GE analysis

General Electric analysis Lorenzo Gorga – student  student number  number  15406827  Case analysis for the assignment of  of the the module STRM043 ‐  Competitive Strategy and Innovation Year 2015 Course ERASMUS

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General Electric analysis

Index Executive summary ...........................................................................................................................................2 1.

2.

3.

I Question ..................................................................................................................................................3 1.1.

Resources...........................................................................................................................................3

1.2.

Capabilities ........................................................................................................................................4

1.3.

Core Competences ............................................................................................................................ 6

1.4.

Effectiveness......................................................................................................................................6

II Question .................................................................................................................................................8 2.1.

Strategic options................................................................................................................................8

2.2.

Strategy monitoring.........................................................................................................................10

III Question ..............................................................................................................................................11 3.1.

Welch VS Immelt ............................................................................................................................. 11

3.2.

VUCA’s best manager ......................................................................................................................11

Reference list ...................................................................................................................................................12 Bibliography.....................................................................................................................................................13

Executive summary

Executive summary The first chapter is based on internal analysis (resources and capabilities), the use of  Hamel and Prahalad  test  and VRIN model  helps to find the core competences of GE (Human resources, Financial strength, Brand,

Global presence, Technology & Innovation, Customer service & integrated solutions), which give competitive advantage to the company; it is then explained their effectiveness considering their  fitting with

the external environment, both micro and macro, studied with Porter’s Five Forces and PESTLE model , using a SWOT analysis. The second chapter is based on a renewed external analysis to update the SWOT analysis, considering latter updates and new considerations such as CSR to discuss strategic options with the help of some academic tool such as the BCG Matrix  or the  Ansoff chart . The outlined tactic is continuing the focus on core competence except for the financial strength, in which is foreseen a strong divestment from GE Capital. This could be placed in the general strategy of diversification, with both development of new markets, through global presence, and new products through innovation, this two important aspects are then monitored with models such as Rummelt’s analysis and Balanced Scorecard . The last chapter recapitulate the differences between Welch and Immelt, considering also Four  Actions Framework  and Grant’s New Management Style, and then proposes Immelt as the most suitable manager

for the VUCA world.

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General Electric analysis

1. I Question 1.1.Resources To identify core competences is required an internal analysis, the first point of that is the identification of  key resources, what the company have (Pryce, 2015). The resources of a company could be divided in

different categories, pursuant to Grant those are tangible resources, which are subdivided in  financial  and  physical  resources, intangible resources, subdivided in technology  and reputation, and human resources

(Pryce, 2015). Starting from the intangible resources, GE’s financial strength is huge, indeed one of the businesses is GE Capital, a world leading financial service company, which generated half of the total GE’s revenues of 2001 and which could give support to the other business of GE (Bucifal, 2009). GE Capital was developed incredibly under Jack Welch (1981‐2001), who took advantage of the economic growth of the late 20th century (Grant, 2012). Regarding physical resources it is possible to consider the location of offices all over the world, his global presence (Bucifal, 2009). Recently, under the guidance of Jeff Immelt, which started from 2001, even the

headquarters were repositioned, for example healthcare in the UK and X‐ray department in China, but it is also important to consider the larger number of foreign employees (Grant, 2012). This open up possibilities of different collaborations, like the works for the Beijing Olympic games, or the partnership with Mubadala (the investing arm of Abu Dhabi), or the direct collaboration with governments in what is called the Company ‐to‐Country  strategy (Grant, 2012). Another interesting consequence of GE’s global presence is the

possibility of  reverse‐innovation, that is the capacity to develop products for emerging markets and then bringing them back to old economies such as US, as happened with some cheap healthcare devices (Grant, 2012). Technology resources are one of the most important of GE since its foundation, which was born from

