Immelt: Reinventing General Electric

This slipperiness study was part of a strategy assignment lay claim holdn 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 lay out 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, laborer Welch.While jack Welch was mainly focused on slight-term objectives, his successor, Jeff Immelt was more father-to doe with about the long-term strategy. Welchs leadership was characterized by risky projects that take to technological revolutions, aggressive cost cutting schemes and accurate carrying out measurements. On the other hand, Immelt emphasized organic emersion, technological innovations and campaigning em erging opportunities. 2. To what extent has Immelts strategy been aline (a) with developments in the orthogonal business environment since 2001 and (b) GEs resources and capabilities?Jack Immelts strategy was very much reorient with the outdoor(a) business development and its key resources and capabilities. External business events that occurred during the extent 2001-9 included the destruction of the Twin Towers, Enrons collapse, the Tyco International Scandal and the 2008-9 fiscal crisis which brought to light an attachd awareness in corporate governance issues. The enthronization community believed GE hasnt been transparent with the sources of their profits and subsequently piddling GEs shares. GE was then downgraded from AAA to AA+.GEs chemical reaction was two fold with the aim of restoring investor confidence and maximizing their value. Firstly, GE change communication with investors through more detai take fiscal reporting. Secondly, GE leveraged on its diversif ied portfolio in order to beg strategic synergies that would lead to emersion in emerging economies. Some of the initiatives included using brand re mouldation to gain floor in emerging economies such as India and China. In addition, its massive investitures in R&Dresulted in new products such as Smart Grid and sodium battery.GE also exploited itsmanagerial capability to ontogeny efficiency and reduce costs. Consequently, customer satisfaction and coherency within the validation ensued. 3. How well is the strategy performing? Complexity remains a operative challenge for many mega-institutions. The larger and more complex the conjunction, the harder it is to perform super well. When Immelt took over from Jack Welch almost 8 geezerhood ago (as of April 2009), GE stock was trading at $53 a share. 8 geezerhood later, its at around $12.The federations rating was AAA, the best, awarded to just a handful of enterprises, now its AA+. Looking at GEs share price may give the im pression the high society destroyed value, but a close look at the high societys ROE shows that over the detail, GE registered an average 19% ROE, which is sort of 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 suck do some mistakes during his tenure as GEs CEO.GEs financial arm invested into too risky businesses, including consumer credit cards and real estate. barely one should note that in the lead the financial crisis, GE make sizable 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 investiture 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 occupation solvers through its infrastructure, ener gy, transportation and health care divisions in a broad, high-payoff scope. Immelt do some smart divestitures. GE got out of subprime mortgages in 2007 and exited insurance in the lead 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 military operation looks respectable and the company external and forward focus strategy may pay-off. 4. Is there a campaign for a radical change in strategyspecifically, should GE be broken up into a figure of speech 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 evident and in palpable interrelationships among some of its business units. The emergence of GE Capital has created some other prodigious business for GE. GE should therefore try to focus on its two core businesses and get rid of what is not related each to the industrial or to the financial businesses. GE Capital should be horizontally integrated to GEs industrial business. In addition, GE should have got 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 cohere nt with its culture and brand.Immelt Reinventing General ElectricThis 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 advance 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 concern 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 developments 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 solution was two fold with the aim of restoring investor confidence and maximizing their value. Firstly, GE ameliorate communication with investors through more detailed financial reporting. Secondly, GE leveraged on its diversified por tfolio in order to exploit strategic synergies that would lead to growth in emerging economies. Some of the initiatives included using brand write up 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 fundamental law 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 passing 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 scarcely a handful of enterprises, now its AA+. Looking at GEs share price may give the impression the company destr oyed value, but a close look at the companys ROE shows that over the period, GE registered an average 19% ROE, which is quite a 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 make some mistakes during his tenure as GEs CEO.GEs financial arm invested into too risky businesses, including consumer credit cards and real estate. exactly one should note that before the financial crisis, GE made appreciable 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 expend 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 worry 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 insurance 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 outcome 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(prenominal) 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 wield 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.