Good connection: Jorma Ollila dials into energy

Q:   What attracted you to the energy sector?

A:   Energy intrigued me because in the next five to 10 years it is perhaps the industry that will have the biggest impact on people’s lives across the globe. The energy challenge is about finding enough hydrocarbons to generate growth and provide energy efficiently while minimising the impact on the environment. As growing concern over climate change shows, this is one of the greatest challenges. It is a highly interesting industry.

When I thought about what I might do after Nokia, as an industrialist I was not attracted to a services industry such as finance. While it was a unique experience to be with Nokia and in the information technology industry over such an interesting period as the last 20 years, this job appealed to my industrial background and to my industrial mind. It also gives the opportunity to make a difference.

Q:   When you were president of the nature club at secondary school in Finland did you ever think you might one day become chairman of a global energy company?

A:     I don’t think I had any idea about my future career as an industrialist in those days. I thought my background as a hobby nature photographer and ornithologist at school might lead to an academic career in natural sciences, or that my interest in mathematics and physics would land me in academia. Those thoughts were in the back of my mind when I was photographing sea eagles in my birthplace and read Rachel Carson’s “Silent Spring”. (Carson’s book, published in 1962, has been widely credited with launching environmentalism – ed.)

Q:   What are your impressions of the energy business after more than a year at Shell?

A:   There were no big surprises, but the management challenge was much more complex than expected and would be seen as such by any newcomer. Some say Shell is an Anglo-Dutch company. In fact it is truly global, and the complexity that arises from that, both regulatory and in other fields, is huge. The intensive interaction with governments and different jurisdictions is pretty different from what I had seen in my career so far.

I am very impressed by the company’s global nature and all the highly committed people from very diverse backgrounds who have a very clear Shell DNA. On my travels within the organisation I found a very good culture to work with. I’m an engineer with a curious mind and there are many like-minded people in Shell.

Q:   What differences and similarities do you see when comparing cultures at Shell and Nokia?

A:    I don’t see huge differences. Nokia is essentially a company that was formed by a bunch of engineers over the past 15 years who believed they could do something great by designing and manufacturing electronic gadgets that make a difference. They made sure it was a culture in which people enjoy going to work, an engineering culture where a lot of care and attention is paid to human aspects. So it’s not so different from the best of what you see in Shell.

The biggest change is timing. At Nokia, it’s plan today, decide to act tomorrow, make an implementation plan the day after and then run with the team. There is no time for extensive planning. You have 18 months for product planning and design for a product with a lifetime of 18 months. By that time the next product must be in the pipeline. At Shell, time has a very different meaning, what with the complexities of huge capital spending, technology, regulations, safety and other considerations and all of that against the backdrop of the global nature of upstream and downstream operations.

At Nokia the undercurrent is long-term research in an extremely hectic environment. If you miss a beat you fall from grace very, very fast. It’s a brutal business. Here you have to make very measured and well thought-out bets.

Q:   How has your experience as a CEO with operational responsibilities influenced the way you approach your current role?

A:   Nokia is a global technology company in a fast-moving, consumer-driven business and there are several aspects that can be helpful. I am very much a “technology optimist”. The experience of how Nokia built up spending on research and development (R&D) from a couple of 100 million euros 15 years ago to close to 5 billion euros ($6.86 billion) today will be useful at Shell in tackling the technology challenge.

Understanding what brand value can bring to business, whether it’s in engineering or consumer driven is also something that I’ve seen and lived through. Nokia started as a conglomerate of rubber, wood and cables companies and established an early foothold in the mobile telephone business in the 1980s. 'We studied the great global brands and developed an approach to manufacturing, marketing and product innovation that used the Nokia brand as its lens when designing, distributing, marketing and selling our products'. Consequently Nokia became one of the world’s leading suppliers of mobile phones, creating considerable shareholder value. The brand was key to this success. In the same way, Shell’s brand strategy has an important role to play in contributing to the company culture, adding value for all stakeholders and supporting our financial performance.

Q:  What role do you see for international oil companies like Shell in the next 25-50 years, given the resurgence of resource nationalism and the rise of national oil companies (NOCs) whose capabilities are constantly improving?

A:   I feel very confident about the continued role and opportunities for integrated oil majors like Shell whose strength lies in technology and innovation and the capability of being a partner in complex large projects. That’s what it will all be about in the future. It is a human resource issue that can really yield results when tackled well. The increasing importance of NOCs and resource nationalism doesn’t make the role for Shell easier, but there will be a role.

The technology aspect and project complexity will increase over time in areas from non-conventional new energy sources to renewable technologies and gas-to-liquids. It’s all about cumulative know-how, and that’s not something you snap up by buying a couple of patents, like you can sometimes do in information technology.

Q:   Shell is putting greater emphasis on technology to differentiate itself from competitors. Are there lessons that can be learnt from the mobile telephone industry?

A:   The microprocessor changed the paradigm of what you can do in a short time and turned life upside down over the past 15 years. In most core technology areas, including some energy technologies, we have been able to do more than was thought possible just 30 years ago. If you invest in technology, you typically get better results than a trend analysis or a layman would predict. However, you have to have the courage to take research bets and accept that some investments will fail, but will also help you to know what to try next.

I am a technology believer and would encourage a positive attitude coupled with a lot of courage and R&D investment – particularly after a period of more than 20 years in the energy business when capital expenditure and research investments were very low.

Q:   What do you see as the role of innovation at Shell and are we doing enough to foster it?

