Borealis Case
Borealis Case
Advanced Managerial Accounting
Universidade Nova de Lisboa
Borealis Case
Introduction Borealis is one of the largest petrochemical companies in the world. Output from its productions can be found in a wide set of everyday products, from diapers, food packaging and house wares to cars and trucks, pipes and power cables. When it was formed in Denmark in 1994 as a joint venture between two Nordic oil companies (Statoil of Norway and Neste of Finland), it inherited most of its processes, systems and people from the various subsidiary companies. Nonetheless, to the new management team, it felt like in the new company a break with the past was not only seen as desirable but also as crucial to its future success. Its new location in modern well-appointed offices in Copenhagen added to the sense of a fresh start with few managerial traditions to restrain its ideas and ambitions, and to spawn motivation and secure accomplishment of goals. Traditional Budgeting When the hectic merger activity in the industry took place, although demand for the products was stable, suppliers increased their production capacity, being this divergence reflected in the prices. In fact, this excess of supply in comparison to demand made prices to drop, and subsequently companies´ margins and profitability to fall as well. In addition, for Borealis, competitors were certainly an issue to be concerned about, as they were more diversified, both geographically and across products. It is in this context that the budgeting technique represents an important role. This process arose in the 1920s as a tool for managing costs and cash flows in large industrial companies such as DuPont, General Motors and Siemens. It was not until the 1960s that it mutated into a fixed performance contract. It was at this time that companies started to use accounting figures not just to keep score but also to dictate the actions of people at all levels of the company.
Advanced Managerial Accounting
Universidade Nova de Lisboa
Borealis Case
Introduction Borealis is one of the largest petrochemical companies in the world. Output from its productions can be found in a wide set of everyday products, from diapers, food packaging and house wares to cars and trucks, pipes and power cables. When it was formed in Denmark in 1994 as a joint venture between two Nordic oil companies (Statoil of Norway and Neste of Finland), it inherited most of its processes, systems and people from the various subsidiary companies. Nonetheless, to the new management team, it felt like in the new company a break with the past was not only seen as desirable but also as crucial to its future success. Its new location in modern well-appointed offices in Copenhagen added to the sense of a fresh start with few managerial traditions to restrain its ideas and ambitions, and to spawn motivation and secure accomplishment of goals. Traditional Budgeting When the hectic merger activity in the industry took place, although demand for the products was stable, suppliers increased their production capacity, being this divergence reflected in the prices. In fact, this excess of supply in comparison to demand made prices to drop, and subsequently companies´ margins and profitability to fall as well. In addition, for Borealis, competitors were certainly an issue to be concerned about, as they were more diversified, both geographically and across products. It is in this context that the budgeting technique represents an important role. This process arose in the 1920s as a tool for managing costs and cash flows in large industrial companies such as DuPont, General Motors and Siemens. It was not until the 1960s that it mutated into a fixed performance contract. It was at this time that companies started to use accounting figures not just to keep score but also to dictate the actions of people at all levels of the company.
References: Paper: “Who needs Budgets?” by Jeremy Hope and Robin Fraser and “The Design and Use of Management Control Systems: An Extended Framework for Analysis” by Aldónio Ferreira and David Otely Book: “Beyond Budgeting” by Jeremy Hope and Robin Fraser 7 of 7