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Doctoral Program “Research on Organizational Paths” Business Administration and Economics Beyond Path Dependency Why and How Mineral Oil Companies Support.

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Presentation on theme: "Doctoral Program “Research on Organizational Paths” Business Administration and Economics Beyond Path Dependency Why and How Mineral Oil Companies Support."— Presentation transcript:

1 Doctoral Program “Research on Organizational Paths” Business Administration and Economics Beyond Path Dependency Why and How Mineral Oil Companies Support the Development of Sustainable Fuels International Workshop “Innovations, Institutions and Path Dependency” Zurich, 16 th – 17 th of April 2007

2 © Jan Strobel & Stephan Duschek2 International Workshop “Innovations, Institutions and Path Dependency” 2Building a Heuristic Model for Studying Path Management 3Path Management by Royal Dutch Shell 4Conclusions Agenda 1Introduction: Incumbents and Paths

3 © Jan Strobel & Stephan Duschek3 International Workshop “Innovations, Institutions and Path Dependency” Basics: Path dependence & path creation  The classical concept of path dependence  contingency, increasing returns & lock-in  Getting agency back in – path creation  recursivity, mindfulness, building up momentum Introduction: Incumbents and Paths

4 © Jan Strobel & Stephan Duschek4 International Workshop “Innovations, Institutions and Path Dependency” The gap: Incumbents as path entrepreneurs  Virgin or existing markets?  Garud & Karnøe’s (2001, 2003) concept focuses on entrepreneurial path agency per se in virgin (post-it® / wind) markets  Mass or niche markets?  Kemp & Rip (2001) focus on the latter one  Incumbents or new entrants?  From existing technological paths there are winners and loosers So: What about the incumbents of the old path dependent mass market? How do they act regarding to the path? Introduction: Incumbents and Paths

5 © Jan Strobel & Stephan Duschek5 International Workshop “Innovations, Institutions and Path Dependency” The contribution: ‘Path Management’  Definition: ‘Path management’ is understood as an active management of the old as well as potential new paths by cultivating increasing returns.  This is a question of ‘path exploitation’ & ‘path exploration’  Research question: “Why and how does Shell as an incumbent of the existing path support the development of sustainable fuels?” Introduction: Incumbents and Paths

6 © Jan Strobel & Stephan Duschek6 International Workshop “Innovations, Institutions and Path Dependency” 2Building a Heuristic Model for Studying Path Management 3Path Management by Royal Dutch Shell 4Conclusions Agenda 1Introduction: Incumbents and Paths

7 © Jan Strobel & Stephan Duschek7 International Workshop “Innovations, Institutions and Path Dependency” Combining structure & agency  Two building blocks for the heuristic framework: (a) The ‘gradualist path concept’ (Sydow et al. 2005, 2004; Windeler 2003); (b) The ‘actor-centered institutionalism’ (Mayntz & Scharpf 1995).  Common idea: To connect structure & agency by a recursive understanding. Building a Heuristic Model for Studying Path Management

8 © Jan Strobel & Stephan Duschek8 International Workshop “Innovations, Institutions and Path Dependency” Analytical separation of structure  Technological paths  increasing returns due to e.g. economies of scale, technical interrelatedness, sunk costs  Regulative institutions  laws, norms, taxation  Actor-environment  competition, new entrants, coalitions Building a Heuristic Model for Studying Path Management

9 © Jan Strobel & Stephan Duschek9 International Workshop “Innovations, Institutions and Path Dependency” Structure influencing agency Building a Heuristic Model for Studying Path Management Organisation Technological path Actor-environment Regulative institutions

10 © Jan Strobel & Stephan Duschek10 International Workshop “Innovations, Institutions and Path Dependency” Dealing mindfully with paths: (1) Types Sydow et al.’s (2005) gradualist path concept: Building a Heuristic Model for Studying Path Management Source: Sydow et al. 2005:5.  ‘Path management’ encompasses all three types of mindful path agency

