Chapter 8-Case Study 2-Performance Management System Helps Freeport-McMoRan Switch Strategic Gears
Answer the following questions:
The following requirements must be met:
What do you do when your organization needs to completely turn around its strategy due to a changing marketplace or for competitive reasons? Situations such as these are common in today’s fast-paced business environment. How does a firm manage drastic changes like this? A good performance management system can help.
Freeport-McMoRan Copper & Gold is a case in point. The company, which is based in Phoenix, is the second-largest copper mining company in the world. It employs approximately 35,000 workers and has mining operations that span five different continents. But it wasn’t a poor market condition that caused Freeport-McMoRan to shift gears. It was a booming one. During much of the 1990s and 2000s, the price of copper was low—only about 75 cents per pound—making mining less profitable than it had been in the past. Mining a large amount of copper therefore became less of a priority than keeping costs low for Freeport-McMoRan.
However, after the price of copper jumped sharply upward and hit $4.50 a pound, Freeport-McMoRan realized it needed to change its strategy—and fast. It needed to ramp up production and invest in new people and equipment in order to mine as much copper as possible while its price was high. The question became how to implement the change. Compounding the task was the fact that each mine was run separately. The firm’s top managers did not even know how its employees were organized at the separate mines, let alone what their goals were or the metrics they were expected to achieve. The company had also acquired a rival mining company twice its size—Phelps Dodge—which made coordinating the performance of its people and operations even more difficult. In 2013, Freeport-McMoRan went to into a completely new line of business—oil and gas—making the coordination even more difficult.
To align the goals of everyone in the company and get all of its various mines performing at top capacity, Freeport-McMoRan needed a new performance management system. The system would hopefully enable the company to quickly implement and monitor the changes needed, while giving it the agility to change strategies again if or when the price of copper dropped.
Many of the employees who work in its mines and oilfields do not use computers regularly on the job, so Freeport-McMoRan needed a system that was easy to use. For this reason, the company adopted a web-based performance management system that employees could use at home. Initially, the firm rolled out the system to 500 employees as a pilot program. When it proved to be successful, the entire company began to use the system.
The software keeps everyone in an organization focused on a company’s most important goals, which can have a strong impact on the firm’s financial performance. It also helps organizations measure the contributions of its employees and to nurture, motivate, and reward employees based on their achievements. “Managers need reliable real-time data and pragmatic e-tools to measure, identify, analyze, and understand their organization’s people capability—and what capability is needed to compete in the future,” explains Jonathon Hogg, with PA Consulting Group, an IT and management consulting firm. The performance system, along with the company’s strategic move into oil and gas seems to be working for Freeport-McMoRan. In 2013, the company posted a 19 percent return to shareholders, despite copper prices plummeting again.
Questions
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