The Royal Dutch Shell Company is a British-Dutch company that provides oil, natural gas and petroleum products in the world (http://www.shell.com/). This maintains and supplies the world with its fuel and oil and is one of the largest companies around the world. Royal Dutch Shell Company also has significant investments in the petrochemicals business while developing its renewable energy sector.
SWOT ANALYSIS of the Royal Dutch Shell Company
- Royal Dutch Shell Company is the second largest company in the whole world with operations in more than 140 countries. The group comprised five core businesses - Exploration and Production, Oil Products, Downstream Gas and Power, Chemicals and Renewables - headed by the Royal Dutch Petroleum Company of the Netherlands and The "Shell" Transport and Trading Company, p.l.c. of the United Kingdom. Since its inception in 1890, it has accumulated a large and wide customer base with an ideal image of integrity and honesty.
- The company markets a whole range of products that ranges from growing the proportion of Exploration and Production and Gas & Power assets in the Group's portfolio. This would include a gradual shift towards gas as the fuel of choice, profitable growth and cash generation in Oil Products and Chemicals.
- The company has a large network of organized and methodological supply base making the transportation and moving of its products from oil producing countries to the market faster and efficient.
- In looking at the company, the whole corporation is still particularly geared towards making and manufacturing products that are based on oil. This step is not only inefficient from an ecological point of view but is also ineffective since the world is not shifting to renewable sources of energy.
- The company gets the majority of its oil from the Middle East and international disputes, difficulties and negatives activities in that region would tend to increase the prices of oil.
- The company can commence or lead other oil companies in exploring other potential oil fields to ease its dependence on Middle East oil. A potential exploration area are the Siberian region in Northern Russia and the Russian island of Sakhalin in the Pacific. Another potential oil field that must be fully developed is in Nigeria.
- The company must also venture on developing, researching and promoting renewable sources of energy. It must conduct studies and research with regards to techniques, materials and policies that would decrease the company's reliance on oil while increasing its need on nuclear, solar and hydroelectric sources of power.
- The primary threat against Shell Company is the new oil players that are being established today in the oil industry. Because these companies are new, they can quickly adapt to market demands and needs. Since they incorporate new technologies and materials in their products, they are less likely to be affected with government legislations and regulations governing the use of oil and petroleum products.
- Another threat are lobby groups and special interest groups that try to influence government legislations with regards to strict implementation of laws and statures that would protect the ecology and the environment. These groups are considered as threats because thru publicity and press releases, they can cast a bad light on the reputation of the company.
- Problem Child/Question mark: When a new product is launched in a promising market but it has a low market share but got potential to be a Star then a Cash cow or if everything fails it could become a Dog.
- Cash Cow: When a certain product's market matures and its demand slows but it has a large market share is known as Cash Cow.
- Star: It's a new product when launched has a high market response and its sales rise. Companies like Nokia are in a search of new products which can be turned into stars and they invest money in Problem Child and Dogs to turn them in to a Star and then hope to turn them in to Cash Cow.
- Dog: A Dog is a product new or old market shares and sales decline very fast. In oil and natural gas industry technology changes very drastically so even a Star with bad strategy and marketing can be turned in to a Dog just as easy.
- Deliver to the Businesses: which means supporting the businesses' drive to top quartile with IT solutions and services. The people at our business interface help us by understanding the business strategies and requirements and translating them into the roadmaps and services that IT must deliver..
- Improve the Function: Strengthening the delivery of operational services to the businesses, while responding quickly to the rising demands on its services as a result of the anticipated growth of these businesses.
- Annual Report shell 2004 available at http://www-static.shell.com/static/responsible_energy/downloads/sustainability_reports/shell_report_2004.pdf
The model distinguishes product lines on two dimensions: growth of the market in which the product is situated, and the relative share of the products market share to the share of its next largest competitors. The model or matrix fosters two types of analyses: internal and internal-external. The former is conducted by plotting the competitive position of individual products relative to other products in a company's portfolio. The later is achieved through plotting the competitive position of a specific product relative to all products competing in the same market segment
In this case, the Royal Dutch Shell companies provide services, products, and energy goods for the consumption of the increasing industrialized society.
Using the Boston Box Matrix, this paper hopes to draw a clear analysis on the strategic and performance level of the Royal Dutch Shell. The object for analysis in use of Boston Box is primarily help strategy managers to evaluate and assess the performance of a multi-company. Prior to the beginning of analysis, this paper will utilize the 1999-2003 annual report of the parent companies in evaluating its performance and strategy. Moreover, selected items of its production that plays a significant role for its profitability will be subject for interpretation such as Exploration and Production, Gas and Power, Oil Products, and Chemicals. Furthermore, in each category, Two important factors in a company, in measuring its performance and strategic plans: profit and capital.
