Discussion Questions for Computime

Do a 5 forces analysis of the industry in which Computime is competing (note: in order to do this, it is important to clearly define the industry.)

Computime’s core business is in the EMS (Electronic Manufacturing Service) Control Business providing high quality end-to-end solution including product engineer and design, testing, supply chain management, contract manufacturing and logistics services.

Computime provided high-tech OEM manufacturing solutions to high tech global manufacturers around the globe. The company was particularly adept in electronic controls, where it was the world leader.

1 Threat to New Entrant

The requirements for the capital investment and knowledge are moderate for the control business. Therefore, the threat to new entrant is moderate, and we would rate the attractiveness of this force as “moderate.”

2 Rivalry of Competitors

The company faced competition in their core electronic manufacturing services (EMS) business at both the regional and global levels. These competitors were larger with better financing capacity.

The global competitors consisted of companies such as Solectron, Flextronics and Sanmina. Solectron is an international OEM provider with offices and factories in more than 20 countries including 3 manufacturing sites in China. Flextronics is a Singapore based EMS provider that had revenue of $13.1 billion in the fiscal year of 2002 and approximately 95,000 employees. In addition, Flextronics already had 15 logistic operations in China alone. Recently, Sanmina Corporation had acquired SCI Systems to become Sanmina-SCI, the world’s second largest EMS player. Yet they were all larger than Computime with many manufacturing locations. Moreover, global EMS companies were in the process of shifting manufacturing to China in response to the recent WTO entry and low costs of production.

Local competitors (such as Wong’s Electronics, WKK Electronics and PCI Electronics Manufacturing Services in Singapore) had already gone through major reorganization or even been publicly listed.

Therefore, the rivalry of competitors is high, and we would rate the attractiveness of this force as “Low”.

3 Threat of Substitutes

(No information provided.)

Can be manually control device.

Therefore, we would rate the attractiveness of this force as “N/A”

4 Bargaining Power of Buyers

The control business is small portion of the buyers’ business, and it is standardized product.

Computime’s customers were, in turn, shortening the time required for delivery from it. For example, one of the MNC clients that used to give 12-week forecast now would only commit to 4. However, the vendors still delivered in 12 weeks, which was out of Computime’s control.

Therefore, bargaining power of buyers are high, we would rate the attractiveness of this force as “Low”

5 Bargaining Power of Suppliers

To become an “approved vendor”, a component supplier had to undergo a thorough quality audit. The company then continuously tracked the quality and delivery performance of suppliers.

For example, one of the MNC clients that used to give 12-week forecast now would only commit to 4. However, the vendors still delivered in 12 weeks, which was out of Computime’s control.

Therefore, bargaining power of suppliers are high as Computime seems not be able to control its uppliers, we would rate the attractiveness of this force as “Low”

6 Overall Industry Attractiveness

We have prepared a simplified summary table for the Five Forces by rating the attractiveness of the industry from 1 (not attractive) to 5 (very attractive), thus we can quantityfy the overall attractiveness of this industry.

|The Porter’s Five Forces |Attractiveness |
| |(1 – Not Attractive; 5 – Very Attractiveness) |
| |1 |2 |3 |4 |5 |
|Threat of New Entrant | | |x | | |
|Rivalry of Competitors |x | | | | |
|Threat of Substitutes | | |x | | |
|Bargaining Power of Buyers | |x | | | |
|Bargaining Power of Suppliers | |x | | | |
|Overall Attractiveness |11/25 |

Overall, Computime scores 11 out of a total of 25 scores, and it seems that this industry seems slightly unattractive for Computime to enter.

What is Computime’s core competence?

Its core competencies are the agile and flexible design and manufacturing process and provided end-to-end high quality vertical solution to customers.

Also some other core competencies are listed below:

a. Management Philosophy: Computime believed that the most valuable resources were its people, and that human resources were critical to the company’s success. The company emphasized employee training, and supported continuous learning and career development. (well trained employees)

At Computime, management was striving to create an innovative, flexible, team-driven culture in which employees could realize their full potential.

The company had devised a culture around what it called a Customer First philosophy. The company attempted to provide its customers with a consistent high level of service and innovative solutions in product engineering, cost, reliability and on-time delivery. Bernard attempted to maintain strong customer relationships by providing products and services of the greatest value through innovation and attempted to leverage the company’s extensive manufacturing experience.

b. Manufacturing: The plant was vertically integrated and strived for zero defects. Computime’s vertically integrated plant lowered manufacturing costs, and improved the quality of a range of manufactured products.

c. Design and Engineering: Computime was particularly strong in designing and manufacturing electronic control devices for residential, commercial and industrial applications. The company designed and built world class, end-to-end control systems for home appliances, wireless applications, heat ventilation and air-conditioning systems and home comfort appliances.

