Business Strategy for Ge Into the 21st Century

Question 1: In what ways has Jeff Immelt redirected the strategy of GE? In 2001, shortly after Jeff Immelt became the CEO of GE, a series of events changed and impacted the corporate landscape. The immediate challenges that he faced included 9/11, and a subsequent series of high profile corporate scandals (Enron, WorldCom). In 2008, the financial crisis hit and had a severe impact on GE’s primary growth source, GE Capital causing it to accumulate bad debts and asset write-downs. These events caused slow domestic economic growth, crisis of confidence among investors and more global competitors.

Due to the change in environment and the need to adapt Immelt shifted the focus of GE from cost cutting and deal making to new products, services and markets. He particularly focused on redirecting the strategy of GE through: organic growth, customer focus, and innovation. In 2002, Immelt committed GE to an organic growth rate of 8% per year. He identified a number of emerging global trends – the ageing population, the demand for sustainable energy, the necessity of improved infrastructure, and opportunities in the emerging markets.

He aimed to create value for customers by leveraging GE’s core competencies particularly in advanced technology and related service by delivering superior, customized products and services to high-growth markets. A core component of his growth strategy was to create new ‘Growth platforms’ which could be either extensions of the existing businesses or entire new commercial areas. Through identifying a new growth platform, it would then be executed through a series of divestments and strategic acquisitions in sectors with high growth potential.

Technology was seen to be a key driver of GE’s future growth which led to the launch of Imagination breakthrough. New technologies were seen as an essential ingredient to successful product innovation and quality improvement. GE expanded its research and development capabilities and supported them with adequate financial backing. Another vital part of Immelt’s growth strategy has been the implementation of the Customer Focus initiative. This lead to the revitalization of GE’s marketing function – most notably through the creation of GE’s Commercial Council and a number of customer-oriented programs.

Through this customer focus imitative it became one of Immelt’s value creation strategies: exploit linkages across GE’s many companies. His efforts started off with product bundling and cross selling, which eventually led to enterprise selling. This meant seeking out customers that would benefit from GE’s broad portfolio of businesses and deliver highly customized solutions. The strategic focus was on creating differentiation advantage through innovative product-service bundles and enhanced customer focus

Question 2: To what extent is this strategy well aligned: a) with the requirements of 21st century business environment Jeff Immelt took over the reins of General Electric at the end of an Era where the Market economy was buzzing with optimism, confidence and growth, and was now heading into a downturn. This shift in the Business environment and economic instability instigated a crucial issue for Immelt, which was to identify the likely sources of profit for the future. Under Jack Welch the potential for value creation through cost reduction and the elimination of under performing assets had mostly been completely utilized.

So from Immelt’s view, in the current Market situation, the primary driver of growth was going to be organic growth. With the poor state that the world economy was in, the central challenge for Immelt was going to be identifying where the most promising opportunities for profitable growth would lie. He identified a number of key significant emerging global trends—the ageing population, the conflicting forces of growing energy demand and concerns over global warming, the advent of biosciences in conjunction with global warming and nanotechnology, and new commercial opportunities in the emerging markets.

In order for GE to position itself for stronger growth in the changing business environment, Immelt saw the need to exit form slow growth business, and reallocate its resources where growth prospects were strong, taking advantage of the emerging global trends. At the heart of Immelt’s growth strategy for General Electric’s was the development of new Growth Platforms, which could be either extensions of the existing businesses or entire new commercial areas. Even though Immelts core focus was on organic growth, repositioning to take advantage of the emerging market trends and opportunities would require acquisition.

Then once a new Growth Platform was identified, GE would build a leading position in those sectors through small strategic acquisitions and the deployment of its financial, technical and managerial resources. GE was entering a new generational era, one where technology is at the forefront of growth and adaptation. Immelt identified Technology as one of GE’s major drivers for future growth which was signaled by his expansion of GE’s R&D budgets. He shifted the importance of Technology within GE by focusing on the R&D projects that offered large scale market potential, reffered to as “Imagination breakthroughs”.

Within this new business environment that GE was facing, customers needs, wants and expectations of what products can offer them is forever changing. Immelt saw and understood this from the amount of time spent with customers, and implemented this idea within GE through the IT redesign process becoming increasingly customer focused. One of the most important outcomes of GE’s enhanced customer focus would be the ability to better meet the customers needs through bundling products with support and technology services, and combine product and service offerings from different businesses (Enterprise selling) to enhance customer value.

Also by increasing customer orientated products, this would also help GE to increase its success in international markets by involving more local product development and emphasis on truly aligning products and services to meet local market needs. (b) GE’s resources and capabilities The backbone GE’s success over time has been its ability to combine massive size with constant adaptation. Over the decades GE has successfully adapted both its business portfolio and its management systems to the demands and opportunities of the ever-changing business Environment.

GE’s success in innovation has been built on the back of their ability to nurture ideas and innovations, and expertly managing and formulate them into successful investments. This is clearly shown through General Electric’s “Imagination breakthroughs” through Immelt. These imagination breakthroughs are promising technological R&D projects, that have the potential to create $100 million in sales over three years. Immelts emphasis on technology reflected his belief and the Belief intrinsic to GE which is that the primary driver of sales is great products.

Immelt’s assessment of emerging global trends and his strategic direction demonstrate his understanding of the external opportunities and threats, and internal strengths and weaknesses. Technical leadership has proved to be not only a source of GE’s competitive advantage but it is also an important barrier to entry. For example, GE is the only US-based company with all the necessary capabilities to build a nuclear power plant. This is an example of General Electrics ability to marry Industrial and technological R&D to a business system capable of turning scientific and technological discoveries into marketable products.

