Interview with Bjarte Bogsnes, Project Manager Beyond Budgeting, Statoil
Headquartered in Stavanger, Norway, Statoil is an integrated oil and gas company with about 25,000 employees and activities in 32 countries. For 2005 it reported total revenues of approx US$60 billion.
How is the Balanced Scorecard process managed within Statoil?
We don’t have a single Balanced Scorecard manager. Scorecard facilitation is really the responsibility of several people who work closely together. I am managing a project to abandon the budget and replace it with a new dynamic process for which the Balanced Scorecard is a central component.
But we already have over 700 scorecards within the organization, which are supported by people running our performance management system and process. The principles of beyond budgeting will be fully integrated with the scorecard through our performance management process.
Why is the scorecard more useful as a management tool than the budget?
First of all, a key reason why some scorecard implementations fail is because it competes with the budget as a management tool, which confuses the organization over what’s the most important. 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.
Are you full-time or part-time in your role?
I am full-time and we have several people whose full-time roles are key to ensuring the scorecard process works effectively.
Who do you report to?
The head of Corporate Planning & Control.
How did you come to be involved in the Balanced Scorecard design and implementation program?
My involvement with the Balanced Scorecard stretches back to 1995 when the scorecard was introduced into Borealis (then partly owned by Statoil).
Borealis introduced the scorecard through a wide-ranging reengineering initiative. I was heading the finance function at the time and was in charge of a reengineering stream called management effectiveness. One of the mainstream activities was to abolish budgeting and one of the concepts that replaced budgeting was the Balanced Scorecard. (Borealis was a pioneer of both the Balanced Scorecard and Beyond Budgeting movement and was an early member of the Balanced Scorecard Collaborative Hall of Fame).
Unlike HR or Finance, as examples, there are no clear job descriptions for a ‘Balanced Scorecard’ manager. What did your organization see as the key personal and professional qualities for a role in scorecard facilitation?
Basically you need to take a holistic approach to performance management, which means having a complete understanding from strategy, through finance and to HR. And you need to apply that through a very good understanding of the business. I also spent time as Head of HR for Borealis and created a HR scorecard, which gave me insight into the importance of the people part of scorecard implementation (1).
It’s also important to understand scorecard theory, which includes recognizing that it is not just about KPIs (key performance indicators).
It’s also critical to have credibility within the business.
How were you trained in facilitating a Balanced Scorecard program?
While at Borealis I was trained by Renaissance, which evolved into the Balanced Scorecard Collaborative.
A Balanced Scorecard has to become ‘the way we manage around here’. From where do you and the other managers facilitating the scorecard get the authority to focus people’s performance onto the scorecard?
Statoil has been using scorecards since 1998. The person promoting the scorecard then is now the CFO of the company and still champions the process. We also benefit from very strong support from the CEO.
What are the major challenges you have found when facilitating the process of building and implementing Balanced Scorecards and how are these overcome?
A key challenge is making sure that you describe the strategic objectives before looking at KPIs. I’ve seen a lot of scorecards that just show KPIs, which is not enough to implement strategy. It’s important to bridge that gap between strategic objectives and KPIs, but always start from objectives.
Also don’t 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. The problem is that we often forget what the ‘I’ in KPI stands for – indicator. It’s only an indication of whether or not we are moving toward our strategic objectives, and not a goal in itself. So de-emphasize KPI targets and heighten objectives and actions.
To ensure that people focus on strategic objective and actions and not just KPIs, we have integrated our strategic objectives closely with KPIs and actions throughout our performance management process, which we call ‘From Ambition to Action’. Our incentive system is no longer linked to KPIs only, but to the full ‘From Ambition to Action’.
Ambition to Action, which only fills a page or a screen picture in the supporting system MiS, is what the Statoil board approved in 2006 rather than the budget. We presently have about 350 From Ambition to Action documents throughout the organization.
It’s 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. So is meeting a cost target good or bad? Well it depends on what you get back from those costs. Perhaps you should have spent more as you lost value adding business opportunities by not doing so, or less because ‘budgeted’ projects did not come through. In any case, you will only know afterwards and not beforehand what the ‘right’ cost level is.
Relative KPIs describe performance better as they link inputs with outputs and should where possible also be based on benchmarks – performance relative to the competition.
Finally, it is important to have the support of a good data system that secures automatic data-collection from source systems, with good reporting functionality and flexible and dynamic action follow up. Our in-house system MiS has been key in Statoil’s scorecard success. This is very much thanks to the bulldozer energy of my colleague Arvid Hollevik who is responsible for the MiS system.
From your own career perspective, how do you think this role will benefit you personally in the longer-term?
I’m simply enjoying myself immensely. But the Balanced Scorecard and Beyond Budgeting are not going away, so being involved with these frameworks will benefit anybody’s career.
From your experience what are the critical success factors in succeeding as a Balanced Scorecard manager?
Holistic performance management thinking, business understanding and having a good knowledge of scorecard theory are all critical success factors.
It’s also important to be careful in your use of consultants. You should drive the scorecard process and only be supported by consultants, or even do it on your own if possible.
Finally, I would advise organizations to keep the scorecard simple – get started and learn as you go. Don’t try and build the perfect weapon for the third world war before you go live.
1. A case study on how Borealis built and implemented a HR Scorecard can be found in the Business Intelligence 2001 report ‘Creating a HR Scorecard’ by James Creelman.