Organizational Theory at Royal Dutch Shell - Article Example

HelpClose Paper Information Author: Warren Ray Assignment: 3 FINAL Save report to disk: Title: 3 FINAL Submitted: Jun 08 2009 20:34:37 CDT Print version: Matching: 33% Paper ID: 22664499 Direct link Top of Form Suspected Sources Click on a source to view the original, or click on the magnifying glass to see the source highlighted in the text below. 1. Highlight All Unhighlight All 2. http://www.blackwellpublishing.com/grant/docs/07Shell.pdf(Click icon to maintain highlighting) 3. http://www.oup.com/uk/orc/bin/9780199260218/hatch_ch01.pdf(Click icon to maintain highlighting) Bottom of Form Paper Text Running Head: Organizational Theory at Royal Dutch Shell Organizational Theory at Royal Dutch Shell Abstract This assignment is an endeavor to analyze the perspectives of Organization Theory. The comparison has been done between modernism and interpretivism. This analysis has been done taking an example of Royal Dutch Shell. Introduction Organizations are in a manner of speaking a gathering of people working together with the intention of achieving some type of premeditated goal. It is the study of how and individual or a group of individuals behave in an organizational environment best describes what Organizational Theory is all about. Although there are various theories that have many perspectives by which they can be categorized, yet it seems in some way they are all closely tied to one’s philosophical viewpoints. Every society which is known to modern man appears to possess some kind or type of an organization. Seen closely, an organization can be considered as a set of mechanisms that are used for achieving certain goals. These goals are achieved through a controlled and co-ordinate effort of human activities and figurative or physical resources. However, organizations are not easy to understand or to explain. This complexity has been increasing as societies and organizations are becoming more modern. Accordingly, one seeks the help of organizational theories to simplify the concept or idea of the organization itself. This OM 8010 course project will seek to explain the perspectives of Organizational Theory with the focus on a major multinational company. This course project will analyze, investigate, and identify Royal Dutch Shell from the standpoint of modernism and symbolic interpretivism. In addition, the assignment will include various philosophical viewpoints (epistemology and ontology). Additionally, this course project will evaluate the use of Organizational Theory within the inner workings of Royal Dutch Shell by comparing and contrasting the two perspectives. This course assignment aspires to correlate the theory with practice- ‘this is all very well in theory, but how will it work in practice’. This assignment on Organizational Theory will assist me in developing a real understanding in learning how to analyze various complicated situations and develop an effective means for dealing with them in any kind of organization in the world of business. The Royal Dutch Shell Corporation is a not a single company but a group of companies that is considered a business conglomerate. It comprises of two parent companies, nine operating companies and various service companies (Cibin & Grant, 1996). This way the group is considered unique among the global oil majors. The Royal Dutch/Shell is a group of companies and in fact is a conglomerate. This way the group is unique among the global oil majors. The formation of the group dates back to 1907, with amalgamation of the assets and operations of the Royal Dutch Petroleum Company which was based in Netherlands and the Shell Transport and Trading Company which was based in Britain. Now it is now the world’s biggest as well as oldest joint venture. The two parent companies originated in the Far East in the 1890s. Both the parent companies grew being supported by the growing demand for oil. This growth in the demand of oil in fact was a result of commercialisation of automobile and ships which were fuelled by oil. By 1901 Shell Transport and Trading Company began purchasing crude oil from the state of Texas. In 1907, the commercial interests of the two parent companies were pooled together into a single group. The name of this pooled group was kept as Royal Dutch Shell. In this newly formed group, The Royal Dutch Petroleum Company owned a 60 percent share whereas the Shell Transport and Trading Company had a 40 percent share. This ratio has remained constant until today. It was in 1970s when the group like any global company began to diversify in fields outside of petroleum. Like in 1970, it acquired a metal mining company Billiton; in 1973, it made a joint venture with Gulf for building nuclear reactors; in 1976 it acquired coal companies from Canada and United states; and in 1977 it acquired the polybutylene division of chemical major Witco. But this trend changed in 1980s and the company experienced a reversal in the diversification strategy. The company began disinvesting in companies which were not a part of core- business. Rather it started concentrating on the oil and gas sector that was on the upstream side of the Value chain. By end of the last century, Royal Dutch Shell began consolidating its presence in The United States. Royal Dutch Shell or Shell, is a huge multinational global group of energy and Petrochemical companies. The company employs about 102,000 employees in more than 100 countries and territories. Shell is committed to helps, to meet the world's growing demand for energy in economically, environmentally and socially responsible ways. Organization