Throughout Borealis, a new financial and steering system was in place which abandons the traditional budget in favour of more purposeful tools such as key performance indicators, trend reporting and rolling financial forecasting.
—Borealis, 1996 annual report
Borealis, headquartered in Copenhagen, Denmark, was formed by a 1994 merger between the
petrochemical divisions of two Scandinavian oil companies, Statoil of Norway and Neste Oy of Finland. The company, whose name means "of northern origin," was a fully integrated producer of two polyolefins, polyethylene (PE) and polypropylene (PP), commonly used to produce plastics. Borealis had production facilities in Austria, Belgium, Finland, France, Germany, Norway, Portugal, and Sweden. With a marketable capacity of 3,340 kilo-tons production per year, it was the largest producer of polyolefins in Europe and the fourth largest in the world.
Questions
1. Compare and contrast Borealis' old financial planning and control system with its new system.
2. Is Borealis' new system an improvement? If so, why do so few companies use systems that look like it?
SOLUTION
Purpose of Case
Companies have traditionally used budgets for planning, monitoring, and evaluation. Some companies, however, believe that budgets are inadequate in today’s competitive environments, that budget processes require too much time and resources, and that the budgets themselves are inflexible and get quickly out of date. A movement that encompasses these ideas has been popularized under the rubric “Beyond Budgeting.” A Beyond Budgeting Roundtable is a discussion group that meets with CAM-I
Borealis, which is a Beyond Budgeting company, abandoned its budgeting system and replaced it with four targeted management tools. The main question to be discussed is: Will these tools accomplish managerial objectives more effectively and efficiently than the budget they replaced?
Teaching Approach
1. Why do companies use budgets?
Students can be asked to assemble a list of purposes, which include the following:
to make strategy operational
to control spending (permission to spend)
to provide point estimates of spending by department (by what / by whom)
to facilitate better evaluation of decentralized managers by senior management
to communicate important information within the organization, both bottom-up and top-down
to enhance motivation and accountability
2. What is Borealis’ business strategy?
High quality provider.
More flexible plastic based on proprietary formula. Licenses Borstar technology in recent years. Research and development is important.
Note that Borealis was quite profitable (refer to the income statement).