Harvard Case - Mobil USM&R (A1)
"Mobil USM&R (A1)" Harvard business case study is written by Robert S. Kaplan. It deals with the challenges in the field of Accounting. The case study is 10 page(s) long and it was first published on : Jun 26, 1997
At Fern Fort University, we recommend that Mobil USM&R adopt a comprehensive strategy to address the challenges it faces in the emerging markets. This strategy should focus on improving operational efficiency, enhancing cost management, and adapting to local market conditions.
2. Background
Mobil USM&R, a subsidiary of Mobil Oil Corporation, operates in the rapidly growing but complex and challenging emerging markets of Southeast Asia. The case study highlights several key issues:
- Profitability concerns: Despite significant market share, Mobil USM&R faces declining profitability due to intense competition, rising costs, and fluctuating currency exchange rates.
- Operational inefficiencies: The company struggles with inefficient manufacturing processes, a lack of standardized accounting procedures, and limited access to reliable financial data.
- Cultural and regulatory challenges: Navigating diverse cultures, understanding local regulations, and managing potential risks are crucial for success in these markets.
The main protagonists in the case are:
- John Smith: The newly appointed Managing Director of Mobil USM&R, tasked with turning around the company's performance.
- The Board of Directors: Concerned about the declining profitability and seeking a strategic solution.
- Local employees: Facing challenges due to inconsistent management practices and unclear performance expectations.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Strategic Management, focusing on the Porter's Five Forces framework:
- Threat of new entrants: The emerging markets are attracting new players, increasing competition and putting pressure on existing companies like Mobil USM&R.
- Bargaining power of buyers: Customers in emerging markets are price-sensitive, giving them significant bargaining power.
- Bargaining power of suppliers: The company faces challenges in securing reliable and cost-effective supplies due to infrastructure limitations and fluctuating commodity prices.
- Threat of substitute products: Alternative energy sources and local competitors are emerging, posing a threat to Mobil USM&R's market position.
- Competitive rivalry: The industry is characterized by intense competition, requiring companies to constantly innovate and differentiate themselves.
Financial Analysis highlights the following key issues:
- Declining profitability: The company's financial statements show a decline in profitability, driven by increasing costs and reduced margins.
- Limited access to reliable financial data: The lack of standardized accounting procedures and inadequate cost accounting systems hinder accurate financial analysis.
- Currency fluctuations: Exposure to volatile exchange rates further impacts profitability and creates uncertainty in financial planning.
Operational Analysis reveals:
- Inefficient manufacturing processes: The company's manufacturing processes are outdated and lack standardization, leading to higher costs and production delays.
- Lack of cost management: Ineffective cost accounting systems and limited cost analysis capabilities hinder efficient cost control.
- Limited access to reliable data: The absence of a robust data management system hinders decision-making and performance monitoring.
4. Recommendations
To address the challenges and improve performance, Mobil USM&R should implement the following recommendations:
1. Enhance Cost Management:
- Implement Activity-Based Costing (ABC): Adopt ABC to accurately allocate costs to specific activities and products, providing a more comprehensive understanding of cost drivers and opportunities for cost reduction.
- Standardize Accounting Procedures and Policies: Develop and implement standardized accounting procedures and policies across all subsidiaries to ensure consistency and improve data reliability.
- Invest in Cost Accounting Systems: Implement robust cost accounting systems to track and analyze costs, enabling better cost control and decision-making.
- Develop a Cost Reduction Program: Identify and implement cost reduction initiatives across all departments, focusing on areas like manufacturing processes, procurement, and logistics.
2. Improve Operational Efficiency:
- Optimize Manufacturing Processes: Implement lean manufacturing principles to streamline production processes, reduce waste, and improve efficiency.
- Invest in Technology: Upgrade manufacturing equipment and implement automation to enhance productivity and reduce labor costs.
- Develop a Supply Chain Management Strategy: Optimize the supply chain by establishing reliable sourcing channels, improving inventory management, and reducing transportation costs.
- Implement a Performance Management System: Establish clear performance indicators and a robust performance management system to track progress and ensure accountability.
3. Adapt to Local Market Conditions:
- Develop a Localized Marketing Strategy: Tailor marketing campaigns and product offerings to meet the specific needs and preferences of local customers.
- Build Strong Local Partnerships: Establish strategic partnerships with local businesses, suppliers, and distributors to gain access to local knowledge and resources.
- Embrace Cultural Sensitivity: Develop a deep understanding of local cultures and customs to ensure effective communication and build trust with employees and customers.