Its core expertise included design optimization and building of system solutions for: • Appliance manufacturers in refrigeration, cooking, dishwashing, laundry and water treatment; • Complete climate control solutions in heating, air-conditioning and commercial refrigeration; • Remote interface products for business communications, home entertainment and home appliances, utilizing a broad spectrum of technologies.

Computime’s engineering teams focused on designing for testability and manufacturing. To retain its global corporate clients, the company constantly pushed to keep labor and material costs at a minimum. Yet at the same time, it made sure that the products met a reasonable level of quality. Computime designed validation and reliability testing laboratories which employed rigorous test methods.

d. Research and Development: “quality and response time requirement from customers create a natural entry barrier for us.”

e. Customer Focus: To simplify things for the customer they provided a single point of contact and a dedicated customer service and project team. (customer focus)

Computime managers had a saying that customers could be considered as “napkin” customers. This meant that customers should be able to write what they wanted on the back of a napkin. Then, Computime would design, engineer and manufacture a viable solution from scratch.

Bernard insisted that Computime benchmark its engineering, manufacturing, testing and supply chain management against the best global practices. Computime attempted to empower every employee with the responsibility for identifying and preventing quality problems.

f. Vendors: Computime was ISO 9001/9002 & QS 9000 certified. The company’s commitment to Total Quality Management (TQM) made quality the primary focus of every phase of the product life cycle.

What is the major change that Bernard is recommending? Why?

The major change is the decentralization and empowerment.

Bernard believed that the disadvantages of centralization had begun to outweigh the advantages. Essentially, the organizational structure was increasingly becoming bureaucratic which slowed responses to customers. According to Bernard, this put the company at a disadvantage in the increasingly hypercompetitive electronic OEM business.

The centralization has hindered its core competencies of agile and flexible capabilities.

What are the advantages to the new proposed structure? Would the changes further enhance computime’s core competence?

Current Structure：

Functional structure is the simple structure of a family firm and a two-tier management team had evolved. It consisted of a “core” team with five people and the remainder of the team, with approximately 14 members, who managed the individual organizational functions.

This structure not only allowed for a certain degree of functional specialization, but it also facilitated knowledge sharing and idea development. Moreover, the central procurement and material purchases reduced redundant personnel.

As organizational complexity increases, it is often difficult to manage centrally, thus greater decentralization and specialization may be required. A functional structure may be unable to coordinate the numerous functions and organizational levels, which in turn could stifle efficiency.

He believed that the path to growth was to have his professionals run smaller business units with focused business objectives.

Proposed Structure:

Bernard was convinced that the company would have to further restructure into specific divisions in order to handle this type of rapid growth (three folds in 5 years).

Decentralization to strategic business units with each SBU focusing on its own specialized business. The decentralization would also give more responsibility and autonomy to the SBUs; each SBU would be required to make their own decisions and hire their own executives and consequently would be held responsible for the results. The resulting organizational structure within each individual SBU would be flatter, giving the managers more opportunity to focus on their specific tasks and train specialists in the needed disciplines. The restructuring would also accelerate the decision-making and implementation processes. Ultimately, Bernard hoped that this would improve organizational flexibility and provide the impetus to grow. (will be able to enhance its core competencies of agile and flexibility capabilities.)

What are the problems and obstacles with Bernard’s Plan? Why is the board of directors skeptical?

The BOD is skeptical about where the company was and where the company should go.

Bernard was determined to make his own mark on the company; he hoped to increase sales by three fold and increase the profit margin by 2.5% by 2007. In addition to the financial performance, he also planned to set up a new factory. In five years, Bernard projected that Computime would encounter capacity issues and could run out of space. In order to handle more diversified business and the specification trend, Bernard was determined to decentralize and expand the manufacturing scale. In Bernard’s words: “selling globally is no longer a dream for small firms, but a matter of survival. Thus, Computime will look at how to achieve that and become an active global player.”

He wondered how he could get the Board of Directors’ approval. He was also concerned as to whether the employees would support this major restructuring as human nature is resistant to change. If he moved too fast, he might make the organizational members uncomfortable with the pace of change. However, if he moved too slowly the board and other members might lose patience or the organization could become bogged down in a state of limbo.

The immediate challenge facing Bernard was to convince the board of directors of the merits of the plan. This would be difficult as many members openly expressed their reservations. They favored a plan where the firm would strengthen the R&D development and grow through consolidation and merging current units. Yet, Bernard’s plan was to divide the organization.

