Borealis, Case Study Example

Executive Summary

For years, plastic manufacturer Borealis had been focusing operations toward measures that enhanced profitability. Perhaps, one of the wisest moves made by Borealis was to find its headquarters in Denmark. As a multinational corporation, Borealis had weighed it options in terms of income tax savings and found the company would only spend about 30% on income tax by headquartering in Denmark as opposed to about 60% in other viable venues. Another deft move was when Borealis merged with some of its smaller competitors. Instead of retooling to capitalize on some of its untapped market potential, it joined forces with companies that were already producing certain products thereby saving on huge start-up costs and still being able to reap the benefits of an expanded product line. Likewise, Borealis’s partnership with a company in Abu Dabi gave it an inside track on raw materials while strengthening market concerns across borders and into non-Occidental markets. Nevertheless, Borealis was not the only global plastics manufacturer, and the market was not closed to expansion. What Borealis needed was a better way to gauge its position and act accordingly. Of all of the behaviors in which Borealis had engaged, perhaps, the most innovative was gearing its accounting operations to answer market pressures with performance measures.

Comparison

Although the idea began with a sort of flip comment from an executive at the annual Borealis budget meeting, the following year it expanded into a primary initiative: Do away with budget protocols altogether. Nevertheless, both the budgetary system and the performance-measure system were presumably geared toward the successful operation of the company. Both were viable accounting methods, and both served their purpose based upon the prevailing business paradigm. That is where the difference arose. The performance system more closely focused on strategic outcomes.

Contrast

One of the benefits of the new accounting measure is that it is geared more toward market forces than the old. The old was strictly budgetary which some executives felt was not effective enough at supporting strategic planning initiatives. The new system included both employee and management in the overall performance control process as it related directly to market conditions; whereas, in the old, employees hardly even knew or cared about corporate accounting measures. The new paradigm required behavioral responses to measure across the board as well as vertically within the organization.

Question Commentary

Borealis’ new system is an important accounting innovation. Instead of concerning executives with disconnected often disparate budgeting information and protocols that seem only cursorily related to operations and planning, the new system allowed the corporate culture to become more responsive to market challenges and opportunities. It made the separate functional areas of the business act more like a unified whole. It was very organic and may well be described in terms of a number of biological analogies. As such, it is surprising more companies have not adapted the system. There are a few reasons. One is that in terms of business operations and management, it is on the very cutting edge. The long term consequences are hitherto unknown. Also, it takes a pretty specific type of competitive environment in order to make it worth the risk. For example, it probably would not be as pragmatic of an initiative in a monopolistic environment. Still, as the long range outcomes are observed, it may become a commonplace accounting method in global business.

References

Jorgensen, B. (2008). Borealis. Boston, MA: Harvard Business School.