ACC80011 Strategic Cost Management:562927

Question:

Read the Case Study and answer the following requirements:

Complete a SWOT for the company as at 2013

Analyse the performance of BHP Billiton over the case time frame and prepare a Balanced Scorecard for the company for 2012-2013, establishing objectives given from the case or making assumptions about what these would be.

Comment briefly on the relative cost position between BHP Billiton and Rio Tinto. What strategies could be implemented to close this gap?

Answer:

In the face of rapidly changing technologies and delivery models, such as cloud and mobile, BHP BILLITON vendor management leaders are challenged to tie vendor performance to business impacts to improve innovation, efficiencies and financial impact from vendor relationships.

BHP BILLITON vendor performance and relationships will only be improved if scorecards and dashboards are implemented correctly, in a timely manner, with meaningful, actionable content that allows the audience to review, analyze and understand the information with the organization’s business objectives in mind.

Information instigates action by both vendor managers and vendors. Information can be distorted through ineffective reporting and analysis, where poor-quality information is unfocused and does not align with objectives. Organizations fail to realize the importance of vendors meeting their goals, and by painting an ambiguous picture of performance, the correct vendor behaviors are not supported. Ultimately, poor-performing vendors are not performance-managed and continue to be used.

This research provides an overview of the key elements of an effective vendor management reporting process, and how a constant and consistent measurement routine supports vendor performance and relationship management. The differences between a scorecard and dashboard are explained and how, through implementing both effectively, organizations can improve vendor value.

Identify the Most Effective Report Mechanisms and Formats

Confusion between the purpose of BHP BILLITON vendor scorecards and dashboards leads to ineffective, meaningless and underutilized reports with inconsistent metrics. This results in ill-informed stakeholders, vendor intimidation, a deterioration in performance and non-actionable advice.

Since the introduction of the balanced scorecard idea in the early 1990s by Dr. Robert S Kaplan and David P Norton, organizations have tried to implement scorecards within their operations to manage performance. Many organizations are still trying to implement a successful performance-reporting mechanism. ²Dashboards and scorecards are increasingly confused, because many believe they are one and the same since the two terms have become interchangeable. All too often, both are used to communicate similar information across all levels of the organization, and metrics for each are redundant and ill-defined. Gartner’s ITScore assessment supports this and also shows a low maturity level in the analytics and trending dimension. ³ The primary purpose of a dashboard is to measure a vendor’s performance at a tactical level, versus a scorecard, which, as a performance management tool, is focused on a strategic level.

Balanced Scorecard

BHP BILLITON vendor management leaders often struggle to identify the correct audience and objectives for a scorecard and dashboard, which results in stakeholders failing to understand the value and benefits, a loss of credulity, confusion, and bypassing the system. ⁶

Scorecards and dashboards measure and track vendor performance, and link back to the objectives and goals that are important to your organization. As such, they are an effective method to identify, measure and communicate vendor performance to stakeholders.

Engaging and collaborating with stakeholders at all stages is essential to a successful rollout of these reports. Focusing on key actionable data, vendors and clients will build strong relationships that are open and honest, built on trust, and deliver maximum value to both organizations.

SWOT Analysis

Strength

1. Market leader in the business it operates
2. Very diversified revenue stream which helps in mitigate short term downtrend in one particular sector or industry
3. Very strong internationally known brand name which has been built over the years

Weakness

1. Subject to lot of regulations from government and various stakeholders within the industry it operates
2. History of accidents has impacted the overall image of the company

Opportunities

1. Small companies acquired will open up new business areas
2. Expansion of business line in commodities like Copper and Coal

Threats

1. Intense competition and wafer thin margins
2. Reduction in export demand for the goods sold by the company

Many vendors may have their own dashboards they may want to use, which will provide meaningful data and great input. However, what is important to the vendor is not necessarily what’s important to your business or to your stakeholders. By introducing a vendor-performance-reporting mechanism (dashboard and/or scorecard), a vendor gains a better understanding of what is important to you, what your goals and objectives are, and the actions that are required to meet them.(Vendors may or may not be interested in this. BHP Billiton is important, however, to ensure that both parties understand what data is collated and why, especially as this could be a basis for dispute where data isn’t correlated.) Tracking the most important elements of vendor performance encourages vendors to improve and excel in key areas, particularly when they know they are being measured against other vendors.

