If you haven't heard of Valero don't worry. It's largely unknown to the public, although investors recognize it as one of the largest oil refiners in the United States. Valero Energy is a top-10 Fortune company headquartered in San Antonio, Texas, with 2010 annual revenues of \($89.2\) billion. Valero owns 14 refineries in the United States, Canada, and Aruba that produce gasoline, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products. The company also owns 10 ethanol plants located in the Midwest with a combined ethanol production capacity of about 1.1 billion gallons per year.

In 2008, Valero's chief operating officer (COO)

called for the development of the "Refining Dashboard"

that would display real-time data related to plant and equipment reliability, inventory management, safety, and energy consumption. Using a series of monitors on the walls of the headquarters operations center room, with a huge central monitor screen showing a live display of the company's Refining Dashboard, the COO and other plant managers can review the performance of the firm's major refineries in the United States and Canada.

The COO and his team review the performance of each refinery in terms of how each plant is performing compared to the production plan of the firm. For any deviation from planned daily or monthly targets, up or down, the plant manager is expected to provide the group an explanation, and a description of corrective actions. The headquarters group can drill down from executive level to refinery level and individual systemoperator level displays of performance.

Valero’s Refining Dashboard is available on the Web to plant managers in remote locations. The data are refreshed every five minutes. The dashboard taps directly into the firm's SAP Manufacturing Integration and Intelligence application, in which where each plant's history of production and current production data is stored. Valero’s management estimates that the dashboards have saved \($140\) million per year for the plants where they are in use, with anticipated total savings of \($230\) million per year when they are rolled out to all Valero refineries.

Valero’s Refining Dashboard has been so successful that the firm is developing separate dashboards that show detailed statistics on power consumption for each unit of the firm, and each plant. Using the shared data, managers will be able to share with one another best practices, and make changes in equipment to reduce energy consumption while maintaining production targets.

The Dashboard system has the unintended advantage of helping managers learn more about how their company actually operates, and how to improve it.

How helpful are Valero’s executive dashboards?

How much of a difference do they make? Valero’s stock price plummeted from \($70\) in January 2008, to about \($17\) in November 2008, rising to about \($26\) by May 2011. As it turns out, changes in refining efficiency are only one factor affecting profitability.

Valero’s profitability is heavily driven by the spread between the price of refined products and the price of crude oil, referred to as the “refined product margin.” The global economic slowdown beginning in 2008 and extending through 2010 weakened demand for refined petroleum products, which put pressure on refined product margins throughout 2009 and 2010. This reduced demand, combined with increased inventory levels, caused a significant decline in diesel and jet fuel profit margins.

The price of crude and aggregate petroleum demand are largely beyond the control of Valero management. Although Valero's dashboard focuses on one of the things management can control within a narrow range (namely refining costs), the dashboard does not display a number of strategic factors beyond its control, which nevertheless powerfully impact company performance. Bottom line: a powerful dashboard system does not turn an unprofitable operation into a profitable one.

Another limitation of information-driven management using dashboards such as Valero’s is that it is most appropriate for industries such as oil refining where the process is relatively unchanging, well known and understood, and very central to the revenues of a firm. Dashboard systems say nothing about innovation in product, marketing, sales, or any other area of the firm where innovation is important.

Apple Corporation did not invent the Apple iPhone using a performance dashboard although it might have such a dashboard to monitor iPhone manufacturing and sales. Managers have to be sensitive to, and reflect upon, all the factors that shape the success of their business even if they are not reflected in the firm's dashboards.

CASE STUDY QUESTIONS

1. What people, organization, and technology issues had to be addressed when developing Valero’s dashboard?
2. What measures of performance do dashboards display? Give examples of several management decisions that would benefit from the information provided by Valero’s dashboards.
3. What kinds of information systems are required for Valero to maintain and operate its refining dashboard?
4. How effective are Valero’s dashboards in helping management pilot the company? Explain your answer.
5. Should Valero develop a dashboard to measure the many factors in its environment which it does not control? Why or why not?

MIS IN ACTION

Visit Valero.com and click on its Summary Annual Report. Based on this report, what other corporate dashboards might be appropriate for senior management?