CEE – HND Business

Course Module: Unit 7

Course Title: Business Strategy
Semester: April – July 2010
Time: Morning Batch

Assignment Title
Identification and analysis of the
Business Strategy formulation and
planning.

Tutor: Ms. Uzma Sajjad Farooq

Student: Rashida Yvonne Campbell
Hand in date: 20th May 2010
Assignment: No. 1

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 Contents Page
Page Number
Introduction

1. Definition of Business Strategy Formulation/planning 3

2. Royal Dutch Shell Group 4
Primary Objectives: Vision - Mission Statement 5
Secondary Objectives 6
Stakeholders 8
3. Environmental Analysis 11
4. Internal Analysis 17
Value Chain
BCG Matrix
SWOT
GAP
Ansoff Matrix
5. Business Strategic Planning process 23
Hierarchy of plans
Flowchart 25
6. Summary Core Competencies 27
Summary Weaknesses 28

7. Recommendations 29
Shell’s 9-Celled Product portfolio 32

8. Competitor Analysis BP 33
Compare & Contrast 35

9. Additional Strategies 36

10. Conclusion 37

11. References 38

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 Business Strategy Assignment 1
Identify and analyse the business strategy formulation and planning of an
organization.

Business Strategic formulation is a combination of three main processes:

1. Performing a strategic positioning analysis, internal evaluation (including stakeholders)
and competitor analysis: both internal and external; both micro-environmental and
macro-environmental.
2. Concurrent with this assessment, objectives are set. These objectives should be parallel
to a time-line; some are in the short-term and others on the long-term. This involves
crafting vision statements (long term view of a possible future), mission statements (the
role that the organization gives itself in society), overall corporate objectives (both
financial and strategic), strategic business unit objectives (both financial and strategic),
and tactical objectives.
3. These objectives should, in the light of the strategic positioning analysis, suggest a
strategic plan.
Business Strategic Planning is a systematic process envisioning a desired future, and translating
this vision into broadly defined goals or objectives and a sequence of steps to achieve them.
Strategic planning begins with the desired-end and works backward to the current status. At
every stage of long-range planning the organisation asks, "What must be done here to reach
the next (higher) stage?" Strategic planning looks at the wider picture and is flexible in its
choice of decision-making on allocating its resources to pursue this strategy, including its
capital and people. Various business analysis techniques can be used in strategic formulation
and planning, including SWOT, PESTLE, GAP and many more. To identify and analyse the
business strategy formulation and planning of an organisation the following format shall be
approached:
1. Internal Analysis of the business such as primary/secondary long and short term
objectives, the vision and mission of Shell and its stakeholders.
2. External environment analysis including ‘PESTLE’ factors, Porters five forces in relation
to Shell.
3. Strategic positioning identification of ‘Shell’ using various models such as SWOT, GAP,
BCG (Boston Consulting Group), G.E matrix, value chain, and Ansoff analysis.
4. Strategic planning analysis involves using techniques such as scenario planning of Shell
and devise a strategic planning flow-chart of Shell. So that recommendations can be
made.
5. Strategic planning process is a procedure that engages an examination of the main
components individually of all the above analysis already conducted such as the main
goals, PESTLE predictions, competitor analysis, the selection of Shells’ strategies to
achieve the goals and monitoring the plans development from one stage to the other.
6. Distinctive competencies will summarise the overall strengths of Shell and what makes
it operate to a competitive advantage. This will be evident when comparisons are made
with an existing competitor (BP) in relation to their SWOT analysis and strategic plans of
the key competitor.
For the purpose of this assignment one business organisation (Royal Dutch Shell Petroleum
Group) will be examined in more detail to identify its business strategy formulation and
planning. This shall then be compared and related to the different theories, methods and
models studied within business strategy to demonstrate that businesses apply such models and

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theories in practice. To illustrate how all the parts are inter-related, internal and external. So
any given organisation will value these analysis and procedures as crucial tools for the company
to identify if it is reaching its short-long term objectives in success, growth, profit, innovation,
competitive advantage and decide if it is meeting the corporations’ vision. Finally the findings
of Shell Petroleum will be compared and contrasted to an existing competitor BP (British
Petroleum) so that recommendations can be made.

Royal Dutch Shell Group (Shell Petroleum)

Shell has been operating since 1833 makes up for one of the top fifty percent of largest
companies on the planet today in the oil and gas industry. Since Shell’s core business is to
provide petroleum (although they have other related products) this assignment will refer to
“Shell” as the product itself. According to Fortune Magazine the world’s top 10 largest
companies are:
1. Royal Dutch Shell 6. Total
2. Exxon Mobil 7. ConocoPhillips
3. Wal-Mart Stores 8. ING Group
4. BP 9. Sinopec
5. Chevron 10. Toyota Motor
(Source adapted from: http://money.cnn.com/magazines/fortune/global500/2009/)
The companies are ranked in order of the amount of revenue they make per annum. Since oil is
considered a necessary consumable, petroleum companies therefore operate in an unusual
market industry where demand exceeds supply. Competition still exists in the oil and gas
industry but is limited a few oil firms and this is the reason for sustainable prices unlike
monopolistic markets. Firstly we shall look at Shell’s current status (background information),
vision-mission statement, primary and secondary objectives and stakeholders before
conducting an environmental audit. These need to be identified first so that when an
environmental analysis is performed the organisation can spot the factors that are relevant to
their organisation and act accordingly.
Shell provides 2.5% of the world’s oil and 3% of its natural gas. Oil and gas are non-renewable
resources, but remain essential for powering the world’s needs and their demand is
continuously increasing. Shell sells enough petrol and diesel a day to fuel 16 million cars and
enough liquefied natural gas to provide electricity for 34 million homes around the world.
However, energy use is increasing due to a growing world population and higher standards of
living. This means more demand not only for oil and gas but also for other energy sources. Shell
is therefore faced with an enormous challenge to help meet the needs of the present and
future generations, while creating as little negative impact as possible to the environment. Shell
aims to provide energy in responsible ways and serve all its stakeholders, customers and
investors, effectively. These aims have been referred to in their vision-mission statement.
The vision statement of an organisation is a long term objective of core important information
because it states the desired future that the organisation is aiming to achieve, it expresses
corporate vision so that the whole organisation, stakeholders and the general public are
informed about why the company exists and what it is trying to achieve. The vision/mission
statements are at the top of the objectives hierarchy. All other objectives should stem from the
top.

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 Shell’s Primary Objectives

Vision statement from Jeroen Van Der Veer, Chief Executive of the Royal Dutch/Shell Group
as of 2nd March 2010: “Shell is a global group of energy and petrochemical
companies. Our aim is to meet the energy needs of society, in ways that are
economically, socially and environmentally viable, now and in the future.”

Mission statement - The most recent mission statement for Shell as a whole organisation dated
30th October 2009: “THE OBJECTIVES OF THE SHELL GROUP ARE TO ENGAGE EFFICIENTLY,
RESPONSIBLY AND PROFITABLY IN OIL, OIL PRODUCTS, GAS, CHEMICALS AND OTHER
SELECTED BUSINESSES AND TO PARTICIPATE IN THE SEARCH FOR AND DEVELOPMENT OF
OTHER SOURCES OF ENERGY TO MEET EVOLVING CUSTOMER NEEDS AND THE WORLD’S
GROWING DEMAND FOR ENERGY. WE BELIEVE THAT OIL AND GAS WILL BE INTEGRAL TO THE
GLOBAL ENERGY NEEDS FOR ECONOMIC DEVELOPMENT FOR MANY DECADES TO COME. OUR
ROLE IS TO ENSURE THAT WE EXTRACT AND DELIVER THEM PROFITABLY AND IN
ENVIRONMENTALLY AND SOCIALLY RESPONSIBLE WAYS. WE SEEK A HIGH STANDARD OF
PERFORMANCE, MAINTAINING A STRONG LONG-TERM AND GROWING POSITION IN THE
COMPETITIVE ENVIRONMENTS IN WHICH WE CHOOSE TO OPERATE. WITH OVER 102,000
PEOPLE IN MORE THAN 100 COUNTRIES, WE’VE LEARNED THAT BEING AN INCLUSIVE
BUSINESS IS AN ADVANTAGE. WE MAKE A POINT OF HIRING PEOPLE FROM ALL WALKS OF
LIFE BECAUSE WE KNOW THAT THE MORE DIFFERENT PERSPECTIVES WE HACE ON BOARD,
THE GREATER OUR CHANCES OF SOLVING THE PROBLEM AT HAND. WE VALUE PEOPLE WITH
THE AMBITION AND CREATIVITY TO INJECT FREASH THINKING AND BRING ABOUT CHANGE.
THIS IS WHY WE ENCOURAGE THE EXCHANGE OF IDEAS AND REWARD INNOVATION WHEN
WE SEE IT. WE AIM TO WORK CLOSELY WITH OUR CUSTOMERS, OUR PARTNERS AND
POLICYMAKERS TO ADVANCE MORE EFFICIENT AND SUSTAINABLE USE OF ENERGY AND
NATURAL RESOURCES.” (www.shell.com)

