HIEREARCHY LEVELS IN MANAGEMENT OF SHELL AND PSO

INTRODUCTION

Shell is a global group of energy and petrochemicals companies. According to the manager, “With around 101,000 employees in more than 140 countries and territories, Shell helps to meet the world's growing demand for energy in economically, environmentally and socially responsible ways”.

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ASSIGNMENT

SUBMITTED TO: DR. WAQAR ALI KHAN

SUBMITTED BY:

M. AHMED SHAHZAD09-CH-432009-UET-IEFR-CHEM-FD-438TH SEMESTERCHEMICAL ENGINEERING DEPARTMENT

NFCIEFR

The Shell brand is one of the most familiar commercial symbols in the world. Royal Dutch Shell is the world's largest private sector oil company by revenue, Europe's largest energy group and a major player in the petrochemical industry. One of North America's leading producers of oil, gas, and petrochemicals, Shell Oil Company has distinguished itself through its commitment to industry innovation. Its marketing expertise has enabled the company to compensate for its relatively low volume of crude oil production, as compared to its strongest competitors, by selling an equivalent amount of gasoline nationwide.

Although the company conducts business primarily in the United States, Shell also explores for and produces crude oil and natural gas outside the country, both independently and through joint ventures with other subsidiaries of its parent organization, Royal Dutch/Shell Group. Shell Petroleum Inc. is a holding company that is 60 percent owned by Royal Dutch Petroleum Company and 40 percent owned by The Shell Transport and Trading Company.

Shell has five core businesses: exploration and production, gas and power, refining and marketing, chemicals, and trading and shipping. Shell's primary business is the management of a vertically integrated oil company. The development of technical and commercial expertise in all the stages of this vertical integration from the initial search for oil (exploration) through its harvesting (production), transportation, refining and finally trading and marketing established the core competencies on which the company was founded. Similar competencies were required for natural gas, which has become one ofthe most important businesses in which Shell is involved, and which contributes a significant proportion of the company's profits.

Over the years Shell has occasionally sought to diversify away from its core oil, gas and chemicals businesses. These diversifications have included nuclear power (a short-lived and costly joint venture with Gulf Oil in the USA); coal (Shell Coal was for a time a significant player in mining and marketing); metals (Shell acquired the Dutch metals-mining company Billiton in 1970) and electricity generation (a joint venture with Bechl called Intergen). None of these ventures were seen as successful and all have now been divested.

If we talk about a single franchise, it provides: Oil change service Convenience store Gas

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Petrol

Shell History in Pakistan

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The documented history of Royal Dutch Shell plc in Indo Pakistan subcontinent dates back to 1903 when partnership was struck between The Shell Transport & Trading Company and the Royal Dutch Petroleum Company to supply petroleum to Asia.In 1928, to enhance their distribution capabilities, the marketing interest of Royal Dutch Shell plc and the Burmah Oil Company Limited in India were merged and Burmah Shell Oil Storage & Distribution Company of India was born. After the independence of Pakistan in 1947, the name was changed to the Burmah Shell Oil Distribution Company of Pakistan. In 1970, when 51% of the shareholding was transferred to Pakistani investors, the name of changed to Pakistan Burmah Shell (PBS) Limited. The Shell and the Burmah Groups retained the remaining 49% in equal propositions. In February of 1993, as economic liberalization began to take root and the Burmah divested from PBS, Shell Petroleum stepped into raise its stake to 51%. The years 2001-2 have seen the Shell Petroleum Company successively increasing its share, with the Group now having a 76% stake in Shell Pakistan Ltd (SPL)- an expression of confidence.

ORGANIZATIONAL STRUCTURE AND DEPARTMENTALIZATION

The organizational structure and departmentalization is as follows:

Organizational structure: An organizational structure is a mainly hierarchical concept of subordination of entities that collaborate and contribute to serve one common aim. Shell is basically a multinational corporation, so for operating successfully worldwide, it needs to have a tall structure which is further divided on the basis of geographical regions, functions, goods and services. A tall structure is one in which there are many supervisors handling different tasks, it has more levels of authority. Shell has a wide network of outlets and a very complex structure. As it is a very large-scale organization, so it follows a matrix structure. This means that employees are grouped on the basis of function and product simultaneously.

As told by the manager, if we broadly see the organizational hierarchy, it will be formulated as follows:

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Board of directors

Zonal heads

Chairmen (regional/zonal)

Managing directors

Departmental heads

Regional Managers

Territory Managers

Franchise Heads

Service Heads (Petroleum, oil change, convenience store

Front line Managers

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Front Line Managers

So, to sum up, the organizational structure is a tall one which has further divisions such as zonal, regional or territory heads (geographically speaking), then departmental heads (when we talk about functions) and service heads are the supervisors of specific services provided like head of convenience store, oil changing department etc.

