Case 10- Galvor Company 

Background 

Galvor Company was founded in 146 by 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 businesses. Fiscal growth grew from $. million in 160 to $1

million in 171. However, April 1, 174, 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 were located in the United States. Early in 177, 4 people were employed in the

controller’s department, prior to Galvor’s take over by UE; there had been fewer than 0 people in the

controller’s department. Galvor’s new management and main key players were as follows 

Latour remained on the board for Galvor but was not involved in day to day 

operation and management of the company. 

Barsac Galvor’s Controller, 4 years old trained and skilled accountant, good 

ability in English, employed by universal since 164 (10 years experience, 

formerly assistant treasure of Universal subsidiary). 

Boudry UE’s European Controller; Chief Bureaucrat � all Galvor’s financial 

reports were submitted to Boudry. 

Hennessy Galvor’s Managing Director, UE employee for years 

Poulet Director of Manufacturing in Geneva; uses financial reports to oversee 

operation and identify problems at Galvor. Communicates with Hennessy via 

telex when problems are identified. 

The heart of UE’s reporting and control system was an extremely comprehensive document � The Business Plan � that was prepared annually by each of the operating units. 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 of this system there 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 needed to support the needs of the business planning and reporting process. 

Galvor is struggling to adapt to the complex and time-consuming requirement 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. Latour personally took care of much of the business planning prior to 174. Business planning process at UE is summarized below, note that this process was used for the first time in 175 to prepare Galvor’s business plan and budget for 176. 

Time Frame Goal Objective(S) 

January � May Product line objectives development Tentative Objectives negotiated Sales, Net Income, Total Assets, Total Employees, and Capital Expenditures. Objectives reviewed and approved by European and US. HQ 

June � July Business Plan Developed Galvor develops year business plan and 5th year forecast 

September Business Plan Approved Meetings in Geneva with European and U.S. HQ executives to approve business plan 

November Budget Approved Budget approved based on approved business plan 

(Table 1.) 

Hennessy and Barsac are struggling to adapt and implement UE’s business planning process. For reporting purposes, UE considered that Galvor represented a single product line, even though Galvor’s own executives viewed the company’s products as falling into three distinct lines � millimeters, panel meters, and electronic instruments. 

Case Analysis 

(1). UE’s planning system is not effective as it is applied to Galvor. It is a very inflexible, detailed system that required too much time and too many resources for a business unit the size of Galvor. Borsac and his chief accountant spend much their time working the system. This is very comparable to McNamara’s usage of Bentham’s panopticon method (described in Foucault Management and Organization Theory). Whereby, he sought for control and discipline of the Ford company through the finance department. McNamara shifted the ‘carceral gaze’ of the corporation to the minds of its mangers. He believed that by ‘managing the managers’ the problems of order, structure, motivation and leadership would be solved as McNamara disseminated the quantitative logic of management accounting throughout the company. Ford progressively extended the scope and ambition of financial control so much so that product development, new innovation and quality suffered. 

Furthermore, evidence of its ineffectiveness at Galvor includes; financial reports not providing value to the operating business unit, Boudry stated that the cost of the system is “barely acceptable” for a business unit the size of Galvor, even though Galvor is experiencing problems with the system, according to Boudry, headquarters has not given Galvor the help it needs and deserves in data processing. Telex exchanges from HQ staff to Hennessy provide no value to the operating unit. It only points out the variances, which are already obvious, and asks for additional reporting. No causalities are established. 

(). In addition to the Business planning process mentioned above (table 1), the Business Plan also had financial and operating summary containing comparative data for five years, dealing with the following measures 

Summary Reports 

Net income 

Sales 

Total assets 

Total capital employed (sum of long-term debt and net worth) 

Receivable 

Inventories 

Plant, Property, and equipment 

Capital expenditure 

Provision for deprecation 

Percent return on sales 

Percent return on total assets 

Percent return on total capital employed 

Percent total assets to sales 

Percent receivable to sales 

Percent inventories to sales 

Orders received 

Orders on hand 

Average number of full-time employees 

Total cost of employee compensating 

Sales per employee 

Sales per $1000 of employee compensation 

Net income per employee 

Net income per $1000 of employee compensation 

Sales per thousand square feet of floor space 

Net income per thousand square feet of floor space 

(Table ) 

Furthermore, the Controller, on monthly bases submitted 1 additional different reports as follows 

Reports 

Statement of preliminary net income 

Statement of income 

Balance sheet 

Statement of changes in retained earnings 

Statement of cash flow 

Employment statistics 

Status of order received, canceled, and outstanding 

Statement of inter-company transactions 

Statement of transactions with headquarters 

Analysis of inventories 

Analysis of receivable 

Status of capital projects 

Controller’s monthly operating and financial review 

(Table ) 

In addition to the reports submitted on a monthly basis, approximately 1 others reports were required less often, either quarterly, semiannually, or annually. 

