1. society

DEPARTMENT OF MANAGEMENT AND MARKETING
Strategic Management [MG4037]. Spring 2014.
Final Assignment: Group (worth 50%): This assignment utilises two key sources:
1. Shell Case Study (pages 420-430), from core text Strategy Theory and Practice (Clegg, Carter et al)
available from Library Short Loans.
2. Shell’s 2013 “New Lens Scenario” document, freely available at:
http://www.shell.com/global/future-energy/scenarios/new-lens- scenarios.html
YOU ARE ENCOURAGED TO UTILISE ANY OTHER CORRECTLY CITED FACTUAL CONTENT
AND/OR
THEORETICAL PERSPECTIVE (INCLUDING
ANY MATERIAL FROM THIS COURSE)
THAT IS RELEVANT AND ADDS VALUE TO YOUR ANSWERS.
Questions:
1. Evaluate the scenario logic that underpins Shell two identified alternative 2030 scenarios as per their
2013 New Lens Scenario document, i.e. “Mountains” and “Oceans”.
(20%)
2. Which of Shell’s two identified alternative 2030 scenarios (i.e. “Mountains” and “Oceans”
as per their 2013 New Lens Scenario document) do you feel is the most challenging or
incompatible for Shell given their corporate history, goals of sustainable development
and their ongoing need to manage stakeholders? [Please note that the core text case on
Shell identified above will be necessary to answer this question]
(30%)
STRATEGIC MANAGEMENT [MG4037].
In-term Assignment 3 (Spring 2014)
(50% of Total Module Grade)
We hereby state that;
This submitted assignment is our work alone and that due
recognition has been given to any external content through
the use of referencing.
Name, Student ID Number and Signature:
Name
Student ID Number
Garry Lynch
0871117
Signature
Question (1)
Before the commencement of the process, it is imperative that one understands the concept of a
scenario. A scenario is not a prediction, projection, or preference but rather a coherent and credible
alternative story about the future. According to Peter Cornelius, Group Chief Economist at Royal
Dutch Shell, the underlying goal in the conduction of this process is to “help companies challenge
their assumptions, develop their strategies and test their plans”. By combining this process with
other tools including competitive and market analysis, scenarios represent a core element of the
firm’s strategy process at all levels. This strategy process has been instrumental to the company’s
anticipation in the shifting global energy mix and determining both upstream and downstream
investment appraisal which has left the firm prospering in environments in which competitors did
not have the foresight to prepare for thus gifting Shell a competitive advantage by welcoming
uncertainty with opening arms into its strategic planning approach. (Appendix 1 and 2)
Step One: Starting Data and Assumptions:
New Lens Scenarios, as per any prudent scenario planning process starts with a quantitative data
foundation and starting assumptions about here now and the future. Even prior to the overview and
foreword the company states “We base them on plausible assumptions and quantification, and they
are designed to stretch management to consider even events that may be only remotely possible”.
On the quantitative front, Shell obtained data from some of the world’s most respected and credible
institutions including the International Energy Agency, The Organization for Economic Co-Operation
and Development, The United Nations population division, The U.S Energy Information
Administration, Booz & Company, The International Water Management Institute, The Center for
Strategic and International Studies and the World Bank. Normally, one would take the credentials of
the above sources to be accurate and realistic however the phrase “as modified by Shell” on page 47
of the document casted some doubt particularly as the starting point is of upmost importance as this
will reflect on the validity of any drivers and subsequent scenarios that are identified as a result.
We undertook a data collection process of the raw data from the relevant sources in line with the
documents quantification tables consisting of total primary energy, total final consumption, total
final electricity consumption and net C02 emissions. Due to data availability we were unable to
collect the fresh water consumption for energy data and thus take it to be accurate. On the face of it,
the data categories used seem very realistic, clear, coherent and relevant to the scenario process. To
measure the accuracy we mapped the data we obtained on Shell’s data tables until the year 2009
which would indicate if any of the data had been potentially skewed. Appendix (3) shows our data
compared with Shell with some discrepancies coming to light. In relation to the global net energy
consumption, data obtained from the EIA shows that Shell have underestimated this demand. The
table in New Lens Scenarios is broken down by source indicating some less prominent sources may
have been omitted. Similarly global primary energy demand seems to be underestimated up until
2009, Shell states this data to be global however in their table on page 44 their breakdown of
regions such as “other Europe” and “Other Asia and Oceania” don’t give enough transparency, the
exclusion of Russia also raises questions. Why does data from EIA (one of Shell’s explicit sources)
differ from Shell?
Global energy final consumption illustrated the highest level of discrepancy with a 3.1% deviation in
the 1990s, and a staggering 10.5% deviation in the 2000s between data obtained from the EIA and
Shell. Net C02 emissions data also differs, in Shells defence with this table, they have said they
rounded the numbers which would justify 1980s levels of 19.42(Bt p/a) according to the EIA and
19(Bt p/a) according to Shell, similarly 1990s levels of 22.162 (Bt p/a) for the EIA and 22 (Bt p/a) for
Shell falls into the rounding number acknowledgement however the 2000s figures of 27.4 (Bt p/a)
compared to a 24 (Bt p/a) cannot be justified by number rounding and thus indicates omitted
variables of some sort. In terms of starting point data, whilst the categories under which data was
obtained seem to be relevant, accurate, clear and coherent to gauge potential future environments
the data itself seems to lack accuracy compared to the sources it was obtained from. Whether this
data differential was intentional or not, it could have an effect on the viability of overall scenarios
obtained later in the process.
In terms of assumptions, Shell has taken the opposite approach taken by HSBC in The World in 2050
report, where HSBC state they took a “rose tinted spectacles” approach, Shell decided to take a
multiple lens approach hoping to broaden the scope of their end product scenarios, they do this
through the use of the three paradoxes consisting of Leadership Paradox, Connectivity Paradox and
Prosperity Paradox, in addition to these lenses Shell have also used the Room to manoeuvre and
Trapped transition pathways “to view landscapes from a fresh angles so we that we can focus and
clarify possible futures. We feel that the use of these lenses allow Shell to achieve clear, coherent,
accurate and realistic possible views stemming from initial data and assumptions. “Panoramic
scenarios highlight broader patterns in possible future landscapes”. Assumptions made at this
starting point by Shell include the future of cities as described by “A new lens on cities”. By 2050,
Shell predicts that 75% of the global population will be living in cities. With the greatest growth
coming from China, Nigeria, India and the US.
According to Booze & Co, operating for the World Wildlife Fund, estimate investment required for
these cities to be in the region of $350 trillion, the majority of which will be invested in emerging
nations. Current data gathered such as the 66% of energy demand stems from cities along with both
economic and population growth in addition to the advantageous competitive position of emerging
nations such as China, Nigeria and India we feel provides a justifiable approach to view this
assumption as realistic and coherent. We would argue however that the U.S inclusion here is
somewhat ambiguous, as of 2010 according to the Central Intelligence Agency, 82% of U.S
population were living in urban areas, and what raises even more questions is the repeated omission
of Russia here with 73.8% of population living in urbanized areas as of 2011 and with a population of
143.5 million as of 2012 according to the World Bank. Comparing this to a Nigerian population of
168.8 million with 49.6% living in urban areas we do not see why such a large nation such as Russia
should be left out. Surely a nation with a similar population level, but a much higher current
dependency on cities must be included.
Shell then apply their multi-colour lenses on this city assumption, the three paradoxes are a
culmination of related and interconnected drivers stemming from political, economical, social,
technological, environmental and legal environments. The paradoxes are as follows: The leadership
paradox whereby the increasing pressures to address global needs is creating an increasingly diverse
political coalition, this increase in diversity is bringing along with it an exponential increase in vested
interests and therefore can prove to be problematic in reaching optimal and most equitable
outcomes needed to solve global stresses. The connectivity paradox arises from technological
advancements such as social networking, enabling citizens of different nations, media, corporations,
government and society at large to engage in discussion and debate in real-time. It has fuelled
further globalization, has extended and deepened trade, spread prosperity by eliminating borders
and brought huge adversity to political, economic and leadership arenas by empowering the
individual to an almost government level in terms of exposure. The danger here is that a man on the
street possesses the power to overthrow prominent members of institutions as seen recently by the
Garda Commissioner Martin Callinan having to resign over connected public outrage online. The
third paradox is the Prosperity paradox whereby an increase in wealth throughout the globe similar
to Maslow’s hierarchy has fuelled heightened expectations in terms of earnings and purchasing
power. This paradox clusters financial, political, social and environmental drivers which improve the
global wealth distribution however further increases inequitable income distributions within nations
resulting in unrealistic expectations and conflict from those who feel left out.
Shells two pathways Room to manoeuvre and Trapped transition represent a general roadmap that
nations, governments, corporations will face. Either technological, financial, social, political capital
will be available to them in order to meet challenges head on and become early adapters resulting in
effective change or reform under Room to manoeuvre or such capital will not be at their disposal or
will be inadequate leading to a delayed response where conditions now have worsened resulting in a
collapse or substantial reset is needed for the survival of the party involved under trapped transition.
The Shell team have applied these lenses to the city lens assuming that under the prosperity
paradox, cities with abundant resources will grow organically causing an outward sprawl of such
cities leading to energy inefficient infrastructures. Short term plans will be prioritized over longer
term ones which we feel is a clear, realistic and accurate assumption. Ireland is a great example of
this, during the Celtic Tiger all emphasis was put on construction and short term capital taxes, now
that the nations boom is over, it is evident that our energy efficiency is far from ideal and in
particular our water system where Engineers Ireland gave our system a C grade due to a 41% leakage
level and an infrastructure network from the 1970s still in place.
