A world-class vision
The major support functions (finance, IT, HR and procurement) of StatoilHydro (a Fortune 50 Stavanger, Norway, headquartered international energy company primarily focused on upstream oil and gas operations) share a simple, laser-focused vision: to be world-class by 2012. World-class is defined as top quartile against both effectiveness and efficiency dimensions of the US-headquartered The Hackett Group’s SG&A benchmark methodology (2).
Global Business Services
To enable a move toward that vision (through, for as examples, consolidation of processes and services and more consistent customer service delivery) StatoilHydro has set up a shared services organization (which it calls Global Business Services), which is located in 11 countries. Fully 95% of employees are Scandinavia (the bulk being in Stavanger): other locations include London, UK; Brussels, Belgium; Warsaw, Poland and Murmansk, Russia.
With about 2000 employees, and an annual turnover of EUR870 million, GBS delivers services to 40 countries. GBS comprises six service functions: IT, finance, HR, administrative procurement, facilities management and communications.
To align with StatoilHydro strategies, GBS sets out to:
- Be a global partner
- Deliver competitive high quality services
- Base the services on standardised corporate work processes and systems
- Develop and adapt solutions to business needs
- Develop and deliver specialized expertise
- Implement sustainable sourcing solution
- Be a flexible organisation
GBS has established itself as a cost centre with service level agreements for all customers, clear performance targets and value-adding services. “The SLA reflects the joint understanding of service levels, and describes how GBS and the Business interact with each other,” says Helge Vatn, vice-president, finance shared services.” It also reflects the requirement for joint accountability.”
The purpose of the SLA is to clearly define expectations to both the Business and GBS, through:
- describing the GBS services and service levels
- describing reversed responsibilities
- defining contacts and escalation routines
- describing reporting procedures
Operating level agreements (OLA) are established between internal service providers in GBS, to ensure SLA service requirements. OLAs contains descriptions of deliveries and targets that underpin the SLA and are supported by underpinning contracts with external service providers.
The Balanced Scorecard
As we can see, StatoilHydro places great store in the use of metrics. And this brings us to the Balanced Scorecard. StatoilHydro can truly claim a leadership position with the scorecard. It has been a committed user since 1997 and in 2007 it was inaugurated into the Balanced Scorecard Collaborative Hall of Fame, which is reserved for those organizations that can demonstrate outstanding results through scorecard deployment.
StatoilHydro has over 700 scorecards within the organization. For instance, scorecards exist at corporate, business unit and GBS levels (the latter is shown in figure 1). Within GBS there’s a scorecard cascade to functional shared services lines and departmental levels. “We outlined a programme for becoming world-class and will use the Balanced Scorecard to get there,” enthuses Rune Skjæveland, who has responsibility for strategy, finance and control for GBS.
Most conventional templates call for four perspectives: financial, customer, internal process and learning and growth; within GBS (and throughout Statoil), there are five (which it calls views).
- Market (essentially customer)
- Operational (essentially process)
- Health, Safety and Environment
- People and Organization
Each perspective has three parts, in keeping with the enterprise norm:
- Strategic objectives (the strategy map)
- Strategic measures or key performance indicators and targets
- Initiatives or action programmes
Skjæveland explains that StatoilHydro followed a prescribed methodology for creating the GBS scorecard. “We start with setting the ambition, as that provides the strategic objectives, which we developed next. Then we created the KPIs and targets. Finally, we decided upon the action plans and initiatives,” he says.
The following are a few examples of strategic goals:
- Financial: “To enable StatoilHydro businesses to create value”
- Market: “To be recognized as a world-class shared service provider”
- Operational: “To deliver business services and projects in line with commitments”
- Health, Safety and Environment: “A working environment that promotes well-being and good health”
- People and Organization: “A value based performance culture”
Here are a few examples of strategic measures:
- Financial: KPIs and targets focused on a StatoilHydro-wide cost savings program;
- Market: Customer and user surveys (i.e., satisfaction surveys for users of help desk and self-service solutions)
- Operational: Metrics around systems availability and Sarbanes-Oxley (SOX) compliance; progress in projects; incident resolution time
- Health, Safety and Environment: Total recordable injury frequency (used mostly for facility management)
- People and Organization: An annual global survey including ratings for areas such as “achieving the performance culture” and “ensuring the organization has the requisite skills and capabilities.
