Good GE Case Study Case Study Example
General Electric (GE) is a large company that contains a diversified portfolio. The company operates in the global sector and faces a challenging business environment. It is important to analyze and understand the external environment of GE for the effective selection of techniques that will enable the company to sustain a competitive advantage. The analysis of the case study of GE will help managers learn ways in which they can make their companies sustain their competitive advantages. The case study analysis revolves around the two-decade leadership of Jack Welch.
Jack Welch was a very successful CEO of General Electric (Martinson, 2001). He adopted new methods and strategies that were aimed at transforming GE towards success. The transformation process involved the introduction of new techniques that were aimed at making the company gain a competitive edge against other firms. Welch drove the company towards globalization with the aim of enabling GE to exploit a wide range of opportunities. GE was also able to use its resources to sustain its competitive advantage. The performance of GE increased every year from the time Welch became the CEO. The predecessor of Welch had been successful and termed as a legend in performance, and people had been wary of how Welch would perform as a leader (Slater, 1996).
The company began to succeed and the profits were increased every year. The stockholders of GE were happy because they were able to receive higher dividends. Welch was able to lead the company through the hard economic times, and employed strategies that enabled the company to be stable. Welch introduced the internet to GE to gain a competitive edge. He saw the internet as an opportunity for the company to increase its revenue. Many people saw technology as a challenge, but Welch told them it was easier once they learnt it.
Analysis of GE’s External Environment
The external environment of GE posed many challenges that required the appropriate actions that would lead to success. These business environments included socio-cultural; technological; demographic; political or legal; economic; global; and physical (Bartlett and Ghoshal, 1989). The importance of each of these environments is explained below:
Socio-cultural: GE had employees that were deeply rooted to old cultures that resisted any kind of change. Welch introduced change and laid off the employees who were not willing to embrace the values that he was introducing into GE.
Technological: Technology is very dynamic and it requires the company to constantly keep on changing so as to stay competitive (Bartlett and Ghoshal, 1989). Welch introduced the internet to GE when he was about to retire, but he was faced with people who were trying to resist it. He encouraged the people in the organization by telling them that it would be much easier for GE to adapt to the electronic business compared to small companies because GE had already established solid foundations.
Demographics: The business environment of GE presents a population that has varying needs and preferences. It is important to understand the needs of the population so that you can satisfy your customers. Welch introduced business practices that were aimed towards customer satisfaction.
Political or Legal: It is necessary to learn the policies and laws of the region in which the company is conducting its operations. Complying with the laws and policies enables the company to save on unnecessary costs incurred through fines and penalties.
Economic: Companies face economic situations such as recessions, depressions, booms, and declines. It is important to know how to handle such economic situations so as to avoid the collapse of the business. Welch became CEO of GE during a recession period, and he had to apply restructuring methods so as to save the company and increase revenues. He fired many employees in his efforts to downsize, but he used a disciplined process. The number of employees reduced from 404,000 to 292,000 from the year 1980 to the year 1989 (Cosco, 1994).
Global: The global environment includes markets from other parts of the world. Companies are using globalization as a strategy towards increasing the market for their products. Globalization also offers companies the chance to acquire cheaper labor in other regions. Welch involved himself in the globalization plans of the business units in GE by insisting that they had to attain position 1 or 2 on the global market (Slater, 1996).
Physical: The physical environment involves the surrounding areas of the company (Manfred, 2009). It may also include things like location and nearness to raw materials. GE was located near a steady supply of employees.
Companies are faced with issues in either the general environment or the industry environment. The general environment is where all the companies and the market are affected by issues that occur in the world. The general environment could be affected by technology, politics, and state of the economy (Warf, 2007). A good example is the recession period that saw Welch lay off many of the employees of GE. The industry environment is where only the companies in a particular industry are affected by particular issues. A good example is when Welch introduced service businesses to GE. Welch wanted to reduce the overreliance on physical products. He saw services as a good supplement to the products that GE was selling. Diversification made it easier to succeed even if some products were facing crises.
Opportunities Exploited by GE
GE exploited many opportunities under the leadership of Welch. The company invested in high technology that was tasked with ensuring that the company would stay at the top of competition. It is possible to achieve high technology through investing in research and development (Calantone, 2000). Services were also considered as part of the tools that would drive the company towards success. To acquire quality services, the company aimed at adding experts to its team of workers as well as making acquisitions. Business acquisitions enable a company to acquire a group of skilled employees who have varying insights on ways that can make a company successful. GE made acquisitions of more than 370 businesses at a cost of over $21 billion. The acquisitions were made on major businesses so as to gain global dominance (Govindarajan and Gupta, 2008).
Welch looked for external opportunities that would enable him to invest. He pursued globalization for many years because he considered it as one of the means of sustaining productivity in the organization (Ritzer, 2011). He took advantage of the downturn in the economy of Europe, and invested $17.5 billion. The collapse of the Mexican peso presented GE with an opportunity to buy businesses. GE acquired 16 companies and thrived when the country started to recover. Globalization enabled GE to increase its revenues to $42.8 billion which was double the amount it had acquired in the previous five years. GE discovered that the revenues it generated on the global market had a growth rate that was about triple the growth rate of the domestic sales (Kanter and Dretler, 1998).
