Shell in a nutshell:

The Royal Dutch Shell Group, is the worlds biggest and the oldest joint venture, formed
from the 1907 merger of the Netherlands based Royal Dutch Petroleum Company (RDPC)
and the British based Shell Transport and Trading Company (STTC). The two entities
however remained legally separate till they merged in 2005. The companys logo, called
pecten is one of the most recognised commercial symbols, and is symbolic of the seashell
trading that Shell Transport and Trading Company began with in the 18th century.
Organisational structure in the early stages
Prior to 2005, the companys formal structure was made of 4 entities:
1. Parent companies: RDPC and STTC owned the shares of the holding companies in
the ratio 2:3. Both were listed separately.
2. The group holding companies: Shell Petroleum N.V. of Netherlands and The Shell
Petroleum Company Ltd of UK held shares in service and operating companies.
3. The service companies: 9 service companies provided advice and service to operating
companies
4. The operating companies: more than 200 companies in over 100 companies; they
operated within a single country, sometimes in a single sector and sometimes in
multiple sectors
During the 1960s, it created a 3D matrix structure, the 3 dimensions of which was
represented by the principal executives of the service companies, along the regional
coordinator, sector coordinator and functional coordinator. During this time, the company
followed a long term strategic thinking plan, with planning extending to 20 years into the
future. The company was vertically integrated.
Forces for change in the early stages:
Between the early 1970-1990s, Shell underwent a first major change owing to the following
factors (mostly external) :
1. Dissatisfaction over financial performance, return on equity fell to 0.7% in 1998 from
a 12.8% in 1997
2. Nationalisation of oil reserves of producers forced Shell to restructure its vertical
integration strategy
3. Increasing competition- Share of seven sisters fell from 31% to 7%
4. Increase in price volatility and fall in crude prices
Shell responded to these challenges by dismantling its 3D matrix structure, which failed to
provide the required coordination between the operating companies. Instead, a 4 business
organisation structure was created to achieve integration. It allowed effective planning and
removal of bureaucratic measures. However, the formal structure previously defined
continued.
The next big change at Shell, in 20th century:
In November 2004, Shell was engulfed in one of the biggest scandals, when it confirmed that
it had overstates its oil and gas reserves by more than 20%. The CEO at that time, Sir Philip
Walts lost his job, after apologizing multiple times. The shareholders demanded clarity in the
complex three board structure, a single board with clear accountability.
The response to the 2004 scandal:
The response to the above scandal was quick, though it was not till June 2005 that the
changes could materialise. Shell Group, post the reserve scandal, moved to a single capital
structure, by creating a new parent company Royal Dutch Shell Plc, which is how we know
Shell today. The investors only demanded a combination of the boards of the holding
companies, which they believed were so complex in nature and were responsible for the
accounting mistakes that led to inflation of reserves. The Shell Group went a step ahead, and
in a pleasant surprise, decided to merge the two companies for greater accountability, simpler
decision making process.