Learning Organization - Creating a Learning Organization and Leading it

Fluctuations in the world economy determine the behavior of world oil system. To understand the forces that are causing fluctuations, strategy planners at Shell took a closer look at important players in the Shell's business environment: consumers, oil producers, and competitors. They observed that all these players are primarily driven by self-interest and are certainly to behave in the way that fitted them the best.

First they analyzed the major oil-producing countries. In 1971, major producers like Iran, Saudi Arabia, and Nigeria had different interests. First they studied Iran. Then Iran was discovering new oil reserves. And hence the planners felt that Iran's 5 years production starting from 1971 would be less than the new reserves discovered. And next five year production would overtake the new discoveries. As a result oil policy of Iran would change. Iran would start increasing its oil price instead of increasing its production. This was mainly dictated by the national interest.

Then the planners considered Saudi Arabia. The country was in a different situation. The revenue from oil production in Saudi Arabia was more than what the government could spend purposefully. As a result government preferred not to reduce its production and keep its reserves unexploited.

Similarly the planners studied other oil producers. The analysis was based on two variables: oil reserves, and need and ability to spend oil income productively. They came to the conclusion that no country has got both ample reserves and absorptive capacity (motivation to produce these reserves). For example, Saudi Arabia had great reserves but no large population to absorb the income. On the other hand, Indonesia had large population to absorb but meager resources.

Planners at Shell also analyzed oil-consuming countries. They observed that demand for the imported oil was increasing at 2 million barrels per day. In the US oil supply peaked (domestic oil) and then stagnated. And then there was incremental demand for oil, which was met by natural gas. Natural gas supply also stagnated due to regulated pricing mechanism. Coal production was supposed to meet the demand gap but expectation that nuclear power generation would fit in shunted the growth of coal production. But the no of nuclear plants that were built finally was too small to meet the demand. Even 3 to 4% increase in the US energy demand would create great demand for imported oil.

The study also involved Japan, whose economy was growing at a breakneck speed of 11 to 12%. As a result of that growth, annual demand for oil was growing at 20%. After conducting all these analyses they got a glimpse of forces that are going to determine the shape of future oil system.