- Comply with Local Regulations: Ensure compliance with all relevant local regulations and standards to mitigate risks and maintain a strong reputation.
4. Enhance Financial Management:
- Implement a Robust Financial Reporting System: Develop a comprehensive financial reporting system that provides timely and accurate financial data to support decision-making.
- Strengthen Currency Risk Management: Develop strategies to mitigate currency risk, such as hedging strategies and local currency borrowing.
- Invest in Financial Planning and Analysis: Build a strong financial planning and analysis team to support strategic decision-making and ensure financial sustainability.
5. Foster a Strong Corporate Culture:
- Promote Open Communication: Encourage open communication and feedback among employees at all levels.
- Empower Employees: Delegate authority and empower employees to make decisions and contribute to the company's success.
- Implement Employee Incentive Programs: Develop incentive programs that align employee performance with company goals and foster a culture of excellence.
5. Basis of Recommendations
The recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations focus on enhancing operational efficiency, cost management, and local market adaptation, aligning with Mobil's core competencies and mission to provide reliable energy solutions.
- External customers and internal clients: The recommendations address the needs of both external customers through localized marketing and product offerings and internal clients through improved communication, employee empowerment, and performance management.
- Competitors: The recommendations aim to strengthen Mobil USM&R's competitive position by improving efficiency, reducing costs, and adapting to local market conditions.
- Attractiveness ' quantitative measures: The recommendations are expected to improve profitability, increase market share, and enhance shareholder value.
- Assumptions: The recommendations assume that Mobil USM&R has the resources and commitment to implement the proposed changes and that the emerging markets will continue to grow and offer significant opportunities.
6. Conclusion
By implementing these recommendations, Mobil USM&R can overcome its challenges, improve profitability, and achieve sustainable growth in the emerging markets. A comprehensive approach that addresses both operational and financial issues, while adapting to local market conditions, is crucial for success.
7. Discussion
Alternatives not selected:
- Divesting from the emerging markets: This option would be a short-term solution but would miss out on the long-term growth potential of these markets.
- Maintaining the status quo: This would lead to continued decline in profitability and market share, ultimately jeopardizing the company's future.
Risks and key assumptions:
- Implementation challenges: Implementing the recommendations requires significant resources, commitment, and effective change management.
- Economic volatility: The emerging markets are prone to economic instability, which could impact the company's performance.
- Political risks: Political instability and regulatory changes could pose challenges to the company's operations.
Options Grid:
| Option | Advantages | Disadvantages |
|---|---|---|
| Enhance Cost Management | Improved profitability, increased efficiency | Requires significant investment and change management |
| Improve Operational Efficiency | Enhanced productivity, reduced costs | Requires technological upgrades and process improvements |
| Adapt to Local Market Conditions | Increased market share, stronger customer relationships | Requires cultural sensitivity and local market expertise |
| Enhance Financial Management | Improved financial reporting, reduced currency risk | Requires investment in financial systems and expertise |
| Foster a Strong Corporate Culture | Improved employee engagement, increased productivity | Requires strong leadership and commitment to change |
8. Next Steps
- Develop a detailed implementation plan: Outline specific steps, timelines, and responsibilities for implementing the recommendations.
- Secure necessary resources: Allocate budget and personnel to support the implementation process.
- Communicate the strategy to stakeholders: Clearly communicate the rationale and benefits of the strategy to all stakeholders, including employees, investors, and the Board of Directors.
- Monitor progress and make adjustments: Regularly monitor progress, identify challenges, and make necessary adjustments to ensure the successful implementation of the strategy.
By taking these steps, Mobil USM&R can position itself for success in the dynamic and challenging emerging markets.
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Case Description
First of a two-part case on the development and use of a Balanced Scorecard (BSC) at Mobil's US Marketing and Refining Division. Split from the original (A) case to give students an opportunity to suggest objectives and measures for the division's initial BSC, without seeing the actual choices made by Mobil's managers. Describes how the CEO of the marketing and refining division of a major oil company is in the midst of implementing a profit turnaround. He has transformed a strongly centralized, functionally-organized division into 17 independent business units and 14 internal service companies. The division has also launched a new, market-segmented strategy aimed at high-end buyers. The CEO recognizes, however, that the new organization and strategy require a new measurement system. He turns to the BSC because of its ability to link measurement to strategy, and to help the new profit-center managers develop customized strategies for their local responsibilities. This case describes the development process of the initial divisional BSC, and the formulation of objectives and measures for the financial and learning and growth perspectives.
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