A:   Innovation is fundamentally important. You need to encourage it as an attitude that fosters adrenalin and momentum in the company, as well as to attract talented young people from academia and business who want to work in a forward-looking environment. Much has already been done to foster innovation, with investment in recruitment and for facilities to attract top people. The board is prepared to make that continue.

Q:   Turning to environmental and social responsibility, are there ways in which Shell could strengthen its social performance and its reputation as a good neighbour?

A:   Over the past 10 months I have travelled to Sakhalin, Nigeria, Malaysia, Brunei, the Gulf States, the Gulf of Mexico, Canada and in Europe to see our operations and learn about the environmental and social aspects of the business. It’s quite evident that Shell is one of the foremost organisations in terms of how it operates and that deeply impresses me.

At the same time, oil and gas majors face huge expectations. We have to ensure we achieve top quartile performance in the key areas of health, safety and the environment and that our behaviour with regard to communities is exemplary, 100% perfect, if not 110%. This is not an area where you can rest on your laurels. A lot is being done on the ground, but we need to communicate both our goals as well as achievements as part of the task of meeting expectations.

Q:   How will Shell’s increased activity in frontier areas like the Arctic influence our business in the future?

A:   Difficult circumstances such as in the Arctic or deep water mean that you must invest in technologies to continue to keep Shell at the forefront in terms of the ability to access oil and gas in the most difficult conditions. I am sure those investments will have good returns in the long term.

There’s a training job to be done, so it’s also a human resource challenge. The number of seasoned project staff needed to plan, implement and run operations is not about to go down. I underline the word “seasoned”. Very often you can use local companies for much of the subcontracting on complex big projects, but project management must remain the golden nugget of expertise where Shell has a competitive advantage. We need experienced people with a track record of working in tough frontier areas.

Q:   How do you think growing concern over climate change and CO2 emissions will affect Shell’s business in the decades to come?

A:   The first thing young people ask nowadays, whether you talk to them at a fireside party, at university or secondary school, is about industry’s CO2 impact. This is so pervasive in people’s minds that many will measure oil and gas industry players like Shell against their track record in addressing climate change and the challenge of CO2 emissions.

It is a major issue in terms of how we are seen and it has a direct business impact. We have to make sure we are at the forefront of understanding how CO2 emissions can be cut and how emissions targets can be reached. We must see whether we are setting the right targets and ask whether we are doing enough. It involves all parts of the business.

We are well on our way in Shell, as awareness is high. The depth of know-how on environmental issues and the professionalism with which our goal-setting and subsequent actions are determined is impressive. But we have to make sure we can get ourselves onto a path that gives us long-term results that are truly the best amongst our peers.

Q:   Are you satisfied that Shell is doing enough to deal with the challenges posed by CO2 emissions?

A:   Shell was one of the first companies to set emissions targets. A lot has been done and the board is very happy with the progress. However, we have to continue to be active and this needs a lot of management attention. Yes, I am satisfied so far, but much more needs to be done because this is crucial for our image, in addition to being absolutely the right thing to do for the long-term health of our business.

Q:   What role do you see for the Board of Directors in how Shell tackles CO2?

A:   The board has an overview role here and works with the management team in order to make sure the company has a viable business strategy to successfully extract oil and gas resources and develop and sell them to the public in a sustainable, environmentally friendly way.

I am impressed with the management team’s awareness and how they are addressing these issues. Shell has all the ingredients in place to be hailed 20 years from now as the one company that put technology to the right use for the best possible result, from the globe’s point of view. The board will support the management team at every opportunity to make that happen.Our yardstick is to make sure that all technological and other measures have been taken to reduce CO2 emissions. We will ask questions and examine strategy and actions against that yardstick.

Q:   Are you satisfied with plans to extract unconventional resources, such as oil sands, that go hand-in-hand with increased CO2 emissions?

A:   Technology provides substantial opportunities to ensure that CO2 emissions are cut significantly. Unconventional resources like oil sands will become a significant part of oil resources. I think the technological work in this area so far has been very good and we can look forward to more good news.

Q:   Alternative fuels such as ethanol and biodiesel are increasingly being developed outside the oil industry by large agricultural firms. Are there implications for Shell in the long-term?

A:   Shell is actively distributing first-generation ethanol and biodiesel products. At the same time we recognise that first-generation fuels are not a solution as it takes too much energy to produce them. Moreover, it is not ethically viable to produce alternative gasoline when it competes with the food chain, and we are already seeing the negative impact on grain crop prices in the Americas. Shell is in a good position to be a technology partner and provider of second-generation biodiesel and ethanol that do not compete with the food chain.

Q:   Companies are under increasing pressure from shareholders, hedge funds and private equity groups to create more value, sometimes even by calling for a break-up of companies. What are the implications for Shell?

A:   The world is much more brutal than it was 10 or 20 years ago and the message for Shell and all other companies is very clear: the activist role of hedge funds and private equity, in addition to efficiency on capital markets, means there are no safe havens. You can’t take a holiday. Every week, every month, you have to make sure that your business is in good shape, you have a viable strategy and to show you are implementing it. Through your results you need to show consistently that you mean business. The market will give you a little less time to adapt than you would like, but it will give you enough time in the end.

Q:   Are the right governance structures now in place at Shell?

A:   Governance is an area where you need to improve all the time. I was really lucky to arrive after the unification of Royal Dutch and Shell Transport in July, 2005. The new structure was in place and everyone wanted to make it a success as the need was obvious. We truly have one board in place now. It’s much more of a board of true dialogue than before and it’s not dialogue for the sake of it. Every meeting makes some progress. We have been able to manage time very well even if we have huge, complex issues on the agenda. So we’re in very good shape on that front.

*Jorma Ollila spoke to Wendel Broere

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