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This study focuses on a critical strategic analysis of GE Power which one of GE’s business unit. The study will also look at the resource audit, value systems, product/service portfolio (BCG Matrix), potential future strategic growth with identifying and evaluating options.
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Hafsatu Serry (R1703D2514328) University of South Wales Module Name : Strategic Analysis; Tools and Techniques (ST4S38-V1- 16618) Lecturer: Dr. Bali Topic: Present a current critical strategic analysis of ONE Business Unit within General Electric. Date of Submission: 07 June 2020
Introduction General Electric Company (GE) is a digital worldwide industrial company that consists of several business units providing products and services that range from; oil and gas production equipment (including liquified natural gas and pipelines), power generation (includes energy production services and products), financing, aviation (deals with components, engines and integrated systems for military and commercial aircraft) , healthcare (providing healthcare technologies in patient monitoring and diagnostics, digital solutions, medical imaging and drug discovery) and industrial products amongst more such as renewable energy, transportation and energy connections and lighting (www.reuters.com/companies/GE). This study will focus on a critical strategic analysis of GE Power which one of GE’s business unit. The study will also look at the resource audit, value systems, product/service portfolio (BCG Matrix), potential future strategic growth with identifying and evaluating options. Brief Strategic Position of General Electric Company For over 125 years, General Electric has been leading in the future of industry with its subsidiaries in more than 180 countries (https://www.ge.com/about-us). Its general strategy is to be the world’s leading technology and infrastructure company with a small additional financial service section. GE focuses on investing in innovation, driving infrastructure leadership and achieve a simplified culture that will serve their global customers better (https://www.ge.com/sites/default/files/Strategy_Page_121714.pdf). To gain competitive advantage, General Electric uses the differentiation strategy in which its goal (through its several business units) is to provide special and unique products that attract target customers. GE has been able to achieve this by focusing and investing heavily in its research and development. For example, in 2005 GE launched its Ecomagination (enhancing resource productivity with reduced environmental impact) initiative as a growth strategy (Joyce, 2016). Under GE power, Ecomagination meant developing new technology reducing carbon emissions and promoting renewable energy sources that would enable them to have competitive advantage in environmentally strict countries thus making it a successful initiative as it saw its revenue grow (Business Wire, 2010). With this, GE Power offers products such as high efficiency gas turbines. Despite having a drop in revenue of 14%, GE Power is one of the four (aviation, energy, healthcare) most profitable units in GE as it responsible for the world’s 220 gigawatts power (Dierking, 2019). In an act to strengthen its company core business GE made changes to its Power division (initially spilt further into separate units; gas power, steam, nuclear and power conversion) A critical evaluation of the resources and value systems of the company
1. Resource Audit and Value Systems: in this resource audit the company’s resources will be identified and see how they develop value into the system.
e) Diversification: with its diverse portfolio (aviation, energy, power, health and transportation), General Electric has been able to enter multiple industries. thus making diversification a good growth strategy, as it can give the company security and flexibility by reducing business risk. If one of its units runs at a loss, GE can receiving revenue from another unit (without affecting its overall profit). For example in 2019, GE Power had a revenue drop, while GE Aviation saw a revenue rise (Statista Research Department, 2020). Diversification also allowed General Electrics to invest in (the generated revenue) in other areas such as the Ecomagination and Imagine breakthrough initiatives (Business Wire, 2010). GE Power Value Chain Analysis GE Power’s success come from specific and individual activities inside and out of the organization that makes up the company’s value chain. The diagram below will shows the value chain diagram: Source: https://slidemodel.com/templates/value-chain-diagrams-powerpoint/ Inbound logistics: With its global operations, GE Power has a large and complex inbound logistics operations that consists of different country suppliers. It maintains its massive supply chain by providing services and tools making suppliers more efficient. This brings in quality inputs and strengthen relationships GE Power relationships with its key suppliers. Operations: To enhance its operations to develop its services and solutions, GE Power has involved in many activities. A major example is back in 2016, GE Power teamed up with Power Costs, Inc to link energy operations with energy trading for end-to end machine to market software solutions (GE Reports, 201 6 ). This collaboration gives GE Power customers an in depth comprehensive software portfolio to address the operations, asset and industry levels of power generation and trading.