“A strong mission statement should relate and expand from the vision statement and link four
key areas: Purpose, Values, Standards and main Strategy” (source adapted from: Mission
model of Campbell et al, 1990, Business Studies, Ian Marcouse, pg352).
Comparing Shell’s vision and mission statements it is evident that they are related and the
mission statement is an extension of the vision statement. Both mention core objectives of
“meeting energy needs of society/customers” the mission statement expands on this
statement and explains how it is intending to carry out this function. Both statements mention
“now and the future” the mission statement elaborates by explaining what the organisation is
doing “now” and how its objectives are aiming to meet this “efficiently, responsibly.” The
vision-mission statements also explain its intentions for the “future” and the mission statement
continues to express how it aims to meet this “in the search for and development of other
sources of energy.” There is also a direct relation in both statements referring to profit the
vision statement mentions “economically” while the mission statement develops this further
and talks about “profitability.” Furthermore the mission statement links the four key areas: it
states its purpose “to engage efficiently, responsibly and profitably in oil, oil products, gas, chemicals
and other selected businesses.” It states its values “We value people with the ambition and creativity.”
It states its standards “We make a point of hiring people from all walks of life… encourage the
exchange of ideas.” It states its strategy (strategy meaning long-term plans to make the mission

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achievable) “search for and development of other sources of energy… finding responsible ways to meet
that demand.”
The above information relates to the core/primary strategic objectives of the organisation and
is transmitted through the construction of the vision and mission statements. There is a need to
devise strategies that enable the primary objective to be achieved. The company continues to
the next stage of ‘the hierarchy of objectives’ and set medium-term secondary objectives
which develop beneath the primary corporate objectives. Therefore secondary objectives
involve ‘Functional/Team objectives’ these refer to departments, sections and teams. Such as
Finance, Operational including Human Resources, Marketing, Sales, Research and
Development, Logistics, Multiple etc. Objectives are key factors to the organisations strategic
formulation and planning, they provide several functions; clear statements of what needs to be
done at each level, what action needs to be taken, targets for departments, groups, teams and
individuals, they facilitate the control of performance and are a basis for evaluating how
successfully the plans are being implemented.
The secondary/functional objectives of Shell’s various departments shall be examined to
determine if the organisation has based its secondary objectives to assist in the achievement of
the primary objectives. Shell has produced general limited data regarding its departmental
objectives, however through various research methods (such as analyst reports) the following
objectives have been identified and classed into the following categories, note that these are
broad general objectives for the company as a whole, detailed individual units and team
objectives are constrained and confidential to the organisation.

Shell’s Secondary Objectives

Financial objectives as of February 2010

 Plans to sharpen up performance and reduce costs
 Reduce operating costs by $1 billion by year end Feb 2011
 Current projects that come on stream, the company expects cash flow to increase by
50%
 35 New projects to generate 8 billion barrels of oil equivalent resources to underpin
growth to 2020
 The dividend for Q1 2010 is expected to be $0.42/share, and is expected to be
unchanged from 2009 to 2010
Marketing objectives
 Promotion: position Shell as a company with a point of view; a company that is positive
about energy and rejects complacency; one that listens and responds to the views of
key stakeholders on issues that are relevant both to its own business and the energy
industry as a whole. To focus on providing tangible examples of the way in which Shell is
helping to secure a responsible energy future.
 Product: To be the global market leader in premium differentiated fuel products. Attach
a brand image that expresses cleaner, quality, with improved engine and environmental
performance. To apply creative, persistent problem-solving to the challenges the world
currently faces; by continuing search and development for existing and new sources of
energy.
 Price: to ensure our prices are competitive in the market and can adapt quickly to
market conditions. To focus on costs and earnings, increase capacity and production on
key business products.

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  Place/Location: we operate in over 100 countries, our highest concentration being
Europe then North-Africa & Middle-East, smaller concentration in Central America and
South America and parts of the Far-South East of Asia. We aim to move into more
markets in the search for more resources and expand trade into more countries. (see
map below)

Map of Royal Dutch Shell indicating their

location in over 100 countries

Human Resources objectives

 Defining and delivering team development programs
 Leading projects in staff planning, compensation and benchmarking
 Designing and implementing performance management systems
 Promoting diversity and inclusiveness
 Safe working environment, zero risk
Shell companies manage these matters as critical business activities, set standards and targets
for improvement, and measure, appraise and report performance externally.
Research and Development
 R&D programmes continually strive to develop new and better fuels and lubricants, to
satisfy growing customer requirements for energy efficiency, with improved engine and
environmental performance. The overall aim is enhanced mobility for more efficient
operation and superior performance.
 To enhance the expertise of our staff and identify emerging technologies. Develop and deliver
technology that is shaping the future of energy.
 Investing in the future to improve our extraction techniques and technologies that will
be needed to produce more cleaner energy and efficient fuels and products for our
customers
Sales objectives
 For 2014, I expect further production growth, with the final outcome driven by shorter
term investment choices such as license extensions, increase volume of output, rise to 3.5
million barrels of oil per day to meet increasing demand
 Total product sales volumes in 2009 were 1% lower than 2008
 Shell will try to raise an average of $3 billion a year by selling 15 percent of its refining
assets, 35 percent of its retail outlets
Logistic objectives
 Increase the existing network of organized and methodological supply base making the
transportation and moving of its products from oil producing countries to the market faster
and efficiently, reaching the end customer quickly.
Health and Safety objectives
 To keep our employees and contractors safe by focusing on compliance and tackling the
cultural issues that can lead to unsafe behaviour.

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Identifying the main objectives of the organisation assists with the internal analysis; however to
complete the internal analysis more research should be conducted and investigated on the
organisations stakeholders. Stakeholders and their objectives will affect the organisations
strategy formulation and planning. Any strategic planning that has NOT taken into account its
stakeholders is NOT likely to succeed. Stakeholders obtain power to influence operations,
customers and government politics and so on. Another example: September 2000, UK’s Fuel
Strike organised by Taxi drivers and Farmers across the country, the stakeholders here formed
a pressure group to stop the government tax increases on fuel prices. They were primarily
demonstrating against the government, but the blockage succeeded and the whole country
almost came to a standstill. No doubt this will have a knock off effect on petroleum companies
such as Shell. Here the stakeholders are the end user (taxi-drivers) and the government. It is
important to identify and balance the needs and expectations of these groups, and to act
responsibly in view of all of them in order to avoid conflict and ensure the business is as
prosperous as possible and keeps its ‘licence to operate’. Balancing the needs of all
stakeholders is particularly important for large energy companies like Shell, one of the world’s
largest and most profitable multinational companies.
Stakeholders can be categorised into three areas:
 Internal: employees, managers (shareholders depending on their power and influence)
 Connected: shareholders, customers, suppliers, financial lenders
 External: community, government, pressure groups and other organisations
To fully conduct an internal analysis of Shell its stakeholders and their objectives need to be
identified before proceeding to the next stage. Identifying and understanding stakeholder
objectives will assist the business in achieving its overall objectives. As the business strategies
can be matched to stakeholder values to check for any resistance or support. For example
certain stakeholder roles and objectives may add value to the end product or service.
Shell’s Internal Stakeholders
 Shareholders
Internal stakeholders are seen by the wider community as reflecting Shell and how it works.
Shell’s main internal stakeholders are its shareholders and employees. Shareholders play a
crucial part in the life of the business. They provide a sizeable part of the capital required to set
up and run the business. They take a reward from a share of the profits in the form of a
dividend. This varies according to how many shares they own. The shareholders choose a Board
of Directors to represent them and provide a direction to the company. This is set out in a long-
term plan which is called a strategy. (See diagram below)

An example of the importance of shareholder objectives can be noted under the section
‘Financial objectives’ Freeze management salaries until 2011 after shareholders objected last
year when executives were awarded bonuses even after performance targets were missed.
(http://royaldutchshellplc.com/category/oil-company-profits/)
 Employees
Another important internal stakeholder group are employees. Shell employs over 100,000
people worldwide. These include senior international managers specialising in finance,
marketing, sales, oil and gas exploration and other aspects of the business. Other employees
include geologists, market researchers, site engineers, oil platform workers, office

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administrators, business analysts and many more. As stakeholders, employees are influenced
by Shell but also affect how Shell operates. The employees’ standard of work and commitment
to health and safety and excellence is vital in order to keep Shell as a leader in the energy field.
Mistakes can be costly in terms of reputation and the livelihood of other employees. A priority
at Shell is to respect people. It seeks to provide its staff with good and safe working conditions,
and competitive terms of employment. This has a positive influence on employees as it keeps
them safe and motivated.

