DEVELOPING AN STRATEGY FOR MOBIN PETROCHEMICAL COMPANY BY USING BALANCED SCORECARD ATTITUDE

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1 129 DEVELOPING AN STRATEGY FOR MOBIN PETROCHEMICAL COMPANY BY USING BALANCED SCORECARD ATTITUDE S.Ali Hadawy, Naser Poursadegh, Nader Bohlouli Zeinab, Reza Khavandi Abstract Petrochemical industry as one of the largest and most important sectors is in need of the application of new managerial tools for strategic planning. There are different models and tools for strategic planning. The model of balanced scorecard (BSC) has been noticed by various organizations in recent years due to its special attention to intangible assets of organization like customer, internal processes, growth and learning in addition to financial indexes. Moreover, it is considered as one of the new methods of strategic planning. This research aims at developing a strategy for Mobin Petrochemical Company with a BSC attitude. The present research from the viewpoint of goal is an applied research and in respect of data collection, it uses a qualitative research method (focal group). For the purpose of learning about strategies of Mobin Petrochemical Company, while reviewing texts and literature related to strategic management, the views of senior petrochemical managers was used in the process of focus groups. During various focus meetings held in the presence of senior management body of the organization, the mission and vision of company were determined. Then identifying external opportunities and threats and determining internal weaknesses and strengths of organization and evaluating the IFE and EFE matrixes, the SWOT matrix was formed and strategies of Mobin Petrochemical Company were determined. The motifs of the company strategy were classified from the four main perspectives of BSC model. Afterwards, for determining the process of creation of value and cause and effect relation between strategic goals of organization, the strategy map of Mobin Petrochemical Company was drawn. Finally, the strategic pivots of Mobin Petrochemical Company were determined with regard to financial, customer, internal processes, growth and learning. In order to render strategies and determine objectives and performance measures in BSC system, various meeting were held in different units of the company. Reviewing the details of performance and method of implementation in each part, proper measures and their method of formation were determined. Having the confirmation of senior managerial body of Mobin Petrochemical Company, strategic plans and measures were adopted.

2 130 Business Intelligence Journal January Introduction The process of strategic planning is in fact a coordinating process between internal industries of an organization and external opportunities. The purpose of this process is to look through a strategic window and determine opportunities which an organization enjoys them or respond to them. So that the process of strategic planning is a managerial process including coordination of an organization abilities with existing opportunities. These opportunities are determined in the course of time and they are considered for investment or lack of investment of organization industries. The domain in which strategic decisions are adopted includes the operational environment of an organization, mission of organization and comprehensive goals of an organization. Strategic planning is a process which considers their factors altogether and facilitates the choice of strategic options which are adaptable with these three elements, then it employs these choices and evaluate. In the complex conditions of today s business, it is very difficult to have a correct and complete understanding of working environment and in many cases it is impossible. If we intend to think globally and gain appropriate opportunities for business, in that case our concentration, structure and method of work should be changed in accordance with strategic plans. In a constant changing world, we should be committed in change and believe in it; even it encompasses a little risk. Petrochemical industry as one of the largest and most important sectors in the country is in need of new managerial instruments to develop business strategies. Mobin Petrochemical Company as one of the most important petrochemicals in the country tries to implement policies related to Iran Outlook Plan 2025 within the format of five years economic, social and cultural plans. Thus, strategic goals of Mobin Petrochemical Company are in line with the general policies of Iran National Petrochemical Company. However in the process of implementation of policies and achieving strategic objectives, Mobin Petrochemical Company as one of the most important petrochemical companies will constantly face various barriers and problems. In order to identify barriers and present proper executive approaches to achieve strategic objectives, the company should design the strategic map of the organization and evaluate these strategies. In order to make a strategic planning, it is possible to use models such as Bryson, Glueck, Fray, Stoner models and the model of balanced scorecard (BSC). In early 1990 s, Robert Kaplan and David Norton presented BSC Model to planning, implementation and assessment strategies of organizations. This model as a result of giving attention to intangible assets of organizations such as customer, internal processes, growth and learning besides financial indexes have been noticed by many different organizations in recent years. In this research, the development of the strategy of Mobin Petrochemical Company by BSC approach is dealt with and strategies of Mobin Petrochemical Company in respect of financial, customer, internal processes, and growth and learning perspectives are identified. History and Concept of Strategy The history of the application of strategy concept dates back in fact to a time in which theorists of organization took shape as a natural system. For the first time, these theorists included the factor of environment into the studies of organizations. The factor Business Intelligence Journal - January, 2011 Vol.4 No.1