In terms of a leadership paradox within cities, Shell feel that if problems seem too complex to solve
or too unpopular to implement, they will be left ignored until liveability is threatened. One good
example of this is the United States pulling out of the Kyoto agreement due to its unpopularity with
corporations. The nation will probably only enter into such an agreement again should living
conditions become unbearable due to smog and adverse weather conditions. The connectivity
paradox in cities will result in all members of society collaborating with each other and government
in order to incentivize and sanction smart growth of cities. Integrated infrastructure, housing and
traffic systems are given as examples. We feel that this is another plausible assumption with
inherent realism, we can see such connected traffic systems already such as New York’s Adaptive
Control Decision Support System using real-time data and sensors to optimize traffic flow. We see
the pathway assumptions emerge through visionary leadership, prudent foresight by authorities and
knowledge sharing alleviating stresses under cities from prudent infrastructure according to the
room to manoeuvre pathway and with ad hoc last ditch efforts for survival under trapped transition.
Further assumptions are made in regard to the global political environment, with the next 10-20
years seeing a change in the US-China relationship, assuming the United States will retain its global
power however the gap will narrow with an increasingly powerful China. Shell assumes that the US
will no longer be able to act unilaterally and provide to globe with public goods. The Shell team have
argued that a leadership vacuum will emerge and that China will be uncomfortable to autonomously
assume such enormous power. Whilst we agree with Shells thoughts on tensions emerging over
trade and a Chinese pegging against the US dollar as they are already evident with the U.S calling for
China to re-evaluate it’s currency or float it, we feel that the assumption that a nation running
consecutive current and capital fiscal deficits, a federal debt of over $18 trillion dollars retaining
power in the international world order whilst engaging in a reckless monetary expansion Appendix
(4) is optimistic at best 20 years down the line given the economic jumps made by China in recent
years. We also disagree with the “uncomfortable” aspect of China accepting leadership of the world
order, given enough time we feel China may well be ready to accept this responsibility as evident by
its readiness and ability to turn its economy around as illustrated by Appendix (5). Yet again Russia
has not been considered here, we suggest a look at Appendix (6) which we feel warrants Russia
some consideration in the world power. Appendix (7) and (8) shows China has surpassed the U.S in
terms of exports and that Russia and China are much less reliant on non-domestic goods and
services thus making their economies much more robust.
We agree with Shell in the two Asia assumption whereby countries like China lead the way along
with nations like the Philippines who HSBC predict will jump 27 places in the global economy pecking
order to form the 16th largest economy by 2050, dragging along nations such as Japan with it who
are still feeling the effects of the lost decade and deflation. Likewise, we feel that there will be
turbulent times ahead for institutions trying to deal with problems such as globalization, trade
protection, climate change, and nuclear disarmament and therefore class the rugged terrain for
international institutions to be a coherent, realistic and accurate assumption. The squeezed growth
and zero sum perception assumption is also an assumption oozing realism, coherency, clarity and
accuracy. We are already seeing nations such as China and Russia who are state minded when
shaping domestic economic and social policy who are benefiting from economic rigour as a
consequence. Shell further assume globalization to stabilize however we would argue that Appendix
(9) seems to have a rather upward trajectory to it, one that will fuel such conflicts between nations
particular revolving around trade and resources. Over all, whilst we feel the data categories Shell
decided to use in this starting point were prudent in creating plausible drivers and scenarios, we feel
that certain omitted data as outlined above, modified figures and somewhat relaxed assumptions
could hinder the scenario planning process in the later stages.
Step 2: Inductive cycle:
As illustrated in Appendix (1), by taking the initial data and assumptions from step one, Shell can
engage in a group discussion, debate about what could arise from the starting point, revise their
data and as Jeremy Bentham, Head of Shell Scenarios states “an amalgam of a strategic
thinking process, a mode of analysis, a social process of engagement and influence, and, at its most
powerful, an enabler of individual and group exploration and discovery.” We see the train of thought
of the groups at Shell begin to diverge into two separate directions. Patterns seem to emerge in
relation to aspects such as wealth distribution, natural resource availability, economic performance,
political temperament and social cohesion begin to shift the global outlook under different
conditions being viewed under different lenses (Paradoxes and Pathways).
Under these lenses, different forces will have unique impacts on the global future, under certain
conditions, economic performance will be a more acute factor than political performance and social
cohesion and vice versa. Questions such as which paradox will have the biggest impact? What will
the resolution of such changes be? Which corporations, nations, institutions and populations will
have room to manoeuvre in order to minimize adverse effects of such changes and which will be
trapped in transition absorbing the negative impacts of such changes? How will the global order
power play out? Will China revaluate its currency giving developed nations an opportunity to pounce
on manufacturing trade or will the status quo ensue resulting in very turbulent conditions for
developed nations whilst simultaneously opening up great opportunity in developing nations. Could
the United States potentially address its trade balance deficits and regain some of the ground lost to
China and India or will technology be the hero with the likes of 3D printing dropping the
competitiveness ball back in the United States court? Will capital, collaboration and creativity
abundances or scarcities result in who comes off for better or worse?
By going to some of the most respected individuals and institutions on the planet, Shell were able to
obtain and contextualize data they felt were valid for this inductive process. As mentioned earlier,
quantitative experts such as the UN, World Bank, EIA, IEA, IWMI, CSIS, Booz & Co, in addition to Yan
Xuentong, Joseph Stiglizt, Professor Anne-Marie Slaughter providing a theoretical qualitative
backbone makes for a diligent manner of approach when taking into account different possible
events bringing different uncertainties with them be it a predetermined element such as
demographic changes or a critical uncertainty such as future political regimes, by engaging in such an
iterative cycle at each stage of scenario development (See Appendix 1 and 2 ) Shell can be as
confident as possible that they have incorporated the necessary dimensions needed to make the
end result scenarios plausible.
Stages in such a cycle include brainstorming sessions amongst internal and external experts in a
range of fields from economists, strategists, accounting, market and competitive analysts, engineers,
consultants, statistic gurus, marketers in combination with conventional market and competitive
analysis and is often equated to the financial real options analysis under the presumption that
investments in the past and present result in consequences and different routes to go down as the
time to maturity closes in. Once the brainstorming sessions have been commenced with starting
data and assumptions, pre-determined elements and critical uncertainties can be incorporated and
issues can then be ranked both in terms of impact and uncertainty. If the ranking metric illustrates
elements uncovered illustrate high levels of impact and uncertainty it be concluded that they meet
the scenario logic criteria and subsequent drivers and scenarios can be identified. For example,
future political and institutional relationships identified in step 1 such as the US-China relationship,
the two Asia’s and rough terrain for institutions will have a major impact on the global environment
in additional to producing major uncertainty thus providing an almost proof of concept to the
planning process.
Whilst we fully agree with the inductive process carried out by Shell in facilitating well thought driver
and scenario creation however feel compelled to revert back to our criticisms on the utilization of the
starting data and assumptions and the knock on effect this may have on the inductive cycle’s realism,
accuracy, coherency and clarity. The exclusion of Russia at the starting point could result in
unaccounted for shifts to world power, global economics, technological advancements, conflict
amongst nations and energy resource levels. At this time of writing, the world is seeing a major
critical uncertainty amongst political regimes in the form of conflict between Russia and the Ukraine.
The United States have enforced economic sanctions on Putin’s nation however huge confusion
remains particularly within the European Union and NATO. Could the violence in this invasion
escalate? Could World War 3 perhaps be in the not so distant future? These are unincorporated
elements that could render subsequent outcomes incoherent, unrealistic, in-accurate and lacking in
clarity all of which stem from Russia’s exclusion.
Step 3: The Drivers:
By utilizing the PESTEL framework against the thoughts, data and assumptions from steps 1 and 2,
Shell were able to generate drivers relating to the political, economical, social, technological,
environmental and legal framework. Once the drivers were identified, opposing key drivers are then
created in order to separate this planning process from conventional methods, solely using drivers
identified in addition to data and assumptions no matter how many inductive cycles occurred would
merely make this exercise a glorified forecast without absorbing uncertainty into the mix. These
driving forces are critical to the overall scenario process, placing it second only to starting data and
assumptions in terms of importance. In order for a scenario process to add value to a firm by means
of foresight and readiness to act in certain situations they must be plausible and flawless, otherwise
exploitation of welcomed scenarios and the mitigation of not those not so welcomed could be less
than optimal as reinforced by Van der Heijden “Fundamental forces that bring about
changes...underpin observable events in the world. Understanding the interrelatedness of forces
gives insight into the systemic nature of the problems we are exploring”.
In terms of the political environment, Shell identified high legacy positions, high levels of human
inertia and bounded rationality, inequitable power distribution in terms of counter currents. Shell
were able to apply these drivers to their data and assumptions by concluding if the identified drivers
impacted the data and assumptions it would do so by encircling power to the incumbent institutions,
nations and corporations thereby reducing the trajectory of global developments to the agenda of
this limited number possessing power, where a project meets such incumbents needs developments
will be facilitated and swift however when developments do not match incumbents interests
progress will be slow. The opposing driver here would suggest increased expectations linked with a
higher level of accommodation between the empowered. This comes with an increase in the
number of empowered institutions both new and old, the benefits being that developments are met
initially with open minds fuelled by a moral obligation to improve society, however this increase in
political power eventually slows down progress to the overall detriment of society as the emergence
of bureaucracy and red tape ensues. Individual levels include national governments such as the U.S,
China, Japan, Russia and their respective interests in terms of policies, developments and
investments whilst external levels include the European Union, United Nations, NATO, how the U.S,
China, Japan and Russia engage with one another over cross-border trade and the interaction of
members in NAFTA. The scope, speed and thoroughness of progress will be dependent on how
power is distributed, levels of inertia, legacy costs, bounded rationality, levels of self interest and
openness to engage in discussion. Taking other interests into consideration and where priorities lie
such as regional/national wellbeing, entitlements to public goods compared to power hunger
political regimes, obsessed in terms of strength, trade and power placing self interest over collective
wellbeing.
