1.

GE was pursuing unrelated diversification, where it operated in multiple unrelated industries

such as home appliances, power turbines, jet engines, and financial services through GE Capital.
The sources of value creation with this type of diversification include spreading risk across
different industries, exploiting opportunities in different markets, and potentially achieving
economies of scale and scope. However, GE experienced a diversification discount, where its
stock price was valued at less than the sum of its individual business units, indicating that
investors may have perceived inefficiencies or lack of synergy among its diversified businesses.

2. GE lost $507 billion (more than 85 percent) of its market valuation since its peak due to several
factors. Firstly, the overreliance on GE Capital, which contributed more than half of its profits,
exposed the company to macroeconomic forces, especially during the 2008 financial crisis,
leading to significant losses. Additionally, poor strategic decisions, such as overpaying for high-
profile acquisitions like Alstom and Baker Hughes, contributed to financial difficulties.
Furthermore, the failure to adapt to changing market dynamics and overemphasis on financial
engineering rather than core industrial engineering also played a role in its decline.

3. Immelt's statement refers to the practice of combining financial services and industrial
companies, which was once considered a good idea but is now seen as a bad idea. He likely
believes this is a bad idea because it led to significant challenges for GE, including exposure to
financial market risks, difficulties in managing a diverse portfolio of businesses, and a lack of
focus on core industrial capabilities. Immelt's perspective suggests that the combination of
financial and industrial businesses may not create the intended synergies and can instead lead
to value destruction, as seen in GE's case. Whether one agrees with Immelt depends on various
factors, including the specific context of each company and industry. On agreeing with the
statement, the following are the reasons for the agreement.

a) Increased Complexity: Combining financial services with industrial operations adds

layers of complexity to a company's operations and management. Managing diverse
businesses with different risk profiles and market dynamics can be challenging and may
lead to inefficiencies.
b) Exposure to Financial Risks: Integrating financial services with industrial operations
exposes the company to additional financial risks, especially during economic
downturns. As seen in GE's case, reliance on GE Capital led to significant losses during
the 2008 financial crisis, highlighting the vulnerabilities inherent in such a business
model.
c) Lack of Strategic Focus: The integration of financial services may divert management's
attention away from the core competencies of the industrial business. Instead of
focusing on innovation, product development, and operational excellence, management
may become preoccupied with financial engineering and short-term financial metrics.
d) Value Destruction: The pursuit of unrelated diversification, particularly when combining
financial and industrial businesses, can result in a diversification discount. Investors may
penalize the company's stock price due to perceived inefficiencies and lack of synergies
among its diverse business units, ultimately leading to value destruction for
shareholders.