Harvard Case - Mobil USM&R (A): Linking the Balanced Scorecard
"Mobil USM&R (A): Linking the Balanced Scorecard" Harvard business case study is written by Robert S. Kaplan. It deals with the challenges in the field of Accounting. The case study is 19 page(s) long and it was first published on : Sep 5, 1996
At Fern Fort University, we recommend Mobil USM&R (A) adopt a comprehensive, integrated approach to linking the Balanced Scorecard (BSC) across its global operations. This approach should focus on aligning strategic objectives, performance measurement, and incentive systems to drive consistent and sustainable growth while fostering a culture of accountability and performance excellence.
2. Background
Mobil USM&R (A) is a global leader in the lubricant and specialty fluids industry. The company faces a complex operating environment with diverse customer needs, competitive pressures, and regulatory challenges. Mobil USM&R's leadership recognizes the need for a robust performance management system to guide strategic decision-making, monitor progress, and drive organizational success.
The case study centers around the company's efforts to implement the Balanced Scorecard (BSC) framework. The BSC, developed by Robert Kaplan and David Norton, provides a holistic view of organizational performance by considering four key perspectives: financial, customer, internal processes, and learning and growth. This framework helps organizations translate their strategic goals into operational measures and track progress towards achieving them.
The main protagonists in the case are:
- John McEachern: The Global Vice President of Manufacturing, who is responsible for overseeing the company's manufacturing operations worldwide.
- John Taylor: The Global Vice President of Finance, who is responsible for the company's financial performance and reporting.
- The USM&R Leadership Team: The group responsible for setting the company's strategic direction and overseeing its implementation.
3. Analysis of the Case Study
The case study highlights several key challenges faced by Mobil USM&R in implementing the BSC:
- Lack of Alignment: The BSC is not fully integrated across the organization, leading to inconsistencies in performance measurement and reporting.
- Limited Focus on Non-Financial Measures: The company primarily focuses on financial metrics, neglecting the importance of customer, process, and learning & growth perspectives.
- Inadequate Incentive Systems: Employee incentives are not effectively aligned with the BSC objectives, leading to a disconnect between individual and organizational performance.
- Cultural Resistance: Some employees are resistant to change and view the BSC as an unnecessary bureaucratic process.
To address these challenges, we propose using a Strategic Alignment Framework that encompasses the following key elements:
- Clear Strategic Objectives: Define a clear set of strategic objectives that align with the company's overall vision and mission. These objectives should be specific, measurable, achievable, relevant, and time-bound (SMART).
- Integrated Performance Measurement System: Develop a comprehensive performance measurement system that aligns with the strategic objectives. This system should include both financial and non-financial metrics across all four perspectives of the BSC.
- Activity-Based Costing (ABC): Utilize ABC to accurately allocate costs to specific activities and products, providing a more detailed understanding of cost drivers and profitability.
- Performance-Based Incentive Systems: Design incentive systems that directly link employee compensation to the achievement of BSC objectives. This will encourage alignment and drive performance excellence.
- Communication and Training: Implement a robust communication and training program to educate employees about the BSC framework, its importance, and how it impacts their work. This will help build buy-in and overcome resistance to change.
4. Recommendations
Based on the analysis, we recommend the following actions for Mobil USM&R:
- Develop a Comprehensive BSC Framework: Create a detailed BSC framework that aligns with the company's strategic objectives, including specific performance indicators (KPIs) for each perspective.
- Implement Activity-Based Costing: Adopt ABC to accurately allocate costs and improve decision-making regarding pricing, product mix, and resource allocation.
- Align Incentive Systems with BSC Objectives: Revise employee incentive systems to directly link compensation to the achievement of BSC targets. This will ensure that individual and organizational goals are aligned.
- Foster a Culture of Performance Excellence: Implement a comprehensive communication and training program to educate employees about the BSC and its importance. Encourage a culture of continuous improvement and performance measurement.
- Regularly Monitor and Evaluate Performance: Establish a robust monitoring and evaluation system to track progress towards BSC objectives. Regularly review and adjust the framework based on performance data and changing business conditions.
5. Basis of Recommendations
Our recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The BSC framework aligns with Mobil USM&R's core competencies in manufacturing, innovation, and customer service. It also supports the company's mission to provide high-quality products and services to its customers.
- External Customers and Internal Clients: The BSC framework helps Mobil USM&R to understand and meet the needs of its external customers by focusing on customer satisfaction and loyalty. It also improves internal communication and collaboration by aligning performance measures across different departments.
- Competitors: By adopting a comprehensive BSC framework, Mobil USM&R can gain a competitive advantage by effectively managing its resources, improving operational efficiency, and driving innovation.
- Attractiveness ' Quantitative Measures: The BSC framework will improve financial performance by optimizing resource allocation, reducing costs, and enhancing profitability. The use of ABC will provide more accurate cost data, enabling better decision-making.
6. Conclusion
By implementing a comprehensive and integrated BSC framework, Mobil USM&R can achieve a significant improvement in its performance management system. This will lead to better alignment of strategic objectives, improved performance measurement, and a more effective incentive system. The company will be better positioned to achieve its strategic goals, enhance its competitive position, and drive sustainable growth.
7. Discussion
Other alternatives not selected include:
- Focusing solely on financial metrics: This approach would neglect the importance of customer, process, and learning & growth perspectives, leading to a narrow view of organizational performance.
- Adopting a piecemeal approach to BSC implementation: This would result in inconsistencies and a lack of integration across the organization, hindering the effectiveness of the framework.
Key assumptions of our recommendations include:
- Management commitment: Effective implementation of the BSC requires strong commitment from senior management to drive change and ensure buy-in from employees.
- Employee engagement: Employees need to be engaged in the process and understand the importance of the BSC framework for their work.
- Data availability and accuracy: Accurate and timely data are crucial for effective performance measurement and reporting.
8. Next Steps
To implement our recommendations, we propose the following timeline:
- Phase 1 (Months 1-3): Develop a comprehensive BSC framework, identify KPIs, and implement ABC.
- Phase 2 (Months 4-6): Align incentive systems with BSC objectives and launch communication and training programs.
- Phase 3 (Months 7-12): Monitor and evaluate performance, make adjustments to the framework as needed, and ensure ongoing employee engagement.
By following these steps, Mobil USM&R can successfully implement a robust and integrated BSC framework that will drive performance excellence and achieve its strategic goals.
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Case Description
The CEO of the marketing and refining division of a major oil company is in the midst of implementing a profit turnaround. He transforms the strongly centralized, functionally-organized division into 17 independent business units and 14 internal service companies. The division also launches 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 Balanced Scorecard (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. The case describes the development of the initial divisional BSC, the linkage of the divisional BSC to independent business unit and internal service company BSCs, and linkage of the BSC to managers' compensation. Concludes with the senior executives reflecting on how they are using the BSC in their management processes.
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