General Electric Company’s Growth and Immelt’s Initiative

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Table of Contents

GE current Mission Objective
Goals and Strategies
Identifying the Internal Strengths of GE
Weaknesses
Threats
Opportunities
Implementation
Control Systems
Recommendation Based on SWOT
Reference List

GE current Mission Objective

When examining the present-day website of GE it is immediately apparent that the company doesn’t have a mission statement per see but rather has a set of principles which it indicates on the website as the cornerstone of their company culture and as such these are: to imagine, to solve, to build and ultimately to lead. These aspects, as indicated by the site, are action-oriented and express (in GE’s opinion) what it means to be part of the company.

The verb to “imagine”, for GE, is to come up with new ways of doing business in that they take what they have at the present and find new ways of expansion, implementation, and improvement based on its inherent potential. When it comes to the word “solve” GE makes an eloquent statement indicating that the reason it’s around in the first place is to solve the problems of its customers, the surrounding community, and society itself.

In describing the word “build”, GE explains that it is always on a constant quest for growth and development and that the only way to do so is to build. Finally, when it comes to the word “lead” the company describes this as the culmination of the previous 3 words which results in a call to action which gives the company a certain degree of responsibility in terms of the implications of its actions. It is rather interesting to note though that despite having such lofty mission objectives the actions of the company at the present seem at odds with its mission objectives in terms of the negative impact some of the actions of the company have had or rather will have on local communities.

The reason I say this is because GE is planning to move a large percentage of its manufacturing operations to China in a bid to save on the cost of labor. While this conforms to the objective of “imagining” wherein the company has thought up a way to save even more costs which is an inherent part of its company culture the fact remains that this doesn’t “solve” the jobless rates in the local economy brought about by the continued outsourcing of jobs to offshore locations.

It is rather ironic that Immelt, the current CEO of GE and one of the economic advisors of Obama regarding increasing local job growth has in effect put in place a policy that will result in more jobs being lost in the U.S. While it may be true that this conforms to GE’s quest for growth through building the fact remains that since GE is a leading company in the U.S. other companies will follow suit resulting in even more job losses in the immediate future. It is based on this that the lofty goals highlighted in their objectives must be questioned since the result of their actions at the present will negatively impact their consumers in the U.S. with more people losing their jobs due to outsourcing.

Goals and Strategies

An examination of GE’S current goals reveals that it plans to become a market leader in biotechnology, renewable energy, technological services, and transportation and as such plans to do so by leveraging on its ability to be able to do things faster, more efficiently as well as more cost-effectively than any other company. The inherent problem though with this particular strategy is that in its pursuit for cost-effectiveness one must wonder whether GE has taken the concept too far and as such has neglected to include Corporate Social Responsibility as a necessary aspect into its business dealings.

Identifying the Internal Strengths of GE

Throughout the case example, there has been a particular emphasis placed on GE’s strong management discipline regarding not only its stringent implementation of cost-saving measures but in its ability to streamline operations to squeeze every single bit of productivity out of its employees. This I believe is the core of GE’s success as a corporation since it enables the company to operate at peak capacity while ensuring that costs are scaled back in favor of efficiency over wastefulness.

Such a strategy is evident throughout numerous instances of Immelt’s tenure as CEO of GE as seen in his initiatives which involved centralizing the diverse operational departments into distinct groups to reduce administrative costs as well as his emphasis on the use of lean Six Sigma practices to reduce operational wastefulness. As stated by Olson (2008) one of the main problems in most established corporations is the continuation of inefficient or redundant practices that result in considerable costs for a company over a particular period (Olson, 2008). Examples of this can range from having two servers and IT departments for each operational division when instead one server and one IT department is all that is needed.

Olson (2008) states that for this particular problem to be resolved companies need to focus on enhancing internal practices (as seen in the time of Welsch, former CEO of GE) to conform with efficient standards of operation (Olson, 2008). This involves not only the implementation of practices related to lean Six Sigma but the integration of departments and the modernization of certain practices (i.e. paperless internal communication) to ensure that potential savings are not squandered (Olson, 2008).

Such practices were quite evident in the article detailing Immelt’s tenure at GE from 2000 to the present however they are just the beginning of the practices put into play which can be considered GE’s “strengths”. For Immelt integration of departments and the institution of cost-saving measures were just the beginning of the changes that he wanted to implement, of particular interest is his move to divest GE of companies that were either underperforming or no longer considered “vital” in terms of the vision that Immelt had for the company.

As Cummings & Tanenbaum (2005) explains, some corporations tend to retain less vital and even wasteful aspects of their operations due to a lack of initiative or even a degree of hesitance in attempting to place the company in a new line of potential operation (Cummings & Tanenbaum, 2005).