Finance Shared Services Balanced Scorecard
At the finance shared services level (as a functional example) the ambition is the same as that at the GBS level and so broadly are the strategic objectives. At the KPI level, metrics will better capture how the finance shared services organization supports the GBS objectives. For instance, there are KPIs around the number of serious audit remarks and the Sarbanes-Oxley failure rate.
At the finance departmental level, there is even greater finance specificity. Here we find more granular KPIs, such as automation of invoices within the accounting department scorecard and, within the financial supply chain scorecard; cash forecast accuracy and supplier payments on time.
Throughout StatoilHydro, there is greater specificity at the lower organization level. This broadens as we rise up the shared service organization until we reach the world-class vision of 2012 at the GBS level. The scorecard is StatoilHydro’s core tool for aligning performance from the corporate level all the way down to the team level – a classic scorecard cascade.
The cascade’s power is furthered through its being linked to every employee’s goals and to the incentive-compensation system for those receiving bonuses. “We pay on delivery of KPI and initiatives,” says Skjæveland. “But a crucial part of the people evaluation process is that we give scores, tied to the bonus, based on what each person delivers and how they deliver – so there is an important behavioral component.”
According to Skjæveland, the major benefit of using the scorecard system is that it enables managers to prioritize performance behind the listed objectives that will propel GBS toward its ultimate ambition. But he admits there are some challenges, in particular around metric selection. “It can be difficult to find and define the KPIs that really reflect the main drivers of success,” he says. “You cannot have 100 KPIs for each perspective. You need to identify the critical few metrics that support the critical few objectives.”
But Skjæveland points out those organizations often forget that the “I” in KPI stands for indicator. “It is only an indication of whether or not the organization is progressing toward its strategic objectives, and is not a goal in itself,” he says. “So, in StatoilHydro we de-emphasize KPIs and heighten objectives and actions. And that’s how ambitions are attained.”
Bjarte Bogsnes, senior advisor, performance management development (a member of the editorial panel for EPM Review) certainly shares Skjæveland view on the ‘I’ in KPI. He also advises not to search for the perfect KPI. “It doesn’t exist. I’ve spent 10 years looking for it. There are good KPIs and good combinations of KPIs but there’s no perfect KPI.”
“I’ve seen a lot of scorecards that just show KPIs, which is not enough to communicate or implement strategy. It’s very important to bridge that gap between strategy and KPIs with well formulated strategic objectives. You must spend quality time on defining these. That will help you communicate your strategy, and help you selecting the right KPIs.”
Bogsnes comments that it is also a challenge to get people to understand the difference between absolute and relative KPIs. Absolute KPIs, such as a cost figure is just measuring one side of the equation and is not in relation to what you want to get out of those costs, he says.
To ensure that people focus on strategic objectives as well as KPIs, StatoilHydro has replaced the conventional scorecarding approach of separating the strategy map from scorecard of metrics, targets and initiatives with an integrated approach. All strategic objectives, KPIs and actions/initiatives are displayed together as ‘Ambition to Action’. This only fills a page or a screen picture in its supporting system MiS.
The scorecard is the primary mechanism for setting both financial and non-financial targets. Importantly, it is what the executive board approves rather a budget (several contributions to EPM Review explain how StatoilHydro has completely removed the budgeting process).
“A key reason why many scorecard implementations fail is because it competes with the budget as a management tool, which confuses the organization over what’s the most important,” he says. “The scorecard is a much better tool for integrating the strategic processes with financial measurement activities and people processes. The budget cannot provide a holistic approach to management as it has a narrow financial focus. Also you can’t read strategy out of the budget, but you can read strategy out of a good scorecard.”
- The Finance Function: Global Solutions for Global Challenges, James Creelman Business Intelligence, 2009