3 131 which indeed activities should be performed to achieve goals within its framework. Selznick is one of the first theorists of theory of organization who put forth concepts related to the domain of strategy without using the term strategy in 1957 in a book entitled, Leadership in Administration. He referred to cases such as distinguishing capabilities of organization and making coordination between internal conditions and external expectation of an organization. He implicitly put forth the idea of the implementation of a strategy. However, for the first time, the term strategy was used by Alfred Chandler in 1962 in the book Strategy and Structure. He studied the history of tens large commercial companies of America and as a result of that, the concept of strategy in understanding behavior and in particular the growth of commercial organizations emerged. In addition, the important topic of a link between the strategy of a company and its structure was appeared. Chandler who used the term strategy for the first time defines it as follows Strategy means to determine long term objectives of an organization and selection of a set of measures and allocation of necessary sources to achieve those goals. For the first time, he put forth the difference between strategy and tactics within the format of definition of strategic decisions (which deal with the long term health of an organization) and tactical decisions (which mainly relates to the daily activities) (Alidoosti, 1999). Strategic Planning Strategic planning is a powerful managerial tool which is designed to help with the organizations to make them adapt with the forecasted changes of an environment competitively. In particular, the process of strategic planning presents an analytical attitude of an organization and the environment related to that. It also explains the present conditions of a company and identifies the key factors affecting its success [9]. Strategic Planning is the process of constant and complex organizational change and it considers how the world will be different after 5 to 10 years. It tries to create the future of an organization based on what might be happened in the future (Lerner L., 2002). The model of balanced scorecard (BSC) A strategy-oriented organization for managing a great strategy will need to something more than determining strategies for business. In order to maximize efficiency, the strategies and standards of evaluation of all these units should be converged and linked with each other. These links are considered as the strategic architecture of an organization. An outstanding strategy at macro level of a company includes a system being made of interlined components precisely. These convergence conditions are created by sharing assets, skills and its specific capabilities. The synergy is obtained as a result of high interaction among units which should be seen directly in strategies. More than convergence of business units which sell their products and services to external customers, the organizations can create synergy by converging their internal units which offer common services. The challenge is that the services which are presented centrally should be responsive to strategies and needs of business units which must be supported. The model of balanced scorecard (BSC) for units of common services defines an opportunity of integrity and synergy and creates that. This model shows that how these organizations create value. The model of balanced scorecard (BSC) gives its attention to intangible assets

4 132 Business Intelligence Journal January in addition to tangible assets and finally the strategies of an organization are classified in four domains of financial, customer, internal processes, growth and learning (Kaplan & Norton,2008). Research Methodology The present research is an applied research from the perspective of objective. As for the data collection, the qualitative research methods (focal groups) are used. With regard to the objective of research which is to identify the strategies of Mobin Petrochemical Company in four domains of financial, customer, internal processes, growth and learning based on the model of balanced scorecard (BSC), the researcher will review texts and literature related to strategic management and use the views of senior managers of Mobin Petrochemical Company in the process of focal groups. The framework of developing a strategy using the model of balanced scorecard (BSC) This framework which is shown in Table 1 presents instruments and methods which are appropriate for types of organizations (in various sizes). It helps with strategists to identify, evaluate and choose strategies. This framework (Table-1) has five main stages including: Starting stage: In this stage, the mission of an organization is determined and its vision and mission statement are prepared. Input stage: At this stage, the necessary main data are specified for the development of strategies. This stage includes the formation of the matrixes of External Factor Evaluation (EFE) and Internal Factor Evaluation (IFE). It is likely that more knowledge about the input and output of organization will lead to change of mission of organization even during the process of strategic management. The data which is obtained at this stage (input stage) gives a base to compare and consider different strategy options, assess them and select the best strategy. Stage of adaptation or comparison: At this stage with regard to the data resulting from previous stages, while considering the mission of organization, the main internal factors (key strengths and weaknesses) and main external factors (strategic opportunities and threats) are compared with each other and in fact a kind of balance is created among them. At this stage, internal and external factors are compared with the help of various instruments to identify the strategies of organization. At this stage, SOWT (Strength, Weakness, Opportunity and Threats) Matrix is used to adapt the above factors. Balanced Scorecard (BSC): At this stage, the already identified strategies of the previous stage (stage of adaptation) are judged based on objective methods. Screening and integrating similar strategies, they are classified from the four perspectives of financial, customer, internal processes, growth and learning. Finally by studying the cause and effect relation among strategies in four domains of BSC, the strategic map of the company is drawn. Business Intelligence Journal - January, 2011 Vol.4 No.1

