Overview This report talks about the successful strategies adopted by GE that was accountable for its success. It will start by answering the question the importance of studying GE recent globalization strategies and practices, and then, by giving a quick background of the company globalization process evolution. After that, the report will demonstrate a close analysis to 4 main strategies of the company. Finally a conclusion will be given based upon the current challenges and future perspective. Company Highlights GE was found by Thomas Edison in 1893.
It has around 343,000 employees and operation over 100 countries. The company experienced continuous growth during the last 15 years in many different aspects, and currently it is known with a wide market diversification to include industry infrastructure, industry, healthcare, financial services, entertainment and media. The company is featured in many different dimensions. According to Forbes Global 2000 ranking, GE is the largest company in the world in terms of unit sales (Forbes, April 2009), as well as number one in the list of “Most Admired Companies in America” and in the whole world (Fortune 2006).
In addition to that, globally, GE brand is considered to be the fourth in most recognized brands (BusinessWeek 2009). Importance of the Study From the few facts mentioned above, I believe that it’s important to study this business leader’s successful strategies for two main reasons: 1-To study how GE strategies and initiative distinguished player in the business world 2-The consequences of these strategies won’t only influence the success of GE, but it will also act as a road map encouraging many other companies to catch up with this new business model of competition.
GE Globalization Process Since post 9/11 attacks, the world experienced some drastic changes that influenced the nature of the market environment. High oil prices that went up around $150 (figure 1) had a strong impact on the industry, and increasing prices of consumer products. Also, market saturation in the developed countries slowed businesses growth pace and limited business expansion. Consequently, the business model GE as well as other industrial manufactured have followed of making high end products at their home lands and then exporting it to rich nations no longer worked.
The market trend went more globalized and the emerging markets started to be more attractive. Through the last few decades GE was in active Globalization process. It is believed that GE progress towards globalization was done in four major steps as shown in the figure 2. To accomplish these shifts from every phase GE has to develop various strategies and initiatives to be at the top of competition pyramid. To limit the report scope and in order to analyze to a certain depth, the research will focus on 4 major strategies adopted by General Electric to meet some economical challenges and they are as follow:
1. Lateral Diversification 2. Focus on Growth 3. Emerging Market Penetration 4. Changing Business Directions 1. Lateral Diversification Strategy By looking at the last 50 years of GE history (figure 3), it’s clear how the company was tuning its business focus. Diversifying GE products and markets could help GE to enter new markets and industries and increase its economy of scale and scope and hence stretching Figure 3: GE Market Share Evolution, Source: Dan Henson, “Growth as a Process” (2007 itself to reach further customers and further globalize.
And in order to do this product and industry diversification, GE has invested into two main processes; to grow organically, and acquire more companies through acquisitions. Organic Growth The importance of this type of growth was empower the innovation from the within GE by developing new technologies. This section will be discussed in the “Focus on Growth” part later on. Acquisition Since its early stages, GE was aware of power of growth by acquisition and product/market diversification. Currently, GE has six business units: GE Infrastructure, GE Industrial, GE Healthcare, NBC Universal, GE Commercial Finance, and GE Consumer Finance.
And with strategic horizontal diversification, GE could strengthen its economic stability throughout the last 20 years among all the different challenges came up into the business environment, and rather to keep its growth increasing. Doing these acquisitions at some certain stages were important to diversify GE technologies and maximize its market share (Immelt, 2005), however, the balancing between growing organically by empowering the company from within and acquiring some companies is even more important for setting up the company directions.
Since more than half of the company revenue is derived from its financial services (Company Data 2008), this brings the argument onto the table about the nature of the company making it a financial company with a manufacturing arm. 2. Focus On Growth Despite the fact that the company could grow by doing more and more acquisitions, it was vital for the company to invest in its own organic growth. The company aims to grow organically two to three times higher than the global GDP of 80% (Immelt, 2005).
General Electric, known for the 9 Box Matrix or McKinsey – GE Matrix for growth share strategy developed in late 70s, was continually working on improving its growth capabilities. These strategies helped GE to identify and sell off divisions that were experiencing aggressive price competition and focus on businesses with high-margin. For example, GE has moved out of television, computer, automation and engineered plastic divisions, and moved into hybrid banking and entertainment. And hence, GE has evolved from one of the greatest manufacturing companies in the world, to become a wide breadth diversified multi business company. (Rice, 2009)
But framing a growth strategy that can help a huge multi businesses company like GE leading transformative change across all its business would require a standardized repeatable process. And for this, GE made a process called, “Execute for Growth” consisting of six part process. Unlike the Six Sigma, which is all about making the product right, “Execute for Growth” process is about making the right product that fits the company business. Therefore, this cycle helps to verify whether a new initiative can fit within the bigger organic growth. (Immelt, 2005) Figure 6: Growth Execution Process, Source: Dan Henson, “Growth as a Process” (2007)
3. Emerging Market Penetration Despite the fact that global companies have focused their presence in the first world countries which provide them with 10% of the whole world market share, they underestimate the value of emerging market constituting the other 90%, where half of the global GDP is produced. This sounds very attractive business opportunity, however, the nature of the emerging market customers is different. For example, the average income per capita in India is equal to 2. 28% of its counterpart in the U. S. ($1000 vs. $44,000). Hence, it’s said that emerging markets are “mega markets with micro customers”.
