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Galvor Company: Analyzing Financial Performance Reports

Galvor Company was founded in 1946 and acted as a fabricator and assembler of electric and electronic measuring equipment. It witnessed growth from 1960-1971 under founder M. Georges Latour. In 1974, it was sold to UE but Latour remained as chairman. UE relied heavily on an extensive planning and financial reporting system applied to all units. This involved annual business plans covering all aspects of the business that were negotiated with and approved by UE headquarters. While this system provided benefits like focus on objectives, it also placed a large administrative burden on smaller units like Galvor and undermined the autonomy of managers like Hennessy.

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569 views13 pages

Galvor Company: Analyzing Financial Performance Reports

Galvor Company was founded in 1946 and acted as a fabricator and assembler of electric and electronic measuring equipment. It witnessed growth from 1960-1971 under founder M. Georges Latour. In 1974, it was sold to UE but Latour remained as chairman. UE relied heavily on an extensive planning and financial reporting system applied to all units. This involved annual business plans covering all aspects of the business that were negotiated with and approved by UE headquarters. While this system provided benefits like focus on objectives, it also placed a large administrative burden on smaller units like Galvor and undermined the autonomy of managers like Hennessy.

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ruser
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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GALVOR COMPANY S2-GROUP E

Alexander Esser
Alsu Minnibaeva
Kenneth Chong
ANALYZING FINANCIAL Mathias Homan
PERFORMANCE REPORTS Michiko Nagai
Pedro Rodríguez
Russell Dsouza
GALVOR COMPANY S2-GROUP E

INTRODUCTION
• Founded in 1946 by M. Georges Latour.
• Latour served as owner and president.
• Company acted as a fabricator – buying and assembling parts into electric
and electronic measuring/test equipment.
• One of the major French firms in electronics measuring instruments
sector.
• Witnessed a growth period during 1960-1971.
• Latour believed in complete ownership and was personally involved in
operations.
• Latour hired a successor who later resigned.
• In 1974 was sold to UE. Latour retained as chairman of Galvor board.
GALVOR COMPANY S2-GROUP E

STRENGTHS POWER OVER SUPPLIERS


• high quality • LOW (in terms of labor supply)
• moderate cost • 1973 - unionization of workforce
posed additional challenges.

BARRIERS TO ENTRY INTENSITY OF RIVALRY


• LOW • HIGH
• Any firm with sufficient capital • Presence of other firms in the
could become fabricators. electronics measuring instruments
sector.
• Many larger electronic firms in more
sophisticated sectors of the industry.
GALVOR COMPANY S2-GROUP E
ORGANIZATION CHART

UE HQ
UE HQ USA EUROPE
BOUDRY
GALVOR BOARD
Controller
POULET
LATOUR Manuf. Director 4 FOR 7 SP
Fin RES Line
Chairman anc TER
Ma EC
Galv
ial or
nag IA
Ana ers
HENNESSY Prod
(LM
LIS
lyst uct
Managing Director s LM ) TS
GALVOR COMPANY S2-GROUP E

PLANNING SYSTEM

J F MA M J J A S O N D
Objectives negotiated.
Galvor prepared BP Approval of BP
Budget for the
following year due.

aeapauuue coe
nb r r yn l gp t v c
Geneva sets 2 year Objectives approved Meetings in Geneva. Requests for major BP
tentative objectives by Geneva and US HQ. Review of BP. changes submitted.
for operating units.
GALVOR COMPANY S2-GROUP E

PLANNING SYSTEM
• Development of a Business Plan (covers every aspect of the business) by
Hennessy and Barsac.
• UE relied primarily on an extensive system of financial reporting. UE was
successful with such a system, hence it was applied to all operating units.
• BP was comprehensive and at the heart of UE's reporting and control
system.
• BP prepared annually by each of the operating units.
• BP the primary standard for evaluating the performance of unit managers.
• UE Geneva (HQ) set objectives for the next 2 yrs for every European
operating unit as a whole and for each product line.
GALVOR COMPANY S2-GROUP E

PLANNING SYSTEM
• Galvor represented a single product line.
• Product line objectives were measured by Sales, NI, Total Assets, Total
Employees and Capex.
• Objectives were negotiated between HQ and the operating managements.
• BP contained summary reports, detailed financial statements and
management actions.
• Management action section contained plans for the various functional
areas e.g. marketing
• BP had to be justified and defended at HQ meetings.
GALVOR COMPANY S2-GROUP E

PLANNING SYSTEM - EFFECTIVENESS


PROS
• Causes operating people to focus their attention on critical areas which not have
received their attention. e.g. level of investment in inventory.
• Forces people to think about the future and to commit themselves to specific goals.
• Helps them to look beyond the current problems and consider long-range
objectives and strategy.
• Effective training and educational device.
• Operating managers negotiated with HQ on objectives and this secured their
commitment.
• Good short-long term analysis (current year+5yrs).
• Analysis of changes in net income made operating managers carefully consider
their decisions regarding price, costs, volume and product mix.
• BP contained sensitivity analysis e.g. If sales fell to 60 percent
GALVOR COMPANY S2-GROUP E

PLANNING SYSTEM - EFFECTIVENESS


CONS
• BP preparation was time consuming. Maybe should be done every 2 years.
• HQ imposed budget cuts which might affect Galvor’s re-modernization drive and hiring of qualified
employees.
• Galvor submitted same reports as a unit with many times its sales.
• Imposed a heavy burden on Galvor management in terms of time and money. 80% of full-time being
spent in spite of working for 55-60 hrs/week. The system was designed for a large business. Requires
information not worth the cost. Controller dept had 42 people working.
• Implementation of UE’s cost and production control system would place a heavy burden on Galvor’s
management.
• Lack of proper staff who understand the reporting system lead to delays in submission.
• Language barriers and different accounting methods compounded the problem.
• Required conversion of internal records from Francs to Dollars.
• Barsac felt that only a few reports were of use to a majority of Galvor’s operating people.
• Demands made on the controller’s department were passed on to other areas e.g. engineering, etc
• Galvor being small has not been given much attention and support from HQ. More reactive (response
from HQ only when variances are off) rather than proactive.
• Long time to approve.
• Maximizing unit profits prevented the use of arbitrary transfer prices for “in-house” transactions.
GALVOR COMPANY S2-GROUP E

PLANNING SYSTEM - CONCLUSIONS


• Galvor had considerable autonomy, however it was subject to strong
central control on several occasions.
• Each unit was viewed as an independent company. Subject to local
taxation and regulation.
• UE believed profit maximization in operating units would increase overall
corporate profits.
• Galvor did benefit to a certain extent from this planning system e.g.
implementation of a standard cost system (proper allocation of overhead
costs to products).
GALVOR COMPANY S2-GROUP E

Hennessy and UE Executives


• Was judged only on Galvor’s performance.
• Had sufficient autonomy e.g. could decide from where to buy
• Found the reporting and planning system to be costly and
sometimes irrelevant for Galvor.
• Preferred that some reports be sent to HQ as a formality, but,
would have like some of the reporting between his managers
to be informal.
• Preferred if he could decide the timing of the reports.
GALVOR COMPANY S2-GROUP E

Hennessy’s Autonomy
• Month-by-month reporting undermined Hennessy’s
independence and Galvor to function as a profit center.
• HQ (Poulet) suggesting solutions to the inventory problem,
which a competent Hennessy was capable of solving on his
own.
• HQ (Poulet) was not aware of the internal workings of the
business and should have left Hennessy to resolve the issues
on his own.
• HQ (Poulet) was not aware that inter-house transactions were
not popular.
GALVOR COMPANY S2-GROUP E

THANK YOU

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