Balanced_Scorecard_Project V Final
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The document presents a Balanced Scorecard and performance dashboard created for ExxonMobil's upstream business unit. The Balanced Scorecard includes objectives and key performance indicators across four perspectives: financial, customer, internal processes, and learning and growth. The performance dashboard will monitor performance on the Balanced Scorecard and help execute the company's strategy of addressing tough energy challenges like oil sands extraction and growing the natural gas market.
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Balanced_Scorecard_Project V Final
- 1. Balanced Scorecard Project with Performance Dashboard Prepared by: Team 1 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. TM 1
- 2. ExxonMobil Corporation Table of Contents 2 Overview of ExxonMobil Corporation ◦ Mission, Vision, Strategy & Values ◦ Corporate Structure The Purpose of this Presentation The Kaplan-Norton Balanced Scorecard ◦ 4 Perspectives Financial Customer Internal Learning and Growth The Eckerson Performance Dashboard ◦ Operational ◦ Tactical ◦ Strategic Performance Dashboard Prototype for ExxonMobil Summary/Conclusion 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C.
- 3. ExxonMobil Corporation General Company Overview 3 Corporate Quick Facts Integrated Oil/Gas Company ◦ Explore, Produce, Refine, Market Oil/Gas ◦ Operations in 36 countries ◦ 3 Main SBUs: Upstream, Chemical, Downstream Headquartered in Irving, Texas Total employees: 83,600 World’s 3rd Largest Corporation FY 2011: ◦ Revenue = $467 billion ◦ Earnings = $41 billion ◦ Earnings/Share = $8.43 ◦ Price/Share = $85 Geographical Dispersion of Revenue ◦ U.S. (31%), Canada (7.4%), Japan (7.3%), UK (6.7%), Belgium (5.7%), Italy (3.8), France (3.8), Singapore (3%), Remaining 28 Countries (31%) 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C.
- 4. ExxonMobil Corporation Mission, Vision, Strategy & Values 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 4 Trademarked Slogan Taking on the world’s toughest energy challenges Mission Statement Energy is fundamental to the world’s economies. Improving living standards around the globe requires affordable, reliable energy. Vision Statement ExxonMobil Corporation is committed to being the world's premier petroleum and petrochemical company. To that end, we must continuously achieve superior financial and operating results while adhering to the highest standards of business conduct. These unwavering expectations provide the foundation for our commitments to those with whom we interact. Strategy Upstream SBU: Pursue balanced global exploration designed to maximize profitability from existing unconventional resource opportunities such as oil sands and shale gas Chemicals: Grow businesses with high-returns from products generated via Downstream refining of both crude oil and natural gas Downstream SBU: Lead industry in refining, distributing, and marketing distilled products through operational excellence and technological innovation Corporate Values Commitment to enhancing long-term value to shareholder Consistently satisfy ever-changing customer energy preference Hire and retain the most qualified people available and maximize their opportunities for success Maintain the highest ethical standards, obey all applicable laws and regulations, and respect local and national cultures Source: Introduction to ExxonMobil Corporation. (Italicized words reflect quoted phrases.) http://www.exxonmobil.com/Corporate/Newsroom/Publications/XOMGlobalCap/page_2.html
- 5. ExxonMobil Corporation Corporate Structure 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 5
- 6. ExxonMobil Corporation The Purpose of this Presentation 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 6 Purpose of this Presentation • Create a Balanced Scorecard (BSC) monitored by a Performance Dashboard for Exxon’s Upstream SBU Common Strategic Theme • BSC must remain consistent with Exxon’s Mission, Vision & Strategy of using technological innovation to tackle the world’s biggest energy challenges. Success at this endeavor results in the company meeting the world’s energy needs. Translating Strategy to Practice • Two Challenging Opportunities • Extracting crude from oil sands • Creating a market for Natural gas The Challenges • Two Obstacles • Oil Sands: Reduce harmful impact extraction has on the environment • Natural Gas: Grow consumer demand to offset current oversupply & raise price
- 7. ExxonMobil Corporation The Balanced Scorecard Defined 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 7 The Balanced Scorecard The Balanced Scorecard was developed by Robert S. Kaplan & David P. Norton What it is … An effort to transition away from the overemphasis on short-term financial results Provides a framework and a language to communicate mission and strategy A tool used as a communication, informing, & learning system Best defined for a single SBU that has its own customers, products, & markets What it is NOT … Merely a collection of financial/non-financial measurements A controlling system used to keep employees in compliance A strategy formulation tool, but when implemented almost always clarifies a business’s strategy The 4 Perspectives Objectives Outcomes (Lag)/Drivers (Lead) & Strategic Initiatives: ◦ (1) Financial (F): Corresponding to revenue, profitability, & returns ◦ (2) Customer (C): Relating to customer retention, satisfaction, market share ◦ (3) Internal (I): Corresponding to key business processes in the company’s value chain ◦ (4) Learning/Growth (L): Infrastructure required for the company to learn and grow Note: All measures from all 4 perspectives must be part of a cause-and-effect relationship starting with L proceeding through I & C then ending at F.
