Mark Moody-Stuart, Chairman of the Committee of Managing Directors (CMD) of the Royal Dutch/Shell Group of Companies and Chairman of The "Shell" Transport and Trading Company, plc. at the Offshore Northern Seas conference, Stavanger, Norway. Here are some illuminating points from that speech.
New challenges & choices
All businesses face a revolution which is transforming markets and unleashing competition.
The reasons are commonplace - globalization, market liberalization, enhanced communications, accelerating technological development and diffusion. Economists argue about whether this really represents a new macro-economic departure.
But for business people the micro-economic reality is far from academic. Survival depends on responding.
Connected, global markets reveal excess capacity and drive consolidation. We have seen this in many industries, including our own. Transparent, immediate markets - with falling transaction costs - test price differentials and drive commoditisation.
Traditional value chains are fragmenting. Easy communications and accessible information challenge middlemen. Falling barriers to entry encourage specialization and `cherry-picking'.
But there are also opportunities for creating new value chains - delivering new products and services, in new ways and combinations. Electronic communications enable us to engage and interact with our customers - defining and serving their differing and changing needs.
But who - other than, of course, the customers - is going to reap the rewards of this revolution - new challengers or existing champions? Will new entrepreneurs - first-movers in seizing new opportunities - overtake tired, backward-looking incumbents?
I don't think it is inevitable - or even likely to be general - that new players will win. Of course, it depends on the circumstances. If those incumbents really are tired and backward-looking, there is little hope for them.
But successful companies have strengths - knowledge, assets, brand, cultures of achievement - to harness to those enabling technologies. Strengths, which - in complex industries - are hard to replicate. Competitive advantage has always depended on having an edge which others can't copy - as some dot.com companies are finding to their cost.
In Shell, we are committed to learning - by doing - how to harness new possibilities.
Customer focused initiatives include 12move - which now has 500,000 European subscribers - and the Shell Geostar, online journey planning service. In Australia, Optibuy helps smaller companies do business with each other. Coral-connect helps US energy customers meet their needs.
We are also, of course, customers ourselves, spending billions on procurement. Efficient e-markets should realize huge savings.
We have taken the lead in forming a major internet procurement exchange for energy and petrochemical industries. The founding participants - which include Statoil - spend over $125 billion a year on procurement.
We are also involved in more specialized on-line exchanges - such as LevelSeas for ship management.
To push forward and co-ordinate the range of experiments - I think we are now engaged in over 100 - we have formed a new unit called Shell Internet Works. It will help us innovate and invest in new technology quickly - building on traditional strengths - and to capture and apply the learning.
Liberalization offers new possibilities for trading on a global scale.
Shell traders have long been major players in oil markets and now trade over 5.5 million barrels of crude oil and oil products a day - as well as a multiple of paper barrels on top of that - through a global trading network. New skills in trading gas and power are being developed - including moving spot cargoes of LNG into the United States.
We recently combined all our trading operations into a single organization, Shell Trading. This will build upon existing trading positions and capabilities - expanding to become a major multi-commodity trader in evolving global energy markets.
The most striking characteristic of this business revolution is the increasing extent, pace, intensity and ubiquity of competition. Business is tough. But responding to competition gives companies their drive and creativity.
Success in such environment depends on responding to customers - understanding their needs, delivering value and offering new choices. As the world's largest branded retailer - serving 20 million customers a day in 46,000 service stations - we have plenty of scope.
We believe our customers seek differentiated rather than commodity products.
We have introduced a programme of differentiated fuels - providing combinations of additional cleanliness, performance and engine protection - in more than 20 countries. This has shown that the assumption that fuels are a commodity is premature. Many people are willing to pay extra for their specific requirements.
Business pressures and harried lifestyles demand greater convenience and flexibility - from bundled products and supportive energy services. We are learning how to deliver this.
In the United States, Coral Energy's alliance with the New York utility KeySpan means it manages the supply of gas, electricity and fuel oil to provide the best value for customers. Pulse Energy in Australia is another scheme.
Another aspect of harried lifestyles is the importance of known and trusted brands - guaranteeing quality and business standards.
This industry's customer include the countries we serve by applying our capital and skills to help develop their natural resources. These require as much attention as other customers - responding to their expectations, delivering value and offering new possibilities.