Question 3: What organizational changes has the new strategy necessitated? Will GE be able to successfully execute the strategy? Through placing greater emphasis on customer focus, organic growth and innovation, GE’s systems and structure must be realigned to better manage the complex situation of diversified businesses and to maintain its efficiency and performance. Immelt’s focus on greater cross integration, new growth platforms and enterprise selling lead to a major structural change in 2002.

GE divisions were reorganized into a smaller number of broad based sectors. By 2008, there were 5 sectors and each of them focused on broad markets, in which they had a scale, market leadership, and superior customer offerings. GE’s 5 broad markets were: technology, infrastructure, industrial and commercial, GE capital, healthcare and NBC Universal. Through regrouping the various businesses into their markets it would be easier to identify the various connections between the businesses.

Becoming a more customer focus business had a huge impact on the organization; it led to the revitalization of GE’s marketing function. A number of customer – orientated programs were created, most notably GE’s Commercial Council. The key initiative of the six part growth process in terms of marketing and sales were introduced, there were increasingly many metrics driven analysis on customer satisfaction and attitudes. This whole phase of becoming a customer focus business instead of an operating efficient one demanded the managers to become less of an operator and more of a marketer.

Immelt’s reshaping of GE’s Business portfolio, through Growth platforms, required acquisition. Developing these opportunities required high levels of coordination across multiple organizational units. This further increased the organizational complexity of GE, and great difficulty in performance management as it was hard linking individual incentives to individual’s organizational performance hard to implement.

Other issues arose through the organizational changes necessitated through the new strategy. Immelt had changed the organizational structure to further integrate the different businesses, however this lead to a complex coordination problem as they have gone beyond cross selling to enterprise selling.

Also through placing heavy emphasis on customer focus this caused the sales and marketing department to put less focus on particular business and just look at opportunities that they can exploit this can be seen from the example of GE medical systems. Through constantly acquiring new businesses to further fuel growth in technology and the energy sector this has made the organizational structure even more complex.

Focussing on customers and enterprise selling requires a simple structure. It can be seen that if Immelt wants to successfully implement his strategies he needs to find a solution to change the organizational structure to mitigate the complexity of it, while being able to acquire new businesses for growth. Whether Immelt can execute these strategies due to these organizational issues are discussed in the further sections of this essay. Will Immelt’s strategy be successful? Are there alternatives corporate strategies that GE should consider – break up in particular?

We believe that Immelts strategy will be successful and recommend that he continue to pursue his strategy of greater emphasis on technology, customer focus and increased integration. In order for this to happen in the context of the economic situation of the 21st century, we feel that it is important for GE’s emphasis to be shifted to risk-taking, sophisticated management, and innovation in order to deliver new products and services, and to penetrate new markets Immelt should continue to divest companies of low profit, growth and returns, and focus on those whose are aligned with their competencies are as a future possible growth platform.

To reduce organizational complexity GE should also introduce competitive based pay which will link to all levels of employers from base workers to managers. This is to encourage collaboration through all levels of the employment ladder both vertically and horizontally. The success of Immelt’s strategy of combining innovation and efficiency in a fast-moving business environment will allow GE to capitalize on the demands and opportunities of a changing world. Thus, GE will play a leadership role as it sets the trend for the conglomerate business model to maintain its relevance. Breaking up GE There are several advantages in breaking up GE.

GE will be able to focus on innovation and reinvest back on innovation and technology through the funds acquired from selling some of their businesses. There is also no need for having a complex organizational structure if GE would only focus on one segment of their business. The source of competitive advantage for GE is integration of business in its portfolio. GE Capital contributes 32% of total revenue. This is a stable source of revenue for GE. Spinning it off the business portfolio will reduce the funding for other GE initiatives. By doing so, they will not be able to address the challenges facing the business environment in the future.

This proved as a disadvantage as it will alter the competitive scope of the company and will ultimately lose their capability to compete in global markets. GE should not break up as it will lose its core competencies and won’t be able to compete and enjoy the current market position that they are in. Focusing On Technology and Energy Based on 2010 GE annual report, technology and energy infrastructure has the highest profit and revenue contribution for GE. This is the main focus of their business today. Although GE capital is not as profitable as before, it still contributes 32% of the total GE revenue.

Overall, it is still growing from the period of 2009 – 2011. While GE Capital revenue does not contribute as the main source of contribution in both revenue and profit of GE, it is essential as a source of revenue to pursuit and invests in innovation that drives the Energy and Technology Infrastructure sector of GE. Appendix PESTEL ANALYSIS Political/Legal: GE was criticized for allegedly disguising the true risk of its business by consolidating the financial statements of its industrial businesses and its financial services business, GE capital.

Economic:

1) The financial crisis of 2008 –2009. This affected GE’s primary growth engine, GE capital. It is now seen as a “ticking time bomb”. On March 12 2009, Standard & Poor’s (S&P) downgraded GE from AAA to AA+, damaging the reputation of the company.

2) Emerging markets of China, India, Eastern Europe, Russia, Middle East, Africa, Latin America and South Asia would offer rates of GDP growth around three times that of the world as a whole. These countries would be key centers of business opportunity for GE. Social: The ageing world population would create opportunities for goods and services required by older people – healthcare in particular.

Population growth in the developing world would also offer expanding demand for many other GE’s business including entertainment. Technology: The demand for infrastructure product, services and financing offer opportunities for GE in energy, aviation, rail transportation, water, and oil and gas production. Environment: The challenges of global warming, water scarcity and conservation would become increasingly pressing creating the need for technologies and innovatory responses to alleviate these problem.