Today through intelligent strategic positioning in the past Royal Dutch Shell has been able to grow significantly and become the world's most valuable brand in the oil and gas industry. As the demand for oil in the current global market place continuously fluctuated Royal Dutch Shell explored several opportunities the future could hold for them, they opted to focus and heavily invest in Liquefied natural gas (LNG) the product with the most growth opportunity according to their studies and analysis. LNG is a form of renewable energy where natural gas is cooled to -162°C to then form a non-toxic liquid easy for transportation. Continuing with the vertical integration strategy they adopted, last year's merger with the BG Group plc was evidence of this. BG had been developing projects for LNG in Australia and Brazil, the acquisition meant Shell would become part of the projects and therefore would become the world's largest firm to trade liquefied natural gas (LNG). The success the Royal Dutch Shell group has experienced is mostly thanks to the fact of the way they approached the market by creating strategies that are flexible and easily adaptable to suit the needs of the market in that moment. This way of thinking has been implemented since long and therefore it also forms the basis for future strategies.
By operating in 70 different countries across the globe and alongside its expertise in the field of gas and oil production, Royal Dutch Shell has become the leading European firm in terms of revenue. Generating $233.6 billion in total revenue, which allows the company to employ on average 92,000 employees. Continuous innovation and the search for the best products is important because by “helping the world move towards a future in which the energy we use causes minimal impact on our planet,” Royal Dutch Shell is able to provide us with a sustainable source of energy. Something the company constantly strives to do and prides itself on achieving to enable it to be recognized as a sustainable business. With its headquarters located in the Netherlands but incorporation in the United Kingdom, Shell is a prime example of a global conglomerate. This report will be providing an analysis of the strategies used by the Royal Dutch Shell group to obtain its current market position as well as examining what opportunities lie ahead in this world of constant change.
1. Product offering
An analysis of Royal Dutch Shell's diverse portfolio has provided us with an understanding of the products offered and why. In order to maintain its competitiveness and stay attractive to potential clients and investors a diverse portfolio containing the products mentioned below has been created.
The portfolio can be divided in to 3 main areas of operation, alongside the support received from the projects & technology team:
“Integrated Gas and New Energies”
• Integrated Gas and New Energies association oversees LNG exercises and the transformation of flammable gas into GTL fills and different items, and in addition our New Energies portfolio. It incorporates petroleum gas investigation and extraction, when authoritatively connected to the generation and transportation of LNG, and the operation of the upstream and midstream foundation important to convey gas to advertise. It markets and exchanges raw petroleum, gaseous petrol, LNG, power, carbon-outflow rights and furthermore markets and offers LNG as a fuel for maritime vessels and vehicles with heavy duty such as large trucks. (Shell, 2016)
• The Upstream association does explorations for natural gas liquids, natural gas and unearths crude oil. It likewise sells and transports oil and gas, and is in charge of all operations ensuring they reach the market. (Shell, 2016)
• The “Downstream” association oversees diverse Oil Products and Chemicals exercises as a feature of an incorporated esteem chain, including exchanging exercises, that transforms unrefined petroleum and different feedstocks into a scope of items which are moved and showcased around the globe for local, mechanical and transport utilize. The items we offer incorporate gas, diesel, warming oil, aeronautics fuel, marine fuel, greases, bitumen and sulphur. Furthermore, deliver and offer petrochemicals for modern utilize around the world. The Downstream association additionally deals with our Oil Sands operations, which extricate bitumen from mined oil sands and change over this into engineered unrefined petroleum. (Shell, 2016)
“Projects & Technology”
• Our Projects and Technology association deals with the conveyance of our significant ventures and drives research and advancement to grow new innovation arrangements. It gives specialized administrations and innovation ability for our Integrated Gas, Upstream and Downstream exercises. It is likewise in charge of giving practical authority crosswise over Shell in the zones of wellbeing and condition, contracting and obtainment, wells exercises and ozone depleting substance administration. (Shell, 2016)
A more detailed division of each business area
Source: (Shell, 2016)
3. Current Market Position
By being ranked in the World's 25 Biggest Oil & Gas Companies (ranked 2nd by Forbes) and 20th out of the Global 2000 (Forbes, 2017), Royal Dutch Shell makes it very clear what their current market position is. The first tool we can use to analyse the market position of Shell, is the SWOT analysis. To achieve a wider and more clear view of the current market position, we can focus particularly on the strengths and weaknesses of the company. The strengths of a company will make it stand out. In the case of Shell, it is my belief that their brand recognition and logo are one of their biggest strengths that make it stand out against its competition. In fact, their logo has been “ranked as the 20th most recognised brand in the world”. (Casella, 2017)
Furthermore, Shell's obsession with innovation and productivity has allowed them to create massive economies of scale, making them one of the most fierce, competitive and efficient businesses in the oil and gas industry. The consistent investments towards research and development, alongside the enormous spread of their operations, totalling over 70 countries (Royal Dutch Shell plc, 2017), has allowed it to master techniques and procedures and have given the Red and Yellow brand a substantial competitive advantage against its competitors. Particularly, their absolute investment in customer service has allowed them to be flexible in what the customer expects and promptly fulfil those whishes' and expectations.
