Case Analysis: Case 13-3 Texas Instruments and Hewlett-Packard Texas Instruments and Hewlett-Packard competed in similar industries which both developed, manufactured, and sold high-technology electric and electronic products; however, they had very different strategies. TI’s general business strategy was competitive advantage for large, standard markets based on long-run cost position; however, HP’s general business strategy was competitive advantage for selected small markets based on unique, high-value/high-features products.
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TI tended to enter early in a product’s life cycle, and stayed through maturity; however HP tended to create a new product and then replaced it when it matured. HP’s environment was uncertain which compared to TI’s, because develop a new product and sell it into a new market exited a lot of potential risk and also extra profit. HP as a build business, the managers realized and made strategic plan more critical and more important than TI, a harvest business. HP’s budgeting systems were in short-term cycles.
HP focused on product differentiation and a product innovation, therefore a short-term budgeting systems was more suitable for a business environment which was quite uncertainty and changeable. Furthermore, HP’s business unit manager highly influenced in preparing the budget, and also the revisions to the budget during the year was relatively easy. On the other hand, as a harvest business unit, TI’s business unit managers did not have much influence in preparing the budget, and the budget could be easily changed during the year.
The difference of reporting systems is that TI separated operating expenses from strategic expenses on the income statement which HP did not. Compared to HP, TI had less innovation. In TI, the strategic expenses indicated innovative progress, therefore spent the full amount of the budgeted strategic expense considered desirable. It was easier to review the strategic expenditures if separating the operating expense and strategic expense in income statement. The competitive advantages of HP and TI were extremely different.
HP focused on differentiation and TI focused on low-cost; therefore the differences of their performance evaluation systems based on competitive advantages are first, product innovation was more critical for HP, however stability of product offering was more important for TI. Second, scale economies was important for TI, which was narrow product lines to minimize inventory carry costs; however, HP preferred more on having a broader set of products to create uniqueness. The differences of incentive compensation systems are first, HP’s percent compensation as bonus was relatively higher than TI’s.
HP’s manager took greater risk than TI’s manager, because HP’s manager were in charge of more uncertain task situations. Thus, build managers, HP, are more likely than harvest managers, TI, to rely on bonuses. Second, build managers in contrast with harvest manager should concentrate more on long-run; therefore bonus payment for HP’s manager was evaluated more subjectively than TI’s managers. Furthermore, HP’s managers tended to receive bonus awards less frequently than TI’s managers.