GE DIVERSIFICATION STRATEGY JANE LI, HOJIN PARK, DOYOUNG EOM, JULIA - - PowerPoint PPT Presentation

GE DIVERSIFICATION STRATEGY JANE LI, HOJIN PARK, DOYOUNG EOM, JULIA SHYU STRATEGIC MANAGEMENT NOVEMBER 7TH, 2016

Related Linked Diversification Strategy

• CEO & Chairman from 1981 to 2001
• Business: focus on 3 “strategic circles” - core manufacturing,

technology and financial services

• Philosophy: “A company should be either No 1 or No 2 in a particular

industry or else leave it completely”

• Made nearly 1000 acquisitions and more than 400 divestitures
• Market capitalization increased from $13 B to $500 B

Jack Welch

1986: Radio Corporation of America

MAJOR PORTFOLIO MOVES: 1981 -2001

National Broadcasting Company, 1993 GE Aerospace Division 1994: Kidder Peabody & Co ACQUISITIONS DISPOSITIONS 1996: Genie Kidder Peabody & Co Employer Reinsurance Corporation

Jack Welch: Acquisitions

Business Internal (Competency) External (Market) Overall Relatedness Radio Corporation of America (RCA) - (Technology) IN L – M – H L – M - H UNRELATED

• Great technology synergy in

defense, consumer products, communications, and research

• Little overlap in consumer

electronics product lines

• RCA CEO Frederick's long

employment at GE prior to Joining RCA

• Great marketing and sales

synergy in defense, consumer products, communications, and research

House Kidder Peabody (Financial services) IN then OUT L – M – H L – M – H UNRELATED

• Cultural Difference
• Scandal (insider trading,
• verstated profit)
• More competition
• Less Profitable

MEASURES OF RELATEDNESS

• CEO & Chairman since September 7th, 2001
• Transformation of GE from traditional conglomerate to Digital

Industry focus

• Technology, Brand, Globalization, Services
• Industrial Internet/ Internet of Things (IoT): Capturing data via

machine sensors

• “Lowered” Market Cap to $251 Billion, but faced several crises

including 9/11, Enron, Hurricane Katrina, Fukushima, and the global financial crisis

Jeffrey Immelt

Source: GE Website

2002 ENRON WIND ASSETS, BETZ-DEARBORN

MAJOR PORTFOLIO MOVES SINCE 2001

2004 AMERSHAM, INVISION TECH. 2005 INSURANCE 2007 PLASTICS 2007 SMITH AEROSPACE, VETCO GRAY 2011 CONVERTEAM, DRESSER, WOOD GROUP WELL SUPPORT, WELLSTREAM 2011 NBC 2013 LUFKIN, AVIO 2014 ALSTOM 2016 APPLIANCES 2015 CAPITAL* ACQUISITIONS DISPOSITIONS 2015 GE DIGITAL

Source: GE Website

Business Internal (Competency) External (Market) Overall Relatedness INVISION TECH. (SECURITY) IN then OUT L – M – H L – M – H RELATED

• GE INFRASTRUCTURE

SECURITY → HOMELAND PROTECTION BUSINESS

• INVISION ISSUES WITH

FOREIGN CORRUPT PRACTICES

• COMPLEMENTARY TO ION TRACK

ACQUISTION IN 2001

• ENHANCING EXPLOSIVE

DETECTION & SECURITY TECHNOLOGY FOR AIRPORT & TRANSPORTATION SYSTEMS

ALSTOM (POWER & GRID) IN L – M – H L – M – H RELATED

• JOINT VENTURES
• SWIFT INTEGRATION: 40+

LEADERS JOINED GE TEAM

• CLEAR OWNERSHIP OF

SYNERGY PROJECTS

• COMPLEMENTARY ENERGY (STEAM

& HYDRO) SERVICES

• OFFERS OFFSHORE WIND POWER &

GRID / TRANSMISSION

• FURTHER GLOBAL / GEOG. PRESENCE

MEASURES OF RELATEDNESS

Source: GE Press Releases

BCG Matrix

Earnings: high, stable, growing Cash generation: neutral Strategy: invest for growth Earnings: low, unstable, growing (a few become star, others divested) Cash generation: negative Strategy: analyze Earnings: high, stable Cash generation: high, stable Strategy: milk to finance stars and question marks Earnings: low, unstable Cash generation: neutral or negative (cash trap) Strategy: divest