Edison’s patent exploitation, it is therefore very important in GE culture and history (Grant, 2012). Welch amplified this with acquisition of technology based company and developing a technical leadership (among the few nuclear power builders, advanced health science, smart grids) (Bucifal, 2009). But great results were achieved by Immelt, his strategic view was based on technology and innovation, therefore 6% of the revenues were invested in R&D with a focus on few, big and long term projects (Grant, 2012). Some initiatives supported it, such as the imagination breakthroughs and ecomagination and brought a leadership in molecular imaging and diagnostic, nanotechnology, energy conversion, advanced propulsion and sustainable energy (Grant, 2012). Reputation is a great resource of GE, which could rely on a good brand image based on excellence and innovation, high customer value, even measured with numeric system, and customer retention, given also by integrated services (especially under Immelt) (Grant, 2012). Finally another fundamental resource, the human capital. GE is a talent machine, with a management development centre (in which Immelt was moulded) and a corporate university (Grant, 2012). Welch, who was focused on performance and internal efficiency, brought to the limits his employees using an internal environment of constructive conflict in which every year the best 20% were rewarded and the worst 10% fired (Bucifal, 2009). He supported the development with delegation, incentives and stock options (which linked the singular reward with the company performance) (Bucifal, 2009). Immelt opted for a more friendly leadership style being motivational and inspirational and relating with the employees at their level (Bucifal, 2009). He found the growth traits for a manager: “external focus, imagination and creativity, decisiveness and clear thinking ability, inclusiveness and deep domain expertise” (Grant, 2012). The expertise was required for a cross‐businesses integration, therefore was required to give people more time in each job and then a good a career planning (Grant, 2012).

I Question

1.2.Capabilities After identifying the resources is required to consider the capabilities, how the company manages these resources (Pryce, 2015). The management structure of such a big and diversified company is clearly complex, one of the Welch objective was creating a more direct and responsive company, to do so it was required to modified that structure (Grant, 2012). He attacked the bureaucracy, eliminating layers of management, delegating power directly to CEO of business units (Bucifal, 2009) and organising the company in more smaller divisions (Grant, 2012).

Figure 1: GE’s Organizational Structure, 2001 (Grant, 2012).

On the other hand, Immelt main objective was creating a cross‐business company to offer highly integrated services to customers, therefore he had to change again that structure, reducing the number of sectors and giving to divisions a broader base (Grant, 2012). The headquarters, from being supporters and supervisors under Welch, became the promoters of different initiatives inside the units and were seen as partners causing a blurring distinction and a more complex coordination (Grant, 2012).

Figure 2: General Electric Organizational Chart, February 2012 (Grant, 2012).

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General Electric analysis

Also the portfolio was modified, from being focussed on a limited number of promising sectors (but still retaining diversified possibilities) under Welch (Bucifal, 2009), to being extremely focussed on two core businesses: infrastructures and specialty financial services under Immelt (Grant, 2012). Immelt promoted the extension of existing businesses and the exploitation of new commercial areas through several focused acquisitions, the retaining of low‐growth businesses as cash generators (appliance and lighting) (Bucifal, 2009), but also some important divestments such as plastic (for the growing petroleum price) and financial services (from 2004, before the next financial crisis) (Grant, 2012). Both the last two managers developed different initiatives to endorse their vision, Welch created Work ‐out  to let cross section employees discuss about management, Boundary ‐less Organisation to promote the sharing of information through the whole company, Globalisation to exploit the opportunities of  international economies, Six Sigma to give a numerical methodology to evaluate almost everything (performances, targets, costumer satisfactions … ) and Digitalisation to exploit the possibilities given by internet (Bucifal, 2009). Immelt added Imagination Breakthrough to individuate promising businesses, incubate them and protect them (Grant, 2012) , Ecomagination to find response to clean and efficient energy, Costumer Focus to revitalise marketing, create customer oriented programs, develop bundling product combined with services across businesses (Bucifal, 2009). Customer focus & integrated solutions after Immelt could be considered as a very important capability,

himself was devoted in spending time with customers, build relationships and work on their problems (Grant, 2012). Customers were a big part of his strategy and therefore also customised and integrated solutions, to do so he had to invest in marketing, hiring more sales people, engineers and designers and to expand services such as technical, financial, training and general support (Grant, 2012). Immelt also introduce the six ‐ parts growth process to clearly communicate his vision through the whole company (Grant, 2012).

Figure 3: General Electric's six‐part growth process (Grant, 2012).