Theory The most prominent among others who highlighted the issue of the perspectives of Organizational Theory were British sociologist Gibson Burrell and British Organizational Theorist Gareth Morgan. Their highly acclaimed book Sociological Paradigms and Organizational Analysis, published in 1979. Figure 1- Sources of inspiration for organization theory (Adapted from Sociological Paradigms and Organizational Analysis, 1979) As the figure represents, there are various the different perspectives (modern, symbolic-interpretive and postmodern) on organization theory which are developed at different times. These perspectives have been developing in reaction to one another. But it doesn’t mean that the newer perspectives have replaced older ones. Rather the perspectives keep on accruing over time and keep influencing one another. All the perspectives support a particular ways of thinking and speaking. It is in fact the diverse ways of looking at the world which produce different knowledge and hence various perspectives come to be coupled with their own concepts and theories. Field Applications Strategy/Finance Those who want to improve the value of a company need to know how to organize to achieve organizational goals. Marketing Marketing managers should know that to build a flourishing corporate identity they need the organization to obey the promises made to the customer. Information technology The information channel in an organization influences the organizational objectives and goals. Thus organizational theory help information managers to identify understand and serve the organization’s informational needs. Operations All the stakeholders in the value chain of the company need to be interconnected by the operations manager. The knowledge of organization theory helps in the integration of those stakeholders. Human resources The knowledge of organization theory helps in managing and executing change in any organization. It also helps in carving out training and development programs specific to the company. Communication The communication channel in any organization should be based on the aspects of organization theory in order to align the needs of various stakeholders. Figure 2: Function wise applications of organization theory Royal Dutch Shell: Comparative Analysis of Perspectives Modernism As far as this perspective is concerned the company seems to be an objective entity operating in the real world. It is evident from the organizational structure that it is less hierarchical. Hence flow of information inside the organization is well designed and effectively managed. Their decisions and actions are rational, efficient and effectively driven for desired objectives as the group is performing well on the parameters of financial profits and hence the value enhancement of its stakeholders. This lines up very well with this perspective as the focus of modernism is on rational structures which are rule based and have standardized procedures and routine practices. Organizational Structure The organizational structure of Shell is complex and informal as it does not follow patterns discussed in theories of organisational structure. Still it follows a rational logic behind it. The whole structure is organized into four segregated parts (Cibin & Grant, 1996). These are: The parent companies: Every company in this part is independently listed on the important global stock exchanges. Moreover each has separate and independent Board of Directors. These are only two in number. The Operating Companies: These are the companies which operated in various sectors like exploration and production, refining, marketing, coal, or gas and individually they operate in one country. Stakes in these companies are held by parent companies. The service companies: As their name suggests, these companies are meant to provide consultation to the operating companies. They themselves are not responsible for operations. Taking a closer look at the flat and decentralized structure, it is clear that it is following a well defined and decisive logic. The rationale was division of responsibility and delegation of accountabilities in order to perform in the market and earn better returns on investments. Whether the logic is right or wrong is not the question. The presence of logic itself vindicates the perspective of modernism. Power Coordination and Control Shell is a highly decentralized company as far as the controlling power is concerned. But at the same time the common financial and technological needs acts as a linkage between various parts. It follows a matrix structure for coordination and control of various strategic business units. This structure was recommended after carrying out an in depth study by famous management consulting firm McKinsey & Company (Herkstroter, 1995). In fact this matrix structure adopted by the company was viewed as a decisive constituent of company’s ability to bring together the autonomy of its operating companies with effectual synchronization of business, regional, and functional commonalties. The modernists approach is quite dominating here in the sense that there has been a lot of objectivity incorporated into the coordination and control of the company. Subjective bias has been eradicated through research based policy for coordination and control in pursuit of the rational ideals of modernism. Strategic Planning Process For operational and financial decision making in Shell, geographical considerations are given more emphasis. It is because all the regional headquarters which are geographically dispersed enjoy autonomy for their own decision making and are