Examples of this particular practice can be seen in some media conglomerates continuing to retain newspaper companies despite the continuing lack of circulation and technological trends which indicate a shift towards digitization instead of print. For Cummings & Tanenbaum (2005) such a practice is inherently wasteful since it holds back a company due to the cost of maintaining operations despite obvious losses. In this regard, Immelt did the right thing for GE in continuing to divest GE of aspects of its operation which not only lost the company money but were “ancient” in terms of their ability to continually adapt to the present-day environment of constant change and innovation.

Another move that I consider strength of the Immelt initiative was his focus on acquiring companies which for him could be integrated into GE’s current repertoire of services which would thus become, in his words, “growth engines” for the company. The growth engines came in form of acquiring Universal – Vivendi to enhance the offering of NBC, buying companies related to renewable energy initiatives, water, security, oil, and natural gas exploration, and finally Amersham, British life sciences and the medical diagnostic company which for Immemelt could be integrated with GE’s imaging technology division resulting in the development of new technologies and processes which would create considerable profits in the future.

It is rather interesting to note that for Paul (2007) acquisition can act as a way in which a company enhances its technology and service offerings to better compete in the global market (Paul, 2007). At times small companies lack sufficient capital for R&D while large companies sometimes lack the innovative technologies that new companies have developed. Taking this into consideration the acquisition of small companies by large conglomerates in effect allows both the small and large companies involved to benefit.

This in itself was the idea behind the numerous acquisitions of GE from 2001 to 2004 and is indicative of Immelt’s focus on developing GE into a company that is not only internally efficient but externally innovative in terms of its ability to respond to current market trends with its diversified services and operational capacities. The last strength apparent in the article is the focus of Immelt in developing GE’s R&D division by increasing its budget from $286 million to $327 million in 2002 despite 2002 being a difficult time for the company. What must be understood is that R&D for a technology-intensive company is a necessity that should not be overlooked in light of difficult economic times.

The reason for this is quite simple, R&D is the cornerstone by which a company can develop new technologies and methods of operation that allow it to not only enter into new markets but allow it to gain more market shares. Evidence of this can be seen in the effects of Apple Incorporated’s market share of the smartphone market which is a direct result of its R&D into ergonomic and advanced smartphone technology.

Weaknesses

When examining the case of GE at the present one of the most notable weaknesses is its current push in outsourcing various aspects of its production services to China with its 100-year-old X-ray division being the first of what could potentially be a large shift in overseas manufacturing with more than 25% of GE’s product output being produced in China instead of the U.S. within the next 5 years. While it may be true that outsourcing its production facilities was an inevitable move on the part of GE the fact remains that despite the gains about cost reduction there is still a considerable consumer and intellectual property right risk in outsourcing production facilities to China.

First and foremost there has already been a public outcry in mid-2011 regarding GE’s plan to outsource its manufacturing processes. While it may be true that GE is sufficiently insulated from consumer boycotts due to its products being far too ubiquitous and it is business to business dealings far too expansive for general public outcries to make a dent in GE’s dominant position in the U.S. market the fact remains that with Immelt being one of President Obama’s current economic advisors this move by GE to outsource its production facilities would no doubt cause general discontent since the man responsible for helping to increase the job rate within the U.S. (which is one of Obama’s current goals) is in effect facilitating job outsourcing to reduce costs for the company.

Further compounding this issue is the fact that GE received a $14.3 billion tax exemption within the previous year to encourage job growth yet strangely enough the company is outsourcing jobs which is the complete opposite of what it should be doing. This can result in one of two possible outcomes, GE’s profits will increase at the cost of its corporate social responsibility to the American people or the general public will boycott the company’s products.

It is far more likely that the former rather than the latter will occur and as such, from the point of view of this paper, goes against its goal of utilizing its processes to increase customer value since the company is in effect violating the very tenets of CSR (Corporate Social Responsibility) by not giving back to the community. In the article, Immelt emphasized the need to focus on CSR through practices that benefit not only consumers but the environment as well. Such a statement is rather ironic because the company is taking jobs away from America and is in effect going to use the lax environmental standards in China to implement environmentally polluting methods of production.

Again, it is understandable to doubt cost reductions through outsourcing as a weakness based on consumer response to the practice but what must be understood is that eventually, GE will be slitting its own throat by promoting the practice of outsourcing to offshore locations. Within the past few years, it has become increasingly evident that outsourcing has resulted in a distinct lack of available jobs for the American workforce.

While it may be true that products cost less few people can afford them as a result of increased jobless rates. As one of the titans of the American industry, GE was well poised in promoting local production to encourage other companies to do the same. Instead, it joined the outsourcing bandwagon in favor of reducing its costs. The inherent problem within this situation is that this promotes other companies to do the same resulting in fewer people within the country being capable of affording GE’s products and services which has the very real possibility of affecting GE’s profits in America within the near future.

