In 2017 Royal Dutch Shell (Shell) announced it was exiting the controversial oil sands sector in Canada and was focussing on becoming an energy company. As Fortune reports, the company wasn’t making a rash decision, it had invested expertise and research into understanding the disruptions to energy production and usage. According to Fortune, Shell realised the disruption was arriving sooner than many in the oil sector predicted. Since March 2017 the company has been expanding its portfolio and diversifying its business.
Craig Walker is CIO for the Downstream business of Shell and tells the Horizon CIO podcast about the transformation of the Anglo-Dutch firm, how technology is core to that transformation and how he is changing how IT operates in order to enable Shell to become an energy firm.
“My glib answer is anything that is not the upstream,” Walker jokes of the difference between the Upstream and Downstream parts of the business. “The Upstream part of the company looks for the oil and gets the oil out of the ground and then they hand it over. Downstream starts with trading and supply, manufacturing and includes all our refineries, our petro-chemical plants and on into our B2B businesses such as aviation, bitumen, lubricants, marine and then onto the retail sites that the general public are aware of,” he says of the two sides. Downstream is the larger business, but also has the narrowest margins.
“As a trading company we are the biggest by someway with 27 major refineries around the world and a similar number of petro-chemical and lubricants plants.
“Every 12 seconds somewhere in the world we finish fuelling an aircraft, it is a phenomenally large company and you don’t get the scale of it until you come into it,” Walker says. During a long career with Shell he has worked in both downstream and upstream sectors.
In moving to become an energy firm Shell is responding to recent and rapid changes in the energy market. Sustainable energy from wind and solar has become economically viable and is growing at unforeseen rates. Wind energy powers over 20% of the UK’s electricity needs on an almost daily basis and the price of solar panels is dropping rapidly, which in turn is being boosted by developments of batteries for buildings from the likes of Telsa. Electric car sales are also on the rise, as is the adoption of ride hailing and car club usage. All of which is disrupting the Shell business model.
“I live in central London, outside the apartment block I live at, there are two Zipcars, it costs £8 to belong as a member and £5 an hour to rent, and there is a fuel card in there that says please as a curtesy to the next person don’t bring it back with less than a quarter of a tank in it. Where is Shell in all of that?” Walker is acutely aware of how businesses like Zipcar have the potential to cause disintermediation of the oil sector.
“If I didn’t work for Shell, do I care if I put in the fuel that makes it perform best? Costs the least? It is not my car and it is not my money and I don’t care. So I am going to go to the place that is most convenient. So how do I take all this technology and commercialise it in a way that you still want to come to me? The same problem exists with rotating equipment, if you run a factory and you have a bunch of gas turbines and you are buying lubricant from Shell and then the firm you buy those pieces of kit from offers the classic pay by the hour model, I get pushed out and become a commodity. So the threat is not just the automotive industry it is the threat of the Internet of Things,” he says of how IT is central to Shell responding to new models.
“As we came into the early 2000s we got obsessed with volume and we lost site of the thing that was starting to happen, that the customer’s desires were changing. Thankfully around 2008/2009 we had a substantial change in the leadership team and we became very customer focused,” Walker candidly admits.
“As we globalised, we lost site of the customer and became obsessed with standards and ‘how do we run this as efficiently as we can?’ Of course the pendulum starts to swing back when you realise you have lost something of your heritage, which is being known as a member of the community and somebody special rather than just being an oil company,” he tells the podcast.
“When I joined the company we were very much an oil company. We had six rivals, the so called seven sisters, now the world has changed and it is an incredibly exciting time to be in Shell,” he says of being part of the transformation.
“We have stated that our purpose is that: ‘we power progress together by providing more and cleaner energy solutions’; and I think those words are very interesting. Its about having to do this together. Back in those days you went alone, now you know that whatever you do it is with an ecosystem of players, be that NGOs, government, the public and energy firms.”
“What is interesting now, is that the technology has reached a tipping point; with solar panels and wind. It was all there in the past, but it wasn’t becoming mainstream fast enough.
“As an oil or energy company you can only go where the public want to go. If people want to buy petrol you have sell petrol. It doesn’t matter how many hydrogen points or electrical charging posts you put down, if there isn’t the customer to come to it, but we believe right now, with the experience we have to generate, store and deliver energy to the customer now is the right time to step in and be part of a greener more sustainable energy solution.”
Cynics might believe an oil company is bound to say this as an exercise in PR, but as Walker points out, businesses like Shell have made the investment in the infrastructure and the skills that will be necessary for sustainable energy proliferation.
“I don’t think anyone can go it alone. Governments can create the right policy and regulation to encourage both companies and people to go in the right direction, but we need to be a leader in that. We won’t be in business in 20 or 40 years time if we don’t become an energy company,” he says.
What ever energy Shell ships in the years to come the business has to become as service oriented as banks, insurance, retail, technology and as we have heard on the podcast of late, academia. Walker says Shell has traditionally been a product company, but the energy revolution will also bring about a service revolution.
“For 100 years we have sold product and we are very proud of that and our brand heritage, but as we all know, product isn’t good enough any more and the public want the service that goes with it. That is a real challenge for a company that produces something that you burn or you stick it in a machine and lubricate with. So how do we take 100 years worth of heritage and product and turn it into a service that people will come back to?
“I genuinely believe that selling it once and hoping that people will come back again is not a sustainable model. You have to have a reason why they will come to me and that is a big challenge. As a CIO helping the business think through how technology can make that a reality is the biggest challenge and opportunity that I have,” he says of his role.
“This really is IT’s time. There is a lot of good technology out there. If you go back five years, most of us had great ideas, but we couldn’t turn them into reality or we couldn’t turn them into delivery as the service was not fast enough. Now we are not limited by the technology, but by people’s imaginations.
