Shell drills $1bn savings from IT and business reorganisation

An IT overhaul at Shell has helped drive $1 billion (£606 million) from the company’s annual costs.

But the oil firm expects to make 5,000 job cuts, affecting IT and all other newly reorganised areas of the business, after its profits plunged 73 percent to $2.99 billion, in the first nine months of the year.

In order to achieve the savings so far, Shell restructured IT teams into a new ‘Projects and Technology’ wing. Previously, Shell had had different IT departments in various parts of the company and in different geographies.

The changes to IT come alongside the company having cut 20 percent of its management staff, and reorganising other divisions including gas and power, oil sands and products, and chemicals. It is also trying to increase the personal accountability of managers.

Shell has moved to simplify and standardise the way it operates, including how it conducts projects and procurement. It spends $60 billion every year on goods and services.

Outsourcing too played a key role in the savings, after Shell last year signed £2 billion worth of deals with EDS, T-Systems and AT&T. Additionally it has an application support deal running with IBM, Logica, Wipro and Accenture. At the time, it announced it would lay off 3,200 in-house IT staff.

Shell now expects to make further job cuts in the coming months, cutting on average 10 percent from each reorganised division, totalling 5,000 jobs.

Projects and Technology, where IT is based, is part of this. As a 10,000 strong section of the company, it is possible that up to 1,000 jobs could be cut, if the cuts meet the group average. The losses will affect the UK, US and the Netherlands most of all.

Nevertheless, a Shell spokesperson declined to quantify the exact numbers affected in IT, or to give more details on the other changes in the Projects and Technology wing. The company has reportedly cut the pay of IT contractors by 12 percent.

Shell plans to complete the Transition Programme, including making the redundancies, by the end of the year. Peter Voser, chief executive, yesterday told investors in a statement that the company’s profits were being hit by the tough global economy.

He added: “We continue to focus on improving our competitive cost position, simplifying Shell, and increasing personal accountabilities.”

In June, when he announced the programme, Voser insisted the changes were “more than simply about quick wins on costs”.

Shell had a top-heavy management structure, which made decision making difficult, he said, adding: “We simply have too many people doing business with each other, rather than with the outside world.”

Copyright © 2009 IDG Communications, Inc.

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