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Strategic Analysis of General Electric

General Electric Strategic Analysis :

General Electric is an industry leading high technology brand with business operations across eight business segments that include power, aviation,  healthcare, transportation, capital, energy connections and lighting, renewable energy and oil and gas.  GE has continued to push the line in all these areas to create strong competitive advantage and to generate higher profits. In 2017, it saw a sharp increase in revenue in the oil and gas segment. Other areas where it achieved strong financial results were aviation, renewable energy & healthcare. While there are was a decline in performance across some of the business segments the overall scenario looked good. The brand has continued to perform well despite a fast changing economic, geopolitical and technological scenario. There are several challenges to the growth of GE including rising protectionism. However, quality and technology are important factors that are still helping businesses like GE overcome the growing competitive pressure. The business environment all over the world has  been challenging due to growing net of legal and regulatory controls. Apart from that rise of disruptive innovation has also challenged the position of existing big brands. GE however, continued to perform well because of its technological capabilities and skilled human resources. While the overall revenue and profits saw a slight decline in 2017 compared to the previous year, the brand has still sustained its financial performance quite well over the last five years. US remains the most significant market for General electric. As of year end 2017, GE employed 313,000 people together with its consolidated affiliates, out of which 106,000 are employed in US alone.

General Electric SWOT Analysis

Strengths: –

 

Global market presence – Incorporated in 1892, GE has continued to grow its ambit of technologies and services. This has also helped it grow it business a lot, helping it extend its business into new areas. Today, this company is transforming the industry and the world with its extraordinary capabilities. GE is present in more than 180 countries today with a workforce of more than 313000 working for it globally. While USA is its largest market, the brand is present in several other countries of the world and is one of those with the finest global footprint.

Advanced technology – GE is known especially for its advanced technological capabilities. The brand is solving some of the biggest problems plaguing the world through its advanced technological capabilities. It is already a leader in clean energy innovation. However, there are several other areas too where GE is changing the world through its advanced technologies like aviation and transportation.  It had played  a major role in restoring electricity to Iraq. GE’s competitive advantage comes mainly firm advanced technologies and from power to transportation, the brand has set examples in all these areas. The CFM leap engine developed by GE is among the most advanced and comes equipped with 141 sensors. Its has also got special and advanced capabilities in the area of IT where it is reinventing things and designing new methods of technology implementation inside GE for higher productivity.

Large business portfolio  Another major strength of GE is its broad business portfolio. The areas in which GE operates include power, aviation,  healthcare, transportation, capital, energy connections and lighting, renewable energy and oil and gas. While the situation has constantly remained quite challenging in most of these areas, the brand has continued to perform despite these hurdles and challenges. Revenue fell across some of these operational segments in 2017 and rose across a few. However, the overall financial performance has remained consistent for the past several years. Power and aviation are the main sources of revenue for the brand followed by healthcare, oil and gas and renewable energy. Power segment yielded the highest revenue at 36 Billion dollars followed by Aviation yielding 27.4 Billion dollars.

Smart business structure for better management – In terms of management and business structure to GE has continued to do very well. Its entire business is divided into several segments that have their own business leaders. These leaders conduct regular meetings to talk on topics like competition and key challenges. When Jack Welch used to be the CEO of GE, his focus was at simplifying the structure to reduce performance bottlenecks and let work and ideas flow smoothly. This also left more space for innovation.

Strong financial position  Its advanced technologies and a global footprint have helped it maximise the brand’s financial performance and productivity. While the situation has been quite challenging industrywide over the past few years, and the brand has kept performing well across many segments. The industrial revenues of GE have remained flat at 114. 9 Billion dollars for 2016 and 2017. There was a decrease of $1.6 billion dollars in the consolidated revenues form 2016 to 2017 mainly due to decreased financial services and corporate revenues.

