Reinventing the Hierarchy, the Case of the Shell Chemicals Carve-Out

19 Pages Posted: 18 Feb 2003

Date Written: April 2002 6,


This paper reports on a major portfolio restructuring at Shell. The restructuring involved the divestment of a significant part of Shell?s highly integrated chemical business. We study this event and -particularly- the related control issues, using Transaction Cost Economics (TCE) as our basic frame of reference. Our analysis shows that many of the problems encountered by Shell in this process are strongly related to asset specificity and the need for adaptive mutual coordination and integration. In a situation in which asset specificity is high and where adaptive responses are important, TCE reasoning suggests internal (hierarchical) governance to prevail because of its superior ability to foster coordinated adaptation. Shell, however, opted for hybrid control. But our analysis demonstrates that the new, intendedly hybrid structure mimics the hierarchy in almost all fundamental respects, and that it functions in an intrinsically hierarchical way. These findings are in line with TCE, and our study provides an illustration of the relevance of TCE in making sense of control.

Keywords: management control, transaction cost economics, case research

JEL Classification: M, M41, L22

Suggested Citation

van den Bogaard, Michel A. and Spekle, Roland F., Reinventing the Hierarchy, the Case of the Shell Chemicals Carve-Out (April 2002 6,). Available at SSRN:

Michel A. Van den Bogaard

Twister BV

Einsteinlaan 10
2289 CC Rijswijk (ZH)

Roland F. Spekle (Contact Author)

Nyenrode Business University ( email )

Straatweg 25
P.O. Box 130
Breukelen, 3620 AC

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