Shell’s Connected Stakeholders

 Suppliers
Suppliers are connected stakeholders who are Shell’s partners in the chain of production for
example in bringing petrol from the oil well to the petrol pump. Other suppliers are those with
machinery and equipment, in Shell’s case the equipment needed for deep sea oil drilling
requires advanced specialised technological equipment. Information Technology,
Communication, control and monitoring of its enterprise requires sophisticated computer
software, suppliers for this is Microsoft.
 Customers
Without customers a business would not exist. One of Shell’s major objectives therefore is: ‘To
win and maintain customers by developing and providing products and services which offer
value in terms of price, quality, safety and environmental impact, which are supported by
technological, environmental and commercial expertise.’
Achieving this objective is challenging. Customers want value for money which involves
providing the highest quality fuels at competitive prices. Research drives this process. Safety
and environmental impact are key ingredients of the research and development process.
Increasingly customers, concerned about pollution and environmental damage, require
cleaner, more efficient fuels such as bio-fuel. There is global interest in liquid bio-fuels for
transport as people travel more. Bio-fuels also offer the potential to slow the rate of growth in
the world’s CO2 emissions. Shell responds to present changes in customer views and seeks to
anticipate future customer expectations. It aims to help customers use less energy and emit
less CO2. Shell products include fuels and lubricants for all forms of transport such as, cars,
ships, aeroplanes and trains. Shell has a set of global environmental standards/expectations for
all of its companies. Topics include: managing greenhouse gases, energy efficiency, control of
waste and the impact on water.
Shell’s External Stakeholders
Shell needs to work with a range of interest groups. These are decision makers and opinion
formers. People and organisations in positions of influence make decisions and form opinions
that can affect Shell. These include academics, government, media, non-governmental
organisations (NGOs) business leaders and the financial community. They interact with Shell in
different ways:
 Governments
Shell has operations in many countries across all regions of the globe. To gain approval to
operate in these countries it has shown the host governments that it is operating in the right
way. This includes creating jobs, paying taxes and providing important energy supplies. Shell is
also working with governments to promote the need for more effective regulation on CO2
emissions.
 The business community
Shell supplies to and buys from hundreds of other businesses.

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  Other oil companies
Shell works in partnership on projects with many other oil companies. These include both
competitors such as BP and Texaco, and partners such as government owned oil companies in
the countries in which it operates. Partnership activities have included building new oil or gas
supply lines and new refineries.
 NGOs (Non-Government Organisations)
NGOs are important bodies that influence decision-making. For example, Shell was considering
drilling in 2008 for gas in British Columbia’s Sacred Headwaters (the source of three important
rivers). These rivers provided a source of wild salmon and other natural resources. A number of
organisations were set up to protect the Headwaters including ‘Friends of Wild Salmon’. Shell
listened to their concerns and postponed further drilling work.
 The media
It is essential for competitive companies like Shell to continue to operate in ways that receive
positive press coverage from newspapers, television and magazines. This reinforces its position
in the market and can help to attract new customers through a positive reputation.
 Pressure groups
A pressure group is a group of people with specific aims and interests which tries to influence
major decision makers like businesses and governments and raise public awareness about
issues.
Community/Local community
Shell’s oil and gas operations aim to create economic and social development while minimising
negative impacts. It seeks to invest in lasting benefits for the community Local communities
living close to oil refineries have raised concerns over their safety. Shell seeks to overcome
these fears by earning the trust of people by taking all the necessary safety measures. This
includes operating the plant safely and making people aware of plans and emergency
procedures.
The organisations stakeholders and their values are important indicators to a firm’s internal
analysis. An organisation will continue to exist and grow if it can balance the needs of
stakeholder groups and incorporate them within the company’s objectives to assist in the
formulation of business planning. Companies reduce operational and financial risk by listening
to local communities and addressing their expectations, cutting the chance of project delays,
approval failures or disruption to operations. Further research needs to be conducted in line
with stakeholder analysis before an organisation proceeds with its ‘Business Strategic Planning.’
The findings from performing an external environmental investigation may overlap with
stakeholder influences and interests. A good business strategic plan is likely to be successful if it
has collected information of both the internal and external environments in which it operates.
All organisations whether private or publicly owned will be affected by its general
environmental trends, methods used to extract external data are the PESTEL analysis and for
the competitive environment: Porter’s Five Forces analysis.

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 External Environmental Analysis for Shell
Good business strategic planning will only take place if the organisation has detailed knowledge
of both the internal and external environments in which it operates in. The PESTEL framework
together with Porter’s five forces model provides a checklist of the most important and major
factors that affect an organisation. The external environment can be split into three layers with
the organisation as the core. (See diagram below of Aspects of the external environment).
The diagram shows the various aspects of the external environment and how all the different
functions and business aspects are interrelated and have an impact on each other. The PESTEL
factors can be identified and illustrates why the organisation has to conduct an environmental
analysis and take the findings into consideration. Each component shall be examined in more
detail and extract information that is important and relevant to Shell.

Political & Legal

Technology

Competing Organisations

Exxon Mobil BP
Goods to customers
Suppliers
Materials Shell Wages to Labour Pollution
Labour Total
Chevron
Profit to Investors
Capital
Competitive Environment
1st Layer Social &
Economic
Cultural

2nd Layer
Physical
Ecological
Environment

3rd Layer

Source adapted from Business Essentials, Business Strategy, BPP learning media, pg 25 “Aspects of the external environment”

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 ‘PESTEL’ Factors
Political and Legal
Political and legal factors can have an impact on business strategy. As can be noted in the
diagram above the political and legal aspects are placed in the 2nd layer because political and
legal policies and laws will affect how the organisation operates with its suppliers, labourers,
capital, customers, investors and other components mentioned in the 3 rd layer.
 Government, European Union, International laws, trade legislation all affects the way a
company conducts business. For example the US, UK and Europe placed an embargo on
trade with certain countries such as Iraq, which is rich in oil supplies. Therefore Shell is
unable to extract, supply, or operate any kind of business operations in Iraq. Should
Shell have any intentions to develop market growth strategies into this region such
restrictions would impact the company’s business plan and Shell should neglect this as a
possible objective.
“We did not; for example, operate in Iraq when it was under UN sanctions. ”
http://www.shell.com/home/content/environment_society/society/business/politically_sensitive_regions/politically_sensitive_regi
ons.html. (There
is also a political check list that companies could follow)
 Employment law varies from country to country differences such as wages, health and
safety standards, redundancy policies etc.
 More recent legislation on Co2 emission is an important factor and should be taken
seriously by Shell; this will have an immediate and direct effect on their core business.
 In countries such as the UK, Italy, France, Germany, Holland and others, governments
have placed congestion and toll charges for two reasons, first to encourage the general
public to use the public transport system to reduce pollution levels and second to
encourage the use of alternative engines such as battery operated cars. Where vehicles
are battery operated they are omitted from the congestion and toll charges. Therefore
the demand for diesel will increase and petroleum to decrease.
 In 1997, 176 governments from around the world gathered to set and agree targets for
reducing emissions of harmful gasses. (source adapted from Business Studies, Marcouse, 3rd
edition, pg 632)
 Competition law affecting business decisions such as mergers, acquisitions. Or the
reduction on restricting competition can open up opportunities for an organisation. For
example if the UAE government shifted its petroleum ownership to privatisation Shell
could take advantage of this and start trading its fuel supply in that country. Another
example: as airline tickets were subject to more competitive practices and ticket prices
reduced, airline travel increased and the demand for the supply of fuel also increased.
Social and Cultural
Social and cultural factors include population, lifestyle, values, education, demographics,
population rates and social trends. Factors that are likely to affect Shell are:
 Population changes, the more population that exists and population increases the more
likely the demand for petrol consumption will increase.
 Lifestyle for example in the US they possess are more luxury lifestyle and require cars
which have larger engine sizes and therefore consume more petrol.
 In third world countries and developing countries public transport
 If a countries population consists of a large number being educated they will have
different preferences towards a more healthy society and ethical environmental issues
will determine there requirements. For example in Japan it is estimated that 75% of
Japans population are university graduates. Hence there strategic positioning on the

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 worlds technological advances. A country such as Japan will require and raise standards
in vehicle production to become more fuel efficient and economical. Thus affecting the
demand for alternative sources of fuel and reducing the demand in the supply of
petroleum.
 Trends may include for example in the UK, many cities and major towns are
pedestrianizing busy areas, for example Oxford has a park n ride system and encourages
the use of bicycles. This trend is starting to spread across the UK.
Technological environment
Technological advances have proved to be a vital source for the success, growth, cost-
reduction of businesses.
 Computers and I.T networks have assisted with the improvement towards machinery,
logistics, stock-ordering, supplies, communication etc. It also helps in the delayering of
organisations hierarchical structures.
 Improvement in manufacturing (such as the process from crude oil to petroleum) has
benefited from such technological advances.
 Cost savings on labour, storage, payments and time.
 Time being a crucial element in business terms, for example communication
improvement. One office in Amsterdam can have a virtual meeting with another office
in China.
 Sales and stocks are easily monitored, recorded and reported faster and easier.
Economic environment such as macro indicators
 Third world economies where unemployment is high and income levels are low private
vehicles are not in high demand which will affect the demand for fuel.
 Developing economies are important indicators and should be closely monitored as
petrol demand is likely to increase.
 Government fiscal and monetary policies will also affect Shell’s operation for capital
investment, should interest rates fall investors will spend and not invest in share
ventures. High exchange rates will affect product prices.
 Taxation also affecting wages, profit levels, suppliers prices, tariffs on imported goods
etc.
 Currency and exchange rates need to be addressed as Shell’s competitors are also
global organisations and petrol prices are affected by the dollar, Euro etc.
Physical environment and ecology is a major concern for companies like Shell since their
business is reliant on natural resources. Materials such as oil cannot be replaced once used up.
These materials are of limited supply. The burning of oil gives off harmful emissions and
damages the environment. Main areas that will affect Shell are:
 Natural conditions such as weather, floods, earth quakes, volcanic eruptions.
 The limited resources caused by extraction of raw materials.
 Logistical issues such as transportation how quickly can Shell supply fuel to their
customers (customers being the countries that they sell to).
 The infrastructure of countries also affect how efficiently they can reach their customers
and end-users, third world countries have less advanced transportation systems
 Environmental legislation and government permission and licenses. Shell must follow
the bureaucratic procedures and apply for licenses and permission from the
government’s authorities before they can perform any drilling in the search for natural
resources, such as fossil fuels.