(Govindarajan, 2009) In order to meet this challenge, GE developed some strategies like the CSL, reverse innovation initiatives and the Pitcher-Catcher Concept. These will be described below respectively: CSL Initiative CSL stands for “Connected, Scalable, and Localization”. “Connected” means to recognize GE competitive advantage which resides in connecting the sum of its parts. This can be done through leveraging its technological and manufacturing excellence. “Localized” refers to developing localized products in and for the emerging markets in order to reach new customers.
Finally, it identifies potential opportunities to take those locally innovated products to other similar emerging markets as well as to markets in the developed world. That’s what it means to be “scalable. ” For example, GE has have a handheld ultrasound that looks like a big iPhone, and this was developed in China for the China market, however, GE is now working on selling it in all other emerging markets. This initiative puts the affordability factor into consideration. Because no matter the product made in the US is adapted to match the customer needs in China, it still will be expensive.
(Rice, 2009) Reverse Innovation But GE went even further; it is suggesting “Reverse Innovation” initiative (the opposite of Glocalization) as its only way to survive against global giants. Reverse Innovation means exporting products, made in emerging countries to the whole world. An example of that, is a $1000 electrocardiogram device (or ECG) made specifically for rural India now is being sold in the U. S. (Immelt, 2009) It’s been debated that reverse innovation might wake up new emerging giants raising more aggressive competition in the future.
However, it is a controversial issue of how to balance between glocalization and reverse innovation. Nevertheless, this new concept could make a great successful impact in global companies, and might have the lead in the next transition in globalization phase. Pitcher-Catcher Concept Immelt also applied the “pitcher-catcher concept” GE Medical Systems, or GEMS. This concept implies that in which for every move, “a pitching team at a high-cost existing plant works with a catching team at a low-cost new location, and the move is not considered complete until the performance of the catching team meets or exceeds that of the pitching team.
As a result, GEMS (and GE) seems to have managed to move production to low-cost countries faster than European competitors such as Philips and Siemens while also benefiting from greater scale economies”. (Ghemawat, 2009) This new paradigm of penetrating emerging market with a new set of initiatives to develop effective cost strategies pushed the company forward into unlocking more of the 90% of the global market share and resulted in making more of GE success. 4. Changing Business Directions
General Electric business directions experienced many strategic changes throughout the last 100 years. Making strategic changes is always essential adjust the company overall strategy to cope with the economical dynamic changes in the world. By analyzing the last changes made in GE history starting by Charles Coffin (CEO 1893-1912) who created an organizational structure based on functions and then Ralph Cordiner (CEO, 1950-63) made major changes to that organizational structure.
After that, since in the 1950s the computer business became so popular and profitable, Ralph got GE into computers. However, Fred Borch (1963-73) bailed out the computer division. Another example, Reg Jones, (1972, 81) established a layer of sector executives and bought a coal mining company, nevertheless, Jack Welch (1981-2001) abolished the layer and sold the mines. Welch built up the insurance business; Jeffery Immelt (2001-current) offloaded it. Immelt is striving to shift back the company focus into scientific research and development and more effective marketing functions (Colvin 2006).
These radical changes in GE business directions demonstrate how the company was sensitive and flexible to the global economical trends. The impacts of these changes could be clearly seen in the company globalization phases as well as its product/market diversification process. As a result, this economical flexibility was vital strategy to GE global success and business sustainability. Conclusion It is very interesting study how GE is crafting its management thinking and leadership development.
Starting from the blue books GE managers authored in 1950s, through its academy and GE matrix, ending up the new management methods, innovative strategies and initiatives developed in the last 9 years, it’s clear how GE is contributing to the management science and practices. Still GE has plenty of other successful factors related to its initiative of going green and HR principles, to name a few, need to be further studied and researched. GE strategies can be set as an excellent benchmark for other companies to catch up with in order to survive the forthcoming aggressive global competition.
Although GE could make the leap to supersede its competitors for a while by spreading its presence into the emerging market, reverse innovation gradually would lead to competing with growing emerging giants in India and China who might change the rule of the business game. From another prospective, other global giants might even do better in this respect in the near future. Therefore, GE still has more challenges to overcome in order to sustain its position in the top Global 2000. ? References 1. Our Company, GE website accessed during Nov. 2009 2. Forbres. com, (April 2009) Global 2000,.
, 3. Fortune Survey, (2006) 4. Best Global Brands (2009), Business Week, 5. “Most Admired Companies”, (Mar 6 2006) Fortune Magazine 6. Geoffrey Colvin (Mar 6 2006)“What Makes GE Great ? ” Fortune Magazine 7. Tom Stewart, (Jun 2006) “Growth as a Process”, and Interview with Jeffery R. Immelt, Harvard Business Review, 8. Dan Henson, (Feb 2007) “Growth as a Process” Lehman Brothers Conference, 9. Eric Auchard, “Globalization is a tough sell, Immelt Says”, Reuters. com (Jul 7, 2007), 10. Nelson Hoffman, (Jan 24 2008) “Reflections on GE Global Strategy”, Manufacturing and Technology News, 11.
John Rice, (Feb 12 2009) ”Tackling Global Problems with Local Solutions” GE Reports 12. Vijay Govindarajan (Mar 11 2009), “Winning Micro Customer in Mega Markets”, GE Reports < http://www. gereports. com/winning-micro-customers-in-mega-markets/> 13. Jeffery Immelt et al, (Oct 2009)“How GE is Disrupting itself”, Harvard Business Review, 14. Pankaj Ghemawat. (November 10, 2003) “Globalization: The Strategy of Differences”, Harvard Business Review. < http://hbswk. hbs. edu/item/3773. html> 15. Oil prices chart 2003-2008, US Department of Energy