If we talk about a single shell outlet, it has:

Franchise Head

Service Heads (Petroleum, oil change, convenience store etc)

Departmentalization:

Similarly, if we talk about a single Shell outlet, it has following departments as told by the manager:

1. Petroleum: Filling petroleum in vehicles.2. Gas: Filling gas in the vehicles according to their need.3. Oil Change: Changing oil in vehicles.4. Convenience Store: Providing snacks and other things of basic necessity to customers.

Now, if we take the whole organization in view, then it has following departments:

1. Exploration and production: To extract the petroleum and produce the fuel needed.2. Gas and power: The extraction of gas and power and its provision to service outlets.

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3. Refining and marketing: To refine the extracted material and make it fit for use and then its promotion etc.4. Chemicals: Different chemicals produced5. Trading and shipping: Trading it to different parts of world where Shell is working.

These were the major departments. Other than that, there are separate organizations settled for handling management activities such as human resource, controlling and assurance etc.

Competitor Analysis

Shell Pakistan Ltd. supports free enterprise.  They seek to compete fairly and ethically and within the framework of applicable competition laws; they will not prevent others from competing freely with them. Major competitors of Shell are PSO with petrol pumps and Caltex with petrol pumps. But shell Pakistan limited operates in the petroleum refinery sector. Shell Pakistan limited also competes with three other petroleum refiners in Asia. Shell Pakistan Limited Operates in the Petroleum refining sector. This Analysis compares shell Pakistan Limited with three other petroleum refiners in Asia.

Pakistan State OilThe past of PSO dates back to mid-70s when the Government of Pakistan amalgamated three “Oil Marketing Companies”: Esso Eastern, Pakistan National Oil (PNO) and Dawood Petroleum as part of its “Nationalization Plan”.

The company is the only public sector entity in Pakistan that has been competing effectively with three multinationals (Shell, Caltex and Total). PSO is currently enjoying over 73% share of Black Oil market and 59% share of White Oil market.

It is engaged in import, storage, distribution and marketing of various petroleum products including mogas, high speed diesel (HSD), fuel oil, jet fuel, kerosene, liquefied petroleum gas (LPG), compressed natural gas (CNG) and petrochemicals. PSO also enjoys around 35% market participation in lubricants and is blending/marketing Castrol brands, in addition to a wide array of its own. It is considered as one of the most successful mergers in the history of Pakistan. The company has retail coverage of over 3,800 outlets, representing 80% participation in total industry network. The company has been the winner of Karachi Stock Exchange Top Companies Award for many years and is a member of World Economic Forum.

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PSO serves a wide range of customers throughout Pakistan including retail, industrial, aviation, and marine and government/defense sectors. PSO has been meeting the country’s fuel needs by merging sound business sense with national obligation.The Government of Pakistan (GOP) holds approximately 54% stake in Pakistan State Oil Company Limited (“PSO”), including both direct holdings of the Federal Government and indirect holdings through GOP owned institutions. The GOP is in the advanced stages of divesting 51% of the in PSO to a strategic investor.

HIERARCHY LEVELS AT PSO

CHAIN OF COMMAND

It is an unbroken line of authority that extends from the upper levels of the organization to the lowest levels and defines who reports to whom.As PSO follows traditional objective setting decision are made totally by the top management. The authority is given to the managers to give orders and employees are bound to follow them. It is the responsibility of the employees to perform those duties assigned to them.

UNITY OF COMMAND

On PSO the unity of command hoes in the following sequence: Chairman Managing Director 7 General Managers Divisional managers 1 sale Executive 8-12 Sales officers

Details are1) Managing Director is answerable to the Chairman 2) MD has 7 general managers working under him3) Every General Managers has 8 Divisional Managers working under

him4) Every Divisional Manager has a Sales executive5) And under him there are 8-12 sales officers.

CENTRALIZATION

PSO is a highly centralized company i.e. decision-making is concentrated in the upper levels of the organization. The Top

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management makes the company’s key decisions with little or no input from the lower level employees. PSO is more centralized because the environment is stable company is large and lower level managers are not as capable or experienced at making decisions as upper level managers. 

MECHANISTIC ORGANIZATION

PSO is a mechanistic organization with a highly controlled structure. In the mechanisticstructure work specialization creates jobs that are simple routine and standardized.Extensive departmentalization increases impersonality and the need for multiple layers of management to coordinate these specialized departments. There is also a strict adherence to the unity of command principle. As the distance between the top and the bottom of the organization is wide, top managers tend to impose rules and regulations to control the employees’ behavior.

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