There are four rankings in the Boston Box analysis which one should consider for interpretation: rising star, cash cow, question mark, and dog.
During the 1999 annual report, exploration and production and oil products generated a great number of earnings $4, 355 million and $1, 530 million respectively, while gas and power and chemical were earned poorly, having $149 million and $813 million dollars respectively. These two products - gas & power and chemical throughout the five year performance have the same results compared to the two companies' activities: exploration & production and oil products.
The table showed that products which under question marks-the gas &power and chemicals should be given a more effective strategies to generate an increase on market share and harvesting, while under cash cow products like oil should appropriate its profits to fund those products under question marks and rising stars. Although, oil products acquired the most profitable operations within the companies' scheme of business, it somehow station itself to products under rising star in which constant assessment of strategies to maintain, increase and hold market share is fundamental. The exploration and production operations assumed the cash cow category in which throughout the five year performance generated the highest cash inflows compared to other RD/Shell operations. However, in the 2003 annual report, Shell's chemical products got the highest earned net which was 10.4 billion, followed by expo & production 9.7 billion, oil product, 2.9 billion and gas & power 2.3 billion.
In general, the performance and strategy of RD/Shell in the span of five years are considerably competitive which able to win the market leadership in oil industry. Although, chemical operations of the company maintained its position under the dog/question mark category of Boston Box, through the company's strategic planning, its chemical products generated great cash and market share towards the end of 2003. Meanwhile, gas & power and oil products are stars and potentially can become cash cows if proper strategy will be implemented.
However, we already did the analysis in much compressed manner, it is also significant to note that under the facts and details referenced from the RD/Shell's annual reports that each year from 1999-2003, there were changes on the product segmentation and performance level. Although, the exploration and production of RD/Shell maintained its position on the cash cow category, quite visible was the investment capital employed by the company to gain and maintain its higher generating machination. Next to expo and production in investing large amount of capital was oil production in which by the start of 1999 the investment capital draw by the company was in billion dollars. Meanwhile, the other company's product only had million of dollars investment. This I think is a clear manifestation of what products are generating high profits or not.
By and large, the rest of its product operations except for expo and production and oil production were interchangeably positioned within the three categories but the consistency of chemicals to remain under dog/question mark is notable for the company to examine.
We cannot avoid this kind of corporate scenario because of various factors affecting the operations. Even we use multi-perspective strategy to bring a multi-positive effects, it cannot assume an encompassing effects that would temper the factors that are internal and external in nature.
In the end, the Boston Box analysis provides us the idea that in the span of five years from 1999-2003 what was the most generating and assumed a cash cow product is the exploration and production operations of the company with a corresponding great investment capital compared to other operations. Meanwhile, oil production became the next in line while chemical products consistently on the category of dog/question mark, but broke the position by generating the highest earning for the 2003 report.
Comment on the issues surrounding the "misstatement of reserves" and indicate how, and to what extent, you feel this impacted on the international public image of the company?
Reserves are a closely watched indicator of an energy's company ability to produce in the future. Misstatement of reserves is an serious offence and needs careful analysis and observation on part of the management of the company. In the current case of shell overstated oil reserves.
JEROEN van der Veer, chairman of Shell's committee of managing directors (CMD), was made aware of serious problems in the reporting of Shell's oil and gas reserves as early as 2002. By end of 2002 as much as 2.3 billion barrels of oil and gas may have been "no longer fully aligned with SEC rules" This left Shell with just 14.5 billion barrels, a reserve life of just ten years and the lowest among the oil majors.
This also had an adverse effect on the public image and goodwill of shell. Some of the effects on the public image of the company are as follows:
Shell to Pay $150 Million in Settlement on Reserves - By HEATHER TIMMONS Published: July 30, 2004
The Royal Dutch/Shell Group agreed to pay a total of $150 million in fines to settle investigations by American and British securities regulators into its reporting of crude oil and natural gas reserves. The company said in January that it had substantially overstated those reserves.
Shell also agreed to accept a Securities and Exchange Commission finding that it had violated United States laws in its reporting, record-keeping and internal controls, and to pay the agency $120 million in fines.
The FSA fined the Shell Transport and Trading Company ("STT"), Royal Dutch Petroleum Company ("RDP") and the Royal Dutch/Shell Group of Companies ("Shell") 17 million for committing market abuse and breaching the listing rules.
