Jeff Immelt's Strategy
Describe about the Case Analysis for Jeff Immelt and the Reinventing of General Electric
GE was founded in 1892 under the leadership of Charles Coffin, from the merger of two great innovative companies which were Thomas Edison’s Electric Company and Thomas Houston Company. Under his leadership span of 30 years, GE was able to transform itself from a research and development of electrical products to a much marketable product based company. After Charles, the patron was handled by many great leaders such as Ralph Cordiner, Fred Borch, Reg Jones and Jack Welch. Jack Welch is considered to be one of the great management gurus who transformed GE’s portfolio from manufacturing business to financial services in particular. However, Jeff Immelt who was appointed CEO in 2001 has a different perspective towards the growth of business which involved retransforming of GE’s business portfolio mainly focusing on two core sectors, infrastructure and financial services.
Under the leadership of Immelt, the company has gone through various obstacles in their business which has been exaggerated by the 9/11 incident which has plummeted the revenue of GM to a greater extent. Therefore Immelt has identified main four areas where they decided to explore new opportunities which have become essential for the continuous growth of the business, which are as below:
- Demography: GE has visualized the increasing trend of the older population resulting in the increase of demand of the healthcare services. They have also forecasted the population growth in developing countries which creates the opportunities for the entertainment businesses.
- Infrastructure: GE predicted a huge increase in demand in the infrastructure sector hence decided in positioning itself much more in the infrastructure sectors and related financial services including the opportunities in energy, aviation, rail transport and many other areas related to infrastructure.
- Emerging Markets: Immelt has gauged the growing development in the Asian countries and Middle East countries which can prove to be great hub for setting their base to increase the profitability growth.
- Environment: The problems associated with the global warming, climate change, water scarcity and conservation created opportunities for GE to trap these opportunities and convert them into profitable business.
But in capturing these opportunities, GE has decided to change their management model which was prevalent from the time of Jack Welch. During the period of Jack Welch’ leadership, the major industrial sectors were divided into smaller sub units which has created a more responsive company and have clear defined roles and responsibilities whereas Immelt has opted for the cross business integration approach where the industrial sectors were divided into smaller number of broad based sectors and they have to work cross functionally to achieve their goals and targets. He has reduced the number of business units which were direct reporting to him from twelve to five but looking at the company’s un-stability, in 2010 he further increased it to seven.
The key challenge was to maintain the profitability and cost control with increase in investments in innovation involving smaller or bigger risks. GE’s performance metrics as devised by Immelt also lead to discouragement in business unit heads in taking up new opportunities. The managers in GE were not satisfied with the new working culture of working cross-functional, cross-market and cross-company which created complex coordination problems. GE’s performance based metrics and the culture of internal competition are proving much more difficulties in working cross-functional and cross-divisional.
Market Dynamics and Opportunities for GE
1. From the period of Charles Coffin when GE was formed from the merger of Thomas Edison’s Electric Light Company and THC, it’s main competencies has been the innovation based product oriented organization. Chairman Ralph Cordiner along with Peter Drucker had formalized a new approach to corporate management. Under the leadership of Fred Borch, the company’s management system was based on SBU and portfolio analysis which also became the benchmark for the management model of many companies. During the period of 1973 to 1981, Reg Jones collaborated the strategic planning to its financial management systems. The period of 1981 to 2001 were the golden days in the history of GE, Jack Welch became CEO of the company and during that period, company’s revenue grew fourfold and net income grew seven times from under $2 billion to $14 billion. But after 2001, GE went through a turbulence of problems created through the changes in the global market and socio-economic condition of the US and during this period Immelt has taken the leadership to maintain the stability of the company and also to diversify the company’s progress in many different un-trapped opportunities.
During the period of 1981-2001, GE was under the transformational leadership of Jack Welch where the company was undergoing through a transformation from a product based company more towards concentrating on the financial services. The performance was measured by the achievement of the targets which were continuously monitored and powerful incentives were also rewarded to the one who accomplish in achieving the high standard of targets. He was very much against the bureaucracy and removed the hierarchy layers (Styler 2003). His management style was direct and personal where the managers were assigned high targets and his team was always under huge pressure to achieve those targets. He introduced Six Sigma to improve quality and reliability and also started the initiative to adopt the internet technologies in their working environment. Jack Welch used three circle concepts where he has divided the services, technology and core competencies of GE which helped to devise the strategies clearly and realistically.
Three Circle Concepts
Jeff Immelt was appointed CEO of GE in 2001 after Jack Welch. Jeff had stablished the company during the turbulent times of 2001-2012. The central theme of Immelt’s strategy is based on the organic growth. He has identified four key areas where he developed strategies to trap the opportunities as forecasted by him in the days ahead. The four external trends which proved to be the growth opportunities for GE are:
Recommendations for GE
Jeff Immelt decided to exit slow and dormant businesses and to reallocate its resources to business where there is strong growth prospect and to enter new industries. Therefore Jeff has bought many companies to increase its innovative capabilities and also sold few of its units which were not making much profit and becoming the dead assets. GE identified few existing sectors where certain reshaping and transformation is required to increase the growth and to meet the future demands, which are mainly four technological units i.e. healthcare, energy, broadcasting and entertainment and technology infrastructure.
2: The market condition has become very dynamic these days and the continuous development of a company depends on the dynamics of markets as well as on the socio-economic condition of a country. Since nowadays, the Asian market comprising mainly China and India and Latin American countries such as Brazil are developing at a much faster rate and are transforming into the hub of many big players of market. There is abundance of growth opportunities in these nations and resources are also available at much higher quantity and at lower cost. However the customer demands are changing at such an tremendous rate that continuous innovation in the existing products as well as development of new products have become the necessary part of the market strategies. Considering GE as a company which has a strong base in the innovation and high technology in developing healthcare products, entertainments services, construction equipment and services, infrastructure services and in financial services needs to be very proactive in gauging the opportunities as well as the threats which are present in the current market scenario.
|
2015 |
2014 |
2013 |
|
|
Revenues( in millions) |
$ 117,366.00 |
$ 117,184.00 |
$ 113,245.00 |
|
Net Earnings (in millions) |
$ (6,126.00) |
$ 15,233.00 |
$ 13,057.00 |
|
Total Assets(in millions) |
$ 492,692.00 |
$ 654,954.00 |
$ 663,247.00 |
Source: GE Annual Report 2015
Comparison of Revenue and Net Earnings (2013-2015).
According my perspective GE should be focusing on two main important point’s i.e.
- Entry into new markets
- Innovation and development of new products.
Entry into New Markets
Under the supervision of Jeff, GE has entered into the international markets of the developing countries. From the table listed below also shows that the revenue generated from Non US in 2015 is $ 64.10 billion whereas in US it is $ 53.20 billion, therefore the revenue generated from outside US is much more than US and this trend is gradually increasing from 2012 (GE Annual Report 2015)
|
Geographic Revenues( in billions) |
2015 |
2014 |
2013 |
|
US |
$ 53.20 |
$ 51.10 |
$ 49.40 |
|
Europe |
$ 16.80 |
$ 18.40 |
$ 18.20 |
|
Asia |
$ 19.30 |
$ 20.20 |
$ 20.90 |
|
Americas |
$ 12.00 |
$ 11.80 |
$ 11.30 |
|
Middle East and Africa |
$ 16.00 |
$ 15.60 |
$ 13.50 |
|
Non US |
$ 64.10 |
$ 66.00 |
$ 63.90 |
Source: GE Annual report 2015
Revenue (US vs Non US)
Revenue (in billions) of Non US regions
And still there are lots of opportunities available in the foreign markets and there are areas where the resources and related opportunities have not been explore till now for e.g. the current areas on the clean source of energy and areas under the artificial intelligence and machine learning where the companies are competing with each other and GE has the capabilities and technology to trap these opportunities by investing in the R&D of IOT and machine learning which will generally automate the things. GE should continue to focus on the innovation of current range of products according to the needs of the international customers and in the meanwhile it should develop new products considering the emerging and changing customer behavior and buying patterns.
Immelt’ strategized to reshape the GE’s business portfolio by creating new growth platforms which mean advancement or extensions of the existing businesses or entirely into the new areas of business. In most of the cases, GE growth platforms are the areas of business which are already existed but they have been made at par with the current market needs and technological advancement by the acquisition of some of the pioneer companies. The following are the examples:
- Healthcare
Healthcare industry is one of the main sectors of GE where it was the global leader in the diagnostic imaging including X-ray equipment, CT scanners and MRI scanners. Immelt has acquired Amersham which was a diagnostics and medical equipment company, HPSC for financial services in medical and Abbott Diagnostics, which was the world leader in vitro diagnostics to expand its range of products and to enter into the international market.
- Energy
As power generation being the GE’s oldest business and well developed equipment supplier to oil and gas sector. And Immelt visualized energy as a prime factor in the growth of GE and business opportunity in finding the various sources to trap alternate energy. It acquired Enron’s wind energy business, BHA Group supplying equipment in emission reduction, Chevron Texaco and AstroPower which supplies products related to solar energy. In the field of oil and gas sector, GE acquired Vetco Gray and Hydril Pressure Control to diversify its product range and services.
- Broadcasting and entertainment services
Main acquisitions were Telemundo which has enabled GE to enter in the Spanish market and Vivendi Universal’s entertainment business that helped to enter into business strategic areas of film studios and theme parks. In 2009 NBC universal was merged with Comcast with 49% under GE and 51% under Comcast.
- Technology Infrastructure
Immelt believed that the development in the technology infrastructure industries could give GE a competitive advantage where growth platforms as identified are security systems where GE acquired Vision Technologies, Edward Systems and Interlogix, water treatment technology where GE acquired Ionics and BetzDearborn and aerospace where GE acquired Smiths Aerospace to diversify in the avionics.
As the part of exit strategy, Immelt decided to reduce the services of GE capital and sold 60% of GECIS to private equity companies, Oak Hill Capital Partners and General Atlantic. GE Advanced Materials business unit was sold to Apollo Management and GE Plastics was sold to Saudi Arabia Basic Industries Corporation. Whereas GE Insurance Solutions and GE life was sold to Swiss Re.
Dr. Robert Kaplan and David Norton developed a model known as Kaplan Balance Scorecard as a performance measurement tool (Kaplan & Norton 1995). It helps to evaluate and monitor the success of the strategies. Kaplan Balance Scorecard evaluates the strategies on the four factors which are efficiency, financial performance, satisfaction and knowledge and innovation. Efficiency is determined from the internal business process, financial performance is measured by the value given to the stockholders, satisfaction is counted by the satisfaction level of the customer and knowledge is calculated by the technical capacity of the organization.
Kaplan Balance Scorecard
3: Comparing the journey of GE under the leadership of Jack Welch and Jeff Immelt is one of the biggest management cases in top Ivy League colleges. In my perspective, the comparison cannot be justified because the external factors during the tenure of each of the leaders have been very different. During the tenure of Jeff, GE has gone through of the biggest downturn of its history as it has faced through the recession and also the economic breakdown due the 9/11 attack on US, which has reduced the prices of the shares from $53 to $6 in 2009 whereas it has increased to $19.81 in 2012. But during this period Jeff has completely transformed the business management model and organizational structure of the company to prevent the company from loss of credibility and market.( Fox 2002)
Jack’s management style was completely different from the management style of Jeff Immelt. Jack Welch was a good strategist and had a talent to look for opportunities and to manage the threats. He generally believes in excellence and always keeps his team on their toes to meet the targets. He followed a transformational leadership where he has transformed the product based company to much more incline towards the financial services as GE capital was the primary growth engine of GE. Jack was a ruthless task master and focused on short term goals and its achievement. He was against the bureaucracy and removed the layers of hierocracy from the organization. He was more focused on developing its European Markets and US markets. He has emphasized on increasing quality and reliability of the products by introducing of Six Sigma Methodology. (GE Annual Report 2000) Section C system was the main performance tracking system which plan the careers of the managers and formulate every succession plans of every management position at GE and this Section C reviews were all day events and was the part of the GE work culture. During the tenure of Jack Welch, the financials improved to a great extent and that can be justified from the below table:
|
2000 |
1999 |
1998 |
|
|
Revenues( in millions) |
$ 129,853.00 |
$ 111,630.00 |
$ 100,469.00 |
|
Costs and expenses (in millions) |
$ 111,407.00 |
$ 96,053.00 |
$ 86,992.00 |
|
Net Earnings (in millions) |
$ 12,735.00 |
$ 10,717.00 |
$ 9,296.00 |
|
Basic earnings per share |
$ 1.29 |
$ 1.09 |
$ 0.95 |
Source: GE Annual Report 2000
Financial Comparison during Jack Welch’s Leadership
Jeff Immelt used a participative leadership style where he follows a friendly and regular guy approach in communication to his managers. He was more people oriented and focused on the finding new growth platforms in the developing countries such as India, China, South Asian countries, Latin American countries and Middle East countries. Jeff emphasized more on innovation and invested in R&D. He primarily shifted GE focused area from financial services to more into the infrastructure products and services. He has introduced the cross-functional work culture and each and every manager is evaluated on the performance metrics which are quantifiable in nature. He focused on long term goals and customer oriented approach in marketing the products. He has reduced the business units from twelve to five who are reporting directly to him whereas in 2012 he made it seven. (GE Annual Report 2012) He reallocated the resources to the sectors where the growth prospects were strong and emphasized on new businesses. The financial conditions of GE during 2001-2012 were affected due to the recession and the terrorist attack on US which has slowed down the growth of GE. The financial comparison of GE is as follows:
|
2012 |
2011 |
2010 |
2009 |
|
|
Revenues( in millions) |
$ 147,359.00 |
$ 147,288.00 |
$ 149,567.00 |
$ 154,396.00 |
|
Net Earnings (in millions) |
$ 13,641.00 |
$ 14,151.00 |
$ 11,644.00 |
$ 11,025.00 |
|
Total Assets(in millions) |
$ 685,382.00 |
$ 718,189.00 |
$ 748,491.00 |
$ 782,714.00 |
Source: GE Annual Report 2012
Financial Comparison during Jeff Immelt’s Leadership
The following table shows the comparison between the Jack Welch management style and Jeff Immelt management style.
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