Outbound Logistics: To maintain its supply chain, GE (in 2016) made a decision to outsource warehousing to a third party (Appliance Park). Despite the backlash of 200 jobs being at risk, GE argued that due to its AP10 warehouse under performance and high cost (amongst its other warehouses), the decision to outsource would save GE more money while improving customer service (Bizjournals, 2016). Marketing and Sales: In the past, GE had been very confident in its belief that its products would self for themselves due to their confidence in their sophisticated technology. Marketing wasn’t in their corporate strategy (Comstock, Gulati, Liguori, 2010). GE Power marketing and sales is done through online channels which customer data is collected. GE Power then shares this information (customer digital fingerprint) to sellers who approaches the interested customer. This is a prime example of how GE Power delivers what customers want and when they want it thus wining more deals at a faster rate (https://www.ge.com/digital/sites/default/files/download_assets/Why-Sales-and-Marketing- Alignment.pdf). Services: GE Power provides services to its customers with its Fleet360 Service platform. This platform applies to upgrades, services, repairs, multiyear agreements and many more. The company’s relentless focus on technology and innovation has allowed GE Power to create better customer service satisfaction. GE Power SWOT Analysis: Strengths: There are many strengths of GE Power such as its heavy investment in research and development, strong global market presence, advanced technology, diverse product portfolio, wide business portfolio, smart business structure enhancing better management and a strong financial position. Even with the current trend of environmental issues, GE Power changed its strategy to become more eco-friendly with its technology and energy sources (https://www.ge.com/power/decarbonization). Weakness: Failing revenue is highlighted to be a major weakness for GE Power because of the segment was unprepared for the rapid rise of renewable energy. There was a switch from fossil fuels to wind and solar for power plants. Thus affecting GE Powers demand for orders to reduce which led to a drop in profit of 58% (Egan, 2018). Another weakness is GE’s pension plan where it decided to reduce its retirement fund by freezing pensions for 20, employees to cut its debts (Scott and Ajmer, 2019) Opportunities: these include expansion via merges and acquisition, entry into new business segments and faster expansion into the Asian and Middle East markets with power consumption likely to grow in those regions. For instance, GE signed its largest wind order with China (Largue, 2019).
A critical analysis and evaluation of key future directions for strategic growth Despite the loss in profit, GE Power is one of the most important divisions of the company. For future directions it needs to use the Ansoff Matrix (tool used for analysing and strategy plan for growth). This consists of market penetration, product development, market development and diversification. I. Market penetration: GE’s differentiation strategy has allowed it to succeed in implementing market penetration. Entering different markets has enabled GE Power to increase its customer base allowing the business to grow. For instance GE Power was able to enter the Asian markets becoming suppliers for companies like Sravanthi Energy (India) and China International Import Expo (China) was successful. However since a majority of GE’s revenue comes from outside the United States of America, GE Power could increase its global growth by researching in emerging economies. II. Product Development: GE is known for its innovation and cutting-edge technology producing unique products and services increasing the units sales. For instance to GE Power has turned to digitalization of its physical infrastructure. GE Power predicts that the results will improve on environmental, economic and social outcomes that will drive human and economic progress. In addition, digitalization also means that the division will be able to deliver outcomes such as stable power to hospitals, business and factories creating global wealth and speed progress to developing countries. III. Diversification: GE Power through new initiatives such as ecomagination, has the ability to invest into further research and development to diversify its existing portfolio for stronger market position. Conclusions and recommendations In this paper, the strategic analysis of GE Power (a division of GE) was discussed with a critical look into how the division will still create better value to their existing portfolio. Although the past few years has seen GE show signs of improvement, it will still have to continue its reduction in debts and find a way to overcome the financial crisis that COVID- 19 has caused (Hansen, 2020) The company as a whole (General Energy) has shown that through its heavy investments of research and development has been able to create new growth opportunities such as GE Health care and the integration of GE Power and GE Renewable energy that saw major action in it wind energy turbine (Premkumar, 2020). The world’s population still lacks power (which is vital for economic growth) there is still hope for GE Power to grow as there will always be a demand for power. With a new company CEO (wanting to focus on the reformation of GE Power and heavy investment in research and development), this enables
