The Royal Dutch/Shell Story

Royal Dutch/Shell, the Anglo-Dutch energy and chemical company headquartered in London and The Hague, demonstrates how leaders who play a role as leader/teachers, who lead change and develop human capital, can transform a business at its core. The company engaged key leaders at all hierarchical levels as teachers to drive a global transformation of its business and workforce. In the process, an internal OD team called LEAP (Leadership and Performance), made up initially of less than a dozen high-potential line managers, was developed and later helped to drive the transformation effort. This group and the Royal Dutch/Shell case offer a compelling benchmark for OD practitioners everywhere for they have demonstrated solutions for helping leaders become teachers and scale this capability to thousands of people around the world, generating significant financial improvements estimated in the billions of dollars.

Step 1: Aligning the Point of View at the Top

When Cor Herkstroter took on the leadership of Royal Dutch/Shell as chairman of the Committee of Managing Directors (CMD), he recognized immediately that the organization had multiple, conflicting agendas. With its oil and quick service markets experiencing unprecedented competition from stronger global and regional players, Herkstroter knew that Royal Dutch/Shell would need to leverage its collective strength to maintain its industry leadership. This need contradicted the historical organization of Royal Dutch/Shell that set up highly autonomous, powerful country leaders focused on creating conditions for local success. Herkstroter needed to unify these country leaders to drive learning across the group more rapidly. He also needed stronger centralized functions to leverage global cost and expertise without killing the creativity and competitive spirit of the country leaders.

Before Herkstroter could drive any of this, however, he needed his senior team aligned with him. The CMD, which served as the equivalent to Royal Dutch/Shell's office of the CEO, and was initially composed of four internal directors (Mark Moody-Stuart, John Jennings, Maartin van den Berg, and Cor Herkstroter), had a tradition of consensual management. Royal Dutch/Shell's decentralized structure also meant that there were relatively few decisions that the CMD would make that would directly affect each individual director's power. Herkstroter's change agenda threatened to fundamentally alter the balance of power at the senior level. Consequently, consensus would not work unless everyone had a shared view of the case for change. The CMD needed a shared point of view that would not only galvanize the rest of the organization but also align each individual's actions and teaching.

In 1995, Herkstroter and the senior team began work with a team of consultants to reinvent the organization. The initial consulting team included Noel; Michael Brimm, a professor from the Institute for European Business Administration (INSEAD) in Fontainebleau, France; and Patricia Stacey and Phil Mirvis, two independent consultants. The CMD first convened to try to develop a common view of the company and its future. With the consulting team's help, the CMD spent several days analyzing the company strategically, financially, and culturally. On the second afternoon, Noel gave each CMD member a mocked-up cover of The Economist dated four years in the future. Each person was asked to write his version of how and why Royal Dutch/Shell would change. At the end of an hour, the CMD members read their individual articles aloud. A clear picture of the case for change emerged and a fuzzy vision of the future started to show through. The CMD decided to engage other people in helping to sharpen this vision and develop a company-wide story of what Royal Dutch/Shell would be in the future. So, over the next several months, each CMD member met with several hundred other leaders to share the story and listen to others' responses.

Then, in October 1995, the CMD convened the top 50 Royal Dutch/Shell leaders. In an intensive three-day workshop, the leaders fleshed out the case for change, designed the “New Shell” vision and business strategy, defined shared values for the company, and identified how the company would drive large-scale change.

What emerged from these sessions was a common Teachable Point of View (TPOV).^[9] For the leaders to ensure they were aligned and before they could teach thousands of people throughout the organization, the senior group needed to confirm that it shared the same point of view. In short, it needed to articulate

This was critical during the months to come. Each of the senior leaders worked directly with some of the organization's highest potential leaders in a variety of forums. Although slight differences in nuance and style were revealed as each of the senior team members taught, their messages were consistent. They had a simple set of key themes that were grounded in the business reality and made a compelling case for individual and organizational change. This TPOV was summarized in a booklet that was distributed globally to tens of thousands of employees.

Step 2: Developing the Change Team

Although the CMD members were committed to personally teaching, the business case demanded rapid, large-scale change that senior management alone could not drive. Learning from benchmarking GE's Crotonville, Herkstroter created an internal change team. He first called on Mac McDonald, an American based in The Hague, who had been a long-time purchasing and operations manager and who exhibited both the straight-talking style and interpersonal skills to work with senior management.

From the ground up, McDonald built the infrastructure and team that would guide implementation of the leadership team's change agenda. McDonald recruited 10 high-potential line managers, without HR or OD backgrounds, who had successfully led major change efforts. The reasoning was simple: Those who had a track record of leading operational change from within the company knew how to avoid pitfalls of the change process. They could empathize with the leaders who they would coach and offer insight into effective change techniques.