The main threats to a company are competitors. Competitors can adopt strategies that will make them superior to the other companies. Some of the strategies include cost cutting, and product differentiation. GE had to use strategies that would enable the company to sustain its competitive advantage. The strategy Welch adopted was referred to as “1 or 2: fix, sell, or close” (Cosco, 1994). The strategy involved setting up a standard that was to be followed by all the business units under GE. The business units were required to perform to a level that would enable them to attain position 1 or 2 in the industry. Failure to attain position 1 or 2 meant that the business unit would be fixed, sold, or closed. A company that is a leader in competition has better chances of surviving in the industry compared to the other competitors (Porter, 1986).
The managers of the company tried very hard to ensure that their business units were able to acquire position 1 or 2 among the competitors, but their efforts were often shortened by major competitors. The biggest competitors were the Japanese companies. The recession made it hard for the GE managers to meet these high standards. The business units that were unable to achieve position 1 or 2 faced consequences that involved fixing, selling, or closing (Cosco, 1994). Many of the business units were sold leading to a sale of over 200 businesses. The selling of such businesses enabled GE to gather capital of more than $11 billion.
GE had to constantly watch out for competitors to enable it to revise its techniques for the sustainability of its competitive advantage. The budget process of GE was changed with a view of the competitors. The previous budget process involved making comparisons between the current and past performances. The new process was changed to include the comparison of results with those of the competitors. The focus on competitors also led to the discovery of an initiative known as Best Practices. It involved the study of the competitors who had high productivity levels. The companies that were studied had different practices, but GE’s team focused on identifying the common traits on these practices. Some of these common practices included measuring performance based on customer satisfaction; focusing on the development of effective processes; emphasizing on high quality products; and treating suppliers like partners (Kanter and Dretler, 1998).
Five Competitive Forces
The five competitive forces that affect companies are discussed below with focus on their effect on GE:
Threat of new entrants: GE is faced with the threat of new entrants into the industry, but under the leadership of Welch, the company was able to diversify its portfolio and take advantage of the business units that were successful. GE was able to differentiate its products by adding the service element to them. A good example is the addition of the concept called “In Site” to the medical equipment in such a way that they could diagnose the state of the equipment in real time (Slater, 1996).
Bargaining power of suppliers: GE did not have a problem with suppliers because they were many. However, through the initiative of Best Practices, GE learnt about the importance of treating suppliers like partners (Cosco, 1994).
Bargaining power of buyers: GE was a well established company with a diversified portfolio of products. The buyers were many and did not have the power to influence the price of these products. However, GE realized the importance of the customers, and embarked on providing them with quality products.
Threat of substitute products: The threat of substitute products was presented by the competitors, but GE ensured that its products were of higher quality.
Intensity of rivalry: There were many competitors in the industry, but Welch introduced the strategy “1 or 2: fix, sell, or close” so that GE would remain with only highly competitive businesses (Kanter and Dretler, 1998). In addition, GE made acquisition of major businesses.
GE needs to know that competitors will always look for strategies that will enable them to gain a competitive edge in the industry. The competitors of GE had adopted some business practices that enabled them to perform well in the industry. Welch assigned a team of its employees to investigate the methods used by GE’s competitors that had higher productivity. They selected the common practices used by the competitors and implemented these practices under an initiative known as Best Practices (Cosco, 1994). Some of the methods that the employees at GE can use to collect information about GE’s competitors include reading newspapers; talking to vendors; visiting tradeshows; mystery shopping; touring the plants of the competitors; browsing the internet for public reports; checking the website of the competitor; following the company on social media; and checking the job ads of the competitors.
GE’s Core Competencies
GE was able to achieve a competitive advantage under the leadership of Welch. Some of the things that have enabled GE to achieve a competitive advantage include high quality products; diversification of GE’s portfolio; development of skilled employees; changing the culture in the organization to one that is focused on adding value; sharing of ideas within the company; globalization; setting targets that are considered impossible to reach; focusing on customer satisfaction; acceptance of change; and constantly pursuing strategies that will enable the organization to increase its value. Other companies should look for strategies that are aimed to increase their productivity levels (Culow, Gerstman and Barry, 2003).
GE’s Internal Organization Focus on Sustaining a Competitive Advantage
GE has used different strategies to sustain its competitive advantage. The company has focused on adding value to the entire organization. The addition of value has been targeted towards all the parts of the organization. Welch used a strategy of developing the leaders so as to enable them to acquire high skills as well as pass these skills to the employees. Welch called upon the managers of the business units to identify employees who showed the potential of becoming future leaders (Tichy and Cohen, 1997). Such employees were offered a lot of training and their skills were developed.
