Grassroots Leadership - Royal Dutch/Shell

Steve Miller of Royal Dutch/Shell offers a powerful model of what leadership means — a recognition that commitment and creativity come from all parts and all levels of an organization.

Grassroots leadership is not a term you would ordinarily apply to Royal Dutch/Shell. With a current market capitalization of $178 billion, $128 billion in annual revenues, 101,000 employees, and operations in 130 countries around the globe, Royal Dutch/Shell is often cited as one of the world's largest businesses - but never as one of the fastest. With its 90-year history, its deep sense of tradition, and its carefully structured ways of doing things, Royal Dutch/Shell is often praised as a model of consistency and longevity - but never as one of creativity or innovation.

Steve Miller, 52, group managing director of the Royal Dutch/ Shell Group of Companies, means to change all that. Miller joined Shell's Committee of Managing Directors - the senior leaders who guide the day-to-day activities of the Shell Group - in 1996, two years after the company had launched a program designed to transform the organization. But after two years of reorganizing, downsizing, and attending workshops, Shell managers had little to show for their efforts. The company's financial performance inched up - but employee morale at corporate headquarters in London and The Hague continued to slip. And for people in the field - "at the coal face," to use the term that Shell applies to its frontline activities - everything looked like business as usual.

Miller had observed Shell's efforts to transform itself one layer of management at a time, and he concluded that he would have to reach around the resistant bureaucracy and involve those at the front lines of the company. But the sheer size of the operation made this a daunting prospect. Shell's 47,000 filling stations, for example, serve about 10 million customers each day. And the downstream business - consisting of dozens of product lines, from fuels to lubricants to asphalt, and of operations stretching from supply and trading to manufacturing and marketing - faced the gravest of competitive threats: hypermarkets in Europe, new competitors worldwide, and demanding global customers. Starting in 1997, Miller devoted more than 50% of his time to work directly with grassroots employees to respond to this new competitive situation.

His approach adds a new chapter to the art and science of grassroots leadership. Aided by a business model developed by Larry Selden of the Columbia Business School, and supported by process-design assistance from Noel Tichy of the University of Michigan Business School, Miller and his colleagues at Shell evolved a system that is as revolutionary in the world of sales and marketing as Toyota's innovations in total quality management were in the manufacturing world two decades ago.

"Week after week, my team and I got to work directly with a cross section of Shell people from more than 25 countries, representing more than 85% of Shell's retail sales volume," says Miller. "The grassroots employees got to touch the new Shell - and to participate in a give-and-take culture. The energy of our employees spread to the managers above them. These frontline employees taught us to believe in ourselves again." Most important, Miller's approach offers a model of grassroots leadership that any leader in any company can adopt.

Over a six-month period, I observed Steve Miller in action and conducted a series of interviews with him at his home in Houston, his apartment in London, and his office in The Hague. Here's what he has to say about grassroots leadership.

Why does a top manager at an old, established, and enormous company like Shell need to rethink the basics of leadership?

A successful company depends on leadership. But we need a new definition of leadership and a new approach to providing it.

In the past, the leader was the guy with the answers. Today, if you're going to have a successful company, you have to recognize that no leader can possibly have all the answers. The leader may have a vision. But the actual solutions about how best to meet the challenges of the moment have to be made by the people closest to the action - the people at the coal face.

The leader has to find the way to empower these frontline people, to challenge them, to provide them with the resources they need, and then to hold them accountable. As they struggle with the details of this challenge, the leader becomes their coach, teacher, and facilitator. Change how you define leadership, and you change how you run a company. Once the folks at the grass roots find that they own the problem, they find that they also own the answer - and they improve things very quickly, very aggressively, and very creatively, with a lot more ideas than the old-style leader could ever hand down from headquarters.

Why did you adopt a grassroots approach?

Our transformation program got started because headquarters and the operating companies couldn't agree on how we were going to adapt to a rapidly changing world. How would we respond to the Information Age? We needed something to give us an energy transfusion and to remind us that we could play at a more competitive level. Shell has always been a wholesaler. But every service station represents a commercial opportunity that any retailer would envy. Our task was to tap the potential of that real estate, and we needed our frontline troops to pull it off.

Can you describe the grassroots program you developed?

We brought six- to eight-person teams from a half-dozen operating companies worldwide into an intense "retailing boot camp." One example, from Malaysia: In an effort to improve service-station revenues along major highways, we brought in a cross-functional team that included a dealer, a union trucker, and four or five marketing executives. The first five-day workshop introduced the model and the leadership skills the team would need to enlist coworkers back home, and prepared the participants to apply the new tools to a local market opportunity. That could mean improved performance at filling stations on the major roadways in Malaysia, or selling liquified natural gas elsewhere in Asia.

