Current Issues Concerning General Electric - Assignment Example

Case Study General Electric (GE) Executive Summary Introduction to the GEC General Electric was established by the inventor Thomas Alva Edison. Back in 1878, it began as a company that was in the illumination field, a pioneer. A merger with the Thomson-Houston Electric Company in 1892 gave birth to the General Electric Company. From the single illumination and electricity sector, in the course of centuries, the company has diversified and has a presence in all major industries offering many products and services. Retaining its primary service, it has branched off into diverse industries like Finance, Media, Appliances, Water processing, Power, Aircraft, Industrial product and a host of subsidiary activities. Headquartered at Easton Turnpike Fairfield, it has offices at one hundred and sixty countries, today General Electric operates in more than a hundred countries with products and services ranging from power generation, security technology, aircraft engines, water processing, medical imaging, industrial products, business and consumer financing, media content with more and more appliances and gadgets being invented and patented in each sector on a regular basis. As of now the company has over 300,000 employees worldwide. GE’s common stock is traded on the New York Stock Exchange under the symbol GE. All the businesses of General Electric are given below: Aviation, Bio-Sciences, Capital Solutions, Clinical Systems, Commercial Aviation Services, Consumer & Industrial, Corporate Financial Services, Diagnostic Imaging, Energy, Energy Financial Services, Equipment Services, Film, GE Commercial Finance, GE Consumer Finance, GE Fanuc, GE Healthcare, GE Industrial, GE Infrastructure, GE Money, Healthcare Financial Services, Healthcare Information Technologies, Inspection Technologies, Interventional Cardiology and Surgery, NBC Universal, Oil & Gas, Parks & Resorts, Plastics, Production & Distribution, Real Estate, Security, Sensing Services, Television Networks, Transportation and Water & Process Technologies. The revenue growth of the company was about $163 billion turnover and about $20.7 billion as profits in 2006. The liquid capital of the company has grown to $24.7 billion and has paid over $18 billion as dividend and has managed to have enough capital for further expansion. The future of the company has been insured with a dynamic research facility that operates with over two thousand five hundred employees and investment of over $15 billion in the research section, continuous upgrading and innovation is possible and is being effectively carried out. The company spends over $15 billion in research with 2,650 patents to its name. It has also evinced social concerns and provides imaginative solutions for global ecosystem concerns through the Ecomagination program. To get quality service from its employees and to promote a new generation of capable personnel, the company has begun the John F. Welch Leadership Center named after the last CEO and investments to the tune of $1 billion is invested in education which imparts training in quality business techniques. The John F. Welch Leadership Center at Crotonville, is a corporate business school. The company has spent a sum of $200 million in health care and allied charity activities. The current CEO is Jeffrey Immelt and he steps into the shoes of the former CEO John F. Welch whose business acumen is credited with having brought the company to its present position. 1 On the surface, General Electric has no problems but has a very bright future in the time of the booming economy. However some major issues that the company will face, in the very near future on account of the magnitude of the operations, diversity and change in leadership along with the possible anti-trust actions in future as in the case of AT&T or Microsoft has also to be noted. Current Issues Noted 1. Change of the CEO Jack Welch became the CEO in 1980 and continued for ten years. The current growth of the company is attributed to him. The system he left behind has been inherited by the current officers. He has mentored and created a corporate culture peculiar to general Electric. There was internal resistance in the form of employee reluctance, technical failures, cultural and internal friction. Restructuring and motivation the company resulted in increase in Profits, market value, Assets and more importantly, intellectual capital. Robert Slater (2005)2 notes that in the areas of power generation business, lighting business, and the idea of integrated diversity and the culture of Quick Response, the insistence of the staff to change Jack Welch earned the title of toughest boss. However the new culture he brought in expanded the business a little too fast. Welch in his restructuring process was met with unparalleled success, as well as numerous obstacles. In order to put them into perspective we must understand how the company was like before Welch started his structural revolution. When Welch become the CEO, GE’s performance was mediocre: they had an