Executive Summary
Petrobras is operating in a very competitive industry, and it must be able to develop strategies that will help it remain strong in the market. The previous reports have shown that the firm’s financial performance has dropped within the last one year. The board of directors must come up with an approach that will help in reversing this unfortunate situation. Performance measurements can be done using various approaches. In this study, it is proposed that this firm should use Balanced Scorecard to analyze all the relevant issues that are affecting it, including the nonfinancial issues. The balanced scorecard will help the board of directors understand some of the areas that need to be addressed to allow the firm achieve its vision. To be the leading integrated oil and gas company in the global market requires a management approach that is well-balanced. The approach should focus on financial, customer, internal business process, and learning perspectives that will allow the firm achieve its strategic goals. If the management implements the recommendations of this report, the firm may easily achieve its vision.
Vision and Strategy of Organisation
Petrobras is one the leading Brazilian oil and gas companies. The company has been successful in the global market, a fact that makes it necessary for it to develop a vision that would allow it to compete favourably with some of the giant multinational firms in Europe and the United States. Currently, the vision that was developed by the management is stated below.
To become one of the top 5 integrated oil and gas companies
The above vision shows that the firm is keen on becoming one of the top integrated oil and gas companies. However, this vision statement shows that this firm does not believe in itself (Grundy & Brown 2002, p. 112). The management is strongly convinced that there are other stronger players in the industry, and the best it can achieve is to be in the top five. Instead of the above vision statement, the following statement would be more appropriate.
To become the leading integrated Oil and Gas Company in the global market
This statement shows that the firm is committed to being the best in the world. The approach will positively affect all the stakeholders’ psychology, and make them believe that they can become the best in the industry (Cushman & King 2001, p. 71).
Balanced Scorecard
According to a report by Niven (2006, p. 78), analyzing a firm’s performance in the market is one of the most important tasks to any management unit. This report notes that firms have been using financial performance measurements in order to determine their performance levels. However, it has been determined that there are other non-financial factors that have a direct impact in the overall performance of an organisation. Robert Kaplan and David Norton developed a concept of a balanced scorecard as a way of expanding analysis of a firm’s performance beyond financial measures (Niven 2008, p. 80). In the previous report, it was indicated that this firm is not performing within the expectations of the stakeholders.
It will be important to use a balanced scorecard in order to determine the problems that it is facing. This information will help the top management when coming up with decisions on how to manage several issues in order to improve the performance of the firm (Kaplan & Norton 2006, p. 28). The balanced scorecard sheet will be used to determine the measures that should be taken to increase the performance of the firm. The previous report has singled out areas where this firm was performing poorly. From this report, it was indicated that there were minimal problems with the market and the performance levels of the firm (Miles & Snow 2003, p. 21). The main problem that was affecting the firm was its financial projections, and the internal business processes. For this reason, the emphasis of the analysis will be on the financial and internal business process perspectives.
As shown above, the firm will need to focus on three main items from a financial perspective. Shareholders of this firm have their needs that they expect the firm to fulfil (Knapp 2000, p. 39). It will be necessary to improve efficiency of the operations, cut costs of production, and improve the firm’s profitability. Through this, it will be able to pay high dividends to the shareholders (Jensen 1998, p. 110). The firm should also ensure that its costs of operation are close to the projections of the firm. This will ensure that its plans are implemented without any financial constraints. Finally, it is important to ensure that a portion of the money is kept aside for the purpose of development. Development goals should be realistic based on several environmental factors.
The management will also need to consider some of the internal business processes that may be affecting the normal operations of the firm (Kourdi 2003, p. 56). Balanced scorecard on internal business process will be given a lot of emphases.
Internal business processes must also be improved to make sure that they are in line with the vision and mission statement of the firm. Employees are important as they play a leading role towards achieving the set goals. The management should ensure that they are efficient in their operations. It may be necessary to subject them to some form of training in order to improve their efficiency. The logistic of this firm should be based on some of the modern technologies (Kaplan & Norton 2004, p. 27). The chosen logistical strategy should be cost effective and timely in delivering services to this firm. Finally, the internal business processes must be conscious of the activities of the competitors.
The management will need to ensure that the firm is doing well when compared to its domestic and international competitors. From the customer perspective, the management of this firm will need to ensure that the expectations of the customers are met in order to make them loyal to the firm (Syrett 2008, p. 38). Customer loyalty is one of the best ways of achieving competitive strength over market competitors. From the perspective of learning and growth, the management would need to maintain a clear program for employees’ training. The program should be sensitive of the dynamism of different tasks. It is also important to focus on the customer perspective in order to determine the best approach that can be used by this firm to create and maintain their loyalty.