In addition to setting stringent qualifying criteria, McDonald also put in place rigorous applicant screening. Each person was interviewed multiple times, put through team-building exercises to gauge interpersonal and team skills, and asked to demonstrate teaching skills.

The short-term imperative for McDonald's team members was preparing to teach others to be leaders and teachers. Utilizing change processes that we had designed for Royal Dutch/Shell enabled the team to focus on building coaching, teaching, and delivery capability. They achieved this through the equivalent of a modern-day, fast-cycle apprenticeship. Working with our team of outside consultants, they first observed how we taught the change processes and partnered with senior leaders. After documenting their learning from observation, they spent several sessions co-teaching with an experienced facilitator and senior leader. Once they demonstrated the necessary competency, usually within one to two months, they taught alone or with other team members and began working directly with Royal Dutch/Shell's senior leaders. Before they could be assured they had a full-time position on McDonald's team, however, their teaching and coaching was observed and evaluated, and they received written, video, and verbal feedback. This intense approach, coupled with several development workshops to foster better coaching, teaching, and teamwork gave McDonald the highly capable team he needed to drive large-scale change.

Step 3: Engaging the Organization

Herkstroter launched the initial phase of the Royal Dutch/Shell transformation in conjunction with developing the internal change team. The CMD used three processes to drive change. The first process, an action-learning program internally known as Value Creation, operated at the global strategy level. Pulling together the leaders with the highest potential from across the company, the CMD built cross-functional, global teams designed to tackle major strategic challenges. The process developed the participants' leadership capability through side-by-side work with the CMD members to understand, analyze, and fix global problems such as worldwide branding, employee satisfaction, and redefining the company's cost structure. Although the project outcomes had a dramatic impact on how Royal Dutch/Shell operates to this day, equally important was the effect on the senior management. Senior leaders personally taught each time the process was run, providing the opportunity for challenging dialogue from the highly thoughtful participants. The selection of strategic projects and the dialogue process utilized to review recommendations and make commitments also challenged the senior leaders' teachable point of view. The projects they selected had to match their TPOV on the future direction of the company. Additionally, the investment decisions they made—or did not make—as a result of participant recommendations had to align with the company's future vision.

In addition to Value Creation, the CMD, under the sponsorship of one member, Steve Miller, launched Business Framework Implementation (BFI). This process, designed in conjunction with Columbia Finance Professor Larry Selden and Yoko Selden, an independent consultant, brought in key operating managers from each of Royal Dutch/Shell's country operations with the goal of transforming Royal Dutch/Shell on both the “hard” and “soft” dimensions; that is, new business models were developed while simultaneously integrating new values, leadership behaviors, and change capacity. This three-workshop series began by engaging the participants in the Royal Dutch/Shell vision and case for change, often taught directly by a CMD member. The participants were also taught the Shell Business Framework, designed by the CMD with Selden's guidance, which outlined how Royal Dutch/Shell would drive future profitability. After learning new financial techniques and team building, organizational diagnostic skills, and leadership skills, participants were asked to build a business model for their country organizations that would achieve unprecedented operating returns on net assets and top-line growth. The teams operated under considerable pressure so, during the second workshop, much time was taken to not only review progress on the business model but also to improve teamwork and interpersonal dynamics. The last session involved senior leaders in a commitment process to review the country teams' business models, approve or reject them, and make supporting investment decisions as needed. Rather than formal presentations, the sessions were marked by a collegial, high-energy debate in which ideas prevailed over hierarchy. Throughout the BFI process, participants focused on developing financial and leadership skills that matched the company's future direction. They debated the Royal Dutch/Shell Mission and Values and Business Framework and determined the implications for their personal leadership. As a result, the company developed more capable teams that were aligned with the company's overall direction and had business plans that would contribute to Royal Dutch/Shell's bottom-line results. This enhanced the business acumen and leadership capability of thousands of Shell staff around the globe.

The two processes detailed so far extended Herkstroter's and the CMD's influence enormously. The first, Value Creation, engaged some of the brightest minds in the company to align global strategies with the Royal Dutch/Shell TPOV. The second provided penetration into key country networks and helped direct operational execution and investment to support Royal Dutch/Shell objectives. Although the impact from these programs was significant, Herkstroter and team needed a method to penetrate the organization at a large scale to build momentum and enthusiasm for the transformation.

Step 4: Developing Leaders at all Levels as Teachers

They achieved this through Focused Results Delivery (FRD). FRD, a two-workshop process, engaged each country's managing director (MD) and local leadership in teaching and developing their people. Our team designed a process that was kicked off by McDonald but transitioned to his replacement, Gary Steel. Steel, whose background included human resources, epitomized a pragmatic, no-nonsense approach to driving change and he continued to aggressively encourage local leaders to champion the change process by articulating their teachable points of view and teaching and leading projects.

