Two definite questions that have taken rounds in the oil and gas industry in the recent past are:
It is important to mention that numbers of companies have not been able to answer these questions, and some of them have been able to cope up with this situation. For example British Petroleum have suffered significant financial jolt in the market, and the speculations took rounds of its merger with Shell or Exxon.
In this situation numbers of companies have undergone change in order to combat these issues while some of them have speculated to change. Royal Dutch Shell is one of the leading oil and gas organisations which have made an astounding decision of change in this tumultuous market scenario; to takeover another organisation to combat with the other four big companies (Amountzias, Dagdeviren and Patokos, 2016 p, 25). Merger and Acquisition is one form of change that the organisation Royal Dutch Shell has implemented, that has been considered as a good decision by some of the scholars analysing the oil and gas industry. A number of factors have played key role in managing this change; providing the organisation upper hand in the market ahead of some of the leading organisations in the oil and gas industry.
The organisation has merged with BG group of UK headquartered in Reading to implement the change. It is important to note, the organisation has analysed the market condition before the merger was done. Porter’s five forces and McKinsey’s 7S Framework have helped to understand the market condition especially the external environment of the organisation. The present report is designed in order to analyse the change implemented by the organisation Royal Dutch Shell that is the merger with BG Group UK and will also address the key drivers of change, it will also discuss the role of leadership in managing the change in the organisation and the positive and negatives of the change, finally recommend strategies to make sure the change provides better result to the organisation which would help to complete the study successfully.
Royal Dutch Shell is one of the leading oil and gas organisation from The Netherlands that operates all across the world along with the other big four organisations. Shell along with the other four companies namely BP, Chevron, Exxon, and Esso makes the big five of the oil and gas industry that controls the maximum market share in the global energy industry. Over the years Shell has grown consistently competing with the different organisations in the oil and gas industry, but the company has stood high even in this highly competitive market.
Royal Dutch Shell has generated a profit of US$4.57 billion, but it has been speculated that the profit might go down; given the constant dip in the price of the oil and natural gas in the global industry. As per the record provided by Deloitte, the oil price is likely to increase in the coming few years. The oil price forecast by Deloitte showed that the prices were significantly low in the last few years, but it is likely to rise in the coming few years which would again increase the opportunities for the organisation organisations especially for Shell, BP and Exxon (Bhattacharyya, 2007 p, 66).
It has been stated by the consultancy firm, that the prices of natural gas will continue to be low and persistent at a particular level; in order to combat the loss happening on the sales of natural gas and other gaseous products it is important for the organisation like Shell to have strong strategy to operate in the market.
The graph shows that the natural gas prices have dipped significantly which shows the risk of the oil and gas organisations operating in the market. The low price of the oil and gas has affected the operations of number of companies which is why there are number of companies that have focused on selling or merging with bigger organisations: Shell has been able to cash on in this opportunity. The organisation has implemented change through Merger and Acquisition by taking over BG Group; another oil and gas organisation headquartered in Reading UK.
This has created a significant stir in the market. Shell now will be able to compete effectively and may better the results of the organisation like Exxon and Chevron, which would definitely affect the performance of BP. The decision of change was implemented in on 11th of Feb 2016 which was initially decided in the year 2015 (Burnes, Hughes and By, 2016 p, 55). This definitely will give the organisation Royal Dutch Shell upper hand in the market. The decision of change came with a proper external analysis of the market which was based on present market scenario of the oil and gas industry, and was analysed with the help of Porter’s five forces.
This analysis helped the organisation Shell in order to understand the need of change as this provided the organisation with significant insights about the market.
It understood that the threat of new entrants are comparatively small as it is a high risk business segment where huge amount of money is required to operate and hence new businesses wouldn’t prefer to take this risk.
Threats of substitutes are high for the organisation because oil, natural gas and other petrochemicals could be replaced with better and cheaper products. This could definitely affect the market position of the company; required development of significant strategy would help to make sure this kind of situation is faced with guts (By, Burnes and Oswick, 2011 p, 43).
There are number of key rivals of the organisation like BP, Exxon, Esso, Chevron et cetera and hence the Royal Dutch Shell will have to have a strategy which would help to combat this rivalry.
In the recent past the emergence of OECD countries like Qatar, Kuwait and UAE have significantly stirred the international market: increasing the supplier power of bargaining which also becomes one of the key reasons for the implementation of change in the organisational operations of Shell. This would help to combat the increasing competition and external pressure.
Even though Shell has a satisfied customer base, it could evaporate within no time as the customer bargaining power is extremely high in the market. There are number of reputed organisations operating in the UK market; this keeps the consumers with myriad options to go to meet their oil and gas requirements, and this asks for significant change in the way shell operates its business in the market (By, Hughes and Ford, 2016 p,76). The Analysis of the external environment provided certain drivers of change for the organisation which are:
These key aspects fueled the decision of change in the form of Merger and Acquisition with the BG Group for Royal Dutch Shell (By, Hughes and Ford, 2016 p, 79).
The change implemented has definitely allowed Royal Dutch Shell to have a better view of the market in UK, as well as give better competition than ever to companies like BP and Exxon. The energy sector has suffered definite financial issues due to the lowering of prices of oil and natural gas. In the last few years Shell’s profits have dipped significantly for which the implementation of change was important. Especially, to operate in the UK market it required a strong platform to gain the lost market shares; the merger with the BG Group oil and gas company proved to be effective for the organisation (Burnes, 2010 p, 31).
