Research Korner: Boston Box Analysis on Royal Dutch Shell

Boston Box Analysis on Royal Dutch Shell : Strategy and Performance

Boston Box Analysis on Royal Dutch Shell Strategy and Performance (1999-2003)   Introduction             Strategic managers today are exposed to numerous strategic analysis models and approaches. Although the breadth of models increased our understanding of the strategic management domain, most development of strategic analysis models has been based on period-specific managerial challenges and without integration of previously scholarly work leaving the field fragmented and provincial. We find it surprising that only a few strategic management scholars have explored the possibility that hybrid models— integrating conceptual strategic analysis models from a cross-section of approaches might enhance our understanding of the strategic environment. Such an integrative approach, free of paradigmatic constraints, allows us to bridge the gaps between competing strategic analysis models and provides an opportunity to develop a multi-perspective framework in which synergistic relationships between competing strategic analysis models can be explored. Boston Box Analysis             The model distinguishes product lines on two dimensions: growth of the market in which the product is situated, and the product’s market share relative to the share of its next largest competitors. The model or matrix fosters two types of analyses: internal and internal-external. The former is conducted by plotting the competitive position of individual products relative to other products in a company’s portfolio. The later is achieved through plotting the competitive position of a specific product relative to all products competing in the same market segment. The major challenge facing the society today is posed by three inextricably linked issues: the world’s increasing demand for energy, the need for economic and social development of a growing population and the need to assure a viable world for future generations. In this case, the Royal Dutch Shell companies provide services, products, and energy goods for the consumption of the increasing industrialized society. Using the Boston Box Matrix, this paper hopes to draw a clear analysis on the strategic and performance level of the Royal Dutch Shell. The object for analysis is fitted to the method in use since Boston Box is primarily catered to help strategy managers to evaluate and assess the performance of a multi-company. Prior to the beginning of analysis, this paper will utilize the 1999-2003 annual report of the parent companies in evaluating its performance and strategy. Moreover, selected items of its production that plays a significant role for its profitability will be subject for interpretation such as Exploration and Production, Gas and Power, Oil Products, and Chemicals. Furthermore, in each category, I will just take out two important factors in a company, in measuring its performance and strategic plans: profit and capital. In order to fully understand the analysis, I will attach a table in the end of this discussion. Meanwhile, let me interpret and analyze the Royal Dutch Shell’s performance and strategy using the Boston Box Analysis. There are four rankings in the Boston Box analysis which one should consider for interpretation: rising star, cash cow, question mark, and dog. During the 1999 annual report, exploration and production and oil products generated a great number of earnings $4, 355 million and $1, 530 million respectively, while gas and power and chemical were earned poorly, having $149 million and $813 million dollars respectively. These two products – gas & power and chemical throughout the five year performance have the same results compared to the two companies’ activities: exploration & production and oil products. The table showed that products which under question marks—the gas &power and chemicals should be given a more effective strategies to generate an increase on market share and harvesting, while under cash cow products like oil should appropriate its profits to fund those products under question marks and rising stars. Although, oil products acquired the most profitable operations within the companies’ scheme of business, it somehow station itself to products under rising star in which constant assessment of strategies to maintain, increase and hold market share is fundamental. The exploration and production operations assumed the cash cow category in which throughout the five year performance generated the highest cash inflows compared to other RD/Shell operations. However, in the 2003 annual report, Shell’s chemical products got the highest earned net which was 10.4 billion, followed by expo & production 9.7 billion, oil product, 2.9 billion and gas & power 2.3 billion. In general, the performance and strategy of RD/Shell in the span of five years are considerably competitive which able to win the market leadership in oil industry. Although, chemical operations of the company maintained its position under the dog/question mark category of Boston Box, through the company’s strategic planning, its chemical products generated great cash and market share towards the end of 2003. Meanwhile, gas & power and oil products are stars and potentially can become cash cows if proper strategy will be implemented.    However, we already did the analysis in much compressed manner, it is also significant to note that under the facts and details referenced from the RD/Shell’s annual reports that each year from 1999-2003, there were changes on the product segmentation and performance level. Although, the exploration and production of RD/Shell maintained its position on the cash cow category, quite visible was the investment capital employed by the company to gain and maintain its higher generating machination. Next to expo and production in investing large amount of capital was oil production in which by the start of 1999 the investment capital draw by the company was in billion dollars. Meanwhile, the other company’s product only had million of dollars investment. This I think is a clear manifestation of what products are generating high profits or not. By and large, the rest of its product operations except for expo and production and oil production were interchangeably positioned within the three categories but the consistency of chemicals to remain under dog/question mark is notable for the company to examine. We cannot avoid this kind of corporate scenario because of various factors affecting the operations. Even we use multi-perspective strategy to bring a multi-positive effects, it cannot assume an encompassing effects that would temper the factors that are internal and external in nature. In the end, the Boston Box analysis provides us the idea that in the span of five years from 1999-2003 what was the most generating and assumed a cash cow product is the exploration and production operations of the company with a corresponding great investment capital compared to other operations. Meanwhile, oil production became the next in line while chemical products consistently on the category of dog/question mark, but broke the position by generating the highest earning for the 2003 report.        Table 1: Profit Assessment in USD Year Expo and Production Gas and Power Oil Products Chemicals 2003 $9.7 billion $2.3 billion $2.9 billion $10.4 billion 2002 $7,052 million $797 million $1,802 million $551 million 2001 $8,047 million $1, 217 million $3,377 million $241 million 2000 $9,257 million $462 million $2,480 million $732 million 1999 $4, 355 million $149 million $1, 530 million $813 million                                              Table 2: Capital Assessment in USD Year Expo and Production Gas and Power Oil Products Chemicals 2003 $39.3 billion $12.2 billion $35.3 billion $209 million 2002 $14.1 billion $682 million &7.9 billion &839 million 2001 $8 billion $8i10 million $1, 518 million $751 million 2000 $5 billion $835 million $1.6 billion $1 billion 1999 $0.4 billion $845 million $1.4 billion $1.6 billion

Boston Box Analysis on Royal Dutch Shell : Strategy and Performance

Boston Box Analysis on Royal Dutch Shell Strategy and Performance (1999-2003) Introduction Strategic managers today...