5 133 Table 1- Framework of developing strategy in BSC method Starting stage Statements of vision and mission of the Internal Factor Evaluation Matrix organization Input stage External Factor Evaluation Matrix Stage of adaptation or comparison Internal and External Factor Evaluation Determining strategies BSC Strategy Map SWOT Matrix Translating strategies and determining measures Determining performance objectives Translating strategies and determining objectives and performance measures: In order to understand the correct intention of the one who we do not understand his language, there is a need to a translator. In line with this idea, the staffs are in need of a working to be able to grasp it and instead of ambiguity lead to practical measures. So translating mission, values, visions and strategies of organization into a language which could create necessary motivation for performance in individuals and guarantee a common understanding of objectives of organization is necessary. Strategies are determined and described through quantitative measures of four perspectives which are connected with each other through a cause and effect relation. The capability of this model is the quick and proper transfer of concepts related to motivations of organization to a broad spectrum of addresses and this is one of the main advantages of this model (Niven, 2003). Statement of Vision and Mission of Organization Mission of an organization indicated the cause or the existential philosophy and mission of an organization. In other words, it indicates the identity of an organization. Each organization either being written or unwritten has a philosophy or a mission. It is this philosophy and mission that shapes every kind of activities of an organization and behavior of its staff and forms based on the beliefs and values of owners and managers of an organization. If we have written the mission of an organization in the form of a written document and convey it to the beneficiaries and make as a blueprint of the activities of organization, in fact we have prepared the statement of mission of an organization. So, the statement of mission is a sentence and a phrase by which the intention of an organization is distinguished from that of similar organization. At the stage of determining the statement of mission, prevailing questions on statement of mission are asked including determining the customers, products and services, market, technology, giving attention to survival and growth, philosophy, distinctive features, paying attention to the image of peoples, and staff (Fredar, 2003). According to the interviews with senior and executive managers and results of related questionnaire, the mission statement of Mobin Petrochemical Company is defined as follows: Mobin Petrochemical Company is activating as the manufacturer of utility services, supply water, electricity, steam, oxygen, nitrogen and compressed air supply and treated industrial wastewater of petrochemical complexes of South Pars Region (Assaluyeh). It tries to

6 134 Business Intelligence Journal January use modern technology of the world to promote satisfaction of beneficiaries (stakeholders, customers, staff and society) through continuity production and promotion of qualitative and quantitative level of products by reducing energy consumption and observing international standards and maintaining environment thereby bring about growth, survival and profitability for organization. The ultimate desire of this organization is increase of efficiency of the staff through holding training courses and creating a life associated with relation and meaning. So, giving attention to human forces, staff and their beliefs as the most important and valuable sources of organization is an indispensable part of activities of company. Determining vision for Mobin Petrochemical Company With regard to focal meetings on vision of Mobin Petrochemical Company, the vision was defined as follow: Trusting on Almighty God and relying on efficient human resources while maintaining ethical principles and human dignity and observing work conscience, Mobin Petrochemical Company in the horizon of 2025 is: A customer-oriented, productive, learning and innovative company Mobin A customer-oriented, (From the perspective of customer), productive (From the perspective of finance), learning (From the perspective of growth and learning) and innovative (From the perspective of processes) company. The structure of vision based on BSC is in the form of Figure 1. Figure 1- Structure of vision based on BSC External environment of a business External environment of business includes all factors which exist outside the organization border and have potential impacts on all or part of an organization. Some of the most important of these factors are: Government, technology, rules and regulations, competitive conditions, status of economic environment, and sociocultural circumstances (Hezar Jaribi, 2005). By factors of external environment, it means events, economic, social and cultural, ecological, political, legal, governmental, technological and competitive trends which can bring about benefit or damage to an organization to a great extent in the future. These factors are to a great extent beyond the control of an organization, so that the term external is used. Revolution in computers, bio technology, population mobility, change in the attitude and work values, and discovery of space, recycle of wastes and increase of competition by foreign companies are examples of these factors. Such kind of changes brings about a specific type of consumer and consequently Business Intelligence Journal - January, 2011 Vol.4 No.1