average earnings growth, low cash flows due to diverse capital expenditures, a core business that had reached a slow growth, productivity growth was a mere 1%-2% a year. Furthermore managers were content with a 7%-9% growth in margins, the company was too bureaucratic with decision process taking a long response time, the company was inwardly focused and there were no technical innovations being implemented. Thomas F. O'Boyle (2005)3 speaks of the strides that, was possible for the company in the lighting business, nuclear business, diamond cartel, with new products like new compressor, and the rotary compressor. Jack Welch has put GE in a good position to compete successfully in the short and long term, at the same time it put pressure on Welch’s replacement, since he will be expected to achieve the same level of success Welch has achieved. Welch, the Six Sigma Principle and development Taking a cure from the success of the six sigma program at Motorola, Welch introduced it in GE. The program was to create quality. In his own words, setting agoal of four years he declared: "We want to be not just better in quality, but a company 10,000 times better than its competitors," We want to change the competitive landscape by being not just better than our competitors, but by taking quality to a whole new level. We want to make our quality so special, so valuable to our customers, so important to their success that our products become the only real value choice." According to Mr. Welch it is the "the biggest opportunity for growth, increased profitability, and individual employee satisfaction in the history of our company." 4 The policy was to provide the following performance boosts: 1. Generate passion and leadership for job roles. 2. Non bureaucratic set up 3. Get standard services to customer. 4. Technical education 5. Edge in competition. The reason for the success of six sigma which has now become famous all over the world is that there are fewer defects and less wastage. And the system tracking and redresses of complaints, maintaining quality are perfect. GE made a great improvement in its processes. Business Week ran a cover story that explained the success of the program. "Welch launched the effort in late 1995 with 200 projects and intensive training programs, moved to 3,000 projects and more training in 1996, and undertook 6,000 projects and still more training in 1997. So far, the initiative has been a stunning success, delivering far more benefits than first envisioned by Welch. Last year, Six Sigma delivered $320 million in productivity gains and profits, more than double Welch's original goal of $150 million. This year, he expects GE to get about $750 million in net benefits. ''Six Sigma has spread like wildfire across the company, and it is transforming everything we do,'' boasts Welch." further it was one of the spokes of success at GE "Six Sigma is the most challenging and important learning-based initiative in the history of [GE]." said Welch."5 2. Policies of the CEO The current CEO is Jeffrey Immelt and to begin with it is not advisable to reverse any policy framed by the predecessor unless it is demanded by the times and is carefully thought out. The system as it is now is based on individual competition and performance evaluation. This makes workers and managers will often look at each other as competitors rather than partners. The intra departmental competition and one-up – man ship is going to be the most difficult problem to solve. Any changes made will have vibrations all over the system and on account of its complexity is likely to bring in waves of resistance. The strong and competent management must be continued for a time and must be in place for some time. 3. The Individual units The problem of the individual units is that they are mostly unrelated. They are operating in diverse environment and have diverse needs. It is a marriage between Aviation, Bio-Sciences, Capital Solutions, Clinical Systems, Parks & Resorts, Plastics, Production & Distribution, and Process Technologies. Some items like diamonds, and real estate can also be added. In such a diverse set up, each of which requires in the normal business setup, a separate chain of command, will General Electric remain a coherent whole in the future or will it have to be split for its own good? 4. Problems of diversification: and benefits The diversification has brought many problems some of which was discussed above and along with it produced growth. It is a model that has delivered extraordinary growth, increasing the revenue of GE from just $27 billion in 1981 to $130 billion in 2000. The company established itself in the global market, i.e. in 1998 international revenues were 42.8 Billion. Welch through innovative initiatives was able to cut production cycle time by half, reduction in inventory costs by 20%. G.E during Welch’s tenure became acquired a much diversified portfolio which culminated in unparallel success. However in the coming years the new leadership will have to face problems in managing such a diverse portfolio in a global market and prevent GE from playing catch up game with top performers in the 6respective industries. 