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Galvor Company Essay Sample

Galvor Company Pages
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Galvor company is one of major French electric industry company which has main activity as fabricator (buy parts and assembly them into high quality, moderate-cost electric and electronic measuring and test equipment. Galvor Company is a family company founded by M. Georges Latour in 1946. Latour had always been personally involved in every detail of the firm’s operations as in most family businesses. Fiscal growth grew from $2.2 million in 1960 to $12 million in 1971. However, April 1, 1974, Galvor was sold to Universal Electric Company (UE), a large multinational organization with its European Head Quarters located in Geneva, Switzerland. The Company Head Quarter was located in the United States. Latour decided to sell Galvor to Universal Electric Company for $ 4.5 million of UE’s stock. Compare to UE Galvor’s total asset and revenues were quite small.

Universal Electric Planning and Controlling System

Universal, which is a company headquartered in the United States, is a large major multinational company in electric industry. As it managed several business or operating units all around the world UE has comprehensive and uniform system for reporting and controlling its financial activities. The comprehensive system can be explained as follows:

The Business Plan is a comprehensive documents made by Universal Electric’s operating unit (currently UE has about 300 operating unit in Europe). The Business Plan is used by UE as basis for developing its budget as well as measuring the performance of its operating units. Basically this business plan consists of 5 financial key elements:

* Sales

* Net Income

* Total Assets

* Total Employees

* Capital Expenditures

It takes several months to develop this Business Plan. The schedule for preparing this Business Plan is explained in below figures.
Period | Universal Electric (Geneva) | Galvor Company |

JanuaryJanuary-AprilMayJune-JulyAugustSeptemberOctoberNovember | Set tentative objectives for each European operating unit for the following two years.The tentative objectives were “negotiated” between Geneva HQ and the operating management—(including product discontinued decision)The Negotiated objectives was reviewed and approved by UE Europe and US headquarters. (Mainly focus on 5 key measures).Meetings for reviewing each unit’s business plan. (share experience and common problems)Revision some of the business plan (for Galvor, the 1977 sales and net income proposed was accepted but total assets, total employees and capex were reduced for 9%, 1% and 34% respectively).Final business plan due date in Geneva | Prepare the business plan in detail how Galvor intended to achieve its objectives for the following two years (1977-1978) and forecast up to 1981 (5 years less detail) and submit it to GenevaRequest for major changes had to be submitted to Geneva. Minor changes between forecast and detail breakdown are not permitted. |

After preparing the business plan each operating unit in Europe had to submit periodic reports to Geneva in a fixed due period of submission. The UE control and reporting systems adhered to essentially same standardized report throughout the Universal Electric all over the world. These reports also contain information about variance between actual and budgeted results for latest month, year to date and year over year in quarterly basis. Basically there are 13 kinds of financial reports had to be submitted some on a monthly basis, some others were require less often, either quarterly, semiannually, or even annually.

Implementation in Galvor Company

The preparation of planning and controlling system was burdensome (both time and money) for small company like Galvor. Previously the company employed fewer than 20 personnel in finance department but because of the new system currently 42 people were employee in controller’s department. Previous system control in this company was simple and informal compare to UE. Basically Galvor’s main financial activity can be classified into two:

* Internal day-to-day operation (consume 20% resources )

* UE reporting requirement (consume 80% resources both time and money for controller’s department). This UE reporting was mainly performed by Barsac and Hennessy.
During the implementation of UE system Galvor faced several problems:

* Cost benefit of UE’s implementation, since it requires lots of resources including time allocation and hiring new personnel but not all of the reports are considered useful for company’s internal purposes.

* The company as an operating units have to submit the same report like bigger operating unit. But the reports are considered less material for UE’s as a whole. Because of less materiality, UE did not really pay attention to Galvor such as giving help or direction about the controlling and reporting purposes.

* HR Problem, since many people in Galvor’s controller department has limitation in English language and low level of well-trained staff.
* Difference accounting standard between France and US.

* Different currencies and limitation of local system.

For reporting purposes only, Galvor was considered as a single product line even though it had three distinct lines—millimeters, panel meters, and electronic instruments. This joined line variances could create distortion for Galvor because it is difficult to identify which product line contributes the lower profit for the company (as Galvor has management action to cut low-margin items from line).

In addition, there is also a positive value with the purchase of this company, that Galvor apply overhead cost allocation system is better. In addition, because Galvor no longer be managed and owned by Latour as a family enterprise, efficiency has become important and sought increases in the company.

The Main Problems

Inappropriateness and ineffectiveness of UE’s planning system treated to Galvor. UE’s planning system requires too much planning and too much time of preparation. The details are also requiring too much effort from Galvor’s management.

Analysis

The system applied in Galvor is perceived to be inappropriate and ineffective. There are many problems adapting the system, although UE planning is for the long term benefit of the system which is the goal congruence and UE needs to implement its company’s system and culture to its every business unit since it deals with many product lines as one of the biggest companies in Europe.

UE system did help Galvor to improve its cost standard settings; however the reporting and planning system is not appropriate for a small size company such as Galvor. Furthermore, there are also language barriers, limited staff competency, and limited workforce. Therefore, UE needs to find the most appropriate system to cope with the occurring problem.