7 135 there is a need to various types of products and services. The external environment can be divided into the followings: Far external environment including economic, social, cultural, political, legal, technological and international environments Near external environment including neighboring organizations and institutions like rivals and suppliers (Fredar, 2003) Evaluating identified external factors for organization based on their positive or negative impact are introduced as opportunities and threats. Following various studies and meetings in the presence of senior management body of the company, 13 opportunities and 8 threats in the external environment of organization were determined. With regard to the evaluations in the matrix of EFE, the score of Mobin Petrochemical Company is Internal environment of a business Factors of this environment are among the controllable activities of an organization which is done by the organization in a bad or good form. These factors include management processes, organization financial standing, technological status, organizational structure, human resources, public relations and organization processes (Fredar, 2003). The evaluation of identified internal factors for an organization is introduced as the positive or negative impact on organization in the form of strengths and weaknesses accordingly. Holding brain storming meetings in the presence of senior managers of company and studying the internal environment of organization, 9 cases of strengths and 12 cases of weaknesses were identified. With regard to the evaluation, in the Internal Factor Evaluation Matrix, the score of Mobin Petrochemical Company was Analysis of internal and external factors For the concurrent analysis of internal and external factors, an instrument called Internal and External (IE) Matrix is used. This matrix is used to determine the position of an organization or business. In other words, using this matrix, an organization can determine the combination and duties of its own business. As it can be learned from Figure 2, the result of studying the mentioned matrix indicates that the activities of Mobin Petrochemical Company are at the aggressive area. Determining strategies through SWOT analysis In analyzing SWOT, internal and external factors are studies to identify opportunities, threats, strengths and weaknesses of organization in the future and develop proper strategies to face it better. For analyzing this analysis, the SWOT matrix is used. This matrix shown in Table 2 is one of the most important instruments by which managers can compare data on internal and external factors and can present possible strategies with regard to the matrix of main strategies.

8 136 Business Intelligence Journal January Figure 2- Matrix of analysis of internal and external evaluation (IEE) adaptation of internal and external factors (chih & Shou, 2006). With regard to the identification of external factors including opportunities and threats and internal factors including weaknesses and strengths for Mobin Petrochemical Company, the SWOT matrix of this company is obtained in the form of Figure 3. The digit 1 means the existence of a relation and digit 0 means the lack of relation between internal and external factors. Table 2- SWOT Matrix (chih & Shou,2006) The possible strategies can be enumerated within the categories of SO, WO, ST and WT. Comparing the main internal and external factors are one of the most difficult part of preparing the matrix of threats, opportunities, weaknesses and strengths and needs good judgment. In using this matrix, efforts are made to have the presence of learned, expert and experienced people from inside and outside of organization and by using the method of brain storming, useful strategies are extracted through W-Weaknesses List weaknesses Strategies- WO Using opportunities remove weaknesses Strategies- WT Reduce weaknesses and avoid threats S-Strengths List strengths Strategies- SO Using strengths try to utilize opportunities Strategies- ST In order to avoid threats, utilize the strengths Matrix of Internal Factor Evaluation Matrix of External Factor Evaluation O-Opportunities List Opportunities T-Threats List threats Figure 3- SWOT Analysis Business Intelligence Journal - January, 2011 Vol.4 No.1

