Harvard Business Case Borealis

Term Paper 2003 14 Pages

Business economics - Investment and Finance



1. Introduction

2. The abandoned budgeting system of Borealis

3. Principles of the new financial and steering system at Borealis

4. Advantages of the new system

5. Disadvantages of the new system

6. Changes in the companies performance

7. Conclusion

Annex 1: Master Budget


1. Introduction

Borealis is the outcome of a merger of the petrochemical divisions of Statoil Norway and Neste Oy Finland in 1994. It is a fully integrated and the biggest European polyolefins producer with production plants in different European countries and it’s head office in Copenhagen / Denmark. Directly after the merger Borealis had to create a common budget for the combined entity. The separate budgets of Statoil and Neste in the past had the traditional purposes of budgets: make planning and controlling easier for the management. The head of budgeting of Neste Oy became head of corporate control of Borealis and he was willing to leave the traditional budgeting behind and replace it by a new and innovative management steering approach with different purposes. During a period of three years he abandoned the traditional budgeting process and replaced it by a conglomerate of different management tools.

This case describes the reason why and how it came to the different budgeting approach and what kind of concept was implemented instead of the traditional budgeting process. It also includes the hopes, which the Borealis management had with the different approach and the results of it. In the following shall be discussed what the advantages and the disadvantages of the new financial and steering system are compared with the abandoned budgeting system either from a theoretical and practical point of view. For this discussion the traditional budgeting process is described in the first place. It includes the budgeting process within Borealis and in theory. Then the new approach of Borealis is described in part 3. In part 4. the advantages will be discussed and in part 5 the disadvantages will be figured out and discussed. In the last part a conclusion will be done, which will try to judge if the new financial and steering approach within Borealis does really achieve it’s expected purposes compared with the abandoned budgeting system.

2. The abandoned budgeting system of Borealis

Bjarte Bogsnes, Vice President of Corporate Control at Borealis, was willing to abandon the existing budgeting process of Borealis and replace it with another more advanced and flexible financial and steering system. The reasons for this approach were two items. First the experiences Borealis made with the first common budgeting process for 1995 and second the strategy, Borealis was heading for in respect to their new company values after the merger.[1] After the budgeting process for the 1995 budget a brainstorming within the company took place where different replacement possibilities for the budget were discussed and finally a decision was made, which is described more in detail in part 3.

Unsatisfying facts of the traditional budgeting process within Borealis were the following:

- Forecasting and target setting at the same time
- Hindering the decentralisation of decisions and responsibility
- Huge event in a specific period of the year
- Requires a huge amount of resources
- To many uncontrollable variables included
- Production of a detailed document, which was meaningless after weeks
- Not flexible concerning the fast changes of markets and products
- To complex process

After the merger Borealis had the plan to become a new company, which is different from the source companies Statoil and Neste Oy. Beside the general plan to be new, different and better it wanted to increase the value for it’s owners and customers and have an open working environment approach. The company value approach and the research process for better internal processes was more or less the reason why the budgeting process was also questioned and finally renewed.

Fact is that Borealis abandoned their traditional budgeting process over a period of three years and after it was abandoned they started a new steering system, which included four specialised management tools instead.

In theory budgets are monetary planing figures with a specific hurdle setting character for the different company areas for a specific time period.[2] It has four major purposes for a company and the responsible managers:[3]

- Budgets force managers to think deeply about future reachable success and potentials
- Budgets lead to a co-ordination of all activities within a company
- Budgets support the communication within a company and they identify bottleneck and problem areas
- Budgets are a tool to judge the performance of managers

In theory a lot of different budget creating approaches exist. Beside the straight versions ‘top-down-budgeting’ and ‘bottom-up-budgeting’ there is also a system called ‘counter-current-process’ existing, which is a mixture of the two straight ones. With different steps within the budgeting process it seems to be quite time consuming and resources requiring. The budgeting process for a ‘master budget’ is illustrated in Appendix 1. The ‘master budget’ contains of several specific budgets (sales and costs), which sum up to the total company budget and the predicted company result. These sub budgets lead to the total company budget and they are the guidelines for the managers for the specific period.

In contradiction to the theoretical budgeting process experiences in practise with traditional budgeting processes are a little bit different. Practical problems with traditional budgets are the following:[4]

- Budgets are fixed performance contracts between subordinates and superiors. This fact leads to fraud and gaming concerning the aims of the subordinates within the budgeting process to receive their targets for the following period.
- Fixed budgets can not be adopted to a changing environment. They are not flexible.
- Strategic aims and the commitment of the employees to the strategic goal of a company are not included in budgets. A connection between short term planning and strategy is missing.
- Organisational structures with cost-centres, investment-centres, profit-centres etc. are not reflected. Hierarchy is leading and processes are not considered.
- Budgeting is expensive because it requires a big amount of internal resources.
- Budgets are used for to many purposes. Practice has proofed that a separate budget for every purpose would be required.

All these practical problems of traditional budgeting show that another management concept seems to be required to solve all these problems. Borealis went this different way.


[1] Compare Borealis Case, page 1

[2] Compare Ewert, Wagenhofer, page 465

[3] Compare Ewert, Wagenhofer, page 466

[4] Compare www.lib.uwo.ca/business/libby.com


ISBN (eBook)
File size
417 KB
Catalog Number
Institution / College
University of Applied Sciences Essen – MBA International Financial Management Program
2,0 (B)
Harvard Business Case Borealis Startegic Management Accounting



Title: Harvard Business Case Borealis