Moving on to their weaknesses, a point that seems clear here is that their massive investments in R&D and gas and oil exploration is a double-edged sword. Indeed, it has helped them craft a competitive advantage rivalled by few, but their income statement has been hugely affected by this. Furthermore, despite their continuous efforts to create safe procedures, many environmental organizations still consider them to be environmentally unacceptable. Regarding their competition, indeed they have mastered their operations and have tremendous competitive advantages, however, so have their competitors. As previously mentioned, the oil and gas industry operates in more than 70 countries around the globe and it is challenging to be a top player in each. One factor has been the cultural, geographical, economic and administrative setbacks that many countries have given to Shell, making it harder for them to properly operate.
4. Current Strategy
As per Shell's annual and strategic report their current strategy focus lies in “strengthening their leadership in the oil and gas industry, while positioning the company for growth as the world transitions to a low-carbon energy system”. (Royal Dutch Shell, 2016)
Shell's procedure is presently focused on making a less complex organization, one that conveys higher, more unsurprising returns and developing free income per share. By putting resources into convincing activities, diminishing expenses and offering non-centre organizations, Shell will reshape into a stronger and more centred organization.
Therefore, the company has decided to focus its current strategy on three major strategic themes, namely:
“Cash engines: conventional oil and gas, integrated gas, oil sands mining, and oil products” (Royal Dutch Shell plc, 2016)
• Cash engines are steady organizations, which support the budgetary conveyance of the organization today. They ought to have solid and versatile returns and free cash flow, to subsidize profits and the balance sheet well into the following decade and past. (Royal Dutch Shell plc, 2016)
“Growth priorities: deep water and chemicals” (Royal Dutch Shell plc, 2016)
• Positions with a competitive advantage and reasonable development designs here, which ought to make a pathway to enhanced returns and material free income from around 2020, as these organizations turn out to be new high sources of income. (Royal Dutch Shell plc, 2016)
“Future opportunities: shales and new energies” (Royal Dutch Shell plc, 2016)
• These organizations are assumed to end up noteworthy development needs for Shell past 2020 as we set up clear pathways to productivity. They are subjects with material esteem and potential to convey returns for the shareholders within Shell. (Royal Dutch Shell plc, 2016)
• In new energies, there is potential to attain scale of economies in material and profits. As the vitality progress unfurls, we expect to set up a portfolio to expand on our set up qualities in low-carbon biofuels, hydrogen and intelligent client arrangements; and in addition, in sun oriented and wind. A considerable lot of these products supplement the organization's natural gas strategy. (Royal Dutch Shell plc, 2016)
(Royal Dutch Shell, 2016)
5. Future exploitation Strategy
Innovation is a core concept of every company's strategy and if you fail to innovate you risk falling behind and with oil becoming scarcer by day and its negative impact on the environment increasing, Royal Dutch Shell has been looking at future opportunities and how to exploit them.
The general strategy developed for the future is based on the motto make the future in which they believe that the answers to the energy challenges of the future are in the power of people's inventiveness and that together we can implement changes from today to shape and create the future for alternative energy sources. To ensure that of happening a scenario's team whose job is to develop possible visions of the future to help leaders at Royal Dutch Shell, businesses as well as governments in making better decisions, looking into different ways of moving forward and exploiting future opportunities. Scenarios for the future are not forecasts, nor a business plan because they are considered inappropriate by Royal Dutch Shell. (Benedict, 2017)
Two different strategies or scenarios as they call them have been developed for the future, the first one looks at the near future (2050) while the projections of the second strategy look more at the long-term future (2100).
Shell is looking at the approaching difficulties the world faces throughout the following 40 years, as vitality requests increase while non-sustainable power source assets keep on diminishing. By 2050 a worldwide populace of nine billion individuals is estimated, a large portion of whom will live in tremendous megacities, obviously weighing on the world's resources which is makes overwhelming difficulties for mankind. Be that as it may, these troublesome prospects likewise accompany astounding open doors, as people and groups investigate what it will take to manufacture a superior future. 2050 will investigate both the genuine difficulties, and in addition the general population of today who are attempting to think of imaginative, feasible answers for make a more practical vitality future for the world. (Royal Dutch Shell Plc, 2017)
Part of the Make the Future motto means they are looking to achieve:
1. Aspired Future:
- Aspiration of “creating a world-class investment case by reshaping Shell to grow free cash flow and increase returns, all underpinned by a conservative financial framework” (Royal Dutch Shell, 2016)
2. Aspired Portfolio:
- The aspired portfolio is made up of 3 different components that can be seen in the graph below:
(Royal Dutch Shell, 2016)
In the future strategy developed by Royal Dutch Shell, it is clear the theory used as a base is McKinsey's three horizons of growth strategy as they start preparing themselves for a change to renewable energy. (McKinsey, 2009)
The three horizons are:
1. “Horizon One: Core business associated with company name”
2. “Horizon Two: Opportunities that are starting to emerge”
3. “Horizon Three: Ideas of Profitable Growth in the future”
• The future of the oil & gas industry is concentrated on sourcing renewable energy sources so therefore they can diminish the world's dependence on the use of non-renewable energy sources such as oil and gas, that is also clearly exhibited by Royal Dutch Shell and their continuous focus on increasing their research & development into the renewable energy. Recently the company acquired a manufacturer of charging stations for electric cars and are continuously studying possible investments in green energy. (Schaps & Bousso, 2016). As previously stated Shell will be looking to invest in shales and new energies such as hydrogen and low carbon biofuels.
