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Reinventing The Hierarchy, The Case Of The Shell Chemicals Carve-Out

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  • Speklé, R.F.
  • van den Bogaard, M.A.

Abstract

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.

Suggested Citation

  • Speklé, R.F. & van den Bogaard, M.A., 2002. "Reinventing The Hierarchy, The Case Of The Shell Chemicals Carve-Out," ERIM Report Series Research in Management ERS-2002-52-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    • Handle: RePEc:ems:eureri:206
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    References listed on IDEAS

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    More about this item

    Keywords

    case research; management control; transaction cost economics;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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