5. AT&T Bell Repeated? As mentioned earlier, will GE take the way of the AT & T? Speaking in the context of its venture into diamonds, Robert M. Hazen(2006) commenting on the company entering the diamond trade speaks of its impact at South Africa, and in the United States, where the company was able to introduce more sophisticated carbide pistons, carbide components, belt carbide anvils, synthetic diamond crystals, diamonds, diamond powder, diamond grit, and also natural diamonds. However, if the trend of expansion goes on and on, what happened to AT&T, where division of its holdings was ordered by court, and a similar fate as faced by Microsoft recently will be the result. 7. International Issues Competition and restriction of overseas operations in the East and even at home with threats of local competition is likely to cause small dents in the turnover. However in the near future there is no immediate worry to the company on this count. 8. Competition In view of expansion and the new globalization, GE turned from focusing in manufacturing, to become a service oriented enterprise. SWOT Analysis SWOT analysis is used to find the strengths and weaknesses, external opportunities and threats.7 Kenneth Andrew was the discoverer of this method and it has been popularized by Harvard Business School. The fundamental principle is to build on the company’s strength and minimize weakness and eliminate threat. It is a powerful tool but some are of the view that it is not complete. It is still a popular tool but most modern theorists think it can be too limited and may not take into account a firm’s capabilities, core competencies and the ever-changing business environment.8 What are the strengths and weakness of General Electric? Strengths: 1. The top leadership is strong. From Reg Jones to Welch and now Jeffrey Immelt 2. Currently the company is fast and agile. 3. The quality is benchmarked results externally 4. The six sigma standardization is complete. 5. Lesser hierarchies both vertically or horizontally 6. Formulated and tried best practices, focus on the global market, 7. Focus in the services industry and finally focusing on E-business. 8. Focus on building a strong intellectual capital by educating and rewarding performance 9. Focus on the services sector 10. Focus on value added services and differentiation 11. Involvement of everyone in the workforce 12. Firing even top management ( before they become the rotten potato in the bag) 13. Never being content with achieved success Known Weakness 1. Too many irons in the fire. 2. Multicultural environment and resultant shock. 3. Management exhaustion from pressure 4. Distrust of motives and the overall direction of the company 5. Firing competent people based on performance on a single episode idea. 6. The shift to the services sector creates a reliance on other manufacturers to assure quality and efficiency 7. Motivation through fear Opportunities 1. Quick diagnosis and problem solving mechanism 2. Quick response to changes in the market 3. Always searching for innovation and remaining above the curve 4. Becoming the industry’s trend setter 5. Vast industrial base and operations with internal resources. Threats 1. Overlooking short-term objectives 2. Disturbance of synergies due to cultural changes 3. Globalization 4. Playing a catch up game on the online marketplace 5. Legal disbandment From this SWOT analysis we can conclude that the top leadership is strong. and is following the formulated and tried best practices, focus on the global market, and is in the services industry and finally focusing on E-business. All these strengths with diversification with building a strong intellectual capital by educating and rewarding performance must be carefully reviewed and enhanced, with further expansion stopped so that there will not be too many irons in the fire. Global expansion also must be slow to prevent pressure and a general distrust of motives and the overall direction of the company. There must be a better system to control employees which results in a system that has a quick diagnosis and problem solving mechanism. Legal disbandment is possible when the spread is too far. Controls will be lost and there will be overlooking short-term objectives and lack of quick response to changes in the market whit different heads deciding in different ways and internal competition. The company can become the new model as it is always searching for innovation and remaining above the curve. It is becoming the industry’s trend setter and has vast industrial base and operations with internal resources. Globalization has been taken up to its advantage. However, its own colossal setup has made it playing a catch up game at the marketplace. Other Studies Another tool we can take up for the same analysis is the Boston matrix or growth-share matrix, a grid diagram that guided strategists by classifying corporate businesses as “cash cows, stars, question marks and dogs”. The categories were based on combinations of market