This paper reports on a major portfolio restructuring at Shell. The restructuring involved the divestment of a significant part of Shell?s highly integrated chemical business. We study this event and -particularly- the related control issues, using Transaction Cost Economics (TCE) as our basic frame of reference. Our analysis shows that many of the problems encountered by Shell in this process are strongly related to asset specificity and the need for adaptive mutual coordination and integration. In a situation in which asset specificity is high and where adaptive responses are important, TCE reasoning suggests internal (hierarchical) governance to prevail because of its superior ability to foster coordinated adaptation. Shell, however, opted for hybrid control. But our analysis demonstrates that the new, intendedly hybrid structure mimics the hierarchy in almost all fundamental respects, and that it functions in an intrinsically hierarchical way. These findings are in line with TCE, and our study provides an illustration of the relevance of TCE in making sense of control.

case research, management control, transaction cost economics
Firm Organization and Market Structure: Markets vs. Hierarchies; Vertical Integration; Conglomerates (jel L22), Business Administration and Business Economics; Marketing; Accounting (jel M), Accounting (jel M41)
Erasmus Research Institute of Management
hdl.handle.net/1765/206
ERIM Report Series Research in Management
Copyright 2002, R.F. Speklé, M.A. van den Bogaard, This report in the ERIM Report Series Research in Management is intended as a means to communicate the results of recent research to academic colleagues and other interested parties. All reports are considered as preliminary and subject to possibly major revisions. This applies equally to opinions expressed, theories developed, and data used. Therefore, comments and suggestions are welcome and should be directed to the authors.
Erasmus Research Institute of Management

Speklé, R.F, & van den Bogaard, M.A. (2002). Reinventing The Hierarchy, The Case Of The Shell Chemicals Carve-Out (No. ERS-2002-52-F&A). ERIM Report Series Research in Management. Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/206