To compete in today’s business environment, companies are increasingly partnering with their suppliers, customers, and sometimes even their competitors. While the joint venture/strategic alliance relationship is increasingly a part of the business landscape, it has proven to be an operational challenge. Although the synergies between two parries may be apparent in concept, putting them into day-to-day practice has eluded many organizations. The abilities to define shared goals and to foster their mutual achievement are common barriers. The Balanced Scorecard has proven an important tool in overcoming these barriers by defining the shared agenda and measures of performance on which a joint venture is established and operated.
This is demonstrated in our experience with the oil field services industry.
Oiltech Case Study: The Joint Venture Challenge
Oiltech, a joint venture of three companies providing different services in the value chain, was established to gain a competitive advantage through cross- value chain synergies, improving productivity by eliminating the inefficiencies, duplications, and confusion that existed between groups within their companies. By improving productivity, Oiltech hoped to deliver increased value to both customers and shareholders.
Although the president of Oiltech was convinced that the partnership would work -productivity should result from tri-company cooperation -he recognized that implementation would be his biggest challenge. Getting three previously independent, autonomous business units to strive for shared goals that, at times, contradicted historical aspirations and operations, would be no small feat. He chose the Balanced Scorecard as the primary tool for driving the concepts about synergy into hard-line business results.
Defining Shared Goals
As with a Balanced Scorecard developed for a single business unit, Oilrech’s Joint Venture Scorecard had four perspectives, outlining the objectives and measures of the different constituencies. For example, the shareholder perspective detailed the financial aspirations of the partnership. The most powerful perspectives in directing the joint venture, however, were the Customer and Internal components. These objectives helped each of the participants in the joint venture to define their united goal. Satisfying the needs of their common customers, and outline an operational strategy for reaching that goal.
One critical shared objective for the joint venture was “to reduce the life cycle cost for the customer by integrating the industry value chain.’) This objective was a powerful statement for the joint venture because it articulated both the desired outcomes, the reduced life cycle cost, and the driver of the outcome, integration of the industry value chain.
To measure desired outcome, Oil tech tracked “cost per barrel at the well-head,” an excellent outcome measure because it described the primary purchasing criteria of oil-field services customers, who are commodity buyers. As illustrated, the outcome measure was decomposed into an industry cost curve which showed how each independent business (or function) contributed CO the ultimate customer cost.
Identification of the factors driving performance was the most powerful step coward promoting the desired behavior in the joint venture because it articulated how the companies would achieve the cost reduction. The performance drivers focused on the high level behavior changes needed to execute the strategy; working together in cross-business teams with the goal of achieving cost efficiencies. The measure “Percent of Selling Activity Involving More Than One Business” communicated the intent to sell business through a single interface and tracked the joint venture’s performance in doing so. Similarly, the measure, “Identified Cost Reductions Resulting From Cross-Business Initiatives,” helped the separate companies participating in the joint venture focus on their customer-driven goals for teamwork. More broadly, however, by tracking the impact of these various lifecycle cost reduction initiatives on the industry cost curve, they were able to accumulate knowledge about the numerous changes being made. Ultimately, they integrated these practices into a new work model.
The high-level strategic measures, and the linkage between an outcome and performance drivers triggered a set of strategic initiatives for reengineering the basic work processes which defined, at an operational level, how the joint venture participants would work as a team. By pursuing these initiatives, Oiltech has established itself as a major force in the oil field services industry.
For a further conversation on this subject of Cedar View or how we may be able to help please email Sanjiv Anand, Chairman, Cedar at email@example.com