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GALVOR COMPANY

Case Summary

Company Background

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...
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