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Breaking down a firm’s external influences into PESTEL categories helps to identify key issues,
for the organisation to consider the implications of each external factor and assists the business
formulation process towards strategic positioning. There are weaknesses to this type of
analysis the outcome is not full proof. The above diagram showing “Aspects of the external
environment” the 1st layer has not been analysed using the PESTEL framework. Other external
analysis need to be carried out such as Porter’s Five Forces model which analysis in more detail
the 1st layer being the competitive environment. Organisations need to position themselves at a
more competitive advantage over there competitors; an evaluation of this model will
determine the firms position in the competitive market before it creates any strategic policies.

Porter’s 5 forces model

Potential Entrants

Threat
of New
Entrant
s
Bargaining
Power of Industry Competitors Customer
Suppliers Rivalry among existing bargaining power
Suppliers firms Customers
E.g. Shell & BP

Threat of
substitute
products or
services

Substitutes

This model helps the firm to understand how fierce or how favourable the competitive
environment is. The overall strengths and weaknesses of a firm’s position depend on the above
factors. As Shell is a European based organisation, BP (British Petroleum) will be taken as its
nearest European competitor to compare and contrast the external competitive environment
to assess its strategic position.
Intensity of rivalry among existing firms for example a shopping mall may have Starbucks,
Nero, Costa, Caribou etc. They all offer the same products, serviced in a similar way and roughly
charging the same price for a cup of coffee. The idea of this analysis is to identify what makes
one firm standout from the others. How is the organisation different? Shell has managed to
differentiate itself through the following methods:
 The company has a large number of specialists and specialised employees in the areas
of scientist for their Research and Development divisions. They have devised a unique
program called “Enhanced Experimentation (EE) accelerates research and development
projects by allowing higher performance testing efficiency for new products, which translates
into shorter development phases and ultimately quicker routes to market.”
 Shell’s response and adaption to new technology advances and special ordering
techniques has made it possible for them “to meet its customers' requirements for

Page 14
 speed, responsiveness and quality assurance in an increasingly competitive market.”
Speed of delivery is essential in a consumable market, if petrol pumps run dry
customers will drive to the next available petrol station.
http://www.shell.com/home/content/chemicals/aboutshell/media_centre/news_briefs/news_brief_archive/2007/nb_online_deliv
ers_speed_responsive_20032007.html)
 Shell produces 3.1 million barrels of gas and oil every day compared to BP rivalry firm
produces 2.3 million barrels per day. This gives Shell another advantage over its
competitor as it can reduce its prices when supplying more markets and add to its
reserves. Economic theory states that when supply is more then price is reduced.
 Shell currently has 44,000 service stations world wide compared to BP’s 22,400 service
stations worldwide. Therefore the reach and spread of Shell’s customers are much
larger this gives off the image to customers that Shell is more accessible and at the
same time presenting and maintaining its brand image. Customers are less likely to
switch to BP.
 Experience is also a key advantage to organisations, the fact that Shell has been
operating in the oil industry since 1833 compared to BP since 1908. Has enabled Shell to
benefit from longer experience, move into new markets quicker, build up customer
loyalty, and build up profits sooner so that it can invest in new ventures.
Potential Entrants
Market industries that generate large profits are a target for new entrants. The number of
likely new entrants will depend on whether the barriers to entry are high or low. Although Shell
is one of the largest companies in terms of revenue they still fear competition with threats of
new entrants mainly in the form of local suppliers:
"With the increasing number of local suppliers you have to be very responsive to your customers'
needs to maintain your competitive edge," explains Herbert Ho, the company's Operations
Supervisor. "
Shell’s barriers to entry include:
 Economies of scale where they benefit from reductions in output costs due to their
large scale of production.
 Capital investment is high so new entrants will have difficulty raising the capital needed
to start such a large corporation in order to meet the existing competition of such big oil
company’s. The need for specialised equipment, employees, land etc.
 Business relations and partnerships are already established and the market is already
mature, Shell already occupies many areas for the extraction of raw materials this
makes it difficult for new entrants to compete.
 Infrastructure, such as logistics and transportation that Shell already acquires is vast
spread and took years to build. New distribution channels are difficult to establish.
 Experience is one of Shell’s advantages; the expertise that they acquire is not so easily
available.
For the case of BP their barriers to entry are equal to that of Shell. Except Shell possess more of
each of the above statements.
Bargaining power of customers
As mentioned before the oil industry is an unusual market as demand for fuel remains high, it is
more of a necessity rather than a luxury. Economies/Countries rely on the supply of energy.
However switching costs, price-awareness and product quality are issues to be considered for
organisations in the oil industry. Barriers that Shell are capable of are as follows:
 Customers choosing to fill-up at Shell or BP stations will make little or no difference to
the consumer. However using pricing strategies has proven to be a major success. The
Page 15
 consumer buying pattern of fuel (especially in European countries) has shown that
people will drive for miles and miles in order to receive cheaper petrol down to the
pence. Price wars over petrol pump prices have hit the headlines between competitors.
 For Shell accomplishing brand awareness relating to quality and fuel efficiency in their
advertising slogan “You Can Tell When its Shell.” The Shell logo of yellow and red is easy
to identify and locate. They maintain standardisation globally (like McDonalds).
 Other marketing strategies that offer the customer pay at the pump, 24 hour stations,
convenience shops at their stations, fuel cards for businesses, loyalty rewards, money
vouchers, air-miles etc.
Bargaining power of Suppliers
Although Shell is a supplier of energy they also need supplies to conduct their business.
Suppliers can control/increase prices. The following points are issues that would concern Shell:
 If suppliers have other customers outside the industry and do not rely on Shell as their
prime customer. For example specialised machinery such as oil tankers, refinery and
drilling equipment.
 If their suppliers are few (monopolistic, oligopolistic) and can charge high prices. For
Shell, their I.T software solutions are supplied by Microsoft. The bargaining power of
Microsoft is high; they operate in a global monopolistic environment and most if not all
businesses rely on Microsoft for their software.
 If switching costs are high between suppliers.
 Suppliers of raw materials
To create barriers to entry for the bargaining powers of suppliers the following strategies can
be deployed by Shell:
 The department of Supplier Management needs to focus on managing supplier
relationships to enhance the overall value created between Shell and the suppliers
through disciplined coordination and alignment of key interests and capabilities. Key
processes focused on relationship management, performance management, supplier
development and value-chain optimization. This creates greater mutual value for
suppliers and for Shell. The Supplier Management operations announced
“One of the best examples of this approach has been our work with Microsoft.  We’ve
developed a collaborative relationship where our people have advised on the technology they
develop and the way they go to market. Shell works with a diverse group of suppliers in a
complex operating environment.”
http://www.shell.co.uk/home/content/gbr/aboutshell/shell_businesses/e_and_p/supply_chain/
 For hardware equipment/machinery the strategies involves outsourcing, partnership
agreements and contractors. Shell has set up a unique division for suppliers and
contractors if they are interested conducting business. Prospective suppliers must
proceed and complete the pre-qualification standards test.
 Further strategies have included Shell developing and buying into manufacturing their
own machinery and building their own plants of oil refineries around the world. They
have strategies of ‘Backward Vertical Integration.’
 Suppliers of raw materials are countries that obtain the natural resources in oil and gas.
Therefore Shell is subject to the agreement of the countries authorities to issue licenses
allowing them to drill and extract oil and gas. Strategies for this especially for third
world countries include; convincing the government that bringing and operating
business in the country will achieve a stronger economy for its government and people.
Business creates jobs.