Star Question Marks Dog Cash cow Real market growth Relative market share H L H L

Lighting

GE’s Portfolio: 2000

High Low High Low 1.0 10

Appliances

Medical Systems

Plastics Aircraft Engines Power Capital Services

Data for BCG Matrix (2000)

Business GE’s global market share Biggest competitor Competitor’s market share Relative market share Growth rate (estimates) Aircraft Engines 48% Pratt & Whitney (a segment of United Technologies) 28% 1.71 5% Power Systems (gas turbines) 50% Siemens 25% 2 around 10% (introduction/growth stage) Medical Systems

• MRI

47% Siemens 23% 2.04 above 10%

• Computed

Tomography (CT) 48% Siemens 20% 2.4 Capital Services

• high

below 10% Plastics

• Bayer, Dupont, Taijin
• high

below 10% Lighting 21% Philips 33% 0.64 around 10% (growth stage) Appliances 22% Whirlpool 29% 0.76 below 10%

Aviation Power Health care Oil & Gas

Insurance

(2005)

NBC (2011)

Energy Management

Renewable Energy

Lighting

Transportation

Digital Plastics (2007) Capital (2015)

GE’s Portfolio: 2015

High Low High Low 1.0

Data for BCG Matrix (2015)

Source: http://csimarket.com/stocks/competitionSEG2.php?code=GE Business GE’s market share Biggest competitor Competitor’s market share Relative market share GE Aviation 15.07% Honeywell International Inc. 9.59% 1.57 GE Power 36.53% Siemens 21.1% 1.73 GE Healthcare 23.26% Danaher Corp 10.92% 2.13 GE Oil & Gas 4.06% Schlumberger Limited 8.75% 0.57 GE Capital

• GE Lighting

5.27% Whirlpool 12.26% 0.43 GE Energy Management 40.79% Eaton Corp Plc 10.98% 3.71 GE Transportation 5.92% Caterpillar Inc 20.75% 0.29 GE Renewable Energy 9.5% Goldwind 12.5% 0.76 Business % of revenue Market share Growth rate (estimates) GE Aviation 21% 1.57 Around 10% GE Power 18% 1.73 Below 10% GE Healthcare 15% 2.13 Above 10% GE Oil & Gas 14% 0.57 Below 10% GE Capital 9%

• GE Lighting

7% 0.43 Around 10% GE Energy Management 6% 3.71 Above 10% GE Transportation 5% 0.29 Below 10% GE Renewable Energy 5% 0.76 Above 10% GE Digital

• Above 10%

Total 100%

Major portfolio shifts

2001: 40% industrial, 40% capital, 20% others→ great diversification 2014: 60% industrial, 40% capital 2018: After completion of GE Capital’s exit→ 90% industrial

Conclusion

“Diversification is essential for consistent financial performance in volatile times.”--Jeffrey Immelt

References

Ashkenas, Ron. Simply Effective: How to Cut Through Complexity in Your Organization and Get Things Done. Harvard Business Press, 2013. Bensoussan, Babette E. & Fleishe, Craig S. Analysis Without Paralysis: 12 Tools to Make Better Strategic Decisions. FT Press, 2012. CSI Market, Inc. http://csimarket.com/stocks/competitionSEG2.php?code=GE Fripp, Geoff. “BCG matrix formulas and calculations”. http://www.thebcgmatrix.com/analysis/bcg-matrix-formulas-and-calculations/ “GE 2000 Annual Report”. http://www.ge.com/annual00/download/ “GE 2015 Annual Report”. http://www.ge.com/ar2015/letter/ Immelt, J. R. "“The Pivot” - GE.com." December 16, 2014. https://www.ge.com/sites/default/files/ge_webcast_presentation_12162014_0.pdf. Kumar, Rajesh. Strategic Financial Management Casebook. Academic Press, 2016. NYU Stern Business School. “Jack Welch and General Electric”. 2002.