Economical driving forces identified by Shell come in the form of wealth distribution, consumer
choices, prices, technology and behaviour efficiency standards and the abundance/scarcity of energy
resources. The future distribution of wealth will be equitable or inequitable, such a distribution may
have a knock on effect on whether global commodities are offered to nations in the form of an open
market using demand and supply as the criteria in deriving pricing or in the form of a hierarchy
whereby those possessing goods and services will be in a position to dictate pricing potentially
pricing those lower on the wealth distribution out of contention thus reserving such goods and
services for the wealthy. Externalities will be directly effects by which platform transactions take be it
open market or hierarchy which will have a knock on effect on how technological efficiencies and
behavioural efficiencies emerge. For example, if those lower of the wealth distribution scale are
gradually being squeezed out due to pricing, we may see huge increases in behavioural efficiencies
from those lower in wealth whilst a disregarding attitude by those higher in the wealth distribution as
they have the capital resources to acquire more. Similarly the abundance or scarcity of resources
such as oil, gas, coal, nuclear, renewable and biomass resources may also influence such attitudes
for example Appendix (10) shows efficiency and consumption rates of nuclear abundant France, oil
abundant Saudi Arabia and gas abundant Russia we can see how efficiency levels have been
decreasing or levelled at best whilst consumption has increased for the most part, compared to
Appendix (11) resource strapped Ireland and the United Kingdom whereby due to the lack of
resources, emphasis is placed on improving consumption and production efficiency whilst increasing
research and development in renewable energy in order to become self-sustaining. These drivers
have a high level of interdependence amongst each other which could result in inflated or deflated
prices, make the global wealth distribution more equitable or even more inequitable, have an impact
on behavioural or technological efficiency standards and determine whether markets are open or
take a hierarchical approach.
Social drivers identified by Shell include the creativity of individually and collectively to increase
developments and achievements in the arts, technology, business & political model innovations,
cultural elements such as individualism and collectiveness emerge for example “our way of doing
things” at local, regional and global levels, relationships between elites and majorities are identified
and ideology of people and nations are looked at such as the “master of my own fate” or “we are in
this together”. Technology plays a pivotal role for Shell in the New Lens Scenarios, will innovative
technologies emerge from an open innovative platform where individuals contribute freely allowing
everyone to benefit or will it by a by product of massive investment by a minority of elite institutions
or corporations will the end results being heavily protected by intellectual property rights to prevent
competitive nations or institutions from utilizing such breakthroughs fuelling further volatility
between political relationships of nations and the distribution of wealth at the expense of society.
Will technological breakthroughs be implemented on a broad or narrow scale due to financial
restraints or political popularity such as the adverse thoughts by many on the seismic affects of
hydraulic fracking hindering its overall implementation determined by cultural differences?
Technology drivers include advancements in CCS, hydraulic fracturing, hydrogen, tight-shale gas,
solar, Cool Bed Methane, bio-fuels, and methane hydrate will determine the ease of which nations
will be able to meet the needs of its citizens down the line. If technologies fail to deliver, it may
prove to be a catalyst in the political, economical and social realm where panic ensues and nations
stop accommodating one another in order to protect their own self interest, conversely if the
technologies proven to be a great success, further collaboration and innovation may emerge as
nations are in a more comfortable place in relation to their resources levels in the short run at least.
The goal in relation to technology is to be able to develop a global system whereby self sufficiency is
achieved more ideally by renewable means such as solar, electric or nuclear renewable.
Environmental drivers identified consist of land use, whether cities would continue to sprawl
outwards as the world population increases to 9 billion according to United Nation predictions will
have an impact on the food-water-energy stress nexus as inefficient ways of living will end up
creating somewhat of a stress nexus, standard of living trade-offs which could potentially spark
political conflict thereby effecting technology development slowdowns and result in negative
consequences for society, similarly if nations do begin sustainable city development the opposite
may occur bringing about positive aspects to nations by reducing the stress nexus thereby improving
or at a minimum sustaining living standards which may improve inter-city and inter-nation
communication and dialogue which could lead to increased trade among nations and a fairer wealth
distribution along with better results for society. Land pollution clearly is one area of huge
importance to society, and thus political establishments must strive to ensure land pollution is kept
to a minimum not least to avoid legacy costs arising from having to clean up messes from a lack of
focus on this driver. This is easier said than done however with certain nations having a higher
tolerance level for pollution than others, for example, nations in Africa such as Nigeria for instance
are comfortable with a certain level of pollution in order to maximize capital gain from foreign direct
investment, subsequently society enjoys the economic gains from such investment thus this driver is
inter-connected to politics in the form of policy (Do we encourage pollution for the sake of jobs?),
society in the form of jobs (Do we accept higher levels of pollution in order to gain economically?),
economically by asking are we discouraging companies from coming here if we are too stringent on
pollution?, even technology is affected here, if pollution is discarded as a priority for a nation, then
the impetuous to develop technology to address such matters reduces as there is no major problem
to be solved. Regulatory stances and the expression of the public in a local context will be of major
relevance here, will nations with exogenous states have an advantage over nations that do not? For
example does the fact that individual U.S states have the power to address policy on an ad hoc basis
in the interest of their own state provide advantages over nations like Ireland whereby the law
affects all counties in the region?
Climate change similarly to land pollution will have a similar effect, if nations such as China and India
feel as though it is their time to shine and are of the opinion that the current climate crisis is down to
the actions of the likes of the United Stated and the United Kingdom, climate may go on the
backburner as these developing countries feel they are entitled to catch up on the developed world.
Appendix (12) shows that developed nations are still emitting far more c02 than their emerging
counterparts and thus need to take the lead in order to contain consequences as a result of climate
change. Political agendas of developing and developed nations may collide here resulting in a divide
politically, socially, economically, technologically and environmentally. Opposite drivers here may
consist of everyone agreeing to collaborate to solve the problem, Kyoto agreements of the future
may take into considerations the benefits the developed world has gained and allow higher emission
levels to those developing. Such legally binding agreements will be imperative to the solution of this
problem, the United States pulling out of the Kyoto agreement accelerated this driver and the
outcome is very much unknown with many knock on effects.
We feel Shell have done a good job identifying potential driving forces in-line with the data collated
providing them with a robust set that can be tested against assumptions both individually and
clustered. For example, the prosperity, leadership and connectivity paradoxes emerge as a result of
clustering these political, economical, social, technological, environmental and legal drivers together
to allow plausible and alternative scenarios to ensue. This domino effect will determine which of the
two identified pathways a nation will be forced to go down, if the nation is lucky in the sense that it
has abundant resources in terms of financial capital, technology, political influence, social cohesion it
will be in a position to gauge a drift arising from mounting stresses allowing it to reform in a timely
manner avoiding a major crisis by facilitating a minor one known as Room to manoeuvre. Those not in
such an ideal position will have to succumb to such stresses due to delays in response submersing it
into a cycle of crisis whereby the only way out will be in the form of major reset or complete collapse.
Examples of this are already evident such as the prompt recovery of BRIC nations that were acutely
hit by the global financial crisis and credit crunch, they had the resources to adapt early in response
and reform thereby escaping a prolonged period of adverse conditions (Room to manoeuvre),
Europe on the other hand did not prove to have such resilience partly down to a lack of sovereignty.
The can kicking approach adopted by the EU has resulted in huge political and economic tensions,
along with social reactions such as the Greek bailout riots. With this political, economic and social
capital reduced, Europe had entered into a cycle of crisis with the predicted outcome by Shell being
in the form of financial and political write-offs or the collapse in the Euro. We feel the former will be
the most likely. The inter-connectivity here is clear, a change in one driver for better or worse has a
domino like effect on the others. Albeit our criticisms in relation to the data and assumptions in step
one, we agree with Shell that the drivers identified allowed a thorough and rigorous testing, in
addition to the clustering of the paradoxes and the pathways of early adaptation in room to
manoeuvre or the trapped transition engulfing reset or collapse.
Our one suggestion that may be able to aid in the pinpointing of which drivers may affect certain
political regimes and societies more acutely than others would be to collate the data from The
Hofstede Centre, and apply Gert Hoftstedes’ Cultural Dimensions Theory in doing so Shell could
gauge how changes in the PESTEL framework could lead to disproportionate consequences to
different nations based on their levels of power distance, individualism/collectivism,
masculinity/femininity, uncertainty avoidance, long-term versus short-term orientation, and
indulgence versus restraint. We feel that adding this theory to the driver step in the scenario
planning process could facilitate increased levels of accuracy between scenarios and reality
outcomes. Appendix (13) shows the cultural dimensions theory levels of the United States and
China, the higher power distance in China (80) compared to that of the U.S (40) could provide an
insight into how society may react to actions may by government, if actions are of self-interest and
greed in pursuit of power at the expense of society these figures allow for the assumption that the
Chinese societies would be less likely to revolt compared to their US counterparts as they can only
tolerate half the hierarchy that the Chinese can. This process could be applied to each driver
identified in order to derive the most complete drivers.