In FRD, groups of 40 to 50 members of a country organization would attend together. The participants were organized in teams and asked to work on a project that would yield quantum improvement within the business. The projects were often defined or approved by the country MDs. This drove alignment in two ways. First, it enabled the country's senior leadership team to ensure that the process would help it meet its business objectives. The coaching of the country MD by Steel's team helped to align business and company goals in the process. Reviewing the recommended workshop content with Steel's team also helped the country leaders ensure that their understanding of the Royal Dutch/Shell mission and values and TPOV was current. The country leaders co-taught the sessions, so their preparation required them to reconcile their own TPOV with the company point of view. When dialogue with Steel's team revealed an inconsistency, they often sought guidance from a CMD member to clarify their own perspective or challenge the company's.

A Shell Best Practice: John Fletcher Transforms Shell New Zealand

Shell New Zealand offers insight into how this process cascaded throughout Royal Dutch/Shell. In 1997, when John Fletcher took over as managing director for Shell New Zealand, the company was facing new competitive entrants that planned to cherry-pick customers from Shell's most profitable territories. By learning from experiences in other markets, something that had improved as a result of Herkstroter's global restructuring, Fletcher knew what this would mean.

“Competitors were opening a few well-placed sites at our most profitable areas that could do enormous damage to our margins. This would be death by a thousand cuts as they slowly squeezed us into a cost competition that we couldn't win and that would leave us with a highly unprofitable margin mix.”

Around this time, Fletcher happened to see a video created by Steel's group. The video showed the output of FRD in South Africa. As Fletcher said,

I saw the energy and involvement of a big group of people making change happen. I had been thinking that the horsepower of most companies' people is so underutilized and we were no exception. I immediately rang the head of Shell Australia and said we have to do this together.

In February 1998, a group of 17 senior leaders from Shell New Zealand joined their colleagues in Australia for an FRD session. After crafting their TPOV and vision, the participants decided to take FRD mainstream when they returned to New Zealand. Twelve teams were organized and the leadership team held a series of meetings and town halls to teach everyone the basic principles covered in FRD. Fletcher and his finance director, Ed Johnson, openly told employees that headcount had to shrink by 30% to achieve the necessary cost structure. They also said that they had no concrete plan for where cuts would be made and that they wanted to work it out with participation from employees. Assuming the leadership team had a plan it was unwilling to share, “people just rolled their eyes when they heard that,” Fletcher says.

Attitudes changed as Fletcher and his team utilized the FRD process to drive the organizational restructuring. One of the FRD teams was focused on organization, rewards, and employment contracts (ORE). Fletcher and the ORE team quickly agreed that the existing organizational structure was unsustainable.

Between the first and second month of the FRD process, one woman from the ORE team ran workshops that involved 70% of the New Zealand workforce. Although the young graduate's regular job was handling customer enquiries and orders in the customer service center, her FRD work yielded a clear set of Shell New Zealand values that were endorsed by the employees and consistent with Royal Dutch/Shell's overall mission and values. The ORE team recommended making the values part of every employee's performance contract and recruiting criteria. With the ORE team's support, every job within New Zealand was posted for placement. Reapplication interviews included the values and consequently some people with inconsistent values were beaten out for jobs they once held. As Fletcher noted, the FRD process gained enormous credibility when “people started seeing new heads of teams and team members winning their positions, not the same old organization. Leadership followed [the new recruiting process] to the letter to build people's trust.”

Three months after the FRD teams launched, the ORE team proposed a new organizational structure of 23 flat teams with no more than two layers between Fletcher and the front line. Staff members were invited to apply for up to five jobs in the new organization ranked in order of preference. “Whenever someone was unsuccessful with an application, they would get feedback so that they could learn and improve their chances for next time,” Fletcher observed. As a result of ongoing coaching and dialogue with those who were unsuccessful, the company had only a handful of employees leave involuntarily. It achieved the 30% reduction and had done so in a process that actually generated employee commitment and belief in the organization's underlying values.

Meanwhile, other FRD teams focused on a range of commercial issues. A central group was created to reorganize customer contacts to free up sales people for growth activities and used process mapping to identify solutions for the customer service center. As a result, Shell customer representatives resolved over 90% of customer issues on the first call. In sum, Shell New Zealand reduced costs by more than 25%. “Margins did fall when competition came in,” Fletcher said, “but [the competitors] got burned because they thought they were coming into a market with healthy margins. Of the three who had planned to enter, one turned around and never came, another is struggling, and the third has been acquired.”

The process not only drove alignment within Shell New Zealand and with Royal Dutch/Shell's center, it also changed the lives of many who were involved. By engaging employees in a highly structured yet empowering process, it offered senior management unique insights into the participants' capabilities and values in ways that could not be revealed through day-to-day work. The young woman on the ORE team who had been a customer representative in the call center, for example, discovered a passion and great skill for working on organizational issues. Following FRD, she rotated through a position in which she helped Shell New Zealand win an award as the most family-friendly company in the country.