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STRATEGIC MANAGEMENT

Assignment #2, Porter’s Industry Analysis: For this activity, you must analyze General Electric
(GE) using Porter’s approach to industry analysis (p. 82 of your text). Obtain annual reports and
financial reports from public sources as well as trade, business, and journal articles for information.
Your Activity responses should be both grammatically and mechanically correct, and formatted in
the same fashion as the Activity itself. If there is a Part A, your response should identify a Part A,
etc. In addition, you must appropriately cite all resources used in your response and document in a
bibliography using APA style. (100 points) (A 3-page response is required.)
Part A Describe GE, what the company stands for (its slogan), what makes it unique, the direction of
its market, its products, and the ways in which the company’s products and strategy are
integrated. Include a bibliography of at least six (6) trade or journal sources that you use
for your description and the analysis which follows. (20 points)
Part B Discuss Porter’s approach to industry analysis in relationship to GE using the six (6) forces
listed in the figure on page 82 of your text. (42 points)
Part C Provide one (1) suggestion for each of the following as it relates to the future of GE: what to
watch closely (threats and weaknesses), what to assess for change (opportunities), and what to
maintain and build upon (strengths). Then make one (1) recommendation for GE’s next strategic
move. (38 points)
PART A:
General Electric Company’s business is spread across from turbines to TV, from household
appliances to power plants. The company produces aircraft engines, locomotives and other
transportation equipment, kitchen and laundry appliances, lighting, electric distribution and
control equipment, generators and turbines, and medical imaging equipment. GE is also one of
the preeminent financial services companies in the US. General Electric Capital, comprising
commercial finance, consumer finance, aircraft leasing, and energy financial services, is its
largest segment. Other operations include the NBC television network. In late 2008 it announced
plans to shrink GE Capital as a way to cut costs. A plan will create a separate US banking unit,
which will operate via the Internet. In 2008 the company announced plans to sell or spin off its
appliance manufacturing business.
Preparing for the spin off of its consumer products operations, GE in 2008
reorganized around its four core businesses: GE Capital, GE Technology Infrastructure
(including the company's health care, aviation, and transportation operation), GE Energy
Infrastructure (energy, oil and gas, and water), and NBC Universal (80% owned). GE has been
growing in such areas as biotech, renewable energy, nanotechnology, and digital technology. GE
sold its GE Plastics unit (now SABIC Innovative Plastics) to SABIC for more than $11 billion in
2007. In early 2007 the company's aviation division acquired aircraft systems manufacturer
Smiths Aerospace from Smiths Group. GE Energy bought oil and gas production equipment
supplier Vetco Gray and US retail natural gas distribution network of Kinder Morgan, while GE
Industrial acquired Microwave Data Systems.
In December 1995, Microsoft and General (NBC) joined forces to operate a news
network called MSNBC. The cable television network, which debuted in July 1996, shared
programming with the Microsoft network for computers. The idea was that the viewing public
could glean news from either the television or the computer, or from both at the same time.
(Sources: www.hoovers.com)
GE’s biggest competitors are: Citigroup, Philips Electronics, Siemens AG,
Electrolux, Hitachi, HSBC Holdings, ITT Corp., Panasonic Corp, Rolls-Royce, Siemens AG,
Sony, Toshiba and Whirlpool. (Sources: www.hoovers.com)
PART B
Porter’s Industry analysis framework addresses the following forces:
Rivalry among existing firms: The intensity of competition or rivalry has a significant impact
on the ability to generate adequate margins. The intensity of rivalry or competition among firms
competing in the same industry depends on a number of factors. Industries with one dominant
firm are generally more stable than fragmented industries where one competitor may try to
achieve dominance. The degree of concentration or the extent to which the industry is
monopolistic has an important effect on the behavior of competitors. Because of intense
competitive and price pressure, GE and Pratt & Whitney, two US ones, have decided to join
forces against their British opponent. The race for leadership seems to be limited to GE and Rolls
Royce. Rivalries among existing players are forcing GE to think and build alliances with some of
their existing competitors. (Condom, 2005).
Potential entrants: New entrants to an industry add capacity, and if the capacity added is greater
than growth in demand, this will reduce profitability. New entrants may seek not to replicate the
value chain of existing firms but to focus on certain activities where barriers to entry are lower.
The objective of competitive strategy should be to deter new entrants if this is possible. Where
scale economies matter, pricing is an important weapon. EMI entered the CAT scanner business
on the back of an innovation developed by a researcher in the company's labs. EMI had no
experience in the manufacture of medical-diagnostic-imaging equipment. EMI decided to build
these capabilities rather than partner and EMI delivered their first product after five years.
Whereas, General Electric, with its world-class manufacturing and sales and distribution
networks entered the US market. GE became dominant and EMI exited after sustaining
substantial losses. (Horn, Lovallo, Viguerie, 2005).
Substitutes: Substitute products are products that perform the same function or satisfy the same
need as an existing product. The threat from substitute products is particularly severe if the
substitute product is cheaper or more cost effective. A strategy to deal with competition from
substitutes is to start making or supplying the substitute. E.g. GE built a financial-services
business by acquiring business capabilities over time. GE Capital originally worked with the GE
units that make consumer products such as refrigerators and dishwashers. It gained enough scale
and expertise to offer finance services for GE's more sophisticated industrial products, including
power plants and jet engines. Now, financial services account for 46 percent of GE's revenue.
(Business Wire, 2008).
Bargaining power of suppliers: In an industry with many small suppliers and few large buyers,
the bargaining power of suppliers will be weak. Conversely, when there are few large suppliers
their bargaining power will be strong. To reduce the bargaining power of suppliers, strategies are
to maintain a diverse base of suppliers or to make a few suppliers dependent on your business.
TPN Register, a joint venture of General Electric and Thomas Publishing, is one example of the
way many large companies are transforming the purchasing function. Originally an internal
project meant to improve GE’s myriad interactions with its suppliers, the on-line trading network
proved so popular that GE began offering it as a service to other companies. The system
aggregates GE purchasing requests to achieve volume discounts.
Bargaining power of buyers: In most cases, buyers shop around for best prices and thus exert
downward pressure on prices. There are a number of factors that increase the power of buyers.
Switching costs are low, which is generally the case with commodity products. Therefore the
extent to which products can be differentiated will have a direct impact on prices. This is
particularly true for consumer products where branding is a key differentiator. GE is doing every
bit to encourage B2B marketing and internet marketing so that buyers are well aware of product
functionalities and prices and make an intelligent comparison of various products and services.
Also, GE has broad range of buyers e.g. end consumers, mid-sized companies and large
corporation.

