Shell Plots Massive IT Outsourcing Deal

By Lawrence Walsh  |  Posted 2008-01-03 Print this article Print

As crude flirts with the $100 per barrel market, the world's second largest oil company, Shell, will replace more than 3,000 IT professionals with managed services to reduce operating costs and ease downward profit pressure.

More than 3,000 Royal Dutch Shell staff and contract IT workers are waiting their find out their fates as the European oil giant is moving closer to outsourcing much of its IT operations.

Shell executives decided to slash thousands of IT positions in favor of outsourcing as part of a massive corporate restructuring designed to reduce pretax operating costs by at least $500 million annually, Shell spokesperson Alexandra Wright said in a telephone interview with Baseline.

The Anglo-Dutch oil giant began studying restructuring options in 2005 to simplify operations and create greater operational efficiencies. Shell is the world's third largest company with more than 108,000 employees in 130 countries. The review of its IT infrastructure and operations began in 2006, as the company shift its operations strategy to greater reliance on "shared service centers," or regional hubs that support everything from business, human resource and IT operations for multiple countries.

Outsourcing is already a large part of Shell's IT operation, with contractors holding more than 40 percent of its 3,600 IT workforce. The company started studying broader outsourcing last year, and announce in December its intentions to contract much of its IT operations.

Read Baseline's latest update on how the Union is stepping up pressure on Shell to compensate displaced workers.

Wright said Shell expects to sign outsourcing contracts sometime this year. Published reports in energy and European press say that the contracts could be executed by July. The leading companies competing for all or part of the deal include EDS, AT&T, Deutche Telekom's T-Systems.

Shell declined to specify what IT functions and infrastructure would be outsourced, citing ongoing contract negotiations. Shell remains mum on the issue, but leaked memos indicate 3,200 will be affected. When complete, Shell's internal IT workforce would be reduced to 400. More than half of the affected jobs are held by Shell staff; the balance are contractors and consultants.

The restructuring follows Shell's decision to scale back North Sea oil production and exploration operations. Like other oil companies, the Anglo-Dutch company is coming under profit pressure with the increasing price of crude oil. In published reports last month, Shell CEO Jeoren Van der Veer said product costs had increased 65 percent since 2005. Unlike the oil spikes of 2005 and 2006 that produced record oil profits, high crude, distribution and refinery costs has eroded profits.

In terms of revenue, Shell falling just behind Wal-Mart and Exxon Mobil on the list of the world's largest companies. Its 2006 profits were $25.4 billion on revenues of $318 billion. By comparison, Exxon Mobil's profits were $39.5 billion on $347 billion revenue for the same period. BP, the world's fourth largest company and third largest oil company, had profits of $22 billion on $274 billion revenue.

Lawrence Walsh Lawrence Walsh is editor of Baseline magazine, overseeing print and online editorial content and the strategic direction of the publication. He is also a regular columnist for Ziff Davis Enterprise's Channel Insider. Mr. Walsh is well versed in IT technology and issues, and he is an expert in IT security technologies and policies, managed services, business intelligence software and IT reseller channels. An award-winning journalist, Mr. Walsh has served as editor of CMP Technology's VARBusiness and GovernmentVAR magazines, and TechTarget's Information Security magazine. He has written hundreds of articles, analyses and commentaries on the development of reseller businesses, the IT marketplace and managed services, as well as information security policy, strategy and technology. Prior to his magazine career, Mr. Walsh was a newspaper editor and reporter, having held editorial positions at the Boston Globe, MetroWest Daily News, Brockton Enterprise and Community Newspaper Company.

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