This fine was imposed on Shell as a result of unprecedented misconduct in relation to misstatements of its proved reserves. When Shell first publicly revealed on 9 January 2004 that it had misstated its reserves, STT's share price fell from 401p to 371p (7.5%) reducing its market capitalization on that day by approximately 2.9 billion.
Royal Dutch/Shell, one of the world's largest and most respected oil companies, shocked shareholders and rivals on Friday by slashing estimates of its proved reserves by 20 per cent. The revelation that almost 4bn barrels of oil and gas would have to be reclassified to comply with US Securities and Exchange Commission rules triggered a drop of more than 7 per cent in Shell's share price - knocking about £3bn ($5.5bn) off its market value and hitting shares across the sector.
Reserves as discussed are key measure of an oil company's health. Although difficulty of finding new reserves has become an industry-wide problem, Shell has been among the least successful of its peers in making new finds. Many of the company's added reserves have come in the form of upward revisions of the capacity of fields already discovered - rather than through exploration successes. On Friday, Shell said its reserves would shrink again this year, with only 70-90 per cent of oil and gas extracted being replaced.
Although Shell said the decision would have no material effect on its financial statements, or the total volume of hydrocarbons in place, the news intensified pressure on Sir Philip Watts, its embattled chairman.
Leading UK shareholders said the news was the latest example of poor communication by the oil group. They were particularly angered by the absence of Sir Philip and other board members from a conference call explaining the revision to investors on Friday. One large UK shareholder said: "No one likes to deliver bad news but he should not have left it for others to do."
Shell re-categorised 2.7bn barrels of oil - enough to supply the world for more than a month - and 1.2bn barrels of natural gas. The reserves will now be classed as "unproved" or having "scope for recovery".
The above clearly demonstrate the effects of the misstatement on the public image of the company. Criminal proceedings had been instituted against the shell and same had great effect on its goodwill and reputation.
Discuss the future for Shell and comment on the likely effectiveness of the courses of marketing action the company is taking or intends to take.
Global energy needs are expanding and changing rapidly. Energy markets are volatile. Developing new supplies presents increasing challenges, and we must find ways of dealing with carbon dioxide emissions. Energy companies require stronger capabilities. The recent creation of Royal Dutch Shell plc provides clear, simple, efficient and accountable governance for the Shell Group. Business organisations have been globalised. Shell strategy is .more upstream and profitable downstream.. More upstream means focusing investment on longterm, high-return projects to develop oil and gas resources, and grow Shells leading liquefied natural gas business. Downstream it means generating more cash by reshaping an integrated oil products and petrochemicals portfolio to enhance operations and focus on growth markets, particularly in Asia.
One of the most important changes that shell plan in the future after the misstatement of reserves in appointing a new chief executive and merging its two separate businesses, Royal Dutch Petroleum and Shell Transport & Trading, for the first time in its century-long history.
Shell intends to strengthening its portfolio through an active programme of divestments and selective focused acquisitions. It increased its capital expenditure to about $15 billion per year for the medium term, and in the period from 2004 to 2006 will be selling non-strategic or under-performing assets with proceeds targeted at $12 to $15 billion. Most of the increased capital expenditure will be in the upstream, where it expect higher returns. It will be growing upstream business in areas of resource opportunity such as Russia, the Middle East and West Africa, and our downstream business in markets such as Asia Pacific where there is significant potential for growth. It also intend to generate new income streams from technologies such as oil sands production and gas to liquids conversion; by providing oil and gas processing services; and from energy sources such as wind, hydrogen and solar power.
The Group first made a formal commitment to contribute to sustainable development in 1997. As an energy producer shell has fundamental role in developing ways of meeting the world's growing energy needs in environmentally and socially responsible ways.
In future it aims to work hard to integrate sustainable development into all of the Group's activities from project development, to the day-to-day operation of our facilities, as well as the services and products we supply to our customers. That means it will listen and respond to the views of stakeholders and work in partnership with them. In this way it is developing and implementing ways of reducing the impact of our activities and ensuring we make a positive contribution to the communities in which we work.
Shell commitment to sustainable development is also reflected in the work to develop cleaner fuels, improve the energy efficiency of our activities and apply new technology to manage and mitigate the effect of our operations on the environment. It believe that this approach will become increasingly important as to face the challenge of meeting the world's rapidly increasing demand for energy.
Since 2004, Royal Dutch Shell has maintained its strategy of "More Upstream, Profitable Downstream". In realising this strategy, Shell sets priorities for its businesses to secure growth, and to consistently deliver in all its operations and projects.
In support of the Group strategy, the IT function has a global functional plan, which focuses on two key priorities that will create value to Shell businesses:
This will be delivered by the best people in IT within Shell and leading industry suppliers, who work together and are recognised as IT professionals.