and would be used to provide a backgr e round for s strategic p planning for the future. On the other hand, the e project approach would be in nvoked as s specific issu arose. The exercis would generally ues se begin w with the ex xpression o concern over a pa of articular iss sue. These scenarios helped e Learnin ng Organizat tion Page 7
- 10. Roya al Dutch Shell Shell in both iden n ntifying and evaluating options, and enable users th d g ed hrough an iterative process sing of rese earch ques stions and considerati ion of relat ted researc to identify both ch predicta able structu and irre ure educible un ncertainty within a situ w uation. Geler a and van der Heijden c concluded t rch with Th Shell Group by sug their resear he ggesting that scenarios hel in the pr lp rocess of e experiencing i.e. they affect man g nagers perc ceptions of the w world; they also help in the pro y ocess of ref flecting on experience adapting mental e, models and creat s ting organisational action. In this way they suggest that, sc t cenarios contribute substan ntially to th overall p he process of organisation learning (Harts 200 o nal g. 05) As you can see there is very close corre elation betw ween scena ario plannin and double loop ng learning and we can map r g, result of scenario analysing with double-loo learning easily, h op g on the other word, Shell Company had use double-loop learn e y ed ning cycle in the organiz zation unco onsciously, because th double-lo he oop learnin was introduced rec ng cently in 1996 by Argirys and shon bu Shell was using scenario plann ut s ning many before. xample, She benefite from dou As a ex ell ed uble loop le earning thro ough its pre eparedness for the s 1973 o crisis. F oil From its sc cenario pla anning exe ercises, she was ab ell ble to chan nge the concept tual frames of refere ence that i its manage ers used to perceive reality ab o bout the world. Shell’s man nagers had been assu d uming that oil deman would co t nd ontinue to grow at rates higher tha an GNP in a calm political environme ent where oil supp e ply was unproblematic, a set of norm that the managers had taken for grant ms e s ted for som time. me anning scenario force them to challenge these norms and th The pla ed o e hink about a low- t growth world whe ere oil con nsumption w was increasing more slowly tha GNP, where oil an produce were re ers eaching the limits of t e their capac cities and w were relucta to raise output ant e further because t they were unable to absorb the additional revenues. As a resu shell e ult manage ement was better pre s epared for t the 1973 oil shock –b o because of some reason such as colla apsing the Soviet unio on- and wa able to more quick revise it assumpt as kly ts tion and strategies to respo ond to the new realitie of tight oil supply-d es demand. (C Choo, 2002) Learnin ng Organizat tion Page 8
- 11. Roya al Dutch Shell As you see in 197 Shell Co 73, ompany with help of double-loop learning based on scenario s plannin could ch ng hange its strategies and gover rning varia able of its mindset. By this change Shell Com es mpany save huge am ed mount of money at th time wh m hat hile its com mpetitors in mark place w losing a lot of mon ket was esult shell improved it position from 7th ney; as a re ts f level of giant oil companies t the 2nd o f to one. Learnin ng Organizat tion Page 9
- 12. Royal Dutch Shell The experience of Shell New Zealand and the Kolb’s learning cycle In 1997, when John Fletcher became the director manager of Shell New Zealand, the company was facing new competitive entrants in that area which was one the most profitable Shell territories. By learning from experiments in other markets, something that had improved as a result of Herkstroter’s [the manger of Shell at that time] global restructuring, Fletcher knew what this would mean. “Competitors where opening a few well-placed sites at our most profitable areas that could do enormous damage to our margins. This would be death by a thousand cuts as they slowly squeezed us into a cost competition that we couldn’t win and that would leave us with a highly unprofitable margin mix.” he says. I saw the energy and involvement of a big group of people making change happen. I had been thinking that the horsepower of most companies’ people is so underutilized and we were no exception. I immediately rang the head of Shell in Australia and said we have to do this together. Around this time, Fletcher happened to see a video created by Steel’s group which was showing the result of FRD (Functional Research Development) in South Africa. As Fletcher said, (Chowdhury, 2003) In February 1998, a group of 17 senior leaders from Shell New Zealand joint their colleagues in Australia for an FRD session. After crafting their TPOV and vision, the participants decided to take FRD mainstream when they returned to New Zealand. Twelve teams were organized and the leadership team held a series of meeting and town halls to teach everyone the basic principles covered in FRD. Fletcher and his finance director Ed Johnson, openly told employees that headcount had to shrink by 30% to achieve the necessary cost structure. They also said that they had no concrete plan for where cuts would be made. Assuming the leadership had a plan it was unwilling to share, “… people just rolled their eyes when they heard that.” Fletcher says. (Chowdhury, 2003) Attitudes changed as Fletcher and his team utilized the FRD Process to drive the organizational restructuring. One of the FRD teams was focused on organization, Learning Organization Page 10