Investment in disruptive innovation – Innovation is now the norm of the industry and for any and every brand it is important to invest in this areas so as to remain competitive. GE has continued to make major investments in this area in order to remain competitive and ahead of the others. It has established two new ventures GE digital and GE additive manufacturing. GE digital’s activities are focused on assisting in the market development of our digital product offerings through software design, fulfilment and product management, while also interfacing with our customers. Big businesses are facing major challenges related to their future and innovation is now the only way that  can help them overcome the competitive pressures and rising challenges.  Apart from these things, GE is investing in other areas like analytics software, machine learning capabilities as well as additive manufacturing equipment and services.

Strong presence outside US – The brand has managed a strong performance even in the non US markets. Its market has changed a lot since 2000 when more than 70% of its revenue would come from US. Now, more than 60% of the orders at GE are from non US markets. At average it has grown globally at 5% or 10%  since 2000. One major reason behind its growth in the global markets its extraordinary technological capabilities.

Strong backlog  By the end of 2017, GE had a record backlog worth $341.3 billion. Digital Industrial service is an important domain where GE has a leadership status and where it has accumulated a strong backlog of $256.7 billion dollars.

    • Heavy investment in R&D –  The brand makes heavy investments in research and development. This sum has kept increasing over years and from $5,273 millions in 2014, it has reached $5,600 millions in 2017.    Here is a break up of the investment made by GE in R&D in various areas.
  • Segment
  •     2016
  •   2015
  •  2014
  • Aviation
  •  $1595
  •  $1893
  •  $1965
  • Healthcare
  •  $938
  •  $905
  •  $817
  • Power
  •  $695
  •  $721
  •  $641
  • The dollar sums are in millions. You can see that  Aviation, healthcare and power are important segments where GE has consistently invested large sums in Research and development. Competition has kept growing intense and it is the reason behind this heavy focus on R&D. While the investment in R&D in aviation has declined over years, in healthcare oil and gas and renewable energy, it has increased. In 2017, GE invested 1,502 Millions in R&D in aviation, 1,016 millions in healthcare and 920 millions in R&D in power.

 

Weaknesses: –

Falling revenue across certain business segments – Except some major technological segments, the brand has seen its revenue falling in several business segments like lighting, power and transportation. However, seen in the light of the challenging market situation and competition, GE’s performance is still strong. Higher competition has only made its profits fall across certain segments.

  Higher pension related liabilities  “The GE Pension Plan deficit decreased in 2017 primarily due to investment performance, employer contributions and changes in mortality and salary assumptions, partially offset by lower discount rates and the growth in pension liabilities”. GE pension plan payments of $1.7 Billion dollars negatively impacted GE CFOA.

Opportunities:

Entering new business  segments – GE has entered some new businesses which have started creating value for its shareholders and investors. Diversification can be a great option for GE to expand its business further. Moreover, it has a healthy bottom line and it might be worth entering new business segments.

Growth through mergers and acquisitions – Mergers and acquisitions will also help GE find faster growth. Like its merger with Baker Hughes, it can merge more such businesses operating in similar business areas. Baker Hughes was 62.5% owned by General Electric.

Further Expansion in middle eastern and Asian markets – More opportunities are waiting for GE in the Middle Eastern and Asian markets. Like Africa, the brand can increase its presence in Asian countries too to grow its business.

 

Threats:

Higher tax related liabilities – Being a global company adds to the tax related liabilities of a brand and tax rates across various regions vary. In the recent years, several nations have made major changes to their tax rates on several areas. Antiquated business policies in US are anther major threat for brands eyeing international growth. Other countries have embraced change in sight of changing business scenario worldwide.  US is still lagging in several areas include trade policies and relationships with other nations. During the Trump regime, these relationships might have grown even worse. However, not just US, but worldwide in the other areas too governments have turned more aggressive in terms of applying controls on businesses. Asian countries including India and China introduced new tax liabilities that  have hit both small and big business hard.

Geopolitical changes – Geopolitical changes are constantly happening across the globe that are also affecting businesses in various ways. Declining oil prices, ISIS, terrorism and several other similar geopolitical challenges are pressurising businesses making them look for new markets.