I Question

1.3.Core Competences After the analysis it is possible to understand which are the core competences, that are the linked set of  skills, activities and resources that, together, deliver costumer value and differentiate from competitors (Johnson, et al., 2014) providing a competitive advantage and not only operational effectiveness (Porter, 1996). These have been in bold type in the previous text, and they are now recapitulated:

‐ Human resources; ‐ Financial strength; ‐ Brand; ‐ Global presence; ‐ Technology & Innovation; ‐ Customer service & integrated solutions. All together they pass the Hamel and Prahalad test , firstly they give access to markets, actually to many international markets and in different growing businesses (Grant, 2012); secondly they generate customer  benefits, the brand is well considered (also considering Welch ambition of being first or second in every

business) and quality is recognised (even with numerical evaluation) (Bucifal, 2009), finally it is hard to imitate, the human resources developed internally, the financial power and the advanced technology are

almost impossible to be imitated (Bucifal, 2009). A similar result could be achieved using the VRIN model  to assess if core competences are Valuable, Rare, Inimitable and Non‐substitutable.

1.4.Effectiveness The core competences effectiveness is clear considering that GE is one of the most successful company on the world, and that could be explained because the internal environment, within the company, was always trying to  fit  in the best way with the external environment , both micro (the different industries) both macro (the wider business environment). It would be clear the fitting using the SWOT  model , considering Strengths, Weaknesses, Opportunities and Threats. Opportunities and threads could be more easily found

studying the external environment using academic models such as the Porter’s five forces (Potential entrants, Suppliers, Buyers, Substitutes and Firm rivalry adding Digitalisation, Globalisation and Deregulation) and the PESTLE model  (Pryce, 2015). The external environment is widely changed from the ‘80s of Welch till the first 2000s of Immelt, but GE was always capable to adapt and to take advantage of opportunities. Welch lived a macro economy of  optimism, confidence and growth this gave opportunities in different growing industries and brand new businesses created by digitalisation and with new markets (Bucifal, 2009). Thanks to GE’s core competences he caught these opportunities focusing on the economic growth of the company, acquiring new businesses which were first or second in their industry, maintaining a technology based culture but exploiting also other industries such as entertainment and finance (Bucifal, 2009). Welch strategy anyway was not free from weaknesses, for first his employees were so much under pressure to expose dangerously the company to risks and scandals, then his focus on efficiency and performance compromise other aspects such as customer services, quality, safety and prevent an easy internal communication, conditions that Immelt tried to improve (Bucifal, 2009). Immelt’s environment was much more complex, volatile and full of threats such as the 11/9 and the corporate scandals which create a situation of uncertainty and a crisis of confidence among investors and resentment in the community (Bucifal, 2009). Furthermore GE had to face the global financial crisis of 2008 and the petroleum price growth (Grant, 2012). Nevertheless he individuate some global trends: ageing population, energy demand, global warming, bioscience and nanotechnology , emerging markets (Grant,

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General Electric analysis

2012). Immelt’s strategy based on core competences like technology, innovation, customer care and global presence was perfect to find opportunities in this environment such as demand of clean energy and energy efficiency, healthcare and entertainment for old people, country infrastructure, emerging markets and response to global issue such as global warming, water scarcity and conservation (Grant, 2012). However there are some weaknesses in his approach, to create a cross‐business company during the financial crisis there is a big risk of contagion (problems in any business affect the others), there are coordination problems due to a complex structure in which is difficult to integrate services because of a limited understanding of the different business units by the employees and a reluctance in sharing customers (Grant, 2012).