There was dissatisfaction from GE employees on the quality of the company’s processes and products, and this prompted Welch to implement a program known as Six Sigma. The Six Sigma program was aimed at increasing profits, growth, and employee satisfaction (Powell, 2001). Welch also used some methods that were rare among other companies. An example is the stretch method which operates on the basis that things which are perceived as impossible can be achieved (Lau, 2002).
GE managed to gain a competitive advantage because some of the strategies it used were too costly for other companies to imitate. GE had cumulated a vast pool of resources that made it possible for the company to adopt some expensive strategies. Some of the service products GE offered could not be substituted, and this forced other companies to use the service products of GE. A good example is the use of real time diagnostic service on medical equipment. The service businesses had a very fast growth rate in the global market (Warf, 2007).
Business Level Strategy
GE used an integrated business approach that incorporated cost leadership and product differentiation. GE was able to enjoy cost leadership because of its diversified portfolio. Welch recognized the power of differentiation and implemented strategies that were meant to give the products of GE a competitive edge based on high quality. The employees were also developed to become the best in the industry.
Merger and Acquisition Strategies
Welch introduced the use of acquisition strategies so that GE would benefit from the ideas brought in by the new people. GE acquired those businesses that were successful to enable the company achieve high productivity at a faster rate. Business acquisitions also enabled GE to save a lot of time as opposed to starting a new business.
GE made strategic alliances with companies in other regions so that it could increase its revenues. GE targeted companies that were in need of finances and had the potential to perform. An example of an alliance that was formed was when GE bought large shares of Tungsram (a Hungarian lighting company). The alliances were made for a temporary period, and then GE would move on to the next big opportunity.
GE used strategic leadership so that it would be able to develop new products at a fast rate. The company was able to enter new markets, and grow quickly. GE was also focused on gaining a leadership position on any market it entered. The use of leadership strategy enabled GE to set up standards in the industry. The other companies became followers and had to match up to these standards.
For GE: In my view GE should focus on long term global strategies that will enable the company to exploit all the external opportunities that are available. External opportunities such as the electronic business will enable the company to acquire large markets for its products and services. The company can also enjoy the economies of scale presented by the other companies in the industry. Sourcing materials in regions where GE operates will enable the company to reduce the cost of production. A sustainable competitive advantage can also be established if GE uses its resources and skilled employees in the provision of quality products and services. Customers are attracted to organizations that give them quality.
For all companies: In my view customer satisfaction is an important tool in sustaining a competitive advantage. Short term global strategies are beneficial because the business environment is dynamic. The constant change requires companies to keep on updating their operation procedures and business practices to remain competitive.
GE is a company that managed to achieve success under the leadership of Jack Welch. Jack Welch used strategies that enabled the company to gain a competitive advantage in the industry. One strategy that the company used was the diversification of its portfolio. Below are lessons that can be learnt from the case study of GE.
The case study shows that it is important for every business to know its competitors and to operate in a manner aimed at beating the competition.
A second lesson learnt is that a company should diversify its workforce. Diversification of the workforce is important because it brings new ideas to the company. These ideas can be used to enable the organization increase its productivity level.
A third lesson involves the empowerment of the employees. Empowered employees are able to know what is good for the organization, and to learn that they can benefit by accepting constructive change.
A fourth lesson regards the importance of globalization to the company. Globalization provides a large market for organizations, and it is an important tool in sustaining the productivity level of the organization.
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Kanter, R. M., and Dretler, T. D., 1998. Global Strategy and its Impact on Local Operations. The Academy of Management Executive, 12(4), pp. 60-68.
Porter, M., 1986. Competition in Global Industries. New York: Harvard Business School Press.
Govindarajan, V., and Gupta, A. K., 2008. The Quest for Global Dominance: Transforming Global Presence into Global competitive Advantage. Upper Saddle River: Pearson.
Bartlett, C. A., and Ghoshal, S., 1989. Managing Across Borders: The Transnational Solution. New York: Harvard Business School Press.
Cosco, J. P., 1994. General Electric Works it All Out. Journal of Business Strategy.
Tichy, M. N., and Cohen, E., 1997. The Leadership Engine: How Winning Companies Build Leaders at Every Level. New York: Harper.
Slater, R., 1996. Get Better or Get Beaten. New York: McGraw Hill.
Warf, F. P., 2007. The World Economy: Resources, Location, Trade and Development. Upper Saddle River: Pearson.
Culow, V., Gerstman, J., and Barry, C., 2003. The Resource-Based View and Sustainable Competitive Advantage. Journal of European Industrial Training, 27(5).
Calantone, P., 2000. Competitive Advantage: Creating and Sustaining Superior Performance. New Jersey: Prentice Hall.
Powell, T. C., 2001. Competitive Advantage: Logical and Philosophical Consideration. Strategic Management Journal, 22(9).
Lau, R. S., 2002. Competitive Factors and Their Relative Importance in The US Electronics and Computer Industries. International Journal of Operations and Production Management, 22 (1).
Ritzer, G., 2011. Globalization: The Essentials. New York: John Wiley and Sons.
Manfred, S., 2009. Globalization: A Very Short Introduction. New York: Oxford University Press.
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