Texas Instruments and

Hewlett-Packard
TRIADANA P.
GHANTA N.
AMEER D.

Case Context
Texas Instrument (TI) and Hewlett Packard (HP)

are two companies famous for introducing electric

and electronic products. Although competing in
similar industries, their strategies and
management control are very much different.

Point of View
The group will be taking on the point of view of a

Third Party Observer/Analyst in order to take away

any bias towards any of the two companies which
will not help us in analyzing the case.

Problem Definition
Given the differences in strategy between the two

firms, what would you expect would be the

differences between TI and HP in their planning
and control systems; strategic planning systems;
budgeting systems; reporting systems;
performance evaluation systems; and incentive
compensations systems?
What are the management controls that befit each
companys strategies?

Framework for Analysis

Identify and contrast the business and functional

strategies of each firm

Identify and discuss each firms tendencies in
terms of:
Planning and control systems
Strategic planning systems
Budgeting systems
Reporting systems
Performance evaluation systems
Incentive compensation systems

Framework for Analysis

Compare the expected tendencies to the actual

controls used by each firm during the time period

1980 1985
Formulate conclusion and recommendation

Analysis

Build
Harvest
Differentiation
Low-cost
Hewlett-Packard Texas Instruments

Analysis
Texas Instruments

Hewlett-Packard
Business Strategy

Competitive advantage for large, standard markets

based on long-run cost position

Competitive advantages for selected

small markets based on unique, high
value/high features products

Functional Strategy
Marketing

Manufacturing

R&D

Financial

High volume/low price

High value/high price

Rapid Growth

Controlled growth

Standard Products

Custom features

Scale economies and learning curve

Delivery and quality-driven

Vertical integration

Limited vertical integration

Large, low-cost locations

Small, attractive locations

Process and Product

Product only

Cost driven

Features and quality driven

Design to cost

Design to performance

Aggressive

Conservative

Higher debt

No debt

Tight ship

Margin of safety (slack)

Analysis

TI tended to enter early in a products life cycle, and stayed through maturity.
HP tended to create a new product and then replaced it when matured.

Product Life Cycle

HEWLETT-PACKARD

TEXAS INSTRUMENTS

Exit

Volume

Volume

Stay

Create

Enter
Time

Time

Analysis

TI emphasized aggressive cost improvements, with equally aggressive price cuts.

HP desired cost improvements but sought higher margins and held prices longer.

Costs and Prices (Learning Curve)

HEWLETT-PACKARD

$/Unit

$/Unit

TEXAS INSTRUMENTS

Price
Cost
Cumulative
Volume

Price
Cost
Cumulative
Volume

Analysis

TI concentrated on more capital-intensive, cost effective production processes to match

high-volume standard product needs
HP concentrated on flexible production processes to match low-volume, more custom
product needs.

Product/Process Matrix
HEWLETT-PACKARD

TEXAS INSTRUMENTS
Standard
Custom
High volume

Custom

Job shop

Job shop

Continuous

Continuous

Standard
High volume

Analysis

TI sought a balanced portfolio of business where mature, large businesses provide

resources for young, high-growth businesses.
HP sought all high-growth, high-margin businesses that met their own resource needs
largely on an individual navy.

Portfolio: Positioning and Resource Movement

HEWLETT-PACKARD

TEXAS INSTRUMENTS
High

(New unique
products)

Annual
growth
rate

High

Annual
growth
rate
Relative Market Share

Low

Low

Relative Market Share

High

Implications for Strategic Planning Process

Criteria

Hewlett Packard

Texas Instrument

Importance of strategic
planning

Relatively high importance due to

uncertainty of environment in a build
strategy

Relatively low, Planning is lax

compared to HP due to stable
environment of harvest strategy

Formalization of capital
expenditure decisions

Less formal DCF Analysis; longer

payback
Less reliable due to uncertainty

More formal DCF Analysis; shorter

payback
More reliable because of stable
environment

Capital expenditure
evaluation criteria

More emphasis on nonfinancial data

(market share, efficient use of R&D
dollars, etc.) to encourage
development of new products; products
are on a growth stage