Competitive pressure – Competitive pressures on businesses have grown for several important reasons. Technological changes are happening at a very fast rate and affecting businesses like never before. Innovative disruption has changed the industry norms and the rise of digital has led to the emergence of new giants ad creation of new areas of competition. All these factors have turned businesses highly aggressive in terms of competition.

Legal pressures – Law agencies and governments are also highly aggressive now towards businesses. Legal pressures have resulted in higher pressure and less space for innovation. Since the 9/11 terrorist attacks, businesses in aviation are facing higher pressure related to passenger safety. In many other areas too legal pressures are higher including product quality and labor related laws. Businesses are increasingly feeling challenged by legal pressures.

PESTEL Analysis of General Electric:

The global business environment is replete with challenges of various kinds and the forces challenging growth in global environment vary in nature. From political to economic and technological there are several kinds of forces that you know as PESTEL forces and affect businesses and their bottom line growth. PESTEL is an acronym for Political, economic, social, technological, environmental and legal. This is a PESTEL analysis of General electric:

Political:

Political forces have kept growing in relevance in the business world. Apart from tax regimes and trade policies governments are affecting the fortune of businesses and especially the international businesses in several ways. Governments and government agencies have grown increasingly aggressive and are now trying stricter controls against businesses worldwide from EU to Asia. Apart from that political stability is also important for business growth and areas where the political situation is unstable, business growth is difficult. It is mainly because political stability relates directly to economic stability. Political chaos can result in disruption of business supply lines and distribution network and can in turn affect sales and profits. Friendly political environment and good trade relationships facilitate business growth and profitability. On  the other hand unfriendly political environment can have an adverse effect on businesses operating in foreign countries. In this way, political factors are now central to business growth and are affecting international businesses like GE in unprecedented ways.

Economic:

Economic factors too bear a direct relationship with business growth and profitability. The importance of economic factors can be realised from the fact that economic factors affect the purchasing power of customers directly. The world has been through a period of bitter economic recession and during the period from businesses to individual customers, all were forced to cut costs down. This had led to lower sales and profits for small and big business. The global businesses had especially felt the pinch very hard. It had led to lower sales and a decline in profits for them and several even needed government help to overcome the effects of an economic slowdown. As the economic recession passed and economic activity returned on track, worldwide international businesses enjoyed faster growth and higher sales. High economic activity relates to higher employment and increased purchasing power of customers including individual customers and businesses.

Social:

Sociocultural factors affect businesses in various ways and it is also because many businesses operate based on geographical segments. These geographical business segments are many times run independently and many times controlled by a central headquarter. Moreover, varying societies and cultures also require businesses to have varying strategies for each geographical segment. The same strategy does not fit each market/region. Businesses have to formulate separate sales and marketing strategies for each market/region. Changing demographics, social trends and other sociocultural factors can also have a deep impact on how businesses perform. In this way, social factors have become increasingly relevant to business performance.

Technological:

It’s an era of advanced technology and businesses are spending on technology more than ever and the advanced technological capabilities of General Electric are also important factors behind its financial performance over the last several years remaining so consistent. Across several business areas, it has continued to invest in building better technological capabilities and based upon its innovative capabilities has brought several game changing products to the market. Apart from that the business also maintains a high level of investment into R&D to grow the pace of innovation as well as to advance its business growth. Technology is more central to business than ever and digital has revolutionised the business world like none other thing. It is affecting business dynamics and in GE’s business model it exists somewhere close to the core.

Environmental:

Environmental factors are also a central concern in the context of business. Environmental awareness has increased rapidly throughout the globe during the recent years leading to framing of laws in this area. Governments all over the world have focused on environmental protection and are implementing laws that punish businesses with a high carbon footprint. It notes on its website, “At GE, sustainability means aligning our business strategy to meet societal needs while minimizing environmental impact and advancing social development. This commitment is embedded in our company at every level—from high-visibility initiatives such as Ecomagination and healthymagination to day-to-day safety and compliance management around the world”. There is a sustainability steering committee at GE that  coordinates sustainability strategy at GE. From water preservation to low energy consumption and waste minimisation, GE is investing in all these ares to keep its impact on environment minimised.

