GE case write-up
Brandon Peay
General Electric is known throughout North America as a supplier of household products such as refrigerators, washer/dryer combos, but not many people knew that GE also was in the investment bank credit business. In fact, a lot of credit cards are issued on behalf of GE Capital. This little unknown fact is shocking to some, especially after reading the article that the business has suffered immensely since 9/11 and the financial crisis of 2008. While GE does have some strengths, I believe that their strengths are also their weakness. They were branched out into multiple industries, such as entertainment (NBC Universal), investments/credit (GE Capital), and while this could be good in the short term to boost profits, it may hold negatively for the future. Being able to “cut a tie” to part of the business would be absolutely essential during times of uncertainty or losses, but what would that do to the business as a whole in the future?
Upon looking at the history of the leadership at GE, Jack Welch really turned the company around, cutting costs in specific areas and increasing the marketing capitalization to over half a trillion dollars. He also introduced the Six Sigma program to GE. Six Sigma is an extremely valuable program which definitely gave GE a competitive advantage and a massive strength in the early 1980s.
General Electric is about “Imagination,” which can definitely be seen with Ecomagination and Healthymagination. As the new case stated, Mr. Immelt saw energy and health care to be the 2 most pressing problems currently in the world today, and as it is, GE is in both of those sectors already. How often can you turn on an episode of House and see the equipment that the doctors are using are made from GE?
With Ecomagination, GE hopes to use Sociocultural and Technological factors to gain a competitive advantage and help individuals in the world gain access to health care and clean water. Giving people a better quality of life is in the best interest to increase your goodwill in both the eyes of the world and your balance sheet. Of course, with the new initiative, a weakness is always going to be critics of the new program, as it states in the article that “as of 2000, GE was the fourth-largest producer of air pollution in the US, and the fifth-largest creator of toxic waste…” If the company could clean up its act, and even comply with clean air acts, then it could definitely make this a viable strategic and competitive advantage. Mr. Immelt even stated in the article that “things that are good for the environment are good for business” which is a great statement as this confirms he is a proponent of ISO14000.
Along with ecomagination, healthymagination pushes to become a massive sociocultural advantage for GE. The health of everyone is a massive cost savings for almost everything: businesses, the economy, consumers. To become a leader in this industry, they had to make some acquisitions. Having been in business and done well for as long as it had, it was in a dominant position to acquire some major current competitors. Although the barriers to entry were high with several competitors in the market already, they were able to come into the industry at a type of competitive disadvantage. This is the reason for the acquisitions to put themselves in a better position in the industry.
Going into the health industry was an extremely risky move, with a possible repeal of the Affordable Healthcare Act (Obamacare) along with rapidly advancing technologies in genomic research and oncologic therapies coming onto the market for advanced-stage disease processes, but GE and Mr. Immelt felt the need to addressing the “changing needs and emerging opportunities in healthcare.” GE would need to invest heavily in the technological sector with research and development, but where would it get the capital to accomplish this if investors weren’t happy and the fact that GE was selling off assets in its GE capital program? The company was at a serious disadvantage when it came to looking towards the future with all of these ambitious projects it wanted to try to go for.
Its current level of diversification is modest at best. As it used to be a conglomerate, it was well diversified, albeit extremely unrelated. Since that time of diversification though, they have slowly but surely decreased the number of assets they have, but as that has happened, investors have not been very happy, as the stock price dropped to a very evil $6.66 per share at its lowest valley. It had been going in this direction due to what could be attributed to a few factors, such as the downturn of the economy twice in one decade and in turn wanting to strengthen their position in the world. When a company is able to diversify yet remain partly the same, it puts the company in a strong competitive advantage from companies like LG.
The Healthymagination initiative fits well with GE’s current resources and capabilities. They are able to acquire different institutions and individuals who have knowledge in this area and are able to put their collective resources to work for GE to give them a huge advantage in the area of health care. As far as a good fit with the external environment, it would really depend on how easily outside companies would be able to copy their initiatives. As GE came into the business, they forced extremely high barriers of entry into the industry. Only companies already in the industry, such as WelchAllyn, who are already in the industry really can only thrive here, unless a company has a huge amount of capital to push for the future.