General Electric Company (GE) is an American multinational conglomerate, founded by Thomas Edison, operating in multiple different industries: aviation, healthcare, power, renewable energy, digital additive manufacturing, venture capital and finance, lighting, transportation, and oil and gas. In the past 20 years, GE’s structure and strategy have changed to the extent that Jeffrey Immelt (2017), CEO from 2000 to 2017, stated ‘We were a classic conglomerate. Now people are calling us a 125-year-old start-up.’ The organisation’s reorientation has simplified and decentralised GE’s structure to make the firm quicker at reacting to changes in the external environment.
GE’s vision statement, as of 2014, is to become ‘the world’s best infrastructure and technology’ . This highlights GE’s long-term goal for providing new and advanced products that support industrial progress. Building on Michael Porter’s five forces analysis (1979), GE tries to maintain a competitive advantage in all of its businesses. GE’s document ‘Our Strategy’ highlights the desire for ‘transforming our portfolio.’ Differentiation is GE’s major growth strategy. GE’s primary intensive strategy revolves around growth achieved through digitised products that increase the company’s sales revenue, in order to have the leading edge against competitors. Operating in multiple business segments, GE is one of the most diversified businesses in the world and is known for having the highest number of company-owned patents in the US. This emphasis on firm-specific valuable assets shows GE’s adoption of the resource-based view in its strategy. A strategic objective based on differentiation spreads risk across various industries and markets. The strategy follows on to allow GE to penetrate new markets in order to increase competition against competitors like 3M and Siemens. Thirdly, GE’s strategy involves diversification. However, diversification plays a minor role due to the high costs of major investment and organizational change. Instead, GE (2014) said they will be ‘investing in adjacencies and pursuing opportunities that are closely related to our core.’ Because GE Capital, GE’s financial services division, is no longer relate to GE’s new core of infrastructure and technological progress, the strategy towards it is to reduce the size of this division.
Before evaluating GE’s public strategy, we must first understand GE’s organisational structure. GE has a multidivisional organisational structure. What this means is that GE’s divisions have their own executives who implement strategies that suit their corresponding industries and markets. Thes GE businesses behave as subsidiaries, which prioritize the needs of business endeavours based on specific market conditions. A SWOT (strengths, weaknesses, opportunities, and threats) analysis of GE marks this segmentation as a strength of the business, an opportunity for the company to grow in multiple segments simultaneously. GE’s structure also includes organisation-wide corporate teams, which implement strategies for the entire conglomerate. Such teams are a secondary structural feature which ensure coherence among all business divisions in order to maintain a strong and stable conglomerate that follows GE’s general strategy and vision. Finally, GE’s structure is also divided by geographical location. This consideration of geographical segmentation is done so that regional executives are presented with reported business data that is relevant to them and so can appropriately influence location strategy.
So, does GE’s structure follow logically from its strategy? GE’s organisational structure allows for independent strategic development for each operating segment. This may limit GE’s vision for infrastructure & technological advancement and prevent the reduction of GE Capital due to the decentralised nature of the organisation which allows the GE businesses to behave quasi-autonomously. Kay, McKiernan and Faulkner (2006) support this and state that ‘the attempt by each department head to expand the size of his own empire was seen as having led to profitless growth for the corporation as a whole.’ However, following a McKinsey report (1969), GE implemented these strategic business units which simplified the conglomerate into a smaller number of operating businesses, each responsible for their own strategic planning. This left the function of central management to portfolio planning, the allocation of resources between these strategic business units. Managers of GE’s segments can still consider and use GE’s corporate vision to direct their subsidiary toward desired general future business target. During his tenure as CEO, Jack Welch abandoned GE’s bureaucratic mannerisms, replacing document driven processes with personal informal, face-face discussions and data heavy business plans with slim ‘play books’ that summarised key strategic issues. This allows for each of the organisation’s businesses to adapt key strategic issues as they see fit. Furthermore, organisation-wide corporate teams develop and implement coherence throughout the company, hence facilitating the implementation of GE’s strategy by strengthening operational capabilities and competitiveness to match market challenges and industry trends. Therefore, this corporate structure optimizes General Electric’s effectiveness in not only addressing industry-specific challenges, but also permits the differentiation advocated by GE’s strategy. However, because some of GE’s segments compete with each other, such as GE Power and GE Renewable Energy, this does not follow logically from the public strategy and may result in mismanagement due to facing difficulties in selecting priorities. For the structure to logically follow the strategy, there is therefore also a need for managers to implement co-development strategies for competing divisions alongside GE’s public strategy.
PESTLE/PESTEL analysis is useful for GE because strategic management must consider the macro-environmental factors relevant to GE’s various industries. The factors the PESTLE/PESTEL report addresses include government support for digitisation of industries (which supports GE’s mission statement), trade barriers, renewable energy uses, oil prices, etc. Due to the volatility of many elements of this environment, GE’s ability to change quickly with the environment could make the difference in its aim to be ‘world’s best infrastructure and technology company.’ In order to achieve this vision, GE will have to be able to react quickly to changes in its institutional environment. GE’s research and development (R&D) capabilities will positively contribute to this ability for rapid change, which Porter stated also correlates with higher competitive advantage. Vic Abate (2016), GE’s SVP & Chief Technology Officer, said that ‘our research and development spend over the last few years reflects several major new product introductions.’ GE’s R&D allow the company to rapidly innovate and develop new products that suit changing market demand, hence being able to quickly react to environmental shocks. Immelt was aware of the importance of R&D and, during his tenure, tripled the R&D investment to $4.8bn. Additionally, he invested $4bn in analytics software development & machine learning capabilities in 2016, and spent $2bn in additive-manufacturing because he believed these to be ‘part of the digital industrial transformation.’ Moreover, he replaced GE’s ‘growth values with ‘dynamic and entrepreneurial beliefs’ which place a new emphasise on continuous, innovative development. These figures and facts highlight how Immelt prioritised R&D investment in order for GE to be ready for any change in the external environment. Immelt stated that, ‘the good thing about GE culture is that nine times out of 10, people are going to say ‘hey let’s try it’ which Mintzberg (1996) would applaud because he argues that it is impossible to identify non-starters in advance and so experimentation is necessary in order to be prepared for any scenario in the environment.
