Shell’s CEO, Ben Van Beurden, undoubtedly hopes his strategy of focusing on deepwater projects in Brazil and its chemicals division in the US and China will boost investor confidence and lift Shell’s share price – which has suffered since April 2015.
“For the first 90 years of Shell’s existence we were the industry leader in total shareholder return,” Van Beurden said. “But we lost the lead in the 1990s. I am determined to get us back to that number one position.”
And here’s how. At first glance the fact it’s removing itself from so many countries sounds dubious given that it has always been deemed an advantage by many – each company was given autonomy and managed to forge strong local relationships along the way. However, its former business structure contained numerous disadvantages.
Warwick Business School professor Christian Sadler suggested operating in such a way was quite costly. “With it also being less efficient, it isn’t surprising that cost saving factors have led the company to revisit this strategy following the BG merger,” he said. One can’t help but agree. In the oil industry there are many quirks and peculiarities when it comes to running a business. As such, a less active profile in some countries could actually be considered a good thing. Shell focusing on where it is more established and confident makes sense from a cost-cutting perspective.
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More importantly, however, Van Beurden expressed his need to create a simpler company – and that’s not a bad thing. Business complexity is quite a weighty topic and it’s long been said that current circumstances conspire to add increasing amounts of complication to companies. For example, as a firm gets larger, there ends up being more technology, globalisation, competition and regulation – the combined factors of which lead to the need for more processes, controls and reviews. It’s actually ironic to think the changes meant to make things simpler are in some way adding to the complexity of running a business. Where’s an instruction guide when you need one these days?
The master of not falling into this trap was Jack Welch, the former CEO of General Electric (GE). When Welch was boss he waxed lyrically about the virtues of “speed, simplicity and self-confidence”. His notion was that GE had to simplify. To be faster, the company had to simplify all its processes, simplify its relationships with customers – as well as its product portfolio. He believed greatly that simplification could be a driver of success – he didn’t think of it as a nice-to-have. It certainly worked wonders for the company.
If you need more proof of how unnecessary complexity stifles growth then take a look at Apple. It may come as a surprise but the company’s product portfolio is incredibly lean for a business of its size. You can even summarise it in five words: Mac, iPhone, iPad, iPod, iWatch. It’s not by accident either: Steve Jobs took an axe to Apple’s bloated product range when he returned in 1997. The move is said to have saved the company and moved it back onto the same path as its consumers.
That, combined with the notion that complexity has repercussions for staff motivation and productivity, is certainly a great argument for the need to cut down on our magpie obsession to hoard so many business tactics and products.
But one thing is for certain: It needs to be done continually. In the great words of Welch: “Unnecessary work and complexity creep back into organisations like weeds in a garden. They just keep growing back.”
Growing a business comes with opportunities and challenges – while becoming an industry leader is attractive, it comes with the risk that demand will outstrip capacity. To avoid that pitfall, you need a strategic plan – such as these five methods successfully employed by UK firms.
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