GENERAL ELECTRIC POWER BUSINESS UNIT

A current critical strategic analysis of a business unit within General Electric

Strategic Analysis; Tools and Techniques - Coursework 2

Course code; ST4538-V1

March, 2020

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 Table of contents
1. Introduction
2. Brief strategic position of the company
3. A critical evaluation of the resources and value systems of the company
Resource audit and value system
Value chain analysis for GE- Power
GE-Power SWOT analysis
4. A critical evaluation of the product/portfolio mix within the SBU
5. A critical analysis and evaluation of KEY future directions for strategic growth
6. Conclusion and Recommendations
7. References

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INTRODUCTION
The General Electric Company (GE) is an American multinational conglomerate, which is
widely regarded as one of the world’s most successful corporations founded in the 20th
century and it has different business units, such as GE Aviation, GE Digital, GE Capital, GE
Healthcare, and GE Power among others. Multi-divisional business units companies such as
GE usually manage complex business portfolios having multiple units, with each unit
offering its own products and services that differ in performance and hence with different
future prospects.

GE Power is the global leader in the research, development, installation, and improvement of
technological products that harness resources such as wind, oil, gas and water to produce
electric power. In addition, GE Power operates in more than 180 countries, equips 90% of
worldwide power transmission utilities, produces software that manage more than 40% of
world energy, and creates innovative solutions that builds affordable, reliable, accessible and
sustainable power generation technologies (https://www.ge.com/power/about)

The aim of this report is to strategically evaluate the Power Business Unity of the multi-
divisional General Electric Company (GE). Similarly, this report will cover the resource
audit, value systems, product/service portfolio (BCG matrix), and potential future strategic
growth (identification and evaluation of options) of General Electric.

Basically, this report comprises of six chapters. The first chapter is introduction followed by
the brief strategic position of General Electric in chapter two. The third chapter evaluates the
resources and value systems of the General Electric, while the fourth chapter evaluates the
product/portfolio mix within the Strategic Business Unit (SBU). The fifth chapter presents a
critical analysis and evaluation of Key future directions for strategic growth, while
conclusion and recommendations comes in the last chapter.

BRIEF STRATEGIC POSITION OF THE COMPANY

For over 130 years, General Electric has continued to innovate what is yet to be imagined and
she has maintained a rich historical legacy of originality based on the following question:
“Why predict the future when you can create it?” Ngoie(2014). General Electric is a
multidivisional American company, incorporated in New York in 1892 which has eight
business segments in various high growth industries such as power and water, oil and gas,
energy management, healthcare and transportation among others, operating in over 180

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countries, (Sandra, Andy, Cassie, Stacey & Rebecca, 2012), and this has enabled her to
transfer risk from one industry to another.

Throughout General Electric’s development, the company in the view of Bucifal (2009) has
undergone diverse changes through which her strategic capabilities has effectively created
and maximized its diversified portfolios leading to the growth of the company. Particularly
under Welch (1981- 2001), GE corporate changes were overwhelming. Welch worked on the
strategic transformation of GE, imposed higher productivity at all levels, trimmed inventories
using just-in-time technique, dismantled bureaucracies, and usher in a new era of
performance management and internal efficiency by restructuring GE through ‘integration,
diversification, mergers, strategic alliances and retrenchment’ (Bucifal, 2009; Bhatt, 2001).
Welch’s profit guidance aimed for earnings growth of 150%-200% GDP growth rate and his
management philosophy; Speed, Simplicity, Self-Confidence has been articulation in GE’s
slogan (GE 1995). In 2018, when H. Lawrence Culp, Jr, became the chairman and CEO of
GE, he announced plans to reverse the recent GE turmoil through commitment to two
priorities; 1) financial position improvement 2) strengthen GE core businesses (GE, 2019)

It was argued by Kenny (2012) that GE became globally successful because of its business
unit systems where divisional principals act as small business owners, by meeting the needs
and desires of their customers. The shared core GE competencies, such as patents, shared
knowledge and resources as well as skilled labour, is facilitated by corporate diversification.

The current GE strategy, in power division, has been to increase its global market recognition
by creating technology-based products and services. A relevant example is its 7HA.03 gas
turbine. The application of technology to product development has facilitated strong brand
recognition on international market, and this has allowed GE Power to become a leader in
innovation and improvement in its sales. Lastly, the GE’s competence has aided GE Power
with strong foundation in financial and strategic resources and better market opportunities.

