Galvor Company

GALVOR COMPANY

History and Background:

The Galvor company had been founded in 1946 by M Georges Latour who continued as its owner and president until 1974. The company had acted as a fabricator, buying parts and assembling them into high quality, moderate cost electric and electronic measuring and test equipment. On april 1, 1974 Galvor was sold to Universal Electric Company for $4.5 million worth of UE's stock. M. Barsac replaced M.Chambertin as Galvor's controller in April of 1974.

The Business Plan

The business plan was the primary standard for evaluating the performance of unit managers and everything possible was done by Universal's top management to give the authority to the plan. Each January the Geneva headquaters of Universal set tentative objectives for the following two years for each of its European operating units. For each of over 300 Universal product lines in Europe, objectives were established for five key measures: sales, net income, total assets, total employees and capital expenditure. From January to April, these tentative objectives were negotiated between Geneva headquaters and the operating managements. During May, the negotiated objectives were reviewed and approved by Universal's European headquaters in Geneva and by corporate headquaters in the United States. In June and July, Galvor prepared its business plan. The plan aso contained in less detail for the fifth year hence.

Summary Reports

The broad scope of the business plan can best be understood by a description of the type of information it contained. It began with a brief one page financial and operating summary containing comparative data for preceding year, current year, next year, two years hence and five years hence.

Anticipated changes in net income for the current year and for each of the next two years were summarized according to their cause: volume of sales, product mix, sales prices, raw material purchase prices, cost reduction programs and accounting changes and all other causes.

Analysis of the causes of changes in net income forced operating managements to appraise carefully the profit implications of all management actions affecting prices, costs, volume or product mix.

Financial Statements

These condensed summary reports were followed by a complete set of projected financial statements; income statement, balance sheet and a statement of cash flow for the current year and for each of the next two years.

Management Actions

Some of the major management actions described in Glavor's 1976 business plan:

Ð'* Implement standard cost systems

Ð'* Revise prices

Ð'* Cut oldest low-margin items from line

Ð'* Standardize and simplify product design

Ð'* Create forward research and development plan

Ð'* Implement product planning

Among the objectives set for the control area, M.Barsac hoped to better distribute tasks, make more intensive use of IBM equipment and replace nonqualified employees with better- trained and more dynamic people.Therefore management described the specific actions to control employment, total assets and capital expenditures in case of reduction in sales and when these actions would be put into effect.

Approval of Plan

By midsummer the completed business plan was submitted to Universal headquarters and beginning in the early fall, meetings were held in Geneva to review each company's business plan. Before final approval of a company's business plan at the Geneva review meeting, changes were often proposed by Universal's top management. The approved business plan became the foundation of the budget for the following year, which was due in Geneva by mid-November. Minor changes between the overall key results forecast in the business plan and those reflected in greater detail in the budget were not permitted. Requests for major changes had to be submitted to Geneva no later than mid-October.