More emphasis on financial data

(cost efficiency; straight cash on
cash incremental return); required
earnings rate are high since it is
operating in a mature industry

Discount rates

Relatively low to motivate new

investment ideas

Relatively high to motivate

exceptional returns

Capital investment
analysis

More subjective and qualitative

More objective and quantitative

Project approval at the

business unit level

Relatively high

Relatively low

Implications for Budgeting

Criteria

Hewlett Packard

Texas Instrument

Role of the budget

Short-term planning tool

Control tool

Business unit managers

influence in preparing the
budget

Business units managers operate

in a fast changing environment and
have a better knowledge of these
changes therefore they greatly
influence the budget preparation

Business units managers have

relatively low influence in preparing
the budget but they need to start from
scratch every year and justify the
budget thoroughly.

Revisions to the
during the year

budget

Budget is not constrained for a

certain year because the company
is investing primarily in R&D.

Budget is too difficult to revise. It is

set from the start and needs to be
spent wisely to reflect efficiency in
operations.

Control limit used on

periodic evaluation against
the budget

HP is also concentrated on more

flexible production processes and
this will imply relatively high control
limit.

The control limit used is relatively low.

Importance attached to
meeting the budget

Meeting the budget is not an issue

with HP since budget might be
revised during the fiscal year as it
engaged with R&D activities

Meeting the budget is very important

as this will measure the companys
efficiency in the resource allocation
process.

Implications for Reporting

Criteria

Hewlett Packard

Texas Instruments

Frequency of informal reporting

and contact with superiors

Concentrated more on reporting the

policy issue as the company is more
involved in developing new products. It
Reporting operating issues is less
frequent.

Concentrated more on reporting the

operating issue as the company major
activities are in operations
(manufacturing and assembly).
Reporting policy issues is less frequent.

Frequency of feedback from

superiors on actual performance
versus the budget

Frequency of feedback or reports from

superiors on actual performance versus
the budget is less often

Progress was reviewed at successively

higher levels in the organization in both
modes. Monthly status reports of each
tactical action program were distributed
at all levels.

Implications for Incentive Compensation

and Performance Evaluation
Criteria
Percent compensation as bonus

Bonus criteria

Bonus determination approach

Frequency of bonus payment

Build - HP

Harvest - TI

Relatively high

Relatively low

The company gives special incentives to

innovations/discoveries and the successful
market acceptance of these new products.
Relying greatly on R&D puts a lot of
uncertainty on the company, thus
management expects higher compensation.
high risk, high returns

The companys profit margin may be low, but

sales, in general is consistent. This entails
lower risks thus, special compensations are
limited. Management are likely to be less
reliant on bonuses and more on regular
salaries and compensation

More emphasis on non-financial criteria

More emphasis on financial criteria

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.

Short-term parameters such as cost control,

operating profit and cash flow, and ROA or
EVA promote efficiency and productivity. The
harvest strategys goal is to be consistently
cost effective to complete at lower prices.
These criteria steers management towards
the same direction.

More subjective

More formula-based

Such criteria are difficult to measure

objectively since the effects are long-term
and not readily realized. MDev and NPDev
takes a long time

The criteria is very applicable to day-to-day

operations and can have engineered
measurements.

Less frequent

More frequent

Bonuses are not to be expected as regularly

since the nature of assessment is long-run.
Higher percentages are of course expected.

This encourages focus on day-to-day

operations and realization of short-term
goals. Time bound (monthly, quarterly,
annual) targets are often rewarded
consistently

Conclusions
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. 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.
TI (harvest) has a more structured, lower risk strategy. They require

efficiency and productivity to keep maintain low cost and sell at low prices.
Budgets are very important forms of control and actual performance are
expected to adhere to the budget. Management performance is measured on
short-term, financial parameter and they are motivated by more frequent but,
relatively lower, special compensations

Conclusions

BUILD STRATEGY
Planning and control systems encourage the development of 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 compensations 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 are relatively lower but more frequent.

Recommendations
As a third party observer, we recommend 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 TI to work and for them to
achieve their goals

Thank You!!!