EVALUATION OF THE RESOURCES AND VALUE SYSTEMS OF THE COMPANY

This chapter explores the capabilities that are used by GE Power to develop its core
competencies, and achieve competitive advantages.

1. Resource audit and value systems

Resource audit is an internal strategic analysis technique used to understand the current state
of an organization’s resources and competencies.

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a) Physical resources
Zentner (2015) argued that GE Power was able to become the most profitable segment
of GE through high investment in R&D, highly skilled, advanced innovative
technologies, and diversified workforce. Similarly, Pratap (2018) listed Global
presence, quality products, and brand image, global regional offices, individual
market webpage as GE Physical resources

b) Leadership

GE leadership competencies have created strategic values and opens new market
(Prahalad and Hamel, 1990). In particular, GE Power has been able to differentiate
itself from other companies by adopting Jeff Immelt democratic and motivational
leadership style which led to innovative culture regarded as "Imagination of work".

During Jeff Immelt leadership (2001-2017), priorities were given to investors and
third parties, which led to an improvement in customer relationship and loyalty
(Bucifal, 2009). Similarly, in other to maintain the company’s competitive
advantages, Magae (2009) argued that Immelt focused on operational efficiency and
cost competitiveness. Additionally, Grant (2010) argues that Immelt’s emotional
intelligence led to high motivation in employees; hence, high standard in quality
management was achieved.

c) Talent management

‘GE Global Learning’ demonstrated GE’s commitment to skills training and

education for her 313000 staffs (GE, 2016). This talent management approach has
provided GE Power employees with relevant knowledge and functional skills, which
has enabled a positive structural change. Similarly, CEO Welch (1981-2001)
introduced incentives such as CEO Awards, stock options Awards, and special
bonuses to recognize employees for individual contributions.

d) Technology and innovation

Investments in research and development in GE Power

2016 2015 2014
$695,000,000 $721,000,000 $641,000,000
Source: https://notesmatic.com/strategic-analysis-of-general-electric/

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 By investing millions in advanced technological development as argued by Bucifal
(2009) and Pratap (2018), the GE Power has been able to improve its market access,
lower its costs, improve product quality, and deliver improved values to customers
and more efficient solutions that will comply with today’s strict environmental
regulations.

Furthermore, due to the increasing market demands, GE Power responded by

investing in technical innovations, for example the Integrated Gasification Combined
Cycle (IGCC) technological development and renewable energy such as wind and
solar technology (https://csimarket.com/stocks/segments.php?code=GE). Lastly, by
expanding market opportunities, and focusing on customer satisfaction, GE Power has
been able to cope with the dynamism and complexities of business environment.

e) Diversified portfolios

GE Power portfolio include wind, gas, oil, and water electric power turbine, nuclear
reactor, aircraft engine derivatives, and water treatment solutions and related services
such as water purification system, pumps, and valves among others for industrial and
municipal water system

Although in 2019, gas power was separated from the GE Power portfolio to improve
visibility and accountability (GE, 2019), yet GE Power drove a tremendous change in
GE, and it yielded the highest revenue at $36 Billion (Pratap, 2018). Similarly, GE
annual report 2019 stated that gas power secured 13.6 gigawatts gas turbine, reduced
its fixed cost by 10%, and launched its new 7HA.03 turbine.

f) Customer care

GE Power has continued to invest in diversification, technical innovations and

development of more specialized products that will help GE penetrate new markets
and satisfy new and potential customers (Pratap, 2018). Furthermore, GE Power
provides her customers with solutions to meet their need through a broad portfolio,
such as, aftersales service, equipment upgrades, performance testing, and asset
management and performance optimization tools among others
(https://csimarket.com/stocks/segments.php?code=GE).

2. Value Chain analysis for GE-Power

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The success of GE Power as a whole comes from of the individual and specific activities,
within and around the organization that makes up her value chain.