Page 16
The benefits of Porter’s five forces help the organisation to analyse whether the business is in a
strong or weak position overall in its external competitive environment (the first layer of the
diagram above ‘Aspects of the external environment’). All the above analysis so far has been
concentrated on the external analysis with reference to the primary objectives and the
identification of stakeholders. The next procedure is to apply strategic positioning techniques
to the internal analysis of the organisation allowing the firm to identify its strategic position and
planning framework. Methods and business models used for internal strategic positioning are
SWOT, GAP, BCG and Ansoff matrix analysis.
Internal Analysis and Strategic Positioning

SWOT Ansoff Matrix

Internal
Analysis
Strategic
Positioning
Value Chain BCG Boston
Consulting
GAP Group

This further investigation provides information that will assist the organisation in answering the
following questions:
 Where does the organisation stand?
 What internal factors are decisive for survival, failure or success?
 Where do our core products stand?
 How are/should we add value in relation to the value system and chain?
 What are our future products and developments going to be?
 What and where are our competencies?
To examine the key aspects of the organisation’s current position the next steps will explore
any limiting factors, its value chain and review its product portfolio (BCG)
Limiting Factors:
 The main limiting factor for the manufacturing oil industry is the natural raw materials
of fossil fuels available in the planet. For Shell in particular a European operating
business has to search for these natural resources which are in the possession of foreign
countries. They cannot therefore rely on their home country for these resources. Also it
has been estimated fossil fuel will diminish over time and bearing in mind customers
(stakeholders) demand for better and alternative energy sources.
To combat these limiting factors it is important to understand and analyse the ‘Value Chain.’
Value Chain/Model:
 The value chain analysis identifies how the business adds value to the resources it
obtains and how it organizes these resources to satisfy customers and the stakeholders
of the foreign country in which it receives its resources. In other words its connection to
its value system.

Support Firm Infrastructure

Page 17
Activities Human Resource Management
Technology Development Margin
Procurement
Inbound Opera Out - Marketing Service
Logistics -tions bound &
Logistics Sales

Primary Activities (Michael Porter, Competitive Advantage, 1996)

Strategies practiced by Shell to achieve added value:

 Firm Infrastructure
Shell uses decentralized methods (delegate responsibility to Units and individuals) business
worldwide especially in the “downstream” operations with companies operating in over 100
countries with a considerable degree of independence. The downstream operations refer to
refining oil into fuel, producing petrochemicals, developing bio-fuels, trading, retail sales,
managing Co2 emissions, supply and distribution.
Shell uses centralized methods (where concentration of management and decision making
power is at the top of the hierarchy), for its “upstream” operations receiving detailed technical
and financial direction from the central offices in The Hague. Upstream refers to exploring oil
and gas, developing fields, Converting gas to liquid products etc.
The combination of both methods helps to add value to the business and its products by
allowing independence where needed and focusing on strong management input, financial
support and expertise for areas of development such as research and development and
innovation.
 Human Resource Management
Shells employs over 100,000 people worldwide around 1/3 rd are “30,000 technical staff in
centres across the world. From scientists to business experts, our employees and contractors
work to deliver our research and development programme – finding innovative solutions to the
world’s energy challenge.” http://www.shell.com/home/content/innovation/about_us/
The employment strategy also assists with critical success factors, without the correct human
resources Shell would not be able to develop and add value to its products and services. The
talents of the individuals in the organisation are key determinants to its strategic positioning
when compared to its rivals.
 Technology Development
As mentioned above Shell’s strategy to add value to its technology advancement they have
created partnerships and agreements with Microsoft. They also own several plants and
manufacturing industries for their supplies cutting out the need to rely on suppliers. This also
allows for reduction in costs, which also adds value to the end products and services.

 Procurement
Strategies for this have been discussed above under Supplier management tactics for Porter’s
five forces analysis.
 Inbound Logistics

Page 18
The company has a large network of organized and methodological supply bases, making the
transportation and moving of its products from oil producing countries to the market faster and
efficient.
 Operations
Operations include the tasks of transforming resources into desired goods through processing,
inspection, transport and storage. Shell has highly sophisticated operations from the people it
employs to the assigned tasks, programs to meet quality, efficiency, standards combined with
its logistics, technologies and infrastructure strategies to provide additional value to its system.
 Marketing and Sales
The strategies devised by Shell to add value towards its marketing and sales activities are to
engage directly with more than 1,000 global opinion leaders such as government and business
leaders, NGO officials, academics and the media at over 30 events across the world, via
through-the-line media partnerships.
 Service
Shell adds value by providing a variation of fuels, offering different pricing strategies, card and
credit services and at a corporate level offering consultancy services to provide solutions for
businesses.
It can be distinguished that Shell adds value and makes use of its value system by combining
the activities, efficiently and effectively by placing various strategies that manage the linkages.
Shells value chain analysis provides information on how the different functions act and interact
as a business as a whole. Further studies are needed to position its products, a method using
the Boston Consulting Group Matrix (BCG).

The BCG is a product portfolio analysis that examines the existing position of a firm’s products.
This allows the firm to plan what to do next. It shows the market share and growth of each
product.

The Product Portfolio Boston Matrix

Page 19
 Gas-to- Alternative
Liquid fuel Energy products
Bio-fuel
Coal - gasification

Petroleum
Products Plastics
Coatings
Detergents
Nuclear
Metals
Electricity
generation

Stars
Shell’s main product that sits in the star gradient is its Gas-to-Liquid fuel it is an innovative
product that meets demands in fast growing societies (China & India). Also economies that seek
alternative cleaner more fuel efficient products to meet their innovative products, such as the
Japanese technology car industries searching for new inventive fuels to match their latest car
inventions.
It could be argued that Shell’s main petroleum products can be placed between the Star and
Cash cow gradient. The petroleum products are a Star because it has a high share in countries
that are experiencing population and economic growth i.e. China. But the petroleum product is
not in need of high capital expenditure to maintain its market position. Also the petroleum
product is a Cash cow because it generates high levels of cash income since the market for
petroleum fuel is already mature.
Question Marks
Shell is developing and researching on alternative energy products such as biofuel and coal-
gasification to meet future demands as the worlds natural resources are scarce and will
eventually diminish. The Question Mark products require high capital expenditure in the hope
of increasing their market share. The issue for concern here is whether they should continue to
use up large amounts of retained earnings to fund such projects bearing in mind that their
competitors are investing in research and development of the same products. Shell claimed
“We are finding innovative ways to help meet rising energy demand, as we squeeze more from
existing resources and develop new and unconventional energy sources.”
http://www.shell.com/home/content/environment_society/nef/e_diversity/
Dogs
For Shell the products that fit into the Dog gradient are nuclear, plastics, coatings and
detergents, this is not their core or prime source of business but an area that requires funding
and provides little or no return on the investment, rather it just expands the organisation into
different areas. These products have low market share and low growth.
Product portfolio analysis examines the existing position of the firm’s products. The next stage
is for the firm to identify the extent to which it has managed to acquire a fit with the

Page 20
environment, it needs to identify its strengths, weaknesses and external opportunities and
threats. (SWOT)
Conversion

Strengths:
*Largest in size & revenue in the
global oil industry
Internal to the *Trademark & brand globally
company recognised
*Products that ranges from oils,
M lubricants, diesel fuel, jet fuel, &
A petroleum
T *Oil refinery plants in over 45
C countries
H *Large distribution & logistic
I network
N *Owns & manufactures its supplies
G *Specialised employees i.e.
scientists, engineers, contractors,
sophisticated research &
development departments
Exist *Up-to-date latest technology & I.T
independently
Opportunities:
of the
*Exploring other potential oil fields
company
*Innovation into alternative energy
conducting research and
development linking with
Universities and Colleges and
government research departments
*Partnerships with manufacturers of
complimentary products such as the
Car industry manufacturers.
*Acquisitions and Mergers
Weaknesses:
*Oil spillages
*Core business activities still relies
on oil products
*Scarce natural resources
*Increasing demand for cleaner,
cheaper, efficient energy sources
*Foreign countries that possess
natural resources for oil tend to be
in political unstable environments
*Competitors reducing prices
*2009 Niger Delta Oil spillage
Threats:
* New oil players
*Stakeholder pressure groups
advocating environmental issues
*Government blockages
*National government owned oil
companies such as OPEC setting
prices
*Existing competitors moving into
new markets

The idea of the SWOT analysis is to convert the identified Weaknesses and Threats into
Strengths and Opportunities. This will help to form part of the business strategy plan.
Recommendations for this are discussed below under the ‘Recommendation’ heading.
The GAP analysis can be used for this process.