Step 4: Crafting the scenarios:
With the drivers identified, we now move on to the crafting of scenarios by pushing such drivers to
extremes in order to stress test the implications it may have on other drivers, and subsequently the
global environments that emerge as a result. It is these environments that the scenarios embody.
The first driver pushed to its limits is one of a political nature. In the first case, the key driver is the
political environment. Developed nation political regimes are trying to recover from adverse
economic conditions whilst simultaneously developing nations are enjoying more and more of the
global power and benefits of economic trade. With developed nations power and prosperity under
threat by developing nations narrowing the gap between power and prosperity distribution,
developed nations in response to this force a shift in a social and political manner. A divide in society
ensues consisting on the elite and the non-elite resulting in a society driver. Multinational
companies, political institutions and high net worth individuals form this new elite and despite often
having similar objectives, a battle for power, money and wealth becomes widespread.
In order to protect their interests, these elite combat geo-political drivers such as globalization by
asserting power on local and regional markets within their nations in order to ensure that their
interests are insulated from threat posed by globalization. As potential threats heighten, this new
social elite exerts its power and influence on its political elite peers to allow them acquire the legal
system in order to justify their actions. Further social shifts ensure as a result of this privatization of
the legal system as tolerance for compliance with the law increases. As society becomes more and
more normalized with ultra-hierarchies, the international powers of governance become so
powerful that they literally possess the ability to destroy the future global outlook by adopting
policies unopposed to by anyone outside of their circle. Incumbent powers’ reluctance to give up
power results in a conflictive environments whereby nations like China and the U.S have a standoff
power and advantage over each other with technological drivers reducing the prospects of military
action through nuclear warheads.
The political environment in this case emerges into one of ad hoc coalitions in constant competition
with one another. In the 2020s , through a recognition of mutual interests stemming from economic
drivers, China and the US adopt a marriage of inconvenience shifting power in the political world
from the G8 to the G2 (China and US). Tensions are still widespread along with social and political
shifts occurring in those outside of the G2 as their power reduces rapidly. By the 2030s, economical
drivers in the form of increasing economical development of nations like Brazil and India drive a
change to the incumbent political structure, demanding it to create a new world order to deal with
the environmental stresses of climate change, energy resource stresses and social demographic
issues such as aging populations. This economical driver spurs the geo-political world to become one
of shared interest but different values. Over time, these coalitions develop relations deepening their
scope and influence. Economic drivers of increasing inequitable wealth distributions result in social
shifts including a stagnated middle class, reduced social mobility, an alleged meritocratic education
system that is in fact one of kakistocracy where tax exemptions further benefit the wealthy whilst
the middle and poor classes become increasingly dependent on philanthropy. Technological
developments further fuel this social divide when the likes of 3D printing taking away jobs in
manufacturing and well paid jobs diminish in order to mitigate stagnant economic conditions and
protectionism re-emerges as nations attempt to protect their interests.
Economic drivers of slow economic growth reduces the demand of energy, and supply side policies
through technological drivers facilitate in the unlocking of natural energy resources providing the
global with a sustainable future in terms of energy. The technology drivers here involve the
development and success of hydraulic fracturing allows vast amounts of tight-shale gas, cool bed
methane and liquid rich shale. With the success of such technologies, clean resources such as natural
gas are driven by political policies to form the backbone of the energy system. This substantial
increase in natural resources quietens concerns about the sustainability of the global energy system
which reduces financial volatility aiding in the objective of policy developing tomorrows’ energy
infrastructure. Further technological drives come in the form of carbon capture and storage
developments in addition to policies adopting gas opposed to coal allows for environmental benefits
of greenhouse gas emissions reductions by 2030, whilst developments in hydrogen further improve
the global energy stock with an emphasis on utilizing gas as the backbone to a new cleaner energy
system whilst combining gas and hydrogen in order found new electrical grids helping provide social
benefits by electrifying transport as sustainable compact cities become a priority politically. Despite
emissions increasing through the 2020s, of more importance is the sustainable, zero carbon emission
energy system deriving from the political, environmental, social, technological, economical and
legal factors as outlined. This scenario stemming from a political driver of hierarchies is very much
aptly named as Mountains, the structure of which illustrates its starting point. We feel that the
drivers used in this scenario were diligently applied, with the knock-on effects addressed, and is very
much a plausible future.
Naturally, the opposing key driver of Mountains , is that of a flat structured political regime. Shell
apply this flat structure political key driver to their next scenario. With social expectations at a
height, pressures on politics ensure causing a change in the political environment. Vocalised, debate
driven politics emerge whereby actors engage in discussion in order to overcome conflict of interests
resulting in a democratic policy process. Society adopts an almost communities of practice approach
to challenge incumbent powers and overcome problems. Values in society shift to one of inclusion
and equity as opposed to the materialistic and power-hungry values initially associated with
Mountains. Capitalism is challenged by society, driven by developments in technology namely social
media as the power currency moves from those with capital abundance to those possessing a high
extended network. People are put first here, with “Netizens” fuelling the topics of discussion at a
political level. Non-government organizations are revitalized because of the collective shift and
similar to society’s change in mindset, these NGOs are mandated with improving systemic issues as
approach to particulars. Politicians and corporations are viewed negatively by society as trust issues
emerge, the social media developments multiply this negative view with the result being a
widespread damage to the reputation of companies and governments.
Increased globalization results in these technological, social and political shifts becoming more than
national issues as the international order becomes open, decentralizing and diffusing power across
the globe. The effects of this are so stark that previous “laws of science” such as the “There Is No
Alternative” mentality to globalization, liberation and technology shift to a one of “There Are Real
Alternatives”. Under “TARA”, states once plagued by inequity catch up to those who once were the
neglecters through the emergent new open world order. The U.S faces a dramatic reduction in
power but continues to lead in terms of productivity and technological advances. “Soft power”
emerges whereby values dictate policies that are adopted. An almost Stakeholder theory is adopted
here similar to that of a Chaebol or Keiratsu as opposed to Mountains neo-classical theory of the
firm approach. The political environment moves from one of multi-lateral in statue to one of minilateral in nature as the number of constituents getting involved increases exponentially. This minilateral approach however brings with it some economic problems. Do to the sheer number of those
to be included in decisions, financial transactions reduce due to the increased complexity of fulfilling
in trying to co-ordinate so many different actors.
Changing economic environments as a result of this political driver form tensions. As the wealth
distribution becomes more and more equitable, those once benefiting from such an inequitable
distribution begin to confront those only newly experience this wealth. The result of this leads to
collisions amongst those in favour of democracy and those engaged in popularism. Naturally such
volatile conditions have an immediate impact economically at the financial markets whereby
transitions and economic growth are equally volatile. Allegiances amongst groups are not strongly
tied with groups moving freely engaging in discussion regarding policies and the needs of society
often solved through compromise.
Tensions still remain between political and social environments as governments struggle to keep up
with society’s demands and upheaval. Throughout its lifespan, this environment normalizes
turbulent stresses and shocks. By 2030, in line with societies demand for collectiveness, the world is
governed by a flat, opened and disembodied group of economic relationships. With economic
benefits for emerging nations as wealth is further equally distributed. As mentioned earlier, the
increased turbulence of this new economical environment results in some major social shifts, firstly
a transfer the wealth of success occurs, this transfer involves large economies falling behind to
smaller ,open and more adaptive ones due to the political and economical barriers to providing highstandard education which is an identified critical factor of success. The barriers here are the inability
to deal with complex decentralizations and fiscal transfers. Due to the lowering of education
standards, large economies become poor whilst the small-medium and open economies become
wealthy due to an inequitable global education distribution. The middle income trap is the economic
shift where emerging economies sustain a greater level of economic growth in this open world order
due to the gap existing between them and developed nations.
Whilst emerging economies continue to grow economically under this environment, naturally there
is a strong increase in demand for energy resulting in a strain on supply and demand. The lack of
coherent policies adds to this. Nations outside the U.S lose out on the prospect of sustainable
natural energy resources due to a lack of policy, geology makeup and technological developments
thereby splitting the globe into the U.S tight-shale gas and CBM haves and the rest of world energy
resource have-nots. Economic consequences of these political, environmental, and technological
barriers result in a major decline in oil production and investment. High oil and gas prices become
the norm which leads to society and politics needing to address it leading to an unlocking of
resources and developments in other technologies. The solutions lead to a long oil game and solar
power rises to significance. By 2030, it is expected the OECD’s share of energy demand is to reduce
from 45% in 2010 to 33% illustrating the increasingly equal prosperity of emerging nature, this
collectively prosperous economic environment makes addressing energy scarcities a key priority.
Initially, incentives for efficiency, recycling and reuse become important elements in society.
Efficiency gains in buildings through the increase in passive homes and retrofitted homes become
the benchmark in new housing stock. Technological advancements aiding efficiencies in combustion
engines keep people travelling despite high oil prices whilst further developments in electricity and
the economical costs of solar photovoltaic technologies provide a possible sustainable energy
system. Oil demand grows up until the 2030s where it plateaus by 2040s.