9 137 Following SWOT matrix analysis and determining strategies, 83 cases of aggressive strategies of SO, 42 cases of competitive strategies of ST, 63 cases of conservative strategies of WO and 25 cases of defensive strategies were identified and totally 213 strategies were determined. Classification of Strategies After identifying strategies of Mobin Petrochemical Company with regard to analysis of SWOT resulting from meeting with senior managers of organization, the similar strategies were combined and finally after summing up and screening, 47 strategies were defined for Mobin Petrochemical Company. Considering the motifs being used in strategies and in order to use BSC from the four perspectives of financial, customer, internal process, growth and learning, 35 strategic motifs were noticed for Mobin Petrochemical Company and finally these motifs are presented in 12 strategic pivots in form of Table 3. Table 3- Strategic pivots of Mobin Petrochemical Company from the Four Perspectives of BSC Perspective Financial Customer Internal process Cost reduction Strategic pivots Optimal use of resources and assets Investment development Customer-oriented management Stability of quality and quantity of products Development of social responsibility undertaking Development of research and technology Process improvement Perspective Growth and learning Strategic pivots Making a scientific management Institutionalization of the culture of being superior and organizational learning Knowledge management Establishment of new management systems If we intend to present a general strategy from a general perspective, these strategies will be as follows: Financial perspective: Stable profitability Customer perspective: Customeroriented trend Internal process perspective: Improving processes and development of undertaking social responsibility Growth and learning perspective: Developing scientific management The general strategy of company is defined as follows: Stable Profitability Based on Scientific Management STRATEGY MAP Upon specifying strategies of organization, it is possible to specify the value chain of organization through cause and effect relationship among strategic objectives of organization within the framework of BSC. For this purpose, the strategy map of an organization is created with regard to BSC. The strategy map of BSC creates a framework to show how strategy relates the intangible assets to the process of creation of value. The financial feature describes the visible results of strategy through financial

10 138 Business Intelligence Journal January concepts. The customer feature determines the presentable value to target customer. The customer feature prepares grounds for the creation of value from intangible assets. The financial and customer features describe the expectable results from strategy. The feature of internal processes introduces the few vital processes which are expected to have the greatest impact on strategy materialization. The feature of growth and learning define the intangible assets which are of importance for strategy. The objectives of this feature specify that which of the organizational units and expertise (human capital), which systems (information capitals) and which organizational atmosphere (organizational capital) are necessary to support the internal processes for creating values. These assets should be accumulated together and to be allocated to internal vital processes. The objectives of these four features are related with each other through a cause and effect relations. Starting from the end is an assumption which tells the financial results will be accessible only when the satisfaction of customer is made. The value presentable to customer describes the quality of sale and loyalty towards the target customers. Internal processes create and present presentable values to customers. The intangible assets which back up internal processes create an infrastructure for strategy. Coordination among objectives in these four features is the key of value creation. The map strategy round the structure of cause and effect which links the four features is developed. With regard to the strategies of Mobin Petrochemical Company from the perspectives of financial, customer, internal process and growth and learning, the strategy map of Mobin Petrochemical Company is presented in Figure 4. Figure 4- Strategy Map of Mobin Petrochemical Company Business Intelligence Journal - January, 2011 Vol.4 No.1