Sales Target Sales

Gap filled by diversification

Page 21
 Product development strategies
Total sales
Market development strategies gap

Market penetration strategies

Forecast

TIME
The gap analysis is a comparison of the ultimate objective with the current plans and position
an organisation is currently in. So that strategies can be devised to fill the gap.
Market penetration strategies are the percentage of the market that the product can capture.
Market development strategies involve moving into new markets either to supply to or extract
resources from.
Product development strategies involve the research and development that Shell currently
undertakes to reach its target fuel energy diversification products.
Recommendations for the GAP analysis are identified below under ‘Recommendations’. To
combine the firm’s activities in the current and new market, with existing and new products
known as the product-market-mix it is beneficial to use the Ansoff Matrix:
Shell’s Products plotted on the Ansoff Matrix

Present New
Market penetration: Product development:
Present For growth Invest in research and development
Maintain position for: oil products in Continue with innovation search for
petroleum, diesel, lubricants etc. alternative sources of energy e.g.
biofuel, plant, palm oil, compressed
Market gas to liquid

Market development: Diversification:

New
Continue with current products For Shell this may involve vertical
Enter new markets e.g. Australia integration
Joint Ventures

From the findings of the information collected using the Business Strategic Positioning
techniques; that are primary and secondary objectives, stakeholder influences, environmental
audit and the internal analysis – GAP, SWOT etc. This will form a kind of statement for the
company revealing the core competencies and weaknesses to use as a base for the business
strategic planning framework.

Page 22
 Business Strategic Planning Process for Shell

The major steps in the strategic planning process are complex and will vary according to the
organisation. One plan will not work for another organisation. It depends on the type and size
of the organisation and its current activities and where it intends to be in the future. There are
three main distinct areas that need to be addressed:
1. Strategic analysis: a full assessment that the organisation must undertake, covering
objectives, resources, capabilities, external influences and its future potential.
2. Strategic choice: devising different strategic options that need to be considered for
solutions to weaknesses and to place the organisation at a more competitive edge.
3. Strategic implementation, in which the selected strategy is developed and put into
action.
The organisation can achieve this through understanding the planning gap, scenario planning,
and hierarchy of plans, planning horizons and devising strategic options for weaknesses and
areas that require development.
 Planning Gap
Planning means deciding what should be done, how and when is should be done and who
should do it. What objectives need to be achieved and how to meet them. (This should be
related to the primary objectives).
The planning gap involves applying the competencies, strengths and resources into the
planning process in the most efficient manner to answer two vital questions:

The planning Gap

Where are we now? Where do we want to

 Macro Scenario planning be?
This is an essential method for oil
companies like Shell, because they
rely on and are affected from macro-economic politics.
There distribution channels, pricing, extraction occupancies, legal requirements and standards,
embargo’s etc. All depend on political factors. The environmental analysis helps to determine
the key factors and identify the most important issues. By performing scenario planning,
strategies to prepare and overcome such issues can be developed. Recommendations are
mentioned below.

 Hierarchy of plans
Many plans need to be formulated; one plan for a large organisation such as Shell is unrealistic.
Shell may even have several plans for just one group or team of people. Looking at the macro
issues concerning Shell; focus shall be made on a broad scale rather than individual teams and
sub-group divisions. Therefore the hierarchy of plans within the organisation needs to be
identified and understood; which will incorporate the whole organisational.

Hierarchy of Plans MISSION

Page 23
 OBJECTIVES

STRATEGIES
POLICIES
PROCEDURES & RULES
PROGRAMMES
BUDGETS

This hierarchical structure of plans shows that the most important level is the mission as we
have already looked at the Mission for Shell as a primary objective and other objectives such as
the secondary objectives of Shell. Then planning strategies need to be designed. These describe
the actions that must take place so that the objectives can be achieved which will complete the
planning gap. Policies, procedures, rules and programmes are the activities that need to be
carried out, all within a budget and estimated time frame. Time frame is associated to planning
horizon sections of the strategic plan will be divided into short, medium and long-term courses
of action to meet the objectives.

The stages of the key planning techniques should be associated and incorporate the primary,
secondary objectives, internal and external analysis (already conducted) so that each stage has
a strategic plan and strategic choice of options that refer back to the vision and mission (why
the company exists and how it aims to meet its vision). A strategic planning flow-chart is a
useful model for organisations to view its issues and relate them to strategy and the options
available.

From the flowchart below we can examine Shell’s main components of the strategic planning
process together with the findings already analysed (above) such as core competencies and
weaknesses of the organisation identified through the Environmental audit, internal and
external analysis, Value Chain System, BCG model, SWOT, R&D, Human Resources, Experiences,
Logistics, Financial state, size and locations of the organisation. Following on from these
recommendations can be made for the strategic plan.

Strategic Planning Flow-chart

Page 24
 Vision & Mission
Why does the organisation
exist?
S
t
r Objectives
a
How can the mission be achieved?
t What are the organisation’s
e objectives?
g
i
c
The Internal Environment The External Environment
A PESTLE &
What are the resources? What are the external influences PORTER’S
n
What is our position in the on the organisation? 5 FORCES
a market? What is the current and future
l competition?
y
s
i
s Corporate Analysis
What are our Strengths and Weaknesses? Reconsider
What are the Opportunities and Threats & adjust as
likely to be? necessary
How do we need to improve in order to
achieve what we would like to achieve?
Strategic
Positioning

Strategic Choice
Strategic What are the options for strategic
Choice development?
How do the options compare?
Which one is most suitable?

Strategic Implementation Review & Control

What are the best strategies for design, Assess actual performance in the light
production, marketing etc? of the plans

Steps in the strategic planning process of the flow-chart

Page 25
Step 1
Vision/mission (see vision and mission statements of Shell already noted)

Step 2
Goals in relation to the stakeholder analysis (as identified and mentioned above)

Step 3
Objectives, identified and considered above. (under stakeholder section)

Step 4
Environmental analysis, identified and concluded above (under PESTLE factors)

Step 5
Strategic positioning analysis, identified and conducted through internal analysis using various
business models

Step 6
Corporate Appraisal, is combining step 4 environmental analysis and step 5 strategic
positioning analysis (internal analysis)

Step 7
Gap Analysis compares the outcome of step 6 with step 3 objectives.

Following the above procedure recommendations can be made for the planning process and
/or changed. If an organisation is already implementing a plan then it should be monitored and
changed if necessary. On completion of the major steps it is possible to summarise the main
competencies and weaknesses of an organisation before developing any strategic plan.

Summary: Core Competencies

Page 26
Financial
 A collective multi-billion dollar turnover and major manufacturing facilities around the
world.
 Delivering bulk petrochemicals to large industrial customers, through simpler
organisational structures and at the lowest total delivered cost.
 Benefit from economies of scale.
 Produces 1.2million barrels of oil more than its competitor.
 Billions of dollars owned through its world wide assets
Product
 Brand Image, globally recognised
 Already improved Co2 emission output to meet all global governments legal
requirements
 All Shell Aviation fuels are produced to stringent manufacturing specifications. At every
stage between refinery and aircraft tank, sampling and laboratory analysis check fuel
quality. Supplying transport, heating and industrial fuels to corporate and distributing
companies in many industries across the world. Supplying specialised fuels, lubricants
and technical support services to the marine industry.
 Other products such as natural gas, liquefied petroleum gas, jet fuel, different types of
chemical feedstock, gasoline, electricity and bio-fuels.
 Lubricants and greases for motorists, bikers, transport, construction, agriculture and
industrial applications.
Location
 Operating in over 100 countries more than any other oil company, mainly Europe, North
Africa, Far East and Central America
Human Resources
 Highly specialised and professional employees especially in Research and Development,
Engineers, Scientists, Managers etc.
Other Resources
 Equipment and machinery, Shell owns manufacturing plants all over the world and
relies on itself for the majority of its supplies.
Customers, Partnerships and Agreements
 Shell has a number of large customer bases, some include well known airlines, marines
and countries as customers
 Agreements with Microsoft, Educational and Financial institutes.
 Shell is a partner of the Energy Technologies Institute (ETI), a UK-based private sector
partnership formed between global industries and UK Government.
 Partnerships with transportation manufacturing industries.
Organisational competencies
 Shell has already devised and implemented strategies such as centralised and
decentralised span of control to improve competencies, they have a range of strategies
to maximise the theory and method of the value chain to differentiate themselves from
their competitors. (strategies already mentioned above under the value chain analysis)
 Experience is also a key competence for Shell, in business, innovation, partnerships etc.

Summary: Main Weaknesses

Financial

Page 27
  The current global economic slow down, recession in developed countries and the
credit crunch has some financial impact on the company. Such as shareholder interest
and investments. The stock market has seen slowdown in the trading of shares and less
business travel means less demand for fuel.
 Stakeholders – shareholders protest against the increase in salaries for certain
employees, as of last year’s financial statements in the annual report.
Product
 Product extraction and shipping has caused major oil spillages and leakages
 Meeting the increased demand for energy presents shipping with quite a challenge.
 Increases in population and standard of living; means Shell needs to increase the
amount of supply of energy (petroleum) to meet demand
 Products identified on the BCG matrix under the ‘DOG’ gradient Plastics, Coatings,
Detergents, Nuclear, Metals, Electricity generation etc.
 Products identified on the BCG matrix under ‘QUESTION MARKS’ Alternative Energy
products, Bio-fuel, Coal - gasification
 Improvements need to be made on existing products to meet the vision, customers
searching for more efficient, cleaner fuel.
 New product sources and alternative products for the future.

Human Resources
 Health and safety issues are a main concern for petrol-chemical industries, accidents at
oil refinery sites, deaths at extraction drilling sites, shipping problems etc.