(). The working relationship between Hennessy and UE executives in Geneva are not good. Poulet corresponds with Hennessy via telex when problems are identified. Poulet is making very detailed requests of Hennessy regarding inventories and sales levels compared to the budget. Hennessy blames many of the variances on three policy changes that appear to be driven by the corporate headquarters. Hennessy is just going through the motions and believes he is being over controlled; he is just doing the best he can according to his correspondence via faxes. 

Moreover, it must be realized according to Foucault’s theory of management that correct training or Dressage (which today is taken to mean the habitual training of a horse is obedience and deportment) is also applied to humans. Dressage not only restricts the subject, but also links the individuals together and so multiplies their uses. Harold Geneen CEO of ITT was also a master of Dressage. His managers were trained to meet face to face to look into each other’s eyes, to listen carefully to the tone of others voices, and to pay attention to their body languages. Telephone or telex would not do. You had to see the other person’s reactions when explaining the expenditures, budget, accounting, etc. 

(4). Galvor should have a much simpler, more streamlined business planning, reporting and control process. In Foucault, Management and Organization Theory, Mckinlay and Starkey focus on management of Japanese firms, where control is shared throughout functional areas rather than monopolized by finance; the entire Japanese enterprise is organized for cost reduction. In addition there was a qualitative balance between trust and control. 

At Galvor there should be a relaxing of the scope of financial control but an intensification of internal audits. Major investment and product programs only indicative rather than comprehensive cost were considered necessary at the initial strategy and concept stages. The business plan itself should only cover a few years and should be flexible, not detailed. The business plan summary report should contain information on NI, sales, total assets, total capital employed, % return on sales and % return on total assets only. Other items in the UE business plan should be combined into a summary of the strategic objectives and high level action that Galvor will pursue over the next two years to support the overall business planning objects, to include high level management actions. Monthly report should focus mostly on reporting of problems areas and the prioritization of areas of concern. 

(5). In my opinion UE is such a large corporation, whose rigid planning and control practices cannot be justified. Management accounting, re-constructed in Foucault’s term is a major apparatus of discipline and punishment in large organizations such as UE. According to Foucault managers must make exhaustive use of their time in order to assure efficient and effective task performance but that financial control discipline should be exercised gingerly, not in a heavy-handed manner. Although Galvor requires much needed improvement over their traditional planning and control process. UE can provide needed expertise to help develop a system that is effective for Galvor and could still meet the needs of the UE Corporation. 

(6). To achieve its strategic objectives and rely on a comprehensive system of financial reporting a large international organization needs to set up a system to support the autonomy of its various businesses and product lines. By incorporating Foucaults’ three principle of disciplined bodies, this involves the use of discipline space in particular ranking, whereby individuals are defined by the rank, he or she occupies in the hierarchy and by the space that separates each rank from the one immediately above or below it. Ranks remains permanent but the individuals change according to the most recent assigned task. Thus, the individual’s obedience is pretty much guaranteed. 

The timetable establishes a rhythm and regularity to actions. It can be formulated in terms of days, hours, minutes and even seconds. The timetable affectively works like in a world of daily repetitions and regular cycles of useful activities. The third discipline is hierarchical surveillance. It is a discreet art of close watching, using techniques of subjection and methods of exploitation. This called for a pyramid like administrative network, discreet enough that it does not weigh too heavily on the individuals in the hierarchy, yet sufficient to act as a brake or an obstacle to each individual’s activities. In addition the current process focuses on the day to-day performance and operation of the business units. The business planning process should focus clearly identifying the overall strategic direction of the business by clearly identifying the growth vs. harvest businesses and which businesses should be shut down and what new business to get into and where. Once strategic focus has been given budgets should be allocated and responsible manager should be held accountable for performance. 

(7). For this company, the strong centralized business controlled organization should be reduced. To further illustrate this point. In Foucault Management and Organization Theory, McNamara joined Ford in 146, for the first time for more than 5 years, the company always knew how much it was spending and how much it was making and it could project both costs and earnings in a consistent manner. Profit was an outcome of a predictable and disciplined process. McNamara at Ford progressively extended the scope and ambition of financial control. However, quality and innovation suffered in the trade- off with cost. It was the advent of Japanese competition that finally revealed the damaging

effect of this system. 

After Japan signaled the need to radically alter the company culture, it also served notice that the bureaucratic control mechanism of mass production were a dead weight in terms of cost and time. This resulted in reduction in finance personnel and decentralization of decision-making. Therefore, by decentralization decision-making and less rigid finance control, Galvor can become more profitable company.