- 8. ExxonMobil Corporation Financial Perspective 8 Objective F1: Improve returns on owned/leased land/water reserves Core Outcome Measures 1. Return on Average Capital Employed (ROACE) = (After Tax Profit from Operations) ÷ (Average Capital Employed) = (After Tax Profit from Operations) ÷ (Average Fixed Assets Plus WC) 2. Return on Past Capital Employed (ROPCE) = (CY After Tax Profit from Operations) ÷ (4-Year Weighted Moving Average Capital Employed) = (CY After Tax Profit from Operations) ÷ [(0.1)*CYCE + (0.2)*PY1 + (0.3)*PY2 + (0.4)*PY3] Where CE=Capital Employed, CY = Current Year, and PYn = CE, n years ago, where n=1, 2, 3. Note: Specific target values are provided subsequently in this presentation. 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C.
- 9. ExxonMobil Corporation Financial Perspective (Cont.) 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 9
- 10. ExxonMobil Corporation Customer Perspective 10 Objective C1: Expand Refiner Customer Base Core Outcome Measure ◦ # Barrels Guaranteed by market rate purchase contract Strategic Initiatives/Drivers ◦ Build long-term strategic relationships with refiners/wholesalers ◦ Exchange technology & compliance support for long-term contracts Objective C2: Grow Consumer Demand for Natural Gas Core Outcome Measure ◦ % U.S. vehicle fleet running on natural gas (cars, trucks, buses) ◦ Market Metrics: Price ($) per 1,000 cubic feet ◦ Market Metrics: % of natural gas purchased for transportation Strategic Initiatives/Drivers ◦ Partner with natural gas engine converters ◦ Proactively retrofit ExxonMobil service stations with CNG in densely populated metro areas (target market) Note: Specific target values for the Core Outcomes are provided subsequently in this presentation. 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C.
- 11. ExxonMobil Corporation Customer Perspective (Cont.) 11 Exxon’s Vulnerability: The world’s largest natural gas producer Purchased natural gas company XTO Energy in 2010 for $31 billion, adding 13.9 trillion cubic feet of proven reserves Risk that increasing usage, demand, and sales for natural gas could cannibalize oil sales 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. Natural Gas: A victim of the invisible hand
- 12. ExxonMobil Corporation Customer Perspective (Cont.) 12 Exxon’s Opportunity: Natural gas is a commodity and one company cannot set prices One company can drive fundamental change in consumer behavior and buying habits At present, natural gas sales for transportation represents 0.1% of total sales (10-fold incr. = 1%) 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. Objective: Grow Nat. Gas Consumer Demand
- 13. ExxonMobil Corporation Internal Perspective 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 13 Objective I1: Maximize Extraction on Owned/Leased Land/ Water Reserves Core Outcome Measure ◦ Oil equivalent barrels/day extracted Strategic Initiative/Driver ◦ Operational excellence (safety & effectiveness) Objective I2: Build Customer Relationships based on Long- Term Value (LTV) Core Outcome Measure ◦ # of new strategic partnerships with regional refiners ◦ # of retail customers who refuel CNG vehicles at ExxonMobil station Strategic Initiatives/Drivers ◦ Assemble cross-functional teams (planners, engineers, operators, sales) to spend face time with local refiners ◦ Exclusive CNG refueling/emergency assistance agreements with national haulers Note: Specific target values for the Core Outcomes are provided subsequently in this presentation.
- 14. ExxonMobil Corporation Learning/Growth Perspective 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 14 Objective L1: Develop Environmentally Acceptable Oil Sands Extraction Technology Core Outcome Measures ◦ GHG emissions per barrel extracted from oil sands ◦ # barrels fresh water required per barrel of dense oil sands crude Strategic Initiatives/Drivers ◦ Patent and deploy new technology before competitors (e.g. Cyclic Solvent Process) ◦ Increase water recycle/reuse ratio along with on-site water storage capacity Objective L2: Lead Industry in Advocating Natural Gas Vehicles Core Outcome Measures ◦ % of company vehicles converted to CNG ◦ # new prebuilt natural gas vehicles added to ExxonMobil fleet Strategic Initiatives/Drivers ◦ Partner with leading engine converters such as Westport, Inc. and Fuel Systems Solutions ◦ Learn to lead by example: Install refueling pumps anywhere ExxonMobil vehicles reside and natural gas is available. (i.e., corporate offices, home garages of employees with company trucks, onsite at extraction facilities, existing service stations) Note: Specific target values for the Core Outcomes are provided subsequently in this presentation.