GE’s diverse business portfolio facilitates the company’s ability for rapid change. By expanding operations into various industries, GE strategically spreads risk and minimises the conglomerate’s vulnerability to industry-specific decline or stagnation. Furthermore, the presence of so many diverse segments means that GE’s resources are plentiful. David Joyce (2016), Vice Chairman of GE, stated that ‘the acquisition of Arcam & Concept Laser 3D Printing businesses enabled us to accelerate our brilliant factory initiative and leads the next wave of productivity in manufacturing.’ This is one example of how the incorporation of valuable assets like 3D printing into GE’s resources makes the company more prepared and flexible to any change in the environment, whether it be from a competitor or from the conditions outlined earlier in the PESTLE analysis. One could argue that, due to the multidivisional structure of the organisation, separate segments would not be able to interact easily. This is no longer the case: in 2015, Immelt established the GE Store. He describes it as a way to organise ‘GE around a global exchange of knowledge … through which each business shares and accesses the same technology, markets, structure & intellect to make them more competitive & enable them to deliver better outcomes for customers.’ The ability to share technology and information through a GE Store, aligns all of GE’s businesses so that, in case of sudden environmental shocks, all business sectors can swiftly adapt (or even pre-empt it) to the change with ease.
Prior to Immelt’s arrival as CEO, GE experience weak performance in Asian markets. GE is an American company at heart and hence, if not actively made to otherwise, would operate as such even abroad. Pascale (1996) argues that that this is why Japanese firms like Mazda and Toyota’s subsidiary Toyotep failed to conquer the US automobile markets: their manufacturing was accustomed to building in Japan and simply trying to sell abroad, hence not reacting to a change in business environment that is the US in comparison to Japan. On the other hand, Mintzberg (1996) argues that Honda’s success in the US motorcycle industry was due to Honda’s executives being able to quickly adapt to a change in environment: Honda executives said that they came to the US prepared to learn because, as Mintzberg (1996) reiterates ‘we shall get nowhere without emergent learning alongside deliberate planning.’ So how is this relevant to GE? GE’s Asia performance was lower because American executives bound themselves to American institutional norms that would not work in Asia, instead of having a mindset of first learning about this very different market. Being bound to its home operating system made GE unable to thrive in this environmental change. The importance of the ability to learn and differentiate operations depending on location is highlighted by GE’s success abroad following Immelt’s 2011 introduction of the GE Global Growth Organisation (GE GGO), which expanded local presence in emerging markets and gave far more power to regional managers to drive growth. Immelt himself spent 50% of his time in developing regions and ran GE Power in Ghana himself for some time. John Rice, the President of GE GGO, actually moved to Hong Kong and by 2016 GE revenue outside the US accounted for 59% of total revenue. Immelt (2017) stated ‘to be global, we’ve got to be more local’ , highlighting his awareness of the need to not be bound by American corporate norms in order to succeed in a changed environment.
GE’s recent performance suggests that there may be some faults. In the third quarter of the 2017 financial year, GE posted a loss of $22.8bn, revenues fell by a third and orders fell by 18% for GE Power. It is currently the worst performing firm in the Dow Jones Industrial Average (2017). Immelt can be blamed for this: The Economist (2017) stated that ‘Immelt deteriorated the core power business to point where firm now cannot generate cash to pay its promised dividends.’ This suggests that GE’s structure may not follow logically from the public strategy because the businesses were still too broad and sprawled out, even after considering the significant reduction of GE Capital: the sprawling conglomerate was not reduced enough and could not be effectively. For this reason, the newly installed CEO, Lawrence Culp, is currently seeking to simplify GE’s structure further into two business divisions, one containing gas products, and the other containing service businesses, as well as divesting certain segments. The Economist (2017) argues that GE was ‘a company adrift under Mr Immelt, who often talked in lofty terms about GE’s future and invested a lot in innovation but did not always hold people accountable or insist on tough targets.’ However, this suggests that GE’s current difficulties are not actually related to its structure and its ability to react to the external environment but due to Immelt’s managerial mishaps. In fact, there is strong evidence for this: Immelt was criticised for buying energy companies when oil & gas prices were low, GE was investigated by the SEC due to accounting standards discrepancies, and opaque long-term service contracts raised investor suspicion due to lack of openness.
General Electric was considered one of the most admired companies in Fortune Annual Survey and in 2002 even came in first place. GE’s strategy of differentiation is evident in the constantly evolving nature of its many businesses. Not only do GE’s vast R&D resources facilitate the ease to react to changes in the external environment, but so do the interconnectedness of the different businesses, through platforms like GE Store, and the ability to be flexible in new markets through segments like the GE GGO. Therefore, while it is evident that GE is currently facing performance troubles, these are due to poor managerial decision making as opposed to GE’s structure or ability to react to the external environment.