• The continued investment in LNG will be a major part of future opportunities that can be exploited. (Shell, 2017)
• Renewable energy sources have surged especially ones like wind and solar. (Clark, 2017)
2000 vs 2016
• Back in August in a clearly strategic move Shell decided to sell electricity directly to industrial customers and according to the Financial Times Nick Butler the sale is an intelligent, creative one and a demonstration of the adaptability of the major oil and gas companies and their ability to a new era as more developments towards a world of renewable energy occurs. (Butler, 2017).
6. Competitor Analysis
6.1 Competitor Profile Matrix
Shell ExxonMobil BP Chevron
Critical success factors Weight Rating Weighted score Rating Weighted score Rating Weighted score Rating Weighted score
Advertising 0.2 3 0.6 3 0.6 2 0.4 3 0.6
Product quality 0.1 4 0.4 4 0.4 3 0.3 3 0.3
Management 0.08 3 0.24 4 0.32 3 0.24 4 0.32
Financial position 0.1 3 0.3 3 0.3 2 0.2 3 0.3
Customer loyalty 0.05 4 0.2 3 0.15 2 0.1 2 0.1
Global expansion 0.21 4 0.84 4 0.84 3 0.63 3 0.63
Market share 0.09 3 0.27 4 0.36 2 0.18 3 0.27
Logistic 0.12 3 0.36 3 0.36 3 0.36 3 0.36
Production capacity 0.05 4 0.2 4 0.2 3 0.15 3 0.15
Total 1 3.41 3.53 2.56 3.03
(Jurevicius, 2013) (Barney, 1995) (Rothaermel, 2012)
As per the table, it is clear that significant weight is placed on the critical success factor of global expansion with an indicative weight of 0.21 and in second place the advertisement with a weight of 0.2. The table above has also provided a clear overview of who Shell's main competitors are and how the critical success factors compare to those of Shell. For the past years Shell has been in a close battle with Chevron for the position of world's second largest company and now thanks to their push for global expansion by acquiring BG they have been able to do exactly that but despite their enormous growth, exceeding the estimates and overtaking ExxonMobil as cash flow kings they haven't been able to overtake ExxonMobil as the world's largest publicly traded company in the oil & gas industry. The results achieved in the Competitor Profile Matrix are in accordance with the current market situation as it provides a final ranking of ExxonMobil in 1st place, Shell in 2nd place, Chevron in 3rd and BP just missing out on the podium as they still look to recover from the oil spill in the Gulf of Mexico.
6.2. VRIO framework
The analysis of Shell's unique value proposition in comparison to its competitors will be done using the VRIO framework.
Shell's VRIO capability
Co-Branding with Ferrari
Valuable Resource? Rare Resource? Costly to Imitate? Is a company organized to exploit it?
Yes Yes Yes Yes
Result: Sustained Competitive Advantage
(Jurevicius, 2013) (Barney, 1995) (Rothaermel, 2012)
While other companies rely on traditional marketing campaigns to create brand awareness and increase its market position. By co-branding with Ferrari, they were able to create a cost-advantage in terms of marketing while at the same time ensuring they are differentiating themselves from the rest. They had partnered with Ferrari to create their new V-power fuel while also providing a platform to test new fuel formulas for Formula one. Thanks to this Shell is able to test new formulas on an actual product, so when they bring it to market the client is assured that is fully tested and works reliably.
Besides this capability being valuable, it is considered to be a rare one no other corporations possesses. Expensive to imitate? It definitely is an expensive capability to recreate as it will be very hard to remove Shell from its partnership with Ferrari, if they do manage to remove them it will be very costly as they would have to offer Ferrari a lot of money. Can Shell exploit value from this advantage? Definitely, Shell have invested heavily in innovation of technology as well as R&D and through their partnership with Ferrari they gain free advertisement and their reliability as a brand increases since people trust Ferrari as a brand.
That the oil & gas industry is transforming has clearly been noticed by Shell, as they have started adapting their strategies towards the demand of today. With oil and gas becoming outdated the market has been asking for alternatives in renewable energy sources such as liquefied natural gas and electricity. With their quick adaption, the market and in particular Shell's competitor's have been warned that this is the future and that all resources should be put towards this.
This gives a general thought of how major corporations like Shell are preparing for the transition and all the more critically, the fate of non-renewable energy sources. It's as of now started its progress far from petroleum products to position itself for change effectively, something that it has consistently done in the most recent century. By starting early there's Shell will most likely have officially set itself up for progress when non-renewable energy sources do in the long run wind up plainly useless.
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