Shell scenarios move from globalisation to look to security issues and the power of the state

10 June 2005 16:44  [Source: ICIS news]

LONDON (CI)--Shell’s latest global scenarios point to very different worlds from those planners and strategists envisaged just a few years ago.

 

The changed views highlight energy expensive environments in which all companies might have to do business coloured by greater global complexity and divisiveness. Shell acknowledges a more difficult operating environment widely influenced by the aftermath of the terrorist attacks on the US in September 2001 and the fallout from the Enron scandal.

 

In 2001 the company’s last dual set of scenarios focused very much on the influences of globalisation and the conflicting power of cultural values and belonging. What Shell called then its ‘Prism’ scenario highlighted the “connections that matter”.

 

It has incorporated a great deal of that thinking in its latest scenarios work, the details of which were discussed in London this week. However, Shell has modified the process and the outcome to produce what it calls ‘trilemmas’ as opposed to dilemmas. It says it will continue to look at the future through the lens of three rather than two scenarios produced on an annual rather than tri-annual basis.

 

These positions highlight the fact that Shell feels it needs not only to have robust views of the future against which to pitch its major projects and business development but to test those views against a rapidly changing world. The pace of change is not going to relent, at least in the short term, although it might under one of the three current global views.

 

The dilemma was between efficiency and values and social cohesion. Shell says the ‘trilemma’ maps relations between market participants, civil society and states. And the scenarios produced from it emphasise the importance of security concerns, legal and capital market structure and regulations. Three forces are at work, it suggests, market incentives, communities and “coercion or regulation by the state”. The problem is that there are distinct elements of mutual exclusiveness. As Shell points out, one cannot at the same time be freer, more conformant to one’s group or faith, or more coerced.

 

Shell understands that it will continue to live in a world of trade-offs rather than utopias but in its scenario planning, for which it has been well known for the past 30 years, its seeks to develop the background against which it can build business relevance. It freely admits, however, that this in itself adds further levels of complexity. The three scenarios developed this year present “plausible and coherent ways in which trade offs will be arrived at,” it says. For the company these understandably reflect investor and customer expectations, corporate governance, legal cultures, regulatory integration – or conflicts, policies and strategic choices.

 

The three scenarios are ‘Low-trust globalisation’, in which a “legalistic, prove it more world” arises of intrusive checks and controls; ‘Open doors’ which rests on a pragmatic environment in which there are close links between investors and civil society; and ‘Flags’ what Shell calls a “dogmatic, ‘follow me’ world”. 

 

The scenarios provide the building blocks for more detailed and customised strategic analysis but in just one area, corporate governance, for instance, produce widely different alternatives. Shell has looked at how the undoubted power of the US might relate to the ‘soft power’ of Europe and the rise of China as the world’s manufacturing hub.

 

The global scenarios are really about the dynamics of change as shaped by the three forces identified by the company as currently vitally important. But they are also used to develop quantitative trends. By 2025 the level of global economic prosperity is 40% higher for instance in ‘Open doors’ than in ‘Flags’. Economic growth rates range from 2.6%/year to 3.8%/year between the two largely driven by differences in productivity growth.

 

The decision whether to use the current results to develop scenarios specifically for the chemicals business has yet to be taken but business planning will be linked to the new views of the future. In a world of high cost energy, coupled with increasing global uncertainty and coercive pressure, having a robust view of the future in this business is as important as in any other. In striving for growth, it helps to have a picture of where you might be headed.

By: Nigel Davis
+44 20 8652 3214

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