11 © Jan Strobel & Stephan Duschek11 International Workshop “Innovations, Institutions and Path Dependency” Dealing mindfully with paths: (2) ‘Content’  How to deal with paths is a question of strategy, e.g. niche-market-strategies (Kemp & Rip 2001).  Regarding existing and future paths, such strategies have to address the sources of the increasing returns of these paths. What are appropriate strategies for incumbents in path dependent mass markets? Building a Heuristic Model for Studying Path Management

12 © Jan Strobel & Stephan Duschek12 International Workshop “Innovations, Institutions and Path Dependency” 2Building a Heuristic Model for Studying Path Management 3Path Management by Royal Dutch Shell 4Conclusions Agenda 1Introduction: Incumbents and Paths

13 © Jan Strobel & Stephan Duschek13 International Workshop “Innovations, Institutions and Path Dependency” Structure: (1) The ‘fossil fuel path’  The fossil fuel system is path dependent due to:  Symbiosis between fuel and combustion engine  Complementarity between the stock of vehicles and the fuelling station-infrastructure  High sunk costs in the production chain  Need to finance the day-to-day exploitation of the oil and gas reserves (???) Path Management by Royal Dutch Shell

14 © Jan Strobel & Stephan Duschek14 International Workshop “Innovations, Institutions and Path Dependency” Structure: (2 & 3) The institutional & actor-environment in Germany Path Management by Royal Dutch Shell Regulative InstitutionsActor-Environment  Tax exemptions 1992/2003 & CAP 1992 favour bio-fuels  Tightening regulation of CO2 & exhaust emissions  2003: Long term perspective (EC directive)  2006: Obligation to blend  Fuel market is highly competitive and fragmented  New entrants in the fuel- market since mid 1990s  New actor coalitions were established (VW-Ufop 1995)  Request for cleaner fuels  bio-diesel developed from being a niche-product (1990s) into an established alternative in the mass market (2000s).

15 © Jan Strobel & Stephan Duschek15 International Workshop “Innovations, Institutions and Path Dependency” Agency (1): From resistance to action  1991: Shell rejects sustainable fuels as too costly & underdeveloped.  2004: Shell starts to blend bio-diesel in Germany due to the tax exemptions  2005: Shell becomes a minority shareholder in CHOREN Industries, a company developing a synthetic Biomass-to- Liquid (BtL) diesel.  2006: Tax exemptions were granted to BtL until 2015 in Germany  2006: Founding of the Alliance for Synthetic Fuels in Brussels  2007: Scheduled start of the first BtL-commercial plant ( t/a.). Path Management by Royal Dutch Shell

16 © Jan Strobel & Stephan Duschek16 International Workshop “Innovations, Institutions and Path Dependency” Agency (2): Why choosing BtL?  BtL significantly lowers CO2-emissions;  BtL as an additive significantly enhances the quality of conventional diesel (emissions);  BtL pure & as a blend needs no modification in the existing infrastructure / vehicle fleet;  BtL fits to Shell’s existing GtL- / V-Power diesel- business;  H2 is postponed. Path Management by Royal Dutch Shell

17 © Jan Strobel & Stephan Duschek17 International Workshop “Innovations, Institutions and Path Dependency” Agency (3): The BtL-story as path management  BtL is an exploration-story which supports the currently exploited path:  Symbiosis  enhances the symbiosis due to its quality  Complementarity  uses the existing infrastructure  Sunk costs  does not challenge the current business (fits into the downstream-chain & merges with existing products & timing? & limited potential?)  Refinancing (???)  adds ‘new’ resource, not a substitute Path Management by Royal Dutch Shell

18 © Jan Strobel & Stephan Duschek18 International Workshop “Innovations, Institutions and Path Dependency” Agency (4): Supportive measures  Coalition building with VW & DaimlerChrysler as well as parts of the German federal governmental agencies  Distribution of the research & set-up costs +  Securing a supportive regulative framework Path Management by Royal Dutch Shell

19 © Jan Strobel & Stephan Duschek19 International Workshop “Innovations, Institutions and Path Dependency” Path management & context Path Management by Royal Dutch Shell Organisation Technological path Actor-environment Regulative institutions Supportive BtL- legislation Tax exemptions, blend-obligation, CO2-question Competition; new entrants, new coalitions; request for cleaner fuels Building new coalitions New fuel but better sym- biosis, old infrastructure, old products, new resource Sunk costs, symbiosis, comple- mentarity, financing (?)