II Question

2. II Question 2.1.Strategic options To evaluate the possible strategic options it is important to consider how they fit among internal and external environment (Pryce, 2015). Therefore it is required to evaluate if the core competences individuated are still important in the most recent world, adding the new threats and opportunities to the SWOT analysis done previously. Human resources are a historic GE’s resource and its HR management is a core competence of high value which is probably at the base of GE success (Grant, 2012), it is important in this highly volatile environment to maintain loyal and trustful employees and develop them within the company, mostly if GE will bring on the strategy of cross‐business customer services integration because of the need of more time spent by people in each district (Grant, 2012). A weakness of Immelt management is the complex administration, it is therefore fundamental the recent war to bureaucracy, centralising the worldwide back‐office functions in few locations, which moreover could cut costs (The Economist, 2014). Digitalisation and Silicon Valley high‐ tech industry give a new idea of management, agile, capable of launch a product, get costumer feedbacks and improve the product very quickly; this is tried to be imitated by recent initiatives like FastWorks (The Economist, 2014). The brand and the reputation is clearly a good core competence in every environment, but in these time of  strong request of  Corporate Social Responsibility  (CSR) and sustainable development it is also more important (Pryce, 2015). GE’s effort in gaining a good environment friendly image all over the world is evident even in the most recent strategic choices such as the acquisition of Alstom, a French engineering group specialised in green energy like wind turbines. Another tactic is finding a response to global issue such as poverty and diseases, an example is the development of an affordable testing kit for Malaria (Murray, 2015). The previous examples are useful also to confirm the necessity of global presence and the opportunities created by this through partnership and collaboration with whole countries. A clear example is the possibility to move easily entire business to respond to the fast changing condition of the external environment, as happened about Connecticut, from which GE is thinking about to move because of tax changes (Pramuk, 2015).Emerging market can be exploited with collaboration with country governments founding long term partnerships that will give great competitive advantage in the future as it is happening in Africa and China (The Economist, 2014). Having a wide geographical distribution by the way could also be a protection from financial crisis (Barron, 2011). Technology and innovation are both very important because they are the way to find new opportunities, to develop new products for the old markets and to penetrate new markets to implement a diversification strategy, which could be clarified using an  Ansoff matrix  (Ansoff, 1988), and to answer global issues empowering the brand (Pryce, 2015). An example is the collaboration with Statoil to launch an R&D partnership to work on energy efficiency and reduction of greenhouse gas emissions (Crooks, 2015). Therefore it is consistent to proceed in focused innovating investment such as ceramic material for extreme temperature or super strong composite materials (The Economist, 2014). Digitalisation could be an enormous opportunity, GE is working to develop the industrial internet , the connection of machineries in a digital network (The Economist, 2014). The customer services and integrated solutions are still valuable and useful to lock customers. On the other hand dividing the company and distribute them equally could produce a great amount of money for shareholders, therefore the real strategic value of this core competence could be argued in the future (Barron, 2011). Nevertheless, the history of a company is to take in great consideration for the evaluation of a strategy (Rumelt, 1993); therefore, considering the effort spent for them and the new solutions in HR

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General Electric analysis

management and corporate structure, probably it is more convenient to continue implementing this core competence. Finally the most critical core competence, the financial strength, particularly in the business unit of GE Capital. Nowadays a good retirement, especially from a dangerous business like finance, is seen even more positively than a growth from investors, therefore it is almost forced a sort of divestment from GE financial arm (Jenkins, 2015). Using the BCG matrix , GE Capital results the dog of the company having low share and low growth, then this could be a reason for a strategic retirement from the business, but this could be slow or fast (Barron, 2011). The market assessment to revenues generated by an industrial company are much more high than those from a financial one, then it is clear the enthusiasm shown by stakeholders when Immelt, after years of slow divestment from the financial services decided to give a strong shifting premising to reduce contribution of GE Capital from the 60% pre‐crisis to 10% (Jenkins, 2015). All this considerations show that the direction in which is moving GE is consistent and adequate to the external environment, therefore the chosen strategy seems to be effective. In general it is clear a diversification strategy based in development of new products and penetration of new markets and an investment/divestment tactic to develop a portfolio strategy consistent with Immelt vision.

II Question

2.2.Strategy monitoring Probably one of the strategies that should be monitored the most, considering the Volatile, Uncertain, Complex  and  Ambiguous (VUCA) environment and the risks related, is the penetration/creation of new

markets in emerging countries, such as Asia. To evaluate it, it is possible to use Rumelt four fundamental principles (Rumelt, 1993). First of them is Consistency , create new markets is completely consistent with the idea of having a competitive advantage in global presence and develop a diversification strategy, furthermore it could be implemented in every business‐unit at the same time without management disarray (Rumelt, 1993). Consonance is the fitting with external environment and it is clearly included considering the fast

globalisation of modern world (Rumelt, 1993). According to Rumelt (1993), strategy should provide a competitive  Advantage, and global presence gives a great amount of opportunities, from exploitation of economies to tapping optimal location for resources and activities (Gupta & Govindarajan, 2001). Finally Feasibility , which is clear considering the past successes of GE, the ability in HR management, therefore it would not overtax available resources neither create unsolvable problems (Rumelt, 1993). An additional academic model for strategy evaluation is the Kaplan and Ross’ Balanced Scorecard  (Kaplan & Norton, 1993). An example of how it could be used is shown below, it could be interesting using it for another important strategy to be monitored which is the focus on technology and innovation.

