Case study of IT & HP
Although competing in similar industries, their strategies are very much different. Problem Definition Given the differences in strategy between two firms, what would you expect would be the differences between TTL & HP in their planning and control system; strategic planning systems; budgeting systems; reporting systems; performance evaluation systems and incentive compensations systems. Inferred from the case, we expect some differences In planning and control system between Texas Instruments and Hewlett Packard.
This paper will discuss and propose some strategic planning systems, budgeting systems, reporting systems, performance evaluation systems and incentive compensation system for each company. Let Ana Locus jean Tall’s “allowances” In terms or: Planning and control systems Strategic planning systems Budgeting systems Reporting systems Performance evaluation systems Incentive compensation systems Strategic Planning Systems In term of corporate level strategy, both firms have the same definition of business in which the firm will participate.
TTL and Hewlett-Packard (HP) are both in high- technology electric and electronics. But, the second aspect of corporate level strategy, which is deployment of resources among the business, may be different for each firm upends on the objectives that they want to achieve and competitive advantages that they have. TTL is well known for its first to entry, stay and tries to achieve market leadership by cost leadership strategy. Meanwhile, HP is well known for offering unique, high value, high featured products.
In addition, both firms use related diversification as they operate main business lines which connect to each other and may achieve operating synergy. For example, TLS business lines, each business line can act as both suppliers and consumers for others (e. G. : digital products line acts as nonusers for component business line and suppliers for the government electronics business line). The same condition may be applied in HP. Budgeting Systems Budgeting systems deal with how the financial resources are deployed in the company.
The budgeting system covers the corporate levels, functional levels and business levels. The case does not mention anything about each company organizational structure, or the competition environment in business level; therefore we focus only on functional levels and business levels. In term of functional levels yester, we evaluate marketing, manufacturing, R and financial functions. For Hewlett – Packard role of the budget is short-term planning tool, whereas, for Texas Instruments is control tool.
HP is concentrated on more flexible production processes to meet the needs of its custom and low-volume markets, while TTL concentrated on more capital-intensive and cost-effective production processes to supply its more standard, high-volume markets.
For HP, this implies relatively high control limit used on periodic evaluation against the budget. However, for T’, the control limit used is elatedly low. Meeting the budget is not an issue with HP since the budget might be metal ruling teen Tactical year.
However, Tort II, meeting teen Cottage Is very Imp rattan as this measures the company’s efficiency. Reporting Systems HP is concentrated more on reporting the policy issue as company is more involved in developing new products. Its reporting the operating issues is less frequent.
However, TTL is concentrated more on reporting the operating issues as the company’s major activities are in operations – manufacturing and assembly. Reporting policy sue is less frequent. Performance Evaluation System and Incentive Compensation System Conglomerates, like T’, put more emphasis on financial criteria.
Generally, they are more likely to use formulas to determine business unit managers’ bonuses. Short term parameters such as cost control, operating profit, cash flow, ROAR or EVA promote efficiency and productivity in order to be consistently cost effective to complete at lower prices. Also, these formula based bonus plans are employed because senior management typically is not familiar with what goes on in a variety of disparate genuineness.
However, HP put more emphasis on non-financial criteria.
Senior managers of single industry and related diversified firms tend to base a larger fraction of the business unit managers’ bonus on subjective factors. In many related diversified firms, greater degree of interrelationships implies that one unit’s performance can be affected by the decisions and actions of other units. Therefore, market development, new product development and HER development are given much importance since target sales are very dynamic and are highly dependent on new innovations.
In the case of T’, the incentive bonus of the business unit managers tends to be determined primarily by the profitability of that unit, rather than the profitability of the firm.
Its purpose is to motivate managers to act as though the business unit were their own company. In contrast, HP tends to base the incentive bonus of a business unit manager on both the performance of that unit and the performance of organizational business unit. Criteria Hewlett Packard Texas Instruments Importance of Strategic Relatively high Relatively low Formalization AT capita Less formal DOC analysis; longer payback
More formal DOC analysis; shorter Capital Expenditure Evaluation More emphasis on nonofficial data to encourage More emphasis on financial data Role of the Budget Short-term planning tool Control tool Business unit manager influence Business unit’s manager operate in fast changing Business units managers have relatively low influence Revisions to the budget during Budget is not constrained for certain year because the company is investing primarily in R & D. Budget is too difficult to revise. It is set from the year Conclusion: The HP has a more flexible but higher risk strategy.
They require constant innovations to lead the market and these new products demand a premium price.
Budget flexible and there is greater dependent in constant updates and reporting. Management performance is measured on long-term, non-financial parameters and they are motivated by higher, but less frequent, special compensations. TTL has a more structured, lower risk strategy, they require efficiency and productivity to keep maintain low cost and sell prices. Budgets are very important forms of control and actual performances are expected to adhere to the budget.
Management performance is ensured on short-term, financial parameter and they are motivated by more frequent but relatively lower special compensations. BUILD STRATEGY Planning Ana control systems encourage teen development AT new products strategic planning systems are more critical to survive the uncertain environment.
Budgeting systems are used as short term planning tools that are flexible to adapt to a fast changing environment. Reporting systems are concentrated on policy issues. Performance evaluation systems are focused on non-financial criteria.
Incentive inspirations systems highlight the uncertainty in the environment; thus the higher risk involved translates to higher compensation that are less frequent. HARVEST STRATEGY Planning and control systems encourage the driving down of costs (minimize inventory cost and benefit from scale economies).
Strategic planning systems are less critical and necessary only to effectively balance cash flows as a result of being in a stable environment. Budgeting systems are used as strict control tools set at the beginning of the year to measure efficiency at the end of the year.
Reporting systems are concentrated on operating issues. Performance evaluation systems are focused on financial criteria. Incentive compensations systems are formula based and have engineered measurements based on day-to-day operations.
Percent compensation is relatively lower but more frequent. Recommendations We recommend the firms to use the management control tools above as they correspond to a build or harvest strategy. The use of these expected control systems are crucial for the strategies of HP and TTL to work and for them to achieve their goals.