Inbound logistics: GE Power with her global operations, maintains a large supply
chain that consists of suppliers from different countries, ensuring the provision of
quality raw material and sustaining relationship with her key suppliers (Pratap, 2018)

Operations: GE Power has taken various steps in her operations to produce solutions
and services across her energy value chain. For instance, in other to link energy
operations to energy trading through end-to-end software solutions, GE (2018) argued
that GE Power partners with another independent energy company, Power Cost Inc.
(PCI). Furthermore, given the investment in research and development by GE Power,
she has been able to maintain cost and quality leadership

Outbound Logistics: in order to manage its supply chain rigorously, using beat
technology available and reducing inventory load, Pratap (2018) argued that in 2016
GE outsourced it warehousing functions. Similarly, GE Power uses web-based
logistics software, ‘Oracle Transportation Management’ that supports her logistical
planning, execution and measurement (GE, 2018).

Marketing and Sales: GE Power adopts different marketing strategies such as online
and offline sales channels. Despite being the world’s leading brand, GE has continued
to market its brands by introducing different customer-focused packages as well as
promotional strategies. Similarly, GE (2018) reported that the marketing strategies of
GE has made her to be awarded the largest power service contract in history, which is
the $3billion energy contract in conjunction with Sonelgaz and 68 advanced gas path
upgrades in Algeria.

Services: In other satisfy her customers, GE Power provides her customers with
solutions and broad portfolio of aftersales services to meet their needs, such as
equipment upgrades, long term maintenance service agreement, repairs, equipment
installation, monitoring and diagnostics, asset management and performance testing,
and Dry Low Nox (DLN) tuning (https://csimarket.com/stocks/segments.php?
code=GE). In addition, GE Power has continued to invest in advanced technological
development that will provide efficient solutions, more values to their customers and
comply with contemporary environmental regulation

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 3. GE-Power SWOT Analysis
This identify the key internal factors and external developments that affects the strategic
positioning of GE Power

Strength: These are the internal resources, competences and capabilities that GE
Power has developed over time, which are exploited to sustain her competitive
advantages. Such as GE brand name, global strengths, environmental initiatives,
competitiveness, diversified portfolio, technical collaborations such as the joint
venture with Hitachi and Toshiba, strong research and development, excellent
management, and vibrant business culture among others
(https://csimarket.com/stocks/segments.php?code=GE; Pratap, 2018). Basically, GE
Power’s strengths has enabled her to grow, improve her profitability, and favourably
positioned than her competitors (Bucifal, 2009).

Weakness: These are internal strategic factors that impose difficulties and limits on
the organizational characteristics of GE Power. These deficiencies include
dependence on suppliers of raw materials, weak revenue growth, weak performance
in Asian markets, debts, Enron scandal, and threat to flexibilities among others
(Pratap, 2018). In addition, GE diversification has facilitated weak line of authority in
decision making process

Opportunities: These are the external strategic factors that present potential growth
and improvement in GE Power. These include growth in Digital technology, growth
in developing countries’ markets, potential increase in numbers of customers
connected to power grid, increased demands for reliable gas and wind turbines and
increased demands for energy equipment and services.

Threats: These are the negative factors in the environment that imposes limits and
challenges on GE Power operations. For instance, there have been an increase in
global warming and the number of competitors; the power industry has become
dynamic and complex, and there has been an increase in new production technologies.
Similarly, Hurbert (2007) reported that price fluctuation of fuel, high reliance on third
parties for raw materials, poor performance, affected GE profitability for the year

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 In addition, negative media depiction, financial crisis, US-China trade war, and tax
reforms has reduced investors’ confidence in GE Power. Chasnoff (1991) also
criticize GE Power nuclear program as detrimental to human life

CRITICAL EVALUATION OF THE PRODUCT/PORTFOLIO MIX WITHIN THE

SBU
Bolton Consulting Group (BCG) is a strategic planning tool used in analyzing different
portfolios and allocating resources in a multidivisional or multiproduct company. BCG
allows the strategic planners to select the optimal strategy for individual product or business
unit that are consistent with the overall corporate objectives.