Threats

The main threat to GE at the present is the current state of the global economy wherein the economic recession (that is still ongoing despite various articles saying otherwise) has affected the company’s sales targets and revenue streams. The present day situation is almost the same as what occurred in 2000 when Immelt first took the reins of GE. There is an atmosphere of uncertainty in the international markets which is fueled not only by lower levels of consumer spending but an erratic stock market that has dips and increases in such rapid succession that this has in effect scared investors towards the possibility of investing in the stock of any company, GE included.

Compounding this problem is the current European debt crisis which has hampered GE’s international operations due to the presence of not only large portions of the company’s secondary markets but by the presence of several of GE’s acquisitions within the past couple of years in the health services sector. Taking this into consideration it can be seen that should the present economy situation continue to progress in Europe and America it is very likely that GE may start focusing on other markets (Asia and the Middle East) as primary consumers for its products and services due to the overall lack of demand within its current markets.

Another possible threat faced by the company comes in the form of Chinese exports of not only cheaper products but cheaper services as well. What must be understood is that there is a certain degree of technology stealing being done by local Chinese companies wherein the processes and means of production brought in by foreign companies are in effect copied, replicated, and utilized by Chinese based companies and then subsequently appear in markets rivaling their original counterparts yet being marked at barely 1/3rd of the cost.

China has increasingly learned from various foreign businesses that had established themselves within the Chinese market resulting in the proliferation of not only copycat manufacturing companies but also copycat service industries as well. Several of these companies have entered into various international markets (i.e. Latin America, the Middle East, and South East Asia) and subsequently challenged GE’s market share in such locations. They do this by presenting the same type of product and service yet at an invariably lower cost which GE at times cannot match. This has created severe threats in GE’s market position in several of its key future markets and as such does not bode well for the company.

The last threat that the company faces comes in the form of online piracy due to its earlier acquisition of Universal – Vivendi. What must be understood is that dozens if not hundreds of the films that are owned by Universal have in effect been ripped from their original CDs and have been posted for free online.

This has resulted in billions of dollars in lost revenue for GE as a result of lost sales for movies illegally posted online. While it may be true that GE has attempted to fight back by lobbying for SOPA (Stop Online Piracy Act) the general public has in effect been doing the exact opposite by lobbying against SOPA due to perceived limitations on the internet freedom. It is based on this that should the problem of online piracy continue well into the future GE will likely continue to lose billions of dollars in sales as a direct result of such actions.

Opportunities

As evidenced by Immelt’s focus on biotechnology and renewable energy one potential industry that GE could potentially enter into that of biofuels and the use of portable biofuel “factories” that can extract biofuels from crop waste products in various agricultural operations. This particular type of technology does show promise as seen in various trials conducted by researchers and as such could be a potential avenue of entry into the lucrative renewable fuels industry.

Another potential opportunity for GE would consist of a subsequent buyout of Netflix and incorporating it into their conglomerate. It has already been seen that Netflix is dependent on companies such as Universal – Vivendi as the source of a large percentage of their films and movies and as such by incorporating the company the “middle man” is taken out of the equation so to speak thus resulting in cost savings which would make the services of Netflix far cheaper than they are at the present.

Implementation

The main problem that I perceived from GE is the fact that they have taken their cost-saving measures to such an extreme that they have in effect neglected to take into account proper CSR. Immelt should have known better than to put into action a strategy of outsourcing production facilities especially when taking into consideration his current position as an economic advisor to Obama for local job growth. The one recommended strategy that would work best in this situation is for the company to share in the same sentiment as Starbucks in regards to promoting local growth and development. Due to its leadership position GE can do this and must do this for the sake of the U.S. economy.

Control Systems

Control systems where such recommended changes can be seen are in implementing new strategies of local manufacturing and job promotion instead of fostering a continued culture of cost-cutting which would end up negatively affecting the local economy.

Recommendation Based on SWOT

Based on the SWOT analysis it is recommended that GE pursue its current strategy regarding acquisition and R&D but should scale back its current predilection cost-cutting in favor of creating local jobs to boost the U.S. economy. This can be done by focusing on new industries such as biofuels and going into partnerships with the local agricultural-based industries that have excess biomaterial waste.

Reference List

Cummings, J., & Tanenbaum, E. (2005). Why the sandwich structure problem needs innovative solutions. International Tax Review, 16(10), 76.

Olson, M. S., van Bever, D., & Verry, S. (2008). When Growth Stalls. (cover story). Harvard Business Review, 86(3), 50-61.

Paul, D. L. (2007). Board Composition and Corrective Action: Evidence from Corporate Responses to Bad Acquisition Bids. Journal Of Financial & Quantitative Analysis, 42(3), 759-783.

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