11 139 Translating strategies and determining objectives and performance measures (evaluating tools) The process of determining objectives and measures is started by brain storming and for each perspective, the highest number of goals and measures are determined. The members of team based on their record, experience and position in the hierarchy of organization and following a series of meeting in different sectors of Mobin Petrochemical Company and reviewed the details of performance and methods of implementation in each unit. Then proper measures were determined and the performance of the last 3 years was extracted and objectives were specified for the year The programs and action for each unit were prepared with the confirmation of senior management body of the organization. Conclusion In general, it can be concluded that if a strategic management process including planning, implementation and control of strategy to be established, it will be possible to achieve specified strategies and objectives outlined in the strategic map of Mobin Petrochemical Company. With regard to a cause and effect relations among the four domains of financial, customer, internal processes, growth and learning in BSC, it can also be concluded that the proper implementation of strategic management will lead to the promotion of long term value for stakeholders. In order to achieve such a goal, in the financial perspective, the strategy of growth of income should be adopted through maintaining present customers, absorbing new customers, making new investments for development and also the strategy of growth of productivity should be considered through an efficient use of assets and cost reduction. Implementing and achieving the determined strategies from a financial perspective demands the selection of a flexible strategy towards changes in customers demands, production continuation and the quality stability of products in the perspective of customer. For performing and reaching customer perspective strategies, it is necessary to have the followings in place: In perspective of internal processes in the part of operation management, the strategies of efficient use of chemicals, energy efficiency, production improvement and network distribution, efficient use of production capacity, maintenance and repair performance improvement, efficient management and performance of storing spare parts and chemicals, reinforcement of chain supply management and logistics, reinforcement of project management system should be implemented; Also, in section of innovation of strategy for promotion of management and R&D processes, in the part of customer management, the strategies of improving after-sale services and using the facilities of neighboring companies should be adopted; Finally in legal and social sections, the strategies of reducing environment pollutants, incidents reduction, staff health and development of undertaking social responsibility should be conducted. The strategies in the perspective of internal processes will be performed well if the following steps could be implemented: From the standpoint of growth and learning in organizational capitals section, the strategies of creation of stability in the organization, institutionalizing team work culture, promotion of leadership style with regard to human dignity, institutionalizing

12 140 Business Intelligence Journal January the learning organization, also in section of human capital, the strategies of knowledge management, motivation rise, supplying and promoting merits and capabilities of key staff and institutionalizing the system of training successor and in section of information capitals, the establishment of information systems and development of networks and information infrastructures and IT. Acknowledgement We would like to extend our sincere thanks to all professors and management body of Mobin Petrochemical Company for their cooperation. Refrences Alidoosti, Sirous, Course of Evolution of Concept of Strategy in Theories of Organization, Summer, 1999, University of Tehran Press Kaplan, Robert, Norton, David, Translated by Hossein Akbari, Masoud Soltani and Amir Maleki, Strategy Map, Aryana Industrial Research Group Publications, 2008 Kaplan, Robert, Norton, David, Translated by Parviz Bakhtiyari, Strategy-oriented Organization, Organization of Industrial Management Publications, 2008 David, Fredar, (2005_, Strategic Management, Translated by Ali Parsaeeyan and Seyed Mohammad Arabi, Tehran, Office of Cultural Researches, 2003 Hanger and Willen (2003), Foundations of Strategic Management, Translated by Seyed Mohammad Arabi and Davood Izadi, Tehran, Office of Cultural Researches, 2002 Hezar Jaribi, Jafar, 2005, Entrepreneurship, Tehran, Bazargani Publications, First Edition Chih-Hsien Chen& Shuo-Yan Chou, A BSC Framework for Air Cargo Terminal, Industrial Technology, 2006 Fabrizio Bocci, A multi-dimensional approach to the Community perspective in the Balanced Scorecard architecture for the Public Sector, EGPA- Conference 2005 Fry L. Fred and Stoner R. Charles, Strategic planning for the new and small business, upstart publishing company, inc Kristine A. Hafner, Ph.D, partnership for performance: the balanced scorecard put to the test at the University of California, University of California Office of the President, 2003 Lerner L. Alexandra, a Strategic Planning primer for higher education, 2002 Matt H. Evans, The Balanced Scorecard, Morisawa. T, Building Performance Measurement System with Balanced Scorecard Approach, Nomura Research, 2002 Morisawa. T & Kurosaki.H, Using the Balanced Scorecard in Reforming Corporate Management Systems, Nomura Research, 2003 Business Intelligence Journal - January, 2011 Vol.4 No.1

13 141 Niven, Paul R Balanced Scorecard Step by Step: Maximizing Performance and maintaining Results, John wily sons, Inc., (2003). Performance Appraisal, Fermi National Accelerator Laboratory January 1, 2002 through September 30, Rigby, D. (2001). Management tools and techniques: A survey, California Management Review, vol. 43, No. 2, pp: Robert E. Paladino, Strategic Balanced Scorecard based budgeting and performance Management, Crown Castle International (CCI), 2006