- 15. ExxonMobil Corporation Visual Representation of Entire BSC 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 15
- 16. ExxonMobil Corporation BSC: Cause-and-Effect Relationships 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 16
- 17. ExxonMobil Corporation The Performance Dashboard Defined 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 17 The Performance Dashboard Definition of Business Performance Management “A series of organizational processes and applications designed to optimize the execution of business strategy” --- Wayne Eckerson. Performance Dashboards 2nd Edition (pg. 25). 2011 The Performance Dashboard Is a Business Performance Management System ◦ An interactive visual display that translates business strategy into objectives, metrics, and initiatives (pg. 4) ◦ Used to monitor and manage the execution of a company’s balanced scorecard (pg. 5) ◦ Communicates strategy. Refines Strategy. Increases visibility, motivation, and coordination of strategy. (pg. 5) 3 Dashboard Functions (pg. 5-18) Monitor: Trigger alerts and notices when metrics fall above/below predefined levels of importance Analyze: Discover the root cause of issues by incorporating data from all 4 BSC perspectives Manage: Oversee the execution of business strategy, improving decisions to guide the organization 3 Dashboard Types (pg. 5-18) Operational: Used on the front lines allowing workers to better manage and control specific tasks Tactical : Deployed by departments to manage, monitor, and benchmark specific business processes Strategic: Implemented to monitor the execution of a business’s Balanced Scorecard (i.e., strategy) Visual Display Best Practices (Ch. 12) Identify strategic themes & separate them using different colors (endorsed by Kaplan/Norton) Maximize "data-to-ink ratio". No solid-color backgrounds, 3D effects, fancy fonts. Fit on 1 printed page. Must be interactive with controls that allow users to drill down or across for filtering and digging
- 18. ExxonMobil Corporation Performance Dashboard Design Spec 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 18
- 19. ExxonMobil Corporation Strategic Performance Dashboard 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 19
- 20. ExxonMobil Corporation Summary/Conclusion (Part 1) 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 20 A Review of the Methodology Used Step 1: Strategy Consensus Review ExxonMobil’s corporate structure and select a single SBU for which the BSC will be built Summarize ExxonMobil’s Mission, Vision, Strategy, and Values Select a small number of specific strategy elements as the basis for the BSC (i.e., strategic themes) Step 2: Kaplan & Norton Apply the Kaplan-Norton methodology which defines 4 perspectives: (1) Financial, (2) Customer, (3) Internal, (4) Learning/Growth Each perspective has 1 or more objectives outcomes/KPIs (w/targets) drivers/initiatives Within each perspective the initiatives drive the chosen KPIs which satisfy the stated objectives Between perspectives, directed arcs are used to show cause-and-effect relationships from Learning/Growth initiatives up through Customer/Internal ending at Financial outcomes Step 3: Eckerson & Alexander Design a strategic performance dashboard to monitor the execution of the BSC Draft a design specification using visual display best practices that has a dashboard component for each of the 4 BSC perspectives Use Microsoft Excel to develop a rapid prototype dashboard for the BSC Use the rapid prototype to sell executive management on the BSC project and find a sponsor Sponsor should be a respected, knowledgeable, and well connected visionary executive leader
- 21. ExxonMobil Corporation Summary/Conclusion (Part 2) 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 21 A Review of the ExxonMobil BSC Restatement of Strategy Leverage superior technological innovation capabilities to tackle the world’s toughest energy challenges, bringing energy to people which will improve their quality of life At present, the world’s 2 toughest energy challenges are (2 BSC strategic themes): ◦ (1) Find environmentally acceptable means of extracting raw crude from oil sands ◦ (2) Convert developed nations from oil to natural gas for use in transportation The 4 Perspectives (K & N) Financial: (1) Improve returns on existing reserves. Use ROACE & ROPCE to measure. Customer: (1) Expand refiner customer base. Use # mkt rate purchase contracts to measure. (2) Grow natural gas consumer market. Use % transportation using natural gas as market price per 1,000 cubic feet to measure. Internal: (1) Maximize extraction on existing land/water. Use OEB/day extracted to measure. (2) Build relationships based on long-term customer value. Use customer count, partnership count to measure Learning/Growth: (1) Develop environmentally acceptable oil sands extraction techniques. Use GHG emissions per barrel & water use per barrel to measure. (2) Lead industry in advocating for natural gas in transportation. Use % Exxon vehicles/new vehicles running natural
- 22. ExxonMobil Corporation Questions 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 22 Thank you, are there any questions?
- 23. ExxonMobil Corporation References 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 23 Robert S. Kaplan & David P. Norton. The Balanced Scorecard, Harvard Business School Press, Boston, MA,1996. Wayne W. Eckerson. Performance Dashboards 2nd Edition, John Wiley and Sons, Hoboken, NJ, 2011 Micheal Alexander. Excel 2007 Dashboards and Reports for Dummies, Wiley Publishing, Indianapolis, IN, 2008 Hoover’s Energy Industry Report. Link: http://subscriber.hoovers.com.ezproxy.sju.edu/H/home/index.html Alar Kolk. Visions & Missions of Fortune Global 100. Jan 14, 2010 Link: http://www.slideshare.net/openinnovation/visions-missions-of-fortune-global-100 Sheila McNulty. XTO Bid Answers Questions on Exxon Strategy. December 15, 2009. Link: http://www.ft.com/cms/s/0/33e93c20-e917-11de-a756-00144feab49a.html#axzz1s0yDvtIN About AT&T. AT&T Marches Toward 15,000 Cleaner-Fuel Fleet Vehicles with Milestone 5,000th Alternative-Fuel Deployment. January 24, 2012. Link: http://www.att.com/gen/press-room?pid=22297&cdvn=news&newsarticleid=33757 Mitch Vine. Two Companies with Big Potential from Natural Gas Vehicles. October 21, 2011. Link: http://seekingalpha.com/article/301175-2-companies-with-big-potential-from-natural-gas-vehicles MarketLine Company Report. Company Profile of ExxonMobil Corporation. April 25, 2011 Link: www.marketline.com ExxonMobil Corporation 2010 & 2011 Annual Report. Link: http://ir.exxonmobil.com/phoenix.zhtml?c=115024&p=irol-reportsannual Brian O’keefe. Why Oil Giant Exxon Loves Natural Gas. April 30, 2012. Fortune Magazine.