As shown in the above table, maintaining quality products, charging fair prices, and delivering products in time are some of the key factors that would help Petrobras maintain a pool of loyal customers. The firm may also need to focus on issues of learning and growth within the firm.
Some of the three factors that this firm needs to observe include improvement of employees’ skills, finding ways of motivating them, and developing teamwork among the employees. To enhance further understanding of the approach based on the balanced scorecard discussed above, a strategy map will be used (Strikwerda 2007, p. 72).
Strategy Map
The balanced scorecard given above has identified key performance areas that the management focus on to ensure that there is efficiency in all aspects of the firm. A strategy map would be important to further enhance understanding of the primary strategic goals that the management of this organization should be pursuing in order to achieve its vision and strategic objectives.
- Financial
- Maximize Value for Shareholders
- Customer
- Meet and Exceed Customer-expectations
- Increase Customer-Loyalty
- Internal Business
- Processes
- Maximize Effectiveness of Operations
- Creation of High Quality Products
- Quality Partnership among Employees
- Learning and Growth
- Regular Training of Employees
- Motivation of Employees
The strategy map above shows that the management must start by evaluating its financial statements to determine if it is operating within the expectations of the shareholders. As the owners of the organization, shareholders play a crucial role in the organization, and it is important to ensure that their interests are put into consideration (Smith 2013, p. 81). In this strategy, the management will start by defining how the value for the shareholders can be maximized. This can be in the form of dividends paid to them, or the value of their shares in the organization. Customers are also important for the survival of the firm. Their interests should be taken care of to ensure that the firm’s operations remain sustainable in the market (Paladino 2013, p. 28). Customers’ expectation should be met or exceeded in order maintain their satisfaction. Production should be of the right quality. It should be delivered in time and at a fair price.
Internal business processes play an important role in determining a firm’s success in the market. The operational activities should be effective and efficient enough to meet the market needs (Ewy 2009, p. 125). Operational activities should be maximized in order to minimize the total cost of production. Products delivered from the firm should be of high quality based on the market standards. Finally, the management must find ways of ensuring that employees are well coordinated within the firm to avoid duplication of tasks or overload on some employees. The management must also make an effort to ensure that employees work as a team towards achieving goals of the firm. From the learning and growth perspective, the management must appreciate that regular training of employees is the best way of making them better performers in the market. Although this may be a costly process, it should not be ignored because, through it, employees would become more productive. Employees should also be motivated because this may make them committed to the firm.
The Use of Balanced Scorecards for Performance Management and Monitoring
Balanced scorecard has become one of the most important tools that managers currently use to monitor and manage the performance within their organization. Rampersad (2006) says, “Balanced scorecard is a strategy performance management tool – a semi-standard structured report, supported by design methods and automation tools, which can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.” This tool helps in the analysis of the performance of financial and nonfinancial factors within an organization. From the above analysis of Petrobras, it is clear that this tool is critical in regular management and monitoring of the performance of a firm based on four perspectives (Makhijani & Creelman 2011, p. 46). From a financial perspective, the balanced scorecard makes it possible to realise the financial plans and the actual expenditure. If there is a significant difference, it will be a clear indication that the management is operating outside its financial constraints.
The tool can then be used to redefine the financial objectives to be within the financial capacity of the firm. From the customer perspective, this tool has enhanced understanding of what customers expect and what the firm should be delivering in order to attract and retain them. The internal business processes perspective defines activities that should be observed within the firm to ensure that the firm’s operations are efficient and effective (Brown (2007, p. 89). Learning and growth perspective helps the management understand what should be done to improve performance of the organization and efficiency of other factors of production to achieve growth. These factors help the management to monitor activities of the firm, and to determine if its performance is within the expectations (Jones 2011, p. 116). The management of Petrobras will find it easy to adjust its operational strategies in order to improve its overall performance.
Recommendations to the Board
The above critical analysis has demonstrated the importance of a balanced scorecard in performance management and monitoring activities of Petrobras. The management board of this firm should take into consideration the recommendations given in this report.
- The management board should prioritize the interest of the shareholders in its operational processes. Performance management and monitoring should be done to ensure that the firm is operating as per the expectations of the shareholders. As Blokdijk (2008, p. 48) notes, shareholders’ interests may not just entail earning dividends. Any growth of the firm will be a benefit to them.
- Performance of the firm should be monitored regularly to ensure that they are in line with the expectations of the customers. Maintaining high levels of customer satisfaction will help this firm create a pool of loyal customers.
- Internal business processes should be made efficient as a way of lowering cost of production and increasing quality of products. This will help in the development of the firm.
- Finally, the management should maintain regular training of the employees as a way of improving their skills and capacity to handle various tasks.
List of References
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