High oil and gas prices along with a high level of demand, stimulates the need to produce more
difficult oil supplies. Incentives are created for bio-fuel with first-gen products experiencing high
levels of growth, second-gen versions start commercial production by the 2020s. Successful
developments in Solar PV allows homeowners to convert from traditional energy sources to using
electricity in the home. The combination of economic drivers of oil prices , environmental drivers
such as the Arctic possessing oil and technological developments such as new drilling capabilities in
harsh conditions, enhance the realism in enhanced oil recovery techniques. Hydraulic fracturing and
these new drilling techniques allow for the creation of light-tight oil and liquid-rich shale
innovations depending on the environmental factors of geology formation. The high price oil
environment in addition to new capabilities in terms of technical prowess encourage the production
of extra heavy oil in nations such as Canada and Russia. In this scenario, nations who produced more
than 75% of oil in 2012 will have an even more pivotal role going forward. This world of open rule,
volatile economics, and scarce natural energy is known as Oceans, with a heavy focus on solar
energy going forward as a means for a sustainable energy system.
Overall, we feel that Shell’s use of identified drivers was done in a very plausible manner. Starting
with the key driver of political environment, Shell have shown the inter-relatedness that this has
between social (how society reacts to the practice of their respected governments), technological
(whether or not incentives are provided in order to develop and advance technologies),
environmental (policies drawn up to address issues such as climate change, land use for bio-fuels,
the harsh exploration of unique sites such as the Arctic) , economical (whether or not scarce energy
resources lead to investment on alternative methods in order to find a solution). The derivation of
the worlds in Mountains and Oceans consist of a hierarchical political system in Mountains
compared with an open and loud democratic world order in Oceans. Economic environments in
Mountains are comprised of stable markets allowing for investments into technology whilst in
Oceans volatile conditions lead to a delay in policy and progress in securing sufficient energy
resources for the future. Socially, society in Mountains are more conservative having faith in their
respected nation to look out for their interests which for a large part is neglected as nations merely
lead to satisfy themselves, conversely in Oceans the floodgates open to those wishing to engage in
debate and the policy process which prima facie seems like a contemporary and inclusive approach,
it hinders policy progress and hampers financial transactions given the complexity of the system.
Technology drivers play a key role in both, with advancements in hydraulic fracturing, CCS, and
hydrogen achieving big success, converting the foundations of the energy system to one of gas.
These technology developments culminate to create a sustainable zero carbon emitting energy
system for the benefit of the globe. In Oceans, such technologies have limited success, with the
ability to harness thick oil from exploratory drilling techniques, a long game in oil ensues, in order to
have a sustainable energy future, Solar energy plays a pivotal role in achieving so. Overall we
conclude that despite earlier concerns in relation to the data, Shell have done a good job in crafting
their two scenarios, perhaps our expressed concerns may come into play during the lifespan of these
plausible future assumptions to create a hybrid scenario as per Appendix (4).
Question (2)
Understanding Shell’s corporate history:
(i)
Past Scenario Planning:
Scenario planning at Shell provides additional information to the firm when evaluating risk and
investments in full recognition of the external environment. Sheltering from risk and the protection
of capital is not the only use for such processes however as these changes in the external
environment allow for opportunity even in what initially seems to be an adverse change in the global
environment, one example of this is the fall of the Soviet Union which facilitated capital inflows to
Russia, one of the world’s most resource abundant nations. Pauses in the business environment
present the biggest hurdles to firms in the energy sector particularly given the size of average
investment and the time required in order to generate a return. It was for this reason that Shell
decided to incorporate scenario planning into their development process.
In 1972, the company crafted 6 scenarios with each revolving around economic growth, oil supply
and oil price. Whilst geographical and political drivers were incorporated, the priority was on the
key variables that direct affected business at the conglomerate. One of the scenarios crafted by the
company went against the trend in terms of economic performance. At that time, the world was
going through a continuing cycle of economic gain and economic stability however Shell wanted to
prepare itself for the day that trend reversed through a disruption in the oil supply and higher oil
prices. By October of 1974, this scenario had become reality with the Arab Oil Embargo as a result of
political and social drivers of the Yom Kippur War raising prices to unprecedented levels. This
reversal in the economic environment provided the scenario planning process with huge amounts of
credibility. In 1974, the company crafted the Belle Epoque and World of Internal Contradiction
scenarios to provide two plausible alternative worlds based on social and geo-political drivers in
addition to economic and energy market assumptions.
1984 saw the crafting of the Next Wave scenario which incorporated economical drivers outside of
the energy price and supply criteria that Shell had previously solely focused on. In Next Wave, the
company took a tightening of credit markets in conjunction with the U.S fiscal deficit as key drivers
which could severely impact the price of oil in a downward spiral. With increased recognition in the
logic behind creating such scenarios within the company, by 1987 the firm were creating separate
documents for scenarios focusing on oil, energy and socio-economic trends. This shows how Shell
were increasingly recognizing the importance of including elements of uncertainty into their
planning process as opposed to the narrow lens of oil prices and supply for the sake of their future
readiness and subsequent performance in a changing environment. By the 1990s, scenario planning
at Shell was taking global issues such as globalization into account whilst environmental issues were
also viewed as becoming important enough to cause a shift in the current environment. These new
uncertainties being incorporated saw the emergence of the Sustainable World scenario driven by the
possible consequences a mounting debt burden in emerging nations and in legally binding treaties in
relation to corporations responsibilities to limit the damage being done to the environment.
The Roaring Nineties incorporated the above drivers but also needed to include that of new
economic drivers emerging such as globalization breaking down borders between nations, the social
and political drivers resulting in the liberalization of markets allowing them to become truly open and
technology trends whereby the conveyor-belt like developments were introducing affordable
personal computers, the internet being opened to the masses, a huge increase in information flow
which made a significant step towards a truly global market. The “There Is No Alternative” was
developed here as corporations struggled to mitigate the constant opening of markets and
globalization. With corporations growing more and more frustrated at the lack of foreight of
governments later in the 1990s further developments were made under the Just Do It! document
which saw The New Game and People Power scenarios begin to incorporate elements such as
corporate governance, rising populations, and increasing distribution of wealth and the higher
standards of education that were beginning to drive the external environment. Further variables
were taken into consideration in the Business Class and Prism scenarios whereby the effects that
globalization was having on societies took precedent as opposed to purely economic consequences.
2005 saw the crafting of People and Connections which absorbed elements of trust and security
which were a by-product of terrorist attacks on the U.S and the reckless operations from some of the
globes biggest companies including Enron, Worldcom and Tyco. Shell were able to relate how
negative events such as these can have a knock on effect in society which can then drive objectives
of security, efficiency and equity as the main priority of social and political environments. In order to
include all these elements appropriately, low trust globalization, open doors and flags emerged as
plausible alternative worlds whereby regulation, codes of practice, international co-operation in
addition to differing Governmental stances in different nations (populist/democratic) were all taken
onboard as uncertainties contributing to the scenario development as political, social and legal
drivers. 2008 saw the publication of Shell energy scenarios to 2050 whereby Blueprints and Scramble
incorporate further fear and security of society, incompetent decision makers slowing progress in
policy and environmental drivers such as activists make a dent in the external environment. Finally
the 2013 New Lens Scenarios publication of 2013 looks at shifts in political structure, technology
success, new behavioural concepts such as efficiency and possible major shifts in society and its
relationship with corporations of governments are incorporated into the planning process.
Clearly, Shell have come a long way in terms of the scenario planning having initially solely focused
economic environment elements affecting the firms performance in the form of energy levels,
supply, demand and prices to include a wide range of indirect shifts in political, economical, social,
technological, environmental and legal uncertainties allowing the company to prepare itself for a
vast array of possible future business environments and exploit identified trends in order to
maximize profits. Advantages from incorporating such a range of uncertainties is not merely logical
from a theoretical standpoint but empirical evidence has shown the benefits of such a process can
have on a firms performance. In 1973, following the break out of the Yom Kippur War, a social divide
was evident driven by the West’s support for Israel angering which angered oil abundant Arab
nations leading to an oil embargo. Fuel deficiencies in the west as a result lead to a global recession
and a stock market crash which left the majority of corporations left severely hit. Shell on the other
hand were prepared for such a case through scenario planning and during the same years reaped
huge rewards to the tune of billions of dollars profit by having the foresight to re-configure, sell and
decide not to replace further refineries and installations. 1989 saw further gains by Shell with the
collapsing of the Berlin wall. Shell had the ability to gauge future social and political cohesion
between Eastern and Western Europe and that tensions would lower. Prior to the landmark
destructing of the boundary wall, Shell had been developing infrastructure, opening new refineries in
Eastern Europe and the Soviet Union ready to exploit opportunities stemming from increasingly
positive ties between the two geographies. Clearly the performance of firms engaged in such
activities stand to gain at the expense of competitors still neglecting to incorporate uncertainty fully
into their strategy planning processes.
