Texas

Instruments
and HewlettPackard
Prepared by:

CHARISMA ARISTA
HENRIKUS GALIH IRAWAN
RIFKY ANDRIAN

17 December 2016

Management Control
System
MM UGM JAKARTA-INTER 1

Prepared by:

Management Control System

MM UGM Jakarta 31B International

1. TI and HP problems in term of Management Control System

Texas Instrument (TI) and Hewlett-Packard (HP) are two companies famous for introducing
electric and electronics products. Although competing in similar industries, their strategies and
management different due to their basic requirements are depends on their own business line. HP
is a firm that mainly focus on the computer products (that brings 53% of total sales) and
electronic test and measurement system (37% of total sales), while on the other hand TI is a firm
that focus mainly on the component product (46% of sales), few in digitals products (19% of
sales), government electronics (24% of sales) and others creates 11% of sales.
They have different managerial behavior that can affects their Companys strategies and
decision making. Different Companys strategies will create different results indeed. Then the
results can be measure on several aspects, financial performance and non-financial
performance. In order to run a good business, both Companies have their own strategy, such
as on strategic planning, budgeting, Reporting, Performance Evaluation, and Incentive
Compensation.
In this paper we would like to raise an issue pertaining this case study related to
Management Control System. By given the differences in strategy between the two firms
then we can come up for the solution of what would we expect to be the differences between
TI and HP in their planning and control system: Strategic Planning System, Budgeting
System, Reporting System, Performance Evaluation System, Incentive Compensation
System.
2. Case Reasoning and Case Evidence
As the companys vision already set up, then it would influence all business decision such
as business strategy and the functional strategy. When TI and HP has their own business
product, then they may come up with different business strategy that is HP creates the
formulation of their business strategy as the competitive advantage for selected small markets
based on unique, high-value/high-features products while Competitive advantage for large,
standard markets based on long run cost position becomes the keys business strategy that
implemented by TI. In addition, to encourage their own competitive advantage then they
make a break down functional strategy so that their competitive advantage can be achieved as
below.
1. Texas Instrument competitive advantage: Low Cost
Marketing

High value/high price

Controlled growth
Custom features
Manufacturing
Delivery and quality driven
Limited vertical integration
Small, attractive locations
R&D
Product only
Features and quality driven
Design to performance
Financial
Conservative
No debt
Margin of safety (slack)
2. Hewlett Packard competitive advantage: Differentiation
Marketing
High volume/low price
Rapid growth
Standard products
Manufacturing
Scale economies and learning curve
Vertical integration
Large, low-cost location
R&D
Process and product
Cost driven
Design to cost
Financial
Aggressive
Higher debt
Tight ship
Those strategies aforesaid directly impact to their financial performance as stipulated on
the table 1 below. From the table 1 below, we can see that very basic differences between TI
and HP financial performance are that TI has higher assets (mainly contributed by debt) and
sales (in line with their marketing and financial strategy). On the other hand, HP by the lower
equity amount that mainly comes from equity portion can create higher ROI percentage
compared to TI since HP implement manufacturing strategy that is low cost as their
competitive advantage.
Table 1. Financial Performance Comparison

Other differences of HP and TI in relation to the management control system are the
differences of product life cycle, where HP more tended to create a new product and then
replaced it when it matured and TI tend to enter early in a products life cycle, and stayed
through maturity. In the strategy differences of cost and price, HP desired cost improvements,
but sought higher margins and held prices longer while TI emphasized aggressive cost
improvements with equally aggressive price cuts. On the product or process matrix
differences, HP concentrated on flexible production processes to match low-volume, more
custom products need and TI concentrated on more capital-intensive, cost effective
production processes to match high-volume standard product needs. And the other one, in the
positioning and resources movement strategy, both HP and TI have their own different
strategy. HP sought all high-growth, high-margin businesses that met their own resource
needs, largely on an individual basis and on the contrary TI sought a balanced portfolio of
business where mature, large businesses provide resources for young, high-growth
businesses.
Since we know that both HP and TI have their own strategy to be implemented in their
business, then they also have differences of implication such as the implication strategic
planning system (table 2), the implication for budgeting (table 3), the implication for
reporting (table 4) and the implication for incentive compensation and performance
evaluation (table 5).

Table 2. The Implication for Strategic Planning System

Table 3. The Implication for Budgeting

Table 4. The Implication for Reporting

Table 5. The Implication for Incentive Compensation and Performance Evaluation

3. Conclusion and Recommendation

The HP (build) has a more flexible but higher risk strategy. They require constant
innovations to lead the market and these new products demand a premium price. Flexible
budgeting system and constantly reported will help management to measure their ability to in
line with their budget and what already set as a target. Management measured by long term
basis with high margin but their incentive compensating system for employees also helps to
motivate in order to gain more revenue and pass the target.
TI (harvest) has a more structural, in other hand they have lower risk strategy
compared to HP. With more structural styles they need more efficiency and productivity to
stabilize their business to in line with their strategy with low cost & low price.

Management will measure on short term period by measuring financial performance, but
have less compensating systems compared to rival, HP.
From both explanations above, we cant judge which one is better, because different
strategies will impact into different results, and in order to decide what strategies that one
company should applied or not, it should be measured by many factors. Different strategies
also need different efforts and considering internal and external environment.