Exam numbers: s10025

Word Count: 2948

CRANFIELD SCHOOL OF MANAGEMENT

MSc in Strategic Marketing 2010/11

MSE

Exam Number S10025 – Purple 9 – Shell

This assessment/report is all my own work and conforms to the University’s
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regulations on plagiarism

An identical copy of this document has been submitted to the Turnitin system
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Introduction

Recently, oil spills of BP in the Gulf of Mexico attracted a plenty of attention and
BP’s reflections also became the target of criticisms for the societal and
environmental effects caused by oil spills. Equally, as one of the largest companies in
the world, covering more than 135 countries with over 90,000 employees, Royal
Dutch Shell has gone through the ethics issues in the mid-1990s including the
disposal of Brent Spar in the North Sea and the suspected connection with the
execution of Ken Saro-Wiwa, and also experienced the accounting scandal about
overstating of oil reserves in 2004 (Crane et al, 2007). Even so, Shell is still at the
frontline for business practices suitable to ethics and sustainability in society and
environment.

Due to simplify the complexity in the examination on the sustainability of Shell, Shell
in Nigeria is selected, which can be a good example, especially the Ogoniland in
Niger Delta, alongside enough studies, researches and materials from governments,
local communities, NGOs, specialists, reports and so on. For understanding the
analysis orderly, this essay will be divided into six main parts, firstly, an evaluation of
the existing societal and environmental challenges, and then an overview of the
company’s sustainability stance based on the framework of Zadek. In the third part,
4Cs will be utilized to assess Shell’s current sustainability strategy, following by a
stakeholder analysis in the fourth part. In the end, further recommendations built on
the previous statement will address the potential sustainability issues in the future,
accompanying personal implications as a future marketer.

Background

From the time when the oil found in the Niger Delta, the petroleum industry becomes
not only the main contributor of GDP for Nigeria, but also comes along with political

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and economic conflicts. With the 1st oil reserves in Africa and the 10th in the world, the
development of Nigeria doesn’t speed up until in recent years because of a long time
of corrupt military regimes and intervention of multinational enterprises.

Shell began the business in Nigeria in 1937 and has started its oil exploration in
Nigeria for more than 50 years since the first commercial field located in Niger Delta
was discovered in 1958. Nowadays Royal Dutch Shell owns several subsidiaries in
Nigeria, producing more than 40% of total petroleum production from more than
eighty fields, most of which is contributed by Shell Petroleum Development Company
(SPDC) that is the largest fossil fuel company in Nigeria. Other business of Shell in
Nigeria includes developing Nigeria’s deep-water and offshore oil, gas transmission
and liquefied natural gas production.

Societal and environmental challenges

The most common environmental issue is oil spills that the estimation quantity from
1958 has exceeded nine million barrels along with various incentives. The corrosion
of pipelines becomes the major challenge, following by other two vital issues,
sabotage and production operations. The intricate oil fields network involves a large
quantity of pipelines, most of which are exposed in the open air or on the farmland,
leading to the high rate of corrosion. And sabotage is caused by extracting oil to
exchange for cash. The destruction on the ecosystem due to oil spills can’t be valued
by money, for example, large areas of mangrove have been polluted and can’t
recovery from the destruction. Besides that, drinking water is also influenced and
contaminated with potential danger of carcinogenicity (Livesey, 2001).

Another issue related to environment is natural gas flaring. There are two kinds of
natural gas, associated gas and non-associated gas, and the former one creates a high
waste rate through the process of flaring, more than 50%. The latter one necessitate
the complex technology and high cost. The close correlation between gas flaring and

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climate change, suffers from the large release of carbon dioxide, like 30% of CO2
emissions in 2002 in Nigeria which resulted from gas flaring.