accountable for that. The basis for such arrangement is the fact that the operating companies are actually national subsidiaries. This setup is reinforced through the strategic planning process. The strategic planning process is given due diligence both at the national as well as regional levels. Shell’s planning system lay at the core of its management system (Fortune Global 500, 2007). It is viewed as one of the most refined and successful planning system. It incorporates long term futuristic planning (20 years as compared to 4-5 years in other companies). It stresses more on generation and application of ideas rather than fiddling with mere financial planning. The orientation of planning process is bottom-up. Here again the idea resembles with modernism. They have tried to replicate the knowledge acquired by experimenting with one strategic unit to others. The progressive implementation of strategic planning process strengthens the existence of empirical reality which can be objectively replicated. Technology The exploration and production of oil and gas is a technologically expensive and complex business. According to the company’s annual report for 2007, Shell’s financials show 52% of its fixed assets is invested in technology. As far as technology adoption is concerned, Shell is a forerunner in leading-edge technology. It is because the company needs advance technologies too continuously and speedily explore oil reserves and exploit them better than its competitors Adoption of the new technology always helps to optimize the value chain derived from it. Moreover technological advancement is the backbone of Shell’s knowledge-sharing and knowledge management framework. This in turn enables employees to tap into the right resources at the right time so that the job is done effectively and efficiently. This provides the company a distinct competitive advantage. Thus the logic behind the technology adoption is quite objective in nature and hence effected by the perspective of modernism. Organizational Effectiveness The company remains effective and efficient (bringing down the cost of operation through optimal use of scares resources) as per the perspective of modernism by objectively framing, targeting and achieving their targets. The objective tools like competitor analysis, environment analysis and other management tools aid the company to do so. The facts and figures revealed by such tools make up the factual reality. This is supported by the viewpoint that modernists emphasize the representative aspect of concepts. Thus the performance metrics are laid down as reality check and all the resources are put at the disposal to achieve those performance parameters. Once reached, the reality is achieved. The whole process is very objective. Symbolic Interpretivism This perspective believes in the subjective reality. According to it, the employees symbolically mediate and interact to continuously construct or deconstruct any organization. It assumes any organization as a socially constructed reality. The meaning of organization, according to this perspective promotes and is promoted by the understanding of self by those associated with it. The organizational focus is on the way people associated with it, give meaning to their experience in a context. It emphasises the symbolic acts and processes. Organizational Structure There is another perspective to the organizational structure unlike the one discussed above. Moreover as explained earlier also that the organizational structure that the company follows is not at all conventional. It is one of its kinds. Compared with competitors and other big organisations, the flat and decentralised structure is unique for such operations. Thus it is quite imperative that the evolution of such structure is a result of various experiences of those working in it and the interactions among them. Thus this structure has got a symbolic meaning to those associated with it. It has no predefined format for the structure. It is like a pragmatic reality which include forms of experience that lie outside the reach of the five senses. Thus quite obviously it aligns itself to the line of thought of interpretivism. This adds a lot of subjectivity in the decision to adopt this kind of structure. Moreover there have been instances which indicate that the organizational structure in the company has been subjected to frequent change. This also goes well with the line of thought of interpretivism that organizations are continuously constructed and deconstructed. Power Coordination and Control The very act of decentralization of power to the lower most hierarchy of the organization reveals the fact that decision making is not restricted to a few. Rather it has been distributed among many. However, there is a clear cut possibility of subjectivity entering into the coordination and control channel of the company. But this subjective bias seems to be taken care of by mutually agreed processes and interpretation. This alignment of diffused executive power is the very core of the perspective of interpretivism. There is not set rule of taking controlling decisions. The knowledge is not supposed to be replicated in a pattern. Instead it can be varying as per the context. This contextual meaning is what interpretivism advocates. It also goes well with the way Symbolic-interpretivists emphasize the agreement among the people of one culture and without being said, this subjectivity undermines the scientific rigor. Strategic Planning Thinking about the future, the company put a lot of stress on organizational learning and promoting organizational dialogue. This