- 24. ExxonMobil Corporation References 1/8/2016 DSS-670 Spring 2012 Instructor: Desai, C. 24 PR News Wire. ExxonMobil Press Release. Exxon Mobil Corporation Announces New Global Structure. Link: http://www.prnewswire.com/news-releases/exxon-mobil-corporation-announces-new-global-structure-updated-forecast-by-mid-december- 77397052.html Peter Baker & John Broder. White House Lifts Ban on Deepwater Drilling. The NY Times. October 12, 2010. Link: http://www.nytimes.com/2010/10/13/us/13drill.html?pagewanted=all JONATHAN FAHEY. US natural gas boom brings decade-low price. Apr 11, 2012. Associated Press. Link: http://news.yahoo.com/us-natural-gas-boom-brings-decade-low-price-201724884.html Ry Rivard. Natural gas prices hit 10-year low. April 9, 2012. Charleston Daily Mail Link: http://www.dailymail.com/News/201204080118 Joe Silha. US natural gas futures fall to 10-year low for 2nd day. Apr 10, 2012. Reuters. Link: http://af.reuters.com/article/energyOilNews/idAFL2E8FA3M920120410 Jared Favole, Stephen Power & Guy Chazan. Obama Vows Tougher Stance on Oil Industry. The Wall Street Journal. May 28, 2010. Link: http://online.wsj.com/article/SB10001424052748704269204575270031411598538.html Exxon Stock Pumped For Run To $93 As Gulf Of Mexico Gets Going. Forbes Magazine Online. January 11, 2012 Link: http://www.forbes.com/sites/greatspeculations/2012/01/11/exxon-stock-pumped-for-run-to-93-as-gulf-of-mexico-gets-going/ ExxonMobil Corporate Press Release. Improving Efficiency in Upstream Oil Sands Production Link: http://www.exxonmobil.com/Corporate/energy_production_oilsands.aspx The zacks analyst blog highlights: Chesapeake energy, ultra petroleum, talisman energy, exxon mobil and ConocoPhillips. (2012, Apr 10). PR Newswire, pp. n/a. Link: http://ezproxy.sju.edu/login?url=http://search.proquest.com/docview/992958108?accountid=14071 Debunking fracking myths. (2012). E E & T : Energy, Efficiency & Technology, , n/a. Link: http://ezproxy.sju.edu/login?url=http://search.proquest.com/docview/992863849?accountid=14071
Editor's Notes
- Welcome to Group’s 1 Presentation of ExxonMobil’s Balanced Scorecard and Dashboard. My name is Brett Kennedy and I will be beginning today’s presentation. Also in group 1 is Curtis Baker, Chris Rook and Carlos Rivero.
- To begin the presentation, I will provide a brief overview of ExxonMobil. Next, we will provide a much more in-depth purpose of this presentation, which will include the following: a. Discussing our learning’s from Kaplan/Norton’s Balanced Scorecard & Eckerson’s Performance Dashboard and b. Apply our learning’s from these books and build a Balanced Scorecard and prototype Dashboard for ExxonMobil. Lastly, we will provide a summary and conclusion of our presentation and will end with Q & A.
- Exxon Mobil is headquartered in Irving, Texas, and is the world’s 3rd largest corporation from a revenue perspective. Currently, ExxonMobil and Apple are competing for the World’s Largest Company from a Market Capitalization perspective. ExxonMobil employs over 83,000 workers across 36 different countries. ExxonMobil specializes in the exploration, production, refinement, and marketing of both oil and natural gas. In 2011, Exxon had $467 billion dollars in revenue and $41 billion dollars of profit; which represents a 9% profit margin. Over 31% of their revenue was from the US. Also, oil and natural gas represented over 80% of ExxonMobil’s revenues.
- ExxonMobil takes on the world’s toughest energy challenges, and by doing this they bring energy to people around the world which increases their standard of living. The company is committed to enhancing long-term value to shareholders by continuously satisfying customers ever-changing energy preferences. In terms of their workforce, Exxon aggressively pursues the most qualified and highly educated people available and retains them by dedicating the company to operating with high standards, obeying all applicable laws and regulations and respecting local cultures.
- ExxonMobil Corporation is presently led by Chief Executive Officer Rex Tillerson. The company is organized around 3 primary business units and consists of 10 profit centers. The 3 primary SBUs are termed “Upstream”, “Chemicals”, and “Downstream”. The Upstream business is concerned with resource identification and extraction, while the Downstream business refines and sells what Upstream extracts. The Chemicals business processes the valuable by-products which are left over from Upstream and Downstream operations. In 2011, the Upstream business unit was responsible for over 83% of Exxon’s Earnings. The Upstream Business unit spent over $33B for exploration in 2011. The Upstream business was responsible for total net production of 4.5 million oil-equivalent barrels per day.