PESTLE Factors
 All PESTLE factors are not necessarily a weakness but should be regarded as warning
indicators. Should Shell be unable to address any of the factors it then becomes a
weakness. (Already discussed above under environmental audit). These factors must be
tackled and when devising the strategic plan the objectives and strategies must clearly
state how the organisation deals with each of these factors.

Stakeholders
 As discussed above, stakeholders that have a negative impact on the organisation
results as a weakness of the organisation. The main weaknesses are shareholders as
mentioned above under financial weaknesses, pressure groups, communities/local
communities, customer demands and suppliers that Shell rely on.
Location
 Shell has little influence and business operations in the US, Russia, Australia and East-
Asia. The Middle-East not a customer but a supplier of natural resources to Shell.

Recommendations for Shell’s Strategic Plan

Page 28
The following recommendations are suggested/possible strategies for Shell to incorporate in
their strategic plan based on all the above analysis and identification of the primary and
secondary objectives. The main stages of planning can be incorporated into a ‘planning cycle’
b jecti
O vEstab slih
e o
rR
P gresviw ln gyh
StraeP e

Im plem n t e cid
D e
th eStra egy Ta cti
s

Financial Strategies to meet objectives:

 Staff Reduction of 1,000 employees
 Freeze management salaries until 2011 after shareholders objected last year when
executives were awarded bonuses even after performance targets were missed.
 Conduct business in selective areas where oil producing is maximised
 Reduce product portfolio
 Investment to enhance the quality of manufacturing and marketing
 The company will continue to focus on trimming the market portfolio and selling non-
core activities to maintain price sustainability.
http://royaldutchshellplc.com/category/oil-company-profits/
 Use core financial competencies mentioned above to implement these strategies such
as use retained turnover to invest in improving the quality of manufacturing and
marketing.

Marketing Strategies to meet objectives:

Promotion
 Setting up partnerships with Shell’s corporate advertising, media partnerships and
associated engagement programme position Shell as a company with a point of view; a
company that is positive about energy and rejects complacency; one that listens and
responds to the views of key stakeholders on issues that are relevant both to its own
business and the energy industry as a whole.
 In 2007, Shell engaged directly with more than 1,000 global opinion leaders such as
government and business leaders, NGO officials, academics and the media at over 30
events across the world, via through-the-line media partnerships. Above-the-line

Page 29
 communications focused on providing tangible examples of the way in which Shell is
helping to secure a responsible energy future. A new website –
www.shell.com/dialogues features an interactive element which provides an
opportunity for consumers to discuss energy issues with major players from Shell and
other relevant organisations.
 Shell changed its slogan from “You Can Tell When Its Shell” to “Taking Action to meet
the energy challenge” giving off a new kind of promotional message.
Current Product
 All automotive fuels and lubricants are not the same and Shell’s extensive R&D
programmes continually strive to develop new and better fuels and lubricants, to satisfy
growing customer requirements for energy efficiency, with improved engine and
environmental performance. The overall aim is enhanced mobility. Shell’s advanced fuel
technologies include developments in deposit control, improved combustion and
friction control, for more efficient operation and superior performance. Shell Helix
motor oils employ active cleansing technology, designed to prevent dirt building up in
the engine, so enabling it to operate to its full potential.

New Products
 Maximise on human resources and continue to employ and reward those who add
value to the products. Invest heavily in research and development for alternative
sources of energy.
 Work closely with Governments, government institutions, educational institutions such
as research universities and colleges of science and technology. Continue to establish
such links and partnerships world wide, not just in Europe but spread this investment to
developing countries.
 “We partner with other companies to benefit from shared know-how.”
http://www.shell.com/home/content/innovation/alternative_energy/
Pricing
 For Shell to remain price competitive it needs to manufacture output at a higher rate so
that the volume of units increase and thus increase supply. When supply is higher prices
are reduced.
 The Middle-East and members of the OPEC organisation set to control prices as the
natural resources for oil are founded in these areas. Shell needs reconciliatory talks and
discussions must be established with the members of the OPEC in relation to the
current prices of oil and petroleum based products. To further reinforce these steps, the
company must assign area/regional managers in these countries who have a significant
understanding and immersion in the local Islamic culture.
Location
 Nigeria is one of Shell’s strategic plans for the development of the Bonga oil field will
represent an increase of around 10% in Nigeria’s oil production.
 Places such as Russia and Far East Asia have restrictions as well as other government oil
producing countries such as Saudi and the UAE.
 Develop programmes that benefit the people and the government of the third world
countries that are rich in oil. Programmes of educational value and projects that include
employing local suppliers and human resources. Such benefits are welcomed from
under developed countries as this helps their economy to grow.

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  Shell therefore will have recruitment policies to employ local people and contractors.
Shell stated: “The Shell Petroleum Development Company (SPDC) and the Shell Nigeria
Exploration and Production Company (SNEPCO) employ around 6,000 direct staff and
contractors. More than 90% of them are Nigerian. This supports the government drive
to increase Nigerian involvement in major projects. It also makes sense for us – by
developing a skilled Nigerian workforce we can lower our operating costs over the long
term.” http://www-static.shell.com/static/nga/downloads/pdfs/briefing_notes/nigerian_content.pdf

 Shell will only operate in countries where it is able to follow its business principles.
These principles set out what Shell stands for and define its behaviour and are
published on its website. The Diagram displays how Shell can benefit the community in
the foreign country that it is extracting its raw material resources from.

 Shell, in its commitment to improve the wellbeing of local communities, has created
local partnerships. It has provided health facilities and supported the development of
local schools and universities. Shell is dedicated to protecting human rights and helping
communities. The search for oil and gas can take energy companies to places with poor
human rights records. It treats each case separately using decision-making methods set
out by the Danish Institute for Human Rights.

Health & Safety strategies to meet objectives

 Our Goal Zero programme and supporting company-wide initiatives are helping to
strengthen our safety culture.
 Employ management at our locations worldwide to ensure that we manage safety
systematically and have the right resources, skills, tools, standards and procedures in
place

PESTEL factors identified to formulate the following strategies

 For Shell the main strategies that need to be deployed as part of the strategic plan are
strategies to take advantage of situations that arise from the PESTEL analysis, for
example technological advances, Shell implemented strategies such as building up
partnerships with Microsoft to develop and create specialised software and hardware
for such a large global corporation.
 Using technology to improve delivery, machinery, working conditions and
manufacturing plants.
 Social and cultural strategies can be formed as part of the plan and consider factors
where population increases in developing countries like China that require more
transportation usage will lead to an increase in demand for more supply of fuel. Shell

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 can boost its current supplies from new markets such as Nigeria to supply oil to new
market growth areas such as China. Extract from one source to sell and supply in
another.
 Physical, ecological environment is an important factor when considering strategies for
the business strategic plan. For Shell this is where their main strategies take place for
the future, their strategies on innovation. Funding and investing for new alternative
sources of energy to move from fossil fuels to bio-fuels, gas-to-liquid etc.
 Other strategies for this area are: Shell talks regularly with major pressure groups such
as Friends of the Earth and Greenpeace about key issues such as how best to dispose of
old oil rigs to minimise damage to the environment. It deals directly with specific
pressure groups that are campaigning on local issues such as the preservation of animal
and plant life in a particular area. For instance, it has invested over $800,000 (over
£500,000) in establishing a research laboratory in Louisiana, USA, to help restore coastal
erosion. This will preserve endangered bird and plant life both there and across
America.
SWOT factors the following strategies recommended below are for Shell to convert its
Weaknesses and Threats into Strengths and Opportunities. Some strategies have already been
mentioned above regarding weaknesses and threats.
 Oil spills happen at Shell’s facilities – those we cannot control, for example due to
hurricanes or sabotage; and those from factors we can control, like corrosion or
operational failure. Strategies such as - Improve and increase focus on process safety.
Developed extra guidelines for the inspection and repair of all our distribution pipelines.

Product Portfolio strategies

Shell has formulated an elaborated strategy of the BCG Matrix called A Nine Celled Directional
Policy Matrix. The Shell Directional Policy Matrix is another refinement upon the Boston
Matrix. Along the horizontal axis are prospects for sector profitability, and along the vertical axis
is a company's competitive capability. As with the GE Business Screen the location of a Strategic
Business Unit (SBU) in any cell of the matrix implies different strategic decisions.

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Leader – major resources are focused upon SBU
Try harder - could be vulnerable over a longer period of time, but fine for now.
Double or Quit – gamble on potential major SBU’s
Growth – grow the market by focusing just enough resources here.
Custodial – just like cash cow, milk it and do not commit any more resources
Cash Generator – milk even more for expansion
Phased withdrawal – move cash to SBU’s with greater potential
Divest – liquidate or move these assets on as fast as you can.

Based on this matrix the strategy to deploy for Shell would be to use the Phased withdrawal for
its products in Plastics, Coatings, Detergents, Nuclear, Metals Electricity generation.

