Galvor

1. Introduction

Galvor had been an independent company in the electronic industry of electronic measuring and test equipment since 1946, under the management of Mr. Latour, who was its founder and president. In 1974, Galvor was sold to Universal Electric (UE). Mr. Latour then became the chairman of the board of Galvor and Mr. Hennessy, from the UE, was deployed as Galvor's managing director. As parts of the transformation process from a small independent company to a part of a multinational corporation (MNC), Galvor had to change its planning and control system to comply with UE.

2. Planning and control system for Galvor as an independent company:

The essential purpose of a company's planning and control system is to make managers think long-term strategically, to provide a framework for budgeting, to allocate resources, to facilitate communication and coordination among different departments, and to evaluate managers' performance. For an independent Galvor company, top management's needs were quite simple. Management was, in essence, a personal thing. Mr. Latour, was intimately familiar with most aspects of the business, such as production, marketing. He would handle all financial matters, even routine jobs, make pricing decisions, and exercise overall cost control. Moreover, as a founder and owner of the company, he had the motivation to work hard and think long term in the company best interest. Besides, in the small Galvor where there were relatively few employees and the chief executive knew all or most of them personally, compensation administration would be informal. Raises were ad hoc, and merit increases would be based on performance evaluation by impression rather than by explicit ratings on predetermined factors of performance. Thus Galvor would only need simple, informal, and less-staff planning and control practices. Everyone essentially reported to the president because it would prove efficient means of collecting input to make decisions. And the president would shudder at the thought of spending money on people who merely advise others. Specifically, the business plan itself should only cover a few years and should be flexible, not detailed. The business plan summary report should contain information on net income, sales, total assets, total capital employed, percentage return on sales, and return on total assets. Other items in the UE business plan should be combined into a summary strategic objectives and high level action that Galvor will pursue over the next two years to support the overall business planning objects, to include high level management actions, monthly report should focus mostly on reporting of problems areas an the prioritization of areas of concern. More importantly, control should be shared throughout functional areas rather than monopolized by finance. In addition there should be a qualitative balance between trust and control.

3. Planning and control system for Galvor as a part of an MNC Universal Electric:

From UE's viewpoint, Galvor was a subsidiary of its multinational structure. Thus, there were substantial differences in the planning and control system. Firstly, communication and coordination was significantly needed as top management was remote from the business in Galvor. Senior managers, who were concerned with major strategic, organization, and policy issues, would not be able to monitor every division's day to day operations. Routine financial matters thus should be handled by financial department, and most pricing and cost control decisions were made far below the top. Thus, the more geographically wide and complicated structure and hierarchies call for effective communication and synchronization. Second, as ownership lost though the acquisition, so did commitment of Latour, as he wanted to devote himself to "family, philanthropic and general social interests", UE would need a tool to ensure sound behaviors. Third, not sole Galvor, but other 300 divisions were competing for UE resources. Consequently, UE had to rely on detailed plans and budgets to justify their allocation of resources. Next, in a large organization as UE, to ensure fairness in the compensation system, employee administration would need to be prescribed. All of these require a formal, sophisticated planning and control system. Though the implementation may be painful at first as complained by Galvor controller Barsac, UE was aiming to develop Galvor to be planning-and-control-savvy in the future, without which it would not be able to achieve the recent development as today. Moreover, the fact that UE was able to provide Galvor with necessary resource, better staff (reallocation of staffs from other UE divisions to Galvor), and technological add (IBM system), as well as professional help to implement the new practices proved that the imposition of this system was essential and justified. However, the extent to which UE should rely on the current system depends on several factors, as discussed below.

4. Extent to which UE relies on financial reporting and control:

The company's multinational strategy, and the difference in the culture of doing business in different countries would determine the extent to which it relies on such a comprehensive system of financial reporting and control. MNC may pursuit different strategy for the business units, for different reasons and thus, implies different coordination mechanisms. If the roles of the units are as marketing satellite, local innovator, they would need centralized decision-making, and intensive financial performance control. In the case of multidomestic strategy where units act as miniature replica/implementer, personal reporting and financial performance control are still essential, but less rigorous. For units as product/manufacturing specialists or global innovators, the company will need to rely on centralized decision-making, formal policies and rules, and standard planning and production systems. Finally, if the company is for transnational strategy where units act as strategic independents or integrated players, a combination of formal and informal mechanisms are called for, and relax on formal financial planning and control .

Next, the MNCs should consider the difference in the culture of doing business in its units. The more the discrepancy is, the more such a system is needed to ensure a standard for understanding, and to understand the norm practices or even "games" that the subsidiaries may be playing. Moreover, the organizational structure of the company as well as the physical distance of the subsidiaries from headquarter also play an important part. The more complicated and hierarchal the firm, the more they rely on it. Contrarily, the more the firm emphasis