- The purpose of this presentation is to create a balanced scorecard monitored with a performance dashboard for ExxonMobil’s Upstream business. In the process of doing this, we hope to secure a senior level executive leader who will advocate for and sponsor this initiative. The balanced scorecard presented here will remain consistent with Exxon’s mission, vision, and strategy which is to use technological innovation to tackle the world’s biggest energy challenges. Success in this endeavor means that the company will meet consumers energy needs, and satisfy shareholders expectations of returns. The two most challenging and promising energy opportunities facing the world today are capitalizing on the vast quantities of dense crude available in North American tar-sands, and finding a market for the present oversupply of natural gas – which has driven the price per 1,000 cubic feet from over $15 dollars in 2005 to less than $2 dollars today. Combined, these proven reserve supplies of dense crude and natural gas are sufficient to meet the world’s energy needs for well over 100 years. The main obstacle to extracting dense crude from tar-sands is the harmful impact this process has on the environment. Nearly 4-times the green house gas emissions are required per barrel from oil sands when compared to conventional methods. The main obstacle to profitable extraction of natural gas is to find a market for it. Present prices are not sufficient to generate acceptable returns on investment, yet the fuel is not being used for its most promising purpose – which is to power transportation. If used in transportation, its cost to consumers would be 63 cents per gallon, the vehicle would travel 80 miles per gallon, and green house gas emissions would be reduced by half. A failure to make progress on these exciting, yet challenging opportunities indicates a failure of Exxon to achieve its corporate mission and vision. Now, I would like to hand the presentation over to my colleague Curtis Baker, who will be discussing the Balanced Scorecard for the Upstream Business Unit.
- Thanks Brett. This is Curtis Baker and I will be introducing the balanced scorecard as well as discussing the financial and customer perspectives for the scorecard we created for Exxon's upstream business. The Balanced Scorecard was popularized by Robert Kaplan and David Norton in the mid 1990’s in two articles published in the Harvard Business Review followed by their popular book, The Balanced Scorecard. As developed nations’ economies transitioned from manufacturing to service industry, the sole focus of senior executives on short-term financial measures became insufficient. The Balanced Scorecard methodology defines four perspectives for building a framework and a language to communicate a business’ strategy and mission. A Balanced Scorecard is not simply a collection of metrics and measures, but contains cause-and-effect relationships that detail the mechanisms by which a business will meet its targets and therefore satisfy its objectives. The general direction of strategy execution begins with the learning and growth perspective, which is translated into operating practices that serve to satisfy and grow customers, so that financial objectives can be achieved.
- The Financial Perspective. The financial objective for Exxon’s Upstream business is to improve returns on existing land and water resources. Progress towards achieving this objective will be gauged using two financial metrics: The Return on Average Capital Employed, abbreviated ROACE, and the Return on Past Capital Employed, abbreviated ROPCE. ROACE measures the after tax operating profit as a percentage of average capital employed. Here, the average capital employed uses period begin and end values. A drawback of using ROACE is that it only considers capital investments made during the current year. Since land and water drilling leases typically last five years, capital investments made in prior years will impact present year operating profits. This is demonstrated by Exxon’s 15 years’ worth of proven energy reserves. Therefore, in addition to ROACE, ROPCE will be used, which is derived as the after tax operating profit as a percentage of the weighted average of capital employed in the previous four years. Weights are higher in prior years to reflect the proper payback period for energy investments.
- Exxon’s average capital employed has risen consistently over the past five years, from $58 billion in 2006 to $130 billion in 2011. During this same period, after tax operating profit of the Upstream business has fluctuated, from $26 billion in 2006, rising to $35 billion in 2008, then dropping precipitously to $17 billion in 2009, while finishing with an upsurge in 2011 with $34 billion. Earning relatively flat profits over a timespan that saw more than a doubling of capital employed contributes to declining percent returns on capital employed as Exxon’s 50% returns on capital generated in 2006 dropped to 25% in 2011. Exxon’s dramatic 2011 increase in capital employed should not be considered a failure if it does not dramatically improve operating profits in 2011. The value of today’s investment will be measured in the years ahead. For this reason, the ROPCE metric is used as it accounts for long-term investment and planning.