The unrest of politics and the government has not changed the social anxiousness and
situations about the poverty, malnutrition, and disease, though the country is rich in
the oil reserve that contributes to GDP enormously. It is attributed to the ownership of
oil fields and other related property belongs to the country, hence the distribution of
profits from petroleum is decided by the government (Robinson, 1996). This practice
is concluded as the origin of the corruption, which triggers people’s engagement in
protests, like the Movement for the Survival of the Ogoni People (MOSOP). One of
the suppression actions is the arrest and execution of Ken Saro-Wiwa, which Shell is
suspicious involving in the conspiracy. Because the government embezzles profits
generated from oil fields, there is little investment in education and infrastructure in
Niger Delta, which brings about the vicious cycle (Nnadozie, 1995).

In Zadek’s framework

According to the Zadek’s framework (Zadek, 2004), there are two learnings,
organizational and societal or civil, with which corporates could operate
responsibility. The map below shows this process:

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In the vertical curve, there are 5 different stages of organizational learning, defensive,
compliance, managerial, strategic and civil, in a progressive manner. For example,
organisations and companies tend to evade the responsibility of dealing with issues in
the defensive period. Afterwards, they incline to compromise with stakeholders and
combine societal issue into the core business management and strategies for long-term
gains. And in the top level, organisations should encourage the industry participation
to benefit from collective actions.

Then the horizontal curve signifies how to measure the maturity of societal issues and
the public’s anticipation about issues. Similarly to organisational learning, it has four
stages, ranging from latent, emerging, consolidating and institutionalized, dependent
on the extent and development of the issues. For instance, in the latent stage, the issue
is only noticed in a limited scope, like NGOs, which means could not affect business
practice. Nonetheless, coupled with the mature of the issue, the pressure from political
and media will contribute the legislation and the establishment of standards which
lastly become the institutionalized procedure for excellent business.

Therefore, the combination of organisational and societal learnings could assist

organisations or companies to identify their current position around the societal issues

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and set out the business strategies for future development in sustainable approach. In
the case of Shell in Nigeria, it is obvious to distinguish the gap between what the
Shell promises in the website and the realistic performance. In the first period, Shell
denied the responsibility to clean the oil spills and stated the reason that “it is outside
the business scope”, which is analogous to the reflection in the defensive phase (Boele
et al, 2001). However, as the awareness of issues raised up, some local communities,
like MOSOP launched a series of campaigns with financial requirement and Shell
compromised to clean the oil spills and provided workshops for local employees.
However, the arrest and execution of Saro-Wiwa Ken by Nigeria government further
destroyed Shell’s reputation because of the doubtful connection with the murder and
finally in 2009, Shell was convicted fifteen million dollars for the accusation of
violations of human rights. Therefore, the sustainability stance of Shell in Nigeria
could only be on the compliance stage, though on the website it stated in the high-
sounding stone.

An evaluation of 4Cs

In the marketing mix, there are 4Ps, price, product, promotion and place, facilitating
developing different marketing strategies, which focus more on product itself. As the
study of marketing goes on, the mainstream school has changed the emphasis more on
the customer that also has a similar mix called 4Cs, customer solutions,
communications, customer cost and convenience (Belz et al, 2009). In fact, every
aspect of 4Cs is corresponding to every component of 4Ps, customer solution to
product, customer cost to price, communications to promotion, and convenience to
place.

Firstly, compared with sustainable view, the conventional marketing always was
occupied with a view titled ‘marketing myopia’ which highlights a preoccupation with
products or services rather than customer solutions. However, customer solutions for
sustainable products or services should be considered to solve problems in the entire
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consumption process, including from purchase, use and post-use, which also could be
applied to analyse communications, customer cost and convenience (Belz et al, 2009).
Therefore, in the pre-purchase process, sustainable products and services should not
only fulfil the needs of customers with a contribution to society and environment
during the lifer cycle, but also satisfy the care for production and process of product.
In the website of Shell, it introduced two sources of alternative energy, both of which
could reduce CO2 efficiently. The first one is biofuel that has been widespread
whereas hydrogen is still necessary for enough research. In addition, during the use
procedure, there several characteristics of products or services should be noticed, like,
safety, health, durability. In the end of the product life cycle, it is also necessary to
confront a list of choices, which consists of disposal, resold or recycle. But in this
case of Shell, it is not essential to take into account this situation because of the
specificity and uniqueness of their product – petroleum which only requires the first
two processes.