20 © Jan Strobel & Stephan Duschek20 International Workshop “Innovations, Institutions and Path Dependency” 2Building a Heuristic Model for Studying Path Management 3Path Management by Royal Dutch Shell 4Conclusions Agenda 1Introduction: Incumbents and Paths

21 © Jan Strobel & Stephan Duschek21 International Workshop “Innovations, Institutions and Path Dependency” (1)  Shell opens up a window of opportunity for a sustainable fuel in the mass market. By that Shell furthers the current fossil fuel-path.  The technological & product design of BtL is central in order to build on the current path. Conclusions

22 © Jan Strobel & Stephan Duschek22 International Workshop “Innovations, Institutions and Path Dependency” (2)  Causes for changes in the technological path are easy to identify if the path is separated analytically from its institutional and actor-environment.  Path management encompasses exploitation & exploration which mutually benefit from each other.  Possibilities for path management can be identified if the sources of the increasing returns are considered.  Path dependent mass markets can be redirected by strategies of layering & connecting. Conclusions

23 © Jan Strobel & Stephan Duschek23 International Workshop “Innovations, Institutions and Path Dependency” Thank you!

24 © Jan Strobel & Stephan Duschek24 International Workshop “Innovations, Institutions and Path Dependency” 2Building a Heuristic Model for Studying Path Management 3Path Management by Royal Dutch Shell 4Conclusions Back up 1Introduction: Incumbents and Paths 5Back up

25 © Jan Strobel & Stephan Duschek25 International Workshop “Innovations, Institutions and Path Dependency” Well & (transport) Tank farm & tank lorry Refinery Filling station Automobile tank Combustion engine Automotive industry & suppliers; (Customers) Majors & SME retailers; (Customers) Majors, ??? Majors Sunk costs & reliance on refinance Coordination (‘hen-or-egg-problem’); complementarity The value chain of fossil fuels

26 © Jan Strobel & Stephan Duschek26 International Workshop “Innovations, Institutions and Path Dependency” Characteristics of the fuel Characteristics of the combustion engine* Tightened regulation (EURO I-V) * Including the aftertreatment of the exhaust gases Need to enhance the combustion & the aftertreatment process Request for ‘cleaner’ fuels Tightened regulation (Sulfur ‘free’) Research for cleaner fossil fuels (t2, …)(t1) Enhanced interrelation of fuels and engines (+) + The ‘virtuous’ interrelationship between fuel and combustion engine

27 © Jan Strobel & Stephan Duschek27 International Workshop “Innovations, Institutions and Path Dependency” Need to finance the day-to-day business Need to provide a high reserve- replacement-ratio Oil exploitation Search for new technologies & unconventional resources Alternative fuels + Need to explore new resources + New resources for exploitation are added The ‘virtuous’ circle of oil exploitation

28 © Jan Strobel & Stephan Duschek28 International Workshop “Innovations, Institutions and Path Dependency” Agency (1): From resistance to action  1991: Shell rejects sustainable fuels as too costly & underdeveloped.  2004: Shell starts to blend bio-diesel in Germany due to the tax exemptions  2005: Shell becomes a minority shareholder in CHOREN Industries, a company developing a synthetic Biomass-to- Liquid (BtL) diesel.  2006: Tax exemptions were granted to BtL until 2015 in Germany  2006: Founding of the Alliance for Synthetic Fuels in Brussels  2007: Scheduled start of the first BtL-commercial plant ( t/a.). Path Management by Royal Dutch Shell 1995: Brent Spar 1997: Global Climate Coalition 2001: Reserves


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