Then those teams went home - while another group of teams rotated in. For the next 60 days, the first set of teams worked on developing business plans. Then they came back to boot camp for a peer-review challenge. At the end of the third workshop, each team sat with me and my team in a "fishbowl" to review its business plan, while the other teams watched. The peer pressure and the learning were intense. At the end of that session, the teams went back for another 60 days to put their ideas into action. Then they came back for a follow-up to analyze both breakdowns and breakthroughs.

How do you know it's working?

Because we're seeing results all around the world. For instance, our business in France was in terrible shape. We were in the red and losing market share. The advent of hypermarkets had changed the game, and we weren't responding effectively to this new competitive threat. Fifty percent of our retail fuel market disappeared in two years! We either had to find a way to become profitable and to grow, or we had to exit - because the way we were going, we couldn't stay in the game much longer.

Now, if you asked the leader back in headquarters, "What's the answer?" the honest response would be "I don't know." What we did instead was bring together a cross-functional team from France, provide the people on it with resources to analyze the problem, offer them a business model to help them understand retail competition better - and then challenge them to come up with ways not just to survive but also to grow.

In January, I got a note from the marketing manager of our retail business in France. The business had just closed its books for 1997. It recorded double-digit profitability, exceeded its growth target, and expects double-digit growth for 1998. More important, the manager told me that when he and his coworkers started to work on the problem, they were terrified. They didn't know how they could solve it. Now they believe in themselves. As a result of this effort, they've got a whole new company.

The truth is, it's scary as hell at the beginning. It's scary for me. It's scary for the team. But the track record has been incredible.

What makes grassroots leadership scary for you?

First, it's scary to put myself on the line with my peers. I was no longer playing the classic "managing director" role. I spent a lot of my time working with these grassroots teams - and that's a pretty big gamble. This thing had to come off. Otherwise, 18 to 24 months later, I could have egg all over my face. I could see my colleagues thinking, "Okay, you held workshops. Sure, the teams got a little excited - but how much really happened?" If you go through all that and France doesn't turn around, it's pretty scary.

Second, I feel strongly about the people I've trained and sent back to their businesses to make things happen. Those are my people, not just abstractions in an HR report. It's the same feeling you have as a teacher, a coach, or even a parent. You've done what you can to prepare them - but now they've got to go and do it. You want to do it for them, you want to make it all come out right - but you can't. What you can do is feel for them.

Finally, the scariest part is letting go. You don't have the kind of control that traditional leaders are used to. What you don't realize until you do it is that you may, in fact, have more control - but in a different form. You get more feedback than before. You learn more than before. You know more through your own people about what's going on in the marketplace and with customers than before. But you still have to let go of the old style of control.

A big part of your leadership style involves a shift toward teaching. What does it take to be a leader-teacher?

Two things. First, you have to know your material. Whatever you're teaching, you have to know it forward, backward, inside, and out. At the start of this process, when my team and I taught the business model ourselves, we had to know it cold. If you're teaching your people about market segmentation or value propositions, you've got to have a thorough understanding of everything behind each of those concepts.

Second, as a leader and as a teacher, you've got to open yourself up. You simply have to make it personal. A lot of executives I know can get up in front of an audience and give a presentation. They're very comfortable speaking in the third person: "Here's what the company is doing." It's a safe way of talking. You don't have to put an "I" in very many sentences.

But real teaching means giving of yourself. To reach people, I had to talk in the first person. All of a sudden, I'm standing in front of 70 folks, talking about my transformation. That creates a personal connection - and it changes how we talk with each other and how we work with each other. After that, because of this personal connectedness, I can call up those folks anywhere in the world and talk in a very direct way.

Where do you, as a leader, get the chance to make a personal connection with your people?

One of the most important techniques we use is the fishbowl. The name describes what it is: I'm sitting in the middle of the room with members of my management team. One team is in the center with us, and the other teams are all around us in an outer circle. Everyone is watching as the group in the center talks about what it's going to do and about what it needs from me and my colleagues to be able to do that. That may not sound revolutionary - but in our culture, it was very unusual for anyone lower in the organization to talk so directly to a managing director.

In the fishbowl, the teams in the hot seat lay out their business plans in front of me and all the other teams. They think the pressure is on them to measure up. The truth is, the pressure is on me. The first time I'm not consistent, I'm dead meat. If a team brings in a plan that's really a bunch of crap, I've got to be able to call it a bunch of crap. If I cover for people and praise everyone, what do I say when someone brings in an excellent plan? That kind of straight talk represents another big culture change for Shell.

