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Shell Armageddon scenario

The Times

August 1, 2009

Bloodletting in business class

Carl Mortished: On the money

If you have any frequent flyer points, keep mum. Don’t let anyone see your BA gold card and, for good measure, moan interminably about how you are chained to your desk.

If you are a manager, you need to look efficient, economical, the sort of person who might be found flicking off the power switches on the desktop computers in global purchasing as the lights go out on the lower floors.

The senior management at Shell are dropping like cavalry in the cross hairs of a Gatling gun. Five thousand could go, roughly the same number let loose by BP over the past year. Shell has more layers than its British rival, a bigger refining and marketing business across many continents. It has managers in Kuala Lumpur writing the same memos and ticking the same boxes as they are in Taipei.

Head office travel budgets have all but been abolished; even the big boss at a company such as Akzo Nobel, the Dutch paints giant, is flying steerage on short haul.

Akzo has cut between a quarter and a third of its top jobs, the legal budget is lopped by a fifth and communications has lost almost half of its spending money.

Cue howls of pain from consultants, law firms and airlines. It was BA’s turn to moan yesterday as it revealed that its yield, the amount of money it makes on each seat it sells, had fallen by 13 per cent. BA’s core business is as an air transport contractor for big firms such as BP, Shell and the investment banks, but this recession has put the business model through the mangle.

If your firm is still flying you in the front of the plane ahead of the plebs, look around the cabin; the seats next to yours might be filled by a family on a two-week holiday to Australia, their entire package costing no more than your single business-class fare.

For a company such as BA, run ragged by falling revenues, stubbornly high overheads and fuel costs, there is no choice but to throw the whole structure up in the air and see how it falls. It is less clear why utility-type industries, such as BP and Shell, need to be so aggressively penny-pinching at the top. My guess is that a great deal of the blood-letting is opportunistic.

It is an expression of management frustration and delight at the prospect of finally getting hold of the helm on a drifting ship. Peter Voser, incoming chief executive at Shell, and his rival Tony Hayward at BP, sucked their pencils and prepared an Armageddon scenario.

Who must you have on deck when nearly all is lost?

If you are a senior manager, it is a useful exercise to do in the quiet of your office when everyone has gone home.

If revenues dropped another 10 per cent and energy costs soared, which three middle managers would you need to keep the business afloat?

Is it Tigger, the irritating bundle of enthusiasm? Is it Kanga, the nannying disciplinarian? Surely, it isn’t Eeyore, so gloomy but, cripes, so often right.

Most businesses can be run with half of their regular personnel and any boss with half an eye on his team can pick and choose, but it isn’t as easy as you think.

Those who seem effective in the good times, the glamour boys drumming up sales and rushing hither and thither are not always the ones who will be steady and reliable, solving problems and spotting disasters before they happen.

And don’t ask human resources for help. You will be confused by quotas, hierarchies, functional reporting and glass ceilings.

You want to know who is key and who that person thinks is key. Doing that job will teach you a lot and when the chairman arrives with the command “cut 10 per cent”, you will be relieved because you had planned for 20.

I think that Mr Voser and Mr Hayward picked their Tiggers, Kangas and Eeyores and then some more. Those who survived will be grateful, that unlike Christopher Robin, the boss didn’t, in the end, grow up and abandon his management altogether.

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