Why Shell’s loss of $7.4bn is great news

Last week Royal Dutch Shell reported a net quarterly loss of $7.4bn against a $4,5bn profit in the same period last year, due to a sharp slump of crude prices and the decision to shut down several projects in Alaska and Western Canada. Consequently the Anglo-Dutch energy conglomerate announced to cut another 1,000 jobs. CEO Ben van Beurden wanted to re-assure stakeholders and explained that Shell is determined to become a more focused and competitive company.

“We are making changes to Shell’s portfolio mix by reviewing our longer-term upstream options world-wide, and managing affordability and exposure in the current world of lower oil prices”, Van Beurden said cautiously. In plain English, the company is reluctantly axing projects that are no longer expected to contribute to the companies’ short-term financial objectives. In an industry where most projects cost billions of dollars and take years to develop, this decision in itself is remarkable.

Ultimate success

From experience we know that stopping initiatives, projects, programmes and actions in an international and complex business environment proves extremely challenging once you get going. Most organisations struggle with the challenge of delivering project results on time and at the desired level. Projects take longer to complete or longer to demonstrate their effect. Not un-heard in boardrooms around the globe: “Just give it two more months and then we should start to see the results.” Due to widespread belief among managers of the inevitability of the ultimate success of their ‘baby’, the project remains active, taking up resources and management attention.

Dead projects

Shell breaks with this unhealthy management habit of keeping dead projects on the corporate respirator. This decision is the more admirable as it is based on hard figures and cold facts, instead of gut feeling. Studies show that a full 45% of executives relies more on instinct than on hard data when running their business. These executives suggest that at best, analysis is ‘a supporting tool for making intuitive decisions’. Basically, they play Russian roulette with the future of their company and the lives of their employees. Now, wouldn’t you say that Shell’s decisions to shut down these huge projects is admirable, even if it costs an additional 1,000 jobs and billions of dollars? I would say it is great news.

Interested to learn more how focusing on less projects can lead to improved execution and accelerating results? Please download our latest white paper The corporate sickness of initiative overload.

The corporate sickness of initiative overload