This paper reports on a major portfolio restructuring at Shell. The restructuring involved the strategically motivated 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 such a situation, 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 suggest that the need 'to get the structure right' - right being intrinsically hierarchical in conditions of high asset specificity and uncertainty - is quite pervasive. This underlying force appears to be so compelling that it operates irrespective of strategy, creating a difficult dilemma in which strategic intentions and control considerations interact in a complicated way.

, , , ,,
Management Accounting Research
Erasmus Research Institute of Management

van den Bogaard, M.A, & Speklé, R.F. (2003). Reinventing the hierarchy: Strategy and control in the Shell chemicals carve-out. Management Accounting Research (Vol. 14, pp. 79–93). doi:10.1016/S1044-5005(03)00020-9