Other Stakeholders: The importance of the stakeholders influence is very important and will play
a dominant role in the strategy formulation of a company. GE-Honeywell merger brought out
many issues regarding the stakeholders and anti trust issues. The whole deal was scrutinized by
the Justice Department. There was a government power struggle with mega enterprises. A leader
has to help shape and educate the governments in the new economics so that government
regulators help the economy to grow in a socially responsible type way.
PART C:

Strengths: General Electric has diverse core businesses to such a degree that it is able to
maintain either first or second place in the markets for those businesses. GE also achieved its
goal of becoming number-one or number-two in a wide array of industries, from broadcasting to
appliances, aircraft engines to locomotives and medical gear to plastics. GE has excellent
management, proven leadership and business model and has diverse product range.

Weaknesses: GE’s planned acquisition of Honeywell International, a diversified technology and


manufacturing company, specializing in aerospace products, was rejected by the EU. The
company is underperforming in energy Segment and there are no signs of near future recovery.
Large and diverse businesses might make the company slow in reacting to the changing market
conditions. General Electric Co, is seeking a buyer for its rail services unit in a deal that could be
worth about $4 billion, part of GE's attempt to reduce exposure to low-margin businesses after
reporting disappointing first-quarter results. (Railway Age,2008).

Opportunities: GE should invest more in building R&D capabilities. In addition to GE's


traditional R&D center, in Niskayuna, New York, for instance, the company has established
enterprise-wide R&D facilities in China, Germany, and India. People in these facilities undertake
fundamental research for many GE divisions, often collaborating across countries on a single
project, such as the development of a new 92-ton turbine. There are more opportunities coming
up in countries like China, India. There are further opportunities in the media business. Merger
between NBC and Vivendi has been a good example. There is also a need for improved customer
services.

Threats: Amid uncertainty in the financial markets, GE is looking to continue to reduce its
reliance on its financial services business and plans to make further acquisitions in its
infrastructure and health care sectors. GE has always been a strategically led portfolio company
with a mix of businesses in different phases of their life cycles, which enables GE to deliver
consistent earnings. Identifying areas of vulnerability in the new business mix, places where
cycles are either fundamentally at odds will be a major task. Economy slowdown would affect
GE, since 40% of the revenue is generated overseas. Exposure to currency fluctuations would be
another threat that the company will have to deal with.

GE’s next strategic move:

GE should plan to grow through e-commerce, globalization, product services, and Six Sigma
quality efforts. After teaming its NBC division with Microsoft in order to launch the
groundbreaking television and Internet news service MSNBC, GE aggressively should expand
the list of products the company sells online—including financial services such as insurance,
mutual funds, credit cards, and home mortgages. GE should reduce exposure to low-margin
businesses and try to divest out of those businesses.
Bibliography:

Business Wire. (2008). GE Provides Updated Strategic Framework for GE Capital and Total
Company.

Bryan, L.L. and Zanini, M. (2005). Strategy in an era of global giants. Business Editors/Financial
Editors

Condom, P. (2005). Boom time for big engines. Interavia Business & Technology.

General Electric, Railway Age, June, 2008.

Harris, M.A., Schiller, Z., Russell, M. and Power,C. (1968) "Can Jack Welch Reinvent GE?"
Business Week, p. 62.

Hilmer, F.G. and Donaldson, L. (1996). The trivialization of management. McKinsey Quarterly.

Horn, J.T., Lovallo, D.P. and Viguerie, S.P. (2005). How to avoid the cognitive biases that
undermine market entry decisions. McKinsey Quarterly.

Malone, S. GE Shares Slide After Secondary Stock Offering, Reuter.

Wheelen, T. L., & Hunger, J. D. (2008). Strategic management and business policy (11th ed.). Upper
Saddle River, NJ: Prentice Hall. Ch. 4, pp. 71-103.