“It is a fascinating time, as I am not only working in an industry that is revolutionising itself in terms of its image and the way it wants to work, but also with a technology set that is moving so fast,” Walker says.
Just as with becoming part of sustainable energy will require Shell to be part of an ecosystem of government and other energy firms, its ability to remain competitive on the roads will also require it to be in an ecosystem.
“I can’t do it alone any more. I have to work with a car manufacturer in order to create something that you want and desire, because it is all about making your life more frictionless.” Walker says Shell is working with Jaguar Land Rover to create dashboard enabled Apps that will allow parents and the disabled to have the car refuelled without having to leave it, paying from the dashboard.
These developments help the existing petrol station infrastructure, but Walker admits that the next generation of cars pose a greater challenge. “Autonomous cars is a completely different story. When are they going to turn up at my retail site, is it 3am in the morning? Are my sites open at 3am? It is not easy to work out what it is going to do to your logistics operations.”
Whatever type of car or car service the next generation use, Walker believes that customer data and service will be crucial.
“If I recognise you the minute you come onto the station and I say you can have a half price cold coke and I can reward you in different ways. It is not just about price,” Walker says. And he expects this to go beyond the petrol stations. In February 2018 Shell completed its acquisition of energy retailer First Utility.
“In acquiring First Utility we have acquired about 700,000 consumers in the UK and I think the success of this is how you integrate that into our other businesses. The interesting thing is, I don’t have better electricity, so how do I bring together a set of services, that are part of your lifestyle choices and there is a lot of synergy for a broader energy portfolio.”
“When I took over we were slow, we were inefficient, and we had lost site of why we were there, we were doing IT,” Walker says of becoming Global CIO in 2014. “We sat down and covered a board in why it isn’t working well and came up with three themes and they have stayed with me,” Walker’s three theme are; commerciality, which he says is the need to understand “how you add value to a barrel of hydrocarbon as it comes down the supply chain,”. He says without commercial understanding IT professionals do not know “how to prioritise your day, how do you make decisions, you have to understand to a basic level how the business really operates.” His second theme is that all of Shell is “One team”. “We were victims, anything that went wrong it was because HR or Finance, it was the business,” he says of a common refrain many transformational CIOs hear. The third theme is the business outcome and understanding what the business is trying to achieve.
During Walker’s time the downstream IT team has removed major levels of cost from its IT operations, reducing spend by 40%.
“That meant the conversation changed; it stared to be about digital, tell us about disruptive business, so suddenly the quality of the conversation changed.” Walker says he educates his team to be involved in business conversations and to use their technology knowledge to have “great business conversations”.
“We should all be seen as equals and IT has allowed itself to be treated as a service. You have to have the right people, the IT sector didn’t hire people for those skills. So learning now is so important, so I say to my people will you once a week spend 10% of your time educating yourself about technology or what Unilever is doing. Because our rivals are not the other oil companies it is Alibaba, Amazon, Tesla, not to mention the startups who want to just take away a bit of the business that makes a margin,” Walker says.
“Once a week, don’t switch on email when you first come in, because we all know once you switch on email you are on this little hamster wheel all day. But take that time and go and have breakfast with colleagues, go and have dinner and discuss something that matters and something that you feel that is a problem. We have Fill-up Friday, where a graduate orders their favourite food for everybody and you get 300-400 people congregate in an area and we all eat lunch together and the only rule is you are not allowed to take it back to your desk and people have conversations and people find ‘oh you have been struggling with things’.”
Walker describes how the oil industry was a pioneer of the campus style working that is now used by the likes of Google and how these centres had dining areas, sports facilities and bars and they led to a community, which in turn created collaboration and innovation.
“You had discussions, because people knew each other better. Now people come into the office they start doing email, they stick on headphones and they go to meetings. Where is the interaction? Getting back that sense of community really is something that matters a lot to me,” he says.
Shell is currently between homes in London as its iconic Shell Centre opposite Waterloo station is being redeveloped. “I want to bring that interaction back as it drives innovation and creativity,” he says of when Shell moves back in. “I want to create an atmosphere, because we all need to work at home at times, and I want you to think damn I missed out today, because this is a vital part of being a modern company. This is about beating startups, who are all over this from a point of creativity and huddling together and driving something.”
Having removed cost and begun changing the culture of IT at Shell, Walker says the next challenge is working alongside the business to jointly find ways to simplify the business, which in turn will reduce costs.
“There is a complexity at the local level where we have too many pricing schemes, too many loyalty systems,” he says. And as Shell simplifies and modifies his business, the global CIO expects the suppliers to do the same.
“For the big players, I am saying you have to come to me with a value proposition. With the little players I have to learn to work in a different way. I tell startups be careful, we could kill you, we don’t mean to.
“We are on that journey, if you look at the way the business is operating, we are constrained by everything being a project and having a budget cycle, which is nonsense in this day and age,” he says of moving to Agile and DevOps.
Walker says a new key technology hub in Bangalore, India is enabling the change to Agile working. Bangalore is a new development for Shell and part of a restructure that sees the majority of technology come from four hubs; Bangalore, Hague, Houston and London.
“Shell is very organisationally aligned and structured. In Bangalore people form natural teams around a product, an issue or the problem and they go and work on it. We set out with zero people in Bangalore and now we are at several thousand and that has allowed us to concentrate on a newer operating model. That is not an outsourcing centre, it is not somewhere I throw work. I don’t want to treat them as an outsourcing centre and I predict my successors successor will be from Bangalore,” Walker says.
“I sometimes think of Shell as a red and yellow jelly, you can smack it as hard as you like, but if you are not careful it will return to the same shape. I want to disrupt the way I am working and bring in people with new ideas who will help us evolve into a new IT.”