GE Health Care Case

Executive Summary General Electric Healthcare was created in 2004 when General Electric (GE) acquired U. K. biosciences firm Amersham. Its predecessor organization, General Electric Medical Services (GEMS) originated as an x-ray business in the 1940s. Jeff Immelt took over GEMs in 1997 and took steps to grow the business from a $4 billion company to a dominant force in the worldwide diagnostic imaging market. Immelt stepped up acquisitions including a company that formed the basis for GMS-IT, a subsidiary focused on healthcare IT.

One of his most significant initiatives was the Global Products Company (GPC) initiative that focused on cutting costs by shifting manufacturing, design and engineering activities from high-cost to low-cost countries. Under GPC, each product was built in one or two “Centers of Excellence (COEs)” and shipped anywhere in the world. “Between 60% and 90% or products made in a COE ended up being sold elsewhere. ”[1] GPC’s global approach drove manufacturing, R&D, Product Design, Sales, Marketing, and Human Resources strategies with the ultimate goal of saving 10-30% on materials and 50% on labor.

In 2000, Immelt became CEO of GE and passed leadership of GEMS to Joe Hogan and charged him with the task of growing the company 20% annually. Hogan modified GPC and adopted an “In Country for Country” approach to better address country-specific demands within the existing global supply chain logic of GPS. The initiative was spearheaded by an “In China For China” policy that served “as the model for a localized version of the GPC concept that focused on segmenting and developing internal markets and building local management capability. ”[2]

In 2001, GEMS partnered with Amersham and, in 2004, GE acquired the company for $10 billion. Together, GEMS and Amersham became known as GE Healthcare and Amersham CEO William Castell was named CEO of the new company. Castell advocated a shift from a late-disease healthcare model that focused on late-stage treatment to an early-health model that focused on diagnosing and treating diseases in their earliest stage. In order to accomplish this shift, Castell emphasized advances in “biology, bytes, and broadband;” that is, advances in genomics and related sciences, information technology, and connectivity.

The synergy between GEMS and Amersham drove GE Healthcare to become a business that was more focused on healthcare than equipment sales and catalyzed collaboration with pharmaceutical companies. GE expected the Amersham acquisition to generate annual revenue synergies of $350 million to $400 million and cost savings of the same amount by 2008. In 2005, it realized $250 million in revenue and cost synergies. The following year, Hogan succeeded Castell as CEO of GE Healthcare. 1. Was buying Amersham a good idea? Why or why not? Yes, it was a good idea for GE to purchase Amersham. The acquisition was taking shape nicely with 2005 revenue of $15.

1 billion and $250 million in realized revenue and cost synergies. Besides becoming a critical piece to GE’s financial growth, Amersham was a key component of CEO Immelt’s plan to rebuild a culture of innovation at GE and ensure its status as a technological leader in the 21st century. The acquisition allowed GE to diverge from their traditional cost-cutting, efficiency, and earning strategy to focus on growing the company organically through innovation and develop imagination breakthrough projects that develop new lines of businesses, geographical areas, or customer bases for GE.

The formation of GE Healthcare after the Amersham acquisition allowed business unit CEO to shift their strategic focus from late disease treatment to early health through the biology, bytes, and bandwidth strategy. This has allowed GE to realize the benefits of Genomics and develop technology and equipment that were more clinical and diseased focused. This includes equipment with sharper diagnostic images, PET technology, EMR systems and adoption, protein-separation systems, etc. These ventures were all manifestations of the company’s new long-term focus on early health intervention as opposed to legacy health equipment development..

In addition, the enormous premium of the acquisition bought GE strong people for the underlying goodwill. Amersham employees and managers have been loyal and have not lost a single senior manager keeping intellectual content intact. In addition, the acquisition of Amersham proved to be successful for GE Healthcare in cultivating business relationships. Amersham had long standing relationships with many pharmaceutical companies and these relationships led to future catalyzed collaborations for GE. Amersham’s biochemical agents have enhanced the GE Healthcare equipment products.

