Coda 43

Coda
Shell International Limited

• Shell possesses the longest corporate history of scenario

planning and is, perhaps, the most well-known practitioner.
• Current scenario planning at Shell is not subject to a
mechanistic link to planning processes; rather, a combination
of global scenarios and more focused local scenarios, with
tools for facilitating scenario use, provide a broad framework
that influences strategy development.
44 Scenario Planning
 Coda 45

Since Shell’s highly touted success with scenario planning in the early 1970s, the
company has been considered by many to be the paragon of scenario planning; the
Early Scenario principal driver of this reputation was Shell’s success with scenario planning during
Planning Success the first decade of use, which played a major role in propelling the company to
industry leadership.

Early Scenario Planning Success at Shell

• Shell International Limited is the corporate center of the Royal/Dutch Shell Group of
Companies, which generates $138 billion in gross revenue and employs more than 100,000
people worldwide.
• In the early 1970s, two scenarios were developed that addressed, among other issues, the
price of crude oil. One of the scenarios explored a world of strong OPEC market power in
which all prices rose sharply––a marked contrast to conventional wisdom of the time.

World Oil Price and Shell’s Profit Margin Rank, 1968–1985*

$40 ● ● ● ● ● ● ● ● ● ● ● 1st

● 2nd
Shell first employs
scenario planning, Shell responds quickly to
developing one of embargo, boosting its 3rd
its scenarios margins to the top of its Shell’s Profit
World Oil Price around an OPEC- peer group Shell continues to Margin
(Nominal Dollars $20 induced price hike employ scenario 4th Rank Among
per Barrel) planning through a Seven Sisters
period of unrivalled
●
● ● profit margins among 5th
the world’s largest oil
companies
6th

$0 ● ● 7th
1970 Oil Embargo 1975 OPEC Initiates 1980 OPEC Begins 1985
Begins Price Increases Price Cuts
* At the time, the Seven Sisters included: British Petroleum,
Chevron, Exxon, Mobil, Shell, Texaco and Gulf.

No Longer the “Ugly Sister”

“Bit by bit, Shell executives began to put in place many of the common-sense, mundane
frugalities which had been lost amid the frenetic growth of the 1950s and 1960s, but which all
oil companies would have to learn to practice during the following years….Shell, as it hap-
pened, was the only major oil company that had taken measures before the shock. It would
never again be thought of as the ‘ugly sister’; indeed, it would become Exxon’s greatest rival.”
Art Kleiner
The Age of Heretics

Source: United States Energy Information Agency, “World Oil Market and Oil Price Chronology, 1970–1998,”
www.eia.doe.gov/emeu/cabs/chron.html; Kleiner, Art, The Age of Heretics, 1996; Corporate Strategy Board research.
 46 Scenario Planning

Since its initial development and use of scenarios in the early 1970s, the role of
Scenario scenarios at Shell has changed; whereas scenarios once drove a more formal long-
Building and Use term strategic planning process, current-day practice includes a range of applications
at Shell that provide a broad framework of ideas influencing strategy at the corporate level
and assisting the businesses in identifying risks and opportunities.

Shell’s use of scenarios has evolved…

Scenario Building and Use at Shell

• In the 1970s and 1980s, Shell required its business units to employ scenarios in planning
and strategy development in a structured and regimented manner.
• By the 1990s, however, Shell managers realized that business-unit managers invest most
substantively and creatively in scenario-based strategy development when it occurs on a
less frequent and less regimented basis rather than as part of a formal planning process.

Evolution of Scenario Building and Use at Shell, 1970s–1990s*

1970s 1980s 1990s

Scenario Building Scenario Building and Use Large-Scale Scenario Development and Use

• Pioneering of global scenarios • Development of broadly based • Adoption of a wider range of

Focus of addressing economic and oil issues scenario applications, encompassing
global scenarios to drive long-term
Application to better prepare the organization global scenarios and focused
strategic planning, and enrich
for uncertainty and change understanding of socio-political business scenarios to provide a
developments and energy markets broad framework of ideas that
influence strategy
Mode of • Inspirational presentation • Inspirational presentation; internal • Inspirational presentation; internal
Communication (i.e., reliance on engaging and publications; workshops with and external publications;
motivational presenters); business-unit management teams workshops with business-unit
internal publications management teams; video

* As the development and use of scenarios at Shell continues to evolve, current practice has yet to be
fully documented, and much remains proprietary to the Royal/Dutch Shell Group of Companies.

Flexible Planning: A Catalyst for Change

“Our experience in scenario-based strategy development is that business units invest more energy
and creativity in strategy development only occasionally and not necessarily when there is a formal
planning process….We have found that a mechanistic planning system that forces all business
units to produce a strategic response to global scenarios at the same point in time does not
necessarily produce uniformly high quality responses from the business units.”
Ged Davis
Vice President, Global Business Environment
Shell International Limited

Source: Shell International Limited; Corporate Strategy Board research.

 Coda 47

…to assume a range of applications depending on the scenario user

Scenario Building and Use at Shell in the Late 1990s
• Shell accepts the value of scenario building and use as a challenger of strategic assumptions
and that scenarios should lead to strategic decision making. Ged Davis, vice president at
Shell, asserts that “Building scenarios is about widening perspectives. Using scenarios is
about widening options.”
• The illustration below details types of Shell scenarios in the 1990s, highlighting scenario
users as well as applications. Today Shell employs scenarios for a range of applications
involving both internal and external parties.

Shell Scenarios: Scenario Users and Applications*

Enhanc
e str
ate
gic
c on
ve
r sa
tio
n
a

cr
e
at

os
External Parties Royal/Dutch Shell Group
b

st
de

he
(e.g., Mont Fleur scenarios, other country (Corporate Center)
c
bli

Gr
scenarios, World Business Council for
pu

ou
Sustainable Development) • Oldest, most extensive

pa
ure

use of scenarios

nd
Global Scenarios
ct

• Relatively infrequent,
Stru

because entails complex

in f o
• Most highly researched and
processes, selective • Shell practitioners
developed scenarios

rm str
development of scenarios develop and
• Foundation of other scenario work
communicate global
• Developed every three years
scenarios for the

ategy development
• Shell practitioners develop, • Inform strategy development
organization
facilitate and may
communicate global
and/or country-focused Focused Scenarios
scenarios with
external parties • Business, regional, country or project focus
• Identify risks and opportunities that a
business unit faces
• Created as required by business units
• Inform strategy development more directly
than global scenarios

Business Units
(more than 100 worldwide)

• Generally, consult with corporate center

• Use focused scenarios, within the context
of global scenarios, customizing as needed
Aid
b u si n pm ent
evelo
* The figure illustrates types of scenarios and
respective users at Shell; it is not intended to ess-unit strategy d
serve as a proportionate representation of time
that Shell dedicates to different scenario users. Source: Shell International Limited; Corporate Strategy Board research.