Board members were concerned that the functional expertise would diminish, as the best functional heads were removed to head the new divisions. The board was also afraid that they could not obtain competent leaders and supporting staff to facilitate the consolidation. Furthermore, they were afraid that dividing the company would reduce economies of scale and could create three distinct, potentially competing, cultures. On the whole, as the board members said, they felt comfortable about the financial and the balance sheet and knew that they needed to reinvest in the company. They just wanted to be sure that the reorganization was the right way to go.

Bernard has a Harvard MBA, but he is running a Chinese family firm. What special problems might this cause for Bernard? What can he do to overcome them?

Bernard was still working in his father’s shadow — even though he had been President for five years. It was common for Asian family businesses to have difficulty striking a balance between working and personal relationships. Despite Mr Auyang Sr.’s partial retirement, he still had a strong influence on major investment decisions, and it was clear that he had had a formative impact on Bernard’s business philosophy.

Also his father is risk adverse person, and believes in “In any project, even if you have 20 reasons to invest and only one reason not to invest, you should walkaway.”

Bernard has to earn its own reputation or respect in Computime by successfully transforming Computime to compete in the hypercompetitive OEM electric industry.

On page 247, it states that Bernard hoped to purchase a small technology company to assist in innovation and R&D. Do you think this is a good idea? Explain.

I think it is a good idea if it can speed up Computime’s existing R&D time and the costs are not too high.

Pros: Bernard planned to buy part of a company at a university sponsored technology center in Hong Kong that was developing technology that could enhance Computime’s business.

By doing so, Computime would obtain cutting edge technology while reducing the cost and risk of in-house R&D.

Bernard considered that such a strategy fit well with the firm’s scale, especially when much resources would be locked into new investments for the reorganization.

Cons: Computime already had a technology center in Louisville, Kentucky.

Bernard’s plan for acquiring R&D in this manner was not the common practice. A study conducted by The Global Entrepreneurship Monitor Hong Kong in 2002 reported that there were difficulties in transferring technology from universities to the business community.

In addition, there was always the possibility that little would come out from the acquisition.

What are the Major HRM challenges that computime faces?

HR decisions tended to be based on financial objectives rather than strategic objectives, which reflected the weak role that HRM played in the organization. At Computime, human resources were managed under a three-layer structure. The first layer was the benefits and compensation committee chaired by Bernard. The second layer was the Human Resource (HR) and Administration Department, which was under the supervision of the Chief Financial Officer.

In China where the culture did not naturally support the idea of employee empowerment, especially in managing human resources.

the HR manager at the time did not appear to be able to take up the challenges of a more strategic role.

His analysis showed that the role of human resources (HR) management had not kept up with the increasing complexity that came with a larger, more complex organization. Yet, with the impending restructuring, Bernard needed his HR staff to help him plan and carry out the changes with minimal negative impact.

What other advice would you provided to Bernard?

Too ambitious plan which is against his father’s risk adverse characteristic: Bernard was determined to make his own mark on the company; he hoped to increase sales by three fold and increase the profit margin by 2.5% by 2007.

His father is not fully supported Bernard’s plan: So far, Mr Auyang, Sr. had not raised specific objections to Bernard’s ideas for restructuring the organization, but he wanted to see how Bernard responded to the questions raised by the board — the experts whom both he and his father believed provided beneficial advice to their company. To that end, his father reminded him of the need for self-reflection when the board raised issues that he had not anticipated.

In order to success in transforming Computime to the new proposed structure to enhance its core competencies in agility and flexibility, Bernard needs his father’s full support. (in return his father’s support will influence the other board members’ decision.)

----------------------------------- From September 25, 2006 prospectus ------------------------------------------

o “our principal business segment is in the control products” (page #1) o total revenue is HK$1.05B for 2002 (from case study), Bernard plans to increase the sales by three folds in five years. o “Actual sales was HK$1.0957B for 2004; HK$1.7761B for 2005; HK$1.908.5B for 2006.” (page #2) so there were not much of increase in sales in 2003 and 2004. (Most likely the restructuring plan was not executed in 2003 or 2004.)

-------------------------------------------------------- Subsequent events ------------------------------------------

o Bernard resigned in 2009 o The operating margin is about $7.369M and the revenue is $1.215B for six month ended September 30, 2012 (profit margin of 0.6%)

-------------------------------------------------------- Market Niche ------------------------------------------

o NEST was out in 2012, selling US$249 for other company (not Computime). A control device with WIFI, and internet capability.

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