- The Customer Perspective. Exxon’s Upstream business extracts crude oil and either refines it at an Exxon facility or sells it to another refiner who assumes full ownership of the crude. The refinery proceeds to distill the crude oil into various retail energy products such as gasoline, diesel fuel, home-heating fuel, and jet fuel. Therefore, refiners who purchase Exxon crude are its customers, and there are approximately 90 refiners operating within the United States. To ensure a stable supply of raw material for processing, these refiners often enter into futures contracts with crude oil extractors such as Exxon. To meet its financial objective of improving both ROACE and ROPCE, Exxon must work to minimize the time gap between extraction and sale. The first customer objective is to expand the refiner base as this will help to minimize delays by reducing the need for on-site storage and transportation to an Exxon facility. Progress towards achieving this objective will be measured by the number of market rate purchase contracts secured. Two strategic initiatives will drive customer growth: The first is the building of long-term strategic relationships with refiners; the second is exchanging technology & compliance support for long-term purchase contracts. Natural gas is the earth’s most abundant molecule and it consists primarily of methane and hydrogen. The United States is presently witnessing an expansion of natural gas production so great that industry experts fear the country will run out of storage capacity within the next year. The reason for this is the coupling of hydraulic fracturing with technical advances in horizontal well drilling. Using these techniques, producers can extract in 30 days what previously required 30 years. Note that hydraulic fracturing refers to the practice of forcing liquids into shale rock formations which cracks it open releasing the gas. As previously noted, Upstream’s raw crude is primarily sold to refiners. The consumer of Upstream’s natural gas includes refiners who liquefy it, but also includes retail gas-to-market consumers. The second customer objective is to grow demand for natural gas. Progress towards achieving this objective will be measured by three metrics: (1) the percent of U.S. vehicles running on natural gas, (2) the price of natural gas per 1,000 cubic feet, and (3) the percent of natural gas purchased for transportation. Two strategic initiatives will drive natural gas demand growth: partnerships with natural gas engine converters, and proactively retrofitting ExxonMobil service stations with compressed natural gas or CNG refueling pumps in target market areas.
- Over the past five years, natural gas has been a victim of supply and demand’s “invisible hand”, a term coined by Adam Smith and Friedrich Nietzsche. Prices per 1,000 cubic feet have plummeted from over $15 in 2005 to less than $2 in 2012 due to a dramatic outward shift of the supply curve. Virtually all natural gas producers are presently operating at a loss, and as the world’s largest producer of natural gas, Exxon is particularly vulnerable. A noted Oppenheimer energy analyst recently stated that “Exxon made a bet on U.S. natural gas, and so far it is underwater because the price has collapsed.”
- One means to raise natural gas prices is to offset the present oversupply with an equivalent or greater increase in demand. That is, shift the demand curve right, as indicated by the red line above. Incorporating natural gas as a viable means to power transportation is one way this can be accomplished. At present, less than one-tenth of one-percent of all natural gas purchased is used for transportation. A tremendous opportunity exists to grow this market. In fact, Exxon already derives about half its revenue from natural gas. And now to discuss the internal and learning and growth perspectives for the scorecard we created for Exxon's Upstream business, here's Chris Rook.
- Thank you Curtis. As noted, my name is Chris Rook and I will be presenting the final two perspectives along with a comprehensive visual representation of the Exxon Upstream's balanced scorecard. The Internal Perspective. ExxonMobil has made substantial expenditures in recent years to acquire proven resource reserves. In fact, fiscal year 2010 saw a 5-fold increase in resource acquisition when compared to a year earlier. The vast majority of Exxon’s resource additions have been made in North America, and two particular examples would be the 2010 purchase of natural gas company XTO Energy for $31 billion dollars, adding 13.9 trillion cubic feet of proven natural gas reserves, along with expansion of operations in both the Kearl and Cold-Lake Canadian oil sands facilities. For ExxonMobil, the tactic must now shift towards capitalizing on these investments. The first Internal objective is to Maximize Extraction on presently owned & leased real estate. Progress towards achieving this objective will be measured by the number of oil equivalent barrels per day extracted. The strategic initiative for maximizing the number of oil equivalent barrels extracted is operational excellence, which includes both safety and effectiveness. Generally speaking, Exxon’s Upstream SBU operates effectively by successfully procuring, operating, and maintaining the right equipment with the best talent in a manner that minimizes downtime, stored inventory, and waste, while maximizing resource extraction and sale to customers. Discussion of specific technologies and equipment required by the extraction process is beyond the scope of this presentation, however, key operating personnel include researchers, planners, engineers, operators, and marketers. The functional departments involved are manufacturing, supply, technology, logistics, and marketing. In May of 2010, 33 deepwater drilling platforms in the Gulf of Mexico had their operations temporarily suspended by the U.S. government in response to the Deepwater Horizon explosion and subsequent oil leak. In total, 11 workers were killed and 5 million barrels of crude oil leaked into the Gulf of Mexico. The moratorium lasted 6 months and affected not only the platform’s owner, BP, but also competitors such as Exxon, Chevron, and Devon Energy. Regulations imposed on deepwater drillers is estimated to cost the industry $183 million dollars annually. Lax safety standards caused this disaster and the government response clearly demonstrates that unsafe operations are inconsistent with the goal of maximizing extraction. The second internal objective is to Build Customer Relationships based on Long-Term Value (LTV). Progress towards achieving this objective will be measured by (1) the # of new strategic refiner partnerships, and (2) the # of retail customers who refuel CNG vehicles at ExxonMobil service stations. The strategic initiative that will drive the procurement of new refiner partnerships is the formation of cross-functional teams who will visit with, and spend face-time with local refiners. Exclusive refueling & emergency assistance agreements with national haulers will be the mechanism for increasing the number of customers who refuel CNG at ExxonMobil service stations.
