In the mid-1990s, the Royal Dutch/Shell Group had to face the fact that its giant European downstream operations—refining and fuel marketing—were making unacceptable returns. The corporation’s leaders decided on a large-scale reorganization to reshape Shell Europe’s 28 national operating companies by creating a pan-European structure. The goal: raising business returns significantly by gaining scale and critical mass at the European level while retaining strong local customer relations.

This was a tall order. The national operating companies, which had their own support operations, were replaced by three separate businesses—retailing, commercial (business to business) and manufacturing, and supply and distribution—each managed at the pan-European level. In the process, more than 3,000 jobs vanished.

The difficult decisions and the changes made during the past four years are now paying off. Shell Europe has turned itself around, with returns rising to more than 15 percent in 2001 on $6.5 billion of capital employed. Costs have been cut by more than $500 million and capital employed by $2 billion. Shell is Europe’s largest fuel marketer and biggest fuel retailer, with 14,000 sites. The company’s executives hold up the success of Shell Europe Oil Products as a model for other regions.

In many respects, retailing...