Secondly, communication is important to a successful marketing mix both for

sustainable and conventional marketers; because the most significant step is to make
customers aware of their special and exclusive customer solutions employed and
explain the practical application in the lifestyles (Belz et al, 2009). Therefore,
sustainable communications campaigns are directional, flexible, more efficient and
effective to fit the nature of customers and their special demands. Moreover,
compared with conventional promotions which promote the products to customers,
sustainable marketing communication concentrates more on the mutual relationship
between customers and producers, such as a bilateral dialogue that benefits
understandings and facilitates studying from customers. Shell adopted this method to
raise awareness through various channels, like advertisement on the press, internet,
television and other medias (Varey, 2002). As a result, the favourable rate increased
more than 40%.

Thirdly, in order to calculate the total customer cost, there are two dissimilar types

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which represent customer and marketer perspectives individually (Belz et al, 2009). In
the view of customers, the total cost contains price, purchase costs, use costs and post-
use costs, while in marketer’s opinion, price must undertake the all costs during the
procedure of production, distribution and selling to guarantee the producer’s profits.
This apparent difference urges Shell marketers to think about the integration of
customer viewpoint into their decision-making when make the pricing decision.

Finally, convenience corresponds to place in the traditional marketing mix “place” or

distribution channel. In a sustainability perspective, it should not limit on the
distribution of products, and pay more interests on customers. Furthermore, the
increasing demand from customers on the convenience throughout all phases of the
consumption process also necessitates the transformation, and moves the emphasis
towards other components of the consumption process (Belz et al, 2009). The
distribution channels of Shell could be separated into two types, the gas stations and
transportation of crude oil that includes pipelines, waterway, road and railway.

Stakeholder analysis

Stakeholder theory is employed by organisational management to tackle business

ethics, like morals and values in business operation or conducting an organization.
According to Freeman’s best known thought, the definition of a stakeholder could be
any group or persona who is able to affect or be affected by organisation’s actions for
objectives, which takes the mutual impacts into considerations (Freeman, 1984).
Besides that, the scope of stakeholders can be ranged from personas, groups,
neighbourhoods, organizations, institutions, societies and even the natural
environment. On the word of Jones and Wicks, the aim of stakeholder theory is to
identify the relationships between organisations and particular stakeholders, including
the procedures and effects caused by these relationships (Jones and Wicks, 1990).

And the recent years study on stakeholders resulted into two different kinds of

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scholars, based on a broad and inclusive or narrow and exclusive viewpoint (Windosr,
1992). The broad one is based upon the empirical reality and similar to the description
of Freeman, but it is complicated and problematic for managers to supervise and
conduct. On the other hand, the narrow viewpoint is described as groups which are
necessary for sustained existence to an organisation by the Stanford Research Institute
in 1963 (Freeman and Reed, 1983). One of these narrow definitions was pointed out
by Clarkson, as voluntary or involuntary risk-bearers, which are dependent on
whether is on stake with any form of investments (Clarkson, 1994). Dissimilar to
broad view, the narrow view is founded on the practical reality due to limited
resources, time, attention and patience of managers, and thus it is aimed to explain
direct relevance of stakeholders to the firm’s core economic benefits.

There are three main attributes of stakeholders which can depict the extent of
importance of distinct stakeholders to organisations or companies, power to affect the
organisation, legitimacy of a relationship and urgency of a claim (Mitchell et al,
1997). Firstly, power can be understood more simply through the classification of
Etzioni, coercive relevant with physical force, utilitarian related to capital resources,
and normative correlated with symbolic resources (Etzioni, 1964), through which
decide the extent of power. Secondly, as stated by Suchman, the role of legitimacy
will vary consistent with the contexts and he also stressed it in a broad and
generalized perception, with two categories, contractual relationships and exchange-
based relationships (Suchman, 1995; Evan and Freeman, 1988; Hill and Jones, 1992).
Thirdly, urgency, unlike previous power and legitimacy, provides the dynamics to
managers operation from static status, with two conditions, time sensitivity and
criticality (Mitchell et al, 1997).