- The Learning and Growth Perspective. Saudi Arabia is presently the only nation with more proven oil reserves than Canada possesses in its tar-sands. Exxon runs extensive tar-sands operations in Canada’s Alberta province claiming more than 4 billion barrels of proven reserve. The heavy, tar-like nature of crude extracted from oil sands requires extensive on-site processing before it can flow through pipelines and as a result it is an environmentally taxing operation that results in approximately 4-times the greenhouse gas emissions (GHG) per refineable barrel when compared to conventional methods. Further, one-half barrel of fresh water is required to process one barrel of dense crude. Because of these and other environmental concerns, various governments and environmental advocacy groups are attempting to have the practice banned. Capitalizing on the opportunity presented by Canada’s vast oil sands hinges on developing an extraction technique that is more palatable to the public. The first learning and growth objective is to Develop Environmentally Acceptable Oil Sands Extraction Technology. Progress towards achieving this objective will be measured by (1) the GHG emissions per oil sands barrel extracted, and (2) the # of barrels of fresh water required per barrel of dense oil sands crude. Two strategic initiatives for reducing the harmful environmental impact of tar-sands crude extraction are (1) to patent and deploy new technology before competitors, and (2) to increase the water recycle/reuse ratio along with on-site water storage capacity. Note that the Society of Petroleum Engineers have recently published a theoretical article detailing an innovative approach to recover oil products from dense crude. It is termed the “Cyclic Solvent Process” and has the potential to reduce GHG emissions by 90%. Exxon must increase its research into this promising technology and seize related patents as it has the potential to eliminate the main barrier to crude extraction from oil sands, namely, environmental concerns. As noted previously, compressed natural gas is a viable alternative to oil for use in transportation. When burned it emits half the GHG emissions compared to oil. It is also cheaper than oil and leads to better gas mileage. The reason why it is not widely used for transportation today is the lack of refueling infrastructure. The second learning and growth objective for ExxonMobil Upstream is to Lead the Industry in Advocating Natural Gas Vehicles. Progress towards achieving this objective will be measured by (1) the percent of Exxon vehicles converted to CNG, and (2) the number of new CNG vehicles added to Exxon’s corporate fleet. The two strategic initiatives that will drive satisfying targets for these measures are (1) partnering with leading CNG engine converters, and (2) lead by example and install CNG refueling pumps at ExxonMobil facilities where natural gas is available.
- Kaplan and Norton highlight the fact that a balanced scorecard is not merely a collection of financial and non-financial metrics. While it must include various KPIs, the essence of a balanced scorecard is that it communicates a business units strategy and aligns with the organization’s mission, vision, and strategy. Through a holistic approach it focuses the employees of a business unit on changes that must occur beginning with strategic initiatives that drive performance to targeted levels. This, in turn, will satisfy the business unit’s customers and thus meet the financial objectives. Kaplan and Norton note that you know your balanced scorecard is real if losing it to a competitor could damage your company. This slide is a visual representation of ExxonMobil Upstream’s balanced scorecard as developed within this presentation. It is titled with the Upstream units strategy of maximizing the profitability of existing oil and gas production. The scorecard demonstrates linkages between all objectives, measurements, targets, and initiatives already described, and organizes them within each of the 4 balanced scorecard perspectives. Note again that shown here are linkages, not cause-and-effect relationships. Specific targets developed for each measure were arrived at either by inspection of Exxon’s performance over the past 5 years, or the value that would be essential for the business to execute on its strategy and thereby achieve its objectives.
- Kaplan and Norton emphasize that a true balanced scorecard must describe the business unit’s strategy via a series of cause-and-effect relationships. It should make explicit the sequence of events that must occur, beginning with learning and growth initiatives and ending with financial targets being satisfied. To quote directly, “Every measure selected for a balanced scorecard should be an element of a chain of cause-and-effect relationships that communicates the meaning of the business unit’s strategy to the organization.” This slide presents that chain of cause-and-effect relationships for the strategic initiatives and KPIs already presented in Exxon’s balanced scorecard. To use this diagram, we begin in the bottom-right quadrant and move in a Northwesterly direction ending in the top-left quadrant. For example, consider the strategic theme of increasing natural gas usage in transportation. ExxonMobil will learn and grow by converting their entire one-hundred-thousand plus corporate vehicle fleet to compressed natural gas. This will require the construction of refueling infrastructure at ExxonMobil service stations, as well as corporate headquarters and exploration facilities (that is, any place natural gas is available). Once this infrastructure has been built, partnerships with engine converters can be established leading to exclusivity contracts with national haulers. ExxonMobil will have demonstrated, by example, the opportunity to transition from an expensive dirty fuel to a cheap clean fuel for use in transportation. Once the nation’s truckers begin to follow Exxon’s lead and convert their fleet to CNG, the demand for natural gas will increase and along with it, the price. As the world’s largest natural gas producer, Exxon will therefore experience improved financial returns. Regarding the strategic theme of reducing the harmful environmental effects from oil-sands crude extraction, Exxon will again begin to learn and grow through improved research and development that patents emerging technologies, such as the cyclic solvent process, to dramatically reduce green-house gas emissions during the tar-sands extraction process. Once perfected, the techniques are incorporated into operations in a safe and effective manner which makes the process acceptable to regulators and environmental groups. This then opens a vast new opportunity to secure crude oil in North America from friendly neighboring countries and reduces both risk and transportation expense, again resulting in improved financial returns.
