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 / Winter 2011 / Issue 65(originally published by Booz & Company)


Resetting the Cost Structure at Shell

Consequently, at one offshore project, we found that by in-sourcing maintenance typically handled by an outside contractor’s 30-person crew, we were able to improve costs materially. The Shell payroll and head count increased somewhat, but by fewer workers than the contractor employed because existing on-site teams could expand their responsibilities to handle some of the maintenance work. And thus by simplifying logistics and supervision, we found additional real savings. As importantly, the total number of workers spending time on drilling platforms dropped; hence, there was less worker exposure to potential health, safety, and environment risks.

Once we brought more of our maintenance in-house, ancillary gains could be explored. We examined, for example, the frequency and nature of the shutdowns we scheduled for upkeep and repair. Inefficient patterns, like cost creep, tend to grow in an organization over time. We found cases in which an asset was shut down just prior to, say, a public holiday — which created an extended shutdown that wastefully added nonproductive days to the operations schedule and forced us to pay premium rates for workers and equipment.

Besides the oil and gas production assets themselves, we found savings in each of the functions that provided support, such as finance, human resources, and IT. We already had shared financial services, the routine back office–like operations, located in Shell operations centers in several locations globally. But using the zero-based lens, we were able to optimize our use of finance experts — who, among many other things, do cost-benefit and appraisal analyses on assets and projects — by eliminating overlapping and redundant activities and spreading their work over multiple units.

And we zero-based our non-operated ventures, those in which other companies manage oil and gas assets in which we have a stake. We interviewed the people in the companies running these joint ventures and asked, “When you look at Shell as a partner, what do you think we add to the operation? Are we efficient? Can we do better to help hold costs down? In what ways?” We also ranked these non-operated assets by five criteria: HSE risk, material value to Shell, Shell’s ability to influence operations, Shell’s confidence in the operator, and how well technology was applied. We then classified the non-operated assets into two categories: those in which we could have a real and lasting impact on the expense curve in a way that would improve Shell’s financial performance substantially and those in which we should basically be hands off. This allowed us to vary resource allocation, in both governance and activity budgets.

Implementing a Zero Base

Several critical attributes are necessary to make sure that a zero-based effort is embraced by the organization as an actual step-change tool. Among them: having visible management commitment; having clarity and transparency about specific expectations, deadlines, and savings; having dedicated resources to drive the program; and supplementing the effort with symbolic high-visibility interventions or events, including frequent management discussions that emphasize the importance of the opportunity to the company’s competitiveness.

It may sound overly confident, but I was certain from Day One that our program would succeed, in part because I and the other managers were dedicated and committed to it and were not willing to accept failure or complacency. Not by being tough, but by being inclusive and committed, we created the environment for change and the motivation to deliver. It has taken 30 percent or more of my time to manage the process and to continually show that I am engaged, ready to communicate the appropriate management messages, and ready to direct the effort as needed. Because the program is being phased in over three years, the results are not yet in, but we are well on track to meet our goals.

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