These agents have allowed GE Healthcare to pursue more accuracy in imaging with higher sensitivity and specification. Therefore, buying Amersham is a good idea. 2. How does Amersham relate to the core idea behind the Global Product Company that was the essence of GE Medical Systems (the predecessor company to GE Healthcare)? GPC’s core idea which was the essence of GEMS was to concentrate manufacturing wherever it could be carried out to exacting standards in the most cost efficient manner. This idea included any part of the world that this could be accomplished.

GPC had built a global presence by using this concept. Many key activities contributed to the GEMS GPC model: ? Manufacturing – Each product was built in one or two “Centers of Excellence” and manufacturing was moved from high-cost countries to low-cost countries. The first year’s cost savings was approximately 30%. Expectations for these cost reductions would be 10% annually thereafter. ? R & D and product design – Product design should move toward regions that had talented underutilized personnel. ? Sales – Utilize local relationships and expertise to understand each country’s financing challenges.

Sales members needed to meet not only with the financial managers, but with heads of radiology departments, technicians, and physicians. ? Marketing – Products would need to be customized to each country’s needs. Even though GPC ideal was to drive down the costs, products still needed to be customized or they would not sell. Another concept that GPC developed was the “In Country for Country” which focused on specific countries. One such country was China, where plants that were already in low cost countries were moved.

This “In China for China” policy was a success and became a model for a localized version of segmenting and developing internal markets and building local management capability. GEMS global markets shared their engineering expertise. Working together promoted better ideas, learning from each other, and created competition, which was good for all concerned. By combining ideas and cultures with this shared engineering expertise, a “middling” effect occurred. The core cultures remained intact, yet the products become better. One such product was the LightSpeed VCT.

This was a CT scanner which was designed by engineers in Wisconsin, Japan, and Israel and programmers in Japan, China, and France. The U. S. wrote the software for the LightSpeed VCT. Amersham complimented GPC and their core ideas and many of their key activities. Since Amersham was located in the U. K. , GPC could utilize their network of European connections to boost their R & D and product design resources. One of GPC’s other key activities was to use local relationships and expertise to understand each country’s needs. Amersham’s sales and marketing would be a good fit to GPC’s need for customized products for the European market.

By acquiring Amersham, the opportunities for the “middling” effect to occur with their engineering and research teams could create numerous successful products. GPC’s philosophy of moving production from high cost regions to low cost regions would be helpful for Amersham. Amersham would be a good fit and compliment the core ideas of GPC. 3. What kinds of actions did Immelt and Castell have to take in advance of the merger to ensure that any potential gains could be realized? What must Joe Hogan, in his new CEO role, now do to build on their earlier actions?

Prior to the merger, GE had been primarily a producer of hardware and scanning products whereas Amersham focused primarily in biochemistry. GE executives as well as Castell recognized the need to diversify from a “late disease” health care model to “early-health” that focused on diagnosing and treating diseases in their earliest stages. Immelt had a plan to “rebuild a culture of innovation” and this acquisition brought them to the cutting-edge of health care technology by merging two natural complements: imaging which GE specialized in and contrasting agents that was Amersham’s expertise.

This move was part of Immelt’s GE-wide renewed emphasis on research and development and the acquisition was designed to migrate the firm away from a physics and engineering company to a health care company that was a leader in all areas of life-sciences. This merger allowed GE Healthcare to become more clinical and disease focused business where the hardware was considered a tool by the doctors. GE noted that they expected to generate annual revenue synergies of $350 million to $400 million and cost savings of the same amount by 2008.

Castell believed that this new focus to “early-health” would be continued advances in three areas: Biology, Bytes, and Broadband. Biology would continue to focus on just that, the natural creation of new drugs and therapies while embracing the new fields of genomics and proteomics (the study of hereditary traits). These were cutting-edge fields and GE Healthcare wanted to be at the forefront. The second and third areas, bytes and broadband, go hand-in-hand as they really relate to the digitization and storage of medical images and files.

The main idea here was to have all medical-related documents stored in digital format available on a moment’s notice for a health care professional. They expanded on this by developing clinician support systems that healthcare personnel could access for reference and help in diagnoses as well as treatment options. Joe Hogan had a difficult task ahead of him – his job was to take two business models with completely different perspectives and directives, and attempt to bring them together as one cohesive unit.