- 13. Royal Dutch Shell rewards, and employment contracts (ORE). Fletcher and the ORE team quickly agreed that the existing organizational structure was unsustainable. Between the first and second month of the FRD process, one woman from the ORE team ran workshops that involved 70% of New Zealand workforce. Her FRD work yielded a clear set of Shell New Zealand values that were endorsed by the employees and consistent with Royal Dutch/Shell’s overall mission and values. The ORE team recommended making the values part of every employee’s performance contract and recruiting criteria. With the ORE team support, every job within New Zealand was posted for placement. Reapplication interviews included the values and consequently some people with inconsistent values were beaten out for job they once held. As Fletcher noted, the FRD process gained enormous credibility when “people started seeing new heads of teams and team members winning their positions, not the same old organization. Leadership followed [the new recruiting process] to the letter to build people’s trust.” (Chowdhury, 2003) Three months after the FRD teams launched, the ORE team proposed a new organizational structure of 23 flat teams with no more than two layers between Fletcher and the front line. Staff members were invited to apply for up to five jobs in the new organization ranked in order of performance. “Wherever someone was unsuccessful with an application, they would get feedback so that they could learn and improve their chances for next time.” - J. Fletcher (Chowdhury, 2003) As result of ongoing coaching and dialogue with those who were unsuccessful, the company had only a handful of employees leave involuntarily. It achieved the 30% reduction and had done so in a process that actually generated employee commitment and belief in the organization’s underlying values. Meanwhile other FRD teams focused on a range of commercial issues. A central group was created to reorganize customer contacts to free up sales people for growth activities and used process mapping to identify solutions for customer service center. As a result, Shell customer representatives resolved over 90% of customer issues on the first call. In sum, Shell New Zealand reduced costs by more than 25%. “Margins did fall when competition came in,” Fletcher said, “but [the competitors] got burned because they thought they were coming into a market with healthy margins. Of three who had planned to enter, one turned around and never came, another is struggling, and the third has been acquired.” (Chowdhury, 2003) Learning Organization Page 11
- 14. Roya al Dutch Shell Kolb’s Learning Cycle s g David A. Kolb (born 193 39) is an American educatio n onal theorist. Expe eriential learnin is one o the maj parts o his stud ng of jor of dies. He suggests a circle wh hich the human learning happens i that. n in Conc crete Expe erience Active Exp A perimentat tion Reflective Observati ion Abstract t Conceptualiz zation This cir rcle consist of four s ts steps. The first step, as show in diagram a n above, is Concrete C Experie ence. This is where the experience hap ppens. The second s e step is Re eflection Observation whic is review ch wing and reflecting the experi ience. Then in the Abstract A ptualization, concluding and learn Concep ning the ex xperience ta akes place. And finally in the Active E Experiment tation, the learner plans and trie out what has learne es t ed. We can see that t n the situatio which oc on ccurred to Shell in New Zealand and decisio S ons and actions that were done by Shell later on can be mapped on this cir e r e rcle. The Concrete C ence of She New Zea Experie ell aland was the entrance of new co ompetitors which could cause Shell c cost compe etitions tha Shell could not wi at in. And als it could place Shell in a so d position of losing customers and losing some of th most pro n he ofitable site es. Reflecti ive Observ vation step for Shell New Zealand was done by J p John Fletch her, the director manager. r Learnin ng Organizat tion Page 12
- 15. Royal Dutch Shell Watching the video made by Steel’s group showing the result of FRD in the South Africa and reviewing experiences of Shell in other markets, is the third step, Abstract Conceptualization. At this step, Shell New Zealand tries to see and use the others experiences. The fourth step, Active Experimentation, for the company started with the journey to Australia. Then organizing twelve teams and conducting courses for teaching the FRD to organization’s members was the next step. Gathering employees support was, maybe, the most crucial action which finally caused Shell’s winning. After all these steps, Shell New Zealand got a new Concrete Experience. Learning Organization Page 13
- 17. Royal Dutch Shell Learning Organization Page 15