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General Electric analysis

3. III Question 3.1.Welch VS Immelt  Immelt’s and Welch’s strategies are different in several aspects and most of them have already been explained in the previous paragraphs, therefore now it is enough to recapitalised them. Welch

Immelt

Guidance Business of interest Markets Focus

Immediate profit Finance US, EU Performance & efficiency (insight)

CSR Management style Structure Aim of acquisitions

‐

Long term growth Infrastructure Emerging countries Innovation (outsight) Part of DNA Friendly Cross‐sections, less units Consistency (tech and innovation) Customers Contagion Coordination problems

Stakeholders of interest Main risks

General source of  advantage

Pushing to limits Delayering, more units Diversification (being 1 or 2 in every business) Shareholders Scandals, too much pressure on employees Missing opportunities Cost leadership

Differentiation

Immelt’s vision is based on Welch’s work and the direction is always the growth of the company, obviously with different strategies because of the changing environment. It is possible to unite the two kind of  leadership in the same Four  Actions Framework , while Welch seems to be more focusses on Reducing and Eliminating; Immelt, because of the good implementation in these ambits by his predecessor, shifted the

efforts in Creating and Raising (Pryce, 2015). This give continuity to the path of GE and, therefore, more consistency to Immelt’s strategy which seems to be perfectly settled between GE’s past and the future aimed.

3.2.VUCA’s best manager Immelt’s leadership had reoriented the focus from shareholder to stakeholder, with a long term vision and sustainability. The focus on innovation and the ability to understand global trends bring new opportunities. He is trying to simplify the structure and raise the internal collaboration and coordination. His leadership reflect the Grant’s New Model of Leadership, thanks to ability in build confidence, enthusiasm, cooperation, form networks, use information. All these are reason for Immelt to be considered a very suitable manager in the VUCA world (Pryce, 2015).

Reference list

Reference list  Ansoff, H., 1988. Chapter 6. In: Corporate Strategy. s.l.:Penguin. Barron, Z. D., 2011. General Electric: A deep look at company strategy. [Online] Available at: http://www.businessinsider.com/generalelectricadeepanalysisofcompanystrategy20113? Bucifal, S., 2009. Corporate Strategy  Analysis: General Electric Co. (1981 ‐ 2008) , s.l.: Oxford Management Publishing. Crooks, E., 2015. GE and Statoil  partner on green initiative. [Online] Available at: http://www.ft.com/cms/s/0/515aeb9aa6ff11e48a7100144feab7de. Grant, R. M., 2012.  Jeff Immelt and the Reinventing of General Electric, s.l.: s.n. Gupta, A. K. & Govindarajan, V., 2001. Converting global presence into global competitive advantage.  Academy of Management Executive, 15(2), p. 45.

Jenkins, P., 2015. GE Capital tells a cautionary tale for shadow banks. [Online] Available at: http://www.ft.com/cms/s/0/802d0aeedfa711e4a06a00144feab7de. Johnson, G. et al., 2014. Exploring Strategy. 10th ed. Harlow: Financial Times Prentice Hall. Kaplan, R. S. & Norton, D. P., 1993. Putting the Balanced Scorecard to Work. Harvard Business Review. Murray, S., 2015. Malaria tests get cheaper and more sensitive. [Online] Available at: http://www.ft.com/cms/s/0/d1d0a13ed3d211e499bd00144feab7de. Porter, M. E., 1996. What Is Strategy?. Harvard Business Review. Pramuk, J., 2015. GE mulls moving HW after Connecticut tax changes. [Online] Available at: http://www.cnbc.com/id/102734499 Pryce, A., 2015. Competitive Strategy and Innovation, Module materials. [Online] Available at: https://nile.northampton.ac.uk/webapps/blackboard/content/listContent.jsp?course_id=_46734_1&conte nt_id=_1890589_1&mode=reset [Accessed 2015]. Rumelt, R. P., 1993. Evaluating Business Strategy. 28 November. The Economist, 2014. General Electric: A hard act to follow. [Online] Available at: http://www.economist.com/news/business/21605916ithastakengesbossjeffreyimmelt13yearsescapelegacy hispredecessorjack

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General Electric analysis

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