Borealis is the outcome of a merger of the petrochemical divisions of Statoil Norway and Neste Oy Finland in 1994. It is a fully integrated and the biggest European polyolefins producer with production plants in different European countries and it’s head office in Copenhagen / Denmark. Directly after the merger Borealis had to create a common budget for the combined entity. The separate budgets of Statoil and Neste in the past had the traditional purposes of budgets: make planning and controlling easier for the management. The head of budgeting of Neste Oy became head of corporate control of Borealis and he was willing to leave the traditional budgeting behind and replace it by a new and innovative management steering approach with different purposes. During a period of three years he abandoned the traditional budgeting process and replaced it by a conglomerate of different
management tools.
This case describes the reason why and how it came to the different budgeting approach and what kind of concept was implemented instead of the traditional budgeting process. It also includes the hopes, which the Borealis management had with the different approach and the results of it. In the following shall be discussed what the advantages and the disadvantages of the new financial and steering system are compared with the abandoned budgeting system either from a theoretical and practical point of view. For this discussion the traditional budgeting process is described in the first place. It includes the budgeting process within Borealis and in theory. Then the new approach of Borealis is described in part 3. In part 4. the advantages will be discussed and in part 5 the disadvantages will be figured out and discussed. In the last part a conclusion will be done, which will try to judge if the new financial and steering approach within Borealis does really achieve it’s expected purposes compared with the abandoned budgeting system.
Table of Contents
1. Introduction
2. The abandoned budgeting system of Borealis
3. Principles of the new financial and steering system at Borealis
4. Advantages of the new system
5. Disadvantages of the new system
6. Changes in the companies performance
7. Conclusion
Objectives and Topics
This assignment examines the strategic transition of Borealis from a traditional budgeting process to an innovative, decentralized financial steering system. The research focuses on evaluating whether these new management tools—such as the Balanced Scorecard and rolling forecasts—effectively address historical organizational challenges or simply introduce new operational complexities.
- Analysis of the traditional budgeting process and its inherent limitations.
- Evaluation of the "Beyond Budgeting" approach and its specific implementation at Borealis.
- Critical comparison between traditional hierarchical control and new, flexible steering models.
- Assessment of the practical impact of these management changes on company performance.
Excerpt from the Book
3. Principles of the new financial and steering system at Borealis
After the traditional budgeting process has been eliminated Bogsnes team implemented the new financial and steering system as from 1998, which contained of four specialised management tools. These management tools were all very hip in the middle of the 1990ies and were tried out in a lot of companies as an innovative way to solve old problems. These four management tools were specifically:
1. Rolling Financial Forecast
Instead of forecasting a total period ahead once a year the forecasting period was enlarged to five quarters instead of four and the forecasting was not done once a year but four times. The intention to do this was to adopt the actual forecast faster to changing circumstances, products and markets. The quarterly predicted financials and costs were not used as a measurement hurdle for the managers performance and so it was hoped that playing games and fraud of the managers concerning the creation and interest driven steering of forecasts could be avoided. This would lead to more reliable forecasts, which are closer to reality.
Summary of Chapters
1. Introduction: Provides an overview of the merger between Statoil and Neste Oy and outlines the shift in corporate management strategy toward a new steering approach.
2. The abandoned budgeting system of Borealis: Details the drawbacks of traditional budgeting, such as its lack of flexibility and the tendency to encourage gaming behaviors by managers.
3. Principles of the new financial and steering system at Borealis: Describes the four core tools implemented—rolling forecasts, balanced scorecard, activity-based cost management, and decentralized investment management.
4. Advantages of the new system: Discusses how the new tools provide increased flexibility, improved transparency, and a better alignment with long-term company strategy.
5. Disadvantages of the new system: Examines potential risks such as information overload, administrative overhead, and the potential for misinterpretation of competitor-based benchmarks.
6. Changes in the companies performance: Analyzes the actual financial outcomes post-implementation, noting that profit and cost improvements were not as significant as theoretically expected.
7. Conclusion: Summarizes the findings, suggesting that new tools do not automatically guarantee better financial performance if the underlying business environment remains challenging.
Keywords
Borealis, Budgeting, Financial Steering, Rolling Forecast, Balanced Scorecard, Activity-Based Cost Management, Investment Management, Strategic Management, Performance Measurement, Corporate Control, Decentralization, Management Tools, Beyond Budgeting.
Frequently Asked Questions
What is the primary focus of this assignment?
The assignment focuses on the transition of the company Borealis from a traditional budgeting system to a new, flexible financial and steering model during the late 1990s.
What are the central thematic fields covered?
Key themes include the critique of traditional budgeting, the implementation of innovative steering tools, and the subsequent impact on organizational performance and corporate culture.
What is the primary objective of this work?
The objective is to evaluate whether the shift to new management tools at Borealis effectively achieved its intended goals of increased flexibility and improved decision-making compared to the previous system.
Which scientific methods were employed?
The study utilizes a descriptive case study approach, comparing the theoretical advantages and disadvantages of traditional budgeting against the practical implementation of new management tools at Borealis.
What does the main body of the work cover?
It details the components of the new system (rolling forecasts, balanced scorecard, etc.), highlights their specific advantages and drawbacks, and reviews the financial results of the company during the transition years.
Which keywords characterize this paper?
Core keywords include Borealis, Beyond Budgeting, Financial Steering, Balanced Scorecard, Performance Measurement, and Management Control.
How does the author assess the success of the new system?
The author concludes that while the new system offers theoretical benefits in terms of flexibility, it did not lead to the significant improvement in financial results that management had hoped for.
What is the "BBRT" mentioned in the text?
BBRT stands for "Beyond Budgeting Round Table," an organizational model that advocates for more adaptive management practices than traditional, fixed-budget systems.
- Quote paper
- Sven Brueninghaus (Author), 2003, Harvard Business Case Borealis, Munich, GRIN Verlag, https://www.grin.com/document/16547