The whole process creates complete transparency between the people at the coal face and the top-management team. At the end, these grassroots folks go back home and say, "I just cut a deal with the managing director to do these things." It has completely changed the dynamics of our operation.

What learning tools produce the most change?

Breakthrough learning can come from the most unexpected places. For instance, we give teams an assignment: "Here's a video camera. In the next 90 minutes, make a 5- or 6-minute video that illustrates the old Shell and the new Shell." That one exercise completely changed the future of our business in Austria.

We had an Austrian team in our first program, and it was clear from the start that it didn't want to be there. During the exercises we did in the first workshop, out of the six teams participating, the Austrians consistently came in seventh! Whatever the exercise was, you could count on the Austrians, individually and collectively, to be last. As the week wore on, they were having less and less fun. They were getting shown up in front of their peers and in front of management, and I wasn't sharp enough to know how to deal with it. We were all just soldiering on, hoping that something would happen to turn things around. What turned things around was the video exercise.

As it happened, the Austrian team leader was called away suddenly, and he wasn't there for the exercise. Now this struggling team was leaderless and facing an "unconstrained problem": Here's your video camera, you've got 90 minutes, go make a video. Good luck!

What the team came up with was the story of a guy who has to go to the bathroom very badly. The "old Shell" video opens with this guy walking cross-legged, in great pain, looking for the men's toilet. He comes to the door marked "Men," and it's locked. He goes through a bureaucratic procedure to fill out the form required to open the door. The person he hands the form to has to get it approved by his supervisor. That person rings a bell, and the supervisor comes over and reviews the whole process. Meanwhile, the guy is practically turning green - until he's finally given the key, and he lunges into the men's room. That's the "old Shell."

Then came the "new Shell." The same guy goes to the men's room, but now there's a doorman who ushers him through with a smile. As he goes into a stall, he's handed his own personal roll of toilet paper. When he comes out, he's given his own towel. The service attendant even tries to zip up the guy's fly. The sequence was absolutely hysterical.

We showed every team's video and picked the best one. The Austrians won hands down - and that was the beginning of their turnaround. Their leader came back to an energized team, and he began to realize how much talent his team had and how capable his team members were. Over the course of the week, they changed the way they worked together. Later, they dramatically improved their business performance in Austria.

What kind of follow-up do you do after teams leave the program?

I do a lot of field visits - for example, going on bus rides with teams. I did one in Germany last week. We started out from Hamburg with a handful of double-decker buses, each loaded with 30 or 40 people from different levels and functions in the operation. While we're on the buses, the trip is like a traveling seminar, with discussion groups and videotapes. In the course of a day, we visit three or four customers, as well as other sites.

On this particular trip, we went to see a Mercedes dealership that we sell lubricants to. We spent an hour with the owner and his top people going over their business, what role we play, how we could do better. We walked through his showroom, and the owner told us about his selling issues. We went into his repair shop, and he described what it's like to run his backroom operation. Next we went to a Shell gas station. Everyone got off the bus and talked to the customers: Why were they there? Why did they choose us instead of our competitors? What could we do better? Our third stop was at a competitor's site. There we just observed: What are the differences? What do they do better than we do? What would we do to improve that site if we had it?

Then we got back on the buses and talked about what we'd seen. We all wrote down our impressions, and when we got back, we went over what we'd learned from the visits. It's a great learning tool - it breaks down the barriers between functions. You learn collectively, you learn to understand the customer, and you share the responsibility to fix the customer's problems - whether you're in sales or accounting.

What's your own take-away on leadership and change?

As people move up in organizations, they get further away from the work that goes on in the field - and as a result, they tend to devalue it. People get caught up in broad strategic issues, legal issues, stakeholder issues. But what really drives a business is the work that goes on down at the coal face. It's reliability, it's producing to specification, it's delivering to the customer.

Now, if that's true, then being connected to people in the field is even more critical. They need all the support you can give them. They need a common understanding of where they're going, and they need a common understanding of the business. That's what drives execution. And it's what provides the discipline in a grassroots change program.

Richard Pascale was a faculty member at the Stanford Business School for 20 years and is now an associate fellow of Oxford University. Based in San Francisco, he is a well-known expert on corporate transformation. His article "Fight, Learn, Lead" appeared in the August:September 1996 issue of Fast Company. You can visit Royal Dutch/Shell on the Web (www.shell.com) and reach Steve Miller by email smiller@compuserve.com .

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