Case Study Global Oil

CaseStudy: Global Oil

CaseStudy: Global Oil

Balancescorecard is a management and a planning system that helpsorganizations in aligning their operations to the strategy as well asthe vision of the firm. However, the effectiveness of the balancedscorecard depends on the process of its implementation. In the caseof Global Oil, there are two major strengths that can be associatedwith the implementation of the balanced scorecard. First, thebalanced scorecard helped Global Oil in aligning its incentives withits goals. For example, the company would give a 10 % bonus toemployees under the salary scheme when the company was ranked thefirst out of the seven competitors (Zimmerman, 2014). This was anextrinsic motivation since financial rewards motivated employees topursue the score card measures. In addition, the link betweenfinancial reward and organizational goals could serve as an intrinsicmotivation that motivated employees to learn about the organizationalstrategies and how they can contribute towards the achievement ofthose strategies.

Secondly,the implementation of the balanced scorecard helped Global Oil blenddivisional and own-unit performance. This reduced the free-riderchallenges of associated the use of divisional measures. Thiscontributed towards the overall performance of the organization.

Theprocess of implementing the balanced scorecard at Global Oil hasthree major weaknesses. First, the balance scorecard considered alarge number of measures This made the balanced scorecard an overlycomplicated process, which is likely to increase the cost of datacollection and the difficulty of assessing the capacity of thecompany to achieve these measures. In addition, the use of multiplemeasures is likely to create a scenario in which managers put moreemphasize on a few measures over the others. This will in turntrivialize the meaning as well as the usefulness of the balancedscorecard. Third, it is not clear whether tying the balancedscorecard measures with employee compensation has a directrelationship with firm value. This is because one may not know if allmeasures are equally significance or should be weighed equally whendetermining compensation. In addition, use of multiple measures mightreduce the managers’ autonomy and increase the risk of choosingundesirable actions as long as they have positive impacts on measuresof the balanced scorecard. This implies that some strategies (such aslinking performance with compensation) required pilot testing inorder to avoid unnecessary cost.

Adoptionof balanced scorecard and financial performance

Althoughthe implementation of the balance scorecard had some weaknesses, itis evident that it contributed towards financial turnaround. Forexample, the assignment of percentage weights to help theorganization in determining how the balanced scorecard measurescontributed towards the bonus pool. This suggests that the system wasquite balanced. In addition, assigning some degrees of difficulty formanagers to achieve targets provided adequate incentives for Globalmanagement to set stringent targets instead of goals that are easy toachieve. Managers and salaried workers were aware that failure toachieve organizational goals would miss the bonus.

Inaddition, the decision to use the three-tier compensation (division,corporate, and business unit) aligned employees in areas that theyhave a significant impact. This implies that the balanced score cardprovided employees with an opportunity to contribute towards theperformance outside their business units as well as the units thattheir efforts have the greatest impact. Moreover, the bonus systemmotivated employees to work hard in their respect units, which inturn resulted in improvement in the financial performance.

References

Zimmerman,J. (2014). Accountingfor decision making and control (8th ed.).New York, NY: McGraw-Hill.

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