(ii)
Corporate Social Responsibility at Shell
The arena of corporate responsibility and the obligations that corporations are obliged to fulfil
outside of economic and legal requirements has been one that has evaded practitioners and
academics alike. With origins tracing back as far as 1622, ironically to the Dutch East India Company
where shareholder Isaac Le Maire began to expose the information asymmetry between the owners
and controllers of the organization and the difference in objectives. According to Clarkson there is a
fundamental problem within society due to no complete definition for nor a framework or model in
place in relation to the obligations of a company beyond the scope of economic and legal
obligations. The scope of opinion amongst academics and practitioners range from the extreme
neoclassical views of Milton Friedman whereby a firm owes no obligations to society in its quest to
maximize profits for shareholders in order to fulfil its economic and legal obligations to the views of
Howard Bowen whereby corporate social responsibility “refers to the obligations of businessmen to
pursue those policies, to make those decisions or to follow those lines of action which are desirable
in terms of the objectives and value of our society.” Joseph McGuire defined the concept as “ the
corporation has not only legal and economic obligations but also certain responsibilities to society
which extend beyond these obligations”. Clearly the differences in defining the concept makes its
implementation difficult to say the least. Arguments from neo-classical academics have included
what exactly are these additional obligations? To whom exactly are they owed to and in trying to
meet these expectations is the firm negating on its obligations in maximizing the firms’ profits in the
event that in order to meet these additional obligations the firm has to pursue alternative routes in
operations that may result in additional costs thereby not maximizing the firms’ profits? The concept
is one of interpretation with even the U.S Supreme Court unable to make a ruling for or against such
matters as per the case Kasky V Nike.
Shell clearly feel morally obligated to achieve the best for the company and its stakeholders given
the lengths it goes to ensure consistent financial performance through the use of scenario planning
however outside of these economic and legal obligations there are some serious questions
surrounding its obligations beyond that of a economic and legal nature. According to Kristen, Bell,
De Tiene and Lewis 75% of investors consider social responsibility to be a critical factor in their
investment appraisal. We assume that since Shell are viewed as qualitative and quantitative
visionaries in terms of scenario planning, they have the financial prowess to also be aware of this
figure and therefore incorporate it into its practice despite whether or not it truly is a goal of theirs.
Kristen et al further indicate that “there is a fine line between optimism and deceit that is very hard
to distinguish” in terms of commercial speech. In the time period of 24th to the 26th of February 2013
at the time of publication of New Lens Scenarios, Shells RDS-A stock increased by 11.25% and in the
space of 18th March to the 15th of April 2008, at the time of publication of Shells energy scenarios to
2050 its stock enjoyed a further 9.65% boost. One needs to ask the question is the corporation
engaging in corporate social responsibility actions and speech doing it for the benefit of society or is
it using such concepts as additional avenues to maximise its profits for shareholders?
Rationale for engaging in social responsibilities include (i) As a reaction to a past event, in order to
restore a lost reputation, (ii) to allow the firm appeal to and manage stakeholders, allowing them to
progress with business operations in a unhindered manner be it for a genuine belief in it owing
further obligations to society or just to ensure operations run smoothly with no intention of fulfilling
such additional obligations. (iii) To utilize the concept as a barrier to control and limit intervention in
the corporations market by means of regulation.(iv) Create entry barriers to competitors by setting a
benchmark by requiring a huge investment in such a concept in order to gain acceptance of the
society of that market. During the 1970s and 1980s, it’s evident that corporate social responsibility
was of relatively little concern to Shell which is somewhat ironic, Shells past in scenario planning
illustrated their sensitivity to environments when gauging investments however they had not
contributed to the improvement nor had they attempted to recognize the moral, social and
environmental obligations society felt they owed to such environments. This however, changed after
1995.
The period 1990-1995 saw a huge transition in the appreciation of corporate social responsibility and
stakeholder management as a reaction to mounting pressures within society demanding so after the
occurrence two incidents namely the Brent-Spar incident and the environmental damage to the
Niger River Delta in the Ogoni region of Nigeria. In 1991, after a review of refurbishment costs Shell
along with its joint venture partner Exxon Mobil decided to decommission a 14,500 tonne oil storage
buoy as it would not be economical. In October 1991, research studies were commissioned in order
to gauge how best to dispose of it as its size was inhibiting traditional methods of disposal. In its
quest for the Best Practical Economic Option, Shell U.K narrowed the options down to onshore
dismantling or deepwater disposal. A study conducted by Aberdeen University revealed that the
deepwater disposal method would have been the best solution. Shell then consulted with local
government in addition to interest groups focused on conservation and fishing. In February 1995, the
U.K government approved the deepwater proposal with no objections from any of the other 12
EU nations along with the European Union itself. Without any objections, the U.K government gave
its approval.
The non-government organization Greenpeace however felt very strongly against such a disposal.
Greenpeace’s concerns were that (i) the precedent that the deepwater disposal would have on the
130 other offshore spars that would soon come up for decommission. (ii) Greenpeace claimed the
environmental damage from such a approach would be far more severe than Shell’s calculations had
predicted and (iii) the organization objected to such an action out of principal. The organization
attempted to get involved in the process with the U.K Department of Trade and Industry and Shell
however they were not included in proceedings. Once the deepwater solution was chose,
Greenpeace decided it would occupy the spar. A huge media presence ensued resulting in a rapid
increase in customers, politicians and governments around Europe began to condemn the sinking of
the spar. Shell tried to defend its decision with the U.K government supporting the decision engaged
in litigation against the activists. Greenpeace decided to initiate a boycott against the oil company
which resulted a mass upheaval against Shell across Continental Europe, particularly in Germany.
Petrol stations were reporting 50% decreases in revenues and the company was being hit with
criminal damage to 200 service stations and even two of which were fire-bombed. In June 1995,
another occupation ensued with two members of Greenpeace arriving by helicopter, took chemical
samples from the spar which Greenpeace then released. By now, Shell had realised that the deepshore disposal was no longer an option. Greenpeace hailed it as a victory, Shell described it as an act
of “the heart over the head” whilst the British Government who were the only defender of the deepshore disposal felt betrayed, threatening Shell with the possibility of not granting an onshore
disposal, while also threatening to withdraw the 50% contribution it was going to make under the
initial agreement. Shell benefited from the compromise by receiving co-operation from stakeholders
such as the Norwegian government offering the use of its waters until new disposal options were
decided. Greenpeace were also forced to apologise for incorrect sample results and admitted to
huge inaccuracies. This incident we feel illustrates a social responsibility stance shift from one of
laissez-faire to one as a forum for stakeholder interaction whilst changing their social responsiveness
strategy from one of reaction to one of accommodation. By not engaging and including stakeholders
Shell in fact inflicted the damaging media, lost station revenues, protests and criminal damage on
itself.
Shortly after the Brent-Spar crisis, a further event of significance presented itself for Shell in Nigeria.
On the 10th of November 1995, Ken Saro-Wiwa, a Nigerian writer and spokesperson of the
Movement for the Survival of the Ogoni People was hanged in Port Harbour along with eight other
Ogoni activists all of whom had been involved in protests against the oil industry in the Niger Delta.
The protestors were tried and convicted by an ad hoc tribunal, the case of which was built by the
Nigerian military government who’s practice violated international standards of due process. Similar
to the Brent-Spar incident, the event received immediate and widespread media attention including
comments from the British Prime Minister John Major who claimed the executions to be “judicial
murder”. Shell had discovered and developed a major oil reserve in1958 at the home of the Ogoni
people who are amongst the poorest demographics in Nigeria. MOSOP was a coalition established to
express the locals grievances in relation to oil production on a nation and international stage.
Throughout 1993, Shell had enjoyed 28,000 barrels of oil courtesy at the expense of the regions
environment. According to Saro-Wiwa, the area had been “completely devastated by three decades
of reckless oil exploration or ecological warfare by Shell”. Shell responded to these allegations with a
reaction social responsiveness strategy stating “Allegations of environmental devastation in Ogoni ,
and elsewhere in our operating area, are simply untrue”. December 1993 saw MOSOP giving an
ultimatum to the oil producers in the area demanding compensation and royalties within 30 days or
leave the area. During the height of the crisis, further allegations were made against Shell claiming
they were requesting the Nigerian military government to take “ruthless military actions” against the
Ogoni people as per a leaked government document. Shocking details of Ogoni demonstrators being
detained and beaten by Shell police were also met with denials by the company, stating they had
never engaged in any collusion with authorities in Nigeria. It later emerged by admission that the
company had made direct payments to Nigerian authorities on at least one occasion.
Even more terrifying was the revelations that emerged that Shell had been in negotiations for the
import of arms for the Nigerian police forces. When confronted with these allegations Shell
responded saying “we may want to see the weapons currently used by the police who protect Shell
people and property upgraded”. Pressure began to mount on Shell both from within and outside of
Nigeria to intervene on behalf of the Ogoni nine during their trial and subsequent conviction. Shell
initially responded to such pressures again in a reactionary way claiming it would be “dangerous and
wrong” for Shell to intervene and use its influence with the “legal process of any sovereign state”.
In fact that pressures became so high that CAJ Herkstroter, the president of Shell wrote a letter to
the Nigerian General Abacha pleading him to mitigate the penalty for the nine Ogoni people on
humanitarian grounds all the while Shell were repeatedly sticking with their “to interfere in such
processes…would be wrong”. Similar to the Brent-Spar, Shell experienced mass boycotts following
the executions in the U.S and Europe whilst a Nigerian oil embargo was established until the militia
government stepped down. After a realization that the brand and company were in jeopardy, Shell
quickly changed its stance on matters claiming it fully supported the Universal Declaration of Human
Rights and that the Nigerian government had “ a duty to investigate the murder of the four Ogoni
leaders…But trials must be fair. And they must be seen to be fair”.