We have been involved in Norway's oil and gas industry from the beginning. We demonstrated our capacity as a project developer with Troll. Norske Shell's quality as an operator is evident in Draugen. We continue to contribute to the technological progress of the Norwegian industry through Demo 2000.
I believe the value of this contribution was recognized with Ormen Lange and in the 16th Round.
But I think there is also an increasing recognition in general of the value international operators bring to the Norwegian industry - reflected in the welcome moves to improve conditions for investment.
It is not only companies that can demonstrate responsiveness.
An important aspect of this is the value of competition in driving progress. This bears on the national debate here in Norway about privatizing Statoil, and the future of the state interest. Prime Minister Mahathir of Malaysia raised a similar issue recently - when he questioned the position of state companies, like Petronas, in an industry of mega-mergers.
I don't think it is necessary to be very big to succeed. It has advantages - not least the range of experience encompassed. But the chemistry of business success is complex - and is best brewed in the heat of competitive pressures.
I have no doubt that Statoil has the experience and capabilities to respond to those pressures - and that, if privatization is decided on, it will succeed.
Demanding expectations
Continuing in business depends on meeting changing - and increasingly demanding - expectations. Let me focus on two groups who are often seen as having opposing interests - shareholders and society as a whole.
No business can survive without meeting their shareholders' expectations for competitive returns - delivering the required performance from existing businesses and demonstrating the reality of future prospects.
I don't believe this conflicts with the interests of society. Shareholders are members of society - like those who work in business and their customers. They share the same concerns and hopes as others. And they recognize that companies must meet societal expectations to prosper.
And, as I have stressed, competitive pressures drive corporate responsiveness. Complacent organizations deliver less to everybody.
There is, of course, no simple blueprint of societal expectations - people's perceptions, views and aspirations differ. But think most people expect businesses:
· to behave properly wherever they are,
· to respect the views of others, and
· to help find solutions to society's problems.
For energy companies, operations in developing countries are a testing ground for corporate behavior. Inward investment offers great benefits, transferring essential skills. But most of those benefits can accrue to central governments while projects disrupt local systems and damage the environment.
Preventing this requires engaging with local communities to meet their concerns and maximize their long-term benefits.
In the Philippines, the 500 kilometer offshore pipeline which carries gas from the Malampaya field to Luzon - replacing imported fuels for power generation - was re-routed to avoid environmentally, economically and culturally sensitive areas. Environmental improvement and self-sustaining social programmers have been established near the Subic Bay construction site and on Palawan.
In Nigeria, we are working hard to rebuild relationships with local communities. Shell Nigeria has a long record of social investment. It spent $52 million on behalf of the joint venture last year. But we have learned the need to work with local people - letting them decide priorities and take ownership of the programmers.
Where necessary, companies must be prepared to speak out - when they see breaches of human rights or misuse of oil revenues.
Our approach is defined by the commitment in Shell business principles to contribute to sustainable development -integrating economic, social and environmental considerations, balancing short and long-term priorities.
This is driven by a commitment to engage with people - seeking to understand their points of view, address their concerns and help meet their aspirations. We have to regain people's trust. Much of the fear of globalization stems from the perception that the world is run only for the benefit of major corporations and the views of ordinary citizens don't count.
Our annual Shell Report is the central focus for this dialogue - describing what we are doing to live up to our commitments. Much of the data is verified.
I discussed how we are pursuing technological solutions to the environmental problems of energy.
One aspect of this is our efforts to develop commercial renewable energy businesses - in such areas as solar, offshore wind, biomass and geothermal energy. One project produces fuel briquettes from saw-mill wastes at Kirkenær in Norway.
But we also recognize the need to invest in community initiatives. The Shell Foundation's Sustainable Energy Programme supports projects to reduce the environmental impact of energy use and to help poor communities in developing countries gain access to modern and sustainable energy. It will invest $30 million in its first three years and already funds more than 20 projects.
Someone recently asked me whether I would encourage a young person today to join an energy company such as Shell. I think there are few more challenging and worthwhile jobs than meeting the energy needs of a developing world in a sustainable way, few more stimulating than using technology to solve fundamental problems - where creativity is harnessed, and where the opportunities of the internet are being embraced.
I say what I feel myself. That it is a privilege to be part of an industry which is leading the way in building businesses based on human values - which help meet economic needs while contributing to society and safeguarding our shared environment.
22-08-2000
Source: Shell Oil Company
© 2000 Mena Report (www.menareport.com)
