Galvor Company

BACKGROUND

        Galvor, founded in 1946, had been an independently owned and operated French company by its founder, owner, and President M. Georges Latour. The company had acted as a fabricator, buying parts and assembling them into high quality, moderate-cost electric and electronic measuring and test equipment. Latour had always been personally involved in every detail of the firm’s operations as in most family owned businesses (signing important checks). Most growth was experienced in 1960 ($2.2M)–1971 ($12M). On April 1, 1974, Galvor was sold to Universal Electric Company (300 product lines in Europe), a large, multinational organization with its European headquarters located in Geneva, Switzerland. The company headquarters was located in the U.S. After the sale of Galvor to UE, these were the key players and their positions in the case:

  • Latour; Chairman of the Board for Galvor

Not involved in day to day operations and management

  • Hennessy; Galvor’s Managing Director

Newly appointed, 38 years old, UE employee for 9 years.

  • Barsac; Galvor’s Controller; Newly appointed, 31 years old

Skilled accountant with 10 years experience in a large French subsidiary of UE.

  • Boudry; UE’s European Controller;

Chief Bureaucrat - all Galvor’s financial reports were submitted to Boudry.

  • Poulet; Director of Manufacturing in Geneva;

        Uses financial reports to oversee operations and identify problems at Galvor. Corresponds with Hennessy via ntelex when problems are identified.

        

Current Situation

        Galvor is struggling to adapt to the complex and time consuming requirements of UE’s business planning process. It is a relatively small business unit that had a very non-bureaucratic culture, developed over many years under the leadership of Latour (prior to UE’s purchase of the company). Latour personally took care of much of the business planning prior to 1974.

The Business Plan

The heart of UE’s reporting and control system was an extremely comprehensive and detailed business planning process. The approved business plan was the primary standard for evaluating the performance of unit managers and everything possible was done to give authority to the plan. One consequence of this system was a very strong centralized controller organization with a large staff as well as relatively large business unit controller staffs. This type of organization was necessary to support the needs of the business planning and reporting process.

Set tentative objective

Negotiated tentative objective

                   Reviewed and approve negotiated objective

        Prepare business plan

Functional area’s business plan

Submit completed business plan

          Meeting for reviewing company’s business plan

Company’s business plan Final approval

Set the monthly budget planning

UE’s Business Planning System Flowchart

        Here is a summary of the business planning process at UE. This process was used for the first time in 1975 to prepare Galvor’s business plan and budget for 1976. Jan-May Product Line Objectives Developed Tentative Objectives Negotiated (Sales, NI, Total Assets, Total Employees, Capital Expenditures).Objectives Reviewed and Approved by European and U.S. HQ.

Table 1

Summary of the Business Planning Process

        Separate plans were required for each product line. UE considered Galvor to be a single product line although it produced 3 separate types of products – millimeters, panel meters, and electronic instruments.

PROBLEM STATEMENT

Is the Universal Electric’s control system can be applied in Galvor effectively?

ANALYSIS

Since Galvor was acquired by Universal Electric on April 1974, Galvor’s accounting and control system should go align with the UE’s accounting and control system. The purpose of the accounting and control system that Universal is installing in Galvor has three principal functions:

  1. To enable Universal to control Galvor.

This includes such activities as: (a) management action: evaluating and motivation of Galvor’s management; (b) resource commitment expenditures; (c) corporate planning of future activities; and (d) early warning of problem and the taking appropriate corrective action where required.

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  1. To train Galvor’s management to develop and use internal planning and control systems.

This includes planning systems, financial accounting systems, cost accounting systems, inventory control system, etc.

  1. To provide information to headquarters those are required by the fiscal accounting and planning activities. For example, tax reports, consolidation financial statements, headquarters planning, etc.

However, in fact, there are different cultural background between UE and Galvor, so it would impact on their management control system activities. There are some differences in both company management control system activities, UE and Galvor, into six (6) which are Planning, Coordinating, Communicating, Evaluating, ...

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