Legal:   

Legal forces are also  major concern in the context of global business. The effect of growing net of laws on businesses has grown multiple times. There is a very wide net of laws that does not just raise the compliance related concerns but also cerated other kind of pressures raising operational costs as well as affecting rate of business growth. From product quality to safety and environments well as labor there are several laws in each and every area that are creating immense pressure on the businesses and causing a lot of trouble  for businesses trying to find flexibility. From EU to Asia the form of legal framework has changed a lot and unless businesses comply to laws in each and every region, they can face a lot of flak over noncompliance including large fines.

Five Forces Analysis of General Electric:

Bargaining  power of suppliers:

What happens in case of most large and global businesses including GE is that the bargaining power of their suppliers remains low and that is because of their smaller size mainly. Apart from some of the suppliers that are considerably large and are themselves big brands, most do not exercise any significant cost or are not indispensable for GE’s supply chain. While GE takes good care of its supplier relationships and does its best to engage them, still it is important for suppliers to get its quality expectations and performance standards across other areas. The overall bargaining power of GE suppliers is low.

Bargaining power of buyers:

The bargaining power of buyers has seen significant rise in the 21st century. It is not just because of the multiplicity of brands selling similar products and services but also for several other factors. Apart from increased competition, higher awareness and increased concern for quality are also creating pressures in businesses and led to significant growth in the bargaining power of customers. Some of the factors that moderate the bargain gin power of customers are GE’s technological capabilities, its focus on innovation and investment in overall product and service quality as well as its brand image. These factors moderate the bargaining power of the customers to some extent but it still remains considerably high.

Threat of new entrants:

The threat of new entrants in the industry is very low because of the significantly high investment barriers. Apart from production and supply chain, there is a very large investment in acquiring skilled human resources. Growing a brand too requires significant investment and businesses have to remain focused consistently on quality and customer orientation for long periods to find sufficient growth. The legal and regulatory framework also acts as a barrier to entry. Overall, the threat from new players remains negligibly low.

Threat of substitute products and brands:

The threat of substitute products and brands for General Electrical is moderate which is because of its large size, brand image and capabilities. Most of the threat comes from rival brands making similar products or providing similar services. Some of its main competitors include Emerson, United Technologies and Siemens AG. The overall threat from substitute products and brands remain moderate.

Intensity of competitive rivalry in the industry:

The intensity of competitive rivalry in the industry is high. It is because all the competing brands are quite aggressive in terms of marketing and research & development. Apart from investing aggressively in innovative technologies and building technological capabilities, the brands are also aggressively pushing in terms of marketing and customer acquisition as well as customer service. GE has a diversified product portfolio which reduces some of the competitive threat from the rival brands. Otherwise, the overall intensity of competitive rivalry in the industry is very high.

Value Chain analysis of General Electric:

Primary Activities:

Inbound logistics: General Electric has a large supply chain that consists of suppliers from various countries. Materials received from suppliers are stored at warehouses.

Operations : GE has operations in more than 130 countries. It has separate websites for all its markets and has regional offices across the world.

Outbound logistics : In 2016, GE decided to outsource warehousing. Now its focus is to manage supply chain rigorously using best in class technologies and reduce the inventory load.

Marketing and sales: GE has also retained heavy focus on marketing and sales and is well known for spending heavily on advertising in past.

Support Activities:

Technology: Technology is at the core of GE’s business system.  It also invest heavily in R&D to develop new product and innovative solutions.

Procurement: GE procures from a  very large number of suppliers from around the globe.

Infrastructure: GE has managed a large and global infrastructure that includes its physical infrastructure as well as people and management.

HRM: HRM is also an important focus at GE. It employed 313000 people in 2017 of which 106000 people were employed in US alone.

Core Competencies of General Electric:

The core competencies of General electric include advanced technological capabilities and skilled human resources. the brand is equipped with advanced technological power in many areas including power, transportation, healthcare, oil and gas and renewable energy. Moreover, it has got skilled nad focused human resources who are an important force behind its global success.

