Shell is acting to cut operational costs under a new chief executive, as profits fell 70 percent.
The oil multinational promised investors it was taking aggressive action under its ‘Transition 2009’ programme, announced in June, after profits fell from $2.3 billion (£1.4 billion) in the second quarter, from $7.9 billion a year ago.
It vowed to complete the programme by the end of the year, and has already cut $700 million from costs in the six months to June.
Under the overhaul, the company vowed to reduce the number of managers in place and create a new ‘Projects & Technology’ division to run procurement and systems centrally, eliminating the different divisions across various departments.
Peter Voser, the company’s new chief executive who announced the cost cutting before officially commencing his leadership in July, said as results were released last Thursday that action was needed "urgently" as operational costs remained high, while the recession hit energy demand.
“Shell is adapting to this new situation, and we must do more,” he said. “We are sharpening our focus on delivery and affordability.”
Transition 2009 “will simplify Shell, and increase personal accountabilities”, he said. “A series of ‘internal mergers’ in Projects & Technology is creating new efficiency gains and cost savings, in a talent pool of over 10,000 staff.”
The company wants to standardise projects and procurement, alongside the cost cuts. It spends $60 billion every year on goods and services.
The company has reportedly cut the pay of IT contractors by 12 percent.
Last year, the oil giant announced plans to lay off 3,200 staff after signing a £2 billion outsourcing deal with EDS, T-Systems and AT&T. It also has an application support deal running with IBM, Logica, Wipro and Accenture.
But Voser said the changes were “more than simply about quick wins on costs”. Shell had a top-heavy management structure, which made decision making difficult, he said. It has already cut 150 management positions, affecting technology and other roles.
“We simply have too many people doing business with each other, rather than with the outside world. I want to strip away the layers that are not adding value, and put much more focus on front line activities”, he said.
“This means changes in functional areas like corporate affairs, human resources, IT, and finance. It means fewer people thinking about strategy, and more people actually implementing it.”
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