Sustainable Development at Shell:
Clearly moral, social, environmental and legal obligations had fallen to an all time low at Shell and it
was time for change. With increasing pressure on companies the term stakeholder began to emerge
alongside the term shareholder. In 1994, Cor Herkstroer called for a re-examination and review of
the company’s organization and structure due to lacklustre financial performance compared to
competitors. A strategic change was taken place, rapidly accelerated by the Brent Spar and Ogoni
crises which is in line with Stakeholder Framework Theory by Clarkson whereby proposition 3 states
“ A firm who has below average profits… is creating sufficient value and wealth for one or more
stakeholder groups but has not for one or more of its other stakeholder groups”. The key objective
for such a change was to develop a system of management at the company whereby principles of of
sustainable development by addressing a wider range of stakeholder concerns and contribute to the
long term performance of the firm. The company recognized that its economic obligations in the long
run would be fulfilled only if the company was trusted and abided by the expectations of
society.
The implementation of the sustainable development at Shell came from multiple levels of the firm
from staff on the ground, to members of management to senior management at the company. Shell
frequently illustrated their commitment to such an inclusive stakeholder theory through internal and
external communication by means of speeches, publications and annual reports related to
stakeholder matters. A governance structure was also initiated which included a board level
Sustainable Development committee and a corporate level Sustainable development group. The
strategy had three main elements in its makeup (i) An annual Shell report that showcased the
company’s economic, social and environmental performance for the year (ii)a management system
designed to embed such practices into the organizational culture which was named Sustainable
Development Management Framework, (iii) Key performance indicators were developed in order to
monitor performance and further drive improvement. Each one of these elements met the three
conclusions drawn by Clarkson in terms of distinguishing between stakeholder and social issues,
conducting the necessary analysis at the appropriate level and analyzing performance by the
company’s management in how it manages the relationships it has with stakeholders.
The Sustainable Development Management Framework’s objective was to integrate economic,
social and environmental elements into everyday business whilst simultaneously engaging and
learning from stakeholders in a transparent and open way which could be measured via reporting
and verification. There was eight steps involved in the framework consisting of (i) identifying
stakeholders, risk and opportunities, (ii) setting priorities on risk, opportunities and set objective, (iii)
define strategy, (iv) set plans and targets, (v)mobilizing resources, (vi) carry out plans, (vii) monitor
and review, (viii) report and communicate, review and embody learning whilst demonstrating
leadership. In 1999, during Shells worst performance economically for a century, the SDMF was
distributed to senior management around the globe. Chairman Mark Stuart-Moody attributed the
poor performance down to a lacklustre effort in dealing with stakeholders stating “ financial
performance is essential, but without working on the other two legs of the stool, environmental and
social performance, we have not developed a business platform that is balanced and sustainable in
the long term”. In order to deal with this, Key Performance Indicators were developed to provide
greater accountability for performance and to settle demands from external stakeholders for a
greater level of transparency. The company arranged over thirty five meetings with identified
stakeholders both primary and secondary including non-government organizations, academics and
government in order to create a set of such KPIs.
Sixteen of these indicators came to light including total shareholder return, reputation, brand
performance, integrity, environmental data, health and safety data, greenhouse gas emissions,
diversity and inclusion rates at the workplace, stakeholder perception of quality of engagement,
social performance and acceptability of environmental performance. With the introduction of all
these measures, it looked as though Shell was on its way to redemption having incorporated many
academic thoughts into its sustainability development strategy however events subsequent to this
suggest that all of this effort being carried out by Shell may have been idealistic and seen as
mandatory for success rather than a voluntary act which violates Thomas Jones idea that obligation
must be voluntary in nature. In 2002, after the setup of the Niger Delta Development Commission,
Shell’s contributions t development in Nigeria rose from $330,000 in 1989 to $68.9 million in 2004
whilst claiming that 70% of its investments were classed as being sustainable. Non-governmental
groups criticized Shells selection and timeframe of the studies claiming it skewed them to garner
recognition for community development success. Questions were raised by Friends of the earth as to
why Shell didn’t setup an independent foundation without links to the oil giant in order to increase
transparency in line with the SDMF. This case of blue-washing was seen by many to be very
disappointing. Greenpeace responded to such claims by Shell stating “their human record is
deplorable beyond our imaginations. When Shell is ready to have a human conscience then we as
consumers will start to have some trust in their deeds”. Consensus was reached by those external to
Shell that “the company fails to respond to community concerns until its bad practices are brought
to public attention.” Nicholson (1996) states a company “outlining objectives to the public is not
enough. It must perform in accordance with what it says”. We feel Shell has violated such a
statement.
Further evidence of disregard for conforming to its sustainable development strategy came in 2007
in a green-washing case. The UK watchdog, Advertising Standards Authority (ASA) upheld a
complaint against Shell for an advert in which the company claimed it used its carbon dioxide waste
to grow flowers, thereby portraying an image of sustainability and concern for environmental
obligations. It later emerged that a minuscule 0.325% of this waste was involved in such a process .
2008 saw another green-washing incident surrounding the Canadian $10 billion Athabasca Oil Sands
Project. “We invest today’s profits in tomorrow’s solutions” was the headline of the advert giving
the illusion that Shell were helping the globe prepare for future energy needs whilst helping the
environment. A report conducted by the WWF indicated that in fact these tar sands were 3-10 times
greater in terms of emissions than conventional energy. WWF stated that “for Shell to claim
otherwise was wholly misleading”, such an incident plays nicely into comments by Stoll (2002)
stating in relation to Nike, “While exaggeratory claims may be somewhat expected by society with
regard to product advertisement, corporate conduct marketing should be held to a higher standard”.
Clearly Shell were not interest in sustainability and the transparent engagement with stakeholders in
this instance.
In 1997, the proposal of the Kyoto agreement saw Shell take an accommodative strategy to social
responsiveness by recognizing the problem of climate change and stated it would work with
environmental groups in order to try and mitigate its effects. Shell International Renewables was
formed with an initial outlay of $500 million over a five year period in order to try and address a
problem of which Shell had played a participatory role as a by-product of its oil and gas operations.
Corporate Watch awarded Shell the Green-wash award that year stating the disparities between
rhetoric and action were startling again in stark contrast to Nicholson whereby firms must act
accordingly to what it says whilst simultaneously breaking its own sustainable development code as
they were clearly prioritizing shareholders over stakeholders here which completely contradicts the
“profits and principles, does there have to be a choice?” rhetoric and subsequently diluted the
credibility of Stuart-Moody’s equal sided stool.
Further evidence of exploiting the apparent sustainable development strategy emerged when Shell
adopted voluntary greenhouse gas emission reduction targets however the 5% reduction in
emissions between the years 1990 and 2010 were immaterial at best and contradicted its SDMF by
setting petty objectives which created no value for stakeholders. 2005 saw Shell invest $1 billion
dollars into renewable energy which was criticized for representing a mere 1% of total capital
investment for the period 2001-2005. In 2006 , with record profits of $13 billion, Shell emphasized its
commitment to sustainable development by announcing investments in biofuels, wind, solar and
hydrogen power. Graeme Sweeney, Executive Vice President of Shell Renewables stated “Much of
our current investment goes into wind, because this sector shows the best prospects” however 2008
saw the giant pull out of the worlds’ largest offshore wind farm project in Britain claiming that
renewable focus was to be shifted to the US.
By 2009, such US focused renewable had be stopped and the company decided to drop all new
investment in wind, solar and hydrogen as “they continue to struggle to compete with the other
investment opportunities in our portfolio”. Clearly Shells strategy remains one based on economic
principles and portfolios. In 1998, following the negative reputation it earned after Nigeria and
Brent-Spar, the company withdrew its participation from the Global Climate Coalition a trade
association opposed to the IPCC’s proposals of limits of greenhouse gas emissions. In 2007the
company joined the US Climate Action Partnership which was a group adamantly supporting such
emission caps. Shell are still a member of the American Petrol Institute which opposes such
measures that Shell apparently stand for. The API have also provided schools and teachers with
propagandic materials such as the leaked document to inform “teachers/students about
uncertainties in climate science”. From the examples above, we think it is fair to say that the goal of
sustainable development at Shell is far from one of idealism, showing a combination of enlightened
self interest and forum for stakeholder interaction social responsiveness stances on social
responsibility whereby they can deceive stakeholders into thinking they are going above and beyond
economic, moral, social and environmental obligations providing them with a better reputation and
brand while in fact the firm is solely focused on generating as much profit as it can for shareholders
using any means necessary which we feel John Sauven summed up nicely saying Shell “had rejoined
the ranks of the dirtiest, most regressive corporations in the world”, this is somewhat different to
Shells Sustainable Development Group founding member Mark Wade who said the reasons for such
a shift in strategy was because they “were more hurt emotionally” by their neglect for society and
the environment on which this sustainable development goal was apparently based.
3) Ongoing need to manage stakeholders:
Firstly, in order for Shell to ever achieve a sustainable development goal it will have to abide by its
sustainable develop framework. Progress will not be made until Shell starts meeting actions with
words in order to generate the trust pivotal to with many stakeholders going forward. The greenwashing, blue-washing, under-investment and exploitation of schemes such as carbon emission
reductions cannot be tolerated any longer in addition to genuine commercial speech to society.