Cost strategy with Rio Tinto

There has been a strong agreement with vendor and down line competitor Rio Tinto which has led to cost leadership in certain segments. Performance can then be managed, with rewards available for good performance (such as the potential for increased business, additional opportunities, vendor-of-the-month awards, or even just one-on-one time with the CIO). Poor or average performance can also be actively managed with focused conversations based on metrics and data to support the situation and where vendors and clients can work together to improve performance, deliverables and behavior.

BHP BILLITON vendor management leaders must:

• Link scorecards directly to business value to provide transparency and proof of ROI for vendor management effort and investment.
• Engage and work with your stakeholders to ensure a successful dashboard and scorecard implementation.
• Measure only what matters to your business and your vendors. This will change over time.
• Review data from the dashboard and scorecard regularly to ensure its validity and value.

BHP Billiton is important that both stakeholders and vendors buy into the performance management objectives, that they understand the program, and are prepared to work with you to get BHP Billiton right. Vendors will be motivated by incentives and opportunities to develop the account, and stakeholders will be driven by robust data that can be used to improve vendor performance. By using the correct reporting mechanisms, organizations will improve vendor engagement, collaboration and relationships. Finally, through creating performance measures and a performance management report, an organization will gain a wealth of insight into its vendors, and drive essential benefits, value and opportunities.

With an enormous BHP BILLITON software and hardware budget, one global retail organization struggled to manage the data around cost, projects, and the introduction of new products and services. Data was provided randomly from both local and central teams, contract renegotiations, RFPs, and vendor meetings took place without any data to support the conversation. Without any consistency, BHP Billiton was difficult to plan for the future and build strategic relationships. This lack of consistency was negatively affecting the relationships between the enterprise and its vendors.

The vendor management office agreed on a consistent approach to collating and reporting data. Data was collated in both preaward and postaward phases, and focused on performance (SLAs), contract (terms and conditions), relationship and risk. A weekly dashboard has been introduced for the vendor management office (VMO), and the existing operational scorecard amended to include more detailed metrics around contract, risk and relationship. This continual performance monitoring is supported by the VMO and improves its insight into the full workings of the vendor relationships.

Collaboration with vendors on new projects/services is at an all-time high. Strategic vendors are rewarded for good performance with more opportunity to bring new ideas to the table and to a senior audience. Consistent, robust data provides a great basis for any difficult performance conversations and gives focus to both stakeholders and vendors. More robust data has also supported a vendor rationalization program whereby duplicated products and services were reviewed and removed in both the hardware and software towers, achieving cost savings of 10%.

References:

• Donovan, J., Hartley, P., & Billiton, B. H. P. (2016). Investigating the market manipulation hypothesis in iron ore.AusIMM Bulletin, (Jun 2016), 14
• Garcia, L. C., Ribeiro, D. B., Oliveira Roque, F., Ochoa‐Quintero, J. M., & Laurance, W. F. (2017). Brazil’s worst mining disaster: corporations must be compelled to pay the actual environmental costs.Ecological applications, 27(1), 5-9
• Hubbard, T. N., Hubbard, T. N., Moore, M. J., & Moore, M. J. (2017). BHP Billiton: Mining Potash.Kellogg School of Management Cases, 1-13
• Paul, S. (2016). BHP Billiton reviews Indonesian coal assets.Australia’s Paydirt, 1(238), 83
• Smith, K. (2016). Brazil: BHP Billiton under pressure for Samarco compensation.Green Left Weekly, (1119), 18.