The above graph reflects on the fact that Shell has not been able to achieve the expected profit in the last few years which is assumed to go up in the coming years. It was important for the organisation to make significant change within the operations to meet the challenges in the crisis hours. The company considered this merger with the focus on the UK market, as the organisation BG Group has considerable share in the UK market. This would help Shell to compete with Exxon, Chevron and BP in UK market and gain competitive advantage in the market. The BG Group Share price has gone up after the takeover by Shell, and is a good indication that the shareholders have been with the organisation to make the takeover possible (Higgs, Kempster and Wuerz, 2014 p, 89).
It was not only important for shell to complete the merger successfully, but it was important to make sure that the organisation has been able to communicate its organisational objectives and values to the internal and external environment of the organisation: done with the help of the McKinsey’s 7S model. This helps to effectively convey key aspects allowing making a change model successful within the organisation. Shareholders in the Oil and gas sector were becoming more reluctant to invest in the shares; hence there was a need of restructuring the organisational operation which has been effectively implemented with the help of this merger. The merger has been considered as the revival of Shell and BG both in this highly competitive market environment (By, Hughes and Ford, 2016 p, 91).
The organisation Shell has been able to implement the change positively even though it was considered a significant mistake by the industry scholars as it has been able to convey its ultimate objectives and values within the merged organisation through this framework.
Strategy: The organisation has merged with BG Group and the strategy mainly remains to penetrate the market with wide offering and standard marketing strategies and centralised decision making system.
Structure: After the merger the organisation has followed a matrix structure which has helped the organisation to make sure it can make the decisions properly as well as involve the different key segments in the decision making process (Smith, 2005 p, 57).
Systems: The organisation has rearranged its systems especially the IT system, MIS, and also the health and safety systems with integration of RFID tags and machineries which would help to track any possible incidents and prevent any sort of fatal incidents.
Shared Value: Shared value has been conveyed in the changed system of the organisation where each and every employee has been trained and educated to contribute to the overall welfare of the company, as well as to protect the environment and perform CSR activities on behalf of the organisation successfully (Schaeffer et al., 2012 p, 98).
Style: The organisation initially followed authoritative style of leadership, but due to the change in the market the organisation had to change their leadership philosophy. Presently, the organisation follows Participative style of leadership that helps the organisation to engage its employees in the decision making process, allowing the company to get important insights from its employees.
Staffs: The staffs of the newly formed organisation after the merger into Shell are capable of sharing environments and do have operating experience that also provides the general capability of working in teams. The organisation operates on task culture and hence everyone is aware of the tasks allotted and it has to be addressed (Karp, 2006 p, 17).
Skills: Shell is very particular about the skills and requirements of its employees and hence during recruitments it highlights the important skills required. All the employees working in the merged organisation are qualified as per the standards and as required by the job. Their core skills involve, mechanical, technical, IT et cetera (Hearn and Ninan, 2003 p, 44).
Leadership plays an extremely important role in the organisational operation but it becomes indispensable during the period of change within the organisation. It is important for every organisation to have an effective leadership style implemented during the period of change in the organisation (Oakland and Tanner, 2007 p, 22). The importance of leadership is not only for the internal environment of the organisation, but it is important for the external environment of the organisation. Change is a skeptical aspect for every entity involved with an organisation, and hence it is important for the leaders to intervene and convey the ideas of the organisation that fuels change. An organisation often understands the positive and negative aspect of change and leaders work on them in order to get better result out of change (Gill, 2002 p, 51). The positives and negatives of change of shell are discussed:
In the period of change transformational leadership becomes extremely important; transformational leaders are always looking to achieve new heights. In Shell the participative form of leadership has been effective in managing the change (Raineri, 2011 p, 91). It is important to note, BG group takeover has led to head count cuts which is clearly a negative impact of the change, but it could be stated that the leaders have been able to make sure that resistance to the change is as least as possible. The participative form of leadership in the organisation during the period of change has been able to understand the issues that the employees will possibly face after the change is implemented, and this is where the leaders have utilised the key skills to manage these issues properly (O Donovan, 2003 p, 77).
For instance, cultural differences and diversity in groups are two of the mostly faced have been effectively met: to lay the platform for change within the organisation (Smith, 2011 p, 112). The leaders have been able to catalyse the process of change reducing the resistance of the employees through better promises and effective reasoning. The leadership at Shell has been able to make sure that all the decisions are made with the help of the employees; helping the organisation to create an effective impression on the employees, as well as it will help the employees to believe that Shell believes in its employees. This will constantly strive to improve their opportunities which have largely helped the organisation to make the merger possible for the organisation.
Conclusion
Shell has been able to implement the change in the form of merger successfully. It has not only helped the organisation to create significant competitive advantage for itself in the UK market, but it will also help to operate in the global market against its competition. The change has been facilitated by the dipping price of the oil and gas products, and the emergence of the OECD companies. BG Group has not been able to cope up with the increasing pressure in the market; constant loss in the energy sector has helped the organisation Shell to implement the merger. The leadership at Shell has played a key role in making sure the merger is implemented successfully allowing the organisation to gain upper hand in the UK market against BP and Exxon. The company could be highly facilitated with the below points implemented in the organisational change:
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