facilitates the organizational adaptation to a changing world. This means that strategic planning has always a new meaning to the company. The reality itself keeps on changing as the environment and ambience change. Thus there is not set frame of reference for strategic planning. Inherently the subjectivity is infused in the system. The meaning and understanding is varied as it occurs in a particular context. Consequently the complete process of strategic planning cannot be generalized beyond the context in which they were conducted. Technology The saying Shell uses, knowing ‘‘Who’ Is as Good as Knowing ‘How’ encapsulate the beliefs of the technological tools the company uses. The various decisions that the company takes regarding the technological adoption is based on very sparse or vague information. For an example, exploration and prospecting the oil and gas reserves is associated with lot of uncertainty. Lot of prediction is made in this regard. Still it has to make operational decisions which are risky. Thus it is almost impossible to implement techniques objectively. Instead the viewpoint of always implementing cutting edge technology is itself relevant to the idea of symbolism. As the field in which the company operates is uncertain, they are uncertain about the use of old technique and tools in such conditions. Thus they always look for new technology in order to lower down the risk due to uncertainty. New and advance technology equips them to face altogether new and uncertain conditions. Organizational Effectiveness The very idea of maintaining the organizational effectiveness is itself subjective. Unlike the objective measurement of effectiveness in terms of financial and operational results, the effectiveness here is the value enhancement of all the relevant the stakeholders. This in fact is very subjective as it can have varied interpretations. Initially the subjectivity creeps in on aligning the performance parameter with the organizational effectiveness. The decision on performance metrics is unanimously made by many stakeholders involved. Thus it becomes a shared goal to achieve just that. The context of achievement is different for different stakeholders. This avoids the possibility of missing any of the aspect of the performance effectiveness. Thus the viewpoint of symbolic interpretivism aids in maintaining the organizational effectiveness. Conclusion Ontology By definition ontology is related to the way one chooses to define what is real. It is regarding the assumptions of reality. Here the company will be evaluated on the continuum of objectivism and subjectivism. Ontologically modernism believes in objectivism. The analysis pertaining to modernism is based on the external reality which is independent of my knowledge of it. The very process of analyzing this company on the basis of facts and figures, support the viewpoint that the information is a reality in itself. It doesn’t matter whether the context is changing or the individual perspective is changing. It will remain a reality. Ontology also deals with the question of agency. Here in case of modernism the informational reality will not change whoever the agent of that change may be. People working in the company will react to what is happening around them in the same predictable manner. This is because there is no difference between people and matter. Their behaviour is part of the material world in which they live and is determined by causes. On the contrary, ontologically interpretivism denies any external reality apart from the subjective awareness of it. What is agreed as existing only exists. It is evident from the interpretivist analysis of the company parameters that people working with the company themselves create and experience realities differently. It is because of the fact that individuals and groups have their own set of notion, convictions, and perceptions which guide them to do so. The company has entirely unique flat and decentralised setup for organizational structure which has not been seen in any other company of this stature. It is because people associated with the company felt the need of it to be that way. The power sharing is decentralized as power has different meaning for different people. Epistemology It deals with the way of knowing something. It is concerned with generation, segregation and presentation of knowledge or reality. Inherently it is closely related to ontology. Here the company will be evaluated on the continuum of positivism and anti-positivism. Epistemologically modernism believes in positivism. As evident from the analysis I have tried to evaluate reality through valid conceptualizations and reliable measurements which has allowed me to test that reality against an objective framework. In analyzing from the perspective of modernism this paper has given preference to reason, truth and validity. On the contrary epistemologically interpretivism believes in anti- positivism. This means that the analysis this paper has shown could be significant. It can be entirely different for someone else. References Annual Reports of the Shell Transport and Trading Company and the Royal Dutch Petroleum Company, 2007 Berger, Peter, and Luckmann, Thomas (1966). The social construction of reality: A treatise in the sociology of knowledge. Garden City, NY: Doubleday. Boulding, Kenneth E. (1956). General systems theory—The skeleton of science. 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The social psychology of organizing. Reading, Mass.: Addison-Wesley. Why is the world’s most profitable company turning itself inside out?” Fortune, August 4, 2007, pp. 121 Read More