Appendix (14), (15) and (16) illustrate the change in environments prima facie from now to
Mountains and Oceans. In Mountains we see city planners become a player needing to be managed
closely as the reduction to the stress-nexus depends on their foresight in addition to policymakers
granting them the approvals needed in order to develop the cities of the future. Competitors in
Mountains shift from being one of a crowd to a context setter and will also shift from being
secondary stakeholder to a primary one as joint-ventures begin to increase as the global economy
stagnates. The consumer stakeholder will be split into one of importance (elite) and one of
insignificance (non-elite). Product development firms, technological firms and management
consulting firms emerge from areas that once were dormant stakeholders to being players, examples
of this may include technology brokering processes as per Hargadon and Sutton , whereby
solutions to problems in other industries begin to aid in the solving of issues in Mountains such as the
cities dilemma, the implementations of widespread CCS in combination with policy holders and
engaging with their network to gain access to intellectual property rights to further enhance
development. The ever-increasing inequitable distribution of wealth will mean that poorer nation
governments will have to create extremely good relationships with the like of Shell, collaborating gas
and oil experts insuring their interests are best served to minimizing legacy costs. The auto industry,
construction industry become players as the need to develop cities efficient enough will rest on their
collaborations with city planners in order to sustain standards of living. Financial markets also play a
pivotal role providing the capital resources to aid with a room to manoeuvre pathway given the
slowdown on the global economy.
Oceans, on the other hand experiences more of a change in terms of the significance of
stakeholders. We see non-governmental organizations comeback into the driving seat as the main
long-term planners for society, whilst a new once dormant stakeholder in Netizens emerge also as a
player with huge political influence, power and interest in having the needs of their society served as
best as possible. Consumer awareness groups will play a key role in leading the way to efficient
usage of energy as a context setter, because they are mainly interested in the consumer’s wellbeing
rather than Shell’s goal we have decided not to include them as a player. Academics in collaboration
with management consultants, technological brokers and members of the battery industry will pave
the way to developing longer lasting batteries aiding in the solar and electrification of the energy
system in this scenario. The financial markets will take the form of a player, dictating whether short
term or long term investments are adopted given the highly volatile swells and troughs. The media
shifts to a position of a player as it is government and corporations gatekeeper to engage with the
masses of netizens all of which are expecting more and more from them.
Conclusion:
According to Sophie Punte of Clear Air Asia and formerly of KPMG, speaking at the New Lens
Scenarios conference in the Phillipennes, there is no sustainable development future under the
scenarios Mountains and Oceans, she believes in fact that the future will produce a combination of
the two given the nature of the problems both scenarios present. There are many elements to
incorporate such as whether the ruling elite in mountains realise they need to change before having
change forced upon them resulting in a trapped transition? Will competing nations have the
competence to realise collaboration is necessary in order to address key issues and push appropriate
industrial policy? Will such protecting of power and self-interest hinder developments of
technologies such as CCS requiring long-term investments in a stagnated global economy.
Oceans sees the rise of people power and equality, with such an opening of the global order will
those feeling victimized in this “more equitable” society hinder progress by resisting to certain
measures and forming their own netizen constituency? With such an emphasis on peer groups what
happens when influential people are drawn into advocating certain policies due to peer pressure?
What happens if people with this netizen framework become fearful? Do they withdraw from the
network thereby hindering progress? Similarly, in a logical world and including one of oceans,
governments and nations that need each other will collaborate, nations with no need for
collaboration which may impact on the wealth distribution and subsequently the sustainability of
the energy system. The Oxford dictionary defines sustainable as “Conserving an ecological balance
by avoiding depletion of natural resources” whilst defining development as “An event constituting a
new stage in a changing situation”. If Shell is truly seeking a scenario that achieves sustainable
development, then the solution and in fact the probable reality according to Dr. Choo-oon Khong,
Chief Political Analyst at Shells Scenario Team, is a hybrid of the two. By combining the control
elements of Mountains ensuring social order, with the discussion and values of society of oceans,
non-governmental organizations can steer government to adopt policies that benefit society as a
whole. Flexible governments acknowledging the role of the state and the role of the people will gain
by addressing the true problems such as transport, energy, environment and infrastructure which
could reduce the possibility of a trapped transition. If Shell really is a company embracing
sustainable development, it should champion such an outcome and proceed diligently into the
future.
Appendix:
Appendix (1):Iterative Cycle Diagram:
Appendix (2): Scenario planning process timeline with iterative cycle:
Appendix (3): Data comparison to Shell’s initial data
Kw to E(j) Conversion formula: e(j) = Kw x 1000 x s (s=31536000 per annum)
Global Net Electricity Consumption
E(j)
60
50
40
EIA Data
30
Shell
20
10
0
1980s
1990s
2000s
BTU to E(j) Conversion formula = 1BTU = 1.0543503E-15 (E(j))
Global Primary Energy Demand E(j)
500
450
400
350
300
250
200
Shell
EIA
150
100
50
0
1980s
1990s
2000s
BTU to E(j) Conversion formula = 1BTU = 1.0543503E-15 (E(j))
Global Energy Final Consumption E(j)
500
450
400
350
300
250
200
150
EIA
Shell
100
50
0
1980s
1990s
2000s
Certain regions neglected by Shell causing a 3.1% deviation from EIA figures between the 1980s1990s, and a staggering 10.5% between the 1990s-2000s.
Net C02 Emmission (Bt)
30
25
20
EIA
15
SHELL
10
5
0
1980s
1990s
2000s
1980s EIA levels of 19.4236 p/a compared with 19 p/a of Shell indicate similar results however still
differ slightly, Shell have said that they have rounded the numbers. 1990s levels again show an
almost identical figure4 EIA 22.162 p/a and Shell with 22, 2000s figures however are quite different,
EIA with a figure of 27.4 p/a and Shell with a figure of 24 p/a represents a deviation of 10.9% which
is a substantial difference possible influencing the validity of the drivers and scenarios identified.
Appendix (4): United Stated Monetary Expansion:
US $ Money Supply Billions 1980-2013
12000.0
10000.0
8000.0
6000.0
4000.0
2000.0
0.0
M1
2013-01-01
2011-01-01
2009-01-01
2007-01-01
2005-01-01
2003-01-01
2001-01-01
1999-01-01
1997-01-01
1995-01-01
1993-01-01
1991-01-01
1989-01-01
1987-01-01
1985-01-01
1981-01-01
1983-01-01
M2
(World Bank)
Appendix (5): China’s almost vertical GDP increase catching up on the U.S.
GDP US $ 2000-2012
$18,000,000,000,000.00
$16,000,000,000,000.00
$14,000,000,000,000.00
$12,000,000,000,000.00
$10,000,000,000,000.00
China
$8,000,000,000,000.00
USA
$6,000,000,000,000.00
Russia
$4,000,000,000,000.00
$2,000,000,000,000.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
$-
(World Bank)
Appendix (6): USA cash deficit crisis with Russia in a much stronger position:
Cash Deficit/Suplus as % of GDP
1500%
1000%
500%
USA
0%
RUS
-500%
-1000%
-1500%
(World Bank)
Appendix (7): Chinese economy surpasses the U.S in exports
Exports (Current US $)
$2,500,000,000,000.00
$2,000,000,000,000.00
$1,500,000,000,000.00
China
$1,000,000,000,000.00
United States
Russian Federation
$500,000,000,000.00
$-
(World Bank Databank)
Appendix (8): The U.S much more reliant on foreign goods and services than China and Russia:
Imports (Current US $)
$3,000,000,000,000.00
$2,500,000,000,000.00
$2,000,000,000,000.00
China
$1,500,000,000,000.00
United States
$1,000,000,000,000.00
Russian Federation
$500,000,000,000.00
$1
3
5
7
9
11 13
(World Bank Databank)
Appendix (9): Globalization slowing down? The world is getting increasingly connected:
Cellular Subscriptions per 100 people
200
180
160
140
120
100
80
60
40
20
0
China
Russia
USA
Internet Users per 100 people
90
80
70
60
50
China
40
Russia
30
20
10
0
(World Bank Databank)
USA
Appendix (10): Abundant Energy Resources: (World Bank)
France electricity consumption and efficiency 2007-2010
8.0
6.0
Efficiency of total
electricity generation
(%chg)
4.0
2.0
0.0
-2.0
2007
2008
2009
2010
Efficiency of thermal
power plants (%chg)
-4.0
Electricity
consumption (%chg)
-6.0
-8.0
-10.0
-12.0
Russia 2005-2011
20
15
Share of renewables in
electricity generating
capacity
10
5
0
-5
2005
2009
2010
2011
-10
Share of renewables in
gross electricity
consumption
Average electricity
consumption of
households per capita
-15
-20
-25
Saudi Arabia 1990-2011
45.0
40.0
Efficiency of total
electricity generation
35.0
30.0
25.0
Efficiency of thermal
power plants
20.0
15.0
Average electricity
consumption of
households per capita
10.0
5.0
0.0
1990
2000
2005
2009
2010
2011
Appendix (11): Scarce Energy Resources:
Ireland 1990-2011
60.0
Efficiency of total
electricity generation
50.0
Efficiency of thermal
power plants
40.0
30.0
Share of renewables in
gross electricity
consumption
20.0
10.0
0.0
1990
2000
2005
2009
2010
2011
Average electricity
consumption of
households per capita
United Kingdom 1990-2011
50
45
Efficiency of total
electricity generation
40
35
30
Efficiency of thermal
power plants
25
20
15
10
5
0
Share of renewables in
electricity generating
capacity
1990
2000
2005
2009
2010
2011
Share of renewables in
gross electricity
consumption
Appendix (12): Climate Change Driver:
BRIC nations c02 emissions (tons per capita)
14.00
12.00
10.00
China
8.00
India
6.00
Brazil
4.00
Russia
2.00
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
U.S and UK c02 emissons (tons per capita)
25.00
20.00
15.00
United States
10.00
5.00
0.00
U.K.
Appendix (13) Culture Dimensional Theory:
Appendix (14) Shell Current stakeholder map:
Appendix (15) Stakeholder map Mountains:
Appendix (16) Stakeholder map Oceans:
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