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Through the combination of three attributes in a binary order, there are three big
parties and eight kinds of stakeholders with apparent characteristics, which have been
marked on the figure above. Dormant stakeholders, discretionary stakeholders and
demanding stakeholders belong to latent stakeholders who only occupy one attribute
and have limited awareness and influence. And expectant stakeholders own two
attributes and are considered to be moderate, including dominant stakeholders,
dependent stakeholders and dangerous stakeholders. The most important group is
definitive stakeholders which hold power, legitimacy and urgency together, obviously
noticed by managers (Mitchell et al, 1997).

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In the case of Shell in Nigeria, applying with the three attributes model, there are a
number of stakeholders listed in the figure above. Large foreign governments where
big petroleum companies originated, like EU and US, though they can make use of
enormous power, in fact they have little interaction with Shell. Greenpeace and other
non-government-profit organisations focus on encouraging organisations to operate in
a sustainable approach without power and urgent claims, such as organising
campaigns against the environmental deterioration and public research on the oil
spills (Pirani, 2004). For the competitors, other big petroleum companies like Shell,
they can enjoy the advantages of power and legitimacy, as well as the Nigerian
governments and Army. To those dependent stakeholders who suffered from the oil
spills, poverty, pollution, environmental degradation and conflicts, the biggest group
of stakeholder are the tribes in Niger Delta, like Ogoni. Without the supportive power,
they have to rely on other groups of stakeholders to achieve their will, like the
government and MOSOP. MOSOP is fighting for ethnic and environmental rights of
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Ogoni people without violence, controlling all three attributes, power, legitimacy and
urgency. Additionally, MOSOP also desire for political intentions, as requirements of
democracy and regional economic development. In contrary, Movement for the
Emancipation of the Niger Delta (MEND) is portrayed as dangerous stakeholders
because they adopted military means for localization control of oil in the area of Niger
Delta. And MEND is suspected participating in sabotages on petroleum pipelines,
kidnapping and armed conflicts (Pirani, 2004).

Recommendations

In order to deal with the serious environmental issues like oil spills, Shell could build
underground pipelines, which could solve at least two pitfalls, the corrosion of
pipelines in the open air and the behaviour of steeling crude oil directly. However, this
investment will cost a high company budget, and other infrastructure should also be
upgraded or supported because of the overdue facilities and equipment that are full of
dangers and low efficiency.

Another criticism of Shell is that Nigeria is the main origin for Shell while most of its
product is transported and sold overseas, and Shell is accused seeking profit through
the huge difference between its cost and price. Though the demand of crude oil in
Nigeria is limited, Shell should treat it as a normal market and supply it with a range
of products. Furthermore, it also could enlarge the cooperation with Nigerian National
Petroleum Corporation (NNPC) that is a domestic oil company owned by the
government, and the SPDC has been the example.

Health is another aspect that Shell can try to tackle, including the establishment of
local hospitals and national health insurance systems which could handle the epidemic
diseases in time. The support to the farmers whose farmland is contaminated by the
oil spills could relieve farmers’ concerns, and the forms of support could be varied
from training and direct financial compensation. As well as in the education area,
Shell could provide scholarship for poor students and build up schools which will
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change the future of next generation in Niger Delta.

Personal reflection and Conclusion

According to the analysis of whole article in separate parts, for a future marketer, it is
necessary to understand the entire industry whether sustainability has been the
mainstream. And sometimes challenges are not only problems, but also opportunities
which organisations should seize rather than avoidance. In addition, maybe firms can
advance in preparation for the problems, not following the stages in Zadek’s
framework in order.

Moreover, the stakeholder model will be helpful for estimating the potential threats
and benefits and deciding which group of stakeholder is the most critical to handle it
firstly. Then it makes easy for formulating sustainability strategies with several
emphasis and solutions.

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