Paddy's writing on Business, Brand and Reputation

This blog contains some of my writing on Brand and Reputation, including those on Shell - the corporation that I worked for for 37 years. Some of the articles have previously been published - others are seen here for the first time. The purpose of the website is to contribute to discussions on the role of brand and reputation management in today's business world. Please also see: http://www.roadsideretail.com/search?q=Paddy Comments welcome to me at: paddy_briggs@yahoo.co.uk

Monday, April 28, 2014

Once you could be Sure of Shell…

Shell99

Most of my 37 year Shell career was spent in the “Downstream” but from time to time I had contact with the Upstream operations and in my final assignment in the Middle East I was very close to Upstream issues. Both Shell’s exploration and production activities (the Upstream) and their refining and marketing business (the Downstream) had the Shell emblem (the “Pecten”) flying over them – but that was about the only thing they had in common!

EP is a top down business. The experts in The Hague, mostly products of the best geology and technology Universities, built unrivalled expertise in the tasks of finding and exploiting hydrocarbon assets. They were also pretty good at building the necessary alliances with partners that virtually all upstream operations require. Their world was the world of oil reservoirs, horizontal drilling, fracking and all the other thousand and one technologies and techniques that made the business work.

Refining and Marketing – or at least the marketing bit of it – is bottom up. The millions of motorists, commercial buyers, airlines, shipping companies, domestic consumers etc. etc. who have needs for one or more petroleum products represent the “Market”. The refining bit once had some synergy with the marketing operation (and indeed with the Upstream) in that to sell products you needed to create them in the first place – by cracking Crude Oil into its useful component parts. But over the years the need for an Oil Major to run refineries disappeared. The marketers could buy from independent refineries and the EP people could sell to them either directly or through traders. The benefits of an “integrated” oil well to petrol tank operation went away. Oil Production, Oil Refining and Oil Marketing became three distinct and very different businesses many years ago. There were no economies of scale from being involved all the way along the chain.

In the late 1980s I was working in Shell Hong Kong. This was a medium-sized and highly profitable marketing business. We sold the full range of oil products to customers in the Territory and, increasingly, in China. The Shell brand was strong and we were market leader – indeed in many sectors we had the Boston Consulting Group’s ideal situation where our market share was at least twice that of our nearest competitor! It was a Cash Cow. We invested heavily in the Shell brand through advertising and service – and it worked. It was a heady time for all of us – a company that could be customer-driven with no distractions. Then a change occurred. A new Chief Executive was appointed – a geologist who had been part of the team which had discovered North Sea Oil in the late 1960s and early 1970s. An Upstream man through and through. He knew nothing about Marketing and cared less. It was an odd appointment driven solely by Shell’s ambition to participate in major projects in the Upstream (and Refining) in China. The new CEO’s task was to get alongside the authorities and prospective partners in China and open doors and forge alliances.

The learning experience for me and others in Hong Kong was that to the powers at be at the very top of Shell, Marketing was a foreign subject about which they knew nothing. The idea of sending a non-Marketer to head up a highly successful marketing business was mad, unless you realised that was the way the high-priced help thought. Their Shell was the Shell of Oil Wells and Gas plants not the Shell of petrol stations and ordinary customers. In reality, of course, Shell was both and there were skilled professionals in all the disciplines around the world. But as you moved up the hierarchy interest in marketing declined and at the very top it was rarely a substantive item on the agenda. It was in the 1990s that I realised that to protect its marketing business and to focus absolutely on its huge Upstream business Shell needed to split the two. I wasn’t alone in seeing two distinct corporations emerging. “Royal Dutch”, which would be run from The Hague and which would take over all the Upstream. And “Shell Marketing” which would be run from London and would run all of Shell’s Marketing operations in 130 or so countries around the globe. In fact the main emphasis of “Shell Marketing” would be to delegate to local operating units (as in Hong Kong) on the indisputable grounds that “all markets are local”.

The logic of a split along these lines was strong and it meets virtually every criteria preached by the Business Schools. Why pretend that just because two utterly different businesses both have the Shell emblem flying over them they are the same, require the same skills and could be driven by the same imperatives? It just wasn’t true. But as we all know this was not the reorganisation that Shell pursued. Instead, and in response to the Reserves scandal, it created “Royal Dutch Shell” and moved its governance primarily to The Hague. A Company that clearly was not integrated along the supply chain any more, nor needed to be, stayed in its historical configuration. Decisions about Marketing strategy were taken ultimately by non-marketers for whom, like my once CEO in Hong Kong, marketing was an unknown world. When this happens only Dollars can be the common denominator. So aggressive cost cutting was forced on the marketers. Strange global organisations were created with business heads being arbitrarily located in offices miles, often thousands of miles, for some of their markets. The local operating units, like Shell Hong Kong, lost their autonomy and freedom to act. Investment in the brand declined as did any expenditure which could be described as “discretionary”. The myth that “Refining” and “Marketing” had any synergy was perpetuated and country exits were predicated on Refinery closures with the marketing infrastructure and brand strength not being valued. Market withdrawals gathered pace including in Markets which in which in my time I spent a lot of time – Spain, Australia, Italy, Greece – possibly Canada among many, many others.

The new RDS structure had been contemptuous of local markets. Hardly surprisingly performance in these neglected markets declined which then in too many cases was to lead to market withdrawal. Will Shell have any Marketing operations in ten, even five years time. Maybe not. Could it have been different? Unquestionably if the Upstream/Downstream split many of us supported had been followed. A Board of Directors which primarily focuses on the customer is what the really great brands have in common – ask McDonald’s or Coca Cola. A brand which acknowledges that all markets are local will succeed where one that tries to take local decisions at the centre will fail. A brand which invest in its strength and promotes its benefits will grow whereas one that fails to invest will wither on the vine. If you want to kill an organism then starve it.

When I retired I was presented with a small silver Shell emblem which I still wear with pride from time to time. It once stood for excellence in marketing and was one of the world’s most familiar brand symbols. Now it’s a bit of a collectors item symbolising a world that has long gone…

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