VRIO analysis of GE:

Resources and capabilities of General Electric:

Global presence: GE is operating globally across 130 countries. Its global presence is a major capability and a sign of its success as well.

Brand image & Equity: Brand image and brand equity that the brand has built are also important capabilities. Based on its capabilities, the brand has built very high level of trust and that facilitates business success.

Technological capabilities: Its technological capabilities are at the core of its business. They are also its main source of competitive advantage and distinguish GE from the crowd of brands.

HRM & culture:

GE has maintained heavy focus on HRM and Jack Welch is known for having managed na excellent business and organisational culture.

Customer loyalty: Due to its excellent products and services, GE has also managed very high level of customer loyalty.

Resources/capabilities

Valuable

Rare

Inimitable

Exploited

Implications

Brand Image/equity

Yes

Yes

Yes

Yes

Competitive advantage

Global Presence

Yes

No

No

Yes

Temporary advantage

Technology

Yes

Yes

Yes

Yes

Competitive advantage

HRM & Culture

Yes

No

No

Yes

Temporary advantage

Customer loyalty

Yes

No

No

Yes

Temporary advantage

Financial analysis:

 GE Industrial revenues kept flat for 2017 mainly due to a rise in industrial segment revenues of $3.3 billion offset by a decrease in Corporate revenues and Industrial eliminations of $3.3 billion. Industrial segment revenues rose $3.3 billion, or 3%, as increases at Oil & Gas, Renewable Energy, Aviation and Healthcare were offset partially by declines across Power, Transportation and Lighting. This increase was mainly due to the net effects of acquisitions of $6.0 billion, primarily attributable to Baker Hughes. A weaker U.S. dollar also caused an effect of $0.6 billion, partially offset by the net effects of dispositions of $3.4 billion, primarily attributable to Appliances. Apart from the effects of acquisitions, dispositions and translational currency exchange, industrial segment organic revenues rose $0.1 billion. Corporate revenues and Industrial eliminations declined $3.3 billion mainly driven by lower gains on disposed businesses and higher non-cash held for sale charges. 2016 revenues included gains of $3.1 billion from the sale of GE Appliances business and $0.4 billion from the sale of GE Asset Management.  2017 income included a gain of $1.9 billion from the sale of GE’s Water business as well as charges associated with businesses classified as held for sale including the substantial majority of GE’s Lighting segment for $0.8 billion and two nonstrategic Aviation businesses for $0.6 billion. • Financial Services revenues fell by $1.8 billion, or 17%, mainly for higher impairments and organic revenue declines.

Conclusion:

GE has continued to grow by investing in new businesses and technologies. Its excellent and strong technological capabilities have helped it achieve faster growth apart from its focus on innovation. The company has a large and strong business portfolio that has helped it accept new challenges and  achieve superior business growth. Its global footprint and financial strength have also ensured that the business remains ready for upcoming challenges. The best thing about it is its strong backlog in services. The brand is working on strengthening its presence across several key markets and business segments. Its presence outside the US has grown. More than 60% of its revenue comes from outside US.  The business is also investing in disruptive innovation for growth. Through smart leadership and innovative business practices, it has become a leading name in the industry. GE also invests heavily in R&D which is crucial for any business if a brand wants fast expansion. All of its strengths show that the business is highly competitive and has kept growing globally based on its smart strategy and extraordinary capabilities. However, 2017 below lower results than its expectations and the brand would need to focus on a  few specific areas to reduce the fluctuations across some of its business segments.

Sources:

https://en.wikipedia.org/wiki/Baker_Hughes

https://www.ge.com/investor-relations/sites/default/files/GE_10-K_2017.pdf

https://www.gesustainability.com/how-ge-works/sustainability-at-ge/

https://www.supplychaindive.com/news/ge-reduce-inventory-manage-supply-chain-rigorously/510927/

https://www.hoovers.com/company-information/cs/company-profile.general_electric_company.8e594783fd3e6c6e.html

Written by Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.

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