Conducting an internal and external analysis of Shell provides information about the company’s
strategic positioning so that it can compile a business strategic plan to bridge the gap that
ensures the primary objectives are being met. It is a complex operation organisations use
business models, tools and techniques to assist the analysis procedure. The Flowchart indicates
the necessary steps for the planning framework. Using the SWOT analysis can facilitate
corporate management to compare and contrast their positioning to competitors. Awareness
of competitors SWOT will enable Shell to incorporate strategies in the plan to position itself at a
competitive edge.
Shell’s competitors have been mentioned in the ‘Aspects of the physical environment in the first
layer.’ For a comparison focus will be made on BP; its neighbouring competitor since they
compete in similar markets, unlike Mobil which mainly dominates the US.

Statistical Comparison

Shell BP

+ 100 countries where we operate +90 countries operate in

102,000 number of employees 80,300 number employees
3% amount of world’s oil we produce 2% world’s oil
4% amount of world’s gas we produce 3% gas produced
3.1 m barrels of gas and oil we every day 2.3 million of barrels
44,000 Shell service stations worldwide 22,400 service stations
145 billion litres of fuel sold ---------------------------
44 refineries and chemical plants we own 16 refineries
1 ranking by Fortune 500 in 2009 ---------------------------

SWOT Analysis for BP

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 Strengths:
th
*4 Largest in size & revenue in the
global oil industry
*Trademark & brand globally
recognised
*Products that ranges from oils,
lubricants, diesel fuel, jet fuel, &
petroleum
*Owns & manufactures few
supplies
*Specialised employees i.e.
scientists, engineers, contractors,
sophisticated research &
development departments
*Strong political relations with
other countries
*Active in Mergers
Opportunities:
*Exploring other potential oil fields
*Innovation into alternative energy
conducting research and
development
*Partnerships
*Acquisitions and Mergers
*Sharing technical expertise with
local government
http://www.bp.com/subsection.do?categoryId=2317&contentId=7060028
Compare and Contrast Shell to BP Competitor
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Weaknesses:
*Oil spillages
*Core business activities still relies
on oil products
*Scarce natural resources
*Increasing demand for cleaner,
cheaper, efficient energy sources
*Foreign countries that possess
natural resources for oil tend to be
in political unstable environments
*Competitors reducing prices
*Focused on Bio-fuels and solar
power as alternative sources of
energy
*Safety Issues
*2005 pollution disasters
*2006 pollution disasters
*May 2010 oil leakage at the Gulf of
Mexico
Threats:
* New oil players
*Stakeholder pressure groups
advocating environmental issues
*Government blockages
*National government owned oil
companies such as OPEC setting
prices
*Existing competitors moving into
new markets
*Bad Press exposure due to safety
standards not being met
*Home country fuel prices are the
highest throughout Europe
The statistical indicators show that Shell is at a more competitive advantage in terms of its size,
spread, locations and output. Both companies possess similarities in their strengths,
weaknesses, opportunity and threats.
 The main issues for the weaknesses identified are that BP only seeks diversification in
two other sources of energy: bio-fuels and solar power. To meet the needs, demands
and climate changes there is a need for search into a variety of alternatives.
 Another main weakness is the continuing poor safety and pollution standards. In the
2005 explosion 15 people were killed.
 Creating poor public relations, bad press and raising concerns with all forms of
stakeholders. Also shareholders view this as unnecessary clean up costs that otherwise
could be used for dividends.

Comparing the two data analysis, it can be identified that a major strength of BP is it aggressive
strategy towards expansion. Rather that using its human resources to obtain organic growth,
BP is active in mergers. This strategy has proved to be a success for BP especially in the early
2000 years. (See graph)

Evaluating the graph, it shows BP’s strategy towards growth in active aggressive mergers led to
the sharp rise in the prices of shares.
“Shell, it seems, is playing catch up. While the oil industry embarked on a period of
intense consolidation between 1998 and 2000, Shell stood curiously aloof. This may have been
a strategic decision, but it seems more likely to have come about from the lack of one.
Now the Anglo-Dutch energy giant, after a few false starts, has finally managed to notch up a
couple of takeovers. BP has the tremendous advantage of being seen as a mean, aggressive
company, while Shell just plods on, Shell-like. Acquisitions tend to be easier than organic
methods, if the cash is at hand that is, and so Shell has finally headed down that path.
Consolidated out:
Shell has bought the independent oil producer Enterprise for $6.2bn, and the US motor oil
company Pennzoil-Quaker State for $1.8bn. But while the size of those purchases might sound
impressive, they're tiny when compared with the mega-mergers of days gone by. BP bought
Amoco for a cool $110bn, before following it up with a $30bn takeover of Arco. Once mergers
of that scale have already occurred, then the whole industry is pretty much consolidated out.
Meanwhile, BP - the wise company - is busy trumpeting its past and future ability to hit 5.5%

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growth. While Shell's acquisition strategy may be questionable, at least buying Enterprise will
ensure it does not fall short of its latest goal and be outdone by BP.” (Statement made by BP
chairman Lord Brown, http://news.bbc.co.uk/2/hi/business/1906963.stm Tuesday, 2 April,
2002).

Additional strategies recommended for Shell

In response the competitor analysis Shell should devise extra strategies to include as part of the
strategic plan. Strategies that take up opportunities from the weaknesses and respond to
competitor strengths such as:
 Technological frontiers such as the deep water of the Gulf of Mexico and the Arctic are
seen as vital sources of future production for companies such as Shell, which have
found it increasingly hard to secure access in countries with fewer technical difficulties.
Mr Henry described the Gulf of Mexico as a “very important region” for Shell, saying
that three new exploration wells drilled in the area had identified a potential for more
than 350m barrels of oil equivalent. Royal Dutch Shell has sent six boats to help clean
up the oil slick created by last week’s fatal accident on board the Deepwater Horizon
drilling rig in the Gulf of Mexico. Simon Henry, Shell’s chief financial officer, said the oil
industry was working together to limit the damage caused by the leak from a well
drilled for BP. (source, By Ed Crooks Published: April 28 2010)
 Shell companies participate in a number of strategic joint ventures. Complementary
strengths, shared long-term visions, consistent business principles and an equal
commitment to sustainable development are the potential keys to successful alliances.
For Shell companies, joint venture partnerships open up new market opportunities and
access to local market knowledge. For our partners, the benefits include gaining access
to world-leading technologies and to proven experience in delivering large-scale
projects. For customers, joint ventures bring into play new sources of product, with the
advantage that they are likely to be manufactured using proven technologies and
delivered against familiar specifications.
http://www.shell.com/home/content/media/newsandlibrary/pressreleases/2008/q32008resultsnewsitem30102008.html
 Shell Technical Partnership with Ferrari is regarded as the most successful partnership
in the world of Formula One, with 12 Drivers' titles and 10 Constructors' titles together.
Shell works alongside Ferrari to further establish an ongoing legacy of success in
motorsport.
 To improve on innovation Shell has teamed up with Toyota to work together to develop
automobiles that work on alternative sources of energy. This is an important strategy
for Shell. It is pointless to develop innovative products if the transport industry are not
ready to manufacture transportation to support the alternative energy sources.
Conclude
Conducting business strategy formulation using appropriate business models and tools enables
an organisation to identify its main competencies and weaknesses and view how its
organisation fits within its operating environment. Taking advantage of methods such as these
also allows corporations to apply competitor analysis. This provides grounds on which to base
and form a business strategy plan. The plan should to monitored and changed if necessary and
conveyed throughout the organisation. The strategic plan should be devised and implemented
in order to achieve the company’s long-term vision and mission.

References:

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http://money.cnn.com/magazines/fortune/global500/2009/
http://www.businessdictionary.com
http://www.shell.com/home/content/media/newsandlibrary/pressreleases/2008/q32008resul
tsnewsitem30102008.html
http://royaldutchshellplc.com/category/total/
http://www.exxonmobil.com/Corporate/news_releases_20100506gulf.aspx
The_Economist-business-admin@news.economist.com
http://www.hoovers.com/free/co/burn.xhtml?ID=50019
http://www.shell.com/home/page/aboutshell/whoweare/shellworldwide/mapapplication.html
www.thetimes100.co.uk
http://www.kyivpost.com/news/business/bus_general/detail/65983/
http://www.guardian.co.uk/business/2008/nov/12/oil-gas-companies-credit-crunch
http://www.search.shell.com/search
http://www.newworldencyclopedia.org/entry/Royal_Dutch_Shell

Books:
Title: Business Essentials Business Strategy
Edition: 1st, September 2007
Publisher: BPP Media
Author: Permission from Edexcel

Title: Dictionary Business & Management

Edition: 2nd, 2004
Publisher: Bloomsbury Publishing Plc
Author: Fiona Pike

Title: Complete A-Z Business Studies Handbook

Edition: 5th, 2006
Publisher: Hodder Education
Author: Professor David Lines, Ian Marcouse, Barry Martin

Title: Business Studies for Advanced Level

Edition: 3rd, 2008
Publisher: Hodder Education
Author: Ian Marcouse, Malcolm Surridge, Andrew Gillespie

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