Diagram of BCG matrix

Market High Star Question mark
Low Cash cow Dog
growth
Market share High Low

General Electric experienced slow raise in market growth and market share during the
recession and she was bedeviled by scandal in 2019, however, there has been gradual current
growth in market share especially in GE Power segment. The power division is classified as
one of the cash cow of GE in the view of GE annual report (2016), because it contribute over
20% its industrial segment revenue and over 25% of its industrial segment profit. In addition,
in the third quarter of 2019, GE Power experienced a year-over-year decline of 14%, yet it
reported revenues of $3.9billion (GE, 2019)

On the other hand, in order to become a ‘question mark’ and eventually a ‘star’ it’s advisable
that GE Power focus on product development, innovative technologies, optimal use of
resource and expansion on the global market. Similarly, in GE annual report 2019, CEO Culp
stated that GE will need to run the GE Power division better by improving the management
of three core functions 1) material and inventory management 2) product development and
delivery, 3) billings and collections

CRITICAL ANALYSIS AND EVALUATION OF KEY FUTURE DIRECTIONS FOR

STRATEGIC GROWTH

GE Power, the division of GE that engages in production of products and services related to
industrial energy production, such as gas, stream and wind turbines, nuclear reactors, solar

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technology, aircraft engine derivatives for industrial, government, and other customers
(https://csimarket.com/stocks/segments.php?code=GE) is the most profitable division of GE
(GE, 2019), and its constraint by competition, financial situation and governmental policies
among others. To overcome these challenges, GE Power can adopt Ansoff Matrix, which is,
market penetration, diversification, product development, and market development

Market Development; Businesswire (2011) reported that GE Power was able to penetrate the
Indian market and become gas turbine technology supplier for Sravanthi Energy of India
because GE Power is characterized by the efficient adoption of modern technology to her
existing products and services (GE news, 2011). Similarly, Pratap (2018) argued that since
60% of GE revenue comes from non US market and more people would be connected to the
power grid in the coming years (especially in emerging economies), therefore GE Power
could increase her global growth by investing in emerging economies.

Similarly, given GE Power experience in growth by merger and acquisition, such as her
acquisition of Dresser Inc. in 2011, and her nuclear joint venture with Hitachi and Toshiba
(https://csimarket.com/stocks/segments.php?code=GE) GE power can increase her market
share in new markets through merger and acquisition

Diversification; in order to maintain her market leadership role, there should be further
investment in new products in clean energy, disruptive technology, and renewable energy
such as gas, solar and wind energy. Furthermore, with billion of people worldwide without
access to power, and projected increase in energy demand in 20 years ahead (Pratap, 2018), it
is advisable that GE Power maintains her competitive advantage by investing in new products
and markets.

Product development; the adoption of advanced technologies, digitalization, product quality

control and research and development should be the overall focus of the strategy of GE
Power.

Market penetration; https://csimarket.com/stocks/segments.php?code=GE argues that GE

Power maintains her energy market share by being the leading provider of advanced power
generation products and services such as the Integrated Gasification Combined Cycle (IGCC)
technology and the launching of its 7HA.03 gas turbine, which has become the world’s
largest and most efficient gas turbine (GE, 2019)

CONCLUSION AND RECOMMENDATIONS

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This report presents the strategic evaluation of GE Power using resource audit, value chain,
SWOT Analysis, BCG matrix, Ansoff Matrix. GE brand name, global strengths,
environmental initiatives, competitiveness, growth in digital technology, diversified portfolio,
technical collaborations such as the joint venture with Hitachi and Toshiba, growth in energy
demands, strong research and development, excellent management, skilled staffs and vibrant
business culture (Bucifal, 2009; Pratap, 2018, https://csimarket.com/stocks/segments.php?
code=GE) were identified as key factors that enable GE Power to become the world’s energy
market leader and the most profitable division of General Electric (Pratap, 2018), producing
one third of the world’s electricity, equipping 90% of power transmission worldwide,
managing more than 40% of the world energy (https://www.ge.com/power/about). While low
stock price, tax reforms, increasing debts, increased pension obligation, uncertainty in wind
energy industry, GE scandal, trade war, geo-political changes, heavy reliance on third party
for raw materials, parts and components posed challenges to GE Power operations (Hurbert,
2007).

Ngoie (2014) argued that General Electric is driven by the philosophy of ‘may the best
person with the best idea win’. Therefore, GE Power must continue to add value through her
operations by investing in research and development, advanced technological capabilities,
skilled manpower, disruptive technologies, aftersales service, clean energy innovations, smart
leadership and other growth opportunities in other to increase and maintain her energy market
share.

In addition, Pratap (2018) stated that GE has been growing by 5%-10% globally, 60% of GE
Power revenues are from non US markets and more customers are expected to join the power
grid in the coming years, especially in developing countries. Therefore, product
diversification and investing in non US energy market would improve GE Power sales.

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