The core of UE’s reporting and control system was an extremely comprehensive document: The Business Plan, which was prepared annually by each of the operating unit. The Business Plan was the primary standard for evaluating the performance of unit managers, and everything possible was done by UE’ s top management to give authority to the plan. As a result, there was a very strong centralized controller organization with a large staff as well as relatively large business unit controller staffs. However, in the case of Galvor which is a small sized company, a much simpler version of this complicated system would be more suitable applied. UE could also develop a system based on Galvor previous system to minimize the changing effect.

Solution to Proposed Question

1. The overall assessment of the effectiveness of UE’s planning system as it is applied to Galvor:
UE planning system applied to Galvor is not good and effective. Previously as a small family-owned company Galvor does not have comprehensive system like UE. During its implementation Galvor faced several problems:

* Cost and benefit problem, since it requires lots of resources including time allocation and hiring new personnel but not all of the reports are considered useful for company’s internal purposes.

* The company as an operating units have to submit the same report like bigger operating unit. But the reports are considered less material for UE’s as a whole. Because of less materiality, UE did not really pay attention to Galvor such as giving help or direction about the controlling and reporting purposes.

* HR Problem, since many people in Galvor’s controller department has limitation in English language and low level of well-trained staff.
* Difference accounting standard between France and US.

* Different currencies and limitation of local system.

2. The New Management Systems and techniques that UE has required Galvor to establish.
(1) The Business Plan, including summary report (financial statements), management action descriptions and analysis.
(2) Reporting system, comparison between budget and actual results. There are 13 reports, one monthly report include the balance sheet, cash flow, statistics, etc, and other 12 reports which submitted less often (can be quarterly, semiannually, and annually)

(3) Cost of the system, including establishing 8000 machining and 3000 assembly standard times and codifying 15000 piece parts. The standard costs include development and tooling costs as well as manufacturing and assembly.
(4) American accounting methods and dollar currencies is used in the standard reports.
(5) Cost allocation, previously Galvor used a single companywide rate to allocate factory overhead to the costs of products. (for many years it was 310 % of direct labor). After acquired by UE, Galvor refine the procedure for allocating overhead costs to products. 15 different cost centers were established, each with separate burden rate. These rates which combined direct labor cost and overhead ranged from 13.19 francs to 38.62 francs per direct labor hour.

The various steps Galvor goes through in preparing its long-range as well as annual plans

3. The evaluation of effectiveness of the working relationships between Hennessy and the UE executives. The working relationship between Hennessy with Poulet from the UE executive is done by sending each other telex. Communications were established with regard to the extent the company’s financial measures, such as evaluation of sales and inventories. Supposedly, the UE needs to see the state Galvor directly in order to know the constraints behind the deteriorating performance of these Galvor. UE parties were impressed not provide an opportunity for Galvor to adjust to changes in reporting systems and other management systems.

4. If Galvor positioned as an independent company the recommendation will be: still recommend Galvor to make short term plans and long term in a discipline. In addition, an evaluation of the determination of cost of products will also be our recommend, considering the overhead cost has not been properly allocated. It would be better if companies implement activity based costing, given the company creates more than one type of product, and a resource to do the ABC was adequate. Control is done by evaluating the company’s performance compared to the stats which originally was created. Galvor is a European company, which may have a different culture with American companies. Therefore, performance assessment based not only on financial aspects, but also non-financial aspects.

5. Planning and control from UE’s viewpoint this system which made the UE can be justified (although different from the planning and control system when Galvor positioned as an independent company) because the EU is a central enterprise located in the United States and EU also positioned the other companies on an equal basis with no distinguishing or privileging simply because of differences in the state. As the U.S. corporate culture, may also be familiar with financial-based performance assessment, so that the control system of Galvor was carried out with financial base.

6. The level for company such UE rely on a comprehensive system: when companies are incorporated in it has a regulation, culture, and different product lines. The company needs to establish threshold for the reporting standard. It would not make sense if UE require all of its operational units to submit the same standardized report without considering the level of activity in each of its operating units. The comprehensive system is somewhat important since UE rely on accuracy of consolidation reports from all of its operating units and its branch.

7. The specific change for UE’s planning system: in addressing UE’s planning and reporting system some changes need to be made for examples:
* UE can implement historical standard for Galvor because it is quite easy to implement and less costly and it’s preferable for small company like Galvor.
* UE can implement ERP system for all or its subsidiary in order to pursue the comprehensive requirement. Using ERP can reduce overall costs and time so the company can achieve more efficient and effective planning and controlling procedure with good accuracy and timely manner results.

* UE need to develop employment standards for its operating unit, the employee are required to reach some performance level standard. If they cannot achieve so they will be replaced with more competent employees. Some unneeded position can be eliminated due to minimize the cost.

* The new UE’s implementation system for Galvor should be developed step by step, in the first implementation period Galvor should not follow the entire requirement as needed for the big operational system. So UE’s should develop hierarchical planning and reporting standard for small, medium and large of its operating units. Each different level of operating unit will follow different set of standard, the smaller the operating units, the less complicated the planning and controlling system will be. But the standard still address the five key elements established previously (sales, net income, total assets, total employees, and capital expenditure)

* UE should provide help and solution for the company like Galvor which still newly implemented the UE’s system. Some training are needed to educate people in UE’s operating units as well as continuous monitoring to ensure that the system has worked well and the operating units can implement it without facing significant problems or difficulties.

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