the division (for future) to strengthen its ability in identifying ongoing trends to develop new ways to grow. GE Power can take its growth an d through globalization multiply) effectively apply it to their products gaining success. In terms of GE Power (and the company as a whole) the digitalization will affect the company as new threats will arise (e.g. cybersecurity and the demand for new workforce). The company’s expansion of digital power solutions will result in its power division becoming more complex with the combination of operational software and analytics (derived from data). This will be resulted from new types of customer trends that want eco-friendly and sustainable electricity sources. It can be assumed that once the company is fully digitalized (with data being merged with the company’s products and services) its operational system will increase its value chain. But the expansion of its digital solutions for the future will require more investment, merges and acquisitions and partnerships (e.g. Exelon to pilot programmes that will produce significant customer benefits along with the environment and industry) (https://www.ge.com/digital/sites/default/files/download_assets/GE%20Power%20Digital% 0Solutions%20Brochure.pdf) Reference: Bickle, M (2019). Re-Imagining Talent Management at GE Digital [Online]. Available at: https://www.apqc.org/resource-library/resource-listing/re-imagining-talent-management-ge- digital- 0 Accessed 3 June 2020 Business Wire, ( 2010 ) GE Surpassed $5 Billion in Research & Development Investment in Ecomagination Technology [Online]. Available at: https://www.businesswire.com/news/home/20100624005092/en/GE-Surpassed- 5 - Billion- Research-Development-Investment Accessed on 2 June 2020 Bizjournal (2016). GE is planning to outsource warehouse jobs at Appliance Park [Online]. Available at: https://www.bizjournals.com/louisville/blog/morning_call/2016/04/ge-is- planning-to-outsource-warehouse-jobs-at.html Accessed on 4 June 2020 Beth Comstock, Ranjay Gulati and Stephen Liguori (2010). Harvard Business Review: Unleashing the Power of Marketing. [Online]. Available at: https://hbr.org/2010/10/unleashing-the-power-of-marketing Accessed on 4 June 2020. Dierking, D. ( 2019 ). General Electric's 4 Most Profitable Lines of Business (GE) [Online]. Available at: https://www.investopedia.com/articles/markets/022016/general-electrics- 8 - most-profitable-lines-business-ge.asp Accessed on 2 June 2020 Egan, M (2018). CNN:Power outage at GE [Online]. Available at https://money.cnn.com/2018/07/20/investing/ge-stock-earnings-power/index.html Accessed 4 June 2020
Prokesch, S (2017). Reinventing Talent Management: How GE Uses Analytics to Guide a More Digital, Far-Flung Workforce [Online]. Available at: https://scholar.harvard.edu/people_analytics/publications/task-now-just-perform-execute- and-let-market-make-its-own Accessed on 3 June 2020 Powering Engineering International, 2016. GE Power opens $73m advanced manufacturing facility. [Online] Available at: https://www.powerengineeringint.com/coal-fired/equipment- coal-fired/ge-power-opens-73m-advanced-manufacturing-facility/ Accessed on 3 June 2020 Reuters. General Electric Company GE [Online] Available at: www.reuters.com/companies/GE Accessed 1 June 2020 Scot, A & Vats, Rachit (2020). GE's coronavirus troubles likely to hit power business, not just aviation [Online]. Available at: https://www.reuters.com/article/us-health-coronavirus- ge-analysis/ges-coronavirus-troubles-likely-to-hit-power-business-not-just-aviation- idUSKCN2291CS Accessed on 5 June 2020. Statista Research Department. 2020 General Electric: revenue by segment 2019 [Online]. Available at: https://www.statista.com/statistics/245430/revenue-of-general-electric-by- segment/ Accessed 2 June 2020 Scott, A; Ajmera, A (2019). GE to freeze, pre-pay pensions to save up to $8 billion, cut debt [Online] Available at: https://www.reuters.com/article/us-ge-pensions/ge-to-freeze-pre-pay- pensions-to-save-up-to- 8 - billion-cut-debt-idUSKBN1WM138 Accessed 4 June 2020 Sustainable Brands, 2014. GE Generates $28 Billion from Sustainability R&D [Online]. Available at: https://sustainablebrands.com/read/new-metrics/ge-generates- 28 - billion-from- sustainability-r-d Accessed 2 June 2020 Tucker, E (2019). How GE Digital Changed Its Approach to Talent Management [Online]. Available at: https://www.apqc.org/blog/how-ge-digital-changed-its-approach-talent- management Accessed 3 June 2020
