Texas Instruments and Hawlett-Packard
Strategic planning systems
Texas Instruments is more diversified company, whereas, Hawlett – Packard single industry with related diversified firms. That is why we suggest TI to use vertical strategic planning system. Business units prepare strategic plans and submit them to senior management to review and approve. For related diversified and single industry firms, like HP, tend to use both vertical and horizontal. The horizontal dimension might be incorporated into the strategic planning process in a number of different ways.
Moreover, tend to create new markets and exited as a cost- driven competitors entered and the market matured. In consequence, for HP importance of strategic planning is very high due to uncertainty of environment in a “build” strategy. However, Texas Instruments favored early entry, followed by expansion and consolidation of its position, resulting in dominant ...view middle of the document...
However, for TI, the control limit used is relatively low.
Meeting the budget is not an issue with HP since the budget might be modified during the fiscal year. However, for TI, meeting the budget is very important as this measures the company’s efficiency.
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, TI is concentrated more on reporting the operating issue as the company’s major activities are in operations – manufacturing and assembly. Reporting policy issue is less frequent.
Performance evaluation system and incentive compensation system
Conglomerates, like TI, 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, ROA 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 businesses.
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 imply that one unit’s performance can be affected by the decisions and actions of other units. Therefore, market development, new product development and HR development are given much importance since target sales are very dynamic and are highly dependent on new innovations.
In the case of TI, 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.