growth and market share relative to the largest competitor.9 Based on which sections of the company brought in more funds, they will be assigned Star status and will be nurtured. This however is not easily possible in such an organization, though GE can sell out some of its non- performing units and assets using this method. Analysis and Findings In view of expansion and the new globalization, GE turned from focusing in manufacturing, to become a service oriented enterprise. This transition allowed GE to become less dependent on industrial products and focus on services. This change created a reversal in GE’s value chain: Services became the starting point and moved backwards to suppliers who were considered partners by GE. The competition can never kill GE. What can are it’s own units. All these strengths with diversification with building a strong intellectual capital by educating and rewarding performance must be carefully reviewed and enhanced, with further expansion stopped so that there will not be too many irons in the fire. Global expansion also must be slow to prevent pressure and a general distrust of motives and the overall direction of the company. There must be a better system to control employees which results in a system that has a quick diagnosis and problem solving mechanism. However in the coming years the new leadership will have to face problems in managing such a diverse portfolio in a global market and prevent GE from playing catch up game with top performers in the respective industries. Recommendations With the needs and situation that we see in the market place today and the rate at which the company is increasing its presence in all industries, we have to recommend that the management of General Electric consider the following viable steps to easy governance. 1. Cluster all units that operate in the same industry together. For example all appliance and domestic products from consumer electronics, home appliances etc can be grouped in one general organization suggested to be called “Domestic Section”. The heavy industry like railways, diamonds, and other machinery under the “Industrial Section” and so on. When these groupings are complete, many units that function homogenously using the same process world wide can be controlled by a vice president and hierarchy who take internal decisions for the unit as a whole. Since the individual units will be supporting and enhancing one another, each unit will become a company within the company. Thus the board and management of the General Electric will have time to concentrate and plan ahead for the whole organization. 2. We recommend that the company stop expansion into new industries and concentrate in gaining ground in the industries into which they now are. The expansion into new territory is dangerous as we have seen in the body of this document. 3. That the company frame a policy for sellers, agents and franchise of the products world over and create a network of independent sellers exclusively of the company product. Reversing General Electric methods followed during the colonial days, the presence of the company outlet – supermarket like organizations funded and designed by the company for aspiring entrepreneurs in all places as outlets for most consumer and industrial units can be considered to enhance global presence. 4. The Six sigma program of Welch must be carried on to make it more useful. There must be implementation in all new departments and units. It must not be allowed to be come a mere form filling routine. Evaluation & Conclusion We therefore conclude that GE must concentrate on consolidating its present gains and must work hard in order to maintain control both internal and external in units and intra unit administration. To keep a select theory or hypothesis in such a situation where there are multiple global entities and activities require that the top management study each activity to the core and evaluate the activities relation with other units and frame a new policy for the company so as to see that it is not becoming a mammoth like AT&T or is not an unmanageable business colossus. Reference List Adrian Haberberg (2000) The Strategic Management of Organizations, University of Westminster Adrian Haberberg (2000) “Swatting SWOT” Strategy (magazine of the Strategic Planning Society), September 2000 Business Week HOW JACK WELCH RUNS GE A Close-up Look at How America's #1 Manager Runs GE Cover story http://www.businessweek.com/1998/23/b3581001.htm Businees week june 8 98 Carl Stern and George Stalk Jr (1998).Perspectives on Strategy from the Boston Consulting Group. Robert Slater (2005) The New GE: How Jack Welch Revived an American Institution: ... Robert M. Hazen(2006) The Diamond Makers. Thomas F. O'Boyle (2005) At Any Cost: Jack Welch, General Electric, and the Pursuit of Profit Vadim Kotelnikov, Innovation Unlimited, 1000ventures.com http://www.1000ventures.com/business_guide/cs_quality_six-sigma_ge.html Viewed Oct 2007) All the information pertaining to General Electric is obtained from www.ge.com. Site visited 20th Sep 07 Read More