Clarke summed it up most efficiently in stating he must “meld the pharmaceutical business model, which is long term, high risk, and high margin (if successful) with our existing model as an IT/Physics/Engineering company. ” The essential issues are the basic concepts of the technology side – in a short time, new technology will become obsolete. Thus, expensive yet necessary pharmaceutical trials which take years to fulfill requires technology that has a “life cycle of 15 months. ” As Clarke claims, the two business models are divergent from one another, not convergent – a main focus which Hogan was forced to address immediately.

To compensate for this, Hogan must shift the company’s focus to more viable, shorter term plans of action where even if the technology involved becomes less than superior, the trial would still be a success and able to be utilized. Though these two business models were merged, does not mean that the essentials by which they stand should be left aside. Thus, considering both GE and Amersham were deeply financially involved in CT and MR systems, and protein-separation systems, respectively, these existing business models should not be forgotten.

They should instead be continued since “these are marketplaces that we live in today,” and would therefore become highly profitable. Furthermore, Hogan should continue the acquisitions of companies that benefit the merger – like what IDX represented for GE – as an attempt to add any and all means of synergetic resources to propel the company beyond the competition. Case Update GE Healthcare has continued to expand through acquisitions. In 2006, the company merged with IDX, a leading healthcare IT provider. [3] Two years later, GE Healthcare acquired Whatman plc, a global supplier of filtration products and technologies.

[4] 2010 saw the acquisition of MedPlexus, a developer of Electronic Medical Records and Practice Managment solutions for independent clinical practices. [5] Joe Hogan left GE Healthcare in 2008 to become GEO of ABB Group[6]. John Dineen, former head of GE’s Transportation Division, was selected to replace him. [7] GE Healthcare is now a $17 billion business having grown 425% in the 14 years since Immelt assumed leadership of GEMS. [1] Khanna, Tarun and Raabe, Elizabeth. “General Electric Healthcare, 2006. ” Harvard Business Review. 3 April 2007. p. 2. [2] Ibid.

p. 7 [3] Monegain, Bernie. “IDX casts GE as perfect match. ” Healthcare IT News. 30 September 2005. Retrieved 5 August 2011 from http://www. healthcareitnews. com/news/idx-casts-ge-perfect-match. [4] “GE Healthcare Completes Acquisition of Whatman plc. ” Medical News Today. 28 April 2008. Retrieved 6 August 2011 from http://www. medicalnewstoday. com/releases/105541. php. [5] “GE Healthcare targets physician practices with MedPlexus deal. ” Healthcare IT News. The Medical Web Times. 2 March 2011. Retrieved 6 August 2011 from http://www. medicalwebtimes.

com/read/ge_healthcare_targets_physician_practices_with_medplexus_deal. [6]“ABB appoints Joseph Hogan as new CEO. ” Press Release. ABB Website. 1 July 2008. Retrieved 6 August 2011 from http://www. abb. com/cawp/seitp202/f4edfe62fcea4c2bc12574890016f0e7. aspx. [7] John Dineen Biography. GE Website. n. d. Retrieved 6 August 2011 from http://www. ge. com/company/leadership/bios_exec/john_dineen. html. ———————– This sounds great on paper but how do you move a company from what it has been doing well (cost cutting) into something totally different (differentiation)?

Do you have the proper resources? How does your culture (engineering) make a shift to bioscience? Please see the posted answers for a different perspective I disagree. The acquisition of A represented a sea change in GEMS strategy of low cost product based company to a premier life sciences focus. Such a shift was forced on GEMS even though GEMS had neither the personnel nor the organizational support for such a shift. Even with GEs enormous resources, such a shift proved to be a failure However, as the results later indicated, throwing $$$ into new businesses does not guarantee success.

A good lesson provided by this case is that a company cannot pursue every new trend successfully just because they can. Shifts in strategies must be supported by the organizational resources. That is why, for example, successful airline companies cannot run two different business models (Delta with Song or United with TED). Have they achieved the revenue and profit goals they set out for themselves? Clearly, GE paid too much for A and the results were rather disappointing. Like you have done before, try to present a more balanced approach to the cases, focusing both on pros and cons of your analysis. Grade: 6/8.