- As defined by Wayne Eckerson, author of “Performance Dashboards 2nd Edition”, a Business Performance Management System is “A series of organizational processes and applications designed to optimize the execution of business strategy.” A Performance Dashboard meets this definition and is an interactive visual display that translates business strategy and objectives into metrics and targets. One important purpose of a performance dashboard is to monitor the execution of a company’s balanced scorecard, and this would be termed a “Strategic Performance Dashboard”. Operational and Tactical performance dashboards also exist and serve separate and distinct purposes such as monitoring and analyzing performance within functional areas. Strategic performance dashboards built to monitor the execution of a balanced scorecard typically represent the scorecards strategic themes with distinct visual elements, such as color-coding, and this approach has been endorsed by Kaplan and Norton. Some important visual display principles when building a performance dashboard are to maximize the “data-to-ink” ratio, to avoid solid color backgrounds, 3D effects, and fancy font types. Also, since the dashboard will be printed often, each view should fit on one screen and print on a single page. Finally, it must be interactive and allow the user to drill down for more detail, as well as filter across categories.
- The strategic performance dashboard constructed to monitor the execution ExxonMobil Upstream’s balanced scorecard will be divided into 4 quadrants, one for each of the 4 Kaplan-Norton perspectives. Since monitoring for balanced scorecards is typically conducted monthly, quarterly, or yearly a tabular display format will be employed within each quadrant. All measures and metrics stated previously will be made available within the display and the two strategic themes will be color coded using red for oil sands and blue for natural gas. Lastly I would like to introduce our final speaker, Carlos Rivero, who will detail the performance dashboard and summarize what has been accomplished.
- Thanks Chris. I will be wrapping up the presentation with a prototype performance dashboard and a summary of our work. This slide presents a rapid prototype of an Exxon Upstream performance dashboard, incorporating the display principles noted earlier in the design specification. All metrics stated for each of the 4 perspectives are presented using the current value, the previous value, the change, and the target. These values change based on the user’s selection of a time unit and a time-point. The available time units are month, quarter, and year. Measures in red reflect the oil sands strategic theme, while measures in blue reflect the natural gas strategic theme.
- The process of building a balanced scorecard for ExxonMobil Upstream began with a review of the company’s mission and vision along with the business unit’s strategy. The two strategic themes of extracting crude oil from tar-sands, and growing the consumer market for natural gas were chosen to dominate the scorecard as they currently represent the world’s two most promising, yet challenging, energy opportunities. The methodology of Kaplan & Norton was then applied which defines 4 perspectives and within each perspective - objectives, KPIs, targets and initiatives were constructed. A balanced scorecard is not considered complete without both linkages and relationships. Linkages refer to the means by which an initiative drives the achievement of an outcome or KPI meeting a pre-defined target. This, in turn, leads to the objective being satisfied. Relationships, on the other hand, refer to the cause-and-effect nature of linkages across perspectives. That is, if learning & growth objectives are met, this implies operational efficiencies, which satisfy customers. Once customers are satisfied, financial targets can be met, and financial objectives achieved. Performance dashboards come in 3 basic types (operational, tactical, and strategic). The strategic performance dashboard is used to monitor the execution of a balanced scorecard. For ExxonMobil Upstream the performance dashboard was designed to contain a quadrant for each of the 4 balanced scorecard perspectives and a tabular format was selected to display all measures chosen as the KPI for each perspective. A rapid prototype was generated via Microsoft Excel and is used to sell the project and find an executive sponsor.
- ExxonMobil’s mission and vision are to leverage its technological superiority to tackle the world’s biggest energy challenges and raise living standards around the world. At present, the world’s 2 biggest energy challenges are (1) learning to extract crude oil from tar sands in an environmentally acceptable manner, and (2) finding a consumer market for the present over-supply of natural gas. Beginning with the oil-sands strategic theme and the learning and growth perspective, ExxonMobil Upstream will increase its research and development efforts into promising technologies that reduce green-house gas emissions as well as the amount of fresh water required to extract a single barrel of crude from tar sands. Success at this endeavor will lead the company to maximize oil extraction as the process becomes publicly palatable. Crude extracted from oil sands is too dense to flow through pipelines and therefore Exxon would benefit from strategic partnerships with local refiners who purchase the crude allowing Exxon to avoid the high cost of transporting it to one of their own facilities. Environmentally safe extraction of oil sands crude coupled with rapid sale to local refineries maximizes Exxon’s returns on existing resources and satisfies their financial objective. For the natural gas strategic theme, Exxon will begin an initiative to convert their entire corporate vehicle fleet to compressed natural gas, which will necessitate the construction of CNG refueling infrastructure. Partnerships with leading engine converters will develop and others, such as national truckers, will now have a cheaper, safer, and cleaner alternative to diesel fuel for powering their transport. As transportation consumers transition from oil to natural gas, demand will increase as will the price. Since Exxon derives one-half its revenue from natural gas, rising prices lead to higher returns and to Exxon again satisfying their financial objective.
- Thank you for listening we hope you have enjoyed this presentation. The remaining slides contain a bibliography of the references used in this project. More detailed information on the Kaplan & Norton methodology, Eckerson’s performance dashboard, and ExxonMobil’s opportunities and challenges can be found within these sources. At this point we will open up the discussion for questions.