General Electric

Strategy Analysis

General Electrics

Introduction

General Electric (GE), the only remaining member of the original 12 stocks that were part of the Dow Jones Industrial Average in 1896, seems to have lost its touch. The company operates in several industries, such as oil and gas, renewable energy, locomotives, jet engines, medical equipment, and financial services. During former CEO Jack Welch’s command, GE’s stock increased with over 4000% and was one of the most dominant and admired companies in the world up until 2001 when he retired. Unfortunately, his successor, Jeff Immelt was unable to maintain the growth of the company, and was forced to step down earlier this year. The GE stock has nosedived and is down almost 35% so far this year. The downturn is especially alarming, since industries in which GE operates within has been booming over the same time period. It is easy to conclude that GE’s new CEO, John Flannery, has a big challenge in front of him.

Problem

The biggest reason for GE’s current struggles can be linked back to the financial crisis in 2007. GE, for example, decided to become more involved in the financial service industry just before the crisis hit. To make things worse, GE Capital, which it was called before it was sold to Goldman Sachs in 2016, went from being a conservative operation that helped GE’s customers to finance their purchases, to a highly leveraged hedge fund. As one might expect, this move ended up costing the entire company a dreadful amount of money when the entire financial sector came crashing down in 2007.

Additionally, GE made significant losses in other industries during the financial crisis, which the company has not been able to recover from. It quickly became painfully clear that GE’s sprawling conglomerate was not efficiently built. Moreover, the company was put under further pressure when it invested heavily into gas and oil equipment before the barrel oil price took a $110 hit in 2014. GE has, due to its losses, been forced to sell off several branches of its conglomerate.

Solution

1. Rediscover Your Insurgent Mission

James Allen and Chris Zook state in their article “Reigniting Growth” that a company that is experiencing a slowdown should start by rediscovering its insurgent mission. The company needs to move away from complexity and excess cost, in order to liberate resources, narrow focus, and rediscover what made the company successful in the first place (Zook & Allen, 2016). Hence, GE should focus on the core industries of the company, such as its industrial roots, health care, renewable energy, and aerospace. Scott Davis of Melius Research, for example, claims that GE’s aerospace and health care division alone are worth close to today’s stock market value of the entire company (The Economist, 2017).

GE has already started shedding non-core assets and businesses. For example, the company has gotten rid of a large part of its financial services, and earlier this fall, GE had to sell off its underperforming Industrial Solutions program to ABB for $2.6 billion. However, GE must continue to let go of assets that are earning sub-standard margins in order to enhance growth.

2. Obsess over Your Business’s Front Line

Another reason for GE’s struggle might be that the company has lost its obsession over the business’ front line. Allen and Zook argue that companies that sustain growth “live and breathe” the front line of their business. This obsession shows up either through “an elevated status for frontline employees, preoccupation with individual customers at all levels of the company, or an institutional curiosity about the details of the business” (Zook & Allen, 2016).

GE has been named as one of the best companies to work for in the US, and its customer service is known to be excellent. However, most of GE’s services are not in “high-touch” consumer businesses, and the frontline obsession is not always applicable. Nevertheless, preoccupation with individual customers’ demand