Immelt: Reinventing General Electric

This case study was part of a strategy assignment taken at the SDA Bocconi School of Management. Id like to thank my fellows Gouri Wagle, Felipe dellOro, Andrea Masina, Paolo Cerchiario, Ashna Suri-Sasmal and myself for the insights that contributed to put through this work. The issue In September 2009, Ges Board of Directors reappointed Jeff Immelt as CEO. My team was asked to prepare a memo providing guidance on the following four qustions 1. The key features of Immelts strategy for GE, in compariso to that of his predecessor, Jack Welch.While Jack Welch was mainly focused on short-run objectives, his successor, Jeff Immelt was much concerned near the long-term strategy. Welchs leadership was characterized by risky projects that led to technological revolutions, aggressive cost cutting schemes and accurate work measurements. On the other hand, Immelt emphatic organic egression, technological innovations and operationing emerging opportunities. 2. To what extent has Immelts s trategy been aligned (a) with developments in the immaterial line environment since 2001 and (b) GEs resources and capabilities?Jack Immelts strategy was very much aligned with the external traffic development and its key resources and capabilities. External business events that occurred during the period 2001-9 include the destruction of the Twin Towers, Enrons collapse, the Tyco International Scandal and the 2008-9 m adepttary crisis which brought to light an increased awareness in corporate governance issues. The authorisement community believed GE hasnt been transparent with the sources of their meshing and subsequently short GEs shares. GE was then downgraded from AAA to AA+.GEs response was dickens fold with the take in of restoring investor confidence and maximizing their value. Firstly, GE improved communication with investors through more detailed financial reporting. Secondly, GE leveraged on its diversified portfolio in order to exercise strategic synergies that would lead to growth in emerging economies. Some of the initiatives included using brand reputation to gain floor in emerging economies such as India and China. In addition, its colossal investments in R&Dresulted in new products such as Smart G loose and sodium battery.GE also exploited itsmanagerial dexterity to increase efficiency and smother costs. Consequently, customer satisfaction and coherency within the organization ensued. 3. How well is the strategy performing? Complexity remains a of import challenge for many mega-institutions. The larger and more complex the union, the harder it is to perform extremely well. When Immelt took over from Jack Welch almost 8 years ago (as of April 2009), GE memory board was trading at $53 a share. 8 years later, its at around $12.The companys rating was AAA, the best, awarded to only a handful of enterprises, now its AA+. face at GEs share price may give the impression the company destroyed value, but a close look at the companys ROE shows that over the period, GE registered an average 19% ROE, which is quite impressive taking into consideration the companys exposure to external business environments. Figure 1 GEs stock against the S&P 500 and Siemens AG (2001-2009) Immelt may have made round mistakes during his tenure as GEs CEO.GEs financial arm invested into too risky businesses, including consumer credit cards and strong estate. But one should railway line that before the financial crisis, GE made considerable profits coming primarily from the now-questioned investments in its financial division and no one could have predicted that the financial crisis could have been so pervasive. GE has been investing heavily in R&D and focusing in what it believed would be the business of tomorrow.Since his appointment, Immelt has been busy reshaping GE into one of the worlds biggest problem solvers through its infrastructure, energy, transportation and health care divisions in a broad, high-payoff scope. Immelt m ade some judicious divestitures. GE got out of subprime mortgages in 2007 and exited insurance before the sector depressed. Though GE Capital unit suffered huge reversals during the financial crisis, it never registered a expiry and the company was able to demarcation its exposure.Overall, if we take into account the dividends GE paid to investors and all the meltdowns that occurred between 2001 and 2008, Immelts performance looks respectable and the company external and antecedent focus strategy may pay-off. 4. Is there a case for a radical change in strategyspecifically, should GE be broken up into a number of more specialized businesses (some of which would be floated as independent quoted companies, others might be sold to existing competitors)? A radical change wouldnt be a dissolvent for GEs fate.GE is surely suffering a conglomerate discount because theres a lack of clear and intangible interrelationships among some of its business units. The emergence of GE Capital has created another significant business for GE. GE should therefore try to focus on its two core businesses and get rid of what is not related either to the industrial or to the financial businesses. GE Capital should be horizontally integrated to GEs industrial business. In addition, GE should keep divesting underperforming and non-core businesses unless they create synergies within the conglomerate.GE should divest NBC Universal, the commercial lending and leasing, and the consumer and industrial businesses, which have registered negative growth since 2004. This could offer required capital to invest in high growth businesses. GEs future as a successful conglomerate depends on its baron to harness cross-selling and cross-promotion between divisions, exploit scale advantages, differentiate itself from its direct competitors, maintain its role as a national champion, and be coherent with its culture and brand.Immelt Reinventing frequent ElectricThis case study was part of a strateg y assignment taken at the SDA Bocconi School of Management. Id like to thank my fellows Gouri Wagle, Felipe dellOro, Andrea Masina, Paolo Cerchiario, Ashna Suri-Sasmal and myself for the insights that contributed to put through this work. The issue In September 2009, Ges Board of Directors reappointed Jeff Immelt as CEO. My team was asked to prepare a memo providing guidance on the following four qustions 1. The key features of Immelts strategy for GE, in compariso to that of his predecessor, Jack Welch.While Jack Welch was mainly focused on short-term objectives, his successor, Jeff Immelt was more concerned about the long-term strategy. Welchs leadership was characterized by risky projects that led to technological revolutions, aggressive cost cutting schemes and accurate performance measurements. On the other hand, Immelt emphasized organic growth, technological innovations and exploiting emerging opportunities. 2. To what extent has Immelts strategy been aligned (a) with develop ments in the external business environment since 2001 and (b) GEs resources and capabilities?Jack Immelts strategy was very much aligned with the external business development and its key resources and capabilities. External business events that occurred during the period 2001-9 included the destruction of the Twin Towers, Enrons collapse, the Tyco International Scandal and the 2008-9 financial crisis which brought to light an increased awareness in corporate governance issues. The investment community believed GE hasnt been transparent with the sources of their profits and subsequently short GEs shares. GE was then downgraded from AAA to AA+.GEs response was two fold with the aim of restoring investor confidence and maximizing their value. Firstly, GE improved communication with investors through more detailed financial reporting. Secondly, GE leveraged on its diversified portfolio in order to exploit strategic synergies that would lead to growth in emerging economies. Some of the initiatives included using brand reputation to gain floor in emerging economies such as India and China. In addition, its massive investments in R&Dresulted in new products such as Smart Grid and sodium battery.GE also exploited itsmanagerial capability to increase efficiency and reduce costs. Consequently, customer satisfaction and coherency within the organization ensued. 3. How well is the strategy performing? Complexity remains a significant challenge for many mega-institutions. The larger and more complex the company, the harder it is to perform extremely well. When Immelt took over from Jack Welch almost 8 years ago (as of April 2009), GE stock was trading at $53 a share. 8 years later, its at around $12.The companys rating was AAA, the best, awarded to only a handful of enterprises, now its AA+. Looking at GEs share price may give the impression the company destroyed value, but a close look at the companys ROE shows that over the period, GE registered an average 19% ROE, whic h is quite impressive taking into consideration the companys exposure to external business environments. Figure 1 GEs stock against the S&P 500 and Siemens AG (2001-2009) Immelt may have made some mistakes during his tenure as GEs CEO.GEs financial arm invested into too risky businesses, including consumer credit cards and real estate. But one should note that before the financial crisis, GE made considerable profits coming primarily from the now-questioned investments in its financial division and no one could have predicted that the financial crisis could have been so pervasive. GE has been investing heavily in R&D and focusing in what it believed would be the business of tomorrow.Since his appointment, Immelt has been busy reshaping GE into one of the worlds biggest problem solvers through its infrastructure, energy, transportation and health care divisions in a broad, high-payoff scope. Immelt made some smart divestitures. GE got out of subprime mortgages in 2007 and exited insu rance before the sector depressed. Though GE Capital unit suffered huge reversals during the financial crisis, it never registered a loss and the company was able to limit its exposure.Overall, if we take into account the dividends GE paid to investors and all the meltdowns that occurred between 2001 and 2008, Immelts performance looks respectable and the company external and forward focus strategy may pay-off. 4. Is there a case for a radical change in strategyspecifically, should GE be broken up into a number of more specialized businesses (some of which would be floated as independent quoted companies, others might be sold to existing competitors)? A radical change wouldnt be a solution for GEs fate.GE is surely suffering a conglomerate discount because theres a lack of tangible and intangible interrelationships among some of its business units. The emergence of GE Capital has created another significant business for GE. GE should therefore try to focus on its two core businesses and get rid of what is not related either to the industrial or to the financial businesses. GE Capital should be horizontally integrated to GEs industrial business. In addition, GE should keep divesting underperforming and non-core businesses unless they create synergies within the conglomerate.GE should divest NBC Universal, the commercial lending and leasing, and the consumer and industrial businesses, which have registered negative growth since 2004. This could provide required capital to invest in high growth businesses. GEs future as a successful conglomerate depends on its ability to harness cross-selling and cross-promotion between divisions